Putnam
Health
Sciences
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We are pleased to announce that shortly after the close of your fund's
fiscal year Margaret D. Smith was appointed to the fund's management
team. Margaret joined Putnam in 1995 from State Street Research and has
10 years of investment experience.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 18, 2000
REPORT FROM FUND MANAGEMENT
Richard B. England
David G. Carlson
Margery C. Parker
During the 12 months ended August 31, 2000, the health-care industry --
and the financial market overall -- delivered its share of ups and
downs. For Putnam Health Sciences Trust, a disciplined investment
strategy and a well-diversified portfolio helped deliver strong returns
despite the volatility. Two health-care industries in particular,
biotechnology and pharmaceuticals, took investors on a roller-coaster
ride, although their underlying business fundamentals remained strong.
Total return for 12 months ended 8/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-----------------------------------------------------------------------
38.11% 30.17% 37.08% 32.08% 37.19% 36.19% 37.40% 32.60%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* PHARMACEUTICALS BENEFIT IN WAKE OF MARKET DECLINES
During the first half of the fiscal year, pharmaceutical stocks
struggled in the shadow of a strong U.S. stock market. As new economy
sectors such as technology delivered record-breaking returns, investors
turned away from drug stocks, seeking industries that offered the
potential for more rapid growth. By the midpoint of the fund's fiscal
year, the lackluster performance of pharmaceutical stocks had brought
their valuations to near-historic lows. We took advantage of this
opportunity by adding more drug companies to the portfolio, as their
stock prices were more attractive than we had seen in quite some time.
In March, the market euphoria of 1999 and early 2000 reversed sharply
with a swift and dramatic selloff in the equity markets. The Nasdaq
Composite Index, a common measure of technology stocks, was hardest hit,
losing more than 35% of its value in the span of just 11 weeks. Not
surprisingly, in the wake of this decline, investors fled to growth
stocks they thought would offer less risk, including pharmaceuticals.
The volatility of drug stocks throughout the period illustrates an
important aspect of your fund's investment strategy. We did not make a
significant shift out of the pharmaceutical sector in response to the
short-term downturns, which allowed us to profit from their rebound in
the latter half of the period. At the same time, we continued to
diversify across a variety of health-care industries in an effort to
reduce risk.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals 51.5%
Biotechnology 26.2%
Medical services 10.2%
Medical technology 9.1%
Other 0.9%
Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.
* GLOBAL GIANTS AND GENERIC FIRMS DELIVER STRONG RETURNS
Worth noting among the fund's large-company pharmaceutical stocks was
Pfizer, Inc., the portfolio's largest holding at the close of the fiscal
year. In June, Pfizer finalized its merger with rival Warner-Lambert to
become the largest drug company in the United States and the second
largest in the world. We're optimistic about the growth prospects of the
combined company, which has retained the Pfizer name. In 1999, the two
companies had 13 drugs with sales topping $500 million each, 8 of which
exceeded $1 billion in sales. They include products such as the
cholesterol-lowering drug Lipitor, the cardiovascular drug Norvasc, and
the impotence treatment Viagra. In our opinion, Pfizer's powerful
product line, combined with cost-cutting initiatives associated with the
merger, indicate strong growth potential for this global giant.
Also in the pharmaceutical sector, several generic drug companies
contributed to your fund's returns. In the next few years, a large
number of name-brand drugs are scheduled to go off patent, paving the
way for generic companies to market less expensive versions of
blockbuster products. IVAX Corp., for example, manufactures and markets
more than 50 generic prescription drugs and 500 other drugs and
vitamins. The company also markets proprietary products, including a
cancer treatment and an inhaler for asthma sufferers. Generic products
represent about 65% of IVAX sales. Toward the end of the period, IVAX
was pursuing approval for its generic version of Bristol-Myers Squibb
Co.'s cancer blockbuster, Taxol.
* BIOTECHS OFFER STRONG GROWTH, VOLATILITY
In direct contrast to pharmaceuticals, biotechnology stocks delivered
strong performance in the first half of fiscal 2000, followed by
weakness in the latter half. The rally in biotech stocks began in mid
1999 and grew steadily through early 2000. Performance of biotechs
mirrored that of other new economy industries such as technology,
reaching breathtaking heights as a result of unprecedented investor
enthusiasm.
"We did not make a significant shift out of the pharmaceutical sector in
response to the short-term downturns, which allowed us to profit from
their rebound in the latter half of the period."
-- Richard B. England, portfolio manager
Contributing to the success of biotech stocks was the launch of several
innovative products and the publicity surrounding genomics -- the study
of the structure and function of human genes that is expected to bring
dramatic advances in drug discovery. In addition, a number of new
biotech companies are entering the market, generating still more
excitement about the future of the industry. So far in the 2000 calendar
year, nearly 50 U.S.-based biotech companies have completed initial
public offerings, raising $4.7 billion. Globally 71 offerings have
raised a total of $5.9 billion, dramatically outpacing 1999's total of
21 offerings and $915 million.
As these stocks soared to record heights in the first half of the
period, we became concerned about their heightened valuations and
trimmed your fund's biotech holdings. When the technology sector
corrected sharply in March, biotechs declined sharply as well. While
their weak performance continued for about two months, the biotech
industry began to recover in the final months of the period.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Pfizer, Inc.
Pharmaceuticals
Lilly (Eli) & Co.
Pharmaceuticals
Genentech, Inc.
Biotechnology
Pharmacia Corp.
Pharmaceuticals
Johnson & Johnson
Pharmaceuticals
Abbott Laboratories
Pharmaceuticals
PE Corp.-PE Biosystems Group
Biotechnology
Merck & Co., Inc.
Pharmaceuticals
American Home Products Corp.
Pharmaceuticals
Allergan, Inc.
Pharmaceuticals
Footnote reads:
These holdings represent 35.7% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.
One strong performer in your fund's portfolio was Millennium
Pharmaceuticals, Inc., a company known for its expertise in genetic
research. The company studies the function of human genes and develops
products based on its findings. For example, Millennium recently
announced a discovery that could be valuable in developing treatments
for cardiovascular disease. Another fund holding, Sepracor, Inc.,
develops improved versions of widely prescribed drugs, seeking to
provide safer, purer, and more effective products. 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.
* HEALTH-CARE SERVICES STOCKS STRENGTHEN
For the 2000 fiscal year, stocks of health-care services such as HMOs
and hospitals showed signs of recovery after a difficult few years.
After struggling with the Balanced Budget Act of 1997, hospitals began
to strengthen their business fundamentals. One notable holding in this
sector is HCA-The Healthcare Corp., formerly known as Columbia/HCA
Healthcare Corporation. The company, which operates 207 hospitals in the
United States, England, and Switzerland, was a strong performer,
particularly in the latter half of the period.
HMOs have been faced with a difficult regulatory environment and rising
health-care costs. In the past 12 months, however, enrollment in HMOs
has grown and many organizations are improving their profit margins. In
the fund's portfolio, Trigon Healthcare, Inc. was an example. This HMO,
the former Blue Cross/Blue Shield of Virginia, has boosted enrollment
and has put in place effective cost-control programs, which have driven
earnings growth. We believe the legal outlook for HMOs has improved as a
number of recent court decisions have reduced the potential for damaging
lawsuits.
* DIVERSIFICATION, DISCIPLINE CONTINUE INTO NEW FISCAL YEAR
As we look ahead to the new fiscal year, we remain optimistic about the
long-term prospects for the health-care sector. Pharmaceutical companies
have impressive pipelines of drugs in development and the innovation and
growth potential in the still-emerging biotechnology industry is
extremely impressive. We also remain committed to our strategy of
diversifying across many health-care industries while keeping a
strategic eye on market conditions.
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 8/31/00, 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.
TOTAL RETURN FOR PERIODS ENDED 8/31/00
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
------------------------------------------------------------------------------
1 year 38.11% 30.17% 37.08% 32.08% 37.19% 36.19% 37.40% 32.60%
------------------------------------------------------------------------------
5 years 194.04 177.12 183.24 181.23 183.47 183.47 186.85 176.83
Annual average 24.07 22.61 23.15 22.97 23.17 23.17 23.46 22.59
------------------------------------------------------------------------------
10 years 494.65 460.48 450.72 450.72 452.00 452.00 465.20 445.40
Annual average 19.52 18.81 18.60 18.60 18.63 18.63 18.91 18.49
------------------------------------------------------------------------------
Annual average
(life of fund) 18.08 17.69 17.06 17.06 17.20 17.20 17.36 17.13
------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/00
S&P 500 Consumer
Index price index
----------------------------------------------------
1 year 16.32% 3.23%
----------------------------------------------------
5 years 193.58 12.81
Annual average 24.02 2.44
----------------------------------------------------
10 years 493.39 31.16
Annual average 19.49 2.75
----------------------------------------------------
Annual average
(life of fund) 18.94 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 OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 8/31/90
Fund's class A S&P 500 Consumer price
Date shares at POP Index index
8/31/90 9,425 10,000 10,000
8/31/91 13,338 12,690 10,380
8/31/92 13,234 13,696 10,707
8/31/93 12,379 15,780 11,003
8/31/94 15,273 16,643 11,322
8/31/95 19,062 20,212 11,626
8/31/96 23,658 23,997 11,953
8/31/97 31,336 33,752 12,219
8/31/98 33,680 36,484 12,424
8/31/99 40,582 51,014 12,705
8/31/00 $56,048 $59,339 $13,116
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 and class C
shares would have been valued at $55,072 and $55,200, 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 $56,520 ($54,540
at public offering price). See first page of performance section for
performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00
Class A Class B Class C Class M
------------------------------------------------------------------------------
Distributions
(number)* -- -- -- --
------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
------------------------------------------------------------------------------
8/31/99 $59.51 $63.14 $56.96 $59.48 $58.47 $60.59
------------------------------------------------------------------------------
8/31/00 82.19 87.20 78.08 81.60 80.34 83.25
------------------------------------------------------------------------------
*The fund did not make any distributions during the period.
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (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
------------------------------------------------------------------------------
1 year 54.53% 45.66% 53.39% 48.39% 53.52% 52.52% 53.77% 48.39%
------------------------------------------------------------------------------
5 years 187.93 171.41 177.35 175.35 177.59 177.59 180.84 171.02
Annual average 23.55 22.10 22.63 22.46 22.65 22.65 22.94 22.07
------------------------------------------------------------------------------
10 years 552.92 515.50 504.51 504.51 506.12 506.12 520.75 499.15
Annual average 20.64 19.93 19.71 19.71 19.74 19.74 20.03 19.61
------------------------------------------------------------------------------
Annual average
(life of fund) 18.32 17.94 17.30 17.30 17.44 17.44 17.60 17.37
------------------------------------------------------------------------------
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.
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 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 index 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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended August 31, 2000
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,
2000, and the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States of
America. 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 on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States of America, 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, 2000 by
correspondence with the custodian, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 10, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
August 31, 2000
COMMON STOCKS (97.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Biotechnology (26.2%)
-------------------------------------------------------------------------------------------------------------------
248,600 Abgenix, Inc. (NON) $ 18,687,728
372,400 Alexion Pharmaceuticals, Inc. (NON) 39,102,000
747,000 Alkermes, Inc. (NON) 34,548,750
237,200 Allos Therapeutics, Inc. (NON) 2,787,100
1,918,000 Amgen, Inc. (NON) 145,408,375
353,500 Applied Molecular Evolution, Inc. (NON) 11,378,281
712,500 Biovail Corp. (Canada) (NON) 45,644,531
312,000 Caliper Technologies Corp. (NON) 19,383,000
199,300 Celera Genomics (NON) 21,611,594
668,500 Cephalon, Inc. (NON) 33,633,906
452,200 Connetics Corp. (NON) 8,054,813
1,048,000 COR Therapeutics, Inc. (NON) 58,950,000
67,433 Diversa Corp. (NON) 1,921,841
614,500 Enzon, Inc. (NON) 37,407,688
139,900 Genaissance Pharmaceuticals (NON) 3,121,519
1,440,900 Genentech, Inc. (NON) 274,491,450
616,900 Gilead Sciences, Inc. (NON) 66,625,200
1,034,200 Guilford Pharmaceuticals, Inc. (NON) 27,664,850
1,962,400 IDEXX Laboratories, Inc. (NON) (AFF) 51,267,700
83,600 Illumina, Inc. (NON) 3,741,100
1,621,900 Immunex Corp. (NON) 81,500,475
4,600 Intermune Pharmaceuticals, Inc. (NON) 175,088
124,100 Maxim Pharmaceuticals, Inc. (NON) 7,593,369
230,500 Medarex, Inc. (NON) 25,470,250
1,725,200 Medimmune, Inc. (NON) 145,132,450
607,200 Millennium Pharmaceuticals, Inc. (NON) 86,905,500
815,700 Miravant Medical Technologies (NON) 20,443,481
2,036,000 PE Corp.-PE Biosystems Group 200,291,500
416,000 Protein Design Labs, Inc. (NON) 31,616,000
605,300 QIAGEN NV (Netherlands) (NON) 28,903,075
755,200 QLT PhotoTherapeutics, Inc. (Canada) (NON) 55,932,000
243,400 Regeneration Technologies, Inc. (NON) 3,514,088
1,468,400 Sepracor, Inc. (NON) 161,524,000
524,200 Tanox, Inc. (NON) 24,375,300
469,200 Transkaryotic Therapies, Inc. (NON) 20,351,550
749,660 Trimeris, Inc. (NON) 51,726,540
--------------
1,850,886,092
Medical Services (10.2%)
-------------------------------------------------------------------------------------------------------------------
340,300 Allscripts, Inc. (NON) 9,932,506
1,778,850 Baxter International, Inc. 148,089,263
1,465,500 Cardinal Health, Inc. 119,896,219
1,231,500 CIGNA Corp. 119,763,375
51,700 First Health Group Corp. (NON) 1,605,931
2,135,300 HCA -- The Healthcare Corp. 73,667,850
713,700 Invitrogen Corp. (NON) 45,052,313
1,471,900 Lincare Holdings, Inc. (NON) 37,533,450
538,900 On Assignment, Inc. (NON) 16,099,638
910,900 Province Healthcare Co. (NON) 40,876,638
789,500 Trigon Healthcare, Inc. (NON) 40,757,938
724,100 UnitedHealth Group, Inc. 68,427,450
--------------
721,702,571
Medical Technology (9.1%)
-------------------------------------------------------------------------------------------------------------------
1,429,000 ArthroCare Corp. (NON) (AFF) 63,590,500
182,200 Avigen, Inc. (NON) 6,638,913
590,500 Cerus Corp. (NON) 31,333,406
730,100 Cyberonics, Inc. (NON) 12,001,019
92,600 Decode Genetics, Inc. (NON) 2,558,075
39,600 Lion Bioscience AG (Germany) (NON) 3,480,932
2,076,466 Medtronic, Inc. 106,418,883
634,200 Millipore Corp. 38,606,925
860,200 Minimed, Inc. (NON) 61,759,672
329,100 Molecular Devices Corp. (NON) 27,253,594
324,300 ResMed, Inc. (NON) 11,938,294
1,110,900 St. Jude Medical, Inc. (NON) 44,019,413
474,500 SonoSite, Inc. (NON) (AFF) 15,866,094
819,000 Stryker Corp. 36,701,438
1,635,600 Sybron International Corp. (NON) 37,209,900
588,200 Ventana Medical Systems, Inc. (NON) 16,432,837
1,615,300 Waters Corp. (NON) 128,517,306
--------------
644,327,201
Other (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,546,500 CVS Corp. 57,413,813
5,103 Givaudan (Switzerland) (NON) 1,364,940
--------------
58,778,753
Pharmaceuticals (51.5%)
-------------------------------------------------------------------------------------------------------------------
4,811,600 Abbott Laboratories 210,507,500
2,366,100 Allergan, Inc. 173,021,063
1,215,283 Alpharma, Inc., Class A 68,815,400
431,400 Alza Corp. (NON) 32,624,625
3,242,100 American Home Products Corp. 175,681,294
560,300 Andrx Corp. (NON) 48,746,100
326,700 Angiotech Pharmaceuticals, Inc. (Canada) (NON) 14,783,175
1,859,700 AstraZeneca Group PLC ADR (United Kingdom) 84,732,581
1,901,803 Aventis SA (France) 142,832,252
536,200 Barr Laboratories, Inc. (NON) 38,070,200
2,048,200 Bristol-Myers Squibb Co. 108,554,600
1,464,140 Elan Corp. PLC ADR (Ireland) (NON) 85,377,664
544,800 Forest Laboratories, Inc. (NON) 53,322,300
2,287,000 Fujisawa Pharmaceutical Co., Ltd. (Japan) 77,870,838
1,295,000 Inhale Therapeutic Systems, Inc. (NON) 65,397,500
140,600 Inspire Pharmaceuticals, Inc. (NON) 2,460,500
495,500 Ista Pharmaceuticals, Inc. (NON) 6,534,406
2,342,600 IVAX Corp. 81,112,525
2,416,210 Johnson & Johnson 222,140,307
3,846,400 Lilly (Eli) & Co. 280,787,200
285,100 Medicines Co. (NON) 7,127,500
744,700 Medicis Pharmaceutical Corp., Class A (NON) 47,986,606
2,531,100 Merck & Co., Inc. 176,860,613
808,700 NPS Pharmaceuticals, Inc. (NON) 35,784,975
188,000 Pain Therapeutics, Inc. (NON) 3,619,000
12,376,800 Pfizer, Inc. 535,296,600
4,592,386 Pharmacia Corp. 268,941,605
288,800 Priority Healthcare Corp., Class B (NON) 16,678,200
1,238,200 Sanofi-Synthelabo SA (France) 60,418,118
4,118,900 Schering-Plough Corp. 165,270,853
104,576 Serono SA, Class B (Switzerland) 122,691,622
1,006,900 Shire Pharmaceuticals Group PLC ADR (United Kingdom) (NON) 56,889,850
1,432,000 Takeda Chemical Industries (Japan) 84,756,777
497,000 United Therapeutics Corp. (NON) 42,920,609
660,000 Yamanouchi Pharmaceutical Co., Ltd. (Japan) 32,687,365
--------------
3,631,302,323
--------------
Total Common Stocks (cost $4,194,814,645) $6,906,996,940
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
374,800 Intermune Pharmaceuticals, Inc. zero %, cv. pfd.
(acquired 8/11/00, cost 14,242,400) (NON) (RES) $ 12,839,243
285 Third Wave Technologies, Ser. F, zero %, cv. pfd.
(acquired 7/18/00, cost 3,002,107) (NON) (RES) 3,091,592
--------------
Total Convertible Preferred Stocks
(cost 17,244,507) $ 15,930,835
<CAPTION>
SHORT-TERM INVESTMENTS (1.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 25,000,000 Park Avenue Receivables, effective yield of 6.52%,
September 14, 2000 $ 24,941,139
50,000,000 Venture Business Trust, effective yield of 6.68%,
September 1, 2000 49,990,722
35,000,000 Windmill Funding Corp., effective yield of 6.51%,
September 19, 2000 34,886,075
--------------
Total Short-Term Investments (cost $109,817,936) $ 109,817,936
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,321,877,088) (b) $7,032,745,711
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $7,056,278,826.
(b) The aggregate identified cost on a tax basis is $4,328,218,619,
resulting in gross unrealized appreciation and depreciation of
$2,843,841,204 and $139,314,112, respectively, or net unrealized
appreciation of $2,704,527,092.
(NON) Non-income-producing security.
(AFF) Affiliated Companies (Note 5).
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at August 31, 2000 was
$15,930,835, or 0.2% of net assets.
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, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,321,877,088) (Note 1) $7,032,745,711
-------------------------------------------------------------------------------------------
Cash 12,525,546
-------------------------------------------------------------------------------------------
Dividends and other receivables 5,447,317
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 17,459,854
-------------------------------------------------------------------------------------------
Receivable for securities sold 102,134,400
-------------------------------------------------------------------------------------------
Total assets 7,170,312,828
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 92,787,375
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,223,159
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 8,851,739
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 622,471
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 156,234
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,247
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 4,130,580
-------------------------------------------------------------------------------------------
Other accrued expenses 257,197
-------------------------------------------------------------------------------------------
Total liabilities 114,034,002
-------------------------------------------------------------------------------------------
Net assets $7,056,278,826
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,027,907,225
-------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 317,555,789
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 2,710,815,812
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $7,056,278,826
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,942,733,891 divided by 47,969,822 shares) $82.19
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $82.19)* $87.20
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($2,877,593,542 divided by 36,854,665 shares)** $78.08
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($82,116,813 divided by 1,006,278 shares)** $81.60
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($122,066,295 divided by 1,519,355 shares) $80.34
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $80.34)* $83.25
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($31,768,285 divided by 386,112 shares) $82.28
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $653,260) (including dividend
income of $200,710 from investments in affiliated issuers) (Note 5) $ 36,457,121
-------------------------------------------------------------------------------------------
Interest 9,236,936
-------------------------------------------------------------------------------------------
Total investment income 45,694,057
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 30,278,723
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 6,143,617
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 88,444
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 33,367
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 8,051,318
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 23,494,625
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 351,373
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 747,349
-------------------------------------------------------------------------------------------
Other 2,566,250
-------------------------------------------------------------------------------------------
Total expenses 71,755,066
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (860,531)
-------------------------------------------------------------------------------------------
Net expenses 70,894,535
-------------------------------------------------------------------------------------------
Net investment loss (25,200,478)
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1, 3 and 5)
(including realized gain of $59,808,490 on sales of
investments in affiliated issuers) 382,725,011
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 134,151
-------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 2,617
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and
liabilities in foreign currencies during the year (52,203)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 1,500,985,808
-------------------------------------------------------------------------------------------
Net gain on investments 1,883,795,384
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,858,594,906
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended August 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (25,200,478) $ (20,427,022)
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 382,861,779 (55,780,200)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 1,500,933,605 780,662,816
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,858,594,906 704,455,594
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (209,438,189)
--------------------------------------------------------------------------------------------------
Class B -- (143,039,807)
--------------------------------------------------------------------------------------------------
Class M -- (6,108,803)
--------------------------------------------------------------------------------------------------
From return of capital
Class A -- (1,256,551)
--------------------------------------------------------------------------------------------------
Class B -- (858,186)
--------------------------------------------------------------------------------------------------
Class M -- (36,651)
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 75,325,424 1,193,092,454
--------------------------------------------------------------------------------------------------
Total increase in net assets 1,933,920,330 1,536,809,861
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 5,122,358,496 3,585,548,635
--------------------------------------------------------------------------------------------------
End of year $7,056,278,826 $5,122,358,496
--------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $59.51 $53.50 $55.82 $43.67 $36.21
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income (loss) (.08)(c) (.07)(c) (.01)(c) .13(c) .19
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 22.76 11.09 4.13 13.71 8.46
------------------------------------------------------------------------------------------------
Total from
investment operations 22.68 11.02 4.12 13.84 8.65
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income -- -- (.02) (.09) (.27)
------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (4.98) (6.42) (1.60) (.92)
------------------------------------------------------------------------------------------------
From return of
capital -- (.03) -- -- --
------------------------------------------------------------------------------------------------
Total distributions -- (5.01) (6.44) (1.69) (1.19)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $82.19 $59.51 $53.50 $55.82 $43.67
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 38.11 20.50 7.48 32.46 24.12
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,942,734 $2,883,732 $2,236,469 $1,681,187 $1,166,794
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93 .95 1.00 1.08 1.10
------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.12) (.11) (.02) .26 .43
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 67.34 79.12 40.45 44.54 10.55
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements and
brokerage service arrangements (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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $56.96 $51.74 $54.54 $42.94 $35.72
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment loss (c) (.56) (.50) (.44) (.24) (.13)
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 21.68 10.73 4.06 13.44 8.35
------------------------------------------------------------------------------------------------
Total from
investment operations 21.12 10.23 3.62 13.20 8.22
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income -- -- -- -- (.08)
------------------------------------------------------------------------------------------------
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) (1.00)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $78.08 $56.96 $51.74 $54.54 $42.94
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 37.08 19.61 6.67 31.46 23.19
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,877,594 $2,141,640 $1,292,418 $567,928 $273,243
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.68 1.70 1.75 1.83 1.85
------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.87) (.86) (.76) (.49) (.31)
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 67.34 79.12 40.45 44.54 10.55
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements and
brokerage service arrangements (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>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
---------------------------------------------------------------------
For the
Year period
Per-share ended July 26, 1999+
operating performance August 31 to August 31
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
Net asset value,
beginning of period $59.48 $59.32
---------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------
Net investment loss (c) (.64) (.04)
---------------------------------------------------------------------
Net realized and unrealized
gain on investments 22.76 .20
---------------------------------------------------------------------
Total from
investment operations 22.12 .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 $81.60 $59.48
---------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------
Total return at
net asset value (%)(a) 37.19 .27*
---------------------------------------------------------------------
Net assets, end of period
(in thousands) $82,117 $3,770
---------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.68 .17*
---------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.89) (.09)*
---------------------------------------------------------------------
Portfolio turnover (%) 67.34 79.12
---------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements and
brokerage service arrangements (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>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $58.47 $52.87 $55.47 $43.54 $36.17
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment loss (c) (.41) (.37) (.31) (.12) (.02)
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 22.28 10.98 4.13 13.65 8.46
------------------------------------------------------------------------------------------------
Total from
investment operations 21.87 10.61 3.82 13.53 8.44
------------------------------------------------------------------------------------------------
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 $80.34 $58.47 $52.87 $55.47 $43.54
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 37.40 19.93 6.94 31.79 23.51
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $122,066 $93,216 $56,662 $23,675 $9,732
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.43 1.45 1.50 1.58 1.61
------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.62) (.61) (.51) (.24) (.05)
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 67.34 79.12 40.45 44.54 10.55
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements and
brokerage service arrangements (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>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
--------------------------------------------------
For the
period
Per-share April 4, 2000+
operating performance to August 31
--------------------------------------------------
2000
--------------------------------------------------
Net asset value,
beginning of period $70.52
--------------------------------------------------
Investment operations
--------------------------------------------------
Net investment income (c) .03
--------------------------------------------------
Net realized and unrealized
gain on investments 11.73
--------------------------------------------------
Total from
investment operations 11.76
--------------------------------------------------
Less distributions:
--------------------------------------------------
From net
investment income --
--------------------------------------------------
From net realized gain
on investments --
--------------------------------------------------
From return of
capital --
--------------------------------------------------
Total distributions --
--------------------------------------------------
Net asset value,
end of period $82.28
--------------------------------------------------
Ratios and supplemental data
--------------------------------------------------
Total return at
net asset value (%)(a) 16.68*
--------------------------------------------------
Net assets, end of period
(in thousands) $31,768
--------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .28*
--------------------------------------------------
Ratio of net investment income
to average net assets (%) .04*
--------------------------------------------------
Portfolio turnover (%) 67.34
--------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements and
brokerage service arrangements (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.
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
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, class M and class Y shares.
The fund began offering class Y shares on April 4, 2000. 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 shares but lower than class
B and class C shares. Class Y shares, which are sold at net asset value,
are generally subject to the same expenses as class A, class B, class C
and class M shares, but do not bear a distribution fee. Class Y shares
are sold to defined contribution plans that invest at least $150 million
in a combination of Putnam funds and other accounts managed by
affiliates of Putnam Investment Management, Inc. ("Putnam Management"),
the fund's manager, a wholly-owned subsidiary of Putnam Investments,
Inc.
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 that 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. 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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns. The potential risk to the fund is that the change in value of
futures and options contracts may not correspond to the change in value
of the hedged instruments. In addition, losses may arise from changes in
the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty to the
contract is unable to perform. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed. Realized gains and losses on purchased options are
included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
G) 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, 2000, the fund had no borrowings against the line of credit.
H) 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.
I) 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, 2000, the fund reclassified
$25,200,478 to decrease accumulated net investment loss and $18,674,318
to decrease paid-in-capital, with a decrease to accumulated net realized
gains of $6,526,160. 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, 2000, fund expenses were reduced by
$860,531 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 $3,351
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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 at 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $1,857,868 and $66,050
from the sale of class A and class M shares, respectively, and received
$5,794,696 and $11,650 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, 2000, Putnam Retail Management,
Inc., acting as underwriter received $34,673 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $3,761,724,447 and $3,796,144,702, respectively. There were
no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended August 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 12,581,188 $874,603,879
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
12,581,188 874,603,879
Shares
repurchased (13,065,795) (873,981,620)
---------------------------------------------------------------------------
Net increase/
(decrease) (484,607) $ 622,259
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 9,910,307 $651,834,493
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
9,910,307 651,834,493
Shares
repurchased (10,654,967) (667,703,577)
---------------------------------------------------------------------------
Net decrease (744,660) $(15,869,084)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 1,009,354 $70,261,698
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
1,009,354 70,261,698
Shares
repurchased (66,467) (4,766,432)
---------------------------------------------------------------------------
Net increase 942,887 $65,495,266
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 505,805 $34,489,099
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
505,805 34,489,099
Shares
repurchased (580,698) (37,379,303)
---------------------------------------------------------------------------
Net decrease (74,893) $(2,890,204)
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
For the period April 4, 2000
(commencement of operations) to
August 31, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 431,899 $31,430,504
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
431,899 31,430,504
Shares
repurchased (45,787) (3,463,317)
---------------------------------------------------------------------------
Net increase 386,112 $27,967,187
---------------------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owned at
least 5% of the voting securities were as follows:
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
------------------------------------------------------------------------------------------------------------------
Name of affiliate
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alpharma, Inc., Class A $ 14,115,319 $ 1,008,514 $200,710 $ --
ArthroCare Corp. 43,028,520 -- -- 63,590,500
Guilford Pharmaceuticals, Inc. 12,597,904 10,337,858 -- --
IDEXX Laboratories, Inc. 12,752,275 -- -- 51,267,700
Inhale Therapeutic Systems, Inc. 6,692,361 12,595,120 -- --
Molecular Devices Corp. 1,100,042 5,459,032 -- --
Province Healthcare Co. 14,629,352 10,316,521 -- --
SonoSite, Inc. 12,001,842 -- -- 15,866,094
Trimeris, Inc. 3,098,196 4,928,814 -- --
Ventana Medical Systems, Inc. 9,783,305 10,230,839 -- --
Wesley Jessen Visioncare 715,212 24,344,956 -- --
------------------------------------------------------------------------------------------------------------------
Totals $130,514,328 $79,221,654 $200,710 $130,724,294
</TABLE>
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $323,897,320 as capital gain, for its taxable
year ended August 31, 2000.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity Fund *
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Growth and Income Fund II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
WELCOME TO WWW.PUTNAMINVESTMENTS.COM
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminvestments.com
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
Stephen Oristaglio
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
Richard G. Leibovitch
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 and
Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN008 64666 021/335/2AB 10/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
----------------------------------------------------------------------------
Putnam Health Sciences Trust
Supplement to Annual Report dated 8/31/00
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, C, and M shares, which are discussed more extensively in the annual
report.
ANNUAL RESULTS AT A GLANCE
----------------------------------------------------------------------------
Total return for periods ended 8/31/00
NAV
1 year 39.29%
5 years 212.00
Annual average 25.55
10 years 572.11
Annual average 20.99
Life of fund (since class A inception, 5/28/82) 2508.76
Annual average 19.56
Share value: NAV
4/4/00 (Y share inception) $70.52
8/31/00 $82.28
----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
-- -- -- --
----------------------------------------------------------------------------
Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for class
Y shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect the initial
sales charge currently applicable to class A shares. These returns have not
been adjusted to reflect differences in operating expenses which, for class
Y shares, typically are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Investment return and principal value will fluctuate so your
shares, when redeemed, may be worth more or less than their original cost.
See full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
