-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MwUL2YGuAaGUwZIi7y2C3Ssdo76igzRz6RaB277Vd8Cz1orC1SLJTbcqZBq8X5oe Rdyxdd2QrE/Kx3Fs9OVqjQ== 0000928816-02-000825.txt : 20021015 0000928816-02-000825.hdr.sgml : 20021014 20021015092323 ACCESSION NUMBER: 0000928816-02-000825 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020831 FILED AS OF DATE: 20021015 EFFECTIVENESS DATE: 20021015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM HEALTH SCIENCES TRUST CENTRAL INDEX KEY: 0000357295 IRS NUMBER: 046471950 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03386 FILM NUMBER: 02788284 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002251581 N-30D 1 hst.txt PUTNAM HEALTH SCIENCES TRUST Putnam Health Sciences Trust ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 8-31-02 [GRAPHIC OMITTED: APPLE] [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Fellow Shareholder: During the fiscal year just ended, Putnam Health Sciences Trust marked its 20th year of operations. Over the span of those two decades, investments in the health-care industry have experienced some dramatic swings, and the fund's fortunes have certainly reflected them -- on the one hand, prompting appeals to shareholders for patience as the industry plodded through trying times and on the other hand, cautioning shareholders against undue exuberance when the industry's fortunes soared. Over the long term, however, the fund has established a fine record. While past performance can never be taken as an assurance of future results, that record is worth noting in light of the somewhat tumultuous market environment in which the fund operated throughout the fiscal year just ended. For the 12 months ended August 31, 2002, the fund delivered negative results, in large part reflecting a difficult market environment. On the following pages, the fund's management team provides a full discussion of the reasons behind this performance and then presents its view of prospects for the months ahead. 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 16, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam Health Sciences Team The 12-month period ended August 31, 2002, was a difficult one for global financial markets and an unusually challenging time for the health-care sector. During Putnam Health Sciences Trust's fiscal year, the global economic slowdown continued to cast a pall on the markets, leading to further stock-price declines, slumping investor confidence, and widespread weakness, particularly in more aggressive growth sectors. Historically, stocks in the health-care sector tend to thrive in this type of environment. They are generally less sensitive to economic downturns and are often favored by investors who are seeking a safe haven from more risky, high-growth stocks. However, many health-care companies faced a number of industry-specific challenges throughout the period that led to declines in the sector. For this difficult fiscal year, your fund delivered a negative total return, which lagged that of its benchmark, the S&P 500 Index. However, it is important to note that this index contains stocks across a wide array of sectors, many of which are not health-care stocks. When compared with its peers in the Lipper Health/ Biotechnology category, however, your fund performed well, delivering a better return than the category average. For complete performance information, please see page 6. Total return for 12 months ended 8/31/02 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP - ----------------------------------------------------------------------- -19.55% -24.17% -20.14% -23.98% -20.14% -20.91% -19.94% -22.74% - ----------------------------------------------------------------------- Past performance does not indicate future results. Performance information for longer periods and explanation of performance calculation methods begin on page 6. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Pharmaceuticals 62.4% Health-care services 16.7% Medical technology 10.8% Biotechnology 7.6% Retail 0.1% Footnote reads: *Based on net assets as of 8/31/02. Holdings will vary over time. * DRUG COMPANIES STRUGGLED IN DIFFICULT ENVIRONMENT Pharmaceutical companies, which represent the greatest portion of your fund's assets, encountered many difficulties during the fiscal period. Most drug stocks declined as investors reacted to dampened sales prospects, a more stringent Food and Drug Administration (FDA), some highly publicized problems with clinical drug trials, manufacturing issues, and concerns about earnings declines for companies whose products are facing patent expirations. Fund Profile Putnam Health Sciences Trust seeks capital appreciation by investing mainly in stocks of companies in the health-sciences industry. The fund targets companies of all sizes in industries such as pharmaceuticals, health-care services, and biotechnology. The fund may be appropriate for investors seeking long-term growth of capital. Over the past few years, the FDA has become more rigorous in its oversight of drug trials, in many cases requiring companies to conduct additional, more detailed testing. In addition, the FDA recently announced a plan to improve its monitoring of how drugs are made -- increasing its scrutiny of drug manufacturing procedures. The announcement came on the heels of investigations of manufacturing problems at some high-profile drug companies, which delayed the approval of important new products. Many investors were also concerned about the increasing number of medicines whose patent protection will soon expire. When patents expire for renowned drugs, the companies that produce them often experience sales declines as consumers turn to less expensive, generic versions of the drug. One recent example is Eli Lilly, maker of the antidepressant Prozac, whose earnings declined sharply when the drug's patent expired in 2001. * LONG-TERM OUTLOOK APPEARS POSITIVE FOR DRUG STOCKS Despite the challenges facing drug companies, one of the best-performing stocks in your fund's portfolio during the period was Pharmacia Corporation. The company has four popular drugs that together generated more than $500 million in sales in 2001, and their patents are not due to expire in the near future. Pharmacia also has a promising hypertension drug that is currently under review by the FDA. In addition, Pharmacia benefited greatly from the announcement that it would be acquired by pharmaceutical giant Pfizer, Inc. While this holding, and others discussed in this report, was viewed favorably at the end of the fiscal period, all are subject to review in accordance with the fund's investment strategy and may vary in the future. "Pharmaceutical giants were premier growth stocks throughout most of the 1990s. And despite current problems, the group stands to profit mightily from long-term increases in the demand for health care as the population ages." - -- Money magazine, June 11, 2002 It is important to remember that your fund seeks investment opportunities in an array of industries within the health-care sector. Because pharmaceutical stocks represent the greatest portion of the health-care universe, they will typically represent the greatest portion of the fund's assets. If we are less optimistic about pharmaceuticals at any given time, we will maintain an underweight position relative to our benchmarks, but pharmaceuticals are still likely to represent a significant portion of the overall portfolio. Despite current problems, we believe pharmaceutical stocks will benefit over the long term as the population ages and drug consumption increases. * SERVICES STOCKS PERFORMED WELL, WHILE BIOTECH REMAINED WEAK Continuing a trend that began in 2001, health-care services stocks delivered strong performance. In an otherwise bleak earnings environment, HMOs and hospitals have demonstrated strong profitability growth as they streamline their businesses and cut costs. In addition, they have benefited from declines in Medicare reimbursement cuts and increases in patient volumes. Two fund holdings that contributed positively to performance were Cardinal Health, Inc. and Anthem, Inc. In July, Anthem merged with Trigon Healthcare, Inc. The merged company now serves approximately 8 million members in 8 states. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Johnson & Johnson Pharmaceuticals Novartis AG (Switzerland) Pharmaceuticals Pfizer, Inc. Pharmaceuticals GlaxoSmithKline PLC ADR (United Kingdom) Pharmaceuticals Pharmacia Corp. Pharmaceuticals Merck & Company, Inc. Pharmaceuticals Amgen, Inc. Biotechnology Medtronic, Inc. Medical technology Wyeth Pharmaceuticals Abbott Laboratories Pharmaceuticals Footnote reads: These holdings represent 51.6% of the fund's net assets as of 8/31/02. Portfolio holdings will vary over time. Biotechnology stocks were among the weakest performers in the health-care industry during the period. As a more risky, aggressive-growth sector, biotechnology was pressured by market volatility and investors who shunned all but the most defensive investments. Like pharmaceutical companies, biotechnology companies, which develop innovative treatments for diseases, have been plagued by the slower and stricter FDA approval process. * LONG-TERM OUTLOOK STILL APPEARS POSITIVE While it is impossible to predict the future for any sector of the market, we believe health care offers many promising opportunities for patient investors with a long-term focus. Regardless of what is happening in the global financial markets, people will continue to get sick and will need health care. And while we've witnessed the development of many impressive new drugs and health-care technology over the last decade, new solutions will always be needed. Many of today's drugs and treatments take care of symptoms, but don't prevent or cure diseases. We believe the demand for health-care products and services will only increase as the population ages. And after two difficult years for the sector, we believe the stocks of many fundamentally strong health-care companies are trading at attractive prices. As always, we remain committed to your fund's strategy of diversifying across a range of 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 8/31/02, there is no guarantee the fund will continue to hold these securities in the future. The fund concentrates its investments in one region or in one sector and involves more risk than a fund that invests more broadly. The fund is managed by the Putnam Health Sciences Team. The members of the team are Kelly Morgan (Portfolio Leader), Nathan Eigerman (Portfolio Member), Cole Lannum (Portfolio Member), Terrence Norchi (Portfolio Member), and William Landes. PUTNAM'S POLICY ON CONFIDENTIALITY In order to conduct business with our shareholders, we must obtain certain personal information such as account holders' addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you've listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don't hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. TOTAL RETURN FOR PERIODS ENDED 8/31/02 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 -19.55% -24.17% -20.14% -23.98% -20.14% -20.91% -19.94% -22.74% - ------------------------------------------------------------------------------ 5 years 21.31 14.32 16.84 15.10 16.97 16.97 18.34 14.19 Annual average 3.94 2.71 3.16 2.85 3.18 3.18 3.42 2.69 - ------------------------------------------------------------------------------ 10 years 187.24 170.70 166.17 166.17 166.76 166.76 173.25 163.70 Annual average 11.13 10.47 10.28 10.28 10.31 10.31 10.57 10.18 - ------------------------------------------------------------------------------ Annual average (life of fund) 13.95 13.62 12.98 12.98 13.10 13.10 13.27 13.07 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/02 S&P 500 Consumer Index price index - ------------------------------------------------------------------------------ 1 year -17.99% 1.69% - ------------------------------------------------------------------------------ 5 years 9.01 12.25 Annual average 1.74 2.34 - ------------------------------------------------------------------------------ 10 years 168.64 28.11 Annual average 10.39 2.51 - ------------------------------------------------------------------------------ Annual average (life of fund) 14.19 3.18 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, and M shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and higher operating expenses for such shares. LIPPER INFORMATION: The average annualized return for the 180 funds in the Lipper Health/Biotechnology category over the 12 months ended 8/31/02 was -26.11%. Over the 5- and 10-year periods ended 8/31/02, annualized returns for the category were 6.82% and 12.22%, respectively. [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 8/31/92 Fund's class A S&P 500 Consumer price Date shares at POP Index index 8/31/92 9,425 10,000 10,000 8/31/93 8,816 11,521 10,277 8/31/94 10,877 12,152 10,575 8/31/95 13,575 14,758 10,859 8/31/96 16,848 17,522 11,164 8/31/97 22,316 24,644 11,412 8/31/98 23,985 26,639 11,604 8/31/99 28,900 37,247 11,867 8/31/00 39,914 43,326 12,257 8/31/01 33,649 32,759 12,598 8/31/02 $27,070 $26,864 $12,811 Footnote reads: Past performance does not indicate 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 $26,617 and $26,676, 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 $27,325 ($26,370 at public offering price). See first page of performance section for performance calculation method. PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/02 Class A Class B Class C Class M - ------------------------------------------------------------------------------ Distributions (number) 1 1 1 1 - ------------------------------------------------------------------------------ Income -- -- -- -- - ------------------------------------------------------------------------------ Capital gains Long-term $2.439 $2.439 $2.439 $2.439 - ------------------------------------------------------------------------------ Short-term -- -- -- -- - ------------------------------------------------------------------------------ Total $2.439 $2.439 $2.439 $2.439 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP - ------------------------------------------------------------------------------ 8/31/01 $65.80 $69.81 $61.85 $64.81 $63.91 $66.23 - ------------------------------------------------------------------------------ 8/31/02 50.99 54.10 47.46 49.82 49.23 51.02 - ------------------------------------------------------------------------------ TOTAL RETURN FOR PERIODS ENDED 9/30/02 (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 -21.43% -25.95% -22.02% -25.77% -22.02% -22.77% -21.83% -24.56% - ------------------------------------------------------------------------------ 5 years 7.74 1.54 3.78 2.23 3.90 3.90 5.09 1.40 Annual average 1.50 0.31 0.74 0.44 0.77 0.77 1.00 0.28 - ------------------------------------------------------------------------------ 10 years 180.99 164.82 160.32 160.32 160.92 160.92 167.24 157.89 Annual average 10.88 10.23 10.04 10.04 10.07 10.07 10.33 9.94 - ------------------------------------------------------------------------------ Annual average (life of fund) 13.65 13.31 12.67 12.67 12.80 12.80 12.96 12.77 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be more or less than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. 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. Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. The NAV is calculated by dividing the net value of all the fund's assets by the number of outstanding shares. 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. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without 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 (except on certain redemptions of shares bought without an initial sales charge). COMPARATIVE BENCHMARKS Standard & Poor's 500 Index is an unmanaged index of common stock performance. The index assumes reinvestment of all distributions and does not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lipper Inc. is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, 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. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal year. 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 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, 2002, 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 opinion 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, 2002 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts October 8, 2002
THE FUND'S PORTFOLIO August 31, 2002 COMMON STOCKS (97.6%) (a) NUMBER OF SHARES VALUE Biotechnology (7.6%) - ------------------------------------------------------------------------------------------------------------------- 3,517,905 Amgen, Inc. (NON) $158,411,262 117,700 Biogen, Inc. (NON) 3,942,950 369,900 Chiron Corp. (NON) 14,015,511 826,600 Connetics Corp. (NON) 8,431,320 472,612 Genzyme Corp. (NON) 9,773,616 1,013,200 Gilead Sciences, Inc. (NON) 32,503,456 130,674 IDEC Pharmaceuticals Corp. (NON) 5,250,481 385,694 IDEXX Laboratories, Inc. (NON) 11,219,838 303,000 ILEX Oncology, Inc. (NON) 1,799,820 374,800 Intermune Pharmaceuticals, Inc. (NON) 9,321,276 67,700 Invitrogen Corp. (NON) 2,410,120 1,614,784 MedImmune, Inc. (NON) 41,451,505 13,700 Nexia Biotechnologies, Inc. (Canada) (NON) 13,614 296,241 Nexia Biotechnologies, Inc. 144A (Canada) (NON) 294,380 400,334 QIAGEN NV (Netherlands) (NON) 2,389,994 119,300 Scios, Inc. (NON) 2,870,358 3,938 Serono SA Class B (Switzerland) 2,247,136 327,500 SICOR, Inc. (NON) 5,321,875 ------------- 311,668,512 Health Care Services (16.7%) - ------------------------------------------------------------------------------------------------------------------- 545,200 AdvancePCS (NON) 10,555,072 242,100 AmerisourceBergen Corp. 17,554,671 547,512 Anthem, Inc. (NON) 34,553,482 1,762,460 Cardinal Health, Inc. 114,277,906 998,465 Caremark Rx, Inc. (NON) 16,175,133 38,400 Centene Corp. (NON) 1,021,440 375,698 CIGNA Corp. 31,979,414 697,100 Community Health Systems, Inc. (NON) 16,660,690 379,600 Conventry Health Care, Inc. (NON) 11,851,112 206,000 Covance, Inc. (NON) 4,021,120 77,900 Cross Country, Inc. (NON) 1,114,749 96,000 DaVita, Inc. (NON) 2,125,440 40,500 Dianon Systems, Inc. (NON) 1,620,405 563,700 Express Scripts, Inc. Class A (NON) 27,057,600 1,872,426 HCA, Inc. 87,161,430 1,497,040 Healthsouth Corp. (NON) 8,069,046 161,600 Laboratory Corporation of America Holdings (NON) 5,082,320 359,500 LifePoint Hospitals, Inc. (NON) 10,871,280 567,700 McKesson Corp. 19,040,658 389,800 Mid Atlantic Medical Services, Inc. (NON) 14,075,678 350,600 Omnicare, Inc. 7,807,862 403,290 Oxford Health Plans, Inc. (NON) 16,353,410 62,900 Patterson Dental Co. (NON) 3,000,330 74,000 Pediatrix Medical Group, Inc. (NON) 2,485,660 193,800 Pharmaceutical Product Development, Inc. (NON) 4,317,864 443,590 Quest Diagnostics, Inc. (NON) 24,863,220 75,900 Renal Care Group, Inc. (NON) 2,491,797 875,400 Steris Corp. (NON) 19,976,628 391,938 Triad Hospitals, Inc. (NON) 14,309,656 1,027,532 UnitedHealth Group, Inc. 90,782,452 137,600 Universal Health Services, Inc. Class B (NON) 6,291,072 734,970 Wellpoint Health Networks, Inc. (NON) 54,659,719 ------------- 682,208,316 Medical Technology (10.8%) - ------------------------------------------------------------------------------------------------------------------- 350,554 Alcon, Inc. (Switzerland) (NON) 12,959,981 251,650 Amersham PLC (United Kingdom) 2,214,845 1,347,000 Baxter International, Inc. 48,882,630 152,100 Biomet, Inc. 4,085,406 513,500 Boston Scientific Corp. (NON) 14,968,525 264,100 C.R. Bard, Inc. 14,456,834 346,303 Charles River Laboratories International, Inc. (NON) 13,696,284 324,422 Cytyc Corp. (NON) 3,192,312 374,300 DENTSPLY International, Inc. 14,848,481 360,170 Diagnostic Products Corp. 14,442,817 518,900 Edwards Lifesciences Corp. (NON) 12,775,318 1,182,540 Guidant Corp. (NON) 43,517,472 3,571,648 Medtronic, Inc. 147,080,474 38,974 Nobel Biocare Holding AG (Switzerland) (NON) 1,881,478 536,880 Respironics, Inc. (NON) 18,194,863 720,285 Serologicals Corp. (NON) 8,621,811 529,030 St. Jude Medical, Inc. (NON) 19,685,206 356,400 Stryker Corp. 20,090,268 357,570 Varian Medical Systems, Inc. (NON) 15,207,452 274,360 Zimmer Holdings, Inc. (NON) 10,123,884 ------------- 440,926,341 Pharmaceuticals (62.4%) - ------------------------------------------------------------------------------------------------------------------- 3,264,367 Abbott Laboratories 130,672,611 602,161 Allergan, Inc. 35,358,894 452,761 Andrx Group (NON) 11,151,503 273,320 AstraZeneca PLC (United Kingdom) 7,702,894 1,674,542 AstraZeneca PLC ADR (United Kingdom) 48,812,899 804,571 Aventis SA (France) 47,372,356 63,411 Barr Laboratories, Inc. (NON) 4,483,792 2,194,956 Bristol-Myers Squibb Co. (SEG) 54,764,152 123,700 Cephalon, Inc. (NON) 5,380,950 869,100 Daiichi Pharmaceutical Company, Ltd. (Japan) 14,039,026 638,500 Eisai Co., Ltd. (Japan) 16,588,612 190,430 Forest Laboratories, Inc. (NON) 13,901,390 6,190,234 GlaxoSmithKline PLC ADR (United Kingdom) 234,547,966 348,900 IVAX Corp. (NON) 4,779,930 6,090,872 Johnson & Johnson 330,795,250 1,246,490 King Pharmaceuticals, Inc. (NON) 26,562,702 1,898,664 Lilly (Eli) & Co. 110,217,445 4,203,872 Merck & Company, Inc. 212,379,613 476,300 Mylan Laboratories, Inc. 15,551,195 7,014,936 Novartis AG (Switzerland) 284,787,416 280,400 Novo-Nordisk A/S (Denmark) 8,501,123 135,000 Ono Pharmaceutical Company, Ltd. (Japan) 4,964,994 7,820,572 Pfizer, Inc. 258,704,522 4,889,426 Pharmacia Corp. 213,667,916 779,556 Roche Holding AG (Switzerland) 55,994,373 156,542 Salix Pharmaceuticals, Ltd. (NON) 1,267,990 1,082,900 Sankyo Company, Ltd. (Japan) 14,624,402 1,089,763 Sanofi-Synthelabo SA (France) 65,339,547 41,850 Schering AG (Germany) 2,318,417 3,814,682 Schering-Plough Corp. 88,042,870 228,919 Shire Pharmaceuticals Group PLC ADR (United Kingdom) (NON) 6,682,146 412,500 Taisho Pharmaceutical Company, Ltd. (Japan) 6,625,053 860,000 Takeda Chemical Industries, Ltd. (Japan) 36,344,159 990,500 Terumo Corp. (Japan) 14,320,683 108,006 Teva Pharmaceutical Industries, Ltd. ADR (Israel) 7,160,798 3,113,237 Wyeth 133,246,544 718,700 Yamanouchi Pharmaceutical Co., Ltd. (Japan) 16,883,842 ------------- 2,544,539,975 Retail (0.1%) - ------------------------------------------------------------------------------------------------------------------- 129,350 CVS Corp. 3,801,597 -------------- Total Common Stocks (cost $3,742,168,710) $3,983,144,741 CONVERTIBLE PREFERRED STOCKS (--%) (a) (cost $3,002,107) NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- 342,000 Third Wave Technologies, Inc. Ser. F, 10.00% cv. pfd. $694,260 SHORT-TERM INVESTMENTS (3.2%) (a) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $31,591,080 Short-term investments held as collateral for loaned securities with yields ranging from 1.73% to 2.03% and due dates ranging from September 3, 2002 to October 11, 2002 (d) $31,576,808 97,971,688 Short-term investments held in Putnam commingled cash account with yields ranging from 1.70% to 1.96% and due dates ranging from September 4, 2002 to October 25, 2002 (d) 97,971,688 -------------- Total Short-Term Investments (cost $129,548,496) $129,548,496 - ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $3,874,719,313) $4,113,387,497 - ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $4,081,055,525. (NON) Non-income-producing security. (SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures contracts at August 31, 2002. (d) See footnote 1 to the financial statements. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities on deposit with a custodian bank. DIVERSIFICATION BY COUNTRY Distribution of investments by country of issue at August 31, 2002: (as percentage of Market Value) France 2.8% Japan 3.1 Switzerland 9.0 United Kingdom 7.5 United States 77.0 Other 0.6 ----- Total 100.0% - ------------------------------------------------------------------------------ Forward Currency Contracts to Buy at August 31, 2002 (aggregate face value $352,881,791) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) - ------------------------------------------------------------------------------ Australian Dollars $9,139,108 $8,980,946 9/18/2002 $158,162 British Pounds 110,888,041 109,388,459 9/18/2002 1,499,582 Canadian Dollars 10,912,689 10,731,323 9/18/2002 181,366 Danish Krone 12,505,566 12,605,531 9/18/2002 (99,965) Euro 128,912,002 129,887,754 9/18/2002 (975,752) Japanese Yen 25,835,714 25,699,643 9/18/2002 136,071 Swiss Francs 54,306,869 55,588,135 9/18/2002 (1,281,266) - ------------------------------------------------------------------------------ $(381,802) - ------------------------------------------------------------------------------ Forward Currency Contracts to Sell at August 31, 2002 (aggregate face value $66,493,192) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) - ------------------------------------------------------------------------------ British Pounds $3,308,960 $3,260,529 9/18/2002 $(48,431) Euro 33,561,177 33,858,904 9/18/2002 297,727 Swiss Francs 29,321,574 29,373,759 9/18/2002 52,185 - ------------------------------------------------------------------------------ $301,481 - ------------------------------------------------------------------------------ Futures Contracts Outstanding at August 31, 2002 Market Aggregate Face Expiration Unrealized Value Value Date Depreciation - ------------------------------------------------------------------------------ S&P 500 Index (Long) $73,975,075 $74,377,996 Sep-02 $(402,921) - ------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES August 31, 2002 Assets - ------------------------------------------------------------------------------------------- Investments in securities, at value, including $30,081,399 of securities on loan (identified cost $3,874,719,313) (Note 1) $4,113,387,497 - ------------------------------------------------------------------------------------------- Foreign currency (cost $1,346) (Note 1) 1,466 - ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 7,387,252 - ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 1,327,670 - ------------------------------------------------------------------------------------------- Receivable for securities sold 7,979,089 - ------------------------------------------------------------------------------------------- Receivable for variation margin (Note 1) 2,992 - ------------------------------------------------------------------------------------------- Receivable for open forward currency contracts (Note 1) 2,325,093 - ------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts (Note 1) 794,394 - ------------------------------------------------------------------------------------------- Total assets 4,133,205,453 Liabilities - ------------------------------------------------------------------------------------------- Payable for securities purchased 690,675 - ------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 6,536,915 - ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 5,809,152 - ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 534,872 - ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 184,438 - ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 4,339 - ------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 2,405,529 - ------------------------------------------------------------------------------------------- Payable for open forward currency contracts (Note 1) 2,405,414 - ------------------------------------------------------------------------------------------- Payable for closed forward currency contracts (Note 1) 1,439,330 - ------------------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 31,576,808 - ------------------------------------------------------------------------------------------- Other accrued expenses 562,456 - ------------------------------------------------------------------------------------------- Total liabilities 52,149,928 - ------------------------------------------------------------------------------------------- Net assets $4,081,055,525 Represented by - ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $3,897,939,823 - ------------------------------------------------------------------------------------------- Accumulated net investment loss (Note 1) (19,523) - ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (55,092,522) - ------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 238,227,747 - ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $4,081,055,525 Computation of net asset value and offering price - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($2,443,291,653 divided by 47,914,957 shares) $50.99 - ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $50.99)* $54.10 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($1,475,576,708 divided by 31,091,111 shares)** $47.46 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($72,724,669 divided by 1,459,747 shares)** $49.82 - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($60,932,251 divided by 1,237,808 shares) $49.23 - ------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $49.23)* $51.02 - ------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($28,530,244 divided by 555,985 shares) $51.31 - ------------------------------------------------------------------------------------------- * 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.
STATEMENT OF OPERATIONS Year ended August 31, 2002 Investment income: - ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $1,729,572) $53,322,022 - ------------------------------------------------------------------------------------------- Interest 1,132,550 - ------------------------------------------------------------------------------------------- Securities lending 590,344 - ------------------------------------------------------------------------------------------- Total investment income 55,044,916 Expenses: - ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 28,020,266 - ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 6,635,379 - ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 107,551 - ------------------------------------------------------------------------------------------- Administrative services (Note 2) 50,477 - ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 7,630,781 - ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 20,068,986 - ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 940,684 - ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 613,181 - ------------------------------------------------------------------------------------------- Other 4,477,800 - ------------------------------------------------------------------------------------------- Total expenses 68,545,105 - ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (594,767) - ------------------------------------------------------------------------------------------- Net expenses 67,950,338 - ------------------------------------------------------------------------------------------- Net investment loss (12,905,422) - ------------------------------------------------------------------------------------------- Net realized gain on investments (including net realized loss of $2,362,224 on sales of investments in affiliated issuers) (Notes 1, 3 and 5) 73,456,369 - ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (633,863) - ------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Note 1) 1,585,041 - ------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the year 2,216 - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and futures contracts during the year (1,177,874,135) - ------------------------------------------------------------------------------------------- Net loss on investments (1,103,464,372) - ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(1,116,369,794) - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Year ended August 31 ----------------------------------- 2002 2001 - ------------------------------------------------------------------------------------------------------- Decrease in net assets - ------------------------------------------------------------------------------------------------------- Operations: - ------------------------------------------------------------------------------------------------------- Net investment loss $(12,905,422) $(29,663,389) - ------------------------------------------------------------------------------------------------------- Net realized gain on investments and foreign currency transactions 74,407,547 156,544,865 - ------------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (1,177,871,919) (1,294,716,146) - ------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (1,116,369,794) (1,167,834,670) - ------------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) - ------------------------------------------------------------------------------------------------------- From net realized long-term gain on investments Class A (124,018,826) (204,831,724) - ------------------------------------------------------------------------------------------------------- Class B (90,297,516) (157,567,466) - ------------------------------------------------------------------------------------------------------- Class C (3,944,088) (5,030,933) - ------------------------------------------------------------------------------------------------------- Class M (3,523,854) (6,400,198) - ------------------------------------------------------------------------------------------------------- Class Y (961,316) (1,641,637) - ------------------------------------------------------------------------------------------------------- Increase (decrease) from capital share transactions (Note 4) (534,581,307) 441,780,028 - ------------------------------------------------------------------------------------------------------- Total decrease in net assets (1,873,696,701) (1,101,526,600) Net assets - ------------------------------------------------------------------------------------------------------- Beginning of year 5,954,752,226 7,056,278,826 - ------------------------------------------------------------------------------------------------------- End of year (including accumulated net investment loss of $19,523 and $24,670, respectively) $4,081,055,525 $5,954,752,226 - ------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS A - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended August 31 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $65.80 $82.19 $59.51 $53.50 $55.82 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (loss)(a) .04 (.09) (.08) (.07) (.01) - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (12.41) (12.12) 22.76 11.09 4.13 - ----------------------------------------------------------------------------------------------------- Total from investment operations (12.37) (12.21) 22.68 11.02 4.12 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income -- -- -- -- (.02) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments (2.44) (4.18) -- (4.98) (6.42) - ----------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.03) -- - ----------------------------------------------------------------------------------------------------- Total distributions (2.44) (4.18) -- (5.01) (6.44) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $50.99 $65.80 $82.19 $59.51 $53.50 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (19.55) (15.70) 38.11 20.50 7.48 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $2,443,292 $3,373,822 $3,942,734 $2,883,732 $2,236,469 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.00 .96 .93 .95 1.00 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%) .06 (.13) (.12) (.11) (.02) - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 64.55 47.86 67.34 79.12 40.45 - ----------------------------------------------------------------------------------------------------- (a) Per share net investment income (loss) has been determined on the basis of weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS B - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended August 31 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $61.85 $78.08 $56.96 $51.74 $54.54 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment loss (a) (.39) (.61) (.56) (.50) (.44) - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (11.56) (11.44) 21.68 10.73 4.06 - ----------------------------------------------------------------------------------------------------- Total from investment operations (11.95) (12.05) 21.12 10.23 3.62 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net realized gain on investments (2.44) (4.18) -- (4.98) (6.42) - ----------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.03) -- - ----------------------------------------------------------------------------------------------------- Total distributions (2.44) (4.18) -- (5.01) (6.42) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $47.46 $61.85 $78.08 $56.96 $51.74 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (20.14) (16.35) 37.08 19.61 6.67 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $1,475,577 $2,354,988 $2,877,594 $2,141,640 $1,292,418 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.75 1.71 1.68 1.70 1.75 - ----------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (.69) (.88) (.87) (.86) (.76) - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 64.55 47.86 67.34 79.12 40.45 - ----------------------------------------------------------------------------------------------------- (a) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS C - ---------------------------------------------------------------------------------------- For the period Per-share July 26, 1999+ operating performance Year ended August 31 to August 31 - ---------------------------------------------------------------------------------------- 2002 2001 2000 1999 - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $64.81 $81.60 $59.48 $59.32 - ---------------------------------------------------------------------------------------- Investment operations: - ---------------------------------------------------------------------------------------- Net investment loss (a) (.40) (.61) (.64) (.04) - ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (12.15) (12.00) 22.76 .20 - ---------------------------------------------------------------------------------------- Total from investment operations (12.55) (12.61) 22.12 .16 - ---------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------- From net realized gain on investments (2.44) (4.18) -- -- - ---------------------------------------------------------------------------------------- Total distributions (2.44) (4.18) -- -- - ---------------------------------------------------------------------------------------- Net asset value, end of period $49.82 $64.81 $81.60 $59.48 - ---------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (20.14) (16.32) 37.19 .27* - ---------------------------------------------------------------------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $72,725 $103,940 $82,117 $3,770 - ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.75 1.71 1.68 .17* - ---------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (.69) (.86) (.89) (.09)* - ---------------------------------------------------------------------------------------- Portfolio turnover (%) 64.55 47.86 67.34 79.12 - ---------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS M - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended August 31 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $63.91 $80.34 $58.47 $52.87 $55.47 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment loss (a) (.26) (.45) (.41) (.37) (.31) - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (11.98) (11.80) 22.28 10.98 4.13 - ----------------------------------------------------------------------------------------------------- Total from investment operations (12.24) (12.25) 21.87 10.61 3.82 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net realized gain on investments (2.44) (4.18) -- (4.98) (6.42) - ----------------------------------------------------------------------------------------------------- From return of capital -- -- -- (.03) -- - ----------------------------------------------------------------------------------------------------- Total distributions (2.44) (4.18) -- (5.01) (6.42) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $49.23 $63.91 $80.34 $58.47 $52.87 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (19.94) (16.13) 37.40 19.93 6.94 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $60,932 $95,388 $122,066 $93,216 $56,662 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.50 1.46 1.43 1.45 1.50 - ----------------------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%) (.44) (.64) (.62) (.61) (.51) - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 64.55 47.86 67.34 79.12 40.45 - ----------------------------------------------------------------------------------------------------- (a) Per share net investment loss has been determined on the basis of weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS Y - --------------------------------------------------------------------------- For the period Per-share April 4, 2000+ operating performance Year ended August 31 to August 31 - --------------------------------------------------------------------------- 2002 2001 2000 - --------------------------------------------------------------------------- Net asset value, beginning of period $66.03 $82.28 $70.52 - --------------------------------------------------------------------------- Investment operations: - --------------------------------------------------------------------------- Net investment income (a) .20 .09 .03 - --------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (12.48) (12.16) 11.73 - --------------------------------------------------------------------------- Total from investment operations (12.28) (12.07) 11.76 - --------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------- From net realized gain on investments (2.44) (4.18) -- - --------------------------------------------------------------------------- Total distributions (2.44) (4.18) -- - --------------------------------------------------------------------------- Net asset value, end of period $51.31 $66.03 $82.28 - --------------------------------------------------------------------------- Total return at net asset value (%)(b) (19.34) (15.50) 16.68* - --------------------------------------------------------------------------- Ratios and supplemental data - --------------------------------------------------------------------------- Net assets, end of period (in thousands) $28,530 $26,614 $31,768 - --------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .75 .71 .28* - --------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .33 .12 .04* - --------------------------------------------------------------------------- Portfolio turnover (%) 64.55 47.86 67.34 - --------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment. (c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS August 31, 2002 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. 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 certain eligible purchasers including participants in defined contribution plans (including corporate IRAs), certain college savings plans, bank trust departments and trust companies, and other defined contribution plans subject to minimum requirements. 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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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. For foreign investments, if trading or events occurring in other markets after the close of the principal exchange in which the securities are traded are expected to materially affect the value of the investments, then those investments are valued, taking into consideration these events, at their fair value following procedures approved by the Trustees. 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. B) Joint trading account The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam, LLC. These balances may be invested in issuers of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments. 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) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. 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. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) 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. The fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as "variation margin." 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. H) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At August 31, 2002, the value of securities loaned amounted to $30,081,399. The fund received cash collateral of $31,576,808 which is pooled with collateral of other Putnam funds into 35 issuers of high-grade short-term investments. I) 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 maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the year ended August 31, 2002, the fund had no borrowings against the line of credit. J) 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. Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending August 31, 2003 approximately $15,277,000 of losses recognized during the period November 1, 2001 to August 31, 2002. K) Distribution to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, 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, post-October loss deferrals, realized and unrealized gains and losses on certain futures contracts and net operating loss. Prior year distributions in the Statement of changes in net assets have been reclassified to conform with current year presentation. Reclassifi cations 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, 2002, the fund reclassified $12,910,569 to decrease accumulated net investment loss and $13,470,171 to decrease paid-in-capital, with a decrease to accumulated net realized losses of $559,602. The tax basis components of distributable earnings and the federal tax cost as of period end were as follows: Unrealized appreciation $632,683,535 Unrealized depreciation (434,234,251) ------------------ Net unrealized appreciation 198,449,284 Undistributed ordinary income -- Undistributed gain -- ------------------ Total distributable earnings $198,449,284 ================== Cost for federal income tax purposes $3,914,938,213 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 wholly-owned subsidiary of Putnam, LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the year ended August 31, 2002 the fund's expenses were reduced by $594,767 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $3,983 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, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, 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 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, 2002, Putnam Retail Management, acting as underwriter received net commissions of $691,054 and $12,672 from the sale of class A and class M shares, respectively, and received $4,889,893 and $18,833 in contingent deferred sales charges from redemptions of class B and class C shares, respectively. A deferred sales charge of up to 1.00% and 0.65% is assessed on certain redemptions of class A and class M shares, respectively. For the year ended August 31, 2002, Putnam Retail Management, acting as underwriter received $24,456 and no monies on class A and class M redemptions, respectively. Note 3 Purchases and sales of securities During the year ended August 31, 2002, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $3,377,782,824 and $4,266,865,721, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At August 31, 2002, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended August 31, 2002 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 8,015,386 $483,368,850 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,688,364 107,937,195 - --------------------------------------------------------------------------- 9,703,750 591,306,045 Shares repurchased (13,066,223) (754,898,004) - --------------------------------------------------------------------------- Net decrease (3,362,473) $(163,591,959) - --------------------------------------------------------------------------- Year ended August 31, 2001 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 10,226,856 $755,563,583 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,247,521 177,037,263 - --------------------------------------------------------------------------- 12,474,377 932,600,846 Shares repurchased (9,166,769) (657,211,318) - --------------------------------------------------------------------------- Net increase 3,307,608 $275,389,528 - --------------------------------------------------------------------------- Year ended August 31, 2002 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 3,392,612 $194,412,417 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,263,688 75,606,676 - --------------------------------------------------------------------------- 4,656,300 270,019,093 Shares repurchased (11,640,833) (629,103,111) - --------------------------------------------------------------------------- Net decrease (6,984,533) $(359,084,018) - --------------------------------------------------------------------------- Year ended August 31, 2001 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 7,594,450 $536,115,290 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 1,761,161 131,153,635 - --------------------------------------------------------------------------- 9,355,611 667,268,925 Shares repurchased (8,134,632) (546,934,825) - --------------------------------------------------------------------------- Net increase 1,220,979 $120,334,100 - --------------------------------------------------------------------------- Year ended August 31, 2002 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 365,590 $21,802,153 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 51,922 3,261,241 - --------------------------------------------------------------------------- 417,512 25,063,394 Shares repurchased (561,546) (31,822,027) - --------------------------------------------------------------------------- Net decrease (144,034) $(6,758,633) - --------------------------------------------------------------------------- Year ended August 31, 2001 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 825,378 $60,672,985 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 53,077 4,141,093 - --------------------------------------------------------------------------- 878,455 64,814,078 Shares repurchased (280,952) (19,598,847) - --------------------------------------------------------------------------- Net increase 597,503 $45,215,231 - --------------------------------------------------------------------------- Year ended August 31, 2002 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 154,937 $9,147,125 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 51,657 3,200,145 - --------------------------------------------------------------------------- 206,594 12,347,270 Shares repurchased (461,341) (25,933,711) - --------------------------------------------------------------------------- Net decrease (254,747) $(13,586,441) - --------------------------------------------------------------------------- Year ended August 31, 2001 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 321,097 $23,242,880 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 75,376 5,788,905 - --------------------------------------------------------------------------- 396,473 29,031,785 Shares repurchased (423,273) (29,717,533) - --------------------------------------------------------------------------- Net decrease (26,800) $(685,748) - --------------------------------------------------------------------------- Year ended August 31, 2002 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 258,053 $14,405,718 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 14,969 961,316 - --------------------------------------------------------------------------- 273,022 15,367,034 Shares repurchased (120,071) (6,927,290) - --------------------------------------------------------------------------- Net increase 152,951 $8,439,744 - --------------------------------------------------------------------------- Year ended August 31, 2001 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 143,662 $10,741,313 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 20,801 1,641,637 - --------------------------------------------------------------------------- 164,463 12,382,950 Shares repurchased (147,541) (10,856,033) - --------------------------------------------------------------------------- Net increase 16,922 $1,526,917 - --------------------------------------------------------------------------- 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: Purchase Sales Dividend Market Affiliates Cost Cost Income Value - --------------------------------------------------------------------------- Name of affiliate - --------------------------------------------------------------------------- Serologicals Corp. $26,566,482 $14,353,435 $-- $-- - --------------------------------------------------------------------------- Market value amounts are shown for issuers that are affiliated at period end. FEDERAL TAX INFORMATION (Unaudited) Pursuant to Section 852 of the Internal Revenue Code, as amended, the fund hereby designates $123,756,704 as long term capital gain, for its taxable year ended August 31, 2002. The Form 1099 you receive in January 2003 will show the tax status of all distributions paid to your account in calendar 2002.
TRUSTEES Name, Address, 1 Date of Birth, Position(s) Held with Fund and Length of Service Principal Occupation(s) as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee - ------------------------------------------------------------------------------------------------------- Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc., Trustee since 1994 Associates, Inc. Banta Corporation (a printing and (a management digital imaging firm), Intermatic consulting and private Corporation (manufacturer of energy investments firm) control products), Ryerson Tull, Inc. (a steel service corporation), Advocate Health Care, and the National Center for Nonprofit Boards. Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Also held various positions in investment banking and corporate finance, including Vice President and principal of the Regency Group and consultant to First Boston Corp. Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign Trustee since 2001 Operating Officer, Relations, the Electric Power Nuclear Threat Research Institute Advisory Council, Initiative (a private the Board of Directors of the Gas foundation dedicated Technology Institute, the University to reducing the threat of Chicago Board of Governors for of weapons of mass Argonne National Laboratory, the destruction), also serves Board of Directors of the as Senior Advisor to the Environment and Natural Resources United Nations Program Steering Committee, Foundation John F. Kennedy School of Government, Harvard University. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute. Until 2001, Mr. Curtis was a Member of the Department of Defense's Policy Board and Director of EG&G Technical Services, Inc. (fossil energy research and development support) and prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy Trustee since 1985 and Managing Director, Corporation (formerly known as Chairman since 2000 First Reserve Snyder Oil Corporation), Corporation TransMontaigne Oil Company, (a registered investment Continuum Health Partners of advisor investing in New York, Sarah Lawrence College, companies in the and various private companies owned world-wide energy by First Reserve Corporation. industry on behalf of Trustee of TH Lee, Putnam institutional investors) Investment Trust (a closed-end investment company). Prior to acquiring First Reserve in 1983, Mr. Hill held executive positions with several advisory firms and various positions with the federal government, including Associate Director of the Office of Manage ment and Budget and Deputy Director of the Federal Energy Administration. Ronald J. Jackson Private investor Former Chairman, President, and (12/17/43), Chief Executive Officer of Fisher- Trustee since 1996 Price, Inc. (a toy manufacturer). Previously served as President and Chief Executive Officer of Stride- Rite, Inc. and Kenner Parker Toys. Also held financial and marketing positions with General Mills, Parker Brothers, and Talbots. President of the Kathleen and Ronald J. Jackson Foundation (charitable trust). Member of the Board of Overseers of WGBH (public television and radio). Member of the Board of Overseers of the Peabody Essex Museum. Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group Trustee since 1997 Killian Professor of (a UK-based holding company Economics and with interests in electric power, Management and natural gas distribution, and Director of the Center telecommunications networks), and for Energy and the Whitehead Institute for Environmental Policy Biomedical Research (a non-profit Research, Massachusetts research institution). President of the Institute of Technology Yale University Council. Prior to February 2002, March 2000, and September 1998, Dr. Joskow was a Director of State Farm Indemnity Company (an automobile insurance company), Director of New England Electric System (a public utility holding company) and a consultant to National Economic Research Associates, respectively. Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and (2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's Trustee since 1992 limited liability company apparel). Trustee of Centre College. involved in thoroughbred Prior to 2001, Dr. Kennan was a horse breeding and member of the Oversight Committee farming), President of Folger Shakespeare Library. Emeritus of Mount Prior to September 2000, June 2000, Holyoke College and November 1999, Dr. Kennan was a Director of Chastain Real Estate, Bell Atlantic, and Kentucky Home Life Insurance, respectively. Prior to 1995, Dr. Kennan was a Trustee of Notre Dame University. For 12 years, she was on the faculty of Catholic University. John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc., (6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging Trustee since 1997 (a limited liability company), The Liberty Corporation company engaged in (a company engaged in the timber and farming) broadcasting industry), and Progress Energy, Inc. (a utility company, formerly known as Carolina Power & Light). Trustee Emeritus of Washington & Lee University. Prior to October 1997, January 1998, and May 2001, Mr. Mullin was a Director of Dillon, Read and Co. Inc., The Ryland Group, Inc., and Graphic Packaging International Corp., respectively. Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes (3/15/45), Properties, LLP and Center, Trustee of SEA Education Trustee since 1984 Chairman of Cabot Association, and Director of Properties, Inc. Brandywine Trust Company (a trust company). Prior to February 1998, Mr. Patterson was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (publicly traded real estate investment trust). Prior to 1990, Mr. Patterson was Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, the predecessor of Cabot Partners, and prior to that was Senior Vice President of the Beal Companies. W. Thomas Stephens Corporate Director Director of Qwest Communications (9/2/42), (communications company), Xcel Trustee since 1997 Energy Incorporated (public utility company), TransCanada Pipelines, Norske Canada, Inc. (paper manufacturer) and Mail-Well (printing and envelope company). Prior to July 2001 and October 1999, Mr. Stephens was Chairman of Mail- Well and MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville. W. Nicholas Thorndike Director of various Trustee of Northeastern University and (3/28/33), corporations and Honorary Trustee of Massachusetts Trustee since 1992 charitable General Hospital. Prior to organizations, September 2000, April 2000, and including Courier December 2001, Mr. Thorndike was Corporation (a book a Director of Bradley Real Estate, manufacturer) and Inc., a Trustee of Eastern Utilities Providence Journal Co. Associates, and a Trustee of Cabot (a newspaper publisher) Industrial Trust, respectively. Previously served as Chairman of the Board and managing partner of Wellington Management/Thorndike Doran Paine & Lewis, and Chairman and Director of Ivest Fund. Lawrence J. Lasser* President and Chief Director of Marsh & McLennan (11/1/42), Executive Officer Companies, Inc. and the United Way Trustee since 1992 of Putnam of Massachusetts Bay. Member of the Vice President since 1981 Investments, LLC, Board of Governors of the Investment and Putnam Investment Company Institute, Trustee of the Management, LLC Museum of Fine Arts, Boston, a Trustee and Member of the Finance and Executive Committees of Beth Israel Deaconess Medical Center, Boston, and a Member of the CareGroup Board of Managers Investment Committee, the Council on Foreign Relations, and the Commercial Club of Boston. George Putnam, III* President, New Director of The Boston Family (8/10/51), Generation Research, Office, L.L.C. (registered investment Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA President since 2000 financial advisory and Education Association, Trustee of other research services St. Mark's School, and Trustee of relating to bankrupt and Shore Country Day School. distressed companies) Previously, Mr. Putnam was an and New Generation attorney with the firm of Dechert Advisers, Inc. Price & Rhoads. (a registered investment adviser) A.J.C. Smith (4/13/34),* Director of Marsh & Director of Trident Corp. (a limited Trustee since 1986 McLennan partnership with over 30 institutional Companies, Inc. investors). Trustee of the Carnegie Hall Society, the Educational Broadcasting Corporation and the National Museums of Scotland. Chairman of the Central Park Conservancy. Member of the Board of Overseers of the Joan and Sanford I. Weill Graduate School of Medical Sciences of Cornell University. Fellow of the Faculty of Actuaries in Edinburgh, the Canadian Institute of Actuaries, and the Conference of Actuaries. Associate of the Society of Actuaries. Member of the American Actuaries, the International Actuarial Association and the International Association of Consulting Actuaries. Prior to May 2000 and November 1999, Mr. Smith was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc. - -------------------------------------------------------------------------------------------------------- 1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of August 31, 2002, there were 109 Putnam Funds. 2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal. * Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the fund, Putnam Management or Putnam Retail Management. Messrs. Putnam, III, Lasser, and Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the fund, or officers of Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent company of Putnam Management and Putnam Retail Management. George Putnam, III, is the President of your Fund and each of the other Putnam Funds. Lawrence J. Lasser has been the President, Chief Executive Officer, and a Director of Putnam Investments, LLC, and Putnam Management since 1985, having begun his career there in 1969. Mr. Lasser currently also serves as a Director of Marsh & McLennan Companies, Inc., the parent company of Putnam Management. A.J.C. Smith is a Director of Marsh & McLennan Companies, Inc.
OFFICERS Name, Address, 1 Date of Birth, Inception of Service Position(s) Held with Fund with the Putnam Funds Principal Occupation(s) During Past 5 Years - --------------------------------------------------------------------------------------------------------------- Charles E. Porter (7/26/38), Since 1989 Managing Director, Putnam Investments, Executive Vice President, LLC and Putnam Management Treasurer & Principal Financial Officer Patricia C. Flaherty Since 1993 Senior Vice President, Putnam (12/1/46), Investments, LLC and Putnam Management Senior Vice President Michael T. Healy (1/24/58), Since 2000 Managing Director, Putnam Assistant Treasurer and Investments, LLC Principal Accounting Officer Gordon H. Silver (7/3/47), Since 1990 Senior Managing Director, Putnam Vice President Investments, LLC and Putnam Management Brett C. Browchuk Since 1994 Managing Director, Putnam Investments, (2/27/63), LLC and Putnam Management Vice President Ian C. Ferguson (7/3/57), Since 1997 Senior Managing Director, Putnam Vice President Investments, LLC and Putnam Management Richard G. Leibovitch Since 1999 Managing Director of Putnam Investments, (10/31/63), LLC and Putnam Management. Prior to Vice President February 1999, Managing Director at J.P. Morgan Richard A. Monaghan Since 1998 Managing Director, Putnam Investments, (8/25/54), LLC, Putnam Management and Putnam Vice President Retail Management John R. Verani Since 1988 Senior Vice President, Putnam (6/11/39), Investments, LLC and Putnam Management Vice President William J. Landes Since 2002 Managing Director of Putnam Management (1/16/53), Vice President - --------------------------------------------------------------------------------------------------------------- 1 The address of each Officer is One Post Office Square, Boston, MA 02109.
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 Growth Opportunities Fund Health Sciences Trust International New Opportunities Fund New Opportunities Fund OTC & Emerging Growth Fund Small Cap Growth Fund Vista Fund Voyager Fund Voyager Fund II BLEND FUNDS Capital Appreciation Fund Capital Opportunities Fund Europe Growth Fund Global Equity Fund Global Natural Resources Fund International Growth Fund International Voyager Fund Investors Fund Research Fund Tax Smart Equity Fund Utilities Growth and Income Fund VALUE FUNDS Classic Equity Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston The Putnam Fund for Growth and Income International Growth and Income Fund Mid Cap Value Fund New Value Fund Small Cap Value Fund * INCOME FUNDS American Government Income Fund Diversified Income Trust Global Income Trust High Yield Advantage Fund * High Yield Trust Income Fund Intermediate U.S. Government Income Fund Money Market 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 Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds + 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 * Closed to new investors. + 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. SERVICES FOR SHAREHOLDERS HELP YOUR INVESTMENT GROW Set up a program for systematic investing with as little as $25 a month from a Putnam fund or from your own savings or checking account. (Regular investing does not guarantee a profit or protect against loss in a declining market.) SWITCH FUNDS EASILY You can move money from one Putnam fund to another within the same class of shares without a service charge. (This privilege is subject to change or termination.) ACCESS YOUR MONEY EASILY You can have checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. Class B and class C shares carry a sales charge that is applied to certain withdrawals. HOW TO BUY ADDITIONAL SHARES You may buy shares through your financial advisor or directly from Putnam. To open an account by mail, send a check made payable to the name of the fund along with a completed fund application. To add to an existing account, complete the investment slip found at the top of your Confirmation of Activity statement and return it with a check payable to your fund. VISIT US AT WWW.PUTNAMINVESTMENTS.COM A secure section of our Web site contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password. USE OUR TOLL-FREE NUMBER 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus. FUND INFORMATION ABOUT PUTNAM INVESTMENTS One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management 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 Charles B. Curtis 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 and Treasurer Patricia C. Flaherty Senior Vice President Michael T. Healy Assistant Treasurer and Principal Accounting Officer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen M. Oristaglio Vice President William J. Landes Vice President Richard G. Leibovitch Vice President 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 and Putnam's Quarterly Ranking Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. Visit www.putnaminvestments.com or call a representative at 1-800-225-1581. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com AN008-84008 021/335/2AB 10/02 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ---------------------------------------------------------------------------- Putnam Health Sciences Trust Supplement to Annual Report dated 8/31/02 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 clients that meet the eligibility requirements specified in the fund's prospectus for such shares. 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 8/31/02 NAV 1 year -19.34% 5 years 22.04 Annual average 4.06 10 years 188.97 Annual average 11.19 Life of fund (since class A inception, 5/28/82) Annual average 13.99 Share value: NAV 8/31/01 $66.03 8/31/02 $51.31 - ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total Short-term Long-term 1 -- -- $2.439 $2.439 - ---------------------------------------------------------------------------- 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, and are not 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. -----END PRIVACY-ENHANCED MESSAGE-----