PUTNAM RESEARCH FUND (the "fund"),
a series of Putnam Investment Funds (the "Trust")
Prospectus Supplement dated October 31, 1996
to Prospectus dated May 1, 1996
The Trustees of the Trust have approved a new management
contract for the fund, to take effect when and if approved by
shareholders of the fund at a meeting scheduled to be held on
February 6, 1997. If the proposed management contract is not
approved by shareholders, this Supplement will be revised.
Under the proposed management contract, the fund would pay a
quarterly base fee (subject to adjustment as provided below) to
Putnam Investment Management, Inc. ("Putnam Management") based on
the average net assets of the fund, as determined at the close of
each business day during the quarter, at the following annual
rates, expressed as a percentage of the fund's average net
assets: 0.65% of the first $500 million, 0.55% of the
$500 million, 0.50% of the next $500 million, 0.45% of the next
$5 billion, 0.425% of the next $5 billion, 0.405% of the next $5
billion, 0.39% of the next $5 billion, and 0.38% thereafter.
This base fee may be increased or decreased by applying a
performance adjustment formula based on the performance of the
fund relative to that of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500"), an index of common stocks
frequently used as a general measure of U.S. stock market
performance. The fee, payable for each fiscal quarter of the
fund, will be increased (decreased) by an incentive payment
(penalty) at the annual rate of 0.01% of average net assets for
each full 1% increment by which the fund outperforms
(underperforms) the S&P 500 in excess of 3%, subject to a maximum
increase (decrease) of 0.07% of average net assets. Performance
will be calculated for these purposes at the beginning of each
fiscal quarter, for the thirty-six month period immediately
preceding such quarter (or the life of the fund, if shorter).
For example, under the proposed management contract, if the fund
were to achieve a cumulative total return of 30% for a given
three-year period and the S&P 500 were to return 25% for that
same period, i.e., the fund were to outperform the S&P 500 by 5%,
the fee payable to Putnam Management for the following quarter
would be increased by the annual rate of 0.02% of average net
assets. If the proposed management contract had been in effect
on October 1, 1996, the fund's cumulative total return of 24.03%,
relative to that of the S&P 500, 20.26%, would have resulted in
no performance adjustment to the base fee. The examples are
intended solely to illustrate the effect of the performance
adjustment. The fund's actual return will vary, and may be
greater or less than that of the S&P 500.
