PUTNAM INTERNATIONAL NEW OPPORTUNITIES FUND
One Post Office Square, Boston, MA 02109
Class A shares
INVESTMENT STRATEGY: GROWTH
PROSPECTUS - April 1, 1996
This prospectus explains concisely what you should know before
investing in class A shares of Putnam International New
Opportunities Fund (the "fund"), a portfolio of Putnam Investment
Funds (the "Trust") , which are offered without a sales charge
through eligible employer-sponsored defined contribution plans
("defined contribution plans") . Please read it carefully and
keep it for future reference. You can find more detailed
information in the January 1, 1996 statement of additional
information (the "SAI"), as amended from time to time. For a
free copy of the SAI or for other information,
including a prospectus regarding class A shares for other
investors, call Putnam Investor Services at 1-800- 752-
9894 . The SAI has been filed with the Securities and
Exchange Commission and is incorporated into this prospectus by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PUTNAMINVESTMENTS
Putnam Defined
Contribution Plans
<PAGE>
ABOUT THE FUND
Expenses
summary ..........................................2
Financial
highlights ......................................3
Objective .................................................4</R
>
How the fund pursues its objective
. .......................4
Risk factors. ...
.......................................4
How performance is
shown ..................................11
How the fund is managed
. ..................................11
Organization and history
. .................................12
ABOUT YOUR INVESTMENT
How to buy
shares .........................................14
Distribution
plan.........................................15
How to sell shares
. .......................................16
How to exchange
shares ....................................16
How the fund values its shares
. ...........................17
How the fund makes distributions to shareholders;
tax
information .........................................17
ABOUT PUTNAM INVESTMENTS,
INC. ............................18
<PAGE>
About the fund
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing
in the fund . The following table summarizes
estimated expenses for the current fiscal year attributable to
class A . The example show the cumulative expenses
attributable to a hypothetical $1,000 investment in class A
shares of the fund over specified periods.
Annual fund operating expenses
(as a percentage of average net assets)
Management fees 1.20%
12b-1 fees 0.25%
Other expenses 0.48%
Total fund operating expenses
1.93%
The table is provided to help you understand the expenses
of investing in the fund and your share of the operating expenses
that the fund expects to incur during its current fiscal year.
The expenses shown in the table do not reflect the
application of credits related to brokerage service and
expense offset arrangements that reduce certain fund
expenses .
Example
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of
each period:
1 year 3 years
$30 $61
The example does not represent past or future expense
levels , and actual expenses may be greater or less than
those shown. Federal regulations require the example to
assume a 5% annual return, but actual annual return varies.
The example does not reflect any charges or expenses related
to your employer's plan.
FINANCIAL HIGHLIGHTS
The following table presents per share financial information for
class A shares. This information has been derived from
the fund's financial statements, which have been audited and
reported on by the fund's independent accountants. The "Report
of independent accountants" and financial statements included in
the fund's annual report to shareholders for the 1995 fiscal
period are incorporated by reference into this prospectus. The
fund's annual report, which contains additional unaudited
performance information, is available without charge upon
request.
Financial highlights
(For a share outstanding throughout the period)
January 3, 1995
(commencement
of operations) to
September 30
1995
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.50
INVESTMENT OPERATIONS :
Net investment income(a) .02
Net realized and unrealized
gain on investments 1.79
TOTAL FROM INVESTMENT
OPERATIONS
NET ASSET VALUE,
END OF PERIOD $ 10.29
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b)(c) 21.06
NET ASSETS, END OF PERIOD
(in thousands) $15,137
Ratio of expenses to
average net assets (%) (a)(c)(d) 1.23
Ratio of net investment income
to average net assets (%)(a)(c) .86
Portfolio turnover (%)(c) 9.24
Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding during
the period.
(a) Reflects an expense limitation in effect during the period.
As a result of such limitation, expenses for the fund reflect a
reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effects of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets for the
period ended September 30, 1995 includes amounts paid
through expense offset arrangements.
OBJECTIVE
Putnam International New Opportunities Fund seeks long-term
capital appreciation. The fund is not intended to be a complete
investment program, and there is no assurance that the fund will
achieve its objective.
HOW THE FUND PURSUES ITS OBJECTIVE
The fund seeks to invest in companies that have above-average
growth prospects due to the fundamental growth of their market
sector. Under normal market conditions, the fund expects to
invest substantially all of its total assets, other than cash or
short-term investments held pending investments , in common
stocks, preferred stocks, convertible preferred stocks,
convertible bonds and other equity securities principally traded
in securities markets outside the United States. The fund will
normally diversify its investments among a number of different
countries and, except when investing for defensive purposes as
described below, will invest at least 65% of its assets in at
least three different countries other than the United States.
Putnam Investment Management, Inc., the fund's investment manager
("Putnam Management"), believes that different market sectors in
different countries will experience different rates of growth
depending on the state of economic development of each country.
As a result, Putnam Management seeks to identify those market
sectors which will experience above-average growth in three broad
categories of economies: less developed economies, developing
economies that have experienced sustained growth over the recent
past, and mature economies. Within the identified growth sectors
of each type of economy, Putnam Management seeks to invest in
particular companies that offer above-average growth prospects.
The sectors in which the fund will invest are likely to change
over time and may include a variety of industries. Subject to
the fund's investment restrictions, the fund may invest up to
one-half of its assets in any one particular sector. The fund's
emphasis on particular sectors may make the value of the fund's
shares more susceptible to any single economic, political or
regulatory development than the shares of an investment company
which is more widely diversified. As a result, the value of the
fund's shares may fluctuate more than the value of the shares of
such an investment company. The fund may also invest a portion
of its assets in market sectors other than those that Putnam
Management believes will experience above-average growth if
Putnam Management believes that such investments are consistent
with the fund's investment objective of long-term capital
appreciation.
The securities markets of less developed economies and of many
developing economies are sometimes referred to as "emerging
securities markets." Although the amount of the fund's assets
invested in emerging securities markets will vary over time,
Putnam Management currently expects that a substantial portion of
the fund's assets will be invested in emerging securities
markets. These markets are generally characterized by limited
trading volume and greater volatility and, as a result, the fund
may be subject to greater risks to the extent of its investments
in such markets. For a discussion of these risks, see "Risk
factors" below.
Companies in the fund's portfolio may include small, rapidly
growing companies with equity market capitalizations of less than
$1 billion. These companies may present greater opportunities
for capital appreciation, but may also involve greater risk.
They may have limited product lines, markets or financial
resources, or may depend on a limited management group. Their
securities may trade less frequently and in limited volume, and
only in the over-the-counter market or on a regional securities
exchange. As a result, these securities may fluctuate in value
more than those of larger, more established companies. Because
Putnam Management evaluates securities for the fund based on
their long-term potential for capital appreciation, the fund's
investments may not appreciate or yield significant income over
the shorter term, and, as a result, the fund's total return over
certain periods may be less than that of other equity mutual
funds.
The fund invests primarily in common stocks and other equity
securities, but may also invest up to 10% of its total assets in
non-convertible debt securities if Putnam Management believes
they would help achieve the fund's objective of long-term capital
appreciation. The fund may invest in securities in the lower-
rated categories. Securities in the lower-rated categories are
considered to be predominantly speculative and may be in default.
See "Risk factors -- Investments in fixed-income
securities." The fund may also hold a portion of its assets in
cash or high-quality money market instruments.
<PAGE>
Risk factors
Foreign investments
The fund may invest without limit in securities principally
traded in foreign markets. Since foreign securities are normally
denominated and traded in foreign currencies, the values of fund
assets may be affected favorably or unfavorably by currency
exchange rates and exchange control regulations. There may be
less information publicly available about a foreign company than
about a U.S. company, and foreign companies are not generally
subject to accounting, auditing, and financial reporting
standards and practices comparable with those in the United
States.
The securities of some foreign companies are less liquid and at
times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally
higher than those in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such
as delay in payment or delivery of securities or in the recovery
of fund assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial
instability and diplomatic developments that could affect the
value of investments in certain foreign countries.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit
investments in securities of certain issuers located in those
foreign countries. Special tax considerations apply to foreign
securities.
The risks described above, including the risks of nationalization
and expropriation of assets, are typically increased to the
extent that the fund invests in issuers located in less developed
and developing nations, whose securities markets are sometimes
referred to as "emerging securities markets." Investments in
securities located in such countries are speculative and subject
to certain special risks. Political and economic structure in
many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and
economic stability characteristic of more developed countries.
Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized and
expropriated the assets of private companies.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the values of the fund's investments in these countries
and the availability to the fund of additional investments in
these countries. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in such countries
illiquid and more volatile than investments in more developed
countries, and the fund may be required to establish special
custodial or other arrangements before making investments in
these countries. There may be little financial or accounting
information available with respect to issuers located in these
countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers.
Putnam Management may engage in foreign currency exchange
transactions to protect against uncertainty in the level of
future exchange rates. Putnam Management may engage in foreign
currency exchange transactions in connection with the purchase
and sale of portfolio securities ("transaction hedging") and to
protect the value of specific portfolio positions ("position
hedging").
The fund may engage in transaction hedging to protect against a
change in the foreign currency exchange rate between the date on
which the fund contracts to purchase or sell the security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. The fund may
purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate as part of its transaction hedging
strategies. If conditions warrant, the fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts") and may purchase and sell foreign currency
futures contracts as part of its transaction hedging strategies.
A foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be
higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have
margin requirements. The fund may also purchase exchange-listed
and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies.
The fund may engage in "position hedging" to protect against the
decline in the 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 the foreign currencies for
securities which the fund intends to buy, when the fund holds
cash reserves or short-term investments). For position hedging
purposes, the fund may purchase or sell foreign currency futures
contracts, foreign currency forward contracts, and put and call
options on foreign currency futures contracts and on foreign
currencies on exchanges or over-the-counter markets. In
connection with position hedging, the fund may also purchase or
sell foreign currencies on a spot basis.
The currencies of certain foreign countries are not widely
traded, and as a result, foreign currency exchange transactions
may not be available with respect to such currencies.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times involve currencies other than those in
which its portfolio securities are then denominated. Putnam
Management will engage in such "cross hedging" activities when it
believes that such transactions provide significant hedging
opportunities for the fund. Cross hedging transactions by the
fund involve the risk of imperfect correlation between changes in
the values of the currencies to which such transactions relate
and changes in the value of the currency or other asset or
liability which is the subject of the hedge.
Hedging transactions involve costs and may result in losses.
There is no assurance that appropriate foreign currency exchange
transactions will be available with respect to all currencies in
which the fund's investments may be denominated. The fund's
ability to engage in hedging transactions may be limited by tax
considerations. The fund's hedging transactions may affect the
character or amount of its distributions.
<PAGE>
A more detailed explanation of foreign investments, and the risks
and special tax considerations associated with them, is included
in the SAI.
Investments in fixed-income securities
Although the fund will invest primarily in common stocks, it may
also invest in both higher-rated and lower-rated fixed-income
securities, and is not subject to any restrictions based on
credit ratings. The values of fixed-income securities generally
fluctuate in response to changes in interest rates. Thus, a
decrease in interest rates will generally result in an increase
in the value of the fund's fixed-income investments. Conversely,
during periods of rising interest rates, the value of the fund's
fixed-income investments will generally decline. The values of
lower-rated fixed-income securities, commonly known as "junk
bonds," generally fluctuate more than those of higher-rated
fixed-income securities. Securities in the lower rating
categories may, depending on the rating, have large uncertainties
or major risk exposure to adverse conditions, and may include
securities in default. The rating services' descriptions of
securities in the various rating categories, including the
speculative characteristics of securities in the lower rating
categories, are set forth in the SAI.
The lower ratings of these securities reflect a greater
possibility that adverse changes in the financial condition of
their issuers, or in general economic conditions, or both, or an
unanticipated rise in interest rates, may impair the ability of
their issuers to make payments of interest and principal. In
addition, under such circumstances the values of such securities
may be more volatile, and the markets for such securities may be
less liquid, than those for higher-rated securities, and the fund
may as a result find it more difficult to determine the fair
value of such securities. When the fund invests in securities in
the lower rating categories, the achievement of the fund's goals
is more dependent on Putnam Management's ability than would be
the case if the fund were investing in securities in the higher
rating categories.
For additional information concerning the risks associated with
investment by the fund in securities in the lower rating
categories, see the SAI.
<PAGE>
Portfolio turnover
The length of time the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the fund is known as "portfolio turnover."
As a result of the fund's investment policies, under certain
market conditions the fund's portfolio turnover rate may be
higher than that of other mutual funds.
Portfolio turnover generally involves some expense to the fund,
including brokerage commissions or dealer markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. While it is impossible to predict
portfolio turnover rates, Putnam Management believes that such
rate will not exceed 200%. The portfolio turnover rate for the
fund's first fiscal period is shown in the section "Financial
highlights."
Financial futures and related options
The fund may buy and sell financial futures contracts on stock
indexes and foreign currencies. A futures contract is a contract
to buy or sell units of a particular stock index, or a certain
amount of a foreign currency, at an agreed price on a specified
future date. Depending on the change in value of the index or
currency between the time the fund enters into and terminates a
futures contract, the fund realizes a gain or loss. In addition
to or as an alternative to purchasing or selling futures
contracts, the fund may buy and sell call and put options on
futures contracts or on stock indexes. The fund may engage in
financial futures and options transactions for hedging purposes
and for non-hedging purposes, such as to earn additional income
to adjust its exposure to relevant markets.
The use of futures and options includes certain special risks.
Futures and options transactions involve costs and may result in
losses.
Certain risks arise because of the possibility of imperfect
correlations between movements in the prices of financial futures
and options and movements in the prices of the underlying stock
index or currency or of the securities or currencies which are
the subject of the hedge. The successful use of futures and
options further depends on Putnam Management's ability to
forecast market movements correctly.
Other risks arise from the potential inability to close out
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any futures contract or
option at a particular time. The fund's ability to terminate
option positions established in the over-the-counter market may
be more limited than for exchange-traded options and may also
involve the risk that securities dealers participating in such
transactions would fail to meet their obligations to the fund.
The use of futures and options on futures for purposes other than
hedging entails greater risks. Because the markets for options
and futures on foreign currencies are relatively new and still
developing, the fund's ability to engage in such transactions may
be limited. Certain provisions of the Internal Revenue Code and
certain regulatory requirements may also limit the fund's ability
to engage in futures and options transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Options. The fund may seek to increase its current return by
writing covered call and put options on securities it owns or in
which it may invest. The fund receives a premium from writing a
call or put option, which increases the return if the option
expires unexercised or is closed out at a net profit.
When the fund writes a call option, it gives up the opportunity
to profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, the
fund takes the risk that it will be required to purchase a
security from the option holder at a price above the current
market price of the security. The fund may terminate an option
that it has written prior to its expiration by entering into a
closing purchase transaction in which it purchases an option
having the same terms as the option written.
The fund may also buy and sell put and call options for hedging
purposes. From time to time, the fund may also buy and sell
combinations of put and call options on the same underlying
security to earn additional income. The aggregate value of the
securities underlying the options may not exceed 25% of fund
assets. The use of these strategies may be limited by applicable
law.
A more detailed explanation of options transactions, including
the risks associated with them, is included in the SAI.
<PAGE>
Securities loans, repurchase agreements and forward commitments
The fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. The fund may also purchase
securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of
the securities declines prior to the settlement date. These
transactions involve some risk to the fund if the other party
should default on its obligation and the fund is delayed or
prevented from recovering the collateral or completing the
transaction.
Defensive strategies
At times Putnam Management may judge that conditions in the
securities markets make pursuing the basic investment strategy of
the fund inconsistent with the best interests of the fund's
shareholders. At such times Putnam Management may temporarily
use alternative strategies, primarily designed to reduce
fluctuations in the value of the fund's assets. In implementing
these "defensive" strategies, the fund may invest without limit
in cash or money market instruments, preferred stocks, debt
securities issued by the U.S. government or any foreign
government or their agencies or instrumentalities, or in any
other securities Putnam Management considers consistent with such
defensive strategies. In addition, when pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. It is impossible to predict
when, or for how long, the fund will use these alternative
strategies.
Diversification
The fund is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to
75% of its total assets the fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The remaining 25% of the fund's total
assets is not subject to this restriction. To the extent the fund
invests a significant portion of its assets in the securities of
a particular issuer, the fund will be subject to an increased
risk of loss if the market value of such issuer's securities
declines.
<PAGE>
Derivatives
Certain of the instruments in which the fund will invest, such as
futures contracts, options and forward contracts, are considered
to be "derivatives." Derivatives are financial instruments whose
value depends upon, or is derived from, the value of an
underlying asset, such as a security or an index. Although the
fund may use derivatives for purposes other than hedging, such as
to earn additional income, the fund does not consider its use of
derivatives for such purposes to be speculative because it
expects, whenever appropriate, to either cover its positions or
segregate assets sufficient to pay any potential liabilities
resulting from such investments. Further information about these
instruments and the risks involved in their use is included
elsewhere in this prospectus and in the SAI.
Limiting investment risk
Specific investment restrictions help the fund limit investment
risks for its shareholders. These restrictions prohibit the
fund, with respect to 75% of its total assets, from acquiring
more than 10% of the voting securities of any, issuer.* They
also prohibit the fund from investing more than:
(a) with respect to 75% of its total assets, 5% of its total
assets in securities of any one issuer (other than the U.S.
government);*
(b) 25% of its total assets in any one industry;* or
(c) 15% of its net assets in any combination of securities that
are not readily marketable, in securities restricted as to resale
(excluding securities determined by the Trust's Trustees (or the
person designated by the Trust's Trustees to make such
determinations) to be readily marketable), and in repurchase
agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for the full text
of these policies and the fund's other fundamental investment
policies. Except for investment policies designated as
fundamental in this prospectus or the SAI, the investment
policies described in this prospectus and in the SAI are not
fundamental policies. The Trustees may change any non-
fundamental investment policies without shareholder approval. As
a matter of policy, the Trustees would not materially change the
fund's investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
The fund's investment performance may from time to time be
included in advertisements about the fund. "Total return" for
the one-, five- and ten-year periods (or for the life of
the class A shares of the fund , if shorter) through
the most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the fund
invested at the maximum public offering price . Total
return may also be presented for other periods or based on
investment at reduced sales charge levels. Any quotation of
investment performance not reflecting the maximum initial sales
charge would be reduced if the sales charge were used.
All data are based on past investment results and do not predict
future performance.
Investment performance, which will vary, is based on many
factors, including market conditions, the composition of the
fund's portfolio, the fund's operating expenses and which class
of shares the investor purchases. Investment performance also
often reflects the risks associated with the fund's investment
objective and policies. These factors should be considered when
comparing the fund's investment results with those of other
mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The fund's performance may be
compared to that of various indexes. See the SAI. Because
shares sold through eligible defined contribution plans are sold
without a sales charge, quotations of investment performance
reflecting the deduction of a sales charge will be lower than the
actual investment performance on shares purchased through such
plans.
HOW THE FUND IS MANAGED
The Trustees of the Trust are responsible for generally
overseeing the conduct of the Trust's business. Subject to such
policies as the Trustees may determine, Putnam Management
furnishes a continuing investment program for the fund and makes
investment decisions on its behalf. Subject to the control of
the Trustees, Putnam Management also manages the fund's other
affairs and business.
The fund pays a quarterly fee to 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 annual rate,
expressed as a percentage of the fund's average net assets, of
1.20% of the first $500 million, 1.10% of the next $500 million,
1.05% of the next $500 million, 1.00% of the next $5 billion,
0.975% of the next $5 billion, 0.955% of the next $5 billion,
0.94% of the next $5 billion, and 0.93% thereafter.
The following officer of Putnam Management has had primary
responsibility for the day-to-day management of the fund's
portfolio since the year stated below:
Business experience
Year (at least 5 years)
Justin M. Scott 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1988.
The fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its distribution plans (which are in turn allocated to the
relevant class of shares). Expenses of the Trust directly
charged or attributable to the fund will be paid from the assets
of the fund. General expenses of the Trust will be allocated
among and charged to the assets of the fund and any other
portfolio of the Trust on a basis that the Trustees deem fair and
equitable, which may be based on the relative assets of the fund
or the nature of the services performed and relative
applicability to the fund and other portfolios of the Trust. The
fund also reimburses Putnam Management for the compensation and
related expenses of certain officers of the fund and their staff
who provide administrative services to the fund. The total
reimbursement is determined annually by the Trustees.
Putnam Management places all orders for purchases and sales of
the fund's securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of the fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of broker-
dealers.
ORGANIZATION AND HISTORY
Putnam International New Opportunities Fund is a series of Putnam
Investment Funds, a Massachusetts business trust organized on
October 31, 1994. A copy of the Agreement and Declaration of
Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
Prior to January 6, 1995, the Trust was known as Putnam Equity
Funds.
The Trust is an open-end, diversified, management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Trust may be divided without
shareholder approval into two or more series of shares
representing separate investment portfolios and are currently
divided into eleven series of shares.
Any such series of shares may be further divided without
shareholder approval into two or more classes of shares having
such preferences and special or relative rights and privileges as
the Trustees determine. The fund's shares are currently divided
into three classes. Only the fund's class A shares are
offered by this prospectus. The fund also offers
other classes of shares with different sales charges and
expenses. Because of these different sales charges and expenses,
the investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of the fund and of each other series of
the Trust vote together as a single class except when otherwise
required by law or as determined by the Trustees. Shares of the
fund are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the fund were liquidated, would
receive the net assets of the fund. The fund may suspend the
sale of shares at any time and may refuse any order to purchase
shares. Although the Trust is not required to hold annual
meetings of its shareholders, shareholders holding at least 10%
of the outstanding shares entitled to vote have the right to call
a meeting to elect or remove Trustees, or to take other actions
as provided in the Agreement and Declaration of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the fund may choose to redeem your shares.
You will receive at least 30 days' written notice before the fund
redeems your shares, and you may purchase additional shares at
any time to avoid a redemption. The fund may also redeem shares
if you own shares above a maximum amount set by the Trustees.
There is presently no maximum, but the Trustees may establish one
at any time, which could apply to both present and future
shareholders.
The Trust's Trustees: George Putnam,* Chairman. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, Massachusetts Institute of Technology; Jameson Adkins
Baxter, President, Baxter Associates, Inc.; Hans H. Estin, Vice
Chairman, North American Management Corp.; John A. Hill,
Principal and Managing Director, First Reserve Corporation;
Elizabeth T. Kennan, President Emeritus and Professor, Mount
Holyoke College; Lawrence J. Lasser,* Vice President of the
Putnam funds. President, Chief Executive Officer and Director of
Putnam Investments, Inc. and Putnam Management. Director, Marsh
& McLennan Companies, Inc.; Robert E. Patterson, Executive Vice
President, Cabot Partners Limited Partnership; Donald S.
Perkins,* Director of various corporations, including AT&T,
Cummins Engine Company, Inc., Spring Industries Inc. and
Time Warner Inc.; George Putnam, III,* President, New Generation
Research, Inc.; Eli Shapiro, Alfred P. Sloan Professor of
Management, Emeritus, Alfred P. Sloan School of Management,
Massachusetts Institute of Technology; A.J.C. Smith,* Chairman,
Chief Executive Officer and Director, Marsh & McLennan Companies,
Inc.; and W. Nicholas Thorndike, Director of various corporations
and charitable organizations, including Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and Eastern Utilities
Associates. The Trust's Trustees are also Trustees of the other
Putnam funds. Those marked with an asterisk (*) are or may be
deemed to be "interested persons" of the Trust, Putnam Management
or Putnam Mutual Funds.
About Your Investment
HOW TO BUY SHARES
All orders to purchase shares must be made through
your employer's defined contribution plan. For more
information about how to purchase shares of the fund through your
employer's plan or limitations on the amount that may be
purchased, please consult your employer. Shares are sold to
eligible defined contribution plans at the net asset value per
share next determined after receipt of an order by Putnam
Mutual Funds . Orders must be received by Putnam Mutual
Funds before the close of regular trading on the New York
Stock Exchange in order to receive that day's
net asset value . In order to be eligible to
purchase shares at net asset value , defined contribution
plans must initially invest at least $1 million or have at least
200 eligible employees. Defined contribution plans participating
in a "multi-fund" program approved by Putnam Mutual Funds
may include amounts invested in other mutual funds
participating in such program for purposes of determining whether
the plan may purchase class A shares at net
asset value. Eligible plans may make additional investments
of any amount at any time. To eliminate the need for
safekeeping, the fund will not issue certificates for your
shares.
On sales at net asset value to a participant-directed
qualified retirement plan initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates (including a plan with at least
200 eligible employees ), Putnam Mutual Funds
pays commissions based on a plan's
cumulative purchases during the one-year period beginning with
the date of the initial purchase at net asset value. Each
subsequent one-year measuring period for these purposes will
begin with the first net asset value purchase following the end
of the prior period. Such commissions are paid at the rate of
1.00% of the first $2 million, 0.80% of the next $1
million and 0.50% thereafter. On sales at net asset value to all
other participant-directed qualified retirement plans, Putnam
Mutual Funds pays commissions on the initial investment and on
subsequent net quarterly sales at the rate of 0.15%.
Putnam Mutual Funds will from time to time, at its expense,
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. These incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
DISTRIBUTION PLAN
The class A plan provides for payments by the fund to
Putnam Mutual Funds at the annual rate of up to 0.35% of average
net assets attributable to class A shares. The Trustees
currently limit payments under the class A plan to the annual
rate of 0.25% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares attributable to shareholders for
whom the dealers are designated as the dealer of record.
This calculation excludes until one year after purchase shares
purchased at net asset value, known as "NAV shares," by
shareholders investing $1 million or more. Also excluded until
one year after purchase are NAV shares purchased by participant-
directed qualified retirement plans with at least 200 eligible
employees. NAV shares are not subject to the one-year exclusion
provision in cases where certain shareholders who invested $1
million or more have made arrangements with Putnam Mutual Funds
and the dealer of record waived the sales commission.
Except as stated below, Putnam Mutual Funds makes the quarterly
payments at the annual rate of 0.25% of such average net asset
value for class A shares (including shares acquired through
reinvestment of distributions).
For participant-directed qualified retirement plans initially
investing less than $20 million in Putnam funds and other
investments managed by Putnam Management or its affiliates,
Putnam Mutual Funds' payments to qualifying dealers on NAV shares
are 100% of the rate stated above if average plan assets in
Putnam funds (excluding money market funds) during the quarter
are less than $20 million, 60% of the stated rate if average plan
assets are at least $20 million but under $30 million, and 40% of
the stated rate if average plan assets are $30 million or more.
For all other participant-directed qualified retirement plans
purchasing NAV shares, Putnam Mutual Funds makes quarterly
payments to qualifying dealers at the annual rate of 0.10% of the
average net asset value of such shares.
Payments under the plan are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such payments to dealers.
The payments are also subject to the continuation of the
distribution plan, the terms of service agreements between
dealers and Putnam Mutual Funds, and any applicable limits
imposed by the National Association of Securities Dealers, Inc.
HOW TO SELL SHARES
Subject to any restrictions imposed by your employer's plan,
you can sell your shares through the plan to the fund
any day the New York Stock Exchange is open . For more
information about how to sell shares of the fund
through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
Your plan administrator must send a signed letter of
instruction to Putnam Investor Services . The
price you will receive is the next net asset value calculated
after the fund receives your request in proper form . All
requests must be received by the fund prior to the close of
regular trading on the New York Stock Exchange in order to
receive that day's net asset value . If your plan
sells shares having a net asset value of $100,000 or
more, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer or
certain other financial institutions. See the SAI for more
information about where to obtain a signature guarantee.
The fund generally provides payment for redeemed
shares the business day after the request is received.
Under unusual circumstances, the fund may suspend redemptions, or
postpone payment for more than seven days, as permitted by
federal securities law. The fund will only redeem shares for
which it has received payment.
HOW TO EXCHANGE SHARES
Subject to any restrictions contained in your plan, you
can exchange your shares for shares of other Putnam funds
available through your plan at net asset value .
Contact your plan administrator or Putnam Investor
Services on how to exchange your shares or how to
obtain prospectuses of other Putnam funds in which you may
invest .
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the Trustees
believe doing so would be in the best interests of the fund, the
fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the SAI to find out more
about the exchange privilege.
HOW THE FUND VALUES ITS SHARES
The fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange each
day the exchange is open.
Portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees.
HOW THE FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION
The fund distributes any net investment income and any net
realized capital gains at least annually. Distributions from net
investment income, if any, are expected to be small.
Distributions from capital gains are made after applying any
available capital loss carryovers.
The terms of your plan will govern how your plan may receive
distributions from the fund. Generally, periodic distributions
from the fund to your plan are reinvested in additional
fund shares, although your plan may permit you to receive
fund distributions from net investment income in cash
while reinvesting capital gains distributions in
additional shares or to receive all fund
distributions in cash. If another option is not
selected , all distributions will be reinvested in
additional fund shares.
The fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of
federal taxes on income and gains it distributes . The
fund will distribute substantially all of its ordinary income and
capital gain net income on a current basis. Generally,
fund distributions are taxable as ordinary income,
except that any distributions of net long-term capital gains will
be taxed as such . However, distributions by the fund
to employer-sponsored defined contribution plans that qualify for
tax-exempt treatment under federal income tax laws will not
be taxable . Special tax rules apply to investments
through such plans. You should consult your tax adviser to
determine the suitability of the fund as an investment through
such a plan and the tax treatment of distributions
(including distributions of amounts attributable to an
investment in the fund) from such a plan.
Fund transactions in foreign currencies and hedging activities
will likely produce a difference between book income and taxable
income. This difference may cause a portion of the fund's income
distributions to constitute a return of capital for tax purposes
or require the fund to make distributions exceeding book income
to qualify as a regulated investment company for tax purposes.
The foregoing is a summary of certain federal income tax
consequences of investing in the fund. You should consult your
tax adviser to determine the precise effect of an investment in
the fund on your particular tax situation (including possible
liability for state and local taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the fund and
of other Putnam funds. Putnam Defined Contribution Plans is a
division of Putnam Mutual Funds. Putnam Fiduciary Trust
Company is the fund's custodian. Putnam Investor Services, a
division of Putnam Fiduciary Trust Company, is the fund's
investor servicing and transfer agent.
<PAGE>
Putnam Management, Putnam Mutual Funds, and Putnam Fiduciary
Trust Company are located at One Post Office Square, Boston,
Massachusetts 02109 are subsidiaries of Putnam Investments,
Inc., which is wholly owned by Marsh & McLennan Companies, Inc.,
a publicly-owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
