-----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, Bu0UKXgAGUboFd1MCNOdQH+v8bPwpjl/SzUQSBKVpCB1SYD6edKLWL2jLGKytkfm xxgaTo1EZS0csgGhggR06w== 0000912057-99-007755.txt : 19991201 0000912057-99-007755.hdr.sgml : 19991201 ACCESSION NUMBER: 0000912057-99-007755 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19991130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-38953 FILM NUMBER: 99766542 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-06279 FILM NUMBER: 99766543 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO N LASALLE ST STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 BUSINESS PHONE: 8004769625 MAIL ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 485APOS 1 485APOS As filed with the Securities and Exchange Commission on November 30, 1999 Securities Act registration no. 33-38953 Investment Company Act file no. 811-06279 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A - -------------------------------------------------------------------------------- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ Post-Effective Amendment No. 23 /X/ and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 25 /X/ - -------------------------------------------------------------------------------- HARRIS ASSOCIATES INVESTMENT TRUST (Registrant) Two North La Salle Street, Suite 500 Chicago, Illinois 60602-3790 Telephone number 312/621-0600 - -------------------------------------------------------------------------------- Victor A. Morgenstern Cameron S. Avery Harris Associates L.P. Bell, Boyd & Lloyd Two North La Salle Street, #500 70 West Madison Street, #3300 Chicago, Illinois 60602 Chicago, Illinois 60602 (Agents for service) - -------------------------------------------------------------------------------- Amending Parts A, B and C and filing Exhibits - -------------------------------------------------------------------------------- It is proposed that this filing will become effective: immediately upon filing pursuant to rule 485(b) --- on _______________ pursuant to rule 485(b) --- X 60 days after filing pursuant to rule 485(a)(1) --- on _____________ pursuant to rule 485(a)(1) --- 75 days after filing pursuant to rule 485(a)(2) --- on _________, 1999 pursuant to rule 485(a)(2) --- - -------------------------------------------------------------------------------- PROSPECTUS JANUARY 29, 2000 [Logo] THE OAKMARK FUND THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK GLOBAL FUND THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND Managed by Harris Associates L.P. The Securities and Exchange Commission has not approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. TABLE OF CONTENTS (showing ticker symbols of Funds) PAGE OVERVIEW OF THE OAKMARK FAMILY OF FUNDS.....................................1 Investment Objectives..............................................1 Principal Investment Strategies....................................1 THE OAKMARK FUND (OAKMX)....................................................2 Principal Investment Strategy......................................2 Principal Investment Risks.........................................2 Is The Fund Right For Me?..........................................2 Performance Information............................................3 Fees and Expenses..................................................3 THE OAKMARK SELECT FUND (OAKLX).............................................4 Principal Investment Strategy......................................4 Principal Investment Risks.........................................4 Is The Fund Right For Me?..........................................5 Performance Information............................................5 Fees and Expenses..................................................6 THE OAKMARK SMALL CAP FUND (OAKSX)..........................................6 Principal Investment Strategy......................................6 Principal Investment Risks.........................................6 Is The Fund Right For Me?..........................................7 Performance Information............................................7 Fees and Expenses..................................................8 THE OAKMARK EQUITY AND INCOME FUND (OAKBX)..................................8 Principal Investment Strategy......................................8 Principal Investment Risks.........................................9 Is The Fund Right For Me?..........................................9 Performance Information...........................................10 Fees and Expenses.................................................10 THE OAKMARK GLOBAL FUND (OAKGX)............................................11 Principal Investment Strategy.....................................11 Principal Investment Risks........................................11 Is The Fund Right For Me?.........................................12 Performance Information...........................................12 Fees and Expenses.................................................12 THE OAKMARK INTERNATIONAL FUND (OAKIX).....................................13 Principal Investment Strategy.....................................13 Principal Investment Risks........................................13 Is The Fund Right For Me?.........................................14 Performance Information...........................................14 Fees and Expenses.................................................15 THE INTERNATIONAL SMALL CAP FUND (OAKEX)...................................15 Principal Investment Strategy.....................................15 Principal Investment Risks........................................15 Is The Fund Right For Me?.........................................16 Performance Information...........................................16 Fees and Expenses.................................................17 HOW WE PURSUE OUR INVESTMENT OBJECTIVES....................................18 Investment Techniques.............................................18 Risk Factors......................................................19 Change in Objective...............................................21 MANAGEMENT OF THE FUNDS....................................................21 FUND SERVICES..............................................................22 Eligibility To Buy Shares.........................................23 i Share Classes.....................................................23 Investment Minimums...............................................23 EXCHANGES.........................................................23 HOW TO BUY CLASS I SHARES..................................................23 By Check..........................................................24 By Wire Transfer..................................................24 For More Information..............................................24 Share Price.......................................................24 General Purchasing Policies.......................................25 HOW TO SELL CLASS I SHARES.................................................25 In Writing........................................................25 For More Information..............................................25 General Redemption Policies.......................................25 SHAREHOLDER SERVICES.......................................................26 DISTRIBUTIONS AND TAXES....................................................27 Distributions.....................................................27 Taxes.............................................................27 FINANCIAL HIGHLIGHTS.......................................................27 Oakmark Fund......................................................28 Select Fund.......................................................28 Small Cap Fund....................................................29 Equity and Income Fund............................................29 Global Fund.......................................................30 International Fund................................................30 International Small Cap Fund......................................31 ii - -------------------------------------------------------------------------------- OVERVIEW OF THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- - -------------------------------- INVESTMENT OBJECTIVES - -------------------------------- The OAKMARK FUND ("Oakmark Fund"), The OAKMARK SELECT FUND ("Select Fund"), The OAKMARK SMALL CAP FUND ("Small Cap Fund"), The OAKMARK GLOBAL FUND ("Global Fund"), The OAKMARK INTERNATIONAL FUND ("International Fund") and The OAKMARK INTERNATIONAL SMALL CAP FUND ("International Small Cap Fund") seek long-term capital appreciation. The OAKMARK EQUITY AND INCOME FUND ("Equity and Income Fund") seeks high current income and preservation and growth of capital. - -------------------------------- PRINCIPAL INVESTMENT STRATEGIES - -------------------------------- PHILOSOPHY Harris Associates L.P., the investment adviser to The Oakmark Family of Funds (the "Adviser"), uses a value investment philosophy in selecting equity securities for the Funds. Our philosophy of investing is based upon the belief that, over time, a company's stock price moves toward and meets with the company's true business value. We believe that investing in securities priced significantly below what we consider the true business value presents the best opportunity to achieve each Fund's investment objective. PROCESS We use this value philosophy to identify companies that we believe have discounted stock prices compared to the companies' true business values. In assessing such companies, we look for the following characteristics, although not all of the companies selected will have these attributes: - - positive free cash flows; - - favorable earnings growth potential; - - competitive return on equity; and - - high level of manager ownership. We focus on individual companies in making our investment decisions rather than on specific economic factors or specific industries. In order to select those that meet the criteria described above, we use independent, in-house research to analyze each company. As part of this selection process, our analysts typically visit companies and talk to various industry sources. The chief consideration in the selection of stocks for the Funds is the size of the discount of a company's stock price compared to the company's underlying value. Once we determine that a stock is selling at a significant discount (typically 60% of its estimated worth) and the company has the other additional qualities mentioned above, we generally will consider buying that stock. We usually sell when the company's stock price approaches 90% of its estimated worth. This means we set specific "buy" and "sell" targets for each stock held by the Fund. We also monitor each Fund's holdings, and, if warranted, adjust those price targets to reflect changes in a company's basic characteristics. PORTFOLIO STRUCTURE We believe that holding a small number of stocks allows our "best ideas" to have a meaningful impact on fund performance; therefore, the portfolio of each Fund, except Select Fund, typically holds 30 to 60 stocks rather than hundreds. Select Fund generally holds 15 to 20 stocks in its portfolio. Our value strategy also emphasizes investing for the long-term, which means that we generally own the companies in which we invest for at least two to three years. We believe that the market will ultimately discover these undervalued companies, and, therefore, we give them the time such recognition requires. - -------------------------------------------------------------------------------- THE OAKMARK FUND - -------------------------------------------------------------------------------- - ------------------------------ PRINCIPAL INVESTMENT STRATEGY - ------------------------------ Oakmark Fund invests primarily in common stocks of U.S. companies (although it may invest up to 25% of its total assets in securities of non-U.S. companies). - ------------------------------ PRINCIPAL INVESTMENT RISKS - ------------------------------ Although we make every effort to achieve the Fund's objective of long-term capital appreciation, we cannot guarantee we will attain that objective. Following are the principal risks of investing in the Fund and the measures we take in attempting to limit those risks: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You risk losing money by investing in the Fund. COMMON STOCK. The Fund invests mostly in common stocks, which are a type of equity security that represents an equity (ownership) interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called MARKET RISK and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. MANAGING RISK. The Fund tries to manage some of the risks of investing in common stock by purchasing stocks whose prices the Adviser considers low relative to the stocks' earnings potential. The Fund seeks companies with solid finances and proven records and continuously monitors each portfolio holding. For more information on risks, see "How We Pursue Our Investment Objectives--Risk Factors." - ------------------------------ IS THE FUND RIGHT FOR ME? - ------------------------------ You should consider an investment in Oakmark Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, five years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. 2 - ------------------------------------------ PERFORMANCE INFORMATION - ------------------------------------------ The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. The bar chart that follows can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [GRAPH APPEARS HERE:
Class I Shares Total Returns for Periods Ending December 31 (%) 1992 48.90 1993 30.50 1994 3.31 1995 34.42 1996 16.21 1997 32.59 1998 3.74 1999 __]
Since 1992, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 15.4%, during the quarter ended December 31, 1992 - - Lowest quarterly return: -13.8%, during the quarter ended September 30, 1998 The table below shows how the Fund's average annual total returns for one and five years and since inception compare with the S&P 500 Index, a widely quoted stock market index that includes 500 of the largest companies publicly traded in the United States. Average Annual Total Returns for Periods Ended December 31, 1999 (%)
------------------------------------------------------------------------- Since 1 5 Inception Year Years August 5, 1991 ------------------------------------------------------------------------- Oakmark Fund - Class I......... S&P 500........................
Information is not available for Class II Shares, since Class II Shares have not been sold to investors for a full calendar year. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE SHOWN ABOVE IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. - ------------------------------------------ FEES AND EXPENSES - ------------------------------------------ Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
- -------------------------------------------------------------------------------- Expense Class I Class II - -------------------------------------------------------------------------------- Sales charge None None Exchange fee None None Redemption fee None None (as a percentage of amount redeemed)
3 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- -------------------------------------------------------------------------------- Class I Class II - -------------------------------------------------------------------------------- Management fees .96% .96% Distribution (12b-1) fees None None Service fees None .25 Other expenses .15 .15 - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.11% 1.36%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
------------------------------------------------------------------------ Class I Class II ------------------------------------------------------------------------ 1 Year $110 $140 3 Years 350 430 5 Years 610 740 10 Years 1,350 1,630
- -------------------------------------------------------------------------------- THE OAKMARK SELECT FUND - -------------------------------------------------------------------------------- - --------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY - --------------------------------------------------------- Select Fund invests primarily in common stocks of U.S. companies (although it may invest up to 25% of its total assets in securities of non-U.S. companies). The Fund is non-diversified, which means that it is not limited under the Investment Company Act of 1940 in the percentage of assets that it may invest in any one issuer. The Fund could own as few as 12 securities, but generally will have 15 to 20 securities in its portfolio. - --------------------------------------------------------- PRINCIPAL INVESTMENT RISKS - --------------------------------------------------------- Although we make every effort to achieve the Fund's objective of long-term capital appreciation, we cannot guarantee we will attain that objective. Following are the principal risks of investing in the Fund and the measures we take in attempting to limit those risks: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You risk losing money by investing in the Fund. COMMON STOCK. The Fund invests mostly in common stocks, which are a type of equity security that represents an equity (ownership) interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called MARKET RISK and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. NON-DIVERSIFICATION. Although the Fund's strategy of investing in a limited number of stocks has the potential to generate attractive returns over time, it may increase the volatility of the Fund's investment performance as compared to funds that invest in a larger number of stocks. If the stocks in which the Fund invests perform poorly, the Fund could incur greater losses than if it had invested in a larger number of stocks. 4 MANAGING RISK. The Fund tries to manage some of the risks of investing in common stock by purchasing stocks whose prices the Adviser considers low relative to the stocks' earnings potential. The Fund seeks companies with solid finances and proven records and the Adviser continuously monitors each portfolio holding. For more information on risks, see "How We Pursue Our Investment Objectives--Risk Factors." - --------------------------------------------------------- IS THE FUND RIGHT FOR ME? - --------------------------------------------------------- You should consider an investment in Select Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, five years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. - ---------------------------------------------------------- PERFORMANCE INFORMATION - ---------------------------------------------------------- The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. The bar chart that follows can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [GRAPH APPEARS HERE:
Class I Shares Total Returns for Periods Ending December 31 (%) 1997 55.02 1998 16.22 1999 __]
Since 1997, the highest and lowest quarterly returns for the Fund's Class I Shares were: - Highest quarterly return: 21.5%, during the quarter ended December 31, 1998 - Lowest quarterly return: -17.2%, during the quarter ended September 30, 1998 The table below shows how the Fund's average annual total returns for one year and since inception compare with the S&P 500 Index, a widely quoted stock market index that includes 500 of the largest companies publicly traded in the United States.
Average Annual Total Returns for Periods Ended December 31, 1999 (%) --------------------------------------------------------------------- Since 1 Inception Year November 1, 1996 --------------------------------------------------------------------- Select Fund - Class I .............. S&P 500 ............................
5 Information is not available for Class II Shares, since Class II Shares have not been sold to investors for a full calendar year. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE SHOWN ABOVE IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. - --------------------------------------------------------- FEES AND EXPENSES - --------------------------------------------------------- Below are the fees and expenses that you would pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment) - ------------------------------------------------------------------------------------------------- Expense Class I Class II - ------------------------------------------------------------------------------------------------- Sales charge None None Exchange fee None None Redemption fee 2% of redemption proceeds on shares None (as a percentage of amount redeemed) held for less than 90 days
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- -------------------------------------------------------------------------------------------------------- Class I Class II - -------------------------------------------------------------------------------------------------------- Management fees .97% .97% Distribution (12b-1) fees None None Service fees None .25 Other expenses .19 .19 - -------------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.16% 1.41%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
--------------------------------------------------------------- Class I Class II --------------------------------------------------------------- 1 Year $120 $140 3 Years 370 440 5 Years 640 770 10 Years 1,410 1,690
- -------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------------------------- - -------------------------------------- PRINCIPAL INVESTMENT STRATEGY - -------------------------------------- Small Cap Fund invests primarily in common stocks of U.S. companies (although it may invest up to 25% of its total assets in securities of non-U.S. companies). The Fund invests primarily in the stocks of "small cap companies." A small cap company is one whose market capitalization is no larger than the largest market capitalization of the companies included in the S&P Small Cap 600 Index ($___ billion as of ______, 1999). - -------------------------------------- PRINCIPAL INVESTMENT RISKS - -------------------------------------- Although we make every effort to achieve the Fund's objective of long-term capital appreciation, we cannot guarantee we will attain that objective. Following are the principal risks of investing in the Fund and the measures we take in attempting to limit those risks: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You risk losing money by investing in the Fund. 6 COMMON STOCK. The Fund invests mostly in common stocks, which are a type of equity security that represents an equity (ownership) interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called MARKET RISK and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. SMALL CAP STOCKS. Small cap stocks typically are more volatile and may be less liquid than large cap stocks. Small cap companies may have a shorter history of operations and a smaller market for their shares. MANAGING RISK. The Fund tries to manage some of the risks of investing in common stock by purchasing stocks whose prices the Adviser considers low relative to the stocks' earnings potential. The Fund seeks companies with solid finances and proven records and the Adviser continuously monitors each portfolio holding. For more information on risks, see "How We Pursue Our Investment Objectives--Risk Factors." - -------------------------------------------- IS THE FUND RIGHT FOR ME? - -------------------------------------------- You should consider an investment in Small Cap Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, five years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. - -------------------------------------------- PERFORMANCE INFORMATION - -------------------------------------------- The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. The bar chart that follows can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [GRAPH APPEARS HERE:
Class I Shares Total Returns for Periods Ending December 31 (%) 1996 39.79 1997 40.51 1998 -13.16 1999 __]
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - Highest quarterly return: 17.7%, during the quarter ended December 31, 1998 - Lowest quarterly return: -26.8%, during the quarter ended September 30, 1998 7 The table below shows how the Fund's average annual total returns for one year and since inception compare with the Russell 2000 Index, an unweighted index of small companies that represents approximately 10% of the total value of publicly traded companies in the U.S.
Average Annual Total Returns for Periods Ended December 31, 1999 (%) --------------------------------------------------------------------- Since 1 Inception Year November 1, 1995 --------------------------------------------------------------------- Small Cap Fund - Class I ........... Russell 2000 Index..................
Information is not available for Class II Shares, since Class II Shares have not been sold to investors for a full calendar year. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE SHOWN ABOVE IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. - -------------------------------------- FEES AND EXPENSES - -------------------------------------- Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
- --------------------------------------------------------------------------------------------------- Expense Class I Class II - --------------------------------------------------------------------------------------------------- Sales charge None None Exchange fee None None Redemption fee 2% of redemption proceeds on shares None (as a percentage of amount redeemed) held for less than 90 days
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------------------------- Class I Class II - --------------------------------------------------------------------------------------------------- Management fees 1.27% 1.27% Distribution (12b-1) fees None None Service fees None .25 Other expenses .21 .21 - --------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.48% 1.73%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
-------------------------------------------------------------------- Class I Class II -------------------------------------------------------------------- 1 Year $150 $180 3 Years 470 550 5 Years 810 940 10 Years 1,780 2,040
- -------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------------------------- - -------------------------------------- PRINCIPAL INVESTMENT STRATEGY - -------------------------------------- Equity and Income Fund invests primarily in a diversified portfolio of U.S. equity and fixed-income securities (although the Fund may invest up to 10% of its total assets in securities of non-U.S. companies). The Fund is intended to present a balanced investment program between growth and income by investing approximately 50-75% of its total assets in common stock , including securities convertible into common stock, and 25-50% of its assets in U.S. government securities and debt 8 securities rated at time of purchase within the two highest grades assigned by Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's Corporation ("S&P"). The Fund may also invest up to 20% of its assets in unrated or lower rated debt securities. - -------------------------------------- PRINCIPAL INVESTMENT RISKS - -------------------------------------- Although we make every effort to achieve the Fund's objectives of high current income and preservation and growth of capital, we cannot guarantee we will attain those objectives. Following are the principal risks of investing in the Fund and the measures we take in attempting to limit those risks: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You risk losing money by investing in the Fund. COMMON STOCK. The Fund invests mostly in common stocks, which are a type of equity security that represents an equity (ownership) interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called MARKET RISK and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. DEBT SECURITIES. The debt securities in which the Fund invests are subject to CREDIT RISK, INTEREST RATE RISK and LIQUIDITY RISK. Credit risk is the risk that the company that issued a debt security or bond may become unable to make payments of principal and interest when due and includes the risk of default. Interest rate risk is the risk that a Fund's investments in debt securities will decline in value as a result of changes in interest rates. Generally, the value of fixed income securities rises when prevailing interest rates fall and falls when interest rates rise. Liquidity risk is the risk that a Fund may not be able to sell the medium- and lower-grade debt securities because there are too few buyers for them. MANAGING RISK. The Fund tries to manage some of the risks of investing in common stock by purchasing stocks whose prices the Adviser considers low relative to the stocks' earnings potential. The Fund seeks companies with solid finances and proven records and the Adviser continuously monitors each portfolio holding. The Fund attempts to manage the risks of investing in bonds by conducting an independent evaluation of the creditworthiness of the bonds and the companies and by actively managing the average duration of the bonds in anticipation of interest rate changes. For more information on risks, see "How We Pursue Our Investment Objectives--Risk Factors." - -------------------------------------- IS THE FUND RIGHT FOR ME? - -------------------------------------- You should consider an investment in Equity and Income Fund if you are seeking current income and preservation and growth of capital and are willing to accept the associated risks. The Fund is intended to present a balanced investment program between growth and income. If you invest in the Fund, you should be willing to accept short-term price fluctuations which will occur from time to time. You should not consider investing in the Fund if you cannot tolerate moderate short-term declines in share value or if you are seeking the higher returns historically achieved by funds that invest primarily in stocks. 9 - ---------------------------------------------------------- PERFORMANCE INFORMATION - ---------------------------------------------------------- The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. The bar chart that follows can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [GRAPH APPEARS HERE:
Class I Shares Total Returns for Periods Ending December 31 (%) 1996 15.29 1997 26.56 1998 12.39 1999 __]
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - Highest quarterly return: 10.5%, during the quarter ended December 31, 1998 - Lowest quarterly return: -6.9%, during the quarter ended September 30, 1998 The table below shows how the Fund's average annual total returns for one year and since inception compare with the Lipper Balanced Fund Index, an index of 30 balanced funds. Average Annual Total Returns for Periods Ended December 31, 1999 (%)
- -------------------------------------------------------------------------------- Since 1 Inception Year November 1, 1995 - -------------------------------------------------------------------------------- Equity and Income Fund - Class I ............. Lipper Balanced Fund Index Composite..........
Information is not available for Class II Shares, since Class II Shares have not been sold to investors for a full calendar year. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE SHOWN ABOVE IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. - -------------------------------------- FEES AND EXPENSES - -------------------------------------- Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
- -------------------------------------------------------------------------------- Expense Class I Class II - -------------------------------------------------------------------------------- Sales charge None None Exchange fee None None Redemption fee None None (as a percentage of amount redeemed)
10 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- ----------------------------------------------------------------------------------------------- Class I Class II - ----------------------------------------------------------------------------------------------- Management fees .75% .75% Distribution (12b-1) fees None None Service fees None .25 Other expenses .43 .43 - ----------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.18% 1.43%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
------------------------------------------------------------------- Class I Class II ------------------------------------------------------------------- 1 Year $120 $150 3 Years 370 460 5 Years 640 790 10 Years 1,430 1,720
- -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- - -------------------------------------- PRINCIPAL INVESTMENT STRATEGY - -------------------------------------- Global Fund invests primarily in common stocks of U.S. and non-U.S. companies. The Fund invests in the securities of companies located in at least three countries. Typically, the Fund invests between 20-60% of its total assets in securities of U.S. companies, and between 40-80% of its total assets in securities of non-U.S. companies. The Fund's foreign investments include foreign government obligations and foreign common stock. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 15% of its assets in securities of companies based in emerging markets. - --------------------------------------------------------- PRINCIPAL INVESTMENT RISKS - --------------------------------------------------------- Although we make every effort to achieve the Fund's objective of long-term capital appreciation, we cannot guarantee we will attain that objective. Following are the principal risks of investing in the Fund and the measures we take in attempting to limit those risks: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You risk losing money by investing in the Fund. COMMON STOCK. The Fund invests mostly in common stocks, which are a type of equity security that represents an equity (ownership) interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called MARKET RISK and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. SMALL CAP STOCKS. Small cap stocks typically are more volatile and may be less liquid than large cap stocks. Small cap companies may have a shorter history of operations and a smaller market for their shares. FOREIGN SECURITIES. Investing in foreign securities presents risks that in some ways may be greater than the risks of investing in U.S. securities. These additional risks include currency exchange rate fluctuation, less available public information about companies, less stringent regulatory standards, lack 11 of uniform accounting, auditing and financial reporting standards, and country risks including less market liquidity, high inflation rates, unfavorable market practices and political instability. MANAGING RISK. The Fund tries to manage some of the risks of investing in U.S. and foreign securities by purchasing stocks whose prices the Adviser considers low relative to the stocks' earnings potential. The Adviser considers the relative political and economic stability of a company's home country, the ownership structure of the company, and the company's accounting practices. The Fund seeks companies with solid finances and proven records and the Adviser continuously monitors each portfolio holding. For more information on risks, see "How We Pursue Our Investment Objectives--Risk Factors." - -------------------------------------- IS THE FUND RIGHT FOR ME? - -------------------------------------- You should consider an investment in Global Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, five years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. - -------------------------------------- PERFORMANCE INFORMATION - -------------------------------------- Information is not available for the Fund, since it has not yet completed a full calendar year. - -------------------------------------- FEES AND EXPENSES - -------------------------------------- Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
- ------------------------------------------------------------------------------------------------------------- Expense Class I Class II - ------------------------------------------------------------------------------------------------------------- Sales charge None None Exchange fee None None Redemption fee 2% of redemption proceeds on shares None (as a percentage of amount redeemed) held for less than 90 days
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- ---------------------------------------------------------------------------------------------------- Class I Class II - ---------------------------------------------------------------------------------------------------- Management fees 1.00% 1.00% Distribution (12b-1) fees None None Service fees None .25 Other expenses .75* .75* - ---------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.75%* 2.00%*
- ---------- * In the absence of an operating history, the amount shown for "other expenses" is the estimated amount that the Fund will incur. The Adviser has agreed to reimburse Class I and Class II Shares of the Fund, respectively, to the extent that the annual ordinary operating expenses exceed 1.75% of the average net assets of Class I Shares, or 2.00% of the average net assets of Class II Shares. The contract with the Adviser is effective through January 31, 2001, subject to earlier termination by the Adviser on 30 days' notice to the Fund. 12 EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
--------------------------------------------------------------------- Class I Class II --------------------------------------------------------------------- 1 Year $180 $200 3 Years 550 630 5 Years 950 1,080 10 Years 2,070 2,330
- -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- - -------------------------------------- PRINCIPAL INVESTMENT STRATEGY - -------------------------------------- International Fund invests primarily in common stocks of non-U.S. companies. The Funds may invest in mature markets (examples are Japan, Canada and the United Kingdom) and in less developed markets (examples are Mexico, Brazil and Korea). Ordinarily, the Funds will invest in the securities of at least five countries outside the U.S. - -------------------------------------- PRINCIPAL INVESTMENT RISKS - -------------------------------------- Although we make every effort to achieve the Fund's objective of long-term capital appreciation, we cannot guarantee we will attain that objective. Following are the principal risks of investing in the Fund and the measures we take in attempting to limit those risks: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You risk losing money by investing in the Fund. COMMON STOCK. The Fund invests mostly in common stocks, which are a type of equity security that represents an equity (ownership) interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called MARKET RISK and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. FOREIGN SECURITIES. Investing in foreign securities presents risks that in some ways may be greater than the risks of investing in U.S. securities. These additional risks include currency exchange rate fluctuation, less available public information about companies, less stringent regulatory standards, lack of uniform accounting, auditing and financial reporting standards, and country risks including less market liquidity, high inflation rates, unfavorable market practices and political instability. MANAGING RISK. The Fund tries to manage some of the risks of investing in foreign securities by purchasing stocks whose prices the Adviser considers low relative to the stocks' earnings potential. The Adviser considers the relative political and economic stability of a company's home country, the ownership structure of the company, and the company's accounting practices. The Fund seeks companies with solid finances and proven records and the Adviser continuously monitors each portfolio holding. For more information on risks, see "How We Pursue Our Investment Objectives--Risk Factors." 13 - -------------------------------------- IS THE FUND RIGHT FOR ME? - -------------------------------------- You should consider an investment in International Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, five years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. - -------------------------------------- PERFORMANCE INFORMATION - -------------------------------------- The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. The bar chart that follows can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [GRAPH APPEARS HERE:
Class I Shares Total Returns for Periods Ending December 31 (%) 1993 53.58 1994 -9.06 1995 8.32 1996 28.02 1997 3.33 1998 -7.01 1999 __]
Since 1993, the highest and lowest quarterly returns for the Fund's Class I Shares were: - Highest quarterly return: 21.0%, during the quarter ended June 30, 1999 - Lowest quarterly return: -19.4%, during the quarter ended September 30, 1998 The table below shows how the Fund's average annual total returns for one and five years and since inception compare with the Morgan Stanley Capital International World ex U.S. Index, an unmanaged index which includes 19 country sub-indexes. Average Annual Total Returns for Periods Ended December 31, 1999 (%)
------------------------------------------------------------------------------ Since 1 5 Inception Year Years September 30, 1992 ------------------------------------------------------------------------------ International Fund - Class I ......... M.S.C.I. World ex U.S. Index ..........
Information is not available for Class II Shares, since Class II Shares have not been sold to investors for a full calendar year. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE SHOWN ABOVE IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. 14 - -------------------------------------- FEES AND EXPENSES - -------------------------------------- Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
- -------------------------------------------------------------------------------------------------------------- Expense Class I Class II - -------------------------------------------------------------------------------------------------------------- Sales charge None None Exchange fee None None Redemption fee 2% of redemption proceeds on shares None (as a percentage of amount redeemed) held for less than 90 days
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- ------------------------------------------------------------------------------------------------------------------------------ Class I Class II - ------------------------------------------------------------------------------------------------------------------------------ Management fees 1.00% 1.00% Distribution (12b-1) fees None None Service fees None .25 Other expenses .29 .29 - ------------------------------------------------------------------------------------------------------------------------------ Total Annual Fund Operating Expenses 1.29% 1.54%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
--------------------------------------------------------------------------------------- Class I Class II --------------------------------------------------------------------------------------- 1 Year $130 $160 3 Years 410 480 5 Years 710 840 10 Years 1,560 1,840
- -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- - -------------------------------------- PRINCIPAL INVESTMENT STRATEGY - -------------------------------------- International Small Cap Fund invests primarily in common stocks of non-U.S. small cap companies. A small cap company is one whose market capitalization is no larger than the largest market capitalization of the companies included in the S&P Small Cap 600 Index ($___ billion as of ______, 1999). The Fund may invest in mature markets (examples are Japan, Canada and the United Kingdom) and in less developed markets (examples are Mexico, Brazil and Korea). Ordinarily, the Fund will invest in the securities of at least five countries outside the U.S. - -------------------------------------- PRINCIPAL INVESTMENT RISKS - -------------------------------------- Although we make every effort to achieve the Fund's objective of long-term capital appreciation, we cannot guarantee we will attain that objective. Following are the principal risks of investing in the Fund and the measures we take in attempting to limit those risks: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You risk losing money by investing in the Fund. 15 COMMON STOCK. The Fund invests mostly in common stocks, which are a type of equity security that represents an equity (ownership) interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called MARKET RISK and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. FOREIGN SECURITIES. Investing in foreign securities presents risks that in some ways may be greater than the risks of investing in U.S. securities. These additional risks include currency exchange rate fluctuation, less available public information about companies, less stringent regulatory standards, lack of uniform accounting, auditing and financial reporting standards, and country risks including less market liquidity, high inflation rates, unfavorable market practices and political instability. SMALL CAP STOCKS. Small cap stocks typically are more volatile and may be less liquid than large cap stocks. Small cap companies may have a shorter history of operations and a smaller market for their shares. MANAGING RISK. The Fund tries to manage some of the risks of investing in foreign securities by purchasing stocks whose prices the Adviser considers low relative to the stocks' earnings potential. The Adviser considers the relative political and economic stability of a company's home country, the ownership structure of the company, and the company's accounting practices. The Fund seeks companies with solid finances and proven records and the Adviser continuously monitors each portfolio holding. For more information on risks, see "How We Pursue Our Investment Objectives--Risk Factors." - -------------------------------------- IS THE FUND RIGHT FOR ME? - -------------------------------------- You should consider an investment in International Small Cap Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, five years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. - -------------------------------------- PERFORMANCE INFORMATION - -------------------------------------- The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. The bar chart that follows can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [GRAPH APPEARS HERE:
Class I Shares Total Returns for Periods Ending December 31 (%) 1996 25.01 1997 -19.91 1998 9.20 1999 __]
16 Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - Highest quarterly return: 28.2%, during the quarter ended December 31, 1998 - Lowest quarterly return: -23.9%, during the quarter ended December 31, 1997 The table below shows how the Fund's average annual total returns for one year and since inception compare with the Morgan Stanley Capital International World ex U.S. Index, an unmanaged index which includes 19 country sub-indexes. Average Annual Total Returns for Periods Ended December 31, 1999 (%)
- ----------------------------------------------------------------------------------------------- Since 1 Inception Year November 1, 1995 - ----------------------------------------------------------------------------------------------- International Small Cap Fund - Class I .............. M.S.C.I. World ex U.S. Index.........................
Information is not available for Class II Shares, since Class II Shares have not been sold to investors for a full calendar year. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE SHOWN ABOVE IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. - -------------------------------------- FEES AND EXPENSES - -------------------------------------- Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
- ---------------------------------------------------------------------------------------------------------------------------- Expense Class I Class II - ---------------------------------------------------------------------------------------------------------------------------- Sales charge None None Exchange fee None None Redemption fee 2% of redemption proceeds on shares None (as a percentage of amount redeemed) held for less than 90 days
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- ------------------------------------------------------------------------------------------------------------------------------ Class I Class II - ------------------------------------------------------------------------------------------------------------------------------ Management fees 1.21% 1.21% Distribution (12b-1) fees None None Service fees None .25 Other expenses .58 .58 - ------------------------------------------------------------------------------------------------------------------------------ Total Annual Fund Operating Expenses 1.79% 2.04%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
--------------------------------------------------------------------------------------- Class I Class II --------------------------------------------------------------------------------------- 1 Year $180 $210 3 Years 560 640 5 Years 970 1,100 10 Years 2,100 2,370
17 - -------------------------------------------------------------------------------- HOW WE PURSUE OUR INVESTMENT OBJECTIVES - -------------------------------------------------------------------------------- - -------------------------------------- INVESTMENT TECHNIQUES - -------------------------------------- COMMON STOCK. The common stock in which each Fund may invest include common and preferred stocks and warrants or other similar rights and convertible securities. Our chief consideration in selecting common stock for each Fund is the size of the discount of market price relative to our determination of the true economic value of the security. DEBT SECURITIES. Each Fund may invest in debt securities of both governmental and corporate companies. Each of Oakmark Fund, Select Fund, Small Cap Fund and Global Fund may invest up to 25% of its assets, Equity and Income Fund may invest up to 20% of its assets, and each of International Fund and International Small Cap Fund may invest up to 10% of its assets (valued at the time of investment), in debt securities that are rated below investment grade, without a minimum rating requirement. A description of the ratings used by S&P and Moody's is included as an appendix to the Statement of Additional Information. CURRENCY EXCHANGE TRANSACTIONS. International Fund, International Small Cap Fund and Global Fund engage in currency exchange transactions either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks and broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. The Funds' forward currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or actual or anticipated portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to a specific receivable or payable of a Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to an actual or anticipated portfolio security position denominated or quoted in a particular currency. The Funds may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in such currency. When a Fund owns or anticipates owning securities in countries whose currencies are linked, we may aggregate such positions as to the currency hedged. Although forward contracts may be used to protect a Fund from adverse currency movements, the use of such hedges may reduce or eliminate the potentially positive effect of currency revaluations on the Fund's total return. SHORT-TERM INVESTMENTS. In seeking to achieve its investment objective, a Fund ordinarily invests on a long-term basis, but on occasion may also invest on a short-term basis, for example, where short-term perceptions have created a significant gap between price and value. Occasionally, securities purchased on a long-term basis may be sold within twelve months after purchase in light of a change in the circumstances of a particular company or industry or in light of general market or economic conditions or if a security achieves its price target in an unexpected shorter period. To the extent that investments meeting the Funds' criteria for investment are not available, or when we consider a temporary defensive posture advisable in response to adverse market, economic, political, or other conditions, the Funds may invest without limitation in high-quality corporate debt obligations of U.S. companies or U.S. government obligations, or may hold cash in domestic or foreign currencies or invest in domestic or foreign money market securities. During those periods, a Fund's assets may not be invested in accordance with its regular strategy, and the Fund may not achieve its investment objective. 18 CASH RESERVES. Under ordinary circumstances, the Funds are substantially fully invested. At times, however, to meet liquidity needs or for temporary defensive purposes, each Fund may hold cash in domestic and foreign currencies and may invest in domestic and foreign money market securities. During those periods, a Fund's assets may not be invested in accordance with its regular strategy and the Fund may not achieve its investment objective. - -------------------------------------- RISK FACTORS - -------------------------------------- GENERAL. All investments, including those in mutual funds, have risks, and no one investment is suitable for all investors. Each Fund is intended for long-term investors. Only Equity and Income Fund is intended to present a balanced investment program between growth and income. MARKET RISK. Each Fund is subject to the market risk that always comes with investments in common stock. Stock prices may fluctuate widely over short or extended periods in response to company, market, or economic news. Stock markets also tend to move in cycles, with periods of rising stock prices and periods of falling stock prices. Although each Fund (other than Select Fund) is diversified, each Fund, except Select Fund, generally intends to limit its holdings to approximately 30 to 60 stocks. The appreciation or depreciation of any one stock will have a greater impact on the Fund's net asset value than it would if the Fund invested in a larger number of stocks. Although that strategy has the potential to generate attractive returns over time, it also increases the Fund's volatility. SMALL AND MID CAP COMPANIES. During some periods, the securities of small and mid cap companies, as a class, have performed better than the securities of large companies, and in some periods they have performed worse. Stocks of small and mid cap companies tend to be more volatile and less liquid than stocks of large companies. Small and mid cap companies, as compared to larger companies, may have a shorter history of operations, may not have as great an ability to raise additional capital, may have a less diversified product line making them susceptible to market pressure, and may have a smaller public market for their shares. INTERNATIONAL INVESTING. International investing allows you to achieve greater diversification and to take advantage of changes in foreign economies and market conditions. Many foreign economies have, from time to time, grown faster than the U.S. economy, and the returns on investments in those countries have exceeded those of similar U.S. investments, although there can be no assurance that those conditions will continue. You should understand and consider carefully the greater risks involved in investing internationally. Investing in securities of non-U.S. companies, which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve both opportunities and risks not typically associated with investing in U.S. securities. These include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to companies; less governmental supervision of stock exchanges, securities brokers and companies; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets; imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign subcustodial arrangements. Although the Funds try to invest in companies located in countries having stable political environments, there is the possibility of restriction of foreign investment, expropriation of assets, or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other political, social or diplomatic developments that could adversely affect investment in these countries. Economies in individual emerging markets may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many emerging market countries have experienced high rates of inflation for many years, which has had and may continue to have very negative effects on the economies and securities markets of those countries. 19 The securities markets of emerging countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of the United States and other more developed countries. Disclosure and regulatory standards in many respects are less stringent than in the U.S. and other major markets. There also may be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets, and enforcement of existing regulations has been extremely limited. Any Fund may invest in ADRs, EDRs or GDRs that are not sponsored by the issuer of the underlying security. To the extent it does so, a Fund would probably bear its proportionate share of the expenses of the depository and might have greater difficulty in receiving copies of the issuer's shareholder communications than would be the case with a sponsored ADR, EDR or GDR. The cost of investing in securities of non-U.S. issuers typically is higher than the cost of investing in U.S. securities. International Fund, International Small Cap Fund and Global Fund provide an efficient way for an individual to participate in foreign markets, but their expenses, including advisory and custody fees, are higher than for a typical domestic equity fund. INTEREST RATE RISK. Each Fund may invest in debt securities of both governmental and corporate issuers. A decline in prevailing levels of interest rates generally increases the value of debt securities in a Fund's portfolio, while an increase in rates usually reduces the value of those securities. As a result, to the extent that a Fund invests in debt securities, interest rate fluctuations will affect its net asset value, but not the income it receives from debt securities it owns. In addition, if the debt securities contain call, prepayment or redemption provisions, during a period of declining interest rates, those securities are likely to be redeemed, and the Fund would probably be unable to replace them with securities having as great a yield. CREDIT RISK. Neither International Fund nor International Small Cap Fund will invest more than 10% of its respective total assets in securities rated below investment grade or, if unrated, that are considered by the Adviser to be of comparable quality, Equity and Income Fund will not invest more than 20% of its total assets in such securities, and each of the other Funds will not invest more than 25% of its total assets in such securities. Investment in medium- or lower-grade debt securities involves greater risk, including the possibility of issuer default or bankruptcy. Lower-grade debt securities (commonly called "junk bonds") are obligations of companies rated BB or lower by S&P or Ba or lower by Moody's. Lower-grade debt securities are considered speculative and may be in poor standing or actually in default. Medium-grade debt securities are those rated BBB by S&P or Baa by Moody's. Securities so rated are considered to have speculative characteristics. An economic downturn could severely disrupt the market in medium or lower grade debt securities and adversely affect the value of outstanding bonds and the ability of the issuers to repay principal and interest. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. LIQUIDITY RISK. The market for medium- and lower-grade debt securities tends to be less broad than higher-quality debt securities. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio of these debt securities. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. NON-DIVERSIFICATION OF SELECT FUND. As a "non-diversified" fund, Select Fund is not limited under the Investment Company Act of 1940 in the percentage of its assets that it may invest in any one company. However, the Fund intends to comply with the diversification standards applicable to regulated investment companies under the Internal Revenue Code of 1986. In order to meet those standards, among other requirements, at the close of each quarter of its taxable year (a) at least 50% of the value of the Fund's total assets must be represented by one or more of the following: (i) cash and cash 20 items, including receivables; (ii) U.S. government securities; (iii) securities of other regulated investment companies; and (iv) securities (other than those in items (ii) and (iii) above) of any one or more issuers as to which the Fund's investment in an issuer does not exceed 5% of the value of the Fund's total assets (valued at the time of investment); and (b) not more than 25% of its total assets (valued at the time of investment) may be invested in the securities of any one issuer (other than U.S. government securities or securities of other regulated investment companies). Since Select Fund may invest more than 5% of its assets in a single portfolio security, the appreciation or depreciation of such a security will have a greater impact on the net asset value of the Fund than would a smaller investment in that security, and the net asset value per share of the Fund can be expected to fluctuate more than would the net asset value of a comparable "diversified" fund. - -------------------------------------- CHANGE IN OBJECTIVE - -------------------------------------- Each Fund's investment objective may be changed by the board of trustees without shareholder approval. Shareholders would receive at least 30 days' written notice of any change in a Fund's objective. If there is a change in investment objective, you should consider whether that Fund remains an appropriate investment in light of your then current financial position and needs. There can be no assurance that a Fund will achieve its investment objective. - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- The Oakmark Family of Funds' investments and business affairs are managed by Harris Associates L.P. (the "Adviser"). The Adviser also serves as investment adviser to individuals, trusts, retirement plans, endowments and foundations, and manages numerous private partnerships. Together with a predecessor, the Adviser has advised and managed mutual funds since 1970. The Adviser's address is Two North LaSalle Street, Chicago, Illinois 60602-3790. Subject to the overall authority of the board of trustees, the Adviser furnishes continuous investment supervision and management to the Funds and also furnishes office space, equipment and management personnel. Each Fund pays a management fee to the Adviser for serving as investment adviser and for providing administrative services. The fee is determined as a percentage of average daily net assets. For the fiscal year ended September 30, 1999, the management fees paid by the Funds, as a percentage of average net assets, were: Oakmark Fund .96% Select Fund .97 Small Cap Fund 1.27 Equity and Income Fund .75 International Fund 1.00 International Small Cap Fund 1.21 Global Fund 1.00*
- ------------------- * The amount shown for the Global Fund, which commenced operations on August 4, 1999, is the Fund's annual management fee as a percentage of net assets. For the period of August 4 through September 30, 1999 and taking into account the Adviser's reimbursement of expenses, the Fund paid the Adviser fees in the amount of .57% of average net assets. The Adviser has voluntarily agreed to reimburse each Fund to the extent that its annual ordinary operating expenses of a class exceed the following percentages of its average net assets of that class:
FUND CLASS I CLASS II ------------------------------------------------------------------------------ Oakmark Fund 1.50% 1.75% Select Fund 1.50 1.75 Small Cap Fund 1.50 1.75 Equity and Income Fund 1.50 1.75 International Fund 2.00 2.25 International Small Cap Fund 2.00 2.25 Global Fund 1.75 2.00
21 Each such agreement is effective through January 31, 2001, but the Adviser may terminate the agreement earlier by giving 30 days' notice to the Fund. The investment objective and policies of Oakmark Fund were developed by the Adviser and Robert J. Sanborn, C.F.A., the Fund's portfolio manager. Mr. Sanborn joined the Adviser as a portfolio manager and analyst in 1988. Previously, he had been a portfolio manager/analyst with The State Teachers Retirement System of Ohio. He holds an M.B.A. in Finance from the University of Chicago (1983) and a B.A. in Economics from Dartmouth College (1980). The investment objective and policies of Select Fund were developed by the Adviser and William C. Nygren, C.F.A., the Fund's portfolio manager. Mr. Nygren joined the Adviser as an analyst in 1983, and was the Adviser's Director of Research from September, 1990 to April, 1998. Previously, he had been an analyst with Northwestern Mutual Life Insurance Company. He holds an M.S. in Finance from the University of Wisconsin (1981) and a B.S. in Accounting from the University of Minnesota (1980). The investment objective and policies of Small Cap Fund were developed by the Adviser, Steven J. Reid, C.F.A. and James P. Benson. Mr. Reid and Mr. Benson are the Fund's portfolio managers. Mr. Reid joined the Adviser as an accountant in 1980 and has been an investment analyst since 1985. He holds a B.A. in Business from Roosevelt University (1979). Mr. Benson joined the Adviser as an investment analyst in 1997. Prior thereto, he had been an Executive Vice-President and Director of Equity Research for Ryan Beck & Co. Mr. Benson holds a M.M. in Finance from Northwestern University (1981) and a B.A. in Economics and Computer Science from Westminster College (1979). The investment objective and policies of Equity and Income Fund were developed by the Adviser and Clyde S. McGregor, C.F.A., the Fund's portfolio manager. Mr. McGregor joined the Adviser as an analyst in 1981 and began managing portfolios in 1986. He holds an M.B.A. in Finance from the University of Wisconsin - Madison (1977) and a B.A. in Economics and Religion from Oberlin College (1974). The investment objective and policies of International Fund were developed by the Adviser and David G. Herro, C.F.A. and Michael J. Welsh, C.F.A. and C.P.A., the Fund's portfolio managers. Mr. Herro joined the Adviser in 1992 as a portfolio manager and analyst. Previously, he had been an international portfolio manager for the State of Wisconsin Investment Board and The Principal Financial Group. He holds an M.A. in Economics from the University of Wisconsin - - Milwaukee (1985) and a B.S. in Business and Economics from the University of Wisconsin - Platteville (1983). Mr. Welsh joined the adviser as an international analyst in 1992. Previously, he had been a senior associate, valuation services, with Coopers & Lybrand. He holds an M.M. in Finance from Northwestern University (1993) and a B.S. in Accounting from the University of Kansas (1985). The investment objective and policies of International Small Cap Fund were developed by the Adviser and David G. Herro and Michael J. Welsh, the Fund's portfolio managers. The investment objective and policies of Global Fund were developed by the Adviser and Gregory L. Jackson and Michael J. Welsh, C.F.A. and C.P.A., the Fund's portfolio managers. Mr. Jackson is responsible for the day-to-day management of the Fund's domestic portfolio, and Mr. Welsh manages the day-to-day affairs of the Fund's foreign portfolio. Mr. Jackson joined the adviser in July of 1998. He holds a B.S. in Finance from the University of Utah, and an MBA in Finance from the University of Chicago. Previously he had been a portfolio manager/analyst with Yacktman Asset Management. - -------------------------------------------------------------------------------- FUND SERVICES - -------------------------------------------------------------------------------- The Funds are "no-load" mutual funds, which means that they do not impose any commission or sales charge when shares are purchased or sold. However, each Fund except Oakmark Fund and Equity and Income Fund does impose a redemption fee on redemptions of Class I Shares held for less than 90 days. See "General Redemption Policies - Redemption Fee Class I Shares." 22 - -------------------------------------- ELIGIBILITY TO BUY SHARES - -------------------------------------- Each Fund is available for purchase only by residents of the United States, Puerto Rico, Guam and the U.S. Virgin Islands. - -------------------------------------- SHARE CLASSES - -------------------------------------- The Funds offer two classes of shares: Class I Shares and Class II Shares. Each class is offered at net asset value per share of that class. Class I Shares of a Fund are offered to members of the general public. Class II Shares of a Fund are offered to certain retirement and profit sharing plans. Class II Shares of a Fund pay a service fee at the annual rate of .25% of the average net assets of Class II Shares of the Fund. This service fee is paid to an administrator for performing the services associated with the administration of such retirement plans. If you invest in Class II Shares, the procedures by which you can buy and sell shares are governed by the terms of your retirement plan. Please contact your plan sponsor or service provider for information on how to buy and sell your Class II Shares. - -------------------------------------- INVESTMENT MINIMUMS - -------------------------------------- (APPLIES TO CLASS I SHARES ONLY)
- ------------------------------------------------------------------------ INITIAL SUBSEQUENT TYPE OF ACCOUNT INVESTMENT INVESTMENT - ------------------------------------------------------------------------ Regular investing account $1,000 $100 - ------------------------------------------------------------------------ Traditional or Roth IRA 1,000 100 - ------------------------------------------------------------------------ SIMPLE IRA Determined on a Determined on a case by case case by case basis basis - ------------------------------------------------------------------------ Education IRA 500 100 - ------------------------------------------------------------------------ Automatic Investment Plan or Payroll Deduction Plan 500 100 - ------------------------------------------------------------------------
- -------------------------------------- EXCHANGES - -------------------------------------- You may purchase shares of a Fund by exchange of shares of another Fund or by exchange of Oakmark Units. Oakmark Units are ILA Service Units of Government Portfolio (a "money market fund" that is a portfolio of Goldman Sachs Institutional Liquid Assets Portfolios of Goldman Sachs Trust). - -------------------------------------- HOW TO BUY CLASS I SHARES - -------------------------------------- You may OPEN AN ACCOUNT by check, wire transfer, automatic investment, payroll deduction, exchange or through an intermediary, such as a broker-dealer, bank, retirement plan service provider or retirement plan sponsor (called an "Intermediary"). You may ADD TO AN ACCOUNT by check, wire transfer, electronic transfer, automatic investment, payroll deduction, exchange, or through an Intermediary. 23 - -------------------------------------- BY CHECK - -------------------------------------- OPENING AN ACCOUNT Complete and sign the New Account Registration Form, enclose a check and mail the Form and your check to the address listed on the Form. ADDING TO AN ACCOUNT Mail your check with either the stub from your confirmation statement or a note with the amount of the purchase, your account number, and the name in which your account is registered to: Oakmark Family of Funds P.O. Box 8510 Boston, MA 02266-8510 - -------------------------------------- BY WIRE TRANSFER - -------------------------------------- OPENING AN ACCOUNT Call 1-800-OAKMARK and choose menu option 2 to request an account number and wire transfer instructions. ADDING TO AN ACCOUNT Instruct your bank to transfer funds to State Street Bank & Trust Company, ABA# 011000028, DDA# 9904-632-8. Specify the Fund name, your account number and the registered account name(s) in the instructions. - -------------------------------------- FOR MORE INFORMATION - -------------------------------------- For information about opening or adding to an account by electronic transfer, automatic investment, payroll deduction or exchange, please visit our website at WWW.OAKMARK.COM and click on "Profiles, Prospectuses and Applications," call us at 1-800-OAKMARK or contact us at: Oakmark Family of Funds P.O. Box 8510 Boston, MA 02266-8510 - -------------------------------------- SHARE PRICE - -------------------------------------- NET ASSET VALUE. The share price is also called the NET ASSET VALUE ("NAV") of a share. The NAV of a Class I or Class II share is determined by the Fund's custodian, State Street Bank and Trust Company, as of the close of regular session trading (currently 4:00 p.m., Eastern time) on the New York Stock Exchange ("NYSE") on any day on which the NYSE is open for trading. A Fund's NAV will not be calculated on days when the NYSE is closed, such as on Saturdays and Sundays and on certain holidays, as more fully discussed in the Statement of Additional Information under "Purchasing and Redeeming Shares." The net asset value of Class I Shares of each Fund is determined by dividing the value of the assets attributable to Class I Shares of the Fund, less liabilities attributable to that class, by the number of Class I Shares outstanding. Similarly, the net asset value of Class II Shares of each Fund is determined by dividing the value of the assets attributable to Class II Shares of the Fund, less liabilities attributable to that class, by the number of Class II Shares outstanding. Trading in the securities of non-U.S. issuers held in each Fund's portfolio takes place in various markets on days and at times other than when the NYSE is open for trading. Therefore, the calculation of net asset value does not take place at the same time as the prices of many of those portfolio securities are determined and the value of the Funds' portfolios may change on days when the Funds are not open for business and their shares are not being bought or sold. Price information may be obtained by accessing the Funds' website at WWW.OAKMARK.COM. PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of Class I Shares of a Fund is made at the net asset value of Class I Shares next determined as follows: - - A purchase BY CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER is made at the net asset value next determined after receipt by our transfer agent of your check or wire transfer or your electronic transfer investment instruction. 24 - - A purchase THROUGH AN INTERMEDIARY that IS our authorized agent for the receipt of orders is made at the net asset value next determined after receipt of the order by the Intermediary. - - A purchase THROUGH AN INTERMEDIARY that IS NOT an authorized agent for the receipt of orders is made at the net asset value next determined after receipt of your order by our transfer agent. Each purchase of Class II Shares of a Fund through an Intermediary is made at the net asset value of Class II Shares next determined after receipt of the order by the Intermediary. - -------------------------------------- GENERAL PURCHASING POLICIES - -------------------------------------- - - We cannot accept cash, drafts, "starter" checks, third party checks, checks drawn on banks outside of the United States or purchase orders specifying a particular purchase date or price per share. - - Once your purchase order has been accepted, you may not cancel or revoke it; however, you may redeem the shares. - - We reserve the right to reject any purchase order that we determine not to be in the best interest of the Trust or of each Fund's shareholders. We will not honor requests for purchases or exchanges by shareholders we have reason to believe are "market-timers." Although we will attempt to give prior notice of a suspension or termination of an exchange privilege when it is reasonably able to do so, the suspension or termination may be effective immediately, thereby preventing any uncompleted exchange. - - We reserve the right at any time without prior notice to suspend, limit, modify or terminate any privilege, including the telephone exchange privilege, or its use in any manner by any person or class. - -------------------------------------------------------------------------------- HOW TO SELL CLASS I SHARES - -------------------------------------------------------------------------------- You may SELL YOUR SHARES in writing or by telephone, electronic transfer, exchange, wire transfer or automatic redemption. - -------------------------------------- IN WRITING - -------------------------------------- Write to us at: Oakmark Family of Funds P.O. Box 8510 Boston, MA 02266-8510 Your redemption request must: - - identify the Fund and give your account number; - - specify the number of shares or dollar amount to be redeemed; and - - be signed in ink by all account owners exactly as their names appear on the account registration. - -------------------------------------- FOR MORE INFORMATION - -------------------------------------- For information about redeeming shares by telephone, electronic transfer, exchange, wire transfer or automatic redemption, please visit our website at www.oakmark.com and click on "Profiles, Prospectuses and Applications," call us at 1-800-OAKMARK or contact us at: Oakmark Family of Funds P.O. Box 8510 Boston, MA 02266-8510 - -------------------------------------- GENERAL REDEMPTION POLICIES - -------------------------------------- OTHER POLICIES. Certain policies apply to the sale of Fund shares. - - The price at which your redemption order will be processed is the net asset value next determined after proper redemption instructions are received. See "Share Price - Net Asset Value" above. - - We cannot accept a redemption request that specifies a particular redemption date or price. 25 - - Once your redemption order has been accepted, you may not cancel or revoke it. - - We generally will mail redemption proceeds within seven days after receipt of your redemption request. - - We reserve the right at any time without prior notice to suspend, limit, modify or terminate any privilege, including the telephone exchange privilege, or its use in any manner by any person or class. SIGNATURE GUARANTEE. Your request to sell your Fund shares must include a signature guarantee if: - - your account registration has been changed within the last 30 days; - - the redemption check is to be mailed to an address different from the one on your account; - - the redemption check is to be made payable to someone other than the registered account owner; or - - you are instructing us to transmit the proceeds to a bank account that you have not previously designated as the recipient of such proceeds. You should be able to obtain a signature guarantee from a bank, securities broker-dealer, credit union (if authorized under state law), securities exchange or association, clearing agency or savings association. YOU CANNOT OBTAIN A SIGNATURE GUARANTEE FROM A NOTARY PUBLIC. 90-DAY REDEMPTION FEE - CLASS I SHARES. Each Fund except Oakmark Fund and Equity and Income Fund imposes a short-term trading fee on redemptions of Class I Shares held less than 90 days to offset two types of costs to the Fund caused by short-term trading: portfolio transaction and market impact costs associated with erratic redemption activity and administrative costs associated with processing redemptions. The fee is 2% of the redemption value and is deducted from the redemption proceeds. The "first-in, first-out" (FIFO) method is used to determine the holding period, which means that if you bought shares on different days, the shares purchased first will be redeemed first for purposes of determining whether the short-term trading fee applies. We do NOT impose a redemption fee on a redemption of: - - shares acquired by reinvestment of dividends or distributions of a Fund; or - - shares held in an account of certain retirement plans or profit sharing plans or purchased through certain Intermediaries. SMALL ACCOUNT REDEMPTION. We also reserve the right to redeem shares in any account and send the proceeds to the owner if the account value has been reduced below $1,000 as a result of redemptions. We will notify you if your account falls below the minimum and give you 30 days to bring the account value up to the minimum. REDEMPTION IN KIND. We generally intend to pay all redemptions in cash. Each Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund during any 90-day period for any one shareholder. Redemptions in excess of those amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of marketable securities. Brokerage costs may be incurred by a shareholder who receives securities and desires to convert them to cash. - -------------------------------------------------------------------------------- SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- Please visit our website at www.oakmark.com for more information about The Oakmark Family of Funds, or to obtain profiles, prospectuses, account applications, forms to establish shareholder privileges or to change your account registration, shareholder reports, or each Fund's daily NAV. To obtain information about your account, such as your account balance, your last transaction and account history, click on "Account Information" and follow the instructions. 26 - -------------------------------------------------------------------------------- DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- - -------------------------------------- DISTRIBUTIONS - -------------------------------------- Each Fund distributes to its shareholders at least annually substantially all net investment income as dividends and any net capital gains realized from sales of the Fund's portfolio securities. All of your income dividends and capital gain distributions will be reinvested in additional shares unless you elect to have distributions paid by check. If any check from a Fund mailed to you is returned as undeliverable or is not presented for payment within six months, the Trust reserves the right to reinvest the check proceeds and future distributions in additional Fund shares. - -------------------------------------- TAXES - -------------------------------------- The following discussion of U.S. and foreign taxation applies only to U.S. shareholders and is not intended to be a full discussion of income tax laws and their effect. You may wish to consult your own tax advisor. DISTRIBUTIONS. Distributions from investment income (dividends) and net short-term capital gains are taxable as ordinary income. Distributions of long-term capital gains are taxable as long-term capital gains regardless of the length of time you have held your Fund shares. Distributions will be taxable to you whether received in cash or reinvested in Fund shares. An exchange transaction is a sale and purchase of shares for federal income tax purposes and may result in a capital gain or loss. The Trust will send you an annual statement to advise you as to the source of your distributions for tax purposes. If you are not subject to income taxation, you will not be required to pay tax on amounts distributed to you. BUYING INTO A DISTRIBUTION. Purchasing a Fund's shares in a taxable account shortly before a distribution by the Fund is sometimes called "buying into a distribution." You pay income taxes on a distribution whether you reinvest the distribution in shares of the Fund or receive it in cash. In addition, you pay taxes on the distribution whether the value of your investment decreased, increased or remained the same after you bought shares of the Fund. A Fund may build up capital gains during the period covered by a distribution as securities are sold at a profit. After subtracting any capital losses, the Fund distributes those gains to you and other shareholders, even if you did not own the shares when the gains occurred, and you incur the full tax liability on the distribution. FOREIGN INCOME TAXES. Investment income received by a Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. If a Fund pays nonrefundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by a Fund. BACKUP WITHHOLDING. To avoid the Federal income tax withholding of 31% ("backup withholding") on dividends, distributions and redemption proceeds, you must furnish to the Fund your properly certified social security or other tax identification number. If you do not do so or the Internal Revenue Service informs the Fund that your tax identification number is incorrect, we may be required to withhold Federal income tax at a rate of 31% from these payments to you. Because each Fund must promptly pay to the IRS all amounts withheld, it is usually not possible for a Fund to reimburse you for amounts withheld. You may claim the amount withheld as a credit on your federal income tax return. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The following tables are intended to help you understand each Fund's financial performance during the last five years (or since it began operations, if less than five years). Certain information reflects financial results for a single Fund share. Total returns represent the rate you would have earned (or lost) on an investment, assuming reinvestment of all dividends and distributions. This information has 27 been audited by Arthur Andersen LLP, independent accountants, whose report, along with each Fund's financial statements, is included in the annual report and the Statement of Additional Information, which are available on request. For each year shown, all information is for the fiscal year ended September 30, unless otherwise noted. As of September 30, 1999, no Class II shares of any Fund had been issued. - -------------------------------------- OAKMARK FUND - --------------------------------------
CLASS I -------------------------------------------------------------------- Year Ended Eleven Year Ended September 30, Months Ended October 31, 1999 1998 Sept. 30, 1997 1996 1995 ------- ------- -------------- ------- ------ Net Asset Value, beginning of period $33.54 $41.21 $32.39 $28.47 $25.21 Income from investment operations: Net investment income (loss) 0.44 0.47 0.36 0.34 0.30 Net gains or losses on securities (both realized and unrealized) 2.43 (1.73) 10.67 4.70 4.66 ------- ------- ------- ------- ------ Total from investment operations 2.87 (1.26) 11.03 5.04 4.96 Less distributions: Dividends (from net investment income) (0.44) (0.40) (0.34) (0.28) (0.23) Distributions (from capital gains) (1.60) (6.01) (1.87) (0.84) (1.47) ------- ------- ------- ------- ------ Total distributions (2.04) (6.41) (2.21) (1.12) (1.70) ------- ------- ------- ------- ------ Net asset value, end of period $34.37 $33.54 $41.21 $32.39 $28.47 ------- ------- ------- ------- ------ ------- ------- ------- ------- ------ Total return 7.98% (4.06)% 39.24%* 18.07% 21.55% Ratios/supplemental data: Net assets, end of period ($million) $4,772.8 $6,924.0 $6,614.9 $3,933.9 $2,827.1 Ratio of expenses to average net assets 1.11% 1.08% 1.08%* 1.18% 1.17% Ratio of net income (loss) to average net assets 1.02% 1.22% 1.19%* 1.13% 1.27% Portfolio turnover rate 13% 43% 17% 24% 18% - ---------
* Data has been annualized. - -------------------------------------- SELECT FUND - --------------------------------------
CLASS I ----------------------------------------------------- Year Ended Eleven September 30, Months Ended 1999 1998 Sept. 30, 1997 ------- ------- -------------- Net Asset Value, beginning of period $16.76 $16.34 $10.00 Income from investment operations: Net investment income (loss) 0.20 0.03 (0.01) Net gains or losses on securities (both realized and unrealized) 4.72 0.56 6.35 ------- ------- ------ Total from investment operations 4.92 0.59 6.34 Less distributions: Dividends (from net investment income) (0.05) 0.00 0.00 Distributions (from capital gains) (0.71) (0.17) 0.00 ------- ------- ------ Total distributions (0.76) (0.17) 0.00 ------- ------- ------ Net asset value, end of period $20.92 $16.76 $16.34 ------- ------- ------ ------- ------- ------ Total return 30.07% 3.64% 69.16%* Ratios/supplemental data: Net assets, end of period ($million) $1,638.9 $1,227.9 $514.2 Ratio of expenses to average net assets 1.16% 1.22% 1.12%* Ratio of net income (loss) to average net assets 0.98% 0.17% (0.11%)* Portfolio turnover rate 67% 56% 37% - -----------
* Data has been annualized. 28 - -------------------------------------- SMALL CAP FUND - --------------------------------------
CLASS I --------------------------------------------------------- Eleven Year Year Ended Months Ended Ended September 30, Sept. 30, Oct. 31, 1999 1998 1997 1996 ---- ---- ------------ -------- Net Asset Value, beginning of period $12.63 $20.34 $13.19 $10.00 Income from investment operations: Net investment income (loss) (0.16) (0.12) (0.01) (0.02) Net gains or losses on securities (both realized and unrealized) 1.50 (4.73) 7.16 3.21 ----- ------- ------ ------ Total from investment operations 1.34 (4.85) 7.15 3.19 Less distributions: Dividends (from net investment income) 0.00 0.00 0.00 0.00 Distributions (from capital gains) (0.09) (2.86) 0.00 0.00 ------- ------- ------ ------ Total distributions (0.09) (2.86) 0.00 0.00 ------- ------- ------ ------ Net asset value, end of period $13.88 $12.63 $20.34 $13.19 ====== ====== ====== ====== Total return 10.56% (26.37)% 59.14%* 31.94% Ratios/supplemental data: Net assets, end of period ($million) $437.1 $618.0 $1,513.4 $218.4 Ratio of expenses to average net assets 1.48% 1.45% 1.37%* 1.61% Ratio of net income (loss) to average net assets (0.44)% (0.40)% (0.25)%* (0.29)% Portfolio turnover rate 68% 34% 27% 23% - -----------
* Data has been annualized. - -------------------------------------- EQUITY AND INCOME FUND - --------------------------------------
CLASS I --------------------------------------------------------- Year Ended Eleven Year September 30, Months Ended Ended 1999 1998 Sept. 30, 1997 Oct. 31, 1996 ------- ------ -------------- ------------- Net Asset Value, beginning of period $13.99 $14.49 $11.29 $10.00 Income from investment operations: Net investment income (loss) 0.43 0.29 0.21 0.10 Net gains or losses on securities (both realized and unrealized) 1.68 0.04 3.24 1.19 ------- ------- -------- ------ Total from investment operations 2.11 0.33 3.45 1.29 Less distributions: Dividends (from net investment income) (0.21) (0.24) (0.12) 0.00 Distributions (from capital gains) (0.21) (0.59) (0.13) 0.00 ------- ------- -------- ------ Total distributions (0.42) (0.83) (0.25) 0.00 ------- ------- -------- ------ Net asset value, end of period $15.68 $13.99 $14.49 $11.29 ------- ------- -------- ------ ------- ------- -------- ------ Total return 15.32% 2.57% 34.01%* 12.91% Ratios/supplemental data: Net assets, end of period ($million) $60.3 $57.7 $33.5 $13.8 Ratio of expenses to average net assets 1.18% 1.31% 1.50%*(a) 2.50%(a) Ratio of net income (loss) to average net assets 2.65% 2.39% 2.38%*(a) 1.21%(a) Portfolio turnover rate 81% 46% 53% 66% - -----------
* Data has been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, the ratios would have been as follows:
Eleven Months Ended Year Ended September 30, 1997 October 31, 1996 - ---------------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.70% 2.64% Ratio of net income (loss) to average net assets 2.18 1.08
29 - ------------------------------------------------------------ GLOBAL FUND - ------------------------------------------------------------ CLASS I -------------------------- Year Ended September 30, 1999(+) -------------------------- Net Asset Value, beginning of period $10.00 Income from investment operations: Net investment income (loss) 0.01 ------ Net gains or losses on securities (both realized and unrealized) (0.83) ------ Total from investment operations (0.82) Less distributions: Dividends (from net investment income) 0.00 Distributions (from capital gains) 0.00 ------ Total distributions 0.00 ------ Net asset value, end of period $9.18 ------ ------ Total return (8.18)% Ratios/supplemental data: Net assets, end of period ($million) $24.0 Ratio of expenses to average net assets 1.75%*(a) Ratio of net income (loss) to average net assets 0.98%*(a) Portfolio turnover rate 7.23% - -----------
* Ratios have been annualized. (+) For the period from commencement of operations (August 4, 1999) through September 30, 1999. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, the ratios would have been as follows:
Period Ended September 30, 1999 - -------------------------------------------------------------------------- Ratio of expenses to average net assets 2.22% Ratio of net income (loss) to average net assets .51
- -------------------------------------- INTERNATIONAL FUND - -------------------------------------- CLASS I -------------------------------------------------------------------- Year Ended Eleven Year Ended September 30, Months Ended October 31, 1999 1998 Sept. 30, 1997 1996 1995 ---- ---- -------------- ---- ---- Net Asset Value, beginning of period $10.42 $18.77 $14.92 $12.97 $14.50 Income from investment operations: Net investment income (loss) 0.36 0.41 0.27 0.09 0.30 Net gains or losses on securities (both realized and unrealized) 4.19 (5.32) 3.74 2.90 (0.77) ------ ------- ------ ------- ------ Total from investment operations 4.55 (4.91) 4.01 2.99 (0.47) Less distributions: Dividends (from net investment income) (0.24) (0.58) (0.16) 0.00 0.00 Distributions (from capital gains) (0.78) (2.86) (0.00) (1.04) (1.06) ------ ------- ------ ------- ------ Total distributions (1.02) (3.44) (0.16) (1.04) (1.06) ------ ------- ------ ------- ------ Net asset value, end of period $13.95 $10.42 $18.77 $14.92 $12.97 ------ ------- ------ ------- ------ ------ ------- ------ ------- ------ Total return 46.41% (29.90)% 29.63%* 24.90% (3.06)% Ratios/supplemental data: Net assets, end of period ($ million) $811.1 $756.1 $1.647.3 $1,172.8 $819.7 Ratio of expenses to average net assets 1.29% 1.32% 1.26%* 1.32% 1.40% Ratio of net income (loss) to average net assets 1.94% 1.95% 2.09%* 1.45% 1.40% Portfolio turnover rate 54% 43% 61% 42% 26% - -----------
* Data has been annualized. 30 - -------------------------------------- INTERNATIONAL SMALL CAP FUND - --------------------------------------
CLASS I --------------------------------------------------------- Year Ended Eleven Year September 30, Months Ended Ended 1999 1998 Sept. 30, 1997 Oct. 31, 1996 ---- ---- -------------- ------------- Net Asset Value, beginning of period $6.89 $12.20 $11.41 $10.00 Income from investment operations: Net investment income (loss) 0.20 0.18 0.13 0.04 Net gains or losses on securities (both realized and unrealized) 5.75 (4.09) 1.10 1.37 ----- ------ ------ ------ Total from investment operations 5.95 (3.91) 1.23 1.41 Less distributions: Dividends (from net investment income) (0.20) (0.06) (0.08) 0.00 Distributions (from capital gains) 0.00 (1.34) (0.36) 0.00 ----- ------ ------ ------ Total distributions (0.20) (1.40) (0.44) 0.00 ----- ------ ------ ------ Net asset value, end of period $12.64 $6.89 $12.20 $11.41 ----- ------ ------ ------ ----- ------ ------ ------ Total return 88.02% (35.20)% 12.07%* 14.15% Ratios/supplemental data: Net assets, end of period ($million) $155.4 $51.8 $66.0 $39.8 Ratio of expenses to average net assets 1.79% 1.96% 1.93%* 2.50%(a) Ratio of net income (loss) to average net assets 2.31% 2.17% 1.23%* 0.65%(a) Portfolio turnover rate 126% 69% 63% 27% - -----------
* Ratios have been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, the ratios would have been as follows:
Year Ended October 31, 1996 ---------------- Ratio of expenses to average net assets 2.65% Ratio of net income (loss) to average net assets .50
31 You can obtain more information about the Oakmark Family of Funds' investments in its semiannual and annual reports to shareowners. These reports contain information on the market conditions and investment strategies that significantly affected the Oakmark Family of Funds' performance during the last fiscal year. You may wish to read the Statement of Additional Information (SAI) for more information about the Oakmark Family of Funds. The SAI is incorporated by reference into this prospectus, which means that it is considered to be part of this prospectus. You can obtain free copies of the Oakmark Family of Funds' semiannual and annual reports and the SAI, request other information, and discuss your questions about the Oakmark Family of Funds by writing or calling: OAKMARK FAMILY OF FUNDS P.O. BOX 8510 BOSTON, MA 02266-8510 1-800-OAKMARK (1-800-625-6275) The requested documents will be sent within three business days of your request. Other information about each Fund may also be obtained by accessing the Oakmark Family of Funds' website at www.oakmark.com. Text-only versions of all Fund documents can be viewed online or downloaded from the SEC at www.sec.gov. You can also review and copy those documents by visiting the SEC's Public Reference Room in Washington, DC, by calling 800-SEC-0330, or by sending your request and the appropriate duplicating fee to the SEC's Public Reference Section, 450 5th Street, N.W., Washington, DC 20549-6009. Harris Associates Investment Trust 811-06279 32 STATEMENT OF ADDITIONAL INFORMATION JANUARY 29, 2000 THE OAKMARK FAMILY OF FUNDS No-Load Funds Two North LaSalle Street Chicago, Illinois 60602-3790 Telephone 1-800-OAKMARK (1-800-625-6275) www.oakmark.com This Statement of Additional Information relates to The Oakmark Fund ("Oakmark Fund"), The Oakmark Select Fund ("Select Fund"), The Oakmark Small Cap Fund ("Small Cap Fund"), The Oakmark Equity and Income Fund, ("Equity and Income Fund"), The Oakmark Global Fund ("Global Fund"), The Oakmark International Fund ("International Fund") and The Oakmark International Small Cap Fund ("International Small Cap Fund"), each a series of Harris Associates Investment Trust (the "Trust"). This Statement of Additional Information is not a prospectus but provides information that should be read in conjunction with the Funds' prospectus dated the same date as this Statement of Additional Information and any supplement thereto. You may obtain a prospectus or semi-annual or annual report from the Funds at no charge by writing, telephoning or accessing the Funds at their address, telephone number or website shown above. - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- THE FUNDS..........................................................2 INVESTMENT RESTRICTIONS............................................2 HOW THE FUNDS INVEST...............................................4 PERFORMANCE INFORMATION...........................................13 INVESTMENT ADVISER................................................16 CODE OF ETHICS....................................................18 TRUSTEES AND OFFICERS.............................................18 PRINCIPAL SHAREHOLDERS............................................21 PURCHASING AND REDEEMING SHARES...................................22 ADDITIONAL TAX INFORMATION........................................24 TAXATION OF FOREIGN SHAREHOLDERS..................................25 PORTFOLIO TRANSACTIONS............................................26 DECLARATION OF TRUST..............................................28 CUSTODIAN AND TRANSFER AGENT......................................28 INDEPENDENT PUBLIC ACCOUNTANTS....................................29 APPENDIX A -- BOND RATINGS.......................................A-1 APPENDIX B -- FINANCIAL STATEMENTS...............................B-1 - -------------------------------------------------------------------------------- THE FUNDS Oakmark Fund, Select Fund, Small Cap Fund, Global Fund, International Fund and International Small Cap Fund seek long-term capital appreciation. Equity and Income Fund seeks high current income and preservation and growth of capital. The Funds are series of Harris Associates Investment Trust (the "Trust"), an open-end management investment company, and each Fund other than Select Fund is diversified. The Trust is a Massachusetts business trust organized under an Agreement and Declaration of Trust dated February 1, 1991. Each Fund's shares are divided into two share classes: Class I Shares and Class II Shares. Class I Shares of each Fund are offered to members of the general public. As described more fully in the prospectus, Class II Shares of each Fund are offered to certain retirement and profit sharing plans. Class II Shares of a Fund pay a service fee at the annual rate of .25% of the average net assets of Class II Shares of the Fund. This service fee is paid to an administrator for performing the services associated with the administration of such retirement plans. The shares of each class of a Fund represent an interest in the same portfolio of investments of the Fund. All shares of a Fund have equal voting rights (except as to matters affecting the interests of only one class). INVESTMENT RESTRICTIONS In pursuing their respective investment objectives no Fund will: 1. [THIS RESTRICTION DOES NOT APPLY TO SELECT FUND] In regard to 75% of its assets, invest more than 5% of its assets (valued at the time of investment) in securities of any one issuer, except in U.S. government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at the time of investment) in securities of companies in any one industry, except that this restriction does not apply to investments in U.S. government obligations; 4. Borrow money except from banks for temporary or emergency purposes in amounts not exceeding 10% of the value of the Fund's assets at the time of borrowing [the Fund will not purchase additional securities when its borrowings, less receivables from portfolio securities sold, exceed 5% of the value of the Fund's total assets]; 5. Issue any senior security except in connection with permitted borrowings; 6. Underwrite the distribution of securities of other issuers; however the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 7. Make loans, but this restriction shall not prevent the Fund from (a) investing in debt obligations, (b) investing in repurchase agreements,(1) or (c) [FUNDS OTHER THAN OAKMARK - ---------------------------- (1) A repurchase agreement involves a sale of securities to a Fund with the concurrent agreement of the seller (bank or securities dealer) to repurchase the securities at the same 2 FUND] lending its portfolio securities [the Fund will not lend securities having a value in excess of 33% of its assets, including collateral received for loaned securities (valued at the time of any loan)]; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into forward foreign currency contracts; 10. Acquire securities of other investment companies except (a) by purchase in the open market, where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission or (b) where the acquisition results from a dividend or a merger, consolidation or other reorganization;(2) 11. Make margin purchases or participate in a joint or on a joint or several basis in any trading account in securities; 12. Invest in companies for the purpose of management or the exercise of control; 13. Invest more than 15% of its net assets (valued at the time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; 14. [OAKMARK FUND, SELECT FUND, SMALL CAP FUND AND EQUITY AND INCOME FUND ONLY] Invest more than 2% of its net assets (valued at the time of investment) in warrants not listed on the New York or American stock exchanges, valued at cost, nor more than 5% of its net assets in all warrants, provided that warrants acquired in units or attached to other securities shall be deemed to be without value for purposes of this restriction; [INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND ONLY] Invest more than 10% of its net assets (valued at the time of investment) in warrants valued at the lower of cost or market, provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction; 15. [OAKMARK FUND, SELECT FUND AND SMALL CAP FUND ONLY] Invest more than 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers (other than securities represented by American Depositary Receipts) [EQUITY AND INCOME FUND ONLY] Invest more than 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers (other than securities represented by American Depositary Receipts);(3) - -------------------------------------------------------------------------------- price plus an amount equal to an agreed-upon interest rate within a specified time. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses. No Fund may invest more than 15% of its net assets in repurchase agreements maturing in more than seven days and other illiquid securities. (2) In addition to this investment restriction, the Investment Company Act of 1940 provides that a Fund may neither purchase more than 3% of the voting securities of any one investment company nor invest more than 10% of the Fund's assets (valued at the time of investment) in all investment company securities purchased by the Fund. Investment in the shares of another investment company would require the Fund to bear a portion of the management and advisory fees paid by that investment company, which might duplicate the fees paid by the Fund. (3) Although securities represented by American Depositary Receipts ("ADRs") are not subject to restriction 15, none of these Funds has any present intention to invest more than the indicated percentage of its total assets in ADRs and securities of foreign issuers. 3 16. Make short sales of securities unless the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into at least an equal amount of such securities with no restriction other than the payment of additional consideration; 17. Purchase or write a call option or a put option if the aggregate premium paid for all call and put options then held exceed 20% of its net assets (less the amount by which any such positions are in-the-money); 18. Invest in futures or options on futures, except that it may invest in forward foreign currency contracts. The first 10 restrictions listed above, except the bracketed portions, are fundamental policies and may be changed only with the approval of the holders of a "majority of the outstanding voting securities" of the respective Fund, which is defined in the Investment Company Act of 1940 (the "1940 Act") as the lesser of (i) 67% of the shares of the Fund present at a meeting if more than 50% of the outstanding shares of the Fund are present in person or represented by proxy or (ii) more than 50% of the outstanding shares of the Fund. Those restrictions not designated as "fundamental," and a Fund's investment objective, may be changed by the board of trustees without shareholder approval. A Fund's investment objective will not be changed without at least 30 days' notice to shareholders. Notwithstanding the foregoing investment restrictions, a Fund may purchase securities pursuant to the exercise of subscription rights, provided, in the case of each Fund other than Select Fund, that such purchase will not result in the Fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in a Fund's interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, a Fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of a Fund's portfolio securities with the result that the Fund would be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising the rights. HOW THE FUNDS INVEST SECURITIES OF NON-U.S. ISSUERS International Fund and International Small Cap Fund invest primarily in securities of non-U.S. issuers, Global Fund typically invests between 40-80% of its total assets in securities of non-U.S. issuers and the other Funds each may invest a minor portion of their assets (up to 25% for Oakmark Fund, Select Fund and Small Cap Fund and up to 10% for Equity and Income Fund) in securities of non-U.S. issuers. International investing permits an investor to take advantage of the growth in markets outside the United States. Investing in securities of non-U.S. issuers may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. The Funds may invest in securities of non-U.S. issuers directly or in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company and trading 4 in U.S. markets evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. Generally ADRs, in registered form, are designed for use in the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. GDRs are receipts that may trade in U.S. or non-U.S. markets. The Funds may invest in both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a sponsored depositary receipt, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to depositary receipt holders. An unsponsored depositary receipt is created independently of the issuer of the underlying security. The depositary receipt holders generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. With respect to portfolio securities of non-U.S. issuers or denominated in foreign currencies, a Fund's investment performance is affected by the strength or weakness of the U.S. dollar against these currencies. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions." You should understand and consider carefully the risks involved in international investing. Investing in securities of non-U.S. issuers, which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility; imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign subcustodial arrangements. Although the Funds try to invest in companies and governments of countries having stable political environments, there is the possibility of expropriation of assets, confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other political, social or diplomatic developments that could adversely affect investment in these countries. PRIVATIZATIONS. Some governments have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The Adviser believes that privatizations may offer opportunities for significant capital appreciation, and intends to invest assets of International Fund, International Small Cap Fund and Global Fund in privatizations in appropriate circumstances. In certain of those markets, the ability of foreign entities such as International Fund, International Small Cap Fund and Global Fund to participate in privatizations may be limited by local law, and/or the terms on which such Funds may be permitted to participate may be less advantageous than those afforded local investors. There can be no assurance that governments will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. EMERGING MARKETS. Investments in emerging markets securities include special risks in addition to those generally associated with foreign investing. Many investments in emerging markets can be considered speculative, and the value of those investments can be more volatile than in more developed foreign markets. This difference reflects the greater uncertainties of investing in less established markets and economies. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have not kept pace with the volume of securities transactions, making it difficult to 5 conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets is uninvested and no return is earned thereon. The inability to make intended security purchases due to settlement problems could cause a Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund due to subsequent declines in the value of those securities or, if a Fund has entered into a contract to sell a security, in possible liability to the purchaser. Costs associated with transactions in emerging markets securities are typically higher than costs associated with transactions in U.S. securities. Such transactions also involve additional costs for the purchase or sale of foreign currency. Certain foreign markets (including emerging markets) may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. A Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. The risk also exists that an emergency situation may arise in one or more emerging markets. As a result, trading of securities may cease or may be substantially curtailed and prices for a Fund's securities in such markets may not be readily available. A Fund may suspend redemption of its shares for any period during which an emergency exists, as determined by the Securities and Exchange Commission (the "SEC"). Accordingly, if a Fund believes that appropriate circumstances exist, it will promptly apply to the SEC for a determination that such an emergency is present. During the period commencing from a Fund's identification of such condition until the date of the SEC action, that Fund's securities in the affected markets will be valued at fair value determined in good faith by or under the direction of the Trust's board of trustees. Income from securities held by a Fund could be reduced by taxes withheld from that income, or other taxes that may be imposed by the emerging market countries in which the Fund invests. Net asset value of a Fund may also be affected by changes in the rates or methods of taxation applicable to the Fund or to entities in which the Fund has invested. Many emerging markets have experienced substantial rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain emerging market countries. In an attempt to control inflation, certain emerging market countries have imposed wage and price controls. Of these countries, some, in recent years, have begun to control inflation through prudent economic policies. Emerging market governmental issuers are among the largest debtors to commercial banks, foreign governments, international financial organizations and other financial institutions. Certain emerging market governmental issuers have not been able to make payments of interest or principal on debt obligations as those payments have come due. Obligations arising from past restructuring agreements may affect the economic performance and political and social stability of those issuers. Governments of many emerging market countries have exercised and continue to exercise substantial influence over many aspects of the private sector through ownership or control of many companies. The future actions of those governments could have a significant effect on economic conditions in emerging markets, which in turn, may adversely affect companies in the private sector, general market conditions and prices and yields of certain of the securities in a Fund's portfolio. Expropriation, confiscatory taxation, nationalization, political, economic and social instability have occurred throughout the history of certain emerging market countries and could adversely affect Fund assets should any of those conditions recur. 6 CURRENCY EXCHANGE TRANSACTIONS. Each Fund may enter into currency exchange transactions either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. A Fund's currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or actual or anticipated portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to specific receivables or payables of a Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to an actual or anticipated portfolio security position denominated or quoted in a particular currency. When a Fund owns or anticipates owning securities in countries whose currencies are linked, the Fund may aggregate such positions as to the currency hedged. If a Fund enters into a forward contract hedging an anticipated or actual holding of portfolio securities, liquid assets of the Fund, having a value at least as great as the amount of the excess, if any, of the Fund's commitment under the forward contract over the value of the portfolio position being hedged, will be segregated on the books of the Fund and held by the Fund's custodian and marked to market daily, while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may sell the portfolio security related to such contract and make delivery of the currency received from the sale, or it may retain the security and either purchase the currency on the spot market or terminate its contractual obligation to deliver the currency by entering into an offsetting contract with the same currency trader for the purchase on the same maturity date of the same amount of the currency. It is impossible to forecast precisely the market value of a portfolio security being hedged with a forward currency contract. Accordingly, at the maturity of a contract it may be necessary for a Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency the Fund is obligated to deliver under the forward contract and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if the sale proceeds exceed the amount of currency the Fund is obligated to deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such 7 transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. EUROPEAN CURRENCY UNIFICATION. Effective January 1, 1999, eleven of the fifteen member countries of the European Union adopted a single European currency, the euro. The countries participating in the Economic and Monetary Union ("EMU") are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The four European Union countries not currently participating in the EMU are Great Britain, Denmark, Sweden and Greece. A new European Central Bank manages the monetary policy of the new unified region, and the exchange rates among the EMU member countries are permanently fixed. National currencies will continue to circulate until they are replaced by euro coins and bank notes by the middle of 2002. This change is likely to impact significantly the European capital markets in which the Funds, and in particular International Fund, International Small Cap Fund and Global Funds may invest their assets. The change to the new euro currency could have adverse effects on a Fund's ability to value its portfolio holdings in foreign securities, and could increase the costs associated with the Fund's operations. The Adviser is working with the providers of services to the Funds in the areas of clearance and settlement of trades in an effort to avoid any material impact on the Funds due to the euro conversion; there can be no assurance, however, that the steps taken by the Adviser will be sufficient to avoid any adverse impact on the Funds. DEBT SECURITIES Each Fund may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's ("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk bonds") and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by a Fund or the portion of a Fund's assets that may be invested in debt securities in a particular ratings category, except that International Fund and International Small Cap Fund will not invest more than 10% of their respective total assets in securities rated below investment grade, Equity and Income Fund will not invest more than 20% of its total assets in such securities, and each of the other Funds will not invest more than 25% of its total assets in such securities. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- or lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such bonds may experience difficulty in making their principal and interest payments. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio securities. See "Purchasing and Redeeming Shares - Net Asset Value." The market 8 value of those securities and their liquidity may be affected by adverse publicity and investor perceptions. A description of the characteristics of bonds in each ratings category is included in the appendix to this statement of additional information. WHEN-ISSUED, DELAYED-DELIVERY AND OTHER SECURITIES Each Fund may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time a Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. A Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if the Adviser deems it advisable for investment reasons. A Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed-delivered basis. At the time a Fund enters into a binding obligation to purchase securities on a when-issued basis, liquid assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a Fund, may increase net asset value fluctuation. A Fund may also enter into a contract with a third party that provides for the sale of securities held by the Fund at a set price, with a contingent right for the Fund to receive additional proceeds from the purchaser upon the occurrence of designated future events, such as a tender offer for the securities of the subject company by the purchaser, and satisfaction of any applicable conditions. Under such an arrangement, the amount of contingent proceeds that the Fund will receive from the purchaser, if any, will generally not be determinable at the time such securities are sold. The Fund's rights under such an arrangement will not be secured and the Fund may not receive the contingent payment if the purchaser does not have the resources to make the payment. The Fund's rights under such an arrangement also generally will be illiquid and subject to the limitations on ownership of illiquid securities. ILLIQUID SECURITIES No Fund may invest in illiquid securities, if as a result such securities would comprise more than 15% of the value of the Fund's assets. If through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% of the value of its net assets are invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity. Illiquid securities may include restricted securities, which may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where a Fund holds restricted securities and registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by the board of trustees. 9 Notwithstanding the above, each Fund may purchase securities that, although privately placed, are eligible for purchase and sale under Rule 144A under the 1933 Act. This rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities even though such securities are not registered under the 1933 Act. The Adviser, under the supervision of the board of trustees, may consider whether securities purchased under Rule 144A are liquid and thus not subject to the Fund's restriction of investing no more than 15% of its assets in illiquid securities. (See restriction 13 under "Investment Restrictions.") A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination the Adviser will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, the Adviser could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, (4) and the nature of the security and of market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. SHORT SALES Each Fund may sell securities short, on a limited basis, that is: (1) enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns without additional consideration; and (2) enter into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. A Fund may make short sales of securities only if at all times when a short position is open the Fund owns at least an equal amount of such securities or securities convertible into or exchangeable for, or anticipated to be convertible into or exchangeable for, securities of the same issue as, and equal in amount to, the securities sold short with no restriction other than the payment of additional consideration. In a short sale, a Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. A Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. 10 Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time a Fund replaces the borrowed security, the Fund will incur a loss and if the price declines during this period, the Fund will realize a short-term capital gain. Any realized short-term capital gain will be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Fund may have to pay in connection with such short sale. Certain provisions of the Internal Revenue Code may limit the degree to which a Fund is able to enter into short sales. There is no limitation on the amount of each Fund's assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. No Fund currently expects that more than 20% of its total assets would be involved in short sales. PRIVATE PLACEMENTS Each Fund may acquire securities in private placements. Because an active trading market may not exist for such securities, the sale of such securities may be subject to delay and additional costs. No Fund will purchase such a security if more than 15% of the value of such Fund's net assets would be invested in illiquid securities. LENDING OF PORTFOLIO SECURITIES Each Fund except Oakmark Fund may lend its portfolio securities to broker-dealers and banks to the extent indicated in restriction 7 under "Investment Restrictions." Any such loan must be continuously secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to the market value of the securities loaned by a Fund. The Fund would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned, and would also receive an additional return that may be in the form of a fixed fee or a percentage of the earnings on the collateral. The Fund would have the right to call the loan and obtain the securities loaned at any time on notice of not more than five business days. In the event of bankruptcy or other default of the borrower, the Fund could experience delays in liquidating the loan collateral or recovering the loaned securities and incur expenses related to enforcing its rights. In addition, there could be a decline in the value of the collateral or in the value of the securities loaned while the Fund seeks to enforce its rights thereto and the Fund could experience subnormal levels of income and lack of access to income during this period. OTHER INVESTMENT COMPANIES Certain markets are closed in whole or in part to direct equity investments by foreigners. A Fund may be able to invest in such markets solely or primarily through governmentally authorized investment vehicles or companies. Each Fund generally may invest up to 10% of its assets in the aggregate in shares of other investment companies and up to 5% of its assets in any one investment company, as long as no investment represents more than 3% of the outstanding voting stock of the acquired investment company at the time of investment. Investment in another investment company may involve the payment of a premium above the value of such issuers' portfolio securities, and is subject to market availability. The Funds do not intend to invest in such vehicles or funds unless, in the judgment of the Adviser, the potential benefits of the investment justify the payment of any applicable premium or sales charge. As a shareholder in an investment company, a Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time the Fund would continue to pay its own management fees and other expenses. 11 OPTIONS Each Fund may purchase and sell both call options and put options on securities. An option on a security is a contract that gives the purchaser (holder) of the option, in return for a premium, the right to buy from (call) or sell to (put) the seller (writer) of the option the security underlying the option at a specified exercise price at any time during the term of the option. The writer of an option on an individual security has the obligation upon exercise of a call option to deliver the underlying security upon payment of the exercise price or upon exercise of a put option to pay the exercise price upon delivery of the underlying security. It is expected that a Fund will not purchase a call option or a put option if the aggregate value of all call and put options held by the Fund would exceed 5% of the Fund's net assets. Each Fund will write call options and put options only if they are "covered." For example, in the case of a call option, the option is "covered" if the Fund owns the security underlying the option or has an absolute and immediate right to acquire that security without additional consideration (or, if additional consideration is required, assets having a value at least equal to that amount are segregated on the books of a fund) upon conversion or exchange of other securities held in its portfolio. If an option written by a Fund expires, the Fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by a Fund expires, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, the writer may close out the option by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when a Fund desires. If a Fund closes out an option it has written, it will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date. A put or call option purchased by a Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received for an option written by a Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded, or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. There are several risks associates with transactions in options. For example, there are significant differences between the securities markets and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. If a Fund was unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a Fund was unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, a Fund foregoes, during the option's life, the 12 opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. If trading were suspended in an option purchased or written by a Fund, that Fund would not able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it has purchased. TEMPORARY STRATEGIES Each Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the Adviser may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers, and most or all of the investments of International Fund, International Small Cap Fund and Global Fund may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, each Fund temporarily may hold cash (U.S. dollars, foreign currencies or multinational currency units) and may invest any portion of its assets in money market instruments. PERFORMANCE INFORMATION From time to time the Funds may quote total return figures in sales material. "Total Return" for a period is the percentage change in value during the period of an investment in Fund shares, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compounded rate of change in value represented by the Total Return for the period. Average Annual Total Return will be computed as follows: ERV = P(1+T)to the power of n Where: P = the amount of an assumed initial investment in Fund shares T = average annual total return n = number of years from initial investment to the end of the period ERV = ending redeemable value of shares held at the end of the period For example, Total Return and Average Annual Total Return on a $1,000 investment in Class I Shares of each Fund for the following periods ended September 30, 1999 were:
Total Average Annual Return Total Return ------ ------------ Oakmark Fund Class I One year..................................... 7.98% -- Five years................................... 102.08 15.10% Life of Fund*................................ 438.82 22.93 Select Fund Class I One year..................................... 30.07 -- Life of Fund*................................ 120.28 31.12 Small Cap Fund Class I One year..................................... 10.56 -- Life of Fund*................................ 65.58 13.74 13 Equity and Income Fund Class I One year..................................... 15.32 -- Life of Fund*................................ 75.18 15.39 International Fund Class I One year..................................... 46.41 -- Five years................................... 56.41 9.35 Life of Fund*................................ 138.96 13.25 International Small Cap Fund Class I One year..................................... 88.02 -- Life of Fund*................................ 54.39 11.72 Global Fund Class I Life of Fund*................................ (8.20) --
------------------ * Life of Fund commenced with the public offering of Class I shares as follows: Oakmark, 8/5/91; Select, 11/1/96; International, 9/30/92; Small Cap, Equity and Income, International Small Cap, 11/1/95; and Global, 8/4/99. No information is provided for Class II Shares, because no Class II Shares had been issued as of September 30, 1999. Performance figures quoted by the Funds will assume reinvestment of all dividends and distributions, but will not take into account income taxes payable by shareholders. The Funds impose no sales charge and pay no distribution ("12b-1") expenses. Each Fund's performance is a function of conditions in the securities markets, portfolio management, and operating expenses. Although information such as yield and total return is useful in reviewing a Fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. In advertising and sales literature, the performance of a Fund may be compared with that of other mutual funds, indexes or averages of other mutual funds, indexes of related financial assets or data, and other competing investment and deposit products available from or through other financial institutions. The composition of these indexes or averages differs from that of the Funds. Comparison of a Fund to an alternative investment should consider differences in features and expected performance. All of the indexes and averages noted below will be obtained from the indicated sources or reporting services, which the Funds generally believe to be accurate. The Funds may also refer to publicity (including performance rankings) in newspapers, magazines, or other media from time to time. However, the Funds assume no responsibility for the accuracy of such data. Newspapers and magazines that might mention the Funds include, but are not limited to, the following: Barron's Business Week Changing Times Chicago Tribune Chicago Sun-Times Crain's Chicago Business Consumer Reports Consumer Digest Financial World Forbes Fortune Global Finance Investor's Business Daily Kiplinger's Personal Finance Los Angeles Times Money Mutual Fund Letter Mutual Funds Magazine Morningstar Newsweek The New York Times Pensions and Investments Personal Investor Smart Money Stanger Reports Time USA Today U.S. News and World Report The Wall Street Journal Worth 14 A Fund may compare its performance to the Consumer Price Index (All Urban), a widely recognized measure of inflation. The performance of a Fund may also be compared to the Morgan Stanley Capital International EAFE (Europe, Australia and Far East) Index*, a generally accepted benchmark for performance of major overseas markets, and to the following indexes or averages: Dow-Jones Industrial Average* Standard & Poor's 500 Stock Index* Standard & Poor's 400 Industrials Standard & Poor's Small Cap 600* Standard & Poor's Mid Cap 400* Russell 2000 Wilshire 5000 New York Stock Exchange Composite Index American Stock Exchange Composite Index NASDAQ Composite NASDAQ Industrials In addition, each of Oakmark Fund, Select Fund, Small Cap Fund and Equity and Income Fund may compare its performance to the following indexes and averages: Value Line Index; Lipper Capital Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds Average; Lipper Small Company Growth Fund Index; and Lehman Brothers Government/Corporate Bond Index. Each of International Fund, International Small Cap Fund and Global Fund may compare its performance to the following indexes and averages: Lipper International & Global Funds Average; Lipper Global Fund Index; Lipper International Fund Index; Lipper International Equity Funds Average; Micropal International Small Company Fund Index; Morgan Stanley Capital International World ex the U.S. Index*; Morningstar International Stock Average. Lipper Indexes and Averages are calculated and published by Lipper Analytical Services, Inc. ("Lipper"), an independent service that monitors the performance of more than 1,000 funds. The Funds may also use comparative performance as computed in a ranking by Lipper or category averages and rankings provided by another independent service. Should Lipper or another service reclassify a Fund to a different category or develop (and place a Fund into) a new category, that Fund may compare its performance or ranking against other funds in the newly assigned category, as published by the service. Each Fund may also compare its performance or ranking against all funds tracked by Lipper or another independent service, including Morningstar, Inc. The Funds may cite their ratings, recognition, or other mention by Morningstar or any other entity. Morningstar's rating system is based on risk-adjusted total return performance and is expressed in a star-rating format. The risk-adjusted number is computed by subtracting a fund's risk score (which is a function of the fund's monthly returns less the 3-month T-bill return) from the fund's load-adjusted total return score. This numerical score is then translated into rating categories, with the top 10% labeled five star, the next 22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled two star, and the bottom 10% one star. A high rating reflects either above-average returns or below-average risk or both. To illustrate the historical returns on various types of financial assets, the Funds may use historical data provided by Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains) very long-term (since 1926) total return data (including, for example, total return indexes, total return percentages, average annual total returns and standard deviations of such returns) for the following asset types: common stocks; small company stocks; --------------------------- * With dividends reinvested. 15 long-term corporate bonds; long-term government bonds; intermediate-term government bonds; U.S. Treasury bills; and Consumer Price Index. INVESTMENT ADVISER The Funds' investment adviser, Harris Associates L.P. (the "Adviser"), furnishes continuing investment supervision to the Funds and is responsible for overall management of the Funds' business affairs pursuant to investment advisory agreements relating to the respective Funds (the "Agreements"). The Adviser furnishes office space, equipment and personnel to the Funds, and assumes the expenses of printing and distributing the Funds' prospectus, profiles and reports to prospective investors. Each Fund pays the cost of its custodial, stock transfer, dividend disbursing, bookkeeping, audit and legal services. Each Fund also pays other expenses such as the cost of proxy solicitations, printing and distributing notices and copies of the prospectus and shareholder reports furnished to existing shareholders, taxes, insurance premiums, the expenses of maintaining the registration of that Fund's shares under federal and state securities laws and the fees of trustees not affiliated with the Adviser. The Adviser has voluntarily agreed to reimburse Class I Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class I Shares: 1.5% in the case of Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund, 1.75% in the case of Global Fund and 2% in the case of International Fund and International Small Cap Fund. The Adviser has also voluntarily agreed to reimburse Class II Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class II Shares: Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund, 1.75% (1.50% + .25%); Global Fund, 2% (1.75% + .25%); and International Fund and International Small Cap Fund, 2.25% (2.00% + .25%). Each such agreement is effective through January 31, 2000, subject to earlier termination by the Adviser on 30 days' notice to the Fund. For the purpose of determining whether a share class of a Fund is entitled to any reduction in advisory fee or expense reimbursement, the pro rata portion of the Fund's expenses attributable to a share class of that Fund, is calculated daily and any reduction in fee or reimbursement is made monthly. For its services as investment adviser, the Adviser receives from each Fund a monthly fee based on that Fund's net assets at the end of the preceding month. Basing the fee on net assets at the end of the preceding month has the effect of (i) delaying the impact of changes in assets on the amount of the fee and (ii) in the first year of a fund's operation, reducing the amount of the aggregate fee by providing for no fee in the first month of operation. The annual rates of fees as a percentage of each Fund's net assets are as follows:
FUND FEE ----------------- ---------------------------------------------- Equity and Income .75% Oakmark 1% up to $2.5 billion; .95% on the next $1.25 billion; .90% on the next $1.25 billion; .85% on net assets in excess of $5 billion; and .80% on net assets in excess of $10 billion International 1% up to $2.5 billion; .95% on the next $2.5 billion; and .90% on net assets in excess of $5 billion
16
FUND FEE ----------------- ---------------------------------------------- Select 1% up to $1 billion; .95% on the next $500 million; .90% on the next $500 million; .85% on the next $500 million; .80% over $2.5 billion; and .75% over $5 billion Small Cap 1.25% up to $1 billion; 1.15% on the next $500 million; 1.10% on the next $500 million; 1.05% on the next $500 million; 1% over $2.5 billion International Small Cap 1.25% Global Fund 1%
The table below shows gross advisory fees paid by the Funds and any expense reimbursements by the Adviser to them, which are described in the prospectus.
TYPE OF YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED FUND PAYMENT SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------- ------------- ------------------ ------------------ ------------------- Oakmark Advisory fee $59,957,947 $72,196,251 $43,705,462 Select Advisory fee 15,358,029 11,525,158 1,731,599 Small Cap Advisory fee 7,251,751 15,863,707 7,705,828 Equity and Advisory fee 464,454 359,708 140,973 Income Reimbursement -- -- 39,450 International Advisory fee 8,068,806 12,623,371 13,040,702 International Small Cap Advisory fee 1,330,000 827,611 648,148 Global Advisory fee 18,520 -- -- Reimbursement 15,474 -- --
The Agreement for each Fund, except Global Fund, was for an initial term expiring September 30, 1997, and for Global Fund was for an initial term expiring September 30, 2000. Each Agreement continues from year to year thereafter so long as such continuation is approved at least annually by (1) the board of trustees or the vote of a majority of the outstanding voting securities of the Fund, and (2) a majority of the trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Agreement may be terminated at any time, without penalty, by either the Trust or the Adviser upon 60 days' written notice, and is automatically terminated in the event of its assignment as defined in the 1940 Act. The Adviser is a limited partnership managed by its general partner, Harris Associates, Inc., whose directors are David G. Herro, Robert M. Levy, Roxanne M. Martino, Victor A. Morgenstern, Anita M. Nagler, William C. Nygren, Neal Litvack, Robert J. Sanborn and Peter S. Voss. Mr. Levy is the president and chief executive officer of Harris Associates, Inc. ("HAI"). HAI is a wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest"). Nvest owns all of the limited partnership interests in the Adviser. Nvest is a limited partnership that owns investment management and related firms and is an affiliate of Nvest, L.P., a publicly traded company listed on the NYSE. Nvest, L.P. is one of the largest publicly traded investment management firms. Nvest is also an affiliate of Nvest Services Co., the Funds' Transfer Agent. Metropolitan Life Insurance Company owns the general partner of Nvest and approximately 48% of its outstanding partnership interests. 17 CODE OF ETHICS The 1940 Act and rules thereunder require that the Trust and the Adviser establish standards and procedures for the detection and prevention of certain conflicts of interest, including activities by which persons having knowledge of the investments and investment intentions of the Trust might take advantage of that knowledge for their own benefit. The Trust and the Adviser have adopted a Code of Ethics to meet those concerns and legal requirements. Although the Code does not prohibit employees who have knowledge of the investments and investment intentions of any of the Funds from engaging in personal securities investing, it does regulate such personal securities investing by these employees as a part of the effort by the Trust and the Adviser to detect and prevent conflicts of interest. TRUSTEES AND OFFICERS The trustees and officers of the Trust and their principal business activities during the past five years are:
NAME, ADDRESS, POSITION(S) WITH TRUST AND AGE AT SEPTEMBER 30, 1999 PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS# ------------------------------------- ---------------------------------------------- VICTOR A. MORGENSTERN* Chairman of the Board, HAI, since 1996 and Trustee and Chairman, 56 President prior thereto; Chairman, Harris Partners, L.L.C., since September 1995; and a director of Nvest Corporation since 1996 MICHAEL J. FRIDUSS Principal, M.J. Friduss & Associates, Inc. Trustee, 57 (telecommunications consultants) c/o M.J. Friduss & Associates, Inc. 1555 Museum Drive Highland Park, Illinois 60035 THOMAS H. HAYDEN Executive Vice President and director, Bozell Trustee, 48 Worldwide, Inc. (advertising and public relations) c/o Bozell Worldwide, Inc. 625 North Michigan Avenue Chicago, Illinois 60611-3110 CHRISTINE M. MAKI Vice President--Tax, Hyatt Corporation (hotel Trustee, 38 management) since 1995 c/o Hyatt Corporation 200 West Madison Street Chicago, Illinois 60606 ALLAN J. REICH Managing Member and Chair of Trustee, 51 Corporate/Securities Practice Group, D'Ancona & c/o D'Ancona & Pflaum LLC Pflaum LLC (attorneys) 111 E. Wacker Drive, Suite 2800 Chicago, Illinois 60601
18
NAME, ADDRESS, POSITION(S) WITH TRUST AND AGE AT SEPTEMBER 30, 1999 PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS# ------------------------------------- ---------------------------------------------- MARV R. ROTTER President - Central Region, AXA Advisors, LLC Trustee, 53 (formerly known as Rotter & Associates), since c/o AXA Advisors, LLC 1999, and General Manager prior thereto (financial 5 Revere Drive, Suite 400 services) Northbrook, Illinois 60062-1571 BURTON W. RUDER President, The Academy Group (venture capital Trustee, 55 investments and transaction financing) c/o The Academy Group 707 Skokie Boulevard, Suite 410 Northbrook, Illinois 60062 PETER S. VOSS* Chairman, President and Chief Executive Officer, Trustee, 52 Nvest Corporation, Nvest Companies, L.P. and c/o Nvest Companies, L.P. Nvest L.P. (investment management) 399 Boylston Street Boston, Massachusetts 02116 GARY N. WILNER, M.D. Senior Attending Physician, Evanston Hospital, and Trustee, 59 Medical Director - CardioPulmonary Wellness c/o Evanston Hospital Program, Evanston Hospital Corporation 2650 Ridge Avenue Evanston, Illinois 60201 ROBERT LEVY President and Chief Executive Officer, HAI, since President, 49 1997; Portfolio Manager, HALP, prior thereto ROBERT J. SANBORN Portfolio Manager and Analyst, HALP Executive Vice President and Portfolio Manager (The Oakmark Fund), 41 JAMES P. BENSON Portfolio Manager and Analyst, HALP since 1997; Co-Portfolio Manager (The Oakmark Director of Equity Research, Ryan Beck & Co. Small Cap Fund), 42 (broker/dealer and investment banking), prior thereto DAVID G. HERRO Portfolio Manager and Analyst, HALP Vice President and Co-Portfolio Manager (The Oakmark International Fund and The Oakmark International Small Cap Fund), 38 CLYDE S. MCGREGOR Portfolio Manager and Analyst, HALP Vice President and Portfolio Manager (The Oakmark Equity and Income Fund), 46
19
NAME, ADDRESS, POSITION(S) WITH TRUST AND AGE AT SEPTEMBER 30, 1999 PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS# ------------------------------------- ---------------------------------------------- WILLIAM C. NYGREN Portfolio Manager, HALP Vice president and Portfolio Manager (The Oakmark Select Fund), 41 STEVEN J. REID Portfolio Manager and Analyst, HALP Vice President and Co-Portfolio Manager (The Oakmark Small Cap Fund), 43 MICHAEL J. WELSH Portfolio Manager and Analyst, HALP Vice President and Co-Portfolio Manager (The Oakmark Global Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund), 36 GREGORY L. JACKSON Portfolio Manager and Analyst, HALP, since July Vice President and Co-Portfolio Manager 1998; Portfolio Manager and Analyst, Yacktman (The Oakmark Global Fund), 33 Asset Management, prior thereto ANN W. REGAN Director of Mutual Fund Operations, HALP, since Vice President-Shareholder Operations 1996; Special Projects Assistant to the General and Assistant Secretary, 51 Counsel, HALP, 1995-1996 ANITA M. NAGLER Vice President, HAI and General Counsel, HALP Secretary, 43 KRISTI L. ROWSELL Chief Financial Officer, HAI, since October, 1999; Treasurer, 33 Treasurer, HALP, since 1996; Tax and Accounting Manager, HALP, 1995-1996 JOHN J. KANE Manager - Fund Accounting, HALP Assistant Treasurer, 28
- ------------------------------------ Unless otherwise noted, the business address of each officer and trustee listed in the table is Two North LaSalle Street, Suite 500, Chicago, Illinois 60602-3790. # As used in this table, from and after September 29, 1995 "HALP" and "HAI" refer to the Adviser and the general partner of the Adviser, respectively, and prior to that date those terms refer to the Former Adviser and the general partner of the Former Adviser, respectively. * Messrs. Morgenstern and Voss are trustees who are "interested persons" of the Trust as defined in the 1940 Act. They and Dr. Wilner are members of the executive committee, which has authority during intervals between meetings of the board of trustees to exercise the powers of the board, with certain exceptions. 20 At September 30, 1999, the trustees and officers as a group owned beneficially less than 1% of Oakmark Fund and the following percentages of the outstanding shares of each of the other Funds: Select, 1.26%; Small Cap, 1.78%; Equity and Income, 9.35%; Global, 28.77%; International, 1.31%; and International Small Cap, 8.29%. The following table shows the compensation paid by the Trust for the year ended September 30, 1999 to each trustee who was not an "interested person" of the Trust:
AGGREGATE COMPENSATION NAME OF TRUSTEE FROM THE TRUST* - ------------------------------------------------------------------------------------------------------ Christine M. Maki $56,000 Michael J. Friduss 58,000 Thomas H. Hayden 58,000 Allan J. Reich 57,000 Marv R. Rotter 50,000 Burton W. Ruder 56,000 Gary N. Wilner, M.D. 63,000 - ------------------------------------------------------------------------------------------------------
* The Trust is not part of a fund complex. Other trustees who are "interested persons" of The Trust, as well as the officers of the Trust, are compensated by the Adviser and not by the Trust. The Trust does not provide any pension or retirement benefits to its trustees. The Trust has a deferred compensation plan (the "Plan") that permits any trustee who is not an "interested person" of the Trust commencing in 2000 to elect to defer receipt of all or a portion of his or her compensation as a trustee for two or more years. The deferred compensation of a participating trustee is credited to a book reserve account of the Trust when the compensation would otherwise have been paid to the trustee. The value of the trustee's deferral account at any time is equal to the value that the account would have had if contributions to the account had been invested and reinvested in shares of one or more of the Oakmark Funds or the Goldman Sachs Institutional Liquid Assets Government Portfolio as designated by the trustee. At the time for commencing distributions from a trustee's deferral account, which is no later than when the trustee ceases to be a member of the board, the trustee may elect to receive distributions in a lump sum or over a period of five years. Each Fund's obligation to make distributions under the Plan is a general obligation of that Fund. No Fund will be liable for any other Fund's obligations to make distributions under the Plan. PRINCIPAL SHAREHOLDERS The only persons known by the Trust to own of record or "beneficially" (within the meaning of that term as defined in rule 13d-3 under the Securities Exchange Act of 1934) 5% or more of the outstanding shares of any Fund as of September 30, 1999 were: 21
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND SHARES HELD - ---------------- ---- ----------- Banc of America Securities LLC CNSV (1) International Small Cap 8.73% 600 Montgomery Street Global 11.54 San Francisco, CA 94111-2702 Charles Schwab & Co. Inc. (1) Oakmark 29.87% 101 Montgomery Street Select 33.17 San Francisco, CA 94104-4122 Small Cap 32.52 Equity and Income 16.65 International 30.18 International Small Cap 32.20 Global 5.45 Clyde S. and Joan K. McGregor (2) Equity and Income 6.97%(2) Two North LaSalle Street, #500 Chicago, IL 60602 National Financial Services Corp. (1) Oakmark 7.62% P.O. Box 3908 Select 19.14 Church Street Station Small Cap 9.01 New York, NY 10008-3908 International 6.13 International Small Cap 12.97 National Investor Services Corp. (1) International Small Cap 5.11% 55 Water Street, Floor 32 New York, NY 10041-3299
- ------------------ (1) Shares are held for accounts of customers. (2) 5.48% of these shares are held beneficially by Clyde S. and Joan K. McGregor and 1.49% of these shares are held beneficially by Clyde S. McGregor. PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the Funds' prospectus under the headings "How to Buy and Sell Class I Shares" and "Shareholder Services." NET ASSET VALUE The net asset value per Class I Share or per Class II Share of each Fund is determined by the Trust's custodian, State Street Bank and Trust Company. The net asset value of Class I Shares of a Fund is determined by dividing the value of the assets attributable to Class I Shares of the Fund, less liabilities attributable to that class, by the number of Class I Shares outstanding. Similarly, the net asset value of Class II Shares of a Fund is determined by dividing the value of the assets attributable to Class II Shares of the Fund, less liabilities attributable to that class, by the number of Class II Shares outstanding. Securities traded on securities exchanges, or in the over-the-counter market in which transaction prices are reported on the NASDAQ National Market System, are valued at the last sales prices at the time of valuation or, lacking any reported sales on that day, at the most recent bid quotations. Other securities traded over-the-counter are also 22 valued at the most recent bid quotations. Money market instruments having a maturity of 60 days or less from the valuation date are valued on an amortized cost basis. The values of securities of foreign issuers are generally based upon market quotations which, depending upon local convention or regulation, may be last sale price, last bid or asked price, or the mean between last bid and asked prices as of, in each case, the close of the appropriate exchange or other designated time. Securities for which quotations are not available and any other assets are valued at a fair value as determined in good faith by or under the direction of the board of trustees. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by any major bank or dealer. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by the Board. The Funds' net asset values are determined only on days on which the New York Stock Exchange is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in January and February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving and Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Trading in the portfolio securities of International Fund, International Small Cap Fund or Global Fund (and of any other Fund, to the extent it invests in securities of non-U.S. issuers) takes place in various foreign markets on certain days (such as Saturday) when the Fund is not open for business and does not calculate its net asset value. In addition, trading in the Fund's portfolio securities may not occur on days when the Fund is open. Therefore, the calculation of net asset value does not take place contemporaneously with the determinations of the prices of many of the Fund's portfolio securities and the value of the Fund's portfolio may be significantly affected on days when shares of the Fund may not be purchased or redeemed. Computation of net asset value (and the sale and redemption of a Fund's shares) may be suspended or postponed during any period when (a) trading on the New York Stock Exchange is restricted, as determined by the Securities and Exchange Commission, or that exchange is closed for other than customary weekend and holiday closings, (b) the Commission has by order permitted such suspension, or (c) an emergency, as determined by the Commission, exists making disposal of portfolio securities or valuation of the net assets of a Fund not reasonably practicable. SHARES PURCHASED THROUGH INTERMEDIARIES Class I Shares of any of the Funds may be purchased through certain financial service companies, who are agents of the Funds for the limited purpose of completing purchases and sales. For services provided by such a company with respect to Fund shares held by that company for its customers, the company may charge a fee of up to 0.35% of the annual average value of those accounts. Each Fund may pay a portion of those fees, not to exceed the estimated fees that the Fund would pay to its own transfer agent if the shares of the Fund held by such customers of the company were registered directly in their names on the books of the Fund's transfer agent. The balance of those fees are paid by the Adviser. Purchases through intermediaries that are authorized agents of the Trust are made at the net asset value next determined after receipt of the orders by such intermediaries. A purchase through an intermediary that is not an authorized agent of the Trust for the receipt of orders is made at the net asset value next determined after receipt of your order by the Trust's transfer agent. 23 To buy and sell Class II Shares, you must do so through an intermediary, such as a broker-dealer, bank, retirement plan service provider or retirement plan sponsor ("Intermediary"). The Intermediary accepts purchase and sale orders for Class II Shares as an authorized agent of the Trust. The Intermediary is required to segregate any orders received on a business day after the close of regular session trading on the New York Stock Exchange and transmit those orders separately for execution at the net asset value next determined after that business day. REDEMPTION IN KIND The Funds have elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day period for any one shareholder. Redemptions in excess of those amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of marketable securities. Brokerage costs may be incurred by a shareholder who receives securities and desires to convert them to cash. REDEMPTION OF SMALL ACCOUNTS Due to the relatively high cost of maintaining small accounts, the Trust reserves the right to redeem at net asset value the shares of any shareholder whose account in any Fund has a value of less than the minimum amount specified by the board of trustees, which currently is $1,000. Before such a redemption, the shareholder will be notified that the account value is less than the minimum and will be allowed at least 30 days to bring the value of the account up to the minimum. The agreement and declaration of trust also authorizes the Trust to redeem shares under certain other circumstances as may be specified by the board of trustees. 90-DAY REDEMPTION FEE - CLASS I SHARES Each Fund except Oakmark Fund and Equity and Income Fund imposes a short-term trading fee on redemptions of Class I Shares held less than 90 days to offset two types of costs to the Fund caused by short-term trading: portfolio transaction and market impact costs associated with erratic redemption activity and administrative costs associated with processing redemptions. The fee is 2% of the redemption value and is deducted from the redemption proceeds. The "first-in, first-out" (FIFO) method is used to determine the holding period, which means that if you bought shares on different days, the shares purchased first will be redeemed first for purposes of determining whether the short-term trading fee applies. No Fund Imposes a redemption fee on a redemption of: - - shares acquired by reinvestment of dividends or distributions of a Fund; or - - shares held in an account of certain retirement plans or profit sharing plans or purchased through certain Intermediaries. MONEY MARKET EXCHANGE FUND The Adviser acts as a Service Organization for the Institutional Liquid Assets Service Units of the Government Portfolio of Goldman Sachs Trust that may be purchased directly or by exchanging shares of a Fund. For its services, the Adviser receives fees at a rate of .50% of the average annual net assets of the portfolio, pursuant to a 12b-1 plan adopted by the Goldman Sachs Trust. ADDITIONAL TAX INFORMATION GENERAL. Each Fund intends to continue to qualify to be taxed as a regulated investment company under the Internal Revenue Code of 1986, as amended, so as to be relieved of federal 24 income tax on its capital gains and net investment income currently distributed to its shareholders. At the time of your purchase, a Fund's net asset value may reflect undistributed income, capital gains or net unrealized appreciation of securities held by that Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as dividends or capital gain distributions. INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND. Dividends and distributions paid by International Fund and International Small Cap Fund are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of such Funds' income consists of dividends paid by United States corporations. Capital gain distributions paid by the Funds are never eligible for this deduction. Certain foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations are taxable as ordinary income. If the net effect of these transactions is a gain, the dividend paid by any of these Funds will be increased; if the result is a loss, the income dividend paid by any of these Funds will be decreased. Income received by a Fund from sources within various foreign countries will be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of the Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations, the Fund may file an election with the Internal Revenue Service to "pass through" to the Fund's shareholders the amount of foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. International Fund, International Small Cap Fund and Global Fund intend to meet the requirements of the Code to "pass through" to their shareholders foreign income taxes paid, but there can be no assurance that they will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of a Fund, if the foreign taxes paid by the Fund will "pass through" for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. TAXATION OF FOREIGN SHAREHOLDERS The Code provides that dividends from net income (which are deemed to include for this purpose each shareholder's pro rata share of foreign taxes paid by International Fund, International Small Cap Fund and Global Fund, see discussion of the "pass through" of the foreign tax credit to U.S. shareholders above), will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividend in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by these Funds are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. 25 PORTFOLIO TRANSACTIONS Portfolio transactions for each Fund are placed with those securities brokers and dealers that the Adviser believes will provide the best value in transaction and research services for that Fund, either in a particular transaction or over a period of time. Subject to that standard, portfolio transactions for each Fund may be executed through Harris Associates Securities L.P. ("HASLP"), a registered broker-dealer and an affiliate of the Adviser. In valuing brokerage services, the Adviser makes a judgment as to which brokers are capable of providing the most favorable net price (not necessarily the lowest commission) and the best execution in a particular transaction. Best execution connotes not only general competence and reliability of a broker, but specific expertise and effort of a broker in overcoming the anticipated difficulties in fulfilling the requirements of particular transactions, because the problems of execution and the required skills and effort vary greatly among transactions. Although some transactions involve only brokerage services, many involve research services as well. In valuing research services, the Adviser makes a judgment of the usefulness of research and other information provided by a broker to the Adviser in managing a Fund's investment portfolio. In some cases, the information, e.g., data or recommendations concerning particular securities, relates to the specific transaction placed with the broker, but for the greater part the research consists of a wide variety of information concerning companies, industries, investment strategy and economic, financial and political conditions and prospects, useful to the Adviser in advising the Funds. The Adviser is the principal source of information and advice to the Funds, and is responsible for making and initiating the execution of the investment decisions for each Fund. However, the board of trustees recognizes that it is important for the Adviser, in performing its responsibilities to the Funds, to continue to receive and evaluate the broad spectrum of economic and financial information that many securities brokers have customarily furnished in connection with brokerage transactions, and that in compensating brokers for their services, it is in the interest of the Funds to take into account the value of the information received for use in advising the Funds. Consequently, the commission paid to brokers (other than HASLP) providing research services may be greater than the amount of commission another broker would charge for the same transaction. The extent, if any, to which the obtaining of such information may reduce the expenses of the Adviser in providing management services to the Funds is not determinable. In addition, it is understood by the board of trustees that other clients of the Adviser might also benefit from the information obtained for the Funds, in the same manner that the Funds might also benefit from information obtained by the Adviser in performing services to others. HASLP may act as broker for a Fund in connection with the purchase or sale of securities by or to the Fund if and to the extent permitted by procedures adopted from time to time by the board of trustees of the Trust. The board of trustees, including a majority of the trustees who are not "interested" trustees, has determined that portfolio transactions for a Fund may be executed through HASLP if, in the judgment of the Adviser, the use of HASLP is likely to result in prices and execution at least as favorable to the Fund as those available from other qualified brokers and if, in such transactions, HASLP charges the Fund commission rates at least as favorable to the Fund as those charged by HASLP to comparable unaffiliated customers in similar transactions. The board of trustees has also adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to HASLP are consistent with the foregoing standard. The Funds will not effect principal transactions with HASLP. In executing transactions through HASLP, the Funds will be subject to, and intend to comply with, section 17(e) of the 1940 Act and rules thereunder. 26 The reasonableness of brokerage commissions paid by the Funds in relation to transaction and research services received is evaluated by the staff of the Adviser on an ongoing basis. The general level of brokerage charges and other aspects of the Funds' portfolio transactions are reviewed periodically by the board of trustees. Transactions of the Funds in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. Although investment decisions for the Funds are made independently from those for other investment advisory clients of the Adviser, it may develop that the same investment decision is made for both a Fund and one or more other advisory clients. If both a Fund and other clients purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each over time. The Funds do not purchase securities with a view to rapid turnover. However, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons, including general conditions in the securities market, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. A high rate of portfolio turnover would result in increased transaction expense, which must be borne by the Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. The portfolio turnover rates for the Funds are set forth in the prospectus under "Financial Highlights." The following table shows the aggregate brokerage commissions (excluding the gross underwriting spread on securities purchased in initial public offerings) paid by each Fund during the periods indicated, as well as the aggregate commissions paid to affiliated persons of the Trust.
Year Ended Year Ended Eleven Months Ended September 30, 1999 September 30, 1998 September 30, 1997 ------------------ ------------------ ------------------ Oakmark Fund Aggregate commissions............ $5,015,100(100%) $7,578,511 (100%) $3,094,186 (100%) Commissions paid to affiliates*.. 1,944,758(38.8%) 2,068,690 (27.3%) 997,845 (32.2%) Select Fund Aggregate commissions............ 2,890,228(100%) 2,408,373 (100%) 750,698 (100%) Commissions paid to affiliates*.. 725,722(25.1%) 589,564 (24.5%) 341,805 (45.5%) Small Cap Fund Aggregate commissions............ 1,681,150(100%) 1,956,668 (100%) 1,906,488 (100%) Commissions paid to affiliates*.. 213,191(12.7%) 193,708 (9.9%) 401,345 (21.0%) Equity and Income Fund Aggregate commission............. 100,156(100%) 66,195 (100%) 24,588 (100%) Commissions paid to affiliates*.. 56,545(56.5%) 41,979 (63.4%) 15,611 (63.5%) International Fund Aggregate commissions............ 2,994,368(100%) 4,287,619 (100%) 5,319,725 (100%) Commissions paid to affiliates*.. -- -- 9,732 (0.2%) 27 International Small Cap Fund Aggregate commissions............ 1,153,858(100%) 387,461 (100%) 332,214 (100%) Commissions paid to affiliates*.. -- -- 732 (0.2%) Global Fund Aggregate commissions............ 89,492(100%) -- -- Commissions paid to affiliates*.. 29,127(32.6%) -- --
- -------------------------- * The percent of the dollar amount of each Fund's aggregate transactions involving the Fund's payment of brokerage commissions that were executed through affiliates for each of the periods is shown below.
Year Ended Year Ended Eleven Months Ended Fund September 30, 1999 September 30, 1998 September 30, 1997 ---- ------------------ ------------------ ------------------ Oakmark 44.1% 29.5% 36.5% Select 31.0 33.01 48.0 Small Cap 19.1 14.5 23.2 Equity and Income 69.6 63.5 67.0 International - - 0.4 International Small Cap - - 0.5 Global 43.2 - -
Of the aggregate brokerage transactions during the year ended September 30, 1999, the Funds paid the following commissions on transactions directed to brokers because of research services they provided: Oakmark, $1,245,894; Select, $761,747; Small Cap, $554,573; Equity and Income, $22,334; International, $1,638,791; International Small Cap, $624,173; Global, $24,441; and the aggregate dollar amounts involved in those transactions for the respective Funds were $871,059,471, $419,568,321, $212,099,755, $5,773,753, $502,126,328, $169,474,647 and $6,867,910, respectively. DECLARATION OF TRUST The Agreement and Declaration of Trust under which the Trust has been organized ("Declaration of Trust") disclaims liability of the shareholders, trustees and officers of the Trust for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or contract entered into or executed by the Trust or the board of trustees. The Declaration of Trust provides for indemnification out of the Trust's assets for all losses and expenses of any shareholder held personally liable for obligations of the Trust. Thus, although shareholders of a business trust may, under certain circumstances, be held personally liable under Massachusetts law for the obligations of the Trust, the risk of a shareholder incurring financial loss on account of shareholder liability is believed to be remote because it is limited to circumstances in which the disclaimer is inoperative and the Trust itself is unable to meet its obligations. The Trust and the Adviser believe that the risk to any one series of sustaining a loss on account of liabilities incurred by another series is remote. CUSTODIAN AND TRANSFER AGENT State Street Bank and Trust Company, P.O. Box 8510, Boston Massachusetts 02266-8510 is the custodian for the Trust. It is responsible for holding all securities and cash of each Fund, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, making all payments covering expenses of the Funds, and performing other administrative duties, all as directed by authorized persons of the 28 Trust. The custodian also performs certain portfolio accounting services for the Funds, for which each Fund pays the custodian a monthly fee. The fee paid by Oakmark Fund is $2,500 per month. The fee paid by Oakmark International is $3,000 per month. The fee paid by each of Select Fund, Small Cap Fund and Equity and Income Fund is $2,500 per month and the fee paid by International Small Cap Fund is $3,000 per month. The fee paid by Global Fund is $3,000 per month; however, such fee has been waived for the first six months of the Fund's operations. The custodian does not exercise any supervisory function in such matters as the purchase and sale of portfolio securities, payment of dividends, or payment of expenses of a Fund. The Trust has authorized the custodian to deposit certain portfolio securities of each Fund in central depository systems as permitted under federal law. The Funds may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. Nvest Services Company, Inc., an affiliate of the Adviser ("NSC"), 399 Boylston Street, 5th Floor, Boston, Massachusetts 02116, performs transfer agency services for the Funds. NSC maintains shareholder accounts and prepares and mails shareholder account statements, processes shareholder transactions, mails shareholders reports, prepares and mails distribution payments, maintains records of Fund transactions and provides blue sky reporting services. The Trust pays NSC for its services based on the number of open accounts and transactions it performs on behalf of the Trust. INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603, audits and reports on each Fund's annual financial statements, reviews certain regulatory reports and the Funds' federal income tax returns, and performs other professional accounting, auditing, tax and advisory services when engaged to do so by the Trust. 29 APPENDIX A -- BOND RATINGS A rating by a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the credit-worthiness of an issuer. Consequently, the Adviser believes that the quality of debt securities in which the Fund invests should be continuously reviewed and that individual analysts give different weightings to the various factors involved in credit analysis. A rating is not a recommendation to purchase, sell, or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the rating services from other sources which they consider reliable. Ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P"). RATINGS BY MOODY'S: Aaa. Bonds rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such bonds. Aa. Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in the Aaa bonds, fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa bonds. A. Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa. Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba. Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class. B. Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa. Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. A-1 Ca. Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C. Bonds rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Ratings By Standard & Poor's: AAA. Debt rated AAA has the highest rating. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. A. Debt rated A has a very strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions, or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB-B-CCC-CC. Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C. This rating is reserved for income bonds on which no interest is being paid. D. Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears. NOTE: The ratings from AA to B may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. A-2 APPENDIX B -- FINANCIAL STATEMENTS B-1 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--90.8% FOOD & BEVERAGE--8.9% Philip Morris Companies Inc. 10,010,700 $ 342,240,806 Nabisco Holdings Corporation, Class A 2,372,100 81,985,706 ------------- 424,226,512 APPAREL--6.3% Nike, Inc., Class B 5,257,100 $ 298,997,563 RETAIL--0.2% GC Companies, Inc. (a) 266,200 $ 7,986,000 HARDWARE--6.8% The Black & Decker Corporation (b) 5,412,200 $ 247,269,887 The Stanley Works 3,124,900 78,708,419 ------------- 325,978,306 OTHER CONSUMER GOODS & SERVICES--19.4% H&R Block, Inc. (b) 6,415,500 $ 278,673,281 Mattel, Inc. 12,164,400 231,123,600 Brunswick Corporation (b) 7,280,800 181,109,900 Fortune Brands, Inc. 4,861,100 156,770,475 Galileo International, Inc. 1,980,000 79,695,000 ------------- 927,372,256 BANKS & THRIFTS--7.9% Washington Mutual, Inc. 7,480,000 $ 218,790,000 Bank One Corporation 4,600,548 160,156,577 ------------- 378,946,577 INSURANCE--1.8% Old Republic International Corporation 5,820,330 $ 84,031,014 INFORMATION SERVICES--8.1% The Dun & Bradstreet Corporation (b) 9,322,500 $ 278,509,687 ACNielsen Corporation (a)(b) 4,764,000 108,083,250 ------------- 386,592,937 COMPUTER SERVICES--2.6% First Data Corporation 2,873,200 $ 126,061,650 PUBLISHING--6.6% Knight Ridder, Inc. (b) 5,716,100 $ 313,670,988 MEDICAL CENTERS--3.0% Columbia/HCA Healthcare Corporation 6,746,600 $ 142,943,588 MEDICAL PRODUCTS--1.6% Sybron International Corporation (a) 2,935,600 $ 78,894,250
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-2 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--90.8% (CONT.) AEROSPACE & DEFENSE--9.2% Lockheed Martin Corporation 7,150,000 $ 233,715,625 The Boeing Company 4,799,400 204,574,425 ------------- 438,290,050 MACHINERY & INDUSTRIAL PROCESSING--7.3% Eaton Corporation 2,113,600 $ 182,430,100 Cooper Industries, Inc. 3,558,400 166,355,200 ------------- 348,785,300 BUILDING MATERIALS & CONSTRUCTION--0.0% Juno Lighting, Inc. 63,702 $ 760,443 OTHER INDUSTRIAL GOODS & SERVICES--1.1% Bandag, Incorporated, Class A 1,104,100 $ 27,878,525 The Geon Company 956,600 24,632,450 ------------- 52,510,975 TOTAL COMMON STOCKS (COST: $4,169,051,189) 4,336,048,409 SHORT TERM INVESTMENTS--8.9% U.S. GOVERNMENT BILLS--1.6% United States Treasury Bills, 4.51%-4.65% due 10/7/1999-12/2/1999 $75,000,000 $ 74,744,459 ------------- TOTAL U.S. GOVERNMENT BILLS (COST: $74,742,306) 74,744,459 COMMERCIAL PAPER--5.5% American Express Credit Corp., 5.26%-5.31% due 10/1/1999-10/8/1999 $80,000,000 $ 80,000,000 Ford Motor Credit Corp., 5.28%-5.29% due 10/4/1999-10/6/1999 60,000,000 60,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 125,000,000 125,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $265,000,000) 265,000,000
B-3 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- SHORT TERM INVESTMENTS--8.9% (CONT.) REPURCHASE AGREEMENTS--1.8% State Street Repurchase Agreement, 5.20% due 10/1/1999 $83,761,000 $ 83,761,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $83,761,000) 83,761,000 TOTAL SHORT TERM INVESTMENTS (COST: $423,503,306) 423,505,459 Total Investments (Cost $4,592,554,495)--99.7% (c) $4,759,553,868 Other Assets In Excess Of Other Liabilities--0.3% 13,278,501 ------------- TOTAL NET ASSETS--100% $4,772,832,369 =============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At September 30, 1999, net unrealized appreciation of $166,999,373, for federal income tax purposes, consisted of gross unrealized appreciation of $654,481,043 and gross unrealized depreciation of $487,481,670. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-4 THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--94.5% APPAREL--4.1% Liz Claiborne, Inc. 2,166,600 $ 67,164,600 RETAIL--1.7% Gucci Group (b) 325,000 $ 27,137,500 OTHER CONSUMER GOODS & SERVICES--4.0% Ralston Purina Group 2,372,600 $ 65,987,937 BANKS & THRIFTS--12.0% Washington Mutual, Inc. 5,074,800 $ 148,437,900 People's Bank of Bridgeport, Connecticut 2,038,400 48,157,200 ------------- 196,595,100 INSURANCE--4.7% PartnerRe Ltd. (c) 2,222,300 $ 77,224,925 INFORMATION SERVICES--6.6% The Dun & Bradstreet Corporation 3,643,600 $ 108,852,550 COMPUTER SERVICES--17.5% First Data Corporation 2,605,000 $ 114,294,375 The Reynolds and Reynolds Company, Class A 3,875,000 78,953,125 Electronic Data Systems Corporation 1,360,900 72,042,644 Sterling Commerce, Inc. (a) 1,168,000 21,681,000 ------------- 286,971,144 PUBLISHING--4.6% The Times Mirror Company, Class A 1,146,300 $ 75,440,869 PHARMACEUTICALS--3.6% Chiron Corporation (a) 2,150,000 $ 59,528,125 MACHINERY & INDUSTRIAL PROCESSING--3.9% Thermo Electron Corporation (a) 4,693,500 $ 63,068,906 BUILDING MATERIALS & CONSTRUCTION--10.1% USG Corporation (d) 3,499,900 $ 166,245,250 OIL FIELD SERVICES & EQUIPMENT--4.9% Weatherford International, Inc. (a) 2,480,800 $ 79,385,600 OTHER INDUSTRIAL GOODS & SERVICES--5.9% Premark International, Inc. 1,915,600 $ 96,737,800 REAL ESTATE--2.7% Host Marriott Corporation 4,680,863 $ 44,468,199
B-5 THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--94.5% (CONT.) DIVERSIFIED CONGLOMERATES--8.2% U.S. Industries, Inc. (d) 8,486,000 $ 133,654,500 ------------- TOTAL COMMON STOCKS (COST: $1,522,118,201) 1,548,463,005 OTHER ASSETS--0.0% RETAIL--0.0% Gucci Group Contingent Receivables 1,781,125 $ 890,562 ------------- TOTAL OTHER ASSETS (COST: $0) 890,562 SHORT TERM INVESTMENTS--5.1% U.S. GOVERNMENT BILLS--0.6% United States Treasury Bills, 4.65% due 12/2/1999 $10,000,000 $ 9,920,778 ------------- TOTAL U.S. GOVERNMENT BILLS (COST: $9,919,917) 9,920,778 COMMERCIAL PAPER--3.1% American Express Credit Corp., 5.26% due 10/1/1999 $10,000,000 $ 10,000,000 Ford Motor Credit Corp., 5.34% due 10/5/1999 10,000,000 10,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 30,000,000 30,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $50,000,000) 50,000,000 REPURCHASE AGREEMENTS--1.4% State Street Repurchase Agreement, 5.20% due 10/1/1999 $23,073,000 $ 23,073,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $23,073,000) 23,073,000 TOTAL SHORT TERM INVESTMENTS (COST: $82,992,917) 82,993,778 Total Investments (Cost $1,605,111,118)--99.6% (e) $1,632,347,345 Other Assets In Excess Of Other Liabilities--0.4% 6,561,467 ------------- TOTAL NET ASSETS--100% $1,638,908,812 =============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents foreign domiciled corporation. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At September 30, 1999, net unrealized appreciation of $24,656,664, for federal income tax purposes, consisted of gross unrealized appreciation of $187,822,431 and gross unrealized depreciation of $163,165,767. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-6 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--98.5% FOOD & BEVERAGE--7.6% Del Monte Foods Company (a) 1,000,000 $ 14,125,000 Ralcorp Holdings, Inc. (a) 500,000 8,843,750 International Multifoods Corporation 275,000 6,325,000 M & F Worldwide Corp. (a) 500,000 4,000,000 ------------- 33,293,750 APPAREL--1.8% Reebok International Ltd. (a) 750,000 $ 8,015,625 RETAIL--8.7% The Great Atlantic & Pacific Tea Company, Inc. 500,000 $ 15,156,250 Ugly Duckling Corporation (a)(c) 1,750,000 12,468,750 Michaels Stores, Inc. (a) 350,000 10,325,000 ------------- 37,950,000 HARDWARE--1.0% Jore Corporation (a) 353,000 $ 4,213,938 OTHER CONSUMER GOODS & SERVICES--7.0% Department 56, Inc. (a) 500,000 $ 11,968,750 Libbey, Inc. 300,000 8,868,750 Barry (R.G.) Corporation (a)(c) 900,000 5,512,500 Harman International Industries, Incorporated 100,000 4,206,250 ------------- 30,556,250 BANKS & THRIFTS--10.2% People's Bank of Bridgeport, Connecticut 500,000 $ 11,812,500 Golden State Bancorp Inc. (a) 600,000 10,762,500 BankAtlantic Bancorp, Inc., Class A 1,150,001 6,396,881 Hudson City Bancorp, Inc. (a) 400,000 5,500,000 Northwest Bancorp, Inc. 500,000 4,312,500 PennFed Financial Services, Inc. 260,000 3,900,000 Finger Lakes Financial Corp. (c) 185,500 1,808,625 ------------- 44,493,006 INSURANCE--6.6% The MONY Group Inc. (a) 500,000 $ 14,437,500 The PMI Group, Inc. 350,000 14,306,250 ------------- 28,743,750 OTHER FINANCIAL--5.5% Duff & Phelps Credit Rating Co. (c) 300,000 $ 23,981,250 EDUCATIONAL SERVICES--2.7% ITT Educational Services, Inc. (a) 600,000 $ 11,700,000 INFORMATION SERVICES--1.8% National Data Corporation 300,000 $ 7,800,000
B-7 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--98.5% (CONT.) COMPUTER SERVICES--6.6% Symantec Corporation (a) 800,000 $ 28,775,000 COMPUTER SYSTEMS--1.8% Micron Electronics, Inc. (a) 750,000 $ 7,875,000 MANAGED CARE SERVICES--2.0% First Health Group Corp. (a) 400,000 $ 8,975,000 AUTOMOTIVE--7.4% SPX Corporation (a) 200,000 $ 18,150,000 Standard Motor Products, Inc. 500,000 9,718,750 Stoneridge, Inc. (a) 250,000 4,343,750 ------------- 32,212,500 TRANSPORTATION SERVICES--2.5% Teekay Shipping Corporation (b) 700,000 $ 10,937,500 INSTRUMENTS--0.5% Varian Inc. (a) 135,000 $ 2,396,250 MACHINERY & INDUSTRIAL PROCESSING--9.5% Columbus McKinnon Corporation 600,000 $ 10,350,000 Graco Inc. 250,000 8,203,125 MagneTek, Inc. (a) 900,000 8,043,750 Tokheim Corporation (a)(c) 860,000 7,686,250 Sames Corporation (c) 250,000 4,468,750 Northwest Pipe Company (a) 185,000 2,890,625 ------------- 41,642,500 CHEMICALS--4.8% H.B. Fuller Company 200,000 $ 12,175,000 Ferro Corporation 404,200 8,614,512 ------------- 20,789,512 REAL ESTATE--6.9% Catellus Development Corporation (a) 1,400,000 $ 16,450,000 Prime Hospitality Corp. (a) 900,000 7,200,000 Trammell Crow Company (a) 500,000 6,625,000 ------------- 30,275,000 DIVERSIFIED CONGLOMERATES--3.6% U.S. Industries, Inc. 1,000,000 $ 15,750,000 TOTAL COMMON STOCKS (COST: $414,120,043) 430,375,831
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-8 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- SHORT TERM INVESTMENTS--3.0% COMMERCIAL PAPER--2.3% General Electric Capital Corporation, 5.53% due 10/1/1999 $10,000,000 $ 10,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $10,000,000) 10,000,000 REPURCHASE AGREEMENTS--0.7% State Street Repurchase Agreement, 5.20% due 10/1/1999 $3,325,000 $ 3,325,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $3,325,000) 3,325,000 TOTAL SHORT TERM INVESTMENTS (COST: $13,325,000) 13,325,000 Total Investments (Cost $427,445,043)--101.5% (d) $ 443,700,831 Other Liabilities In Excess Of Other Assets--(1.5)% (6,561,552) ------------- TOTAL NET ASSETS--100% $ 437,139,279 =============
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At September 30, 1999, net unrealized appreciation of $16,255,788, for federal income tax purposes, consisted of gross unrealized appreciation of $71,981,161 and gross unrealized depreciation of $55,725,373. B-9 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.4% FOOD & BEVERAGE--3.0% UST Inc. 60,000 $ 1,811,250 BANKS & THRIFTS--4.3% Washington Mutual, Inc. 67,000 $ 1,959,750 Bank One Corporation 18,724 651,829 ----------- 2,611,579 INSURANCE--2.9% IPC Holdings, Ltd. (b) 50,000 $ 937,500 PartnerRe Ltd. (b) 23,000 799,250 ----------- 1,736,750 OTHER FINANCIAL--2.6% Heller Financial, Inc. 70,000 $ 1,575,000 INFORMATION SERVICES--3.1% The Dun & Bradstreet Corporation 63,500 $ 1,897,062 COMPUTER SERVICES--12.7% The Reynolds and Reynolds Company 110,200 $ 2,245,325 First Data Corporation 50,000 2,193,750 Electronic Data Systems Corporation 32,500 1,720,469 Sterling Commerce, Inc. (a) 80,000 1,485,000 ----------- 7,644,544 DATA STORAGE--5.4% Imation Corp. (a) 104,300 $ 3,233,300 PUBLISHING--2.0% Lee Enterprises, Incorporated 43,900 $ 1,201,763 MEDICAL PRODUCTS--3.0% Sybron International Corporation (a) 68,000 $ 1,827,500 AUTOMOTIVE--2.6% Lear Corporation (a) 45,000 $ 1,583,438 AGRICULTURAL EQUIPMENT--1.5% Alamo Group Inc. 100,000 $ 925,000 OTHER INDUSTRIAL GOODS & SERVICES--3.9% Premark International, Inc. 46,500 $ 2,348,250
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-10 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.4% (CONT.) REAL ESTATE--9.1% Amli Residential Properties Trust 100,000 $ 2,100,000 Legacy Hotels Real Estate Investment Trust (b) 350,000 1,989,042 Catellus Development Corporation (a) 116,728 1,371,554 ----------- 5,460,596 DIVERSIFIED CONGLOMERATES--0.8% U.S. Industries, Inc. 30,000 $ 472,500 TOTAL EQUITY (COST: $29,851,840) 34,328,532 CONVERTIBLE PREFERRED STOCK--2.5% TELECOMMUNICATIONS--2.5% Metromedia International Group, Inc., Convertible Preferred, 7.25% 60,000 $ 1,477,500 TOTAL CONVERTIBLE PREFERRED STOCK (COST: $1,946,738) 1,477,500 TOTAL EQUITY AND EQUIVALENTS (COST: $31,798,578) 35,806,032 FIXED INCOME--35.8% PREFERRED STOCK--5.4% TELECOMMUNICATIONS--0.8% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 505,000 BANKS & THRIFTS--4.6% Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 677,187 BBC Capital Trust I, Preferred, 9.50% 28,000 661,500 PennFirst Capital Trust I, Preferred, 8.625% 70,000 630,000 RBI Capital Trust I, Preferred, 9.10% 42,500 401,094 Fidelity Capital Trust I, Preferred, 8.375% 43,500 396,938 ----------- 2,766,719 TOTAL PREFERRED STOCK (COST: $3,470,738) 3,271,719 CORPORATE BONDS--4.5% RETAIL--1.0% Ugly Duckling Corporation, 12.00% due 10/23/2003, Subordinated Debenture $650,000 $ 604,500
B-11 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- FIXED INCOME--35.8% (CONT.) AEROSPACE & AUTOMOTIVE--0.3% Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 150,750 Coltec Industries, Inc., 9.75% due 11/1/1999 25,000 25,063 ----------- 175,813 MACHINERY & INDUSTRIAL PROCESSING--0.8% Tokheim Corporation, 11.375% due 8/1/2008, Senior Subordinated Note (c) 500,000 $ 491,250 BUILDING MATERIALS & CONSTRUCTION--1.5% Juno Lighting Inc., 11.875% due 7/1/2009, Senior Subordinated Note (c) 750,000 $ 742,500 USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 150,000 158,062 ----------- 900,562 UTILITIES--0.4% Midland Funding Corporation, 11.75% due 7/23/2005 200,000 $ 220,750 OTHER INDUSTRIAL GOODS & SERVICES--0.5% UCAR Global Enterprises Inc., 12.00% due 1/15/2005, Senior Subordinated Note 300,000 $ 316,875 TOTAL CORPORATE BONDS (COST: $2,613,725) 2,709,750 GOVERNMENT AND AGENCY SECURITIES--25.9% U.S. GOVERNMENT BONDS--25.4% United States Treasury Notes, 6.625% due 5/15/2007 5,250,000 $ 5,412,242 United States Treasury Notes, 6.25% due 6/30/2002 4,000,000 4,052,757 United States Treasury Notes, 4.75% due 2/15/2004 4,000,000 3,835,563 United States Treasury Notes, 6.00% due 8/15/2009 2,000,000 2,014,868 ----------- 15,315,430 U.S. GOVERNMENT AGENCIES--0.5% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond 300,000 $ 301,695 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $15,699,118) 15,617,125 TOTAL FIXED INCOME (COST: $21,783,581) 21,598,594
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-12 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- SHORT TERM INVESTMENTS--5.0% COMMERCIAL PAPER--2.5% General Electric Capital Corporation, 5.53% due 10/1/1999 $1,500,000 $ 1,500,000 ----------- TOTAL COMMERCIAL PAPER (COST: $1,500,000) 1,500,000 REPURCHASE AGREEMENTS--2.5% State Street Repurchase Agreement, 5.20% due 10/1/1999 $1,507,000 $ 1,507,000 ----------- TOTAL REPURCHASE AGREEMENTS (COST: $1,507,000) 1,507,000 TOTAL SHORT TERM INVESTMENTS (COST: $3,007,000) 3,007,000 Total Investments (Cost $56,589,159)--100.2% (d) $60,411,626 Other Liabilities In Excess Of Other Assets--(0.2)% (94,035) ----------- TOTAL NET ASSETS--100% $60,317,591 ===========
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) Restricted security. (d) At September 30, 1999, net unrealized appreciation of $3,822,467, for federal income tax purposes, consisted of gross unrealized appreciation of $6,404,058 and gross unrealized depreciation of $2,581,591. B-13 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--98.2% CONSUMER NON-DURABLES--2.9% Citizen Watch Co. (Japan) Watch Manufacturer & Retailer 96,000 $ 687,769 APPAREL--4.6% Fila Holding S.p.A. (Italy), (b) Athletic Footwear & Apparel 49,200 $ 615,000 Reebok International Ltd. (United Athletic Apparel States), (a) 45,200 483,075 ----------- 1,098,075 RETAIL--11.8% Somerfield plc Food Retailer (Great Britain) 478,500 $ 1,020,141 House Of Fraser Plc Department Store (Great Britain) 712,300 914,674 Denny's Japan Co., Ltd. (Japan) Restaurant Chain 19,000 444,840 Ugly Duckling Corporation (United Automobile Retailer & Financier States), (a) 62,000 441,750 ----------- 2,821,405 OTHER CONSUMER GOODS & SERVICES--8.2% Department 56, Inc. (United Collectibles & Giftware Products States), (a) 52,000 $ 1,244,750 Royal Doulton plc Tableware & Giftware (Great Britain) 411,700 732,004 ----------- 1,976,754 BANKS & THRIFTS--9.9% Uniao de Bancos Brasileiros S.A. Major Brazilian Bank (Brazil), (c) 54,700 $ 967,506 Washington Mutual, Inc. (United Thrift States) 27,700 810,225 Banco Latinoamericano de Latin American Trade Bank Exportaciones, S.A., Class E (Panama), (b) 26,300 601,613 ----------- 2,379,344 INSURANCE--6.5% PartnerRe Ltd. (Bermuda) Reinsurance Company 25,000 $ 868,750 Reinsurance Australia Corporation Limited (Australia) Reinsurance Company 1,297,700 682,741 ----------- 1,551,491 HOTELS & MOTELS--1.5% Promus Hotel Corporation (United Hotel Operator States), (a) 11,000 $ 358,188
B-14 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--98.2% (CONT.) TEMPORARY STAFFING--2.9% Robert Half International Inc. (United Temporary Staffing Services States), (a) 29,000 $ 696,000 EDUCATIONAL SERVICES--2.3% ITT Educational Services, Inc. Postsecondary Degree Programs (United States), (a) 29,000 $ 565,500 INFORMATION SERVICES--12.8% The Dun & Bradstreet Corporation Financial Information Services (United States) 45,000 $ 1,344,375 NOVA Corporation (United States) Transaction Processing Services 44,000 1,100,000 Keane, Inc. (United States) Information Technology Consulting 27,000 615,938 ----------- 3,060,313 COMPUTER SERVICES--8.8% Sterling Commerce, Inc. (United Electronic Commerce Services States), (a) 56,500 $ 1,048,781 The Reynolds and Reynolds Company, Information Management Systems Class A (United States) 30,500 621,438 First Data Corporation (United States) Electronic Commerce Services 10,000 438,750 ----------- 2,108,969 TELECOMMUNICATIONS--1.3% Telemig Celular Participacoes S.A. Telecommunications (Brazil), (a) 161,645,000 $ 252,570 Telesp Celular Participacoes S.A. Telecommunications (Brazil) 9,600,000 53,900 ----------- 306,470 MACHINERY & METAL PROCESSING--6.5% Metso Oyj (Finland), (a) Pulp Machinery 82,600 $ 932,518 Tokheim Corporation (United Petroleum Dispensing Systems States), (a) Manufacturer 69,000 616,687 ----------- 1,549,205 MINING & BUILDING MATERIALS--3.7% Fletcher Challenge Building (New Building Materials Manufacturer Zealand) 714,200 $ 879,220
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-15 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--98.2% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--6.2% Tomkins plc (Great Britain) Diversified Engineering 130,500 $ 549,996 Chargeurs SA (France) Wool Production & Trading 7,900 483,344 GFI Industries SA (France) Industrial Fastener Manufacturer 18,900 460,330 ----------- 1,493,670 PRODUCTION EQUIPMENT--2.4% Krones AG (Germany) Manufacturer of Production Machinery 19,500 $ 570,596 DIVERSIFIED CONGLOMERATES--5.9% TT Group PLC Diversified Manufacturing (Great Britain) 319,500 $ 721,925 Wassall PLC (Great Britain) Diversified Consumer Goods 176,200 688,935 ----------- 1,410,860 TOTAL COMMON STOCKS (COST: $25,302,871) 23,513,829
SHORT TERM INVESTMENTS--1.8% COMMERCIAL PAPER--1.0% General Electric Capital Corporation, 5.53% due 10/1/1999 $250,000 $ 250,000 ----------- TOTAL COMMERCIAL PAPER (COST: $250,000) 250,000 REPURCHASE AGREEMENTS--0.8% State Street Repurchase Agreement, 5.20% due 10/1/1999 $192,000 $ 192,000 ----------- TOTAL REPURCHASE AGREEMENTS (COST: $192,000) 192,000 TOTAL SHORT TERM INVESTMENTS (COST: $442,000) 442,000 Total Investments (Cost $25,744,871)--100.0% (d) $23,955,829 Other Liabilities In Excess Of Other Assets--(0.0)% (e) (2,475) ----------- TOTAL NET ASSETS--100% $23,953,354 ===========
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) At September 30, 1999, net unrealized depreciation of $1,789,042, for federal income tax purposes, consisted of gross unrealized appreciation of $650,351 and gross unrealized depreciation of $2,439,393. (e) Includes portfolio hedges. B-16 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% CONSUMER NON-DURABLES--3.9% Citizen Watch Co. (Japan) Watch Manufacturer & Retailer 4,392,000 $ 31,465,443 FOOD & BEVERAGE--6.0% Quilmes Industrial SA (Argentina), (b) Brewer 2,795,000 $ 26,727,188 Diageo plc (Great Britain) Manufacturer of Beverages, Wines, & 1,300,000 13,290,573 Spirits Lotte Confectionery Company (Korea) Confection Manufacturer 37,270 4,549,605 Lotte Chilsung Beverage Company Manufacturer of Soft Drinks, Juices, & (Korea), (d) Sport Drinks 73,000 4,428,607 ------------- 48,995,973 APPAREL--4.0% Fila Holding S.p.A. (Italy), (b)(d) Athletic Footwear & Apparel 2,572,800 $ 32,160,000 HOUSEHOLD PRODUCTS--4.7% Hunter Douglas N.V. (Netherlands) Manufacturer of Window Coverings 802,700 $ 21,737,162 Reckitt & Colman plc (Great Britain) Household Cleaners & Air Fresheners 1,305,000 16,285,027 ------------- 38,022,189 RETAIL--6.0% Somerfield plc (Great Britain) Food Retailer 12,969,995 $ 27,651,478 Giordano International Limited (Hong East Asian Clothing Retailer & Kong) Manufacturer 26,306,000 20,826,980 ------------- 48,478,458 OTHER CONSUMER GOODS & SERVICES--6.3% Canon, Inc. (Japan) Office & Video Equipment 1,039,000 $ 30,163,889 Mandarin Oriental International Hotel Management Limited (Singapore) 29,253,000 20,769,630 ------------- 50,933,519 BANKS & THRIFTS--9.6% Uniao de Bancos Brasileiros S.A. Major Brazilian Bank (Brazil), (c) 1,769,900 $ 31,305,106 Banco Latinoamericano de Latin American Trade Bank Exportaciones, S.A., Class E (Panama), (b)(d) 1,252,800 28,657,800 Den Danske Bank Group (Denmark) Commercial Banking 64,000 7,284,285
B-17 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) BANKS & THRIFTS--9.6% (CONT.) Unidanmark A/S, Class A (Denmark) Commercial Banking 94,000 $ 6,365,446 United Overseas Bank Ltd., Foreign Commercial Banking Shares (Singapore) 553,000 4,196,294 ------------- 77,808,931 INSURANCE--0.8% IPC Holdings, Ltd. (Bermuda) Reinsurance Provider 345,000 $ 6,468,750 TEMPORARY STAFFING--0.3% Vedior NV (Netherlands) Temporary Staffing 150,500 $ 2,634,294 MARKETING SERVICES--5.3% Cordiant Communications Group plc Advertising Services (Great Britain) 10,798,877 $ 32,000,729 Saatchi & Saatchi plc (Great Britain) Advertising Services 3,202,497 11,071,763 ------------- 43,072,492 BROADCASTING & PUBLISHING--0.2% Torstar Corporation, Class B (Canada) Newspaper Publisher 195,000 $ 2,116,824 TELECOMMUNICATIONS--5.7% SK Telecom Co. Ltd. (Korea) Telecommunications 13,162 $ 12,172,010 Telesp Celular Participacoes S.A. Telecommunications (Brazil) 2,096,500,000 11,770,974 Telesp Participacoes S.A. (Brazil) Telecommunications 631,100,000 6,573,958 Tele Centro Sul Participacoes S.A. Telecommunications (Brazil), (a) 712,600,000 4,943,662 Telemig Celular Participacoes S.A. Telecommunications (Brazil), (a) 2,372,600,000 3,707,188 Embratel Participacoes S.A. Telecommunications (Brazil), (a) 526,100,000 3,534,734 Tele Sudeste Celular Participacoes Telecommunications S.A. (Brazil) 1,351,100,000 3,518,490 ------------- 46,221,016
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-18 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) MEDICAL PRODUCTS--2.5% Getinge Industrier AB, Class B Medical Instruments Manufacturer (Sweden) 1,619,100 $ 20,552,472 AEROSPACE--1.5% Rolls-Royce plc (Great Britain) Aviation & Marine Power 3,588,552 $ 12,421,213 COMPONENTS--4.6% IMI plc (Great Britain) Components Manufacturer 4,655,000 $ 21,381,228 Varitronix International Limited (Hong Liquid Crystal Displays Kong) 5,318,000 11,604,179 Morgan Crucible Company plc (Great Crucible & Components Manufacturer Britain) 1,000,000 4,263,915 ------------- 37,249,322 CHEMICALS--3.5% Fernz Corporation Limited (New Agricultural & Industrial Chemical Zealand), (d) Producer 9,862,554 $ 21,170,836 European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands) 579,550 4,316,689 Nagase & Co., Ltd. (Japan) Chemical Wholesaler 579,000 2,868,431 ------------- 28,355,956 OIL & NATURAL GAS--1.9% ISIS (France) Oil Services 208,250 $ 15,112,321 MACHINERY & METAL PROCESSING--6.3% Metso Oyj (Finland), (a) Pulp Machinery 3,562,977 $ 40,224,457 Outokumpu Oyj (Finland) Metal Producer 945,000 10,970,296 ------------- 51,194,753 MINING & BUILDING MATERIALS--2.3% Keumkang Ltd. (Korea), (d) Building Materials 340,460 $ 18,471,319 OTHER INDUSTRIAL GOODS & SERVICES--16.5% Chargeurs SA (France), (d) Wool Production & Trading 644,824 $ 39,452,164 Tomkins plc (Great Britain) Diversified Engineering 7,442,640 31,367,199 Buderus AG (Germany) Industrial Manufacturing 970,320 16,519,494 Charter plc (Great Britain) Welding Products Manufacturer 2,806,014 16,052,897
B-19 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) Kone Corporation, Class B (Finland) Elevators 112,930 $ 14,864,175 Sika Finanz AG (Switzerland) Corrosion Protection Products 32,350 10,054,875 Dongah Tire Industry Company Tire Manufacturer (Korea), (d) 166,290 5,399,470 ------------- 133,710,274 DIVERSIFIED CONGLOMERATES--3.2% Berisford plc (Great Britain) Diversified Operations 3,745,700 $ 18,838,788 First Pacific Company Ltd. (Hong Kong) Diversified Operations 11,966,000 7,240,078 ------------- 26,078,866 TOTAL COMMON STOCKS (COST: $829,827,804) 771,524,385
SHORT TERM INVESTMENTS--3.8% COMMERCIAL PAPER--3.1% American Express Credit Corp., 5.31% due 10/7/1999 $5,000,000 $ 5,000,000 Ford Motor Credit Corp., 5.34% due 10/5/1999 5,000,000 5,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 15,000,000 15,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $25,000,000) 25,000,000 REPURCHASE AGREEMENTS--0.7% State Street Repurchase Agreement, 5.20% due 10/1/1999 $5,761,000 $ 5,761,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $5,761,000) 5,761,000 TOTAL SHORT TERM INVESTMENTS (COST: $30,761,000) 30,761,000 Total Investments (Cost $860,588,804)--98.9% (e) $ 802,285,385 Foreign Currencies (Proceeds $300,051)--0.0% 300,697 Other Assets In Excess Of Other Liabilities--1.1% (f) 8,555,905 ------------- TOTAL NET ASSETS--100% $ 811,141,987 =============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At September 30, 1999, net unrealized depreciation of $58,302,773, for federal income tax purposes, consisted of gross unrealized appreciation of $96,229,261 and gross unrealized depreciation of $154,532,034. (f) Includes portfolio and transaction hedges. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-20 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% CONSUMER NON-DURABLES--1.7% Kingmaker Footwear Holdings Limited Athletic Footwear Manufacturer (Hong Kong) 8,040,000 $ 1,200,633 Il Shin Spinning Company (Korea) Fabric & Yarn Manufacturer 20,200 1,145,746 Designer Textiles (NZ) Limited (New Knit Fabrics Zealand), (b) 1,960,000 314,281 ------------ 2,660,660 FOOD & BEVERAGE--2.7% Alaska Milk Corporation Milk Producer (Philippines), (a) 42,544,000 $ 2,808,528 Hite Brewery Company (Korea) Brewer 42,861 1,419,892 ------------ 4,228,420 RETAIL--12.7% Carpetright plc (Great Britain) Carpet Retailer 1,115,000 $ 7,682,085 House Of Fraser Plc (Great Britain) Department Store 5,640,000 7,242,399 Denny's Japan Co., Ltd. (Japan) Restaurant Chain 181,000 4,237,685 Jusco Stores (Hong Kong) Co., Limited Department Stores (Hong Kong) 6,888,000 647,310 ------------ 19,809,479 OFFICE EQUIPMENT--1.0% Neopost SA (France), (a) Mailroom Equipment Supplier 50,000 $ 1,484,349 OTHER CONSUMER GOODS & SERVICES--9.3% Royal Doulton plc (Great Britain), (b) Tableware & Giftware 4,490,000 $ 7,983,234 Cewe Color Holding AG (Germany) Photo Equipment & Supplies 186,340 4,084,464 Sanford Limited (New Zealand) Fisheries 838,134 2,167,624 Shaw Brothers (Hong Kong) Ltd. (Hong Media and Entertainment Services Kong) 270,000 232,882 ------------ 14,468,204
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-21 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% (CONT.) INSURANCE--5.7% Reinsurance Australia Corporation Reinsurance Company Limited (Australia) 8,422,211 $ 4,431,065 Lambert Fenchurch Group plc (Great Insurance Broker Britain) 3,336,000 4,393,643 ------------ 8,824,708 OTHER FINANCIAL--7.6% JCG Holdings Ltd. (Hong Kong) Investment Holding Company 12,624,000 $ 7,394,431 Ichiyoshi Securities Co., Ltd. (Japan) Stock Broker 638,000 4,361,678 ------------ 11,756,109 HOTELS & MOTELS--2.7% Jarvis Hotels plc (Great Britain) Hotel Operator 2,045,000 $ 4,174,685 COMPUTER SOFTWARE--1.7% Koei Co., Ltd. (Japan) Computer Software 56,500 $ 2,650,918 BROADCASTING & PUBLISHING--3.1% Matichon Public Company Limited, Newspaper Publisher Foreign Shares (Thailand), (b) 2,039,500 $ 3,261,806 VLT AB, Class B (Sweden) Newspaper Publisher 139,950 1,520,267 ------------ 4,782,073 PRINTING--1.0% Hung Hing Printing Group Limited (Hong Printing Company Kong) 3,680,000 $ 1,563,357 TELECOMMUNICATIONS--0.6% SK Telecom Co. Ltd. (Korea) Telecommunications 1,016 $ 939,581 PHARMACEUTICALS--1.7% Recordati (Italy), (b) Pharmaceuticals 573,000 $ 2,597,323 TRANSPORTATION SERVICES--2.3% Mainfreight Limited (New Zealand), (b) Logistics Services 4,243,351 $ 3,511,797 OIL & NATURAL GAS--2.5% ISIS (France) Oil Services 53,165 $ 3,858,087
B-22 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% (CONT.) MINING & BUILDING MATERIALS--9.5% Fletcher Challenge Building (New Building Materials Manufacturer Zealand) 5,245,000 $ 6,456,884 Semapa-Sociedade de Investimento e Cement Manufacturer Gestao, SGPS, SA (Portugal) 333,012 6,037,974 Parbury Limited (Australia), (b) Building Products 12,517,553 2,328,688 ------------ 14,823,546 OTHER INDUSTRIAL GOODS & SERVICES--6.9% GFI Industries SA (France) Industrial Fastener Manufacturer 175,680 $ 4,278,878 Yip's Hang Cheung (Holdings) Ltd. Paint & Solvent Manufacturer (Hong Kong), (b) 35,472,000 2,237,578 Chargeurs SA (France) Wool Production & Trading 26,750 1,636,641 Vaisala Oyj (Finland) Atmospheric Observation Equipment 15,350 1,140,054 Dongah Tire Industry Company (Korea) Tire Manufacturer 26,900 873,448 Polifarb Cieszyn-Wroclaw S.A. (Poland) Paint & Varnish Manufacturer 347,983 509,219 ------------ 10,675,818 PRODUCTION EQUIPMENT--9.7% Krones AG (Germany) Manufacturer of Production Machinery 230,100 $ 6,733,039 NSC Groupe (France), (b) Manufacturer of Textile Equipment 55,523 5,842,934 De Dietrich et Compagnie SA (France) Manufacturer of Production Machinery 39,000 2,518,924 ------------ 15,094,897 STEEL--1.7% Steel & Tube Holdings Limited (New Produces and Distributes Steel Zealand) 3,292,370 $ 2,724,766 DIVERSIFIED CONGLOMERATES--10.1% Wassall PLC (Great Britain) Diversified Consumer Goods 1,718,000 $ 6,717,312 Haw Par Corporation Ltd. (Singapore) Healthcare and Leisure Products 3,205,000 5,335,383 TT Group PLC (Great Britain) Diversified Manufacturing 1,635,000 3,694,357 ------------ 15,747,052 TOTAL COMMON STOCKS (COST: $140,503,948) 146,375,829
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-23 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--6.1% COMMERCIAL PAPER--4.5% American Express Credit Corporation, 5.31% due 10/7/1999 $1,000,000 $ 1,000,000 Ford Motor Credit Corp., 5.34% due 10/5/1999 2,000,000 2,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 4,000,000 ------------ TOTAL COMMERCIAL PAPER (COST: $7,000,000) 7,000,000 REPURCHASE AGREEMENTS--1.6% State Street Repurchase Agreement, 5.20% due 10/1/1999 $ 2,405,000 ------------ TOTAL REPURCHASE AGREEMENTS (COST: $2,405,000) 2,405,000 TOTAL SHORT TERM INVESTMENTS (COST: $9,405,000) 9,405,000 Total Investments (Cost $149,908,948)--100.3% (c) 155,780,829 Foreign Currencies (Proceeds $6,580)--(0.0)% 6,516 Other Liabilities In Excess Of Other Assets--(0.3)% (d) (421,142) ------------ TOTAL NET ASSETS--100% $155,366,203 ============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At September 30, 1999, net unrealized appreciation of $5,871,817, for federal income tax purposes, consisted of gross unrealized appreciation of $18,082,868 and gross unrealized depreciation of $12,211,051. (d) Includes portfolio and transaction hedges. B-24 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--SEPTEMBER 30, 1999 ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND ------------------------------------------------------------------------------------------------------ ASSETS Investments, at value $ 4,759,553,868 $ 1,632,347,345 $ 443,700,831 (cost: 4,592,554,495) (cost: 1,605,111,118) (cost: 427,445,043) Cash 556 836 500 Foreign currency, at value 0 0 0 Receivable for: Forward foreign currency contracts 0 0 0 Securities sold 21,219,292 15,179,570 2,054,841 Fund shares sold 1,347,311 1,468,976 308,751 Dividends and interest 12,465,607 1,721,557 190,847 --------------- --------------- ------------- Total receivables 35,032,210 18,370,103 2,554,439 Other assets 156,740 29,811 20,999 --------------- --------------- ------------- Total assets $ 4,794,743,374 $ 1,650,748,095 $ 446,276,769 =============== =============== ============= ...................................................................................................... LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 545,733 $ 7,550,881 $ 7,789,614 Fund shares redeemed 15,409,302 2,300,778 591,967 Due to adviser 4,174,405 1,365,482 485,886 Forward foreign currency contracts 0 0 0 Other 1,781,565 622,142 270,023 --------------- --------------- ------------- Total liabilities 21,911,005 11,839,283 9,137,490 --------------- --------------- ------------- Net assets applicable to fund shares outstanding $ 4,772,832,369 $ 1,638,908,812 $ 437,139,279 =============== =============== ============= Fund shares outstanding 138,855,787 78,332,068 31,485,265 =============== =============== ============= ...................................................................................................... PRICE OF SHARES Net asset value per share $ 34.37 $ 20.92 $ 13.88 =============== =============== ============= ...................................................................................................... ANALYSIS OF NET ASSETS Paid in capital $ 3,821,186,642 $ 1,298,678,085 $ 434,024,162 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 743,709,340 299,824,158 (13,140,671) Net unrealized appreciation (depreciation) of investments 166,999,373 27,236,227 16,255,788 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 0 Net unrealized appreciation (depreciation)--other 0 0 0 Accumulated undistributed net investment income (loss) 40,937,014 13,170,342 0 --------------- --------------- ------------- Net assets applicable to Fund shares outstanding $ 4,772,832,369 $ 1,638,908,812 $ 437,139,279 =============== =============== =============
B-25 ............................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value $ 60,411,626 $ 23,955,829 $ 802,285,385 $ 155,780,829 (cost: 56,589,159) (cost: 25,744,871) (cost: 860,588,804) (cost: 149,908,948) Cash 648 225 8 981 Foreign currency, at value 0 0 300,697 6,516 Receivable for: Forward foreign currency contracts 0 0 596,807 7,756 Securities sold 0 12,537 10,270,655 197,161 Fund shares sold 8,255 178,640 2,502,167 323,831 Dividends and interest 406,110 68,013 6,012,218 758,957 ------------ ------------ ------------- ------------- Total receivables 414,365 259,190 19,381,847 1,287,705 Other assets 2,781 10,680 19,661 2,949 ------------ ------------ ------------- ------------- Total assets $ 60,829,420 $ 24,225,924 $ 821,987,598 $ 157,078,980 ============ ============ ============= ============= .............................................................................................................................. LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 268,100 $ 213,966 $ 6,610,271 $ 1,134,610 Fund shares redeemed 114,269 0 1,257,055 143,744 Due to adviser 37,626 3,045 734,839 169,370 Forward foreign currency contracts 0 4,720 1,098,344 376 Other 91,834 50,839 1,145,102 264,677 ------------ ------------ ------------- ------------- Total liabilities 511,829 272,570 10,845,611 1,712,777 ------------ ------------ ------------- ------------- Net assets applicable to fund shares outstanding $ 60,317,591 $ 23,953,354 $ 811,141,987 $ 155,366,203 ============ ============ ============= ============= Fund shares outstanding 3,846,006 2,608,650 58,153,195 12,292,100 ============ ============ ============= ============= .............................................................................................................................. PRICE OF SHARES Net asset value per share $ 15.68 $ 9.18 $ 13.95 $ 12.64 ============ ============ ============= ============= .............................................................................................................................. ANALYSIS OF NET ASSETS Paid in capital $ 48,625,541 $ 25,800,443 $ 876,279,147 $ 135,198,375 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 6,238,498 (84,542) (3,176,858) 11,120,075 Net unrealized appreciation (depreciation) of investments 3,822,467 (1,789,042) (58,302,773) 5,871,817 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 (4,719) (508,175) 7,624 Net unrealized appreciation (depreciation)--other (159) 53 (69,095) 3,023 Accumulated undistributed net investment income (loss) 1,631,244 31,161 (3,080,259) 3,165,289 ------------ ------------ ------------- ------------- Net assets applicable to Fund shares outstanding $ 60,317,591 $ 23,953,354 $ 811,141,987 $ 155,366,203 ============ ============ ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-26 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--SEPTEMBER 30, 1999 ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND ------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 112,444,285 $ 27,208,265 $ 4,644,655 Interest Income 21,271,005 6,488,832 1,194,223 Securities lending income 0 75,764 33,811 Foreign taxes withheld (126,816) (63,600) 0 -------------- ------------- ------------ Total investment income 133,588,474 33,709,261 5,872,689 ...................................................................................................... EXPENSES: Investment advisory fee 59,957,947 15,358,029 7,251,751 Transfer and dividend disbursing agent fees 3,518,298 998,731 507,287 Other shareholder servicing fees 2,966,381 957,631 264,350 Reports to shareholders 1,855,038 473,189 217,200 Custody and accounting fees 693,549 212,400 108,278 Registration and blue sky expenses 24,183 71,067 (95,846) Trustee fees 166,808 66,691 46,996 Legal fees 58,406 28,572 16,418 Audit fees 28,181 28,629 31,454 Other 418,999 95,840 47,192 -------------- ------------- ------------ Total expenses 69,687,790 18,290,779 8,395,080 Expense reimbursement 0 0 0 Expense offset arrangements (2,445) (8,874) (5,559) -------------- ------------- ------------ Net expenses 69,685,345 18,281,905 8,389,521 ...................................................................................................... NET INVESTMENT INCOME (LOSS): 63,903,129 15,427,356 (2,516,832) ...................................................................................................... NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 748,595,189 301,413,442 (11,002,740) Net realized gain (loss) on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (147,719,773) 18,463,317 82,350,204 Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 0 Net change in appreciation (depreciation)--other 0 0 0 ...................................................................................................... NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: 600,875,416 319,876,759 71,347,464 -------------- ------------- ------------ ...................................................................................................... NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 664,778,545 $ 335,304,115 $ 68,830,632 ============== ============= ============
(a) From August 4, 1999, the date on which fund shares were first offered for sale to the public. B-27 ............................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND(A) FUND SMALL CAP FUND - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 1,158,904 $ 74,217 $ 27,387,199 $ 4,445,739 Interest Income 1,227,611 23,658 1,612,869 606,224 Securities lending income 6,921 0 114,999 1,799 Foreign taxes withheld (23,405) (8,764) (3,070,519) (539,396) ----------- ------------ ------------- ------------ Total investment income 2,370,031 89,111 26,044,548 4,514,366 .............................................................................................................................. EXPENSES: Investment advisory fee 464,454 18,520 8,068,806 1,330,000 Transfer and dividend disbursing agent fees 65,540 7,434 639,040 97,700 Other shareholder servicing fees 16,086 803 315,585 61,056 Reports to shareholders 29,051 1,650 304,430 38,271 Custody and accounting fees 49,870 10,044 958,112 256,163 Registration and blue sky expenses 22,967 16,590 (32,848) 43,024 Trustee fees 34,721 5,134 52,671 35,454 Legal fees 12,909 2,100 17,730 13,415 Audit fees 24,079 10,000 30,280 39,731 Other 9,765 278 58,778 57,836 ----------- ------------ ------------- ------------ Total expenses 729,442 72,553 10,412,584 1,972,650 Expense reimbursement 0 (15,474) 0 0 Expense offset arrangements (50) 0 (515) (265) ----------- ------------ ------------- ------------ Net expenses 729,392 57,079 10,412,069 1,972,385 .............................................................................................................................. NET INVESTMENT INCOME (LOSS): 1,640,639 32,032 15,632,479 2,541,981 .............................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 6,246,386 (84,542) (28,187,781) 12,338,825 Net realized gain (loss) on foreign currency transactions (1,597) (871) 11,558,024 968,518 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 690,123 (1,789,042) 290,561,381 34,768,296 Net change in appreciation (depreciation) of forward currency exchange contracts 0 (4,719) 1,014,015 186,436 Net change in appreciation (depreciation)--other (159) 53 (274,516) (2,615) .............................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: 6,934,753 (1,879,121) 274,671,123 48,259,460 ----------- ------------ ------------- ------------ .............................................................................................................................. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 8,575,392 $ (1,847,089) $ 290,303,602 $ 50,801,441 =========== ============ ============= ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-28 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 ........................................................................
THE OAKMARK FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 63,903,129 $ 94,480,595 Net realized gain (loss) on sale of investments 748,595,189 1,258,937,339 Net realized gain (loss) on foreign currency transactions 0 (8,898) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (147,719,773) (1,704,966,868) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 664,778,545 (351,557,832) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (89,026,890) (66,321,023) Net realized short-term gain (128,028,090) (25,210,618) Net realized long-term gain (195,972,927) (1,098,260,243) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (413,027,907) (1,189,791,884) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 832,343,635 2,836,315,983 Reinvestment of dividends and capital gain distributions 391,307,098 1,133,761,068 Payments for shares redeemed, net of fees (3,626,526,884) (2,119,718,081) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (2,402,876,151) 1,850,358,970 ---------------- ---------------- .............................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS (2,151,125,513) 309,009,254 NET ASSETS: Beginning of period 6,923,957,882 6,614,948,628 ---------------- ---------------- End of period $ 4,772,832,369 $ 6,923,957,882 ================ ================ Undistributed net investment income $ 52,730,692 $ 77,854,453 ================ ================ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.4401 $ 0.3996 Net realized short-term gain 0.6329 0.1519 Net realized long-term gain 0.9686 5.8556 ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 2.0416 $ 6.4071 ================ ================
B-29 .............................................................................
THE OAKMARK SELECT FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 15,427,356 $ 1,948,524 Net realized gain (loss) on sale of investments 301,413,442 69,415,172 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 18,463,317 (78,902,257) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 335,304,115 (7,538,561) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (3,491,747) 0 Net realized short-term gain (497,653) (6,882,359) Net realized long-term gain (50,206,634) 0 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (54,196,034) (6,882,359) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 688,865,887 1,440,695,723 Reinvestment of dividends and capital gain distributions 51,676,128 6,568,333 Payments for shares redeemed, net of fees (610,635,670) (719,123,322) --------------- --------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 129,906,345 728,140,734 --------------- --------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 411,014,426 713,719,814 NET ASSETS: Beginning of period 1,227,894,386 514,174,572 --------------- --------------- End of period $ 1,638,908,812 $ 1,227,894,386 =============== =============== Undistributed net investment income $ 13,637,247 $ 1,701,638 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.0491 $ 0 Net realized short-term gain 0.0070 0.1678 Net realized long-term gain 0.7058 0 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.7619 $ 0.1678 =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-30 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 CONT. ........................................................................
THE OAKMARK SMALL CAP FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment loss $ (2,516,832) $ (4,959,862) Net realized gain (loss) on sale of investments (11,002,740) 124,757,914 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 82,350,204 (374,056,372) -------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 68,830,632 (254,258,320) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 0 Net realized short-term gain 0 (35,041,133) Net realized long-term gain (4,508,112) (129,772,888) -------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,508,112) (164,814,021) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 262,182,135 416,817,749 Reinvestment of dividends and capital gain distributions 4,278,943 156,645,973 Payments for shares redeemed, net of fees (511,639,081) (1,049,792,259) -------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (245,178,003) (476,328,537) -------------- ---------------- .............................................................................. TOTAL INCREASE IN NET ASSETS (180,855,483) (895,400,878) NET ASSETS: Beginning of period 617,994,762 1,513,395,640 -------------- ---------------- End of period $ 437,139,279 $ 617,994,762 ============== ================ Undistributed net investment income $ (9,437,333) $ (6,920,501) ============== ================ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0 $ 0 Net realized short-term gain 0 0.4738 Net realized long-term gain 0.0874 2.3874 -------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.0874 $ 2.8612 ============== ================
B-31 .............................................................................
THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 1,640,639 $ 1,166,564 Net realized gain (loss) on sale of investments 6,246,386 1,578,730 Net realized gain (loss) on foreign currency transactions (1,597) 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 690,123 (2,325,892) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation)--other (159) 0 ------------- ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 8,575,392 419,402 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (855,395) (594,007) Net realized short-term gain 0 (882,071) Net realized long-term gain (829,557) (599,021) ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,684,952) (2,075,099) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 21,877,864 43,125,943 Reinvestment of dividends and capital gain distributions 1,610,146 1,964,129 Payments for shares redeemed, net of fees (27,806,714) (19,151,033) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (4,318,704) 25,939,039 ------------- ------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 2,571,736 24,283,342 NET ASSETS: Beginning of period 57,745,855 33,462,513 ------------- ------------- End of period $ 60,317,591 $ 57,745,855 ============= ============= Undistributed net investment income $ 1,806,607 $ 1,021,363 ============= ============= (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2118 $ 0.2359 Net realized short-term gain 0 0.3503 Net realized long-term gain 0.2053 0.2379 ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.4171 $ 0.8241 ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-32 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 CONT. ........................................................................
THE OAKMARK GLOBAL FUND -------------------- PERIOD ENDED SEPTEMBER 30, 1999(a) ------------------------------------------------------ FROM OPERATIONS: Net investment income $ 32,032 Net realized gain (loss) on sale of investments (84,542) Net realized gain (loss) on foreign currency transactions (871) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (1,789,042) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (4,719) Net change in unrealized appreciation (depreciation)--other 53 ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (1,847,089) ...................................................... DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 Net realized short-term gain 0 Net realized long-term gain 0 ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 ...................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 25,938,577 Reinvestment of dividends and capital gain distributions 0 Payments for shares redeemed, net of fees (138,134) ------------ NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 25,800,443 ------------ ...................................................... TOTAL INCREASE IN NET ASSETS 23,953,354 NET ASSETS: Beginning of period 0 ------------ End of period $ 23,953,354 ============ Undistributed net investment income $ 32,032 ============ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0 Net realized short-term gain 0 Net realized long-term gain 0 ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0 ============
(a) From August 4, 1999, the date on which fund shares were first offered for sale to the public B-33 .............................................................................
THE OAKMARK INTERNATIONAL FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 15,632,479 $ 23,809,423 Net realized gain (loss) on sale of investments (28,187,781) 86,532,713 Net realized gain (loss) on foreign currency transactions 11,558,024 (3,890,444) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 290,561,381 (502,914,491) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 1,014,015 (2,045,738) Net change in unrealized appreciation (depreciation)--other (274,516) 195,384 -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 290,303,602 (398,313,153) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (16,590,763) (46,460,573) Net realized short-term gain (32,678,201) (57,985,224) Net realized long-term gain (20,071,535) (173,099,244) -------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (69,340,499) (277,545,041) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 370,563,788 482,976,228 Reinvestment of dividends and capital gain distributions 65,432,760 263,415,429 Payments for shares redeemed, net of fees (601,921,972) (961,776,686) -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (165,925,424) (215,385,029) -------------- --------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 55,037,679 (891,243,223) NET ASSETS: Beginning of period 756,104,308 1,647,347,531 -------------- --------------- End of period $ 811,141,987 $ 756,104,308 ============== =============== Undistributed net investment income $ 37,780,575 $ 38,738,859 ============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2440 $ 0.5758 Net realized short-term gain 0.4807 0.7186 Net realized long-term gain 0.2953 2.1453 -------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.0200 $ 3.4397 ============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-34 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 CONT. ........................................................................
THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 2,541,981 $ 1,415,157 Net realized gain (loss) on sale of investments 12,338,825 (96,290) Net realized gain (loss) on foreign currency transactions 968,518 (162,499) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 34,768,296 (27,728,327) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 186,436 (179,057) Net change in unrealized appreciation (depreciation)--other (2,615) 2,414 -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 50,801,441 (26,748,602) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (1,558,450) (308,015) Net realized short-term gain 0 (3,477,982) Net realized long-term gain 0 (3,890,139) -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,558,450) (7,676,136) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 253,467,836 77,339,314 Reinvestment of dividends and capital gain distributions 1,470,554 7,427,846 Payments for shares redeemed, net of fees (200,585,753) (64,544,647) -------------- ------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 54,352,637 20,222,513 -------------- ------------- .............................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS 103,595,628 (14,202,225) NET ASSETS: Beginning of period 51,770,575 65,972,800 -------------- ------------- End of period $ 155,366,203 $ 51,770,575 ============== ============= Undistributed net investment income $ 2,612,604 $ 1,629,075 ============== ============= (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2049 $ 0.0559 Net realized short-term gain 0 0.6312 Net realized long-term gain 0 0.7060 -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2049 $ 1.3931 ============== =============
B-35 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS ........................................................................ 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Oakmark Global Fund ("Global"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. SECURITY VALUATION-- Investments are stated at current market value. Securities traded on securities exchanges and securities traded on the NASDAQ National Market are valued at the last sales price on the day of valuation, or if lacking any reported sales that day, at the most recent bid quotation. Over-the-counter securities not so traded are valued at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the date of valuation are valued on an amortized cost basis which approximates market value. Securities for which quotations are not readily available are valued at a fair value as determined by the Pricing Committee appointed by the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS-- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. At September 30, 1999, only the Equity and Income, Global, International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:
EQUITY AND INT'L SMALL INCOME GLOBAL INTERNATIONAL CAP - ----------------------------------------------------------------------------------- Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $(187) $29 $(85,076) $ 4,448 Unrealized appreciation (depreciation) on open securities purchases and sales -- -- (13,762) (1,286) Unrealized appreciation (depreciation) on transaction hedge purchases and sales -- -- 6,638 (245) Unrealized appreciation (depreciation) on tax expense payable 28 24 23,105 106 ------ --- -------- ------- Net Unrealized Appreciation (Depreciation) - Other $(159) $53 $(69,095) $ 3,023 ====== === ======== =======
SECURITY TRANSACTIONS AND INVESTMENT INCOME-- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. FORWARD FOREIGN CURRENCY CONTRACTS-- At September 30, 1999, Global, International and Int'l Small Cap had entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. These contracts are valued daily and the fund's net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the statement of assets and liabilities. Realized and unrealized gains and losses are included in the statement of operations. B-36 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movements in currency values. The Global Fund had the following outstanding contracts at September 30, 1999: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------------------------- $300,000 32,523,000 Japanese Yen February 2000 $(11,766) 300,000 30,456,000 Japanese Yen March 2000 7,047 -------- $ (4,719) ========
The International Fund had the following outstanding contracts at September 30, 1999: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------------------- $29,496,600 18,000,000 Pound Sterling November 1999 $(138,396) 24,400,000 2,645,204,000 Japanese Yen February 2000 (956,994) 25,000,000 2,538,000,000 Japanese Yen March 2000 587,215 --------- $(508,175) =========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------- $ 271,353 1,894,725 Danish Krone October 1999 $ (93) 427,188 406,266 Euro Currency October 1999 5,098 1,522,910 926,006 Pound Sterling October 1999 1,574 1,014,403 616,284 Pound Sterling October 1999 185 1,539,504 934,506 Pound Sterling October 1999 (1,029) 1,547,003 939,057 Pound Sterling October 1999 (1,034) ------- $ 4,701 =======
B-37 TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------- $ 53,592 78,700 Canadian Dollar October 1999 $ 29 341,801 320,790 Euro Currency October 1999 465 248,930 233,124 Euro Currency October 1999 874 2,007,902 1,219,867 Pound Sterling October 1999 (365) 1,985,610 1,205,299 Pound Sterling October 1999 1,327 80,586 625,993 Hong Kong Dollar October 1999 (1) 3,044,739 23,605,862 Norwegian Krone October 1999 (2,555) 536,900 4,381,103 Swedish Krone October 1999 2,163 ------- $ 1,937 =======
The Int'l Small Cap Fund had the following outstanding contracts at September 30, 1999: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------- $2,800,000 303,548,000 Japanese Yen February 2000 $(109,819) 5,000,000 507,600,000 Japanese Yen March 1999 117,443 --------- $ 7,624 =========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------------------------- $ 44,340 42,168 Euro Currency October 1999 $ 529 269,843 253,159 Euro Currency October 1999 (469) 11,140 10,542 Euro Currency October 1999 77 205,888 193,232 Euro Currency October 1999 (280) 252,990 153,569 Pound Sterling October 1999 (169) 97,670 59,287 Pound Sterling October 1999 (65) ----- $(377) =====
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 -------------------------------------------------------------------------------------------------------------- $197,293 119,760 Pound Sterling October 1999 $132 ====
At September 30, 1999, Global, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. B-38 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ SECURITIES LENDING-- Each Fund except The Oakmark Fund may lend portfolio securities to broker- dealers and banks. As of December 31, 1998, the Funds discontinued participation in a securities lending program and any securities previously loaned to borrowers have been returned. FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- No provision is made for Federal income taxes. The Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. The Funds hereby designate the approximate long term capital gains for purposes of the dividends paid deduction (in thousands):
SMALL EQUITY & INT'L SMALL OAKMARK SELECT CAP INCOME GLOBAL INT'L CAP $618,028 $296,551 $0 $6,231 $0 $0 $5,912
The amount of income dividends and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these book and tax differences are permanent in nature, such amounts are reclassified among paid in capital, undistributed net investment income and undistributed net realized gain (loss) on investments. These differences are primarily related to foreign currency transactions, deferral of losses on wash sales, and character of capital loss carryforwards. The Funds also utilize earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. BANK LOANS-- The Funds have two unsecured lines of credit with a syndication of banks. One line of credit is a committed line of $350 million and the other is an uncommitted line of $250 million. Borrowings under this arrangement bear interest at .50% above the Federal Funds Effective Rate. As of September 30, 1999, there were no outstanding borrowings. 2. TRANSACTIONS WITH AFFILIATES Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets, .85% on the next $5 billion of net assets, and .80% on the excess of $10 billion of net assets. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets, and .90% on the excess of $5 billion of net assets. Select pays 1% on the first $1 billion, .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million, .80% on the next $2.5 million of net assets, and .75% on the excess of $5 billion of net assets. Small Cap pays 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1% on the excess of $2.5 billion. Equity and Income pays .75% of net assets, Int'l Small Cap pays 1.25% of net assets, and Global pays 1.00% of net assets. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% for domestic funds, 2.0% for international funds, and 1.75% for Global. In connection with the organization of the Funds, expenses of approximately $7,283 were advanced each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to Select by the Adviser. These expenses are being amortized on a straight line basis through October, 2000 for Small Cap, Equity and Income and Int'l Small Cap, and October, 2001 for Select. During the twelve months ended September 30, 1999, the Funds incurred brokerage commissions of $5,015,100, $2,890,278, $2,569,414, $128,972, $93,787, $3,642,521 and $1,155,829 of which $1,944,758, $725,722, $213,191, $56,545, $29,127, $0 and $0 were paid by Oakmark, Select, Small Cap, Equity and Income, Global, International and Int'l Small Cap, respectively, to an affiliate of the Adviser. The Funds' Trustees may participate in a Deferred Compensation Plan which may be terminated at any time. The obligations of the Plan are paid solely out of the assets of the Funds. All amounts payable under the Plan as of September 30, 1999 have been accrued. B-39 3. FUND SHARE TRANSACTIONS Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following number of shares (in thousands):
PERIOD ENDED SEPTEMBER 30, 1999 ----------------------------------------- EQUITY & OAKMARK SELECT SMALL CAP INCOME ---------------------------------------------------------------------------------- Shares sold 22,559 32,332 18,587 1,449 Shares issued in reinvestment of dividends 10,299 2,853 297 112 Less shares redeemed (100,457) (30,105) (36,338) (1,842) ---------- ------- -------- ------- Net increase (decrease) in shares outstanding (67,599) 5,080 (17,454) (281) ========== ======= ======== ======= PERIOD ENDED SEPTEMBER 30, 1999 ------------------------------------- INT'L SMALL GLOBAL(a) INTERNATIONAL CAP ------------------------------------- --------------------------------------- Shares sold 2,623 27,499 21,542 Shares issued in reinvestment of dividends -- 6,003 178 Less shares redeemed (15) (47,902) (16,944) -------- ---------- --------- Net increase (decrease) in shares outstanding 2,608 (14,400) 4,776 ======== ========== =========
(a) From August 4, 1999, the date on which fund shares were first offered for sale to the public.
YEAR ENDED SEPTEMBER 30, 1998 ------------------------------------------------------------------ EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP ----------------------------------------------------------------------------------------------------------- Shares sold 68,340 81,093 22,121 3,014 34,513 8,604 Shares issued in reinvestment of dividends 30,513 410 9,667 149 20,108 786 Less shares redeemed (52,910) (39,717) (57,261) (1,344) (69,820) (7,284) ------- ------- -------- ------- ---------- --------- Net increase (decrease) in shares outstanding 45,943 41,786 (25,473) 1,819 (15,199) 2,106 ======= ======= ======== ======= ========== =========
Effective January, 1999, the Funds offer two classes of shares. Class I shares are offered to the general public and Class II shares are offered to certain 401(k) and other tax qualified plans. Because no Class II shares have been issued as of September 30, 1999, no financial data is presented. 4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
EQUITY & OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL -------------------------------------------------------------------------------------------------------------- Purchases $ 734,144 $1,114,254 $ 370,124 $45,738 $27,010 $408,596 Proceeds from sales 3,124,576 968,958 4,661,866 49,281 1,595 611,623 INT'L SMALL CAP ----------- --------------------------------------- Purchases $175,083 Proceeds from sales 125,384
B-40 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ 5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the year ended September 30, 1999 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- ACNielsen Corporation $ -- $ -- $ -- $ 108,083,250 Brunswick Corporation -- -- 3,640,400 181,109,900 H & R Block, Inc. -- 59,237,433 7,114,713 278,673,281 Knight Ridder, Inc. 13,380,889 76,860,097 5,585,106 313,670,988 The Black & Decker Corporation -- 163,345,561 3,201,948 247,269,887 The Dun & Bradstreet Corporation 12,433,629 57,927,867 7,103,390 278,509,687 ----------- ------------ ----------- -------------- TOTALS $25,814,518 $357,370,958 $26,645,557 $1,407,316,993
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- USG Corporation $53,055,089 $ 13,554,188 $ 1,238,350 $ 166,245,250 US Industries Inc. 44,696,796 27,494,375 1,586,420 133,654,500 ----------- ------------ ----------- -------------- TOTALS $97,751,885 $ 41,048,563 $ 2,824,770 $ 299,899,750
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- Barry (R.G.) Corporation $ 683,865 $ -- $ -- $ 5,512,500 Duff & Phelps Credit Rating Co. -- 2,576,539 39,000 23,981,250 Finger Lakes Financial Corp. -- 22,374 45,120 1,808,625 Sames Corporation -- 448,735 -- 4,468,750 Tokheim Corporation 9,617,102 -- -- 7,686,250 Ugly Duckling Corporation 366,408 -- -- 12,468,750 ----------- ------------ ----------- -------------- TOTALS $10,667,375 $ 3,047,648 $ 84,120 $ 55,926,125
B-41 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- Banco Latinoamericano de Exportaciones, S.A. Class E $ 8,398,520 $ 10,993,184 $ 1,380,960 $ 28,657,800 Chargeurs International SA 487,752 -- 388,650 39,452,164 Dongah Tire Industry Company -- -- 140,181 5,399,470 Fernz Corporation Ltd. 3,621,336 14,034,949 1,034,503 21,170,836 Fila Holding S.p.A. 691,130 989,957 -- 32,160,000 Keumkang Ltd. -- 7,957,641 307,101 18,471,319 Lotte Chilsung Beverage Company -- 4,600,021 36,291 4,428,607 ----------- ------------ ----------- -------------- TOTALS $13,198,738 $ 38,575,752 $ 3,287,686 $ 149,740,196
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- Designer Textiles (NZ) Limited $ -- $ 158,585 $ 42,398 $ 314,281 Mainfreight Limited 3,661,625 -- 51,467 3,511,797 Matichon Public Company Limited, Foreign Share -- -- 162,053 3,261,806 NSC Groupe 3,693,254 -- 349,183 5,842,934 Parbury Limited 255,279 -- 131,268 2,328,688 Recordati 2,860,638 -- 47,131 2,597,323 Royal Doulton PLC 6,916,864 1,773,353 -- 7,983,234 Yip's Hang Cheung (Holdings) Ltd. 671,588 112,764 164,944 2,237,578 ----------- ------------ ----------- -------------- TOTALS $18,059,248 $ 2,044,702 $ 948,444 $ 28,077,641
B-42 THE OAKMARK FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, ---------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 Income From Investment Operations: Net Investment Income (Loss) 0.44 0.47 0.36 0.34 0.30 Net Gains or Losses on Securities (both realized and unrealized) 2.43 (1.73) 10.67 4.70 4.66 --------- --------- --------- --------- --------- Total From Investment Operations: 2.87 (1.26) 11.03 5.04 4.96 Less Distributions: Dividends (from net investment income) (0.44) (0.40) (0.34) (0.28) (0.23) Distributions (from capital gains) (1.60) (6.01) (1.87) (0.84) (1.47) --------- --------- --------- --------- --------- Total Distributions (2.04) (6.41) (2.21) (1.12) (1.70) --------- --------- --------- --------- --------- Net Asset Value, End of Period $ 34.37 $ 33.54 $ 41.21 $ 32.39 $ 28.47 ========= ========= ========= ========= ========= Total Return 7.98% (4.06)% 39.24%* 18.07% 21.55% Ratios/Supplemental Data: Net Assets, End of Period ($million) $4,772.8 6$,924.0 $6,614.9 $3,933.9 $2,827.1 Ratio of Expenses to Average Net Assets 1.11% 1.08% 1.08%* 1.18% 1.17% Ratio of Net Income (Loss) to Average Net Assets 1.02% 1.22% 1.19%* 1.13% 1.27% Portfolio Turnover Rate 13% 43% 17% 24% 18% YEAR ENDED OCTOBER 31, ----------------------------------- OCTOBER 31, 1994 1993 1992 1991(a) - ------------------------------ Net Asset Value, Beginning of Period $ 24.18 $ 17.11 $ 12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.27 0.17 (0.03) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 1.76 7.15 5.04 2.11 --------- --------- ------- ------ Total From Investment Operations: 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.23) (0.04) -- -- Distributions (from capital gains) (0.77) (0.21) -- -- --------- --------- ------- ------ Total Distributions (1.00) (0.25) -- -- --------- --------- ------- ------ Net Asset Value, End of Period $ 25.21 $ 24.18 $ 17.11 $12.10 ========= ========= ======= ====== Total Return 8.77% 43.21% 41.40% 87.10 %* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,677.3 $1,107.0 $114.7 $4.8 Ratio of Expenses to Average Net Assets 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets 1.19% 0.94% (0.24)% (0.66)%(c)* Portfolio Turnover Rate 29% 18% 34% 0%
*Data has been annualized. (a) From August 5, 1991, the date on which Fund shares were first offered for sale to the public. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. B-43 THE OAKMARK SELECT FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - -------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.76 $ 16.34 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.20 0.03 (0.01) Net Gains or Losses on Securities (both realized and unrealized) 4.72 0.56 6.35 --------- --------- ------- Total From Investment Operations: 4.92 0.59 6.34 Less Distributions: Dividends (from net investment income) (0.05) -- -- Distributions (from capital gains) (0.71) (0.17) -- --------- --------- ------- Total Distributions (0.76) (0.17) -- --------- --------- ------- Net Asset Value, End of Period $ 20.92 $ 16.76 $16.34 ========= ========= ======= Total Return 30.07% 3.64% 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,638.9 $1,227.9 $514.2 Ratio of Expenses to Average Net Assets 1.16% 1.22% 1.12%* Ratio of Net Income (Loss) to Average Net Assets 0.98% .17% (0.11)%* Portfolio Turnover Rate 67% 56% 37%
*Ratios have been annualized. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-44 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, OCTOBER 31, SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.63 $ 20.34 $ 13.19 $10.00 Income From Investment Operations: Net Investment Income (Loss) (0.16) (0.12) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) 1.50 (4.73) 7.16 3.21 ------- ------- --------- ------- Total From Investment Operations: 1.34 (4.85) 7.15 3.19 Less Distributions: Dividends (from net investment income) 0.00 -- -- -- Distributions (from capital gains) (0.09) (2.86) -- -- ------- ------- --------- ------- Total Distributions (0.09) (2.86) -- -- ------- ------- --------- ------- Net Asset Value, End of Period $ 13.88 $ 12.63 $ 20.34 $13.19 ======= ======= ========= ======= Total Return 10.56% (26.37)% 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($million) $437.1 $618.0 $ 1,513.4 $218.4 Ratio of Expenses to Average Net Assets 1.48% 1.45% 1.37%* 1.61% Ratio of Net Income (Loss) to Average Net Assets (0.44)% (0.40)% (0.25)%* (0.29)% Portfolio Turnover Rate 68% 34% 27% 23%
*Data has been annualized. B-45 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, OCTOBER 31, SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.99 $ 14.49 $11.29 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.43 0.29 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 1.68 0.04 3.24 1.19 ------ ------ ------ ------ Total From Investment Operations: 2.11 0.33 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.21) (0.24) (0.12) -- Distributions (from capital gains) (0.21) (0.59) (0.13) -- ------ ------ ------ ------ Total Distributions (0.42) (0.83) (0.25) -- ------ ------ ------ ------ Net Asset Value, End of Period 15.68 13.99 $14.49 $11.29 ====== ====== ====== ====== Total Return 15.32% 2.57% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 60.3 $ 57.7 $33.5 $13.8 Ratio of Expenses to Average Net Assets 1.18% 1.31% 1.50%*(a) 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.65% 2.39% 2.38%*(a) 1.21%(a) Portfolio Turnover Rate 81% 46% 53% 66%
*Data has been annualized. (a) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, ratios would have been as follows:
SEPTEMBER 30, 1997 OCTOBER 31, 1996 - -------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.70% 2.64% Ratio of Net Income (Loss) to Average Net Assets 2.18% 1.08%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-46 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED SEPTEMBER 30, 1999(a) - -------------------------------------------------------- Net Asset Value, Beginning of Period $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.01 Net Gains or Losses on Securities (both realized and unrealized) (0.83) ------ Total From Investment Operations: (0.82) Less Distributions: Dividends (from net investment income) 0.00 Distributions (from capital gains) 0.00 ------ Total Distributions 0.00 ------ Net Asset Value, End of Period $ 9.18 ====== Total Return (8.18%) Ratios/Supplemental Data: Net Assets, End of Period ($million) $24.0 Ratio of Expenses to Average Net Assets 1.75%*(b) Ratio of Net Income (Loss) to Average Net Assets 0.98%*(b) Portfolio Turnover Rate 7.23%
*Data has been annualized. (a) From August 14, 1999, the date on which fund shares were first offered for sale to the public. (b) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment advisor, the ratio of expenses to average net assets would have been 2.22% and the ratio of net income (loss) to average net assets would have been 1.45%. B-47 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, ---------------------------------------------- 1999 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 Income From Investment Operations: Net Investment Income (Loss) 0.36 0.41 0.27 0.09 0.30 0.21 0.06 Net Gains or Losses on Securities (both realized and unrealized) 4.19 (5.32) 3.74 2.90 (0.77) 0.43 4.48 ------- ------- --------- --------- ------- --------- ------- Total From Investment Operations: 4.55 (4.91) 4.01 2.99 (0.47) 0.64 4.54 Less Distributions: Dividends (from net investment income) (0.24) (0.58) (0.16) -- -- (0.08) (0.25) Distributions (from capital gains) (0.78) (2.86) -- (1.04) (1.06) (0.15) -- ------- ------- --------- --------- ------- --------- ------- Total Distributions (1.02) (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) ------- ------- --------- --------- ------- --------- ------- Net Asset Value, End of Period $ 13.95 $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 ======= ======= ========= ========= ======= ========= ======= Total Return 46.41% (29.90)% 29.63%* 24.90% (3.06)% 4.62% 47.49% Ratios/Supplemental Data: Net Assets, End of Period ($million) $811.1 $756.1 $1,647.3 $1,172.8 $819.7 $1,286.0 $815.4 Ratio of Expenses to Average Net Assets 1.29% 1.32% 1.26%* 1.32% 1.40% 1.37% 1.26% Ratio of Net Income (Loss) to Average Net Assets 1.94% 1.95% 2.09%* 1.45% 1.40% 1.44% 1.55% Portfolio Turnover Rate 54% 43% 61% 42% 26% 55% 21% PERIOD ENDED OCTOBER 31, 1992(a) - ------------------------------ Net Asset Value, Beginning of Period $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.26 Net Gains or Losses on Securities (both realized and unrealized) (0.46) ------- Total From Investment Operations: (0.2) Less Distributions: Dividends (from net investment income) -- Distributions (from capital gains) -- ------- Total Distributions -- ------- Net Asset Value, End of Period 9.80 ======= Total Return (22.81)%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $23.5 Ratio of Expenses to Average Net Assets 2.04%* Ratio of Net Income (Loss) to Average Net Assets 37.02%* Portfolio Turnover Rate 0%
*Ratios have been annualized. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-48 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 OCTOBER 31, 1996 - -------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 6.89 $12.20 $11.41 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.20 0.18 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) 5.75 (4.09) 1.10 1.37 ------- ------- ------ ------ Total From Investment Operations: 5.95 (3.91) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.20) (0.06) (0.08) -- Distributions (from capital gains) 0.00 (1.34) (0.36) -- ------- ------- ------ ------ Total Distributions (0.20) (1.40) (0.44) -- ------- ------- ------ ------ Net Asset Value, End of Period $12.64 $ 6.89 $12.20 $11.41 ======= ======= ====== ====== Total Return 88.02% (35.20)% 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $155.4 $51.8 $66.0 $39.8 Ratio of Expenses to Average Net Assets 1.79% 1.96% 1.93%* 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.31% 2.17% 1.23%* 0.65%(a) Portfolio Turnover Rate 126% 69% 63% 27%
* Ratios have been annualized. (a) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment advisor, the ratio of expenses to average net assets would have been 2.65% and the ratio of net income (loss) to average net assets would have been .50%. B-49 THE OAKMARK FAMILY OF FUNDS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ........................................................................ TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF HARRIS ASSOCIATES INVESTMENT TRUST: WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (EACH A SERIES OF HARRIS ASSOCIATES INVESTMENT TRUST), INCLUDING THE SCHEDULES OF INVESTMENTS ON PAGES 7-9, 12-13, 16-18, 21-24, 28-30, 34-37, AND 41-44, AS OF SEPTEMBER 30, 1999, AND THE RELATED STATEMENTS OF OPERATIONS, STATEMENTS OF CHANGES IN NET ASSETS AND THE FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON. THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE THE RESPONSIBILITY OF THE TRUST'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS. WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES INCLUDED CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 1999, BY CORRESPONDENCE WITH THE CUSTODIAN AND BROKERS. AS TO SECURITIES PURCHASED BUT NOT RECEIVED, WE REQUESTED CONFIRMATION FROM BROKERS, AND WHEN REPLIES WERE NOT RECEIVED, WE CARRIED OUT ALTERNATIVE AUDITING PROCEDURES. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION. IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITIONS OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND OF THE HARRIS ASSOCIATES INVESTMENT TRUST AS OF SEPTEMBER 30, 1999, THE RESULTS OF THEIR OPERATIONS, THE CHANGES IN THEIR NET ASSETS, AND THEIR FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. ARTHUR ANDERSEN LLP Chicago, Illinois October 25, 1999 B-50 PART C OTHER INFORMATION ITEM 23. EXHIBITS Note: As used herein, "Registration Statement" refers to this registration statement under the Securities Act of 1933, no. 33-38953. "Pre-effective Amendment" refers to a pre-effective amendment to the Registration Statement, and "Post-effective Amendment" refers to a post-effective amendment to the Registration Statement. (a) Agreement and declaration of trust (exhibit 1 to Post-effective Amendment no. 18*) (b) Bylaws as amended through September 9, 1997 (exhibit 2 to Post-effective Amendment no. 19*) (c) The registrant does not issue share certificates. (d)(1) Investment advisory agreement for The Oakmark Fund dated August 30, 1996 (exhibit 5.1 to Post-effective Amendment no. 17*) (d)(2) Investment advisory agreement for The Oakmark International Fund dated August 30, 1996 (exhibit 5.2 to Post-effective Amendment no. 17*) (d)(3) Investment advisory agreement for The Oakmark Small Cap Fund dated August 30, 1996 (exhibit 5.3 to Post-effective Amendment no. 17*) (d)(4) Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Small Cap Fund (exhibit 5.4 to Post-effective Amendment No. 20*) (d)(5) Investment advisory agreement for The Oakmark Equity and Income Fund dated August 30, 1996 (exhibit 5.4 to Post-effective Amendment no. 17*) (d)(6) Investment advisory agreement for The Oakmark International Small Cap Fund dated August 30, 1996 (exhibit 5.5 to Post-effective Amendment no. 17*) (d)(7) Investment advisory agreement for The Oakmark Select Fund dated October 22, 1996 (exhibit 5.6 to Post-effective Amendment no. 17*) (d)(8) Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Select Fund (exhibit 5.6 to Post-effective Amendment No. 20*) (d)(9) Amendment dated September 17, 1998 to investment advisory agreement for The Oakmark Fund (exhibit 5.9 to Post-effective Amendment No. 21*) (d)(10) Amendment dated September 17, 1998 to investment advisory agreement for The Oakmark Select Fund (exhibit 5.10 to Post-effective Amendment No. 21*) C-1 (d)(11) Investment advisory agreement for The Oakmark Global Fund dated August 1, 1999 (e) None (f) None (g)(1) Custody agreement with State Street Bank and Trust Company dated July 10, 1991 (exhibit (g)(1) to Post-effective Amendment no. 18*) (g)(2) Special custody account agreement (short sales) dated September 24, 1991 (exhibit 8.2 to Post-effective Amendment no. 18*) (g)(3) Form of letter agreement dated September 8, 1992 applying custody agreement (exhibit (g)(1)) to The Oakmark International Fund (exhibit 8.3 to Post-effective Amendment no. 18*) (g)(4) Form of letter agreement dated September 15, 1995 applying custody agreement (exhibit (g)(1)) and transfer agency agreement to The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund (exhibit 8.4 to Post-effective Amendment no. 18*) (g)(5) Form of letter agreement dated September 30, 1996 applying custody agreement (exhibit (g)(1)) to The Oakmark Select Fund (exhibit 8.5 to Post-effective Amendment no. 17*) (g)(6) Form of special custody account agreement (short sales) dated May 21, 1996 for each of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund (exhibit 8.6 to Post-effective Amendment No. 20*) (g)(7) Form of letter agreement dated August, 1999 applying custody agreement (exhibit (g)(1)) to The Oakmark Global Fund (exhibit (g)(7) to Post-effective Amendment no. 22*) (h) Transfer agent agreement with Nvest Services Company, Inc. dated September 1, 1999 (i)(1) Opinion of Bell, Boyd & Lloyd dated November 1, 1998 - The Oakmark Fund (exhibit 10.1 to Post-effective Amendment no. 21*) (i)(2) Opinion of Bell, Boyd & Lloyd dated July 23, 1992 - The Oakmark International Fund (exhibit 10.2 to Post-effective Amendment no. 18*) (i)(3) Opinion of Ropes & Gray dated September 20, 1995 - The Oakmark International Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund (exhibit 10.3 to Post-effective Amendment no. 18*) (i)(4) Opinion of Bell, Boyd & Lloyd dated September 20, 1995 - The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund (exhibit 10.4 to Post-Effective Amendment no. 18*) C-2 (i)(5) Opinion of Bell, Boyd & Lloyd dated October 22, 1996 - The Oakmark Select Fund (exhibit 10.5 to Post-effective Amendment no. 17*) (i)(6) Opinion of Bell, Boyd & Lloyd dated May 21, 1999 - The Oakmark Global Fund (exhibit (i)(6) to Post-effective Amendment no. 22*) (i)(7) Consent of Bell, Boyd & Lloyd dated November 30, 1999 (j) Consent of independent public accountants dated November 23, 1999 (k) None (l)(1) Organizational expense agreement for The Oakmark Fund dated July 31, 1991 (exhibit 13.1 to Post-effective Amendment no. 18*) (l)(2) Organizational expense agreement for The Oakmark International Fund dated September 15, 1992 (exhibit 13.2 to Post-effective Amendment no. 18*) (l)(3) Organizational expense agreement for The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund dated July 6, 1995 (exhibit 13.3 to Post-effective Amendment no. 18*) (l)(4) Organizational expense agreement for The Oakmark Select Fund dated October 22, 1996 (exhibit 13.4 to Post-effective Amendment no. 17*) (l)(5) Form of subscription agreement (exhibit 13.5 to Post-effective Amendment no. 18*) (m) None (n) Rule 18f-3 plan (exhibit 18 to Post-effective Amendment No. 21*) - -------------------- * Incorporated by reference C-3 ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT The registrant does not consider that there are any persons directly or indirectly controlling, controlled by, or under common control with, the registrant within the meaning of this item. The information in the prospectus under the caption "Management of the Funds" and in the Statement of Additional Information under the caption "Investment Adviser" and "Trustees and Officers" is incorporated by reference. ITEM 25. INDEMNIFICATION Article VIII of the agreement and declaration of trust of registrant (exhibit 1 to this registration statement, which is incorporated herein by reference) provides that registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, negligence or reckless disregard of the duties involved in the conduct of his office. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The registrant, its trustees and officers, Harris Associates L.P. ("HALP") (the investment adviser to registrant) and certain affiliated persons of HALP and affiliated persons of such persons are insured under a policy of insurance maintained by registrant and HALP, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such trustees, directors or officers. The policy expressly excludes coverage for any trustee or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER The information in the prospectus under the caption "Management of the Funds" is incorporated by reference. Neither the Adviser nor its general partner has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its own account or in the capacity of director, officer, employee, partner or trustee, except that the Adviser is a registered commodity trading adviser and commodity pool operator and its general partner is also the general partner of a securities broker-dealer firm. ITEM 27. PRINCIPAL UNDERWRITERS Not applicable C-4 ITEM 28. LOCATION OF ACCOUNTS AND RECORDS (1) State Street Bank & Trust Company 66 Brooks Drive Braintree, MA 02184 Rule 31a-1(a); Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8) (2) Harris Associates L.P. Two North La Salle Street, Suite 500 Chicago, IL 60602 Rule 31a-1(a); Rule 31a-1(b)(4), (9), (10), (11); Rule 31a-1(d); Rule 31a-1(f); Rule 31a-2(a); Rule 31a-2(c); Rule 31a-2(e) ITEM 29. MANAGEMENT SERVICES None ITEM 30. UNDERTAKINGS Not applicable C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the registrant certifies that it has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois on November 30, 1999. HARRIS ASSOCIATES INVESTMENT TRUST By /s/ Victor A. Morgenstern ---------------------------------- Victor A. Morgenstern, Chairman Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /S/ Michael J. Friduss Trustee ) - ------------------------------- Michael J. Friduss ) ) /s/ Thomas H. Hayden Trustee ) - ------------------------------- Thomas H. Hayden ) ) /s/ Christine M. Maki Trustee ) - ------------------------------- Christine M. Maki ) ) /s/ Victor A. Morgenstern Trustee and Chairman ) - ------------------------------- (chief executive officer) ) Victor A. Morgenstern ) /s/ Allan J. Reich Trustee ) - ------------------------------- Allan J. Reich ) ) November 30, 1999 /s/ Marv R. Rotter Trustee ) - ------------------------------- Marv R. Rotter ) ) /s/ Burton W. Ruder Trustee ) - ------------------------------- Burton W. Ruder ) ) /s/ Peter S. Voss Trustee ) - ------------------------------- Peter S. Voss ) ) /s/ Gary N. Wilner Trustee ) - ------------------------------- Gary N. Wilner ) ) /s/ Kristi L. Rowsell Treasurer (principal ) - ------------------------------- accounting officer) Kristi L. Rowsell )
EXHIBITS BEING FILED WITH THIS AMENDMENT ---------------------------------------- Exhibit Number - ------ (d)(11) Investment advisory agreement for The Oakmark Global Fund (h) Transfer agent agreement (i)(7) Consent of Bell, Boyd & Lloyd (j) Consent of independent public accountants EX-99.(D)(11) 2 EXHIBIT 99(D)(11) INVESTMENT ADVISORY AGREEMENT FOR THE OAKMARK GLOBAL FUND HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end diversified management investment company (the "Trust"), and HARRIS ASSOCIATES L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser (the "Adviser"), agree as follows: 1. APPOINTMENT OF ADVISER. The Trust appoints the Adviser to act as manager and investment adviser to The Oakmark Global Fund (the "Fund"), a series of the Trust, for the period and on the terms herein set forth. The Adviser accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. 2. SERVICES OF ADVISER. (a) The Adviser shall manage the investment and reinvestment of the assets of the Fund, subject to the supervision of the board of trustees of the Trust, for the period and on the terms set forth in this agreement. The Adviser shall give due consideration to the investment policies and restrictions and the other statements concerning the Fund in the Trust's Agreement and Declaration of Trust, bylaws and registration statements under the 1940 Act and the Securities Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code applicable to the Trust as a regulated investment company. The Adviser shall be deemed for all purposes to be an independent contractor and not an agent of the Trust or the Fund, and unless otherwise expressly provided or authorized, shall have no authority to act or represent the Trust or the Fund in any way. (b) The Adviser shall place all orders for the purchase and sale of portfolio securities for the account of the Fund with brokers or dealers selected by the Adviser, although the Fund will pay the actual brokerage commissions on portfolio transactions in accordance with Paragraph 4. In executing portfolio transactions and selecting brokers or dealers, the Adviser will use its best efforts to seek on behalf of the Fund the best overall terms available for any transaction. The Adviser shall consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any (for the specific transaction and on a continuing basis). (c) To the extent contemplated by the Trust's registration statement under the 1933 Act, in evaluating the best overall terms available, and in selecting the broker or dealer to execute a particular transaction, the Adviser may also consider the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund and/or other accounts over which the Adviser or an affiliate of the Adviser exercises investment discretion. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable combination of net price and execution available, the Adviser may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. The Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of that particular transaction or in terms of all of the accounts over which investment discretion is so exercised. 3. SERVICES OTHER THAN AS ADVISER. The Adviser (or an affiliate of the Adviser) may act as broker for the Trust in connection with the purchase or sale of securities by or to the Trust if and to the extent permitted by procedures adopted from time to time by the board of trustees of the Trust. Such brokerage services are not within the scope of the duties of the Adviser under this agreement, and, within the limits permitted by law and the trustees, the Adviser (or an affiliate of the Adviser) may receive brokerage commissions, fees or other remuneration from the Trust for such services in addition to its fee for services as Adviser. Within the limits permitted by law, the Adviser may receive compensation from the Trust for other services performed by or for the Trust which are not within the scope of the duties of the Adviser under this agreement. 4. EXPENSES TO BE PAID BY ADVISER. The Adviser shall furnish to the Trust, at its own expense, such office space and all office facilities, equipment and personnel necessary to render the services set forth in paragraph 2 above. The Adviser shall also assume and pay all expenses incurred by it related to the placement of securities orders, and all expenses of marketing shares of the Trust. 5. EXPENSES TO BE PAID BY THE TRUST. The Trust shall pay all expenses not expressly assumed by the Adviser, including but not limited to: all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities and other property and of its transfer agents, fund accounting agents, registrars and its dividend disbursing and redemption agents, if any; all charges of legal counsel and of independent auditors; all compensation of trustees other than those affiliated with the Adviser and all expenses incurred in connection with their services to the Trust; all costs of borrowing money; all expenses of publication of notices and reports to its shareholders and to governmental bodies or regulatory agencies; all expenses of proxy solicitations of the Trust or its board of trustees with respect to the Fund; all expenses of shareholder meetings; all expenses of typesetting of the Fund's prospectus and of printing and mailing copies of the prospectus furnished to each then-existing shareholder or beneficial owner; all taxes and fees payable to federal, state or other governmental agencies, domestic or foreign; all stamp or other transfer taxes; all expenses of printing and mailing certificates for shares of the Trust; all expenses of bond and insurance coverage required by law or deemed advisable by the Trust's board of trustees; all expenses of maintaining the registration of shares of the Trust under the 1933 Act and of qualifying and maintaining qualification of shares of the Trust under the securities laws of such United States jurisdictions as the Trust may from time to time reasonably designate and all expenses of maintaining the registration of the Trust under the 1940 Act; and all fees, dues and other expenses related to membership of the Trust in any trade association or other investment company organization. In addition to the payment of expenses, the Trust shall also pay all brokers' commissions and other charges relating to the purchase and sale of portfolio securities. 6. COMPENSATION OF ADVISER. For the services to be rendered and the charges and expenses to be assumed and to be paid by the Adviser hereunder, the Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the Fund's net assets as of the last business day of the preceding month, at the annual rate of 1.00% of net assets. The fee for a month shall be paid as soon as practicable after the last day of that month. The fee payable hereunder shall be reduced proportionately during any month in which this agreement is not in effect for the entire month. 7. LIMITATION OF EXPENSES OF THE FUND. The total expenses of the Fund, exclusive of taxes, interest and extraordinary litigation expenses, but including fees paid to the Adviser, shall not in any fiscal year of the Trust exceed the most restrictive limits prescribed by any state in which Fund shares are then being offered for sale, and the Adviser agrees to reimburse the Fund for any sums expended for such expenses in excess of that amount. Brokers' commissions and other charges relating to the purchase and sale of portfolio securities shall not be regarded as expenses. 2 8. SERVICES OF ADVISER NOT EXCLUSIVE. The services of the Adviser to the Trust hereunder are not exclusive, and the Adviser shall be free to render similar services to others so long as its services under this agreement are not impaired by such other activities. 9. LIABILITY OF ADVISER. The Adviser shall not be liable to the Trust or its shareholders for any loss suffered by the Trust or its shareholders from or as a consequence of any act or omission of the Adviser, or of any of the partners, employees or agents of the Adviser, in connection with or pursuant to this agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or by reason of reckless disregard by the Adviser of its obligations and duties under this agreement. 10. LIABILITY OF TRUST. The obligations of the Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but shall bind only the assets and property of the Trust as provided in the Agreement and Declaration of Trust of the Trust. 11. USE OF ADVISER'S NAME. The Trust may use the name "Harris Associates Investment Trust," or any other name derived from the name "Harris Associates," and the name "Oakmark" only for so long as this agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Adviser as investment adviser. At such time as this agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Trust will (by amendment of its Agreement and Declaration of Trust, if necessary) cease to use any name derived from the name "Harris Associates," any name similar thereto or any other name indicating that it is advised by or otherwise connected with the Adviser, or with any organization which shall have succeeded to the Adviser's business as investment adviser, and shall cease to use the name "Oakmark" or any name derived from the name "Oakmark." The consent of the Adviser to the use of such names by the Trust shall not prevent the Adviser's permitting any other enterprise, including another investment company, to use such name or names. 12. DURATION AND RENEWAL. (a) Unless terminated as provided in section 13, this agreement shall continue in effect until September 30, 2000, and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of the Trust or of the Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the board of trustees of the Trust or a vote of the holders of a majority of the outstanding shares of the Fund (which term as used throughout this agreement shall be construed in accordance with the definition of "vote of a majority of the outstanding voting securities of a company" in section 2(a)(42) of the 1940 Act). (b) Any approval of this agreement by the holders of a majority of the outstanding shares of the Fund shall be effective to continue this agreement notwithstanding that it has not been approved by the vote of a majority of the outstanding shares of the Trust, unless such approval shall be required by any other applicable law or otherwise. 13. TERMINATION. This agreement may be terminated at any time, without payment of any penalty, by the board of trustees of the Trust, or by a vote of the holders of a majority of the outstanding shares of the Fund, upon 60 days' written notice to the Adviser. This agreement may be terminated by the Adviser at any time upon 60 days' written notice to the Trust. This agreement shall terminate automatically in the event of its assignment (as defined in section 2(a)(4) of the 1940 Act). 3 14. AMENDMENT. This agreement may not be amended without the affirmative vote (a) of a majority of those trustees who are not "interested persons" (as defined in Section 2(a)(19) of the 1940 Act) of the Trust and (b) of the holders of a majority of the outstanding shares of the Fund. Dated: August 1, 1999 HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ Victor A. Morgenstern --------------------------------------- HARRIS ASSOCIATES L.P. by Harris Associates, Inc. its General Partner By: /s/ Victor A. Morgenstern --------------------------------------- 4 EX-99.(H) 3 EXHIBIT 99(H) TRANSFER AGENCY AND SERVICE AGREEMENT between HARRIS ASSOCIATES INVESTMENT TRUST and NVEST SERVICES COMPANY, INC. TABLE OF CONTENTS
Page ---- 1. Appointment and Duties...................................................1 2. Third Party Administrators for Defined Contribution Plans................3 3. Fees and Expenses........................................................4 4. Representations and Warranties of the Transfer Agent.....................5 5. Representations and Warranties of the Fund...............................6 6. Wire Transfer Operating Guidelines.......................................7 7. Data Access and Proprietary Information..................................9 8. Confidentiality.........................................................11 9. Indemnification.........................................................11 10. Standard of Care........................................................13 11. Information to be Furnished by the Fund.................................13 12. Recordkeeping...........................................................14 13. Termination of Agreement................................................14 14. Assignment and Third Party Beneficiaries................................15 15. Subcontractors..........................................................15 16. Miscellaneous...........................................................15 17. Additional Funds........................................................18 18. Limitations of Liability of the Trustees and Shareholders...............18
TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of this 1st day of September, 1999, by and between HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust, having its principal office and place of business at Two North LaSalle Street Chicago, Illinois 60602 (the "Fund"), and NVEST SERVICES COMPANY, INC., a Massachusetts corporation having its principal office and place of business at 399 Boylston Street, Boston, Massachusetts 02116 (the "Transfer Agent"`). WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; WHEREAS, the Fund currently offers shares in seven series, such series being named in the attached Schedule A, which may be amended by the parties from time to time (each such series, together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with SECTION 17 hereof, being herein referred to as a "Portfolio," and -collectively as the "Portfolios"); WHEREAS, the Fund, on behalf of the Portfolios, desires to appoint the Transfer Agent as its transfer agent, dividend disbursing agent, and agent in connection with certain other activities, and the Transfer Agent desires to accept such appointment; and WHEREAS, the Transfer Agent intends to engage Boston Financial Data Services, Inc. (the "Sub-Transfer Agent") to perform certain of the services to be provided by the Transfer Agent hereunder and enter into a Sub-Transfer Agency and Service Agreement with the Sub-Transfer Agent (the "Sub-TA Agreement") to that effect, and the Fund hereby acknowledges the Transfer Agent's intent to so engage the Sub-Transfer Agent. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. APPOINTMENT AND DUTIES 1.1 GENERAL. Subject to the terms and conditions set forth in this Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints the Transfer Agent to act as, and the Transfer Agent agrees to act as, its transfer agent for the authorized and issued shares of beneficial interest of the Fund ("Shares"), dividend disbursing agent, and agent in connection with any accumulation, open-account, or similar plan provided to the shareholders of each of the respective Portfolios of the Fund ("Shareholders") and set out in the currently effective prospectus(es) and statement(s) of additional information of the Fund, including, without limitation, any periodic investment plan or periodic withdrawal program. 1 In accordance with procedures established from time to time by agreement between the Fund and the Transfer Agent, the Transfer Agent agrees that it will perform the various services set forth in Schedule B hereto. As the Fund and the Transfer Agent may, from time to time, mutually agree in writing, the Transfer Agent may at times perform only a portion of the services listed in Schedule B, and the Fund or its agent may perform such services. 1.2 RETIREMENT ACCOUNTS. With respect to certain retirement plans or accounts (such as individual retirement accounts ("IRAs"), SIMPLE IRAs, SEP IRAs, Roth IRAs, Education IRAs, and 403(b) Plans (such accounts, "Retirement Accounts")), the Transfer Agent, at the request of the Fund, may provide or arrange for the provision of appropriate prototype plans as well as provide or arrange for the provision of various services to such plans and/or accounts, which services may include plan custodian services, account set-up, maintenance, and disbursements as well as such other services as the parties hereto shall mutually agree upon. If at any time and for any reason the Transfer Agent, any of its agent or sub-contractors, or any of their affiliates chooses to resign as custodian of any or all Retirement Accounts, the Transfer Agent will give the Fund at least eighty-five (85) days' prior written notice and shall not be required to designate a successor custodian. If either party chooses to terminate this Agreement pursuant to SECTION 13 hereof, the Transfer Agent, any of its agents or sub-contractors, or any of their affiliates may thereupon resign as custodian in respect to any or all of the Retirement Accounts upon eighty-five (85) days' prior written notice to the Fund. In either such event, the Fund will promptly distribute notice of the custodian's resignation to such persons and in such manner as are called for under the applicable provisions of the Retirement Account and in form and content satisfactory to and signed by the Transfer Agent. The Fund shall be responsible for obtaining a successor custodian for all Retirement Accounts. 1.3 REVIEW AND MAINTENANCE OF FUND PROTOTYPE RETIREMENT PLANS OR ACCOUNT MATERIALS. (a) If the Fund develops and makes available its own retirement plan prototypes or account materials (the "Fund Prototype(s)") for use in connection with a Retirement Account or Accounts, the Fund, subject to the terms set forth below, may appoint the Transfer Agent, one of its agent or sub-contractors, or an affiliate thereof as the custodian with respect to such Retirement Accounts. (b) The Fund agrees that the Fund Prototypes will comply with applicable sections of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations promulgated thereunder as in effect at the time. The Fund will be responsible for establishing, maintaining, and updating the Fund Prototypes in compliance with the Code and all other applicable federal or state law or regulations, when changes in the law require such updating. 2 (c) The Fund agrees that the Fund Prototypes are the responsibility of the Fund and further agrees that it will indemnify, defend, and hold harmless the Transfer Agent, its affiliates, successors, representatives, and assigns from and against any and all losses, damages, costs, charges, expenses, including reasonable fees for counsel, taxes, penalties, and liabilities (collectively, "Losses") arising out of or attributable to the use of a Fund Prototype by the Fund or the Transfer Agent, its agents, employees, representatives, or any other person acting on a Fund's behalf, except to the extent that such Losses arise out of or are attributable to the negligence, bad faith, or willful misconduct of the Transfer Agent (or its agents, affiliates, successors, or assigns), unless such negligence is a result of complying with a Fund Prototype. This indemnification obligation will survive termination of this Agreement. (d) The Fund agrees that any modifications made by the Fund to a Fund Prototype without the Transfer Agent's written consent or the required written consent of any of the Transfer Agent's agents or sub-contractors or any of their affiliates shall not increase the liabilities or responsibilities of the Transfer Agent or that of such agent, sub-contractor, or affiliate as custodian or limit the Transfer Agent's ability or that of that of its agent or sub-contractor, or any of their affiliates to resign as custodian as provided hereunder. The Fund will furnish the Transfer Agent with a copy of each Fund Prototype. The Transfer Agent shall not be required to review, comment, or advise on such Fund Prototypes. 1.4 BLUE SKY. The Fund shall (a) identify to the Transfer Agent in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (b) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Transfer Agent for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and providing a system that will enable the Fund to monitor the total number of Shares sold in each State. 2. THIRD PARTY ADMINISTRATORS FOR DEFINED CONTRIBUTION PLANS 2.1 The Fund may decide to make available to certain of its customers a qualified plan program (the "Program") pursuant to which such customers ("Employers") may adopt certain plans (each, a "Plan," and collectively, "Plans") for the benefit of Plan participants (the "Participants"), such Plans being qualified under Section 401(a) of the Code, and administered by third party administrators, which may be "administrators" as defined in the Employee Retirement Income Security Act of 1974, as amended ("TPA(s)"). 2.2 In accordance with the procedures established in Schedule 2.2 hereto entitled "Third Party Administrator Procedures," as may be amended by the Transfer Agent and the Fund from time to time ("Schedule 2.2"), the Transfer Agent shall: 3 (a) treat Shareholder accounts established by the Plans in the name of the Plan Trustees, the Plans, or TPAs, as the case may be, as omnibus accounts: (b) maintain omnibus accounts on its records in the name of the TPA or its designee as the Trustee for the benefit of the Plan; and (c) perform all services under SECTION 1 as transfer agent of the Funds and not as a record-keeper for the Plans. 2.3 Transactions identified under SECTION 2 of this Agreement shall be deemed exception services ("Exception Services") when such transactions: (a) require the Transfer Agent or its sub-agent to use methods and procedures other than those usually employed by the Transfer Agent or its sub-agent to perform services described under SECTION 1 of this Agreement; (b) involve the provision of information to the Transfer Agent or its sub-agent after the commencement of the nightly processing cycle of the transfer agency data processing system then in use by the Transfer Agent or its sub-agent (the "System"); or (c) require more manual intervention by the Transfer Agent or its sub-agent, either in the entry of data or in the modification or amendment of reports generated by the System than is usually required by non-retirement plan and pre-nightly transactions. 3. FEES AND EXPENSES 3.1 FEE SCHEDULE. For the performance by the Transfer Agent pursuant to this Agreement, the Fund agrees to pay the Transfer Agent fees as set forth in the attached fee schedule ("Schedule 3.1"). Such fees and out-of-pocket expenses and advances identified under SECTION 3.2 below may be changed from time to time subject to mutual written agreement between the Fund and the Transfer Agent. 3.2 OUT-OF-POCKET EXPENSES. In addition to the fees paid under SECTION 3.1 above, the Fund agrees to reimburse the Transfer Agent for the Transfer Agent's reasonable out-of-pocket expenses, including, but not limited to, confirmation production, postage, investor statements, telephone, telecommunication and line charges, microfilm, microfiche, checks, forms (including year end forms), wire fees, mailing/receiving and tabulating proxies, records storage, costs associated with certain specialty products, systems, or services, as applicable (such as "Investor," "Voice," "Fan," and "Vision"), or advances incurred by the Transfer Agent for the items set out in Schedule 3.1 attached hereto. In addition, any other expenses reasonably incurred by the Transfer Agent at the request or with the consent of the Fund will be reimbursed by the Fund. 4 3.3 POSTAGE. Postage for mailing of dividends, proxies, Fund reports, and other mailings to all shareholder accounts shall be advanced to the Transfer Agent by the Fund at least seven (7) days prior to the mailing date of such materials. 3.4 INVOICES. The Fund agrees to pay all fees and reimbursable expenses within thirty (30) days following the receipt of the respective billing notice, except for any fees or expenses that are subject to good faith dispute. In the event of such a dispute, the Fund may withhold only that portion of the fee or expense subject to the good faith dispute. The Fund shall notify the Transfer Agent in writing within twenty-one (21) calendar days following the receipt of each billing notice if the Fund is disputing any amounts in good faith. If the Fund does not provide such notice of dispute within the required time, the billing notice will be deemed accepted by the Fund. 4. REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT The Transfer Agent represents and warrants to the Fund that: 4.1 It is a corporation duly organized and existing and in good standing under the laws of The Commonwealth of Massachusetts and is duly registered as a transfer agent under the Securities Exchange Act of 1934, as amended. 4.2 It is duly qualified to carry on its business in The Commonwealth of Massachusetts. 4.3 It is empowered under applicable laws and by its Charter and By-Laws to enter into and perform this Agreement. 4.4 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 4.5 It has and will continue to have access (either directly or pursuant to contractual arrangements with third parties) to the necessary facilities, equipment, and personnel to perform its duties and obligations under this Agreement. 4.6 (a) The Sub-Transfer Agent has provided the following representation to the Transfer Agent with respect to the Sub-Transfer Agent's "Year 2000 Readiness" (as said term is defined below): "The Sub-Transfer Agent will take all commercially reasonable steps to ensure that its products (and those of its third party providers) reflect the available technology to offer products that are Year 2000 Ready. For purposes of this Agreement, "Year 2000 Ready" or "Year 2000 Readiness" means that the products will operate with dates in multiple centuries in the same way as the products operate as with dates in single centuries, including, but not limited to, century recognition of dates and calculations 5 that correctly compute same century and multi-century formulas and date values. In a commercially reasonable time frame, the Sub-Transfer Agent will make any necessary changes to its computer systems for such systems to be Year 2000 Ready and will take all commercially reasonable steps to require its third party providers to do likewise. If any such changes are required to the Sub-Transfer Agent's computer systems due to Year 2000 Readiness issues, such changes being solely with respect to the Sub-Transfer Agent's computer systems, the Transfer Agent will not be required to pay any fee or out-of-pocket expenses to the Sub-Transfer Agent with respect to such changes. Subject to the foregoing, if other changes are required to the Sub-Transfer Agent's computer systems or its third party providers' computer systems due to Year 2000 Readiness issues, and the Sub-Transfer Agent incurs any costs related to such changes, the resultant fee to be charged to the Transfer Agent will be in an amount to be agreed upon by the parties hereto; PROVIDED, HOWEVER, to the extent that such changes are not unique to the Transfer Agent or any Fund, the fee to be charged to the Transfer Agent will be based upon the Transfer Agent's pro-rata share of such costs across the Sub-Transfer Agent's entire client base." (b) To the extent the Sub-Transfer Agent breaches the foregoing representations and covenants or otherwise violates any of its obligations to the Transfer Agent under the Sub-TA Agreement with respect to the Sub-Transfer Agent's Year 2000 Readiness and such breach or violation results in or is reasonably likely to result in a loss to the Fund (a "Fund Y2K Loss"), the Transfer Agent hereby represents and warrants that it will promptly notify the Fund of such event and, if so requested by the Fund in writing, the Transfer Agent will, on behalf of the Fund, pursue all rights and remedies that it may have against the Sub-Transfer Agent in law, equity, or otherwise that arise from such breach or violation by the Sub-Transfer Agent. (c) Notwithstanding the foregoing, with respect to any Fund Y2K Loss, the parties hereto expressly acknowledge and agree that the Fund shall have no recourse against the Transfer Agent for any Fund costs, expenses, or losses that directly result from (i) the Fund's failure to respond in a timely manner to the Transfer Agent's notification to the Fund of a Fund Y2K Loss; or (11) the Fund's affirmative instruction to the Transfer Agent to not pursue a Fund Y2K Loss. 5. REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to the Transfer Agent that: 6 5.1 It is a business trust duly organized and existing and in good standing under the laws of The Commonwealth of Massachusetts. 5.2 It is empowered under applicable laws and by its Declaration of Trust and By-Laws to enter into and perform this Agreement. 5.3 All corporate proceedings required by said Declaration of Trust and By-Laws have been taken to authorize it to enter into and perform this Agreement. 5.4 It is an open-end management investment company registered under the Investment Company Act of 1940, as amended. 5.5 A registration statement under the Securities Act of 1933, as amended, is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale. 6. WIRE TRANSFER OPERATING GUIDELINES 6.1 The Transfer Agent is authorized to promptly debit the appropriate Fund bank account(s) upon the receipt of a payment order in compliance with the selected security procedure (the "Security Procedure") chosen for funds transfer and in the amount of money that the Transfer Agent has been instructed to transfer. The Transfer Agent shall execute payment orders in compliance with the Security Procedure and with the Fund instructions on the execution date, provided that such payment order is received by the customary deadline for processing such a request, unless the payment order specifies a later time. All payment orders and communications received after this the customary deadline will be deemed to have been received the next business day. 6.2 The Fund acknowledges that the Security Procedure it has designated on the Transfer Agent's Wire Transfer Security Procedures Customer Selection Form (the form of which is attached hereto as Schedule 6.2) was selected by the Fund from security procedures offered by the Transfer Agent. The Fund shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated to the Transfer Agent in writing. The Fund shall notify the Transfer Agent immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Fund's authorized personnel. The Transfer Agent shall verify the authenticity of all Fund instructions according to the Security Procedure. 6.3 The Transfer Agent shall process all payment orders on the basis of the account number contained in the payment order. In the event of a discrepancy between any name indicated on the payment order and the account number, the account number shall take precedence and govern. 7 6.4 The Transfer Agent reserves the right to decline to process or delay the processing of a payment order (a) which is in excess of the collected balance in the account to be charged at the time of the Transfer Agent's receipt of such payment order; (b) if initiating such payment order would cause the Transfer Agent, in the Transfer Agent's sole judgement, to exceed any volume, aggregate dollar, network, time, credit or similar limits that are applicable to the Transfer Agent or any of its sub-agents; or (c) if the Transfer Agent, in good faith, is unable to satisfy itself that the transaction has been properly authorized. 6.5 The Transfer Agent shall use reasonable efforts to act on all authorized requests to cancel or amend payment orders received in compliance with the Security Procedure, provided that such requests are received in a timely manner affording the Transfer Agent reasonable opportunity to act. However, the Transfer Agent assumes no liability if the request for amendment or cancellation cannot be satisfied. 6.6 The Transfer Agent shall assume no responsibility for failure to detect any erroneous payment order, provided that the Transfer Agent complies with the payment order instructions as received and the Transfer Agent complies with the Security Procedure. The Security Procedure is established for the purpose of authenticating payment orders only and not for the detection of errors in payment orders. 6.7 The Transfer Agent shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order. In no event (including failure to execute a payment order) shall the Transfer Agent be liable for special, indirect, or consequential damages, even if advised of the possibility of such damages. 6.8 When the Fund initiates or receives Automated Clearing House ("ACH") credit and debit entries pursuant to these guidelines and the rules of the National Automated Clearing House Association and the New England Clearing House Association, the Transfer Agent or its sub-agent will act as an "Originating Depository Financial Institution" and/or "Receiving Depository Financial Institution," as the case may be, with respect to such entries. Credits given by the Transfer Agent or its sub-agent with respect to an ACH credit entry are provisional until the Transfer Agent or its sub-agent receives final settlement for such entry from the Federal Reserve Bank. If the Transfer Agent or its sub-agent does not receive such final settlement, the Fund agrees that the Transfer Agent shall receive a refund of the amount credited to the Fund in connection with such entry, and the party making payment to the Fund via such entry shall not be deemed to have paid the amount of the entry. 6.9 Confirmation of the Transfer Agent's execution of payment orders shall ordinarily be provided within twenty-four (24) hours, notice of which may be delivered through the Transfer Agent's or its sub-agent's proprietary information systems, or by facsimile or call-back. The Fund must notify the Transfer Agent of any objections to the execution of an order within thirty (30) days. 8 7. DATA ACCESS AND PROPRIETARY INFORMATION 7.1 The Fund acknowledges that the databases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Fund by the Transfer Agent or its sub-agent as part of the Fund's ability to access certain Fund-related data ("Customer Data") maintained by the Transfer Agent on databases under the control and ownership of the Transfer Agent or its sub-agent ("Data Access Services") constitute copyrighted, trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to the Transfer Agent or its sub-agent. In no event shall Proprietary Information be deemed Customer Data. The Fund agrees to treat all Proprietary Information as proprietary to the Transfer Agent or its sub-agent and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder. Without limiting the foregoing, the Fund agrees for itself and its employees and agents to: (a) use such programs and databases (i) solely on the Fund's computers, or (ii) solely from equipment at the locations agreed to between the Fund and the Transfer Agent, and (iii) solely in accordance with the Transfer Agent's or its sub-agent's applicable user documentation; (b) refrain from copying or duplicating in any way (other than in the normal course of performing processing on the Fund's computer(s)) the Proprietary Information; (c) refrain from obtaining unauthorized access to any portion of the Proprietary Information, and, if such access is inadvertently obtained, to inform the Transfer Agent in a timely manner of such fact and dispose of such information in accordance with the Transfer Agent's instructions; (d) refrain from causing or allowing information transmitted from the Transfer Agent's computer to the Fund's terminal to be retransmitted to any other computer terminal or other device except as expressly permitted by the Transfer Agent; (e) allow the Fund to have access only to those authorized transactions as agreed to between the Fund and the Transfer Agent; and (f) honor all reasonable written requests made by the Transfer Agent to protect at the Transfer Agent's or its sub-agent's expense the rights of the Transfer Agent or its subagent in Proprietary Information at common law, under federal copyright law and under other federal or state law. 7.2 Proprietary Information shall not include all or any portion of any of the foregoing items that (a) are or become publicly available without breach of this Agreement; (b) are released for general disclosure by a written release by the Transfer Agent or its sub-agent; 9 or (c) are already in the possession of the receiving party at the time or receipt without obligation of confidentiality or breach of this Agreement. 7.3 The Fund acknowledges that its obligation to protect the Transfer Agent's and its subagent's Proprietary Information is essential to the business interest of the Transfer Agent and that the disclosure of such Proprietary Information in breach of this Agreement would cause the Transfer Agent or its sub-agent immediate, substantial, and irreparable harm, the value of which would be extremely difficult to determine. Accordingly, the parties agree that, in addition to any other remedies that may be available at law, in equity or otherwise for the disclosure or use of the Proprietary Information in breach of this Agreement, the Transfer Agent or its sub-agent shall be entitled to seek and obtain a temporary restraining order, injunctive relief, or other equitable relief against the continuance of such breach. 7.4 If the Fund notifies the Transfer Agent that any of the Data Access Services do not operate in material compliance with the most recently issued user documentation for such services, the Transfer Agent shall endeavor in a timely manner to correct such failure. Organizations from which the Transfer Agent or its sub-agent may obtain certain data included in the Data Access Services are solely responsible for the contents of such data, and the Fund agrees to make no claim against the Transfer Agent or its sub-agent arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE TRANSFER AGENT AND ITS SUB-AGENTS EXPRESSLY DISCLAIM ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 7.5 If the transactions available to the Fund include the ability to originate electronic instructions to the Transfer Agent or its sub-agent in order to (a) effect the transfer or movement of cash or Shares; or (b) transmit Shareholder information or other information, then in such event the Transfer Agent and its sub-agent shall be entitled to rely on the validity and authenticity of such instruction without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by the Transfer Agent or its sub-agent from time to time. 7.6 Each party shall take reasonable efforts to advise its employees of their obligations pursuant to this SECTION 7. The obligations of the Fund under this Section shall survive any termination of this Agreement. 10 8. CONFIDENTIALITY 8.1 Subject to the provisions of SECTION 8.2 hereof, the Transfer Agent and the Fund agree that they will not, at any time during the term of this Agreement or after its termination, reveal, divulge or make known to any person, firm, corporation, or other business organization any information regarding shareholders of the Fund or their accounts with the Fund, customers' lists, trade secrets, cost figures and projections, profit figures and projections or any other secret or confidential information whatsoever, whether of the Transfer Agent or its sub-agent or of the Fund, used or gained by the Transfer Agent or its sub-agent or the Fund during performance under this Agreement. The Fund and the Transfer Agent further covenant and agree to retain all such knowledge and information acquired during and after the term of this Agreement respecting such lists, trade secrets, or any secret or confidential information whatsoever in trust for the sole benefit of the Transfer Agent or its sub-agent or the Fund and their successors and assigns. In the event of breach of the foregoing, the remedies provided by SECTION 7.3 shall be available to the party whose confidential information is disclosed. The above prohibition of disclosure shall not apply to the extent that the Transfer Agent must disclose such data to its sub-agent or to agents or representatives of the Fund for purposes of providing services under this Agreement, provided that they have agreed to maintain the confidentiality of such information. 8.2 In the event that any requests or demands are made for the inspection of the Shareholder records of the Fund, other than request for records of Shareholders pursuant to subpoenas from state or federal government authorities, the Transfer Agent will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Transfer Agent expressly reserves, for itself and its sub-agents, the right, however, to exhibit the Shareholder records to any person whenever it is advised by counsel that it may be held liable for the failure to exhibit the Shareholder records to such person or if required by law or court order. 9. INDEMNIFICATION 9.1 The Transfer Agent shall not be responsible for, and the Fund shall indemnify and hold the Transfer Agent harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liabilities arising out of or attributable to: (a) all actions of the Transfer Agent or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct; (b) the Fund's (or its trustees', officers' or employees') lack of good faith, negligence, or willful misconduct; 11 (c) the Transfer Agent's (and its sub-agent's) reliance upon, and any subsequent use of or action taken or omitted by the Transfer Agent (or its sub-agents) based on (i) any information. records, documents, data, stock certificates, or services that are received by the Transfer Agent or its agents or subcontractors by machine readable input, facsimile, CRT data entry, electronic instructions, or other similar means authorized by the Fund, and that have been prepared, maintained, or performed by the Fund or any other person or firm on behalf of the Fund, including, but not limited to, any previous transfer agent or registrar; (ii) any instructions or requests of the Fund or any of its officers; (iii) any instructions or opinions of reputable legal counsel with respect to any matter arising in connection with the services to be performed by the Transfer Agent under this Agreement that are provided to the Transfer Agent after consultation with such legal counsel; or (iv) any paper or document, reasonably believed to be genuine, authentic or signed by the proper person or persons; (d) the offer or sale of Shares in violation of federal or state securities laws or regulations requiring that such Shares be registered or in violation of any stop order or other determination or ruling by any federal or any state agency with respect to the offer or sale of such Shares, unless such violation of state securities law was directly attributable to the Transfer Agent's negligence, bad faith, or willful misconduct (with respect to this SECTION 9.1(d), in addition to indemnifying and holding harmless the Transfer Agent, the Fund shall also indemnify and hold harmless the Transfer Agent's agents and sub-contractors); (e) the negotiation and processing of any checks, including, without limitation, for deposit into any bank account of the Fund; or (f) the Transfer Agent's entering into any agreements required by the National Securities Clearing Corporation ("NSCC") for the transmission of Fund or Shareholder data through the NSCC clearing systems. 9.2 The Fund shall not be responsible for, and the Transfer Agent shall indemnify and hold the Fund harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses, and liabilities arising out of or attributable to (a) any actions or omissions of the Transfer Agent as a result of the Transfer Agent's lack of good faith, negligence, or willful misconduct; or (b) the Transfer Agent's breach of its representations and warranties under SECTION 4.6 hereof, PROVIDED, HOWEVER, that if, pursuant to SECTION 4.6(b) hereof, the Transfer Agent pursues a claim against the Sub-Transfer Agent for a Fund Y2K Loss and, with respect to all or a portion of such claim, the Sub-Transfer Agent successfully asserts a defense that all or a portion of such Fund Y2K Loss resulted from the acts or omissions of the Fund prior to September 1, 1999, the Fund shall bear all legal costs and expenses associated with the Transfer Agent's unsuccessful pursuit of such Fund Y2K Loss. 12 9.3 In order that the indemnification provisions contained in this SECTION 9 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify hereunder shall have the option with counsel selected by it to participate with the party seeking indemnification in the defense of such claim or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent (which shall not be unreasonably withheld). 10. STANDARD OF CARE 10.1 The Transfer Agent shall at all times act in good faith and agrees to use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors unless such errors are caused by its negligence, bad faith, or willful misconduct or that of its employees, except as provided in SECTION 10.2 below. The parties agree that any encoding or payment processing errors and the liability arising under SECTION 4-209 of the Uniform Commercial Code shall be governed by this SECTION 10.1. 10.2 In the case of Exception Services as defined in SECTION 2.3 herein, the Transfer Agent shall be held to a standard of gross negligence. 11. INFORMATION TO BE FURNISHED BY THE FUND 11.1 The Fund shall promptly furnish to the Transfer Agent the following: (a) a certified copy of the resolution of the Board of Trustees of the Fund authorizing the appointment of the Transfer Agent and the execution and delivery of this Agreement; (b) a copy of the Declaration of Trust and By-Laws of the Fund and all amendments thereto; (c) a list of all officers of the Fund, together with specimen signatures of those officers, who are authorized to instruct the Transfer Agent in all matters; and (d) two copies of the following: 1. all of its current Prospectuses and Statements of Additional Information; and 2. all other forms commonly used by the Fund with regard to its relationships and transactions with Shareholders of the Fund. 13 12. RECORDKEEPING 12.1 The Transfer Agent hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms, and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 12.2 The Transfer Agent shall keep records relating to the services to be performed hereunder, in such form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, the Transfer Agent agrees that all such records prepared or maintained by the Transfer Agent relating to the services to be performed by the Transfer Agent hereunder are the property of the Fund and will be preserved, maintained, and made available in accordance with such Section and Rules, and will be surrendered promptly to the Fund on and in accordance with its request. 13. TERMINATION OF AGREEMENT 13.1 This Agreement may be terminated by either party upon one hundred twenty (120) days' written notice to the other. 13.2 Should the Fund exercise its right to terminate this Agreement, all out-of-pocket expenses associated with the movement of records and material will be borne by the Fund. Additionally, the Transfer Agent reserves the right to charge for any other reasonable expenses associated with such termination. Payment of such expenses or costs shall be in accordance with SECTION 3.4 of this Agreement. 13.3 Upon termination of this Agreement, each party shall return to the other party all copies of confidential or proprietary materials or information received from such other party hereunder, other than materials or information required to be retained by such party under applicable laws or regulations. In addition, the Transfer Agent shall promptly provide to the Fund or a successor transfer agent all records and information required to be maintained by the Transfer Agent hereunder. To the extent reasonably possible, the Transfer Agent shall deliver such records and information in machine readable form. 13.4 Upon the resignation by the Transfer Agent or any of its agents or sub-contractors or their affiliates as custodian of a Retirement Account, the Transfer Agent shall promptly return to the Fund and shall require its agents or sub-contractors to promptly return to the Fund all Fund and Fund Shareholder records and information held or maintained by such party in its capacity as Retirement Account custodian. To the extent reasonably possible, such records and information shall be delivered to the Fund in machine readable form. 14 14. ASSIGNMENT AND THIRD PARTY BENEFICIARIES 14.1 Except as provided in SECTION 15.1 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. Any attempt to do so in violation of this Section shall be void. Unless specifically stated to the contrary in any written consent to an assignment, no assignment will release or discharge the assignor from any duty or responsibility under this Agreement. 14.2 Except as explicitly stated elsewhere in this Agreement, nothing under this Agreement shall be construed to give any rights or benefits under this Agreement to anyone other than the Transfer Agent and the Fund, and the duties and responsibilities undertaken pursuant to this Agreement shall be for the sole and exclusive benefit of the Transfer Agent and the Fund. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 14.3 This Agreement does not constitute an agreement for a partnership or joint venture between the Transfer Agent and the Fund. 15. SUBCONTRACTORS 15.1 The Transfer Agent may, without further consent on the part of the Fund, engage subcontractors to perform any of the obligations of the Transfer Agent under this Agreement; provided, however, that the Transfer Agent shall be fully responsible to the Fund for the acts and omissions of the subcontractor as it is for its own acts and omissions. 15.2 Except as otherwise provided in SECTION 15.1, nothing herein shall impose any duty upon the Transfer Agent in connection with or make the Transfer Agent liable for the actions or omissions to act of unaffiliated third parties, such as, by way of example and not limitation, Airborne Services, Federal Express, United Parcel Service, the U.S. Mails, NSCC, and telecommunication companies, provided, if the Transfer Agent selected such company, the Transfer Agent shall have exercised due care in selecting the same. 16. MISCELLANEOUS 16.1 RELATIONSHIP OF PARTIES. The parties agree that they are independent contractors and not partners or co-venturers, and nothing contained herein shall be interpreted or construed otherwise. 16.2 AMENDMENT. This Agreement may be amended or modified by a written agreement executed by both parties. 15 16.3 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. 16.4 FORCE MAJEURE. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 16.5 CONSEQUENTIAL DAMAGES. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure to act hereunder. 16.6 SURVIVAL. All provisions regarding indemnification, warranty, liability, and limits thereon and confidentiality and/or protections of proprietary rights and trade secrets shall survive the termination of this Agreement. 16.7 SEVERABILITY. If any provision or provisions of this Agreement shall be held invalid, unlawful or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired. 16.8 PRIORITIES CLAUSE. In the event of any conflict, discrepancy, or ambiguity between the terms and conditions contained in this Agreement and any schedules or attachments hereto, the terms and conditions contained in this Agreement shall take precedence. 16.9 WAIVER. No waiver by either party or any breach or default of any of the covenants or conditions herein contained and performed by the other party shall be construed as a waiver of any succeeding breach of the same or of any other covenant or condition. 16.10 MERGER OF AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. 16.11 COUNTERPARTS. This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 16.12 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, exhibits, attachments, and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic, or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, 16 and that any enlargement, facsimile, or further reproduction shall likewise be admissible in evidence. 16.13 YEAR 2000. The Transfer Agent will take all commercially reasonable steps to ensure that its products (and those of its third party providers) reflect the available technology to offer products that are Year 2000 Ready. For purposes of this Agreement, "Year 2000 Ready" or "Year 2000 Readiness" means that the products will operate with dates in multiple centuries in the same way as the products operate as with dates in single centuries, including, but not limited to, century recognition of dates and calculations that correctly compute same century and multi-century formulas and date values. In a commercially reasonable time frame, the Transfer Agent will make any necessary changes to its proprietary computer systems for such systems to be Year 2000 Ready and will take all commercially reasonable steps to require its third party providers to do likewise. If any such changes are required to the Transfer Agent's computer systems due to Year 2000 Readiness issues, such changes being solely with respect to the Transfer Agent's computer systems, the Fund will not be required to pay any fee or out-of-pocket expenses to the Transfer Agent with respect to such changes. Subject to the foregoing, if other changes are required to the Transfer Agent's computer systems or its third party providers' computer systems due to Year 2000 Readiness issues, and the Transfer Agent incurs any costs related to such changes, the resultant fee to be charged to the Fund, if appropriate, will be reasonable and in an amount to be mutually agreed upon by the parties hereto; PROVIDED, HOWEVER, to the extent that such changes are not unique to the Fund, the fee that may be charged to the Fund will be based upon the Fund's pro-rata share of such costs across the Transfer Agent's entire client base. 16.14 NOTICES. All notices and other communications as required or permitted hereunder shall be in writing and sent by first class mail, postage prepaid, addressed as follows or to such other address or addresses of which the respective party shall have notified the other. (a) If to Nvest Services Company, Inc., to: Nvest Services Company, Inc. 399 Boylston Street Boston, Massachusetts 02116 Attention: President With a copy to: General Counsel Facsimile: (617) 578-1191 (b) If to the Fund, to: Harris Associates Investment Trust Two North LaSalle Street, Suite 500 Chicago, Illinois 60602-3790 Attention: General Counsel 17 17. ADDITIONAL FUNDS In the event that the Fund establishes one or more series of Shares in addition to those named on the attached Schedule A with respect to which it desires to have the Transfer Agent render services as transfer agent under the terms hereof, it shall so notify the Transfer Agent in writing, and, if the Transfer Agent agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. 18. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS A copy of the Fund's Declaration of Trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or Shareholders individually, but are binding only upon the assets and property of the Fund. 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. HARRIS ASSOCIATES INVESTMENT TRUST BY: /s/ Robert M. Levy ---------------------------------- (Hereunto Duly Authorized) ATTEST: - ----------------------------------- NVEST SERVICES COMPANY, INC. BY: /s/ Christopher L. Wilson ---------------------------------- Christopher L. Wilson, President ATTEST: /s/ [ILLEGIBLE] - ----------------------------------- 19 EX-99.(I)(7) 4 EXHIBIT 99(I)(7) BELL, BOYD & LLOYD THREE FIRST NATIONAL PLAZA 70 WEST MADISON STREET, SUITE 3300 CHICAGO, ILLINOIS 60602-4207 312 372-1121 FAX 312 372-2098 OFFICES IN CHICAGO AND WASHINGTON, D.C. November 30, 1999 As counsel for Harris Associates Investment Trust (the "Registrant"), we consent to the incorporation by reference of our opinion for each of the Registrant's series, filed with the Registrant's registration statement on Form N-1A, Securities Act File No. 33-38953 on each of the dates listed below: Series Date of Opinion Date of Filing ------ --------------- -------------- The Oakmark International Fund July 23, 1992 February 28, 1997 The Oakmark Small Cap Fund September 20, 1995 February 28, 1997 The Oakmark Equity and Income Fund September 20, 1995 February 28, 1997 The Oakmark International Small Cap Fund September 20, 1995 February 28, 1997 The Oakmark Select Fund October 22, 1996 October 23, 1996 The Oakmark Fund November 1, 1998 November 5, 1998 The Oakmark Global Fund May 21, 1999 May 21, 1999 In giving this consent we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. /s/ Bell, Boyd & Lloyd EX-99.(J) 5 EXHIBIT 99(J) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated October 25, 1999, and to all references to our Firm included in or made part of this Registration Statement on Form N-1A of the Harris Associates Investment Trust (comprising The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark Global Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund). ARTHUR ANDERSEN LLP Chicago, Illinois November 23, 1999 -----END PRIVACY-ENHANCED MESSAGE-----