-----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, TrrdqnCtA+qa4qWhEluqubbHlQwCt2Fs+Gpa7yOzVfQ0Kl96WSH1GoZdQpXTbdVG w4Cx85OiY7lZlFrov7rt1Q== 0000950131-97-006692.txt : 19971114 0000950131-97-006692.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950131-97-006692 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NONE 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: N-30D SEC ACT: SEC FILE NUMBER: 811-06279 FILM NUMBER: 97713127 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET SUITE 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 N-30D 1 OAKMARK FUNDS ANNUAL REPORT, SEPTEMBER 1997 ANNUAL REPORT September 30, 1997 THE OAKMARK FUND THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND MEMBER OF - ------------ 100% NO LOAD MUTUAL FUND COUNCIL - ------------ Managed by HARRIS ASSOCIATES L.P. OAKMARK The Oakmark Family of Funds 1997 Annual Report ...........................................................................
Letter from the Chairman and President.................................. 1 The Oakmark Family of Funds Summary..................................... 2 The Oakmark Fund Letter from the Portfolio Manager..................................... 4 Schedule of Investments............................................... 6 The Oakmark Select Fund Letter from the Portfolio Manager..................................... 9 Schedule of Investments............................................... 11 The Oakmark Small Cap Fund Letter from the Portfolio Manager..................................... 13 Schedule of Investments............................................... 15 The Oakmark Equity and Income Fund Letter from the Portfolio Manager..................................... 18 Schedule of Investments............................................... 20 The Oakmark International Fund Letter from the Portfolio Manager..................................... 24 International Diversification Chart................................... 26 Schedule of Investments............................................... 27 The Oakmark Int'l Small Cap Fund Letter from the Portfolio Manager..................................... 31 International Diversification Chart................................... 33 Schedule of Investments............................................... 34 Financial Statements Statement of Assets and Liabilities................................... 38 Statement of Operations............................................... 40 Statement of Changes in Net Assets.................................... 44 Notes to Financial Statements......................................... 50 Trustees and Officers................................................... 65
For More Information: Access our web site at www.oakmark.com to obtain the current NAV of a fund, a prospectus, an application or periodic reports, or call 1-800-OAKMARK (1-800-625-6275). 24-Hour Net Asset Value Hotline and Web Site: To obtain the current net asset value of a fund, please call 1-800-GROWOAK (1-800-476-9625) or access our web site at www.oakmark.com Letter from the Chairman and President... ................................................................................ Dear Fellow Shareholders: In my new role as Chairman, I am pleased to share the authorship of this letter with Bob Levy, the recently elected president of The Oakmark Funds. Bob is also the president and CEO of Harris Associates, the investment adviser and management of The Oakmark Family of Funds. [PHOTO APPEARS HERE] We are pleased to present the annual report for The Oakmark Family of Funds for our new fiscal year-end, September 30, 1997. Our fiscal year-to-date numbers reflect our shortened (11 month) year which resulted from the alignment of our fiscal quarters with the calendar quarters upon which most other funds report. For the 3-month period ended September 30, 1997, our four domestic funds, Oakmark, Equity and Income, Small Cap and Select, enjoyed especially strong returns. During the same period, our two international funds lagged somewhat with a strong divergence in the performance of the Oakmark International large cap holdings (+2.6%) versus the performance of the smaller companies in Oakmark International Small Cap (-3.9%). We suspect that just as the domestic small cap stocks have gained attention when their relative values became compelling, so too will their international counterparts. As long-term value investors, we have learned the advantage of being contrarian at times. We buy value when we identify it, as opposed to when others write about it. The Oakmark International Fund has just celebrated its fifth birthday and we are pleased and gratified that it has joined its sibling Oakmark Fund in earning a 5-Star (5 STARS) rating by Morningstar. For those of you looking ahead to IRA contributions, it is our intention to offer prototype Roth and Educational IRA accounts under the new 1997 Tax Act. We appreciate your confidence in investing with us. Very truly yours, /s/ Victor Morgenstern Victor Morgenstern Chairman /s/ Robert M. Levy Robert M. Levy President 1
The Oakmark Family of Funds Summary Information ................................................................................................ The Oakmark Performance for Period Ended The Oakmark Select September 30, 1997 Fund Fund - ---------------------------------------------------------------------------------------------------- 3 Months 6.3% 15.2% .................................................................................................... 6 Months 22.5% 34.6% .................................................................................................... 11 Months (fiscal year) 36.0% 63.4% .................................................................................................... 1 Year 37.1% N/A .................................................................................................... Average Annual Total Return for: 3 Year 24.9% N/A .................................................................................................... 5 Year 25.3% N/A .................................................................................................... Since inception 30.7% 63.4%* Value of $10,000 $52,009 $16,340 from inception date (8/5/91) (11/1/96) - ---------------------------------------------------------------------------------------------------- Top Five Holdings Banc One Tele-Communications, as of September 30, 1997 Corporation 7.0% Liberty Media Philip Morris Class A 14.7% Company and % of Total Net Assets Companies, Inc. 6.5% U.S. Industries, Inc. 14.4% Mellon Bank USG Corporation 8.2% Corporation 6.0% PartnerRe Ltd. 7.2% Tele-Communications, Cablevision Systems Inc., Class A 4.2% Corporation 4.5% Columbia/HCA Healthcare Corp. 4.0% - ---------------------------------------------------------------------------------------------------- Top Five Industries Other Consumer TV Programming 14.7% as of September 30, 1997 Goods & Services 17.8% Diversified Food & Beverage 16.6% Conglomerates 14.4% Industries and % of Total Net Assets Broadcasting & Other Consumer Publishing 14.5% Goods & Services 11.6% Banks 13.0% Broadcasting & Foreign Securities 5.2% Cable TV 8.9% Building Materials & Construction 8.2%
* Not Annualized 2 The Oakmark Family of Funds
............................................................................................................................... THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL FUND INCOME FUND FUND SMALL CAP FUND - ------------------------------------------------------------------------------------------------------------------------------- 15.2% 10.3% 2.6% -3.9% ............................................................................................................................... 33.6% 21.9% 11.1% 4.9% ............................................................................................................................... 54.2% 31.2% 27.2% 11.1% ............................................................................................................................... 53.5% 33.3% 26.9% 9.3% ............................................................................................................................... N/A N/A 15.1% N/A ............................................................................................................................... N/A N/A 18.4% N/A ............................................................................................................................... 44.8% 22.7% 18.4% 13.1% $20,340 $14,810 $23,283 $12,672 (11/1/95) (11/1/95) (9/30/92) (11/1/95) - ------------------------------------------------------------------------------------------------------------------------------- U.S. Industries, Inc. 6.6% Chrysler Corporation 3.3% Tomkins plc 4.9% Lambert Fenchurch People's Bank of PartnerRe Ltd. 3.2% Quilmes Group plc 5.6% Bridgeport, CT 6.0% U.S. Industries, Inc. 3.2% Industrial SA 4.9% Recordati 4.7% Catellus Development Tele-Communications, Cordiant plc 4.6% Vardon plc 4.2% Corporation 4.6% Liberty Media Sedgwick Group plc 4.0% JCG Holdings Ltd. 3.9% RenaissanceRe Class A 3.2% AB Volvo 3.8% Daimon 3.9% Holdings Ltd 4.1% Juno Lighting, Inc. 3.1% Ralcorp Holdings, Inc. 3.7% - ------------------------------------------------------------------------------------------------------------------------------- Insurance 13.2% U.S. Government Food & Beverage 21.0% Other Industrial Other Industrial Goods Bonds 25.4% Telecommunications 9.6% Goods & Services 13.4% & Services 12.7% Other Consumer Consumer Household Products 10.0% Other Consumer Goods & Services 10.4% Non-Durables 8.0% Other Financial 9.5% Goods & Services 8.5% Broadcasting & Banks 7.0% Other Consumer Banks 8.3% Publishing 9.0% Other Industrial Goods Goods & Services 9.4% Broadcasting & Banks 8.0% & Services 7.0% Food & Beverage 8.2% Publishing 7.4% Automotive 8.0%
THE OAKMARK FAMILY OF FUNDS 3 The Oakmark Fund Report from Robert J. Sanborn, Portfolio Manager ................................................................................ [PHOTO APPEARS HERE] Annual Portfolio Update A year ago (or, more exactly, eleven months ago), I wrote: The Oakmark Fund's fiscal year ended October 31, 1996 was eerily reminiscent of our 1995 fiscal year. As Yogi Berra might say, "It's deja vu all over again." A very similar macroeconomic environment--slow, steady growth; continued low inflation, with the price of gold down again; long- term interest rates down again--provided a good context for equities. As in fiscal 1995, your Fund generated strong absolute returns but lagged behind those of the Standard & Poor's 500. In reviewing the 1997 fiscal year, I can only say, "Play it again, Yogi." For, yet again, inflation continues to remain subdued, and the price of gold declined again; long-term interest rates declined again, this time from more than 6.7% to less than 6.4%. With the continuation of steady growth and with companies increasingly being run for the benefit of their owners, the context for US equities was (and remains) favorable. Your Fund generated strong positive returns of 36.0%, about a half a percentage point less than the Standard & Poor's 500. Our patience in our cable investments--Tele-Communications Inc., U.S. West Media Group, and TCI Liberty Media, Cl A--was well-rewarded. These stocks were among our best performers, up 71%, 43%, and 74%, respectively. Other standouts among our larger holdings include Mellon (+71%), Brunswick (+50%), and Knight-Ridder (+48%). Among our worst performers were Black & Decker (-2%), DeBeers (+2%), and Nabisco (+15%). Our largest holding, Philip Morris, slightly outperformed the market despite its ubiquity in the media. 1998 looms as another news-filled year for that company, but through it all we will continue to keep our eyes on the long term. - -------------------------------------------------------------------------------- The value of a $10,000 investment in The Oakmark Fund from its inception (8/5/91) to present (9/30/97) as compared to the Standard & Poor's 500 Index [GRAPH APPEARS HERE]
Average Annual Total Return* 9/30/97 NAV $41.21 Through 9/30/97 Total Return From Fund Inception Last 2 mos. 8/5/91 - --------------------------------------------------------------------------------------------------- The Oakmark Fund 0.8% 30.7% Standard & Poor's 500 Stock Index w/inc** -0.4% 18.7% Dow Jones Industrial Average w/inc** -3.1% 20.1% Value Line Composite Index** 4.8% 11.3%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The Dow Jones Average includes only 30 big companies. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future success. 4 The Oakmark Fund ................................................................................ In general, your portfolio businesses once again performed at least in line with expectations. I can point to very few disappointments over the year. Part of this is due to the overall strong economy, part is due to your Fund's current preference for high-quality businesses, and part is due to our exceptional research effort. While the "market" is up a lot, I continue to believe that your portfolio represents very solid value. It will probably perform relatively better in a less buoyant overall market, but is a good value in any case. Our portfolio turnover was low during the past year. We have added one new significant holding, Columbia/HCA Healthcare, the hospital company that remains in the news. As the stock declined dramatically due to revelations about its business practices, we have established a large investment based on our perceptions that the underlying value of the company's assets is worth far more than the stock price, and that top management (in the form of CEO Tom Frist) is very incentivised to maximize long-term value. We sold only one large holding, Torchmark, over the course of the year. Your Fund--like all of the funds in The Oakmark Family of Funds--remains concentrated. Your twenty largest holdings comprise three-quarters of our equities; our top ten comprise more than 50% of our equities. As fund companies relentlessly attempt to exploit new marketing opportunities, one fad is concentrated investing. Many firms are launching funds not necessarily because they believe in concentrated investing, but because they perceive an opportunity to attract assets. At Harris Associates and The Oakmark Family of Funds, we have had concentrated portfolios in our separate accounts since 1976, and in each of our Funds since inception. It is a core investment value firm-wide. Contrasting our approach with that of other well-known funds is instructive. For instance, the world's largest mutual fund has over 400 holdings, ten times the number of holdings in your Fund. Its ten largest holdings constitute less than 15% of its assets, whereas The Oakmark Fund's ten largest holdings approach 50% of the Fund. During the tenure of this other fund's prior portfolio manager, annual turnover at that fund reached 155%, meaning the average stock was held for about eight months. The Oakmark Fund's turnover is around 20%, meaning the average stock is typically held for about five years. At The Oakmark Fund, we make our positions large enough to matter, and we use a time horizon that is consistent with the term "investor". Sometimes I read an article that reminds me that our approach, which seems so logical to all of us, is not the industry norm. A recent article in The Wall Street Journal "Heard on the Street" column on McDonald's quoted a large institutional investor as saying he had cut his position in MCD from 2% of his portfolio to 1%, and would not restore it back to 2% until he saw some sign that results are improving. When we read this, we do not know where to begin with critiquing this thought process. First, in our view, this investor is taking MCD from a fairly insignificant position to a very insignificant investment. Why have trivial investments? Second, by the time this company shows improvements, its price will undoubtedly rise. Many ask me what is the recipe for the success of all the funds in The Oakmark Family of Funds. I think it is fairly simple. First, we have a consistent investment philosophy throughout the entire firm. We all believe in it, and we all speak the same language. Second, we continue to maintain, in a business increasingly resembling the NBA with regard to loyalty, a stable group of investment professionals. Third, we have an investment culture first and foremost. I am biased, but I do not believe there is a better investment firm than Harris Associates, or a better fund family than The Oakmark Family of Funds. Personally, I want to thank each of you for the support you have shown The Oakmark Fund, and all our Funds. /s/ Robert J. Sanborn Robert J. Sanborn Portfolio Manager rsanborn@oakmark.com October 13, 1997 The Oakmark Fund 5 The Oakmark Fund Schedule of Investments--September 30, 1997 ................................................................................
Shares Held Market Value - -------------------------------------------------------------------- Common Stocks--88.9% Food & Beverage--16.6% Philip Morris Companies Inc. 10,260,700 $ 426,460,344 Anheuser-Busch Companies Inc. 5,495,400 247,979,925 H.J. Heinz Company 4,007,250 185,084,860 Nabisco Holdings Corporation 3,572,100 152,037,506 Gallaher Group Plc (a) (b) 3,835,500 73,593,656 CPC International, Inc. 130,000 12,041,250 M & F Worldwide Corp. (a) 300,000 2,850,000 -------------- 1,100,047,541 Retail--0.6% Carson Pirie Scott & Company (a) (c) 1,000,000 $ 39,437,500 Other Consumer Goods & Services--17.8% Columbia/HCA Healthcare Corporation 9,210,000 $ 264,787,500 The Black & Decker Corporation (c) 7,034,200 262,023,950 Polaroid Corporation (c) 4,332,000 221,744,250 Brunswick Corporation 3,578,800 126,152,700 Mattel, Inc. 3,303,800 109,438,375 Fortune Brands, Inc. 2,560,500 86,256,844 First Brands Corporation 1,070,400 28,633,200 Whitman Corporation 957,500 26,091,875 Juno Lighting, Incorporated (c) 1,085,000 18,580,625 GC Companies, Inc. (a) (c) 397,000 17,071,000 Arctic Cat, Inc. 957,500 11,011,250 Justin Industries 601,500 8,082,656 -------------- 1,179,874,225 Banks--13.0% Banc One Corporation 8,273,226 $ 461,749,426 Mellon Bank Corporation 7,213,100 394,917,225 -------------- 856,666,651 Insurance--1.6% Old Republic International Corporation 2,748,620 $ 107,196,180 Other Financial--5.1% AMBAC, Inc (c) 4,389,800 $ 178,609,987 Fannie Mae 3,307,500 155,452,500 -------------- 334,062,487
6 The Oakmark Fund The Oakmark Fund Schedule of Investments--September 30, 1997 cont. ................................................................................
Shares Held Market Value - -------------------------------------------------------------------------------- Common Stocks--88.9% (cont.) Broadcasting & Publishing--14.5% Tele-Communications, Inc., Class A (a) 13,379,179 $ 274,273,169 Knight-Ridder, Inc. (c) 4,650,000 254,006,250 Dun & Bradstreet Corporation 6,841,300 194,121,888 ACNielsen Corporation (a) (c) 4,764,000 114,336,000 Tele-Communications, Liberty Media, Class A (a) 3,657,741 109,503,621 TCI Satellite Entertainment, Inc., Class A (a) 1,217,917 9,210,497 -------------- 955,451,425 Telecommunications--3.4% U.S. West Media Group (a) 10,085,400 $ 225,030,488 Managed Care Services--1.6% Foundation Health Systems, Inc. (a) 3,323,510 $ 106,352,320 Medical Products--1.0% Sybron International Corporation (a) 1,567,800 $ 67,317,413 Aerospace & Defense--4.4% Lockheed Martin Corporation 1,935,000 $ 206,319,375 The Boeing Company 1,586,000 86,337,875 -------------- 292,657,250 Other Industrial Goods & Services--4.1% Fort James Corporation 2,894,100 $ 132,585,956 Bandag Incorporated, Class A 1,104,100 56,723,138 SPX Corporation (c) 875,200 51,308,600 The Geon Company 971,600 19,917,800 Premark International, Inc. 328,400 10,508,800 -------------- 271,044,294 Foreign Securities--5.2% DeBeers Consolidated Mines Limited ADR (b) 4,071,000 $ 119,840,063 YPF Sociedad Anonima (b) 3,025,600 111,569,000 Unilever NV (b) 476,000 101,209,500 European Vinyls Corporation International N.V. 547,700 12,933,678 -------------- 345,552,241 Total Common Stocks (Cost: $3,861,010,117) 5,880,690,015
See accompanying notes to financial statements. The Oakmark Fund 7 The Oakmark Fund Schedule of Investments--September 30, 1997 cont.
Principal Value Market Value - ------------------------------------------------------------------------------ Short Term Investments--11.4% U.S. Government Bills--2.2% United States Treasury Bills, 5.07%-5.40% due 10/16/1997-1/29/1998 $150,000,000 $ 148,839,664 -------------- Total U.S. Government Bills 148,839,664 Commercial Paper--8.8% American Express Credit Corp., 5.49%-5.58% due 10/1/1997-11/4/1997 $175,000,000 175,000,000 Ford Motor Credit Corp., 5.48%-6.15% due 10/1/1997-10/22/1997 175,000,000 175,000,000 General Electric Capital Corporation, 5.50%-6.38% due 10/1/1997-11/3/1997 230,000,000 230,000,000 -------------- Total Commercial Paper 580,000,000 Repurchase Agreements--0.4% State Street Repurchase Agreement, 5.95% due 10/1/97 $ 23,456,000 $ 23,456,000 -------------- Total Repurchase Agreements 23,456,000 Total Short Term Investments (Cost: $752,289,548) 752,295,664 Total Investments (Cost $4,613,299,665)--100.3%(d) 6,632,985,679 Other liabilities in excess of other assets--(0.3)% (18,037,051) -------------- Total Net Assets--100% $6,614,948,628 ==============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) See footnote number six in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At September 30, 1997, net unrealized appreciation of $2,019,686,014, for federal income tax purposes consisted of gross unrealized appreciation of $2,077,648,280 and gross unrealized depreciation of $57,962,266. 8 The Oakmark Fund See accompanying notes to financial statements. The Oakmark Select Fund Report from Bill Nygren, Portfolio Manager ................................................................................ [PHOTO APPEARS HERE] The Oakmark Select Fund The Oakmark Select Fund increased in value by 6.9% for our transitional two month quarter ending September 30. That gain was slightly above the S&P Midcap's 5.6% gain, and well ahead of the S&P 500's 0.4% loss. In the last two quarters, your fund has benefited from its large exposure to midcap stocks. Earlier this year, after several years of outperformance by the largest companies, articles began appearing about long-term structural advantages possessed by giants like Coke and Intel. Unfortunately, investors had priced those stocks so high that even their large earnings gains were viewed as disappointing. The stock market usually finds a way to defy conventional wisdom! For its fiscal year (actually eleven months) The Oakmark Select Fund increased in value by 63.4%. That gain far exceeded gains in the S&P Midcap, 38.7% and the S&P 500, 36.6%. Again, I want to caution against unreasonable expectations. The return on the market indices as well as the amount by which your Fund outperformed those indices are both highly unusual. Although we expect the stock market and The Oakmark Select Fund to provide good long-term returns, it is unlikely that their upward paths will be as straight as we have recently become accustomed. As you know, we expect The Oakmark Select Fund to typically hold 20 or fewer stocks and to have half the value in its top five positions. As of September 30, your Fund held 16 stocks and the five largest accounted for 50% of the assets. Additionally, we have told you that the Fund would be a long-term investor. On September 30, only 16% of the fund's assets were invested in stocks the fund did not own on its first day of operation. I believe this shows we are acting consistently with our long-term investment philosophy. - -------------------------------------------------------------------------------- The value of a $10,000 investment in The Oakmark Select Fund from its inception (11/1/96) to present (9/30/97) as compared to the Standard & Poor's 500 Index [GRAPH APPEARS HERE]
Total Return* 9/30/97 NAV $16.34 Through 9/30/97 Total Return From Fund Inception Last 2 mos. 11/1/96 - ------------------------------------------------------------------------------- The Oakmark Select Fund 6.9% 63.4% Standard & Poor's 500 Stock Index w/inc** -0.4% 36.6% Standard & Poor's MidCap 400 Index w/inc** 5.6% 38.7% Value Line Composite Index** 4.8% 30.8%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results. The Oakmark Select Fund 9 ................................................................................ Bet Against the Cover In August of 1979 with double-digit inflation, double-digit government bond yields and the US economy declining in worldwide significance, Business Week ran a cover story proclaiming "The Death of Equities." Over the following eighteen years, as our economy staged a remarkable turnaround, a $1000 investment in the stock market (reinvesting dividends) increased in value to $17,000! Like the Sports Illustrated jinx, "The Death of Equities" story gave Business Week the dubious reputation of being a contrary indicator. It's not really fair to single out Business Week. The media reports about what has happened and what is expected to happen. The stock market moves based on how the actual events differ from market expectations. By the time a news story is deserving of being placed on the cover, a turning point has often been reached. Last October as we were preparing to launch The Oakmark Select Fund, Business Week ran a cover story titled "Cable TV, The Looming Crisis." In 1996, cable stocks had very disappointing returns because investors were expecting large subscriber losses to competing telephone and satellite companies. We disagreed with the consensus and thought intrinsic value would grow as competing providers failed to meet their optimistic projections. We also thought most cable stocks had owner-oriented managements and were selling at large discounts to intrinsic value. As long-term value investors, we look for those situations where negative short-term sentiment creates buying opportunities. For these reasons, The Oakmark Select Fund placed its largest single bet on the cable industry, nearly 25% of your fund was invested in three cable stocks: Liberty Media, Cablevision Systems and US West Media Group. A year ago, I told my colleagues that in The Oakmark Select Fund's first annual report, I would write about cable stocks and the Business Week cover indicator. From November 1, 1996 through September 30, 1997: US West Media was up 43%, Liberty Media was up 74% and Cablevision increased by 102%! The Business Week cover indicator came through again! What do we think about our cable holdings today? Private transactions are occurring at cashflow multiples well above where public stocks are trading and Liberty Media and US West Media are still repurchasing shares. Cablevision just recently exchanged stock for subscribers from industry leader Tele- Communications, Inc. Cablevision stock is trading at $63, but that transaction only makes sense for Tele-Communications, Inc. if Cablevision stock is worth in excess of $100 per share. To us, that's a pretty strong vote of confidence by a knowledgable investor in the same industry. We're sticking with our cable holdings and expect that when we review next year's performance, these stocks will have again added to our returns. At the close of this short year, I want to say thank you to all of my colleagues who have so greatly contributed to our strong results. Most importantly I want to thank you, our shareholders, for your support and for making this great start possible. As I wrote in the first quarterly, I'll wait to measure the fund's success by using its ten-year record, but so far so good! /s/ Bill Nygren - --------------------- Bill Nygren Portfolio Manager bnygren@oakmark.com October 6, 1997 10 The Oakmark Select Fund THE OAKMARK SELECT FUND Schedule of Investments--September 30, 1997 ................................................................................
Shares Held Market Value - ------------------------------------------------------------------------------ Common Stocks--92.5% Other Consumer Goods & Services--11.6% Polaroid Corporation 418,500 $ 21,421,969 Armstrong World Industries, Inc. 310,000 20,789,375 Brunswick Corporation 496,900 17,515,725 ------------ 59,727,069 Banks--4.4% People's Bank of Bridgeport, Connecticut 698,500 $ 22,395,656 Insurance--7.2% PartnerRe Ltd. 862,000 $ 37,119,875 Other Financial--4.3% Lockheed Martin Corporation 207,600 $ 22,135,350 Broadcasting & Cable TV--8.9% Cablevision Systems Corporation (a) 371,100 $ 23,286,525 U.S. West Media Group (a) 1,009,000 22,513,313 ------------ 45,799,838 TV Programming--14.7% Tele-Communications, Liberty Media, Class A (a) 2,532,200 $ 75,807,737 Publishing--7.9% ACNielsen Corporation (a) 851,000 $ 20,424,000 Dun & Bradstreet Corporation 704,500 19,990,188 ------------ 40,414,188 Building Materials & Construction--8.2% USG Corporation (a) 881,500 $ 42,256,906 Oil & Natural Gas--3.8% Union Texas Petroleum Holdings, Inc. 825,000 $ 19,387,500 Other Industrial Goods & Services--7.1% General Signal Corporation 445,000 $ 19,246,250 Premark International, Inc. 535,000 17,120,000 ------------ 36,366,250 Diversified Conglomerates--14.4% U.S. Industries, Inc. 2,557,300 $ 74,161,700 Total Common Stocks (Cost: $387,896,611) 475,572,069
See accompanying notes to financial statements. THE OAKMARK SELECT FUND 11 THE OAKMARK SELECT FUND Schedule of Investments--September 30, 1997 cont. ................................................................................
Principal Value Market Value - -------------------------------------------------------------------------------- Short Term Investments--9.4% U.S. Government Bills--2.3% United States Treasury Bills, 1.00%-5.12% due 10/9/1997 - 12/11/1997 $12,000,000 $ 11,942,999 ------------ Total U.S. Government Bills 11,942,999 Commercial Paper--5.8% Ford Motor Credit Corp., 5.60%-6.15% due 10/1/1997-10/6/1997 $10,000,000 $ 10,000,000 American Express Credit Corp., 5.52%-5.56% due 10/1/1997-10/2/1997 10,000,000 10,000,000 General Electric Capital Corporation, 5.58%-6.38% due 10/1/1997 10,000,000 10,000,000 ------------ Total Commercial Paper 30,000,000 Repurchase Agreements--1.3% State Street Repurchase Agreement, 5.95% due 10/1/1997 $ 6,401,000 $ 6,401,000 ------------ Total Repurchase Agreements 6,401,000 Total Short Term Investments (Cost: $48,344,290) 48,343,999 Total Investments (Cost $ 436,240,901)--101.9% (b) 523,916,068 Other liabilities in excess of other assets--(1.9)% (9,741,496) ------------ Total Net Assets--100% $514,174,572 ============
(a) Non-income producing security. (b) At September 30, 1997, net unrealized appreciation of $87,675,167 for federal income tax purposes consisted of gross unrealized appreciation of $87,901,597 and gross unrealized depreciation of $226,430. 12 THE OAKMARK SELECT FUND See accompanying notes to financial statements. THE OAKMARK SMALL CAP FUND Report from Steven J. Reid, Portfolio Manager ................................................................................ [PHOTO APPEARS HERE] Oakmark Small Cap Fund Has Small Year??? September 30, 1997 marked the end of the shortened 1997 fiscal year. The Oakmark Small Cap Fund, as well as the entire Oakmark Family of Funds, changed from an October to a September fiscal year. This aligns your Fund's quarterly reporting periods with most of the industry. In as much as the duration of the fiscal year was a little bit on the "small" side, the events that took place this year were anything but small. For the eleven month fiscal year ended September 30, 1997, The Oakmark Small Cap Fund gained 54.2%, which was large compared to the relevant indices. For the two-month fiscal quarter, your Fund slightly lagged with the relevant indices with a gain of 8.6%, hardly small in absolute terms. 1997 was truly an outstanding year for your Fund and we are happy to be able to share these results with you. During the latter part of the fiscal year the shares of small companies performed better than the shares of large companies. I have been asked numerous times for an explanation of why this occurred. I have several responses to this. The first is that as patient long-term investors we are focused on the individual values of each of our investments and are much less concerned with overall market trends or events. The second is that the raging equatorial currents of El Nino washed a little of Alan Greenspan's "irrational exuberance" onto the shores of the small company investment universe. Last, quite honestly, the shares of small companies have lagged those of large companies for so long that it was about time that they finally caught up a little. Philosophy and People Looking back at the past year I was pleasantly surprised to see how well so many of our investments had done. Nine of your Fund's holdings had appreciated over 100% during the past year. Even more pleasing was that we avoided making any large mistakes. The key to our success lies in a sound investment philosophy, but it is only effective - -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/97) AS COMPARED TO THE RUSSELL 2000 INDEX [GRAPH APPEARS HERE]
Average Annual Total Return* 9/30/97 NAV $20.34 Through 9/30/97 Total Return From Fund Inception Last 2 mos. 11/1/95 - -------------------------------------------------------------------------------- The Oakmark Small Cap Fund 8.6% 44.8% Lipper Small Cap Fund Index** 9.0% 21.9% Russell 2000 w/inc** 9.8% 26.8% S&P Small Cap 600 w/inc** 9.3% 30.3%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The Lipper Small Cap Fund Index is comprised of 30 Small Cap Funds. The Russell 2000 Index measures the performance of smaller companies, and represents approximately 10% of the total value of publicly traded companies in the U.S. The S&P 600 Index measures the performance of selected U.S. stocks with small market capitalization. Past performance is no guarantee of future results. The Oakmark Small Cap Fund 13 ................................................................................ when supported by capable professionals. We are very fortunate to have a truly outstanding group of experienced investment professionals. I want to thank all of them for their contribution to this past year's investment results. Simply put Philosophy + People = Performance (of course, a little good luck does not hurt). As the new fiscal year begins, we are encouraged by the investment opportunities we see and continue to be able to invest the Fund's assets in a prudent manner. Although the Fund is considerably larger than a year ago, our long-term investment horizon and emphasis on low turnover allows us to manage a larger asset base. We are not uncomfortable with the current asset size or the flow of money in (and out) of the Fund, but will continue to monitor this situation. We are committed to remaining consistent in the implementation of our investment philosophy. Last year I referred to a major financial periodical that listed their 100 most attractive small company investments. I noted that not one of our holdings in the Fund was a part of that list. I am pleased to see, and take comfort in knowing, that list was published again recently and not one of our holdings was included. We continue to seek out the unknown, undiscovered, and underfollowed investment opportunities. Once again, I would like to thank everyone involved, especially our shareholders, for your support of The Oakmark Small Cap Fund. /s/ Steven J. Reid - ------------------ Steven. J. Reid Portfolio Manager sreid@oakmark.com October 10, 1997 14 The Oakmark Small Cap Fund The Oakmark Small Cap Fund Schedule of Investments--September 30, 1997 - --------------------------------------------------------------------------------
Shares Held Market Value - ---------------------------------------------------------------------------------------------- Common Stocks--91.9% Food & Beverage--6.3% Ralcorp Holdings, Inc. (a) (c) 3,000,000 $56,062,500 International Multifoods Corporation (c) 1,032,000 30,637,500 M & F Worldwide Corp. (a) 917,600 8,717,200 ------------ 95,417,200 Retail--4.5% Cole National Corporation (a) (c) 1,000,000 $41,562,500 Carson Pirie Scott & Company (a) 511,500 20,172,281 Ugly Duckling Corporation (a) 375,000 5,718,750 ------------ 67,453,531 Other Consumer Goods & Services--8.5% Triarc Companies, Inc. (a) (c) 1,650,500 $33,216,312 Scotsman Industries, Inc. (c) 1,050,000 27,037,500 First Brands Corporation 1,000,000 26,750,000 GC Companies, Inc. (a) 310,000 13,330,000 Standard Motor Products, Inc. 511,400 11,953,975 Barry (R.G.) Corporation (a) (c) 588,700 8,278,594 USA Detergents, Inc. (a) 413,200 5,319,950 Justin Industries 207,400 2,786,938 ------------ 128,673,269 Banks--8.3% PeopleOs Bank of Bridgeport, Connecticut 2,840,000 $ 91,057,500 BankAtlantic Bancorp, Inc., Class A 926,700 14,363,850 Northwest Savings Bank 295,000 7,559,375 Harbor Federal Savings Bank 100,000 5,600,000 Pocahontas Federal Savings and Loan Association (c) 140,000 4,620,000 Savings Bank of the Finger Lakes (c) 94,000 2,256,000 ------------ 125,456,725 Insurance--13.2% RenaissanceRe Holdings Limited (c) 1,421,800 $ 62,470,337 Financial Security Assurance Holdings Ltd. 871,700 40,534,050 PXRE Corporation (c) 1,186,000 37,433,125 Chartwell Re Corporation (c) 900,000 31,950,000 Highlands Insurance Group, Inc. (a) (c) 1,100,000 26,812,500 ------------ 199,200,012 Other Financial--0.6% Duff & Phelps Credit Rating Company (c) 296,800 $ 9,497,600 Broadcasting & Publishing--7.4% Cablevision Systems Corporation (a) 650,600 $ 40,825,150 TCI Satellite Entertainment, Inc., Class A (a) (c) 3,800,000 28,737,500 Ascent Entertainment Group, Inc. (a) (c) 1,650,000 18,975,000 Lee Enterprises, Inc. 500,000 14,187,500 Granite Broadcasting Corporation (a) 800,000 9,500,000 ------------ 112,225,150
See accompaning notes to financial statements. The Oakmark Small Cap Fund 15 The Oakmark Small Cap Fund Schedule of Investments--September 30, 1997 cont. - --------------------------------------------------------------------------------
Shares Held Market Value - ---------------------------------------------------------------------------------------------- Common Stocks--91.9% (cont.) Telecommunications--0.0% UNR Industries, Inc. 95,000 $ 475,000 Data Storage--2.9% Imation Corporation (a) 1,641,300 $ 43,802,194 Aerospace & Defense--2.5% Tracor, Inc. (a) 1,236,000 $ 38,007,000 Machinery & Metal Processing--6.2% The Carbide/Graphite Group, Inc. (a) (c) 800,000 $ 27,200,000 Essex International, Inc. (a) 400,000 15,400,000 Atchison Casting Corporation (a) (c) 710,400 15,096,000 Northwest Pipe Company (a) (c) 520,000 14,040,000 Matthews International Corporation, Class A 333,500 13,256,625 DT Industries, Inc. 190,500 6,286,500 Wolverine Tube, Inc. (a) 88,300 2,770,413 -------------- 94,049,538 Building Materials & Construction--2.9% NVR Inc. (a) (c) 1,000,000 $ 26,000,000 Dal-Tile International Inc. (a) 881,600 13,224,000 Triangle Pacific Corporation (a) 146,100 5,076,975 -------------- 44,300,975 Oil & Natural Gas--2.4% Titan Exploration, Inc. (a) (c) 3,000,000 $ 36,000,000 Other Industrial Goods & Services--12.7% MagneTek, Inc. (a) (c) 2,400,000 $ 53,700,000 SPX Corporation (c) 900,000 52,762,500 Gardner Denver Machinery, Inc. (a) (c) 900,000 30,318,750 Zurn Industries, Inc. (c) 682,000 23,614,250 Columbus McKinnon Corporation (c) 808,400 21,220,500 Binks Sames Corporation (c) 222,000 9,657,000 Binks Sames Corporation, Restricted Shares (c) 28,000 1,071,840 -------------- 192,344,840 Commercial Real Estate--6.9% Catellus Development Corporation (a) 3,383,000 $ 70,197,250 Castle & Cooke, Inc. (a) (c) 1,440,000 28,260,000 Wellsford Real Properties Inc. (a) 397,100 6,353,600 -------------- 104,810,850 Diversified Conglomerates--6.6% U.S. Industries, Inc. 3,432,500 $ 99,542,500 Total Common Stocks (Cost: $1,082,594,870) 1,391,256,384
16 The Oakmark Small Cap Fund THE OAKMARK SMALL CAP FUND
Schedule of Investments--September 30, 1997 cont. ................................................................................................................. Principal Value Market Value - ----------------------------------------------------------------------------------------------------------------- Fixed Income--0.2% Corporate Bonds--0.2% Recreation & Entertainment--0.2% Harrah's Jazz Bonds, 14.25% due 11/15/2001(b) $ 6,700,000 $ 2,604,625 -------------- Total Fixed Income (Cost: $3,304,413) 2,604,625 Short Term Investments--7.8% U.S. Government Bills--2.0% United States Treasury Bills, 1.00%-5.34% due 10/9/1997-3/5/1998 $30,000,000 $ 29,728,421 -------------- Total U.S. Government Bills 29,728,421 Commercial Paper--5.3% American Express Credit Corp., 5.52%-5.56% due 10/1/1997-10/3/1997 $30,000,000 $ 30,000,000 Ford Motor Credit Corp., 5.54%-5.60% due 10/6/1997-10/7/1997 20,000,000 20,000,000 General Electric Capital Corporation, 5.56%-5.67% due 10/1/1997-10/3/1997 30,000,000 30,000,000 -------------- Total Commercial Paper 80,000,000 Repurchase Agreements--0.5% State Street Repurchase Agreement, 5.95% due 10/1/1997 8,212,000 $ 8,212,000 -------------- Total Repurchase Agreements 8,212,000 Total Short Term Investments (Cost: $117,940,192) 117,940,421 Total Investments (Cost $1,203,839,475)-99.9% (d) 1,511,801,430 Other assets in excess of other liabilities-0.1% 1,594,210 -------------- Total Net Assets-100% $1,513,395,640 ==============
(a) Non-income producing security. (b) This bond is currently in default, and the fund is no longer accruing interest. (c) See footnote number six in the Notes of Financial Statements regarding transactions in affiliated issuers. (d) At September 30, 1997, net unrealized appreciation of $307,961,955 for federal income tax purposes consisted of gross unrealized appreciation of $314,125,673 and gross unrealized depreciation of $6,163,718. See accompanying notes to financial statements. THE OAKMARK SMALL CAP FUND 17 The Oakmark Equity and Income Fund Report from Clyde S. McGregor, Portfolio Manager ................................................................. [PHOTO APPEARS HERE] Fiscal 1997 Results Welcome to the second annual report for The Oakmark Equity and Income Fund. Our first fiscal year lasted the usual 12 months, but for reasons explained elsewhere, fiscal 1997 ended after only eleven. The return of 31.2% in the period, however, nearly tripled what we had accomplished in 12 months in the first year. I would like to be able to argue that this outcome derived from our putting in 12 months of work into an 11-month year, but the real explanation is that this period has been unusually blessed, particularly for equity investors. Looking at more conventional measurement periods, your Fund's (and mine--my family is still by far the largest shareholder) return of 25.5% for the nine months ended September 30 places it 3rd among the 351 funds of its type. The 12 month result was 33.3%, ranking 5th in the category. I am quite pleased with this outcome and wish to thank all who have contributed. - -------------------------------------------------------------------------------- The value of a $10,000 investment in the Oakmark Equity and Income Fund from its inception (11/1/95) to present (9/30/97) as compared to the Lipper Balanced Fund Index [GRAPH APPEARS HERE]
Average Annual Total Return* 9/30/97 NAV $14.49 Through 9/30/97 Total Return From Fund Inception Last 2 mos. 11/1/95 - ------------------------------------------------------------------------------------------- The Oakmark Equity & Income Fund 3.7% 22.7% Lipper Balanced Fund Index** 0.7% 19.2% Lehman Govt./Corp. Bond** 0.4% 6.5% S&P 500 w/inc** -0.4% 31.7%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The Lipper Balanced Fund Index Composite is comprised of 30 balanced funds. The Lehman Govt./Corp. Bond Index includes the Lehman Government and Lehman Corporate indices. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. Past performance is no guarantee of future results. Firms Where Managers Shave Their Heads When the Stock Goes Up In early August I was riding in an airplane when I noticed that the gentleman with extremely short hair seated next to me was opening a folder marked "Catellus." Since Catellus is one of your Fund's important holdings (and a quite unusual word), I inquired as to whether he worked for the company. The gentleman turned out to be Ted Antenucci, a vice president of development at Catellus. Catellus is basically a large pool of real estate assets originally granted to the Santa Fe Railroad in the mid-1800s as part of the effort to develop the American West. We own the stock because of both its undervaluation compared to the company's asset value and our belief that the relatively new management team will put these assets to good use in an improving real estate environment. Back to Ted. When Ted discovered that I represented a firm which was one of the largest shareholders of his company, 18 The Oakmark Equity and Income Fund ................................................................................ he proceeded to tell me the story of why his haircut made him look as though he had recently enrolled at a military academy. Ted joined Catellus three years ago when the stock was trading for $6/share. Nelson Rising, newly installed as CEO of Catellus, recruited Ted to join the company, and during this process Nelson repeatedly expressed great confidence in the prospects for Catellus' stock. Ted accepted the job offer but remarked that should the stock ever actually reach $20/share, he would shave his head. In early July of this year with the stock at $18.50 Ted received a package in the mail. It turned out to be a deluxe shaving set, a gift from Nelson. In August the stock hit $20, and Ted, a man of his word, shaved his head. Now "willingness of managers to shave their heads if their stock goes up" is not one of the criteria which we normally use for stock selection. It probably should be. We like companies with this kind of team spirit, where having fun while doing one's job is important. Catellus has been an excellent holding for your Fund, first in the form of a convertible preferred stock, now as the common. I salute Ted, Nelson, and the rest of the Catellus management team for their success and the corporate culture which has helped to make it possible. Mighty Oaks Awards Last year I shamelessly copied my partner Robert Sanborn of The Oakmark Fund and issued awards to each of the analysts who had produced the single most successful stock and bond ideas for your fund. I will continue that tradition for fiscal 1997, though given its 11-month time frame, I worry that the results are not really comparable. Before announcing the awards, however, I must digress concerning the Mighty Oaks. Long-time readers may recall that "Mighty Oaks" is the name given to our firm's various athletic teams. This year's softball team had a season which resembles the stock market record of some of our investments. For most of the season the Oaks had a tough time, entering the playoffs with a losing record. In the playoffs, however, the team came together, eventually losing the championship game by one run on a perfect throw to home plate. Many of our stocks have periods like this where they look undistinguished but blossom when it is most important. Hats (Oakmark hats) off to the Oaks for their playoff run. Now for the awards. Regrettably, I find that both of my award winners are repeaters. Many good ideas contributed to the Fund's results for fiscal 1997, but under the rules I must again recognized two of my fellow fund managers, Steve Reid (Oakmark Small Cap) for First USA/Banc One common stock, and Bill Nygren (Oakmark Select) for Telecommunications preferred stock. I have previously written concerning Banc One's acquisition of First USA. We continue to hold the Banc One shares which we received in the merger because we perceive the stock to be undervalued. As well, we are quite optimistic concerning the impact of First USA's management on Banc One's all-important consumer banking division. The common shares of Telecommunications and its offspring (e.g. Liberty Media) have been significant holdings for Harris Associates for many years. Bill Nygren also identified the company's preferred stock as offering above-average opportunity for a high-yield security. During fiscal 1997 investors regained their confidence in Telecommunications' financial stability, with the result that the preferred provided a total return of more than 50% to the Fund. Since Bill and Steve are repeat winners, I don't know if another Mighty Oaks T- shirt will be as exciting a prize as it was a year ago. Perhaps softballs autographed by this year's near-champion Mighty Oaks squad? Thanks for your support in fiscal 1997. Please feel free to e-mail me with your comments, questions, or ideas for quarterly reports. /s/ Clyde S. McGregor Clyde S. McGregor Portfolio Manager mcgregor@oakmark.com October 8, 1997 The Oakmark Equity and Income Fund 19 The Oakmark Equity and Income Fund Schedule of Investments--September 30, 1997 ................................................................................
Shares Held Market Value - -------------------------------------------------------------------------------- Equity and Equivalents--61.6% Food & Beverage--2.0% Philip Morris Companies Inc. 16,100 $ 669,156 Office Equipment--2.6% Lexmark International Group, Inc., Class A (a) 26,000 858,000 Other Consumer Goods & Services--9.7% Juno Lighting, Incorporated 61,300 $ 1,049,762 First Brands Corporation 31,000 829,250 National Presto Industries, Inc. 17,000 715,063 Armstrong World Industries, Inc. 9,600 643,800 ----------- 3,237,875 Banks--5.0% Banc One Corporation 17,022 $ 950,040 Mellon Bank Corporation 13,400 733,650 ----------- 1,683,690 Insurance--6.2% PartnerRe Ltd. 25,000 $ 1,076,563 Old Republic International Corporation 25,500 994,500 ----------- 2,071,063 Broadcasting & Publishing--9.0% Tele-Communications, Liberty Media, Class A (a) 35,200 $ 1,053,800 Dun & Bradstreet Corporation 35,000 993,125 Lee Enterprises, Inc. 33,900 961,912 ----------- 3,008,837 Automotive--8.0% Chrysler Corporation 30,000 $ 1,104,375 Borg-Warner Automotive, Inc. 15,000 853,125 Lear Corporation 15,000 738,750 ----------- 2,696,250 Aerospace & Defense--2.3% The Boeing Company 14,300 $ 778,456 Machinery & Metal Processing--3.0% General Signal Corporation 23,000 $ 994,750 Other Industrial Goods & Services--3.0% Premark International, Inc. 31,500 $ 1,008,000 Commercial Real Estate--7.0% Catellus Development Corporation (a) 48,228 $ 1,000,731 LaSalle Partners, Inc. (a) 20,000 700,000 Equity Office Properties Trust (a) 19,000 644,813 ----------- 2,345,544
20 The Oakmark Equity and Income Fund The Oakmark Equity and Income Fund Schedule of Investments--September 30, 1997 cont. ................................................................................
Shares Held/ Principal Value Market Value - -------------------------------------------------------------------------------- Equity and Equivalents--61.6% (cont.) Diversified Conglomerates--3.2% U.S. Industries, Inc. 36,750 $ 1,065,750 Total Equity and Equivalents (Cost: $15,285,783) 20,417,371 Convertible Preferred Stock--0.6% Insurance--0.6% American Heritage Life Investment Corporation, Preferred, 8.50% 3,000 $ 186,000 Total Convertible Preferred Stock (Cost: $150,000) 186,000 Fixed Income--35.5% Preferred Stock--5.9% Banks--3.0% BBC Capital Trust Preferred, 9.50% 21,200 $ 551,200 RBI Capital Trust Preferred, 9.10% 42,500 440,938 ---------- 992,138 Broadcasting & Cable TV--1.5% Tele-Communications, Inc., Preferred Junior Class B, 6.00% 5,800 $ 498,800 Other Industrial Goods & Services--1.4% James River Corporation of Virginia, Preferred Series O, 8.25% 20,000 $ 490,000 Total Preferred Stock (Cost: $1,857,125) 1,980,938 Corporate Bonds--3.3% Other Consumer Goods & Services--0.7% Samsonite Corporation, 11.125% due 7/15/2005, Senior Subordinated Notes Series B $200,000 $ 229,000 Aerospace & Automotive--0.6% Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 160,500 Coltec Industries, Inc., 9.75% due 11/1/1999 25,000 26,531 ---------- 187,031 Building Materials & Construction--0.5% USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B $150,000 $ 161,625
See accompanying notes to financial statements. The Oakmark Equity and Income Fund 21 The Oakmark Equity and Income Fund Schedule of Investments--September 30, 1997 cont. ................................................................................
Principal Value Market Value - -------------------------------------------------------------------------------- Fixed Income--35.5% (cont.) Corporate Bonds--3.3% (cont.) Utilities--0.5% Midland Funding Corporation, 11.75% due 7/23/2005 $ 150,000 $ 177,000 Other Industrial Goods & Services--1.0% UCAR Global Enterprises Inc., 12.00% due 1/15/2005, Senior Subordinated Note $ 300,000 $ 342,750 Total Corporate Bonds (Cost: $1,053,099) 1,097,406 Government and Agency Securities--26.3% U.S. Government Bonds--25.4% United States Treasury Notes, 7.125% due 9/30/1999 $3,300,000 $ 3,380,091 United States Treasury Notes, 7.50% due 5/15/2002 2,750,000 2,913,515 United States Treasury Notes, 7.875% due 11/15/2004 2,000,000 2,198,700 ----------- 8,492,306 U.S. Government Agencies--0.9% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond $ 300,000 $ 302,478 Total Government and Agency Securities (Cost: $8,672,256) 8,794,784 Total Fixed Income (Cost: $11,732,480) 12,059,128
22 The Oakmark Equity and Income Fund The Oakmark Equity and Income Fund Schedule of Investments--September 30, 1997 cont. ................................................................................
Principal Value Market Value - -------------------------------------------------------------------------------- Short Term Investments--4.1% U.S. Government Bills--0.8% United States Treasury Bills, 5.07% due 10/16/1997 $250,000 $ 249,472 ----------- Total U.S. Government Bills 249,472 Commercial Paper--2.2% American Express Credit Corp., 5.58% due 10/6/1997 $250,000 $ 250,000 General Electric Capital Corporation, 5.56%-5.67% due 10/2/1997-10/3/1997 500,000 500,000 ----------- Total Commercial Paper 750,000 Repurchase Agreements--1.1% State Street Repurchase Agreement, 5.95% due 10/1/1997 $381,000 $ 381,000 ----------- Total Repurchase Agreements 381,000 Total Short Term Investments (Cost: $1,380,472) 1,380,472 Total Investments (Cost $28,398,735)--101.2% (b) $33,856,971 Other liabilities in excess of other assets--(1.2)% (394,458) ----------- Total Net Assets--100% $33,462,513 ===========
(a) Non-income producing security. (b) At September 30, 1997, net unrealized appreciation of $5,458,236 for federal income tax purposes consisted of gross unrealized appreciation of $5,505,006 and gross unrealized depreciation of $46,770. See accompanying notes to financial statements. The Oakmark Equity and Income Fund 23 THE OAKMARK INTERNATIONAL FUND Report from David G. Herro and Michael J. Welsh, Portfolio Managers ........................................................................... [PHOTOS APPEAR HERE] - -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/97) COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX [GRAPH APPEARS HERE] 9/30/97 NAV $18.77
Average Annual Total Return* Through 9/30/97 Total From Fund Return Inception Last 2 mos. 9/30/92 - ---------------------------------------------------------------------------------------------- The Oakmark International Fund 1.4% 18.4% Morgan Stanley World ex U.S. w/inc** -2.2% 12.5% Morgan Stanley EAFE w/inc** -2.3% 12.3% Lipper Analytical International Fund Average** -1.3% 14.8%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Morgan Stanley World ex U.S. Index includes 19 country sub-indexes. The Morgan Stanley EAFE Free Index refers to Europe, Asia and the Far East and includes 18 country sub-indexes. The Lipper International Fund Average includes 30 mutual funds that invest in securities whose primary markets are outside the United States. Past performance is no guarantee of future results. Fellow Shareholders, We are pleased to be able to present our annual and five-year report with such positive results. First, The Oakmark International Fund has earned a five-year average annual rate of return of 18.4% compared to 14.8% for The Lipper Analytical International Fund Average and 12.5% for The Morgan Stanley World ex U.S. index. This return puts it in the top 10 percent of all diversified international funds. Furthermore, for the eleven-month fiscal year ended September 30, 1997, the fund was up 27.2%, also comparing well to Morgan and Lipper which were up 13.8% and 22.7%, respectively. Finally, Morningstar has rated your fund a 5 star fund, their highest rating given to mutual funds. How We Did It... During the past five years, international investors have been subjected to all kinds of volatility: devaluations, revaluations, market surges, market crashes, etc, etc. For some, this would make the international market place unattractive. As bona fide long-term investors, however, we view the volatility of the environment as positive. For it is this volatility which is responsible for giving us long-term investment opportunity! As you have heard numerous times, we are disciplined value investors. We search for companies that are selling at discounts to their underlying economic value and that have managements that are proven value builders who are committed to continue adding value. We are successful because we stick to this philosophy through thick and thin. We do not believe in "stock of the day", "coun- 24 THE OAKMARK INTERNATIONAL FUND ................................................................................ try of the day" or "currency of the day". We do believe in spending countless hours analyzing what is analyzable: the value of a business. We are also big believers in the quality of our research... if we like an idea, it can easily become 3-5% of our fund. There will be periods during which we will soar and periods in which we will lag, but over time we remain very confident that our approach will continue to yield solid, long-term results. The World We Live In... Though international equities have under-performed domestic equities recently, we still believe the environment is positive for higher returns in the future. The "owner oriented revolution" that hit the American board room in the 80's and 90's is spreading throughout the globe. This is extremely positive for international investors. In Europe, for example, where the word "profit" was a four letter word, there is a growing belief in the obvious: that companies are owned by shareholders and that they should be managed for the owners' benefit. Simple concept as it is, it took a long time for the industrial titans of Europe to come to this realization. In fact, sadly, their Japanese counterparts are becoming believers at a much slower pace. New Labour, No Danger? The clearest example of the nouveau capitalist revolution is what has happened/is happening in the United Kingdom. It was only 20 years ago that most of the major industry in Britain was owned by the government. From steel to airlines to banks to aerospace companies the "British" before their names meant it was owned by the government. Under Prime Minister Thatcher, it all changed and today, as a direct result of the free market reforms instituted over the years, Britain has both the most attractive stock market and economy in Europe. Even though Thatcher's party lost the last election and is now out of government, the new Labour government headed by Tony Blair has abandoned its socialist past and seemingly has embraced the notion that it is the private sector, not the public, that creates societies' wealth. Blair has courageously stood up to some of the dinosaurs in his own party to implement a new, free market type of attitude within the government. Asian Update Prompted by the recent collapse of share and currency prices, we have spent the last three weeks in Asia meeting with dozens of companies. As part of our usual investigations, we were interested in the various managements' views on the current macroeconomic situation. We came away convinced that although the short- term will continue to be very volatile, there are significant long-term value opportunities in the region. On the ground, it was apparent to us that the difficulties in the various financial sectors, particularly in Malaysia and Korea, would not significantly adversely impact the long-term prosperity of many of the companies we met with. Foreign investor sentiment has turned uniformly bearish: Many so-called market experts have recently put a "sell" on the region, after being giddily bullish at much higher prices and valuation levels. Many companies, especially in Hong Kong, are viewing the current situation as an opportunistic time to purchase their own shares. To reiterate what we say constantly (and even earlier in this letter!), short- term volatility often provides long-term opportunity. Finally, Thanks! We would like to end by saying "thank you" to our shareholders by entrusting us with your hard-earned money. We will continue to work hard to grow it in a meaningful way and we do believe that current investment values will mean another 5 good years. /s/ David Herro David Herro Portfolio Manager 72242.772@compuserve.com /s/ Michael J. Welsh Michael J. Welsh Co-Portfolio Manager 102521.2142@compuserve.com October 16, 1997 THE OAKMARK INTERNATIONAL FUND 25 The Oakmark International Fund International Diversification--September 30, 1997 ......................................................................... [PIE CHART APPEARS HERE] % of Fund Net Assets - ------------------------------ Europe 51.7% Great Britain 23.2% France 8.3% Sweden 5.9% Italy 5.8% Switzerland 4.5% Netherlands 2.0% Finland 1.3% Spain 0.4% Germany 0.3% Latin America 14.3% Brazil 7.9% Argentina 4.9% Panama 1.3% Mexico 0.2% Pacific Rim 24.9% Hong Kong 8.8% New Zealand 5.6% Japan 4.0% Korea 2.2% Australia 1.9% Malaysia 1.9% Singapore 0.3% Thailand 0.2% Other Countries 3.2% Israel 3.2% 26 The Oakmark International Fund THE OAKMARK INTERNATIONAL FUND Schedule of Investments--September 30, 1997 ................................................................................
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------- Common Stocks--94.1% Consumer Non-Durables--8.0% Fila Holding S.p.A. Athletic Footwear (Italy), (b)(e) Manufacturing 1,643,600 $ 50,848,875 Chargeurs International Sa Wool Production Holding (France), (a)(e) Company 673,084 44,587,497 Yue Yuen Industrial Holdings Athletic Footwear (Hong Kong) Manufacturing 12,345,600 31,749,475 BYC Co. Ltd. (Korea), (e) Textile Manufacturer 37,070 3,686,743 ------------ 130,872,590 Food & Beverage--21.0% Quilmes Industrial SA Brewer (Argentina), (e) 5,191,700 $ 80,471,350 Nestle SA (Switzerland) Producer of Foods & Drinks 40,900 56,974,285 Guinness plc (Great Britain) Distiller & Brewer 5,785,000 54,523,990 Tate & Lyle PLC Sugar Producer & Distributor (Great Britain) 7,610,000 54,054,309 Lion Nathan Limited New Zealand Brewer (New Zealand) 21,462,700 52,525,290 Pernod Ricard (France) Manufactures Wines, Spirits, & Fruit Juices 652,579 32,559,376 Lotte Confectionery Confection Manufacturer Company (Korea) 65,270 9,986,667 Lotte Chilsung Beverage Manufacturer of Soft Drinks, Company (Korea) Juices, & Sport Drinks 44,770 5,333,257 ------------ 346,428,524 Household Products--2.1% Amway Japan Limited (Japan) Marketing of Household Products 1,116,700 $ 32,019,409 Amway Japan Limited Marketing of Household (Japan), (b) Products 152,400 2,190,750 ------------ 34,210,159 Retail--1.6% Giordano International East Asian Clothing Retailer Limited (Hong Kong), (e) & Manufacturer 41,253,000 $ 26,656,113 Other Consumer Goods & Services--2.2% Sankyo Company Ltd. (Japan) Pachinko Machine Manufacturer 1,070,800 $ 22,184,471 Heiwa Corp (Japan) Pachinko Machine Manufacturer 486,000 9,303,555 Mandarin Oriental Hotel Management International Limited (Singapore) 4,400,000 4,444,000 ------------ 35,932,026
See accompanying notes to financial statements. THE OAKMARK INTERNATIONAL FUND 27 THE OAKMARK INTERNATIONAL FUND Schedule of Investments--September 30, 1997 cont. ................................................................................
Description Shares Held Market Value - --------------------------------------------------------------------------------------- Common Stocks--94.1% (cont.) Telecommunications--9.6% Telecom Italia SpA (Italy) Telecommunications 6,790,000 $ 45,236,508 Bezeq (Israel) Telephone Company 13,529,271 39,607,678 Technology Resources Telecommunications Industries Berhad (Malaysia) 26,163,500 31,774,429 Asia Satellite Telecommunications Telecommunications Holdings Ltd. (Hong Kong), (a) 753,000 21,554,625 Telecomunicacoes Telecommunications Brasileiras S/A (Brazil) 173,100,000 19,987,358 ------------ 158,160,598 Transportation--3.8% AB Volvo (Sweden) Automobiles and Trucks 2,207,600 $ 63,282,109 Transportation Services--1.1% Danzas Holding AG Freight Distributor (Switzerland), (a) 82,500 $ 17,612,933 Banks--7.0% Compagnie Financiere de French Financial Paribas (France) Services Group 446,000 $ 33,077,967 Uniao de Bancos Brasileiros Major Brazilian Bank S.A. (Brazil), (a) (c) 855,500 31,332,688 Uniao de Bancos Brasileiros Major Brazilian Bank SA (Brazil) 583,825,000 20,788,657 Banco Latinoamericano de Multinational Bank Exportaciones, S.A. Class E (Panama), (b) 461,300 20,643,175 Banco Popular Espanol SA Large Spanish Bank (Spain) 109,972 7,072,628 Grupo Financiero Bancomer, Large Mexican Financial S.A. de C.V.-L (Mexico), (a) Group 6,129,630 3,076,648 ------------ 115,991,763 Other Financial--4.6% Sedgwick Group plc Insurance Broker, (Great Britain), (e) Financial Services 32,625,000 $ 65,759,770 Colonial Limited Diversified Financial (Australia), (a) Services Group 2,791,000 9,212,799 ------------ 74,972,569 Marketing Services--4.6% Cordiant plc Global Advertising Agency (Great Britain), (e) 38,585,156 $ 75,906,653
28 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND Schedule of Investments--September 30, 1997 cont.
............................................................................................................ Description Shares Held Market Value - ----------------------------------------------------------------------------------------------------------- Common Stocks--94.1% (cont.) Broadcasting & Publishing--0.9% Europe 1 Communication Media (France) 66,327 $ 14,589,894 Aerospace--3.8% Rolls-Royce plc (Great Britain) Jet Engines 7,744,085 $ 31,967,585 Hong Kong Aircraft Commercial Aircraft Overhaul Engineering Company Ltd. & Maintenance (Hong Kong), (e) 9,521,000 30,883,574 ------------ 62,851,159 Chemicals--4.4% Fernz Corporation Ltd. Agricultural & Industrial (New Zealand), (e) Chemical Producer 11,611,800 $ 40,171,130 European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands), (e) 1,395,665 32,957,974 ------------ 73,129,104 Components--1.8% Varitronix International Liquid Crystal Displays Limited (Hong Kong), (e) 15,249,000 $ 29,165,831 Mining & Building Materials--2.6% Pioneer International Concrete Products, Aggregates (Australia) 6,585,176 $ 22,439,713 Keumkang Ltd. (Korea), (e) Building Materials 360,000 16,327,869 Siam City Cement Public Cement Producer Company Limited (Thailand) 1,006,600 3,604,903 ------------ 42,372,485 Other Industrial Goods & Services--7.0% Tomkins plc (Great Britain) Industrial Management Company 14,400,000 $ 81,153,905 Kone Corporation (Finland) Elevators 161,870 20,956,719 Legris Industries Crane Manufacturer (France) 195,097 7,925,358 Buderus AG (Germany) Industrial Manufacturing Firm 9,000 4,584,171 Tae Young Corporation (Korea) Heavy Construction 20,000 679,781 ------------ 115,299,934 Steel--5.6% Usiminas (Brazil) Steel Production 5,363,370 $ 58,600,282 Avesta Sheffield AB (Sweden) Stainless Steel 3,575,000 34,159,802 ------------ 92,760,084 See accompanying notes to financial statements. THE OAKMARK INTERNATIONAL FUND 29
The Oakmark International Fund Schedule of Investments--September 30, 1997 cont. ............................................................................................. Shares Held/ Description Principal Value Market Value - ------------------------------------------------------------------------------------------------- Common Stocks--94.1% (cont.) Diversified Conglomerates--2.4% Securicor plc (Great Britain) Diversified Consumer Services Company 4,274,500 $ 18,610,106 Koor Industries Limited (Israel), (b) Israeli Holding Company 622,100 12,830,812 Lamex Holdings Ltd. Hong Kong's Largest Office (Hong Kong), (e) Furniture Supplier 14,040,000 4,808,219 Compagnie Generale des Industrial Services Eaux (France) 25,000 2,941,350 Koor Industries Limited Israeli Holding Company (Israel) 5,660 588,217 -------------- 39,778,704 Total Common Stocks (Cost: $1,395,926,326) 1,549,973,232 Short Term Investments--5.1% U.S. Government Bills--0.9% United States Treasury Bills, 5.34%-5.47% due 10/16/1997-10/23/1997 $15,000,000 $ 14,955,940 Commercial Paper--3.6% American Express Credit Corp., 5.48%-5.52% due 10/3/1997-10/9/1997 $20,000,000 $ 20,000,000 Ford Motor Credit Corp., 5.51%-6.15% due 10/1/1997-10/3/1997 20,000,000 20,000,000 General Electric Capital Corporation, 5.56%-5.58% due 10/1/1997-10/3/1997 20,000,000 20,000,000 -------------- 60,000,000 Repurchase Agreements--0.6% State Street Repurchase Agreement, 5.95% due 10/1/1997 $10,002,000 $ 10,002,000 Total Short Term Investments (Cost: $84,957,940) 84,957,940 Total Investments (Cost $1,480,884,266)--99.2% (f) $1,634,931,172 Foreign Currencies (Proceeds $1,618,842)--0.1% 1,622,273 Other assets in excess of other liabilities--0.7% (d) 10,794,086 -------------- Total Net Assets--100% $1,647,347,531 ==============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) Includes portfolio and transaction hedges. (e) See footnote number six in the Notes to Financial Statements regarding transactions in affiliated issuers. (f) At September 30, 1997, net unrealized appreciation of $154,050,337 for federal income tax purposes consisted of gross unrealized appreciation of $221,535,239 and gross unrealized depreciation of $67,484,902. See accompanying notes to financial statements. 30 The Oakmark International Fund The Oakmark International Small Cap Fund Report from David G. Herro and Michael J. Welsh, Portfolio Managers [PHOTOS APPEAR HERE] The Value of a $10,000 investment in The Oakmark International Small Cap Fund from its inception (11/1/95) to present (9/30/97) as compared to the Morgan Stanley World ex U.S. Index [GRAPH APPEARS HERE]
9/30/97 NAV $12.20 Average Annual Total Return* Through 9/30/97 Total From Fund Return Inception Last 2 mos. 11/1/95 - ------------------------------------------------------------------------------------------------------ The Oakmark International Small Cap Fund -4.4% 13.1% Morgan Stanley World ex U.S. w/inc** -2.2% 13.1% Lipper Analytical International Fund Average** -1.3% 18.4% Micropal International Small Co. Fund Index** -1.7% 14.2%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Morgan Stanley World ex U.S. Index includes 19 country sub-indexes. The Lipper International Fund Average includes 30 mutual funds that invest in securities whose primary markets are outside the United States. The Micropal Int'l Small Co. Fund Index sector average is an unweighted index comprised of all funds within the international small company fund sector. Past performance is no guarantee of future results. Fellow Shareholders: Since inception, The Oakmark International Small Cap Fund has achieved an average annual return of 13.1%, compared to 13.1% and 14.2% for the Morgan Stanley World ex US and Micropal Intl Small Co. Fund indices, respectively. For the eleven-month fiscal year ended September 30, 1997, the Fund achieved a return of 11.1%, compared with returns of 13.8% and 13.8% for the Morgan Stanley World ex US and Micropal International Small Cap indices. Small Caps Continue to Underperform the Big Guys While The Oakmark International Small Cap Fund has performed in line with similar international small cap funds this year, it has underperformed the Oakmark International Fund and the EAFE index. The primary reason is that share prices of large capitalization companies have continued to outperform those of small caps around the world. As a result we continue to see tremendous value in this sector. One stark example of divergent performance is in the Japanese market. The Nikkei 225 index, the proxy for large cap stocks in Japan, is basically flat in local currency terms over the past five years. In contrast the smaller market indicies, the JASDAQ and the OTC, are both down around 30%. Most of this underperformance has taken place over the last twelve months: the Nikkei 225 is down 15% in local terms, while the JASDAQ and OTC indicies are down 40%. The Oakmark International Small Cap Fund 31 ................................................................................ We are seeing this divergence as a common pattern around the globe. As value investors with a long-term time horizon we can take advantage of the tremendous opportunities we see in some of these markets. Our investment process and criteria are the same for The Small Cap Fund as in Oakmark International; it is simply a different investment universe. The vast majority of our holdings in The Oakmark International Small Cap Fund have a market cap below $500 million). And as we've frequently mentioned, the geographic allocation of the portfolio is simply a function of stock selection, not a top-down macroeconomic "bet". A good illustration of this point is the difference in the portfolio weightings of Japanese companies between Oakmark International with 4.0% of its portfolio in Japanese stocks and Oakmark International Small Cap with 9.5%. We have found more companies which meet our criteria in the small cap area than in the large cap area. Excellent Long-term Opportunities The size of The Oakmark International Small Cap Fund is significantly smaller than that of The Oakmark International Fund. One of the advantages of the current asset size is the concentration we are able to achieve in our favorite ideas without incurring large trading costs (especially moving the share price when buying and selling). We are convinced that over a reasonable time horizon the prices of these companies will converge with their underlying value. We continue to believe that this fund has great potential to earn excess returns for shareholders. Asia Will Be Fine... Your fund has been adversely impacted by the instability which hit the Asian markets this summer and fall resulting in weaker Asian currencies and sharply lower share prices. Profligate credit expansion over the past few years helped fuel a property glut which has put tremendous strain on the financial sector of many East Asian markets. Also, the strength of the US dollar hurt the competitiveness of many countries which try to maintain a stable exchange rate. Finally, some ill-timed comments made by Dr. Mahathir, leader of Malaysia, have shaken the confidence of foreign investors in the region. While these comments are very serious and shocking, his actions to date have been far less reactionary and have demonstrated an understanding of the importance in treating foreign investors properly. From an investment perspective, many opportunities have surfaced in Asia. Any company that does not have foreign currency debt or foreign costs will be better able to compete and will eventually have higher profits. More reasonably priced currencies will benefit those Asian companies that are net exporters and also will benefit the tourist industry. These industries should then lead Asia to stronger macroeconomic growth. The "grass-roots" of the Asian economies are still strong and no major rehabilitation is needed. We believe that over the medium term there will be a strong recovery which will be reflected in share prices. Don't forget what happened in Latin America!!! /s/ David G. Herro David G. Herro Portfolio Manager 72242.772@compuserve.com /s/ Michael J. Welsh Michael J. Welsh Co-Portfolio Manager 102521.2142@compuserve.com October 16, 1997 32 The Oakmark International Small Cap Fund The Oakmark International Small Cap Fund International Diversification--September 30, 1997 ........................................................................ % of Fund Net Assets - -------------------------- Pacific Rim 49.2% New Zealand 12.1% Japan 9.4% Hong Kong 8.9% Australia 6.8% Korea 6.1% Thailand 2.9% Indonesia 1.6% Philippines 1.4% Europe 44.2% Great Britain 13.9% Italy 7.0% France 5.5% Germany 5.1% Turkey 5.0% Ireland 4.3% Netherlands 3.4% The Oakmark International Small Cap Fund 33 THE OAKMARK INTERNATIONAL SMALL CAP FUND Schedule of Investments--September 30, 1997
.................................................................................................................... Description Shares Held Market Value -------------------------------------------------------------------------------------------------------------------- Common Stocks--93.4% Consumer Non-Durables--5.4% Designer Textiles (NZ) Manufactures Knit Fabrics Limited (New Zealand), (c) 2,960,000 $ 1,498,096 PT Polysindo Eka Perkasa Integrated Textile (Indonesia) Manufacturer 2,652,000 1,047,903 Altinyildiz Mensucat ve Textile Manufacturer Konfeksiyon Fabrikalari A.S. (Turkey) 7,482,000 1,019,843 ----------- 3,565,842 Food & Beverage--8.2% DB Group Ltd. (New Zealand) Producer of Beer, Wine, & Liquor 1,208,750 $ 1,897,244 Taittinger (France) Producer of Wine & Spirits 3,077 1,633,764 Chosun Brewery Company Korean Brewer (Korea) 52,010 966,306 Alaska Milk Corporation Milk Producer (Philippines), (a) 18,188,000 917,308 ----------- 5,414,622 Household Products--10.0% Enix Corporation (Japan) Entertainment Software 124,900 $ 2,484,130 Eczacibasi Yapi Gerecleri Ceramic Sanitary Sanayi ve Ticaret A.S. Producer (Turkey), (a) 49,749,200 2,255,617 WMF (Germany) Tableware and Kitchenware 9,561 1,839,747 ----------- 6,579,494 Retail--4.2% Daimon (Japan) Liquor Retailer & Distributor 414,000 $ 2,538,825 Somerfield plc (Great Britain) Food Retailer 77,000 248,946 ----------- 2,787,771 Other Consumer Goods & Services--9.4% Vardon plc (Great Britain) Bingo Clubs 1,450,000 $ 2,735,606 Fyffes plc (Ireland) Distributor of Fresh Fruit, Flowers and Produce in Europe 1,370,024 1,995,578 CeWe Color Holding AG Photo Equipment & Supplies (Germany) 6,300 1,497,496 Innovative International Auto Parts & Equipment Holdings Warrants 31 Aug 99 (Hong Kong) 353,000 0 ----------- 6,228,680 Telecommunications--0.1% Sk Telecom Co. Ltd. (Korea) Telecommunications 130 $ 61,126
34 THE OAKMARK INTERNATIONAL SMALL CAP FUND
The Oakmark International Small Cap Fund Schedule of Investments--September 30, 1997 cont. ............................................................................................. Description Shares Held Market Value - --------------------------------------------------------------------------------------------- Common Stocks--93.4% (cont.) Pharmaceutical--4.7% Recordati (Italy) Pharmaceuticals 386,000 $ 3,083,706 Banks--0.1% Kookmin Bank (Korea) Korean Commercial Bank 6,795 $ 75,747 Shinhan Bank (Korea) Korean Commercial Bank 490 4,113 ----------- 79,860 Investment Companies--1.6% Direct Capital Partners Investment Fund for Unlisted Limited (New Zealand) New Zealand Companies 2,237,000 $ 1,031,856 Other Financial--9.5% Lambert Fenchurch Group plc Insurance Broker (Great Britain) 1,810,000 $ 3,677,468 JCG Holdings Ltd. Investment Holding Company (Hong Kong) 3,254,000 2,565,185 ----------- 6,242,653 Computer Systems--2.8% Solution 6 Holdings Ltd. Design Computer Systems/ (Australia), (a) (c) Consultants 3,437,500 $ 1,871,590 Marketing Services--3.8% Cordiant plc Global Advertising Agency (Great Britain) 1,275,000 $ 2,508,244 Broadcasting & Publishing--5.3% Matichon Public Company Newspaper Publisher Limited Foreign Shares (Thailand), (c) 1,409,900 $ 1,835,200 Woong Jin Publishing Publisher Company (Korea) 32,586 1,584,784 Matichon Public Company Newspaper Publisher Limited (Thailand), (c) 70,400 87,273 ----------- 3,507,257 Chemicals--3.4% European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands) 93,600 $ 2,210,320 Components--1.3% Barlo Group plc Manufacturer of Radiators (Ireland) and Industrial Plastics 1,085,000 $ 869,226
See accompanying notes to financial statements. The Oakmark International Small Cap Fund 35
The Oakmark International Small Cap Fund Schedule of Investments--September 30, 1997 cont. ............................................................................................. Description Shares Held Market Value - --------------------------------------------------------------------------------------------- Common Stocks--93.4% (cont.) Mining & Building Materials--3.0% Asia Cement Manufacturing Cement Manufacturer Company Ltd. (Korea) 36,150 $ 1,145,738 Parbury Limited (Australia) Building Products Manufacturer 1,984,032 835,379 ----------- 1,981,117 Other Industrial Goods & Services--13.4% Sanford Ltd. (New Zealand) Fisheries 1,284,040 $ 2,278,657 Yip's Hang Cheung Ltd. Paint Company (Hong Kong) 16,140,000 2,169,243 Wattyl Limited (Australia) Paint Company 355,138 1,808,297 Fukuda Denshi Medical Products Manufacturer (Japan) and Distributor 81,000 1,208,254 Techtronic Industries Manufactures Electric Company (Hong Kong) Hand Tools 4,684,000 1,168,276 Irce SpA (Italy) Wire Manufacturer 37,500 199,432 ----------- 8,832,159 Production Equipment--5.1% NSC Groupe (France) Manufacturer of Textile Equipment 14,284 $ 2,012,832 Danieli & Company (Italy) Steel Mini-Mills Equipment 360,300 1,346,311 ----------- 3,359,143 Steel--2.1% Steel & Tube Holdings Ltd. Produces and Distributes Steel (New Zealand) 257,700 $ 622,410 Steel & Tube Holdings LTD. Produces and Distributes Steel Deferred (New Zealand) 257,700 622,410 Pohang Iron & Steel Manufactures Steel Products Company Ltd. (Korea) 2,580 158,465 ----------- 1,403,285 Total Common Stocks (Cost: $62,783,913) 61,617,951
36 The Oakmark International Small Cap Fund
The Oakmark International Small Cap Fund Schedule of Investments--September 30, 1997 cont. ...................................................................................... Principal Value Market Value - -------------------------------------------------------------------------------------- Short Term Investments--7.1% Commercial Paper--5.3% American Express Credit Corporation, 5.56%-5.58% due 10/1/1997-10/6/1997 $1,000,000 $ 1,000,000 Ford Motor Credit Corp., 5.75%-6.15% due 10/1/1997-10/2/1997 1,000,000 1,000,000 General Electric Capital Corporation, 5.58%-6.38% due 10/1/1997-10/3/1997 1,500,000 1,500,000 ----------- Total Commercial Paper 3,500,000 Repurchase Agreements--1.8% State Street Repurchase Agreement, 5.95% due 10/1/1997 $1,177,000 $ 1,177,000 ----------- Total Repurchase Agreements 1,177,000 Total Short Term Investments (Cost: $4,677,000) 4,677,000 Total Investments (Cost $67,460,913)--100.5% (d) $66,294,951 Foreign Currencies (Proceeds $ (601,764))--(0.9)% (603,955) Other assets in excess of other liabilities--0.4% (b) 281,804 ----------- Total Net Assets--100% $65,972,800 ===========
(a) Non-income producing security. (b) Includes portfolio and transaction hedges. (c) See footnote number six in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At September 30, 1997, net unrealized depreciation of ($1,168,153) for federal income tax purposes consisted of gross unrealized appreciation of $4,684,962 and gross unrealized depreciation of $5,853,115. See accompanying notes to financial statements. The Oakmark International Small Cap Fund 37 The Oakmark Family of Funds Statement of Assets and Liabilities--September 30, 1997 ....................................................................
The Oakmark The Oakmark Fund Select Fund - ------------------------------------------------------------------------------------------------------------------- Assets Investments, at value $6,632,985,679 $523,916,068 (cost: $4,613,299,665) (cost: $436,240,901) Cash 886 91 Foreign currency, at value 0 0 Collateral for securities loaned, at value 0 0 Receivable for: Forward foreign currency contracts 0 0 Securities sold 24,858,028 0 Fund shares sold 19,285,029 8,833,204 Dividends and interest 9,034,583 184,529 -------------- ------------ Total receivables 53,177,640 9,017,733 Other assets 24,090 4,026 -------------- ------------ Total assets $6,686,188,295 $532,937,918 ============== ============ .................................................................................................................................... Liabilities and Net Assets Payable for: Cash overdraft $ 0 $ 0 Securities purchased 60,337,236 17,905,077 Collateral upon return of securities loaned, at value 0 0 Fund shares redeemed 4,725,323 251,084 Due to adviser 4,930,728 338,136 Forward foreign currency contracts 0 0 Other 1,246,380 269,049 -------------- ------------ Total liabilities 71,239,667 18,763,346 -------------- ------------ Net assets applicable to fund shares outstanding $6,614,948,628 $514,174,572 ============== ============ Fund shares outstanding 160,525,019 31,466,003 ============== ============ .................................................................................................................................... Price of Shares Net asset value per share $ 41.21 $ 16.34 ============== ============ .................................................................................................................................... Analysis of Net Assets Paid in capital $4,305,752,545 $421,675,856 Accumulated undistributed net realized gain on sale of investments, forward contracts and foreign currency exchange transactions 239,815,188 5,070,435 Net unrealized appreciation/depreciation of investments 2,019,686,014 87,675,167 Net unrealized appreciation of foreign currency portfolio hedges 0 0 Net unrealized appreciation -- other 0 0 Accumulated undistributed net investment income (loss) 49,694,881 (246,886) -------------- ------------ Net assets applicable to Fund shares outstanding $6,614,948,628 $514,174,572 ============== ============
38 The Oakmark Family of Funds
................................................................................................................. THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND INTERNATIONAL INTERNATIONAL SMALL CAP FUND INCOME FUND FUND SMALL CAP FUND - ----------------------------------------------------------------------------------------------------------------- $1,511,801,430 $33,856,971 $1,634,931,172 $66,294,951 (cost: $1,203,839,475) (cost: $28,398,735) (cost: $1,480,884,266) (cost: $67,460,913) 4,507,199 630 1,116,846 978 0 0 1,622,273 0 120,819,723 2,835,700 209,792,398 2,600,582 0 0 530,357 1,091 5,695,342 13,701 3,264,314 1,076,346 8,852,777 220,059 10,427,851 271,466 698,583 215,539 5,937,148 268,971 -------------- ----------- -------------- ----------- 15,246,702 449,299 20,159,670 1,617,874 8,260 4,570 7,260 4,789 -------------- ----------- -------------- ----------- $1,652,383,314 $37,147,170 $1,867,629,619 $70,519,174 ============== =========== ============== =========== ................................................................................................................. $ 0 $ 0 $ 0 $ 603,955 5,112,148 782,504 5,919,962 740,826 120,819,723 2,835,504 209,792,398 2,600,582 1,206,105 0 2,632,699 420,404 1,335,110 19,021 1,304,768 69,594 0 0 13,505 3,447 514,588 47,432 618,756 107,566 -------------- ----------- -------------- ----------- 138,987,674 3,684,657 220,282,088 4,546,374 -------------- ----------- -------------- ----------- $1,513,395,640 $33,462,513 $1,647,347,531 $65,972,800 ============== =========== ============== =========== 74,417,566 2,309,368 87,742,360 5,408,654 ============== =========== ============== =========== ................................................................................................................. $ 20.34 $ 14.49 $ 18.77 $ 12.20 ============== =========== ============== =========== ................................................................................................................. $1,161,135,817 $26,650,896 $1,230,460,601 $60,623,224 46,258,507 904,575 200,912,998 5,992,327 307,961,955 5,458,236 154,050,337 (1,168,153) 0 0 530,186 0 0 0 3,400 3,469 (1,960,639) 448,806 61,390,009 521,933 -------------- ----------- -------------- ----------- $1,513,395,640 $33,462,513 $1,647,347,531 $65,972,800 ============== =========== ============== ===========
See accompanying notes to financial statements. THE OAKMARK FAMILY OF FUNDS 39
The Oakmark Family of Funds Statement of Operations--September 30, 1997 ......................................................................................................................... The Oakmark Fund The Oakmark Select Fund Eleven Months Ended Year Ended Eleven Months Ended September 30, 1997 October 31, 1996 September 30, 1997 - ------------------------------------------------------------------------------------------------------------------------- Investment Income: Dividends $ 77,106,315 $ 69,419,537 $ 1,339,457 Interest Income 29,568,476 15,845,858 807,368 Securities lending income 0 0 24,860 Foreign taxes withheld (437,022) (284,360) 0 -------------- ------------- ----------- Total investment income 106,237,769 84,981,035 2,171,685 ......................................................................................................................... Expenses: Investment advisory fee 43,705,462 36,082,925 1,731,599 Transfer and dividend disbursing agent fees 2,928,155 4,398,544 199,956 Other shareholder servicing fees 1,330,861 726,744 92,245 Custodian and accounting fees 539,126 439,430 52,436 Reports to shareholders 986,143 836,558 32,350 Registration and blue sky expenses 560,527 573,243 246,615 Trustees fees 97,930 69,705 21,354 Legal fees 41,590 46,842 11,888 Audit fees 21,527 17,176 18,988 Amortization of organization cost 0 23,768 649 Other 182,088 213,020 13,185 -------------- ------------- ----------- Total expenses 50,393,409 43,427,955 2,421,265 Expense reimbursement 0 0 0 Expense offset arrangements (13,986) (15,263) (2,694) -------------- ------------- ----------- Net expenses 50,379,423 43,412,692 2,418,571 -------------- ------------- ----------- ......................................................................................................................... Net Investment Income (loss): 55,858,346 41,568,343 (246,886) ......................................................................................................................... Net realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain on investments 239,442,987 226,166,113 5,070,435 Net realized gain (loss) on foreign currency transactions (2,673) (12,777) 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 1,231,138,352 290,431,755 87,675,167 Net change in appreciation of forward currency exchange contracts 0 0 0 Net change in appreciation (depreciation)--other 0 0 0 -------------- ------------- ----------- ......................................................................................................................... Net realized and unrealized gain on investments and foreign currency transactions: 1,470,578,666 516,585,091 92,745,602 -------------- ------------- ----------- ......................................................................................................................... Net increase in net assets resulting from operations $1,526,437,012 $ 558,153,434 $92,498,716 ============== ============= =========== .........................................................................................................................
40 The Oakmark Family of Funds
................................................................................................................................ The Oakmark The Oakmark Equity and Small Cap Fund Income Fund Eleven Months Ended Year Ended Eleven Months Ended Year Ended September 30, 1997 October 31, 1996 September 30, 1997 October 31, 1996 - -------------------------------------------------------------------------------------------------------------------------------- Investment Income: Dividends $ 4,339,208 $ 930,817 $ 273,805 $ 118,500 Interest Income 3,154,500 302,068 488,081 261,357 Securities lending income 129,169 19,400 5,782 3,897 Foreign taxes withheld 0 0 0 0 ------------ ----------- --------- --------- Total investment income 7,622,877 1,252,285 767,668 383,754 ................................................................................................................................ Expenses: Investment advisory fee 7,705,828 956,809 140,973 69,005 Transfer and dividend disbursing agent fees 548,450 250,126 53,123 45,412 Other shareholder servicing fees 333,788 23,906 2,999 807 Custodian and accounting fees 125,794 36,616 38,753 23,552 Reports to shareholders 140,375 26,164 5,572 3,694 Registration and blue sky expenses 371,079 181,799 42,393 83,142 Trustees fees 32,359 13,688 21,778 12,749 Legal fees 16,048 10,970 8,595 10,285 Audit fees 16,733 21,034 17,477 20,075 Amortization of organization cost 1,333 1,457 1,333 0 Other 33,819 6,234 3,208 3,975 ------------ ----------- --------- --------- Total expenses 9,325,606 1,528,803 336,204 272,696 Expense reimbursement 0 0 (39,450) (14,245) Expense offset arrangements (18,290) (318) (830) (225) ------------ ----------- --------- --------- Net expenses 9,307,316 1,528,485 295,924 258,226 ------------ ----------- --------- --------- ................................................................................................................................ Net Investment Income (loss): (1,684,439) (276,200) 471,744 125,528 ................................................................................................................................ Net realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain (loss) on investments 46,501,798 (243,291) 904,824 161,939 Net realized gain (loss) on foreign currency transactions 0 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 287,859,202 20,102,753 4,554,518 903,718 Net change in appreciation of forward currency exchange contracts 0 0 0 0 Net change in appreciation (depreciation) --other 0 0 0 0 ------------ ----------- --------- --------- Net realized and unrealized gain on investments and foreign currency transactions: 334,361,000 19,859,46 5,459,342 1,065,657 ------------ ----------- --------- --------- ................................................................................................................................ Net increase in net assets resulting from operations $332,676,561 $19,583,262 $5,931,086 $1,191,185 ============ =========== ========== ==========
See accompanying notes to financial statements. The Oakmark Family of Funds 41 The Oakmark Family of Funds Statement of Operations--September 30, 1997 cont. ................................................................................
The Oakmark International Fund Eleven Months Year Ended Ended September 30, October 31, 1997 1996 - ------------------------------------------------------------------------------- Investment Income: Dividends $ 42,650,820 $ 29,460,152 Interest Income 3,977,499 1,708,929 Securities lending income 1,300,955 376,919 Foreign taxes withheld (3,703,472) (3,243,211) ------------ ------------ Total investment income 44,225,802 28,302,789 ................................................................................ Expenses: Investment advisory fee 13,040,702 10,113,272 Transfer and dividend disbursing agent fees 864,936 1,298,501 Other shareholder servicing fees 582,891 382,248 Custodian and accounting fees 1,482,615 1,306,439 Reports to shareholders 381,555 215,584 Registration and blue sky expenses 100,480 14,675 Trustees fees 42,602 28,936 Legal fees 17,155 19,589 Audit fees 24,851 22,047 Amortization of organization cost 8,394 9,516 Other 36,031 75,039 ------------ ------------ Total expenses 16,582,212 13,485,846 Expense reimbursement 0 0 Expense offset arrangements (22,793) (6,181) ------------ ------------ Net expenses 16,559,419 13,479,665 ------------ ------------ ................................................................................ Net Investment Income: 27,666,383 14,823,124 ................................................................................ Net realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain on investments 217,090,057 2,806,950 Net realized gain (loss) on foreign currency transactions 17,724,883 (1,017,660) Net change in unrealized appreciation of investments and foreign currencies 70,717,122 176,382,416 Net change in appreciation of forward currency exchange contracts 3,426,674 5,165,941 Net change in appreciation (depreciation)-- other 197,532 (363,425) ------------ ------------ ................................................................................ Net realized and unrealized gain on investments and foreign currency transactions: 309,156,268 182,974,222 ------------ ------------ ................................................................................ Net increase in net assets resulting from operations $336,822,651 $197,797,346 ============ ============
42 The Oakmark Family of Funds ............................................................................
The Oakmark International Small Cap Fund Eleven Months Ended Year Ended September 30, 1997 October 31, 1996 - ----------------------------------------------------------------------------- Investment Income: Dividends $1,640,601 $ 744,076 Interest Income 162,175 70,932 Securities lending income 25,268 5,649 Foreign taxes withheld (166,750) (70,675) ---------- ---------- Total investment income 1,661,294 749,982 ............................................................................ Expenses: Investment advisory fee 648,148 258,427 Transfer and dividend disbursing agent fees 84,030 93,991 Other shareholder servicing fees 20,211 4,347 Custodian and accounting fees 138,829 103,589 Legal fees 8,973 10,288 Audit fees 21,830 24,187 Trustees fees 22,456 12,970 Registration and blue sky expenses 45,799 112,215 Reports to shareholders 20,333 9,933 Amortization of organization cost 1,333 1,457 Other 4,128 3,297 ---------- ---------- Total expenses 1,016,070 634,701 ---------- ---------- Expense reimbursement 0 (35,441) Expense offset arrangements (824) (4,379) ---------- ---------- Net expenses 1,015,246 594,881 ---------- ---------- ............................................................................ Net Investment Income: 646,048 155,101 ............................................................................ Net realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain on investments 6,250,624 1,284,213 Net realized loss on foreign currency transactions (232,740) (24,656) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (1,464,546) 296,393 Net change in appreciation of forward currency exchange contracts 0 0 Net change in appreciation (depreciation)--other 5,257 (1,788) ---------- ---------- ............................................................................ Net realized and unrealized gain on investments and foreign currency transactions: 4,558,595 1,554,162 ---------- ---------- ............................................................................ Net increase in net assets resulting from operations $5,204,643 $1,709,263 ========== ==========
See accompanying notes to financial statements. The Oakmark Family of Funds 43 The Oakmark Family of Funds
Statement of Changes in Net Assets--September 30, 1997 ..................................................................................................... The Oakmark Fund Eleven Months Ended Year Ended Year Ended September 30, 1997 October 31, 1996 October 31, 1995 ----------------------------------------------------------------------------------------------------- From Operations: Net investment income $ 55,858,346 $ 41,568,343 $ 27,572,923 Net realized gain on sale of investments 239,442,987 226,166,113 87,157,237 Net realized loss on foreign currency transactions (2,673) (12,777) (37,102) Net change in unrealized appreciation 1,231,138,352 290,431,755 320,305,458 -------------- --------------- -------------- Net increase in net assets from operations 1,526,437,012 558,153,434 434,998,516 ..................................................................................................... Distribution to shareholders from (1): Net investment income (41,659,757) (29,455,748) (15,107,180) Net realized short-term gain (13,947,126) (4,354,309) (47,575,398) Net realized long-term gain (212,039,549) (82,805,333) (48,452,482) -------------- --------------- -------------- Total distributions to shareholders (267,646,432) (116,615,390) (111,135,060) ..................................................................................................... From Fund share transactions: Proceeds from shares sold 2,107,074,877 1,810,842,079 1,384,343,262 Reinvestment of dividends and capital gain distributions 256,384,877 110,976,647 106,504,973 Payments for shares redeemed (941,237,366) (1,256,490,130) (664,894,744) -------------- --------------- -------------- Net increase in net assets from Fund share transactions 1,422,222,388 665,328,596 825,953,491 -------------- --------------- -------------- ..................................................................................................... Total increase in net assets 2,681,012,968 1,106,866,640 1,149,816,947 Net assets: Beginning of period 3,933,935,660 2,827,069,020 1,677,252,073 -------------- --------------- -------------- End of period $6,614,948,628 $ 3,933,935,660 $2,827,069,020 ============== =============== ============== Undistributed net investment income $ 49,694,881 $ 35,496,292 $ 23,383,697 ============== =============== ============== (1): Distributions per share: Net investment income .3441 .2841 .2310 Net realized short-term gain .1152 .0420 .7277 Net realized long-term gain 1.7514 .7987 .7411 -------------- --------------- -------------- Total distributions to shareholders $ 2.2107 $ 1.1248 $ 1.6998
44 The Oakmark Family of Funds
............................................................................... The Oakmark Select Fund Eleven Months Ended September 30, 1997 - ------------------------------------------------------------------------------- From Operations: Net investment income (loss) $ (246,886) Net realized gain on sale of investments 5,070,435 Net change in unrealized appreciation 87,675,167 ------------ Net increase in net assets from operations 92,498,716 ............................................................................... Distribution to shareholders from: 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 571,117,746 Reinvestment of dividends and capital gain distributions 0 Payments for shares redeemed (149,441,890) ------------ Net increase in net assets from Fund share transactions 421,675,856 ------------ ............................................................................... Total increase in net assets 514,174,572 Net assets: Beginning of period 0 ------------ End of period $514,174,572 ============ Undistributed net investment loss $ (246,886) ============
See accompanying notes to financial statements. The Oakmark Family of Funds 45
The Oakmark Family of Funds Statement of Changes in Net Assets--September 30, 1997 cont. .................................................................................... The Oakmark Small Cap Fund Eleven Months Ended Year Ended September 30, 1997 October 31, 1996 - ------------------------------------------------------------------------------------ From Operations: Net investment loss $ (1,684,439) $ (276,200) Net realized gain on sale of investments 46,501,798 (243,291) Net change in unrealized appreciation 287,859,202 20,102,753 -------------- ------------ Net increase in net assets from operations 332,676,561 19,583,262 ................................................................................... Distribution to shareholders from: Net investment income 0 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0 -------------- ------------ Total distributions to shareholders 0 0 ................................................................................... From Fund share transactions: Proceeds from shares sold 1,289,718,462 224,762,208 Reinvestment of dividends and capital gain distributions 0 0 Payments for shares redeemed (327,419,790) (25,925,063) -------------- ------------ Net increase in net assets from Fund share transactions 962,298,672 198,837,145 -------------- ------------ ................................................................................... Total increase in net assets 1,294,975,233 218,420,407 Net assets: Beginning of period 218,420,407 0 -------------- ------------ End of period $1,513,395,640 $218,420,407 ============== ============ Undistributed net investment loss $ (1,960,639) $ (276,200) ============== ============
46 The Oakmark Family of Funds
................................................................................ The Oakmark Equity and Income Fund Eleven Months Ended Year Ended September 30, 1997 October 31, 1996 - ------------------------------------------------------------------------------- From Operations: Net investment income $ 471,744 $ 125,528 Net realized gain on sale of investments 904,824 161,939 Net change in unrealized appreciation 4,554,518 903,718 ----------- ----------- Net increase in net assets from operations 5,931,086 1,191,185 ............................................................................... Distribution to shareholders from:(1) Net investment income (148,466) 0 Net realized short-term gain (162,188) 0 Net realized long-term gain 0 0 ----------- ----------- Total distributions to shareholders (310,654) 0 ............................................................................... From Fund share transactions: Proceeds from shares sold 24,903,007 15,231,573 Reinvestment of dividends and capital gain distributions 288,850 0 Payments for shares redeemed (11,148,702) (2,623,832) ----------- ----------- Net increase in net assets from Fund share transactions 14,043,155 12,607,741 ----------- ----------- ............................................................................... Total increase in net assets 19,663,587 13,798,926 Net assets: Beginning of period 13,798,926 0 ----------- ----------- End of period $33,462,513 $13,798,926 =========== =========== Undistributed net investment income $ 448,806 $ 125,528 =========== =========== (1) Distributions per share: Net investment income .1202 0 Net realized short-term gain .1311 0 Net realized long-term gain 0 0 ----------- ----------- Total distributions to shareholders .2513 0
See accompanying notes to financial statements. The Oakmark Family of Funds 47 The Oakmark Family of Funds Statement of Changes in Net Assets--September 30, 1997 cont.
............................................................................................................................... The Oakmark International Fund Eleven Months Ended Year Ended Year Ended September 30, 1997 October 31, 1996 October 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------- From Operations: Net investment income $ 27,666,383 $ 14,823,124 $ 13,743,307 Net realized gain on sale of investments 217,090,057 2,806,950 62,822,164 Net realized gain (loss) on foreign currency transactions 17,724,883 (1,017,660) (26,735,730) Net change in unrealized appreciation (depreciation) 70,717,122 176,382,416 (120,637,092) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 3,426,674 5,165,941 17,767,564 Net change in unrealized appreciation (depreciation) -other 197,532 (363,425) (20,391) -------------- -------------- -------------- Net increase (decrease) in net assets from operations 336,822,651 197,797,346 (53,060,178) ............................................................................................................................... Distribution to shareholders from (1): Net investment income (12,477,945) 0 0 Net realized short-term gain 0 (29,886,815) (56,722,392) Net realized long-term gain 0 (32,229,556) (30,791,949) -------------- -------------- -------------- Total distributions to shareholders (12,477,945) (62,116,371) (87,514,341) ............................................................................................................................... From Fund share transactions: Proceeds from shares sold 710,447,882 563,952,538 312,101,705 Reinvestment of dividends and capital gain distributions 11,903,359 57,852,161 81,810,540 Payments for shares redeemed (572,115,610) (404,450,022) (719,598,750) -------------- -------------- -------------- Net increase in net assets from Fund share transactions 150,235,631 217,354,677 (325,686,505) -------------- -------------- -------------- ............................................................................................................................... Total increase (decrease) in net assets 474,580,337 353,035,652 (466,261,024) Net assets: Beginning of period 1,172,767,194 819,731,542 1,285,992,566 -------------- -------------- -------------- End of period $1,647,347,531 $1,172,767,194 $ 819,731,542 ============== ============== ============== Undistributed net investment income $ 61,390,009 $ 46,201,571 $ 31,378,447 ============== ============== ============== (1): Distributions per share: Net investment income .1617 0 0 Net realized short-term gain 0 .5020 .6863 Net realized long-term gain 0 .5413 .3725 -------------- -------------- -------------- Total distributions to shareholders $ .1617 $ 1.0433 $ 1.0588
48 The Oakmark Family of Funds
.................................................................................................................................... The Oakmark International Small Cap Fund Eleven Months Ended Year Ended September 30, 1997 October 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------------ From Operations: Net investment income $ 646,048 $ 155,101 Net realized gain on sale of investments 6,250,624 1,284,213 Net realized loss on foreign currency transactions (232,740) (24,656) Net change in unrealized appreciation (depreciation) (1,464,546) 296,393 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation) --other 5,257 (1,788) --------------- -------------- Net increase (decrease) in net assets from operations 5,204,643 1,709,263 .................................................................................................................................... Distribution to shareholders from (1): Net investment income (279,216) 0 Net realized short-term gain (1,285,114) 0 Net realized long-term gain 0 0 --------------- -------------- Total distributions to shareholders (1,564,330) 0 .................................................................................................................................... From Fund share transactions: Proceeds from shares sold 63,012,100 43,181,467 Reinvestment of dividends and capital gain distributions 1,523,977 0 Payments for shares redeemed (41,955,631) (5,138,689) --------------- -------------- Net increase in net assets from Fund share transactions 22,580,446 38,042,778 --------------- -------------- .................................................................................................................................... Total increase in net assets 26,220,759 39,752,041 Net assets: Beginning of period 39,752,041 0 --------------- -------------- End of period $ 65,972,800 $ 39,752,041 =============== ============== Undistributed net investment income $ 521,933 $ 155,101 =============== ============== (1): Distributions per share: Net investment income .0777 0 Net realized short-term gain .3581 0 Net realized long-term gain 0 0 --------------- -------------- Total distributions to shareholders $ .4358 0
See accompanying notes to financial statements. The Oakmark Family of Funds 49 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 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). The International Small Cap Fund was named The Oakmark International Emerging Value Fund prior to March 1, 1997. The Oakmark Equity and Income Fund was named The Oakmark Balanced Fund prior to July 15, 1997. 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 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 of 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 or losses 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, 1997, only the International and Int'l Small Cap Funds had foreign currency transactions. "Net unrealized appreciation (depreciation)-- other" includes the following components:
International International Small Cap Unrealized depreciation on dividends and dividend reclaims receivable $ (4,642) $ (996) Unrealized appreciation (depreciation) on open securities purchases and sales 19,690 6,723 Unrealized depreciation on transaction hedge purchases and sales (13,334) (2,356) Other--net 1,686 98 -------- ------- Net Unrealized Appreciation (Depreciation)--Other $ 3,400 $ 3,469 ======== =======
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, 1997, 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. 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. 50 The Oakmark Family of Funds The International Fund had the following outstanding contracts at September 30, 1997:
Portfolio Hedges: Unrealized Settlement Appreciation at US Dollars Purchased Foreign Currency Sold Date September 30, 1997 ------------------------------------------------------------------------------------------------------- $30,000,000 18,426,387 Pounds Sterling October 1997 $316,838 20,000,000 12,383,901 Pounds Sterling November 1997 58,837 14,997,879 9,217,156 Pounds Sterling November 1997 135,963 7,464,750 4,625,000 Pounds Sterling November 1997 18,548 -------- $530,186 ========
Transaction Hedges: Foreign Currency Purchases:
Unrealized Appreciation Settlement (Depreciation) at US Dollars Sold Foreign Currency Purchased Date September 30, 1997 ------------------------------------------------------------------------------------------------------- $ 192,069 279,595 Swiss Franc October 1997 $ 171 1,029,979 124,143,318 Japanese Yen October 1997 (1,195) 28,285 86,270 Malaysian Ringgit October 1997 (1,693) -------- $ (2,717) ========
Foreign Currency Sales:
Unrealized Appreciation Settlement Depreciation at US Dollars Purchased Foreign Currency Sold Date September 30, 1997 ------------------------------------------------------------------------------------------------------- $ 799,022 1,107,753 Australian Dollar October 1997 $ (5,151) 1,594,860 2,203,150 Australian Dollar October 1997 (4,517) 269,253 372,205 Australian Dollar October 1997 (949) -------- $(10,617) ========
The Int'l Small Cap Fund had the following outstanding transaction hedges on purchases of securities: Foreign Currency Purchases at September 30, 1997:
Unrealized Appreciation Settlement (Depreciation) at US Dollars Sold Foreign Currency Purchased Date September 30, 1997 ------------------------------------------------------------------------------------------------------- $100,994 140,016 Australian Dollar October 1997 $ 651 11,092 15,323 Australian Dollar October 1997 31 18,010 24,897 Australian Dollar October 1997 64 9,076 12,622 Australian Dollar October 1997 86 3,731 5,148 Australian Dollar October 1997 6 251,514 154,303 Pounds Sterling October 1997 (2,700) 18,030 139,520 Hong Kong Dollar October 1997 - 54,596 93,905,875 Italian Lira October 1997 (195) 9,393 1,132,170 Japanese Yen October 1997 (11) 34,836 4,209,573 Japanese Yen October 1997 49 23,965 2,896,680 Japanese Yen October 1997 40 23,192 2,809,215 Japanese Yen October 1997 88 19,973 2,419,280 Japanese Yen October 1997 76 15,814 526,908 Philippine Peso October 1997 (541) -------- $(2,356) =======
At September 30, 1997, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. The Oakmark Family of Funds 51 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. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The Funds receive income from lending securities by investing the collateral and continue to earn income on the loaned securities. Security loans are subject to the risk of failure by the borrower to return the loaned securities in which case the Funds could incur a loss. The market values (in thousands) of securities on loan to broker-dealers at September 30, 1997 are shown below.
Int'l Equity & Small Select Small Cap Income International Cap - -------------------------------------------------------------------------------- Market Value of Securities Loaned 0 $115,444 $2,758 $200,605 $1,874 Collateral (Cash and U.S. Treasuries) 0 120,820 2,836 209,792 2,601
Federal income taxes, dividends and distributions to shareholders-- No provision is made for Federal income taxes since 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. 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 and .85% on the excess of $5 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 as determined at the end of each calendar month. Select pays 1% of net assets, Small Cap pays 1.25% of net assets, Equity and Income pays .75% of net assets and Int'l Small Cap pays 1.25% 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 through Oct. 31, 1998 to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.50% for domestic funds and 2.0% for international funds. For the eleven months ended September 30, 1997 the Adviser has waived $39,450 of expenses for Equity and Income. Beginning October 1, 1997, Small Cap will pay 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million of net assets, 1.1% on the next $500 million of net assets, 1.05% on the next $500 million of net assets and 1.0% on the excess of $2.5 billion. Select will pay 1% on the first $1 billion of net assets, .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million and .80% on the excess of $2.5 billion. In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International, approximately $7,283 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. Oakmark and International have fully amortized all organization expenses. Registration expenses of approximately $62,282, $56,751, $56,811 and $56,726 were advanced to Select, Small Cap, Equity and Income and Int'l Small Cap, respectively, by the Adviser. Registration expenses have been fully amortized for all funds. During the eleven months ended September 30, 1997, the Funds incurred brokerage commissions of $3,094,186, $750,698, $1,906,448, $24,588, $5,319,725 and $332,214 of which $997,845, $341,805, $401,345, $15,611, $9,732, and $732 were paid by Oakmark, Select, Small Cap, Equity and Income, International and Int'l Small Cap, respectively, to an affiliate of the Adviser. 52 The Oakmark Family of Funds 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):
Eleven Months Ended September 30, 1997 ----------------------------------------------------------------------------- Equity & Int'l Small Oakmark Select Small Cap Income International Cap ---------------------------------------------------------------------------------------------------------------------- Shares sold 57,226 45,529 78,065 1,941 41,288 5,229 Shares issued in reinvestment of dividends 7,962 0 0 25 793 135 Less shares redeemed (26,115) (11,063) (20,201) (880) (32,946) (3,438) ------- ------- ------- ----- ------- ------ Net increase in shares outstanding 39,073 31,466 57,864 1,086 9,135 1,926 ======= ======= ======= ===== ======= ======
Year Ended October 31, 1996 ----------------------------------------------------------------- Equity & Int'l Small Oakmark Small Cap Income International Cap ---------------------------------------------------------------------------------------------------------------------- Shares sold 59,070 18,656 1,466 39,590 3,943 Shares issued in reinvestment of dividends 3,733 0 0 4,757 0 Less shares redeemed (40,632) (2,102) (244) (28,966) (460) ------- ------- ----- ------- ------ Net increase in shares outstanding 22,171 16,554 1,222 15,381 3,483 ======= ======= ===== ======= ======
4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
Int'l Equity & Small Oakmark Select Small Cap Income International Cap ----------------------------------------------------------------------------------------- Purchases $1,469,998 $474,370 $1,033,683 $24,488 $977,409 $52,411 Proceeds from sales 782,546 91,543 185,180 10,736 828,231 33,879
5. SHORT TERM BORROWINGS To facilitate portfolio liquidity, the Funds maintain credit arrangements under which they can borrow against portfolio securities for temporary purposes. During the eleven months ended September 30, 1997, bank borrowing activity was as follows:
Average Debt Maximum Amount Debt Outstanding at Weighted Average Outstanding During Period Outstanding During Period End of Period Interest Rate (in thousands) (in thousands) .................................................................................................................. Select $0 6.217% $126 $10,000 Small Cap $0 6.318% $198 $19,000 Equity and Income $0 6.215% $ 6 $ 1,000
The Oakmark Family of Funds 53 THE OAKMARK FAMILY OF FUNDS Notes to Financial Statements (cont.) ...................................................................... 6. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS An affiliated issuer, as defined under the Investment Company Act of 1940, is a company in which a Fund holds 5% or more of the voting securities. A summary of the Funds' transactions in the securities of these issuers during the eleven months ended September 30, 1997 is set forth below: Summary of Transactions with Affiliated Companies The Oakmark Fund
Market Purchases Sales Dividend Value Affiliates (Cost) (Proceeds) Income September 30, 1997 ........................................................................................................................ AC Nielsen Corporation $ 53,012,045 - - $ 114,336,000 AMBAC, Inc. - - $1,481,558 178,609,988 The Black & Decker Corporation 102,620,969 - - 262,023,950 Carson Pirie Scott & Company - - - 39,437,500 GC Companies, Inc. - $ 3,470,984 - 17,071,000 Juno Lighting, Incorporated 3,150,000 - 315,200 18,580,625 Knight Ridder 12,090,376 - 2,694,520 254,006,250 Polaroid Corporation 61,073,274 - 2,333,100 221,744,250 SPX Corporation 3,529,357 7,846,953 184,830 51,308,600 ------------ ----------- ---------- -------------- Totals 235,476,021 11,317,937 7,009,208 1,157,118,163 Summary of Transactions with Affiliated Companies The Oakmark Small Cap Fund Market Purchases Sales Dividend Value Affiliates (Cost) (Proceeds) Income September 30, 1997 ........................................................................................................................ Ascent Entertainment Group, Inc. $ 19,424,991 - - $ 18,975,000 Atchison Casting Corporation 11,239,014 - - 15,096,000 Binks Sames Corporation 9,915,025 - $ 21,890 10,728,840 Castle & Cooke, Inc. 20,176,090 $ 82,277 - 28,260,000 The Carbide/Graphite Group, Inc. 11,684,094 1,338,080 - 27,200,000 Chartwell Re Corporation 20,014,224 1,612,626 80,000 31,950,000 Cole National Corporation 32,221,622 2,206,998 - 41,562,500 Columbus McKinnon Corporation 14,353,240 - 112,658 21,220,500 Duff & Phelps Credit Rating Company 1,118,438 - 33,813 9,497,600 Gardner Denver Machinery, Inc. 9,996,693 - - 30,318,750 Highlands Insurance Group, Inc. 18,094,744 1,631,001 - 26,812,500 International Multifoods Corporation 25,688,035 - 206,400 30,637,500 MagneTek, Inc. 37,698,978 4,508,884 - 53,700,000 NVR Inc. 14,311,318 1,323,089 - 26,000,000 Northwest Pipe Company 5,238,250 - - 14,040,000 Pocahontas Federal Savings and Loan Assn. - - 123,900 4,620,000 PXRE Corporation 32,976,461 - 346,500 37,433,125 Ralcorp Holdings, Inc. 28,831,676 1,529,949 45,100 56,062,500 RenaissanceRe Holdings 45,105,022 17,344 591,825 62,470,337 Barry (R.G.) Corporation 7,448,617 - - 8,278,594 Savings Bank of the Finger Lakes 114,375 - 27,450 2,256,000 Scotsman Industries, Inc. 27,930,792 386,712 64,618 27,037,500 SPX Corporation 25,821,828 5,209,408 123,500 52,762,500
54 The Oakmark Family of Funds
Market Purchases Sales Dividend Value Affiliates (Cost) (Proceeds) Income September 30, 1997 ..................................................................................................... TCI Satellite Entertainment, Inc. $ 34,421,429 $ 1,934,316 - $ 28,737,500 Titan Exploration, Inc. 33,215,790 - - 36,000,000 Triarc Companies, Inc. 25,298,057 824,097 - 33,216,312 Zurn Industries, Inc. 12,045,748 - $ 196,670 23,614,250 ------------ ----------- ---------- ------------ Totals 524,384,551 22,604,781 1,974,324 758,487,808
Summary of Transactions with Affiliated Companies The Oakmark International Fund
Market Purchases Sales Dividend Value Affiliates (Cost) (Proceeds) Income September 30, 1997 ..................................................................................................... Fernz Corporation Ltd. $ 38,924,697 - $ 792,093 $ 40,171,130 Varitronix International Limited 13,005,765 - 869,801 29,165,831 Hong Kong Aircraft Engineering Company 6,144,747 - 947,202 30,883,574 Giordano International Limited 17,975,935 $ 1,498,722 835,744 26,656,113 Lamex Holdings Ltd. - - 63,447 4,808,219 Chargeurs International Sa 17,210,972 - 1,088,845 44,587,497 European Vinyls Corporation Intl. NV 12,063,518 - 1,856,537 32,957,974 Cordiant LPC 18,888,229 4,256,573 677,913 75,906,653 Sedgwick Group PLC 64,593,626 - 1,550,384 65,759,770 Quilmes Industrial SA 61,379,416 2,399,479 908,562 80,471,350 BYC Co. Ltd. 611,730 182,663 27,752 3,686,743 Keumkang Ltd. 11,139,897 - 150,450 16,327,869 Fila Holding S.p.A. 57,218,278 - 116,960 50,848,875 ------------ ----------- ---------- ------------ Totals 319,156,810 8,337,437 9,885,690 502,231,598
Summary of Transactions with Affiliated Companies The Oakmark International Small Cap Fund
Market Purchases Sales Dividend Value Affiliates (Cost) (Proceeds) Income September 30, 1997 ..................................................................................................... Designer Textiles (NZ) Limited $ 1,768,118 - $ 112,978 $ 1,498,096 Matichon Public Company Limited 2,799,560 - - 1,835,200 Solution 6 Holdings Ltd. 1,569,845 - - 1,871,590 ------------ ----------- ---------- ------------ Totals 6,137,523 - 112,978 5,204,886
The Oakmark Family of Funds 55 THE OAKMARK FUND Financial Highlights ................................................................................ For a share outstanding throughout each period
Eleven Year Ended October 31, Period Ended Months Ended --------------------------------------------------- October 31, September 30, 1997 1996 1995 1994 1993 1992 1991(a) - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.36 0.34 0.30 0.27 0.17 (0.03) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 10.67 4.70 4.66 1.76 7.15 5.04 2.11 -------- -------- -------- -------- -------- ------- ------ Total From Investment Operations 11.03 5.04 4.96 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.34) (0.28) (0.23) (0.23) (0.04) -- -- Distributions (from capital gains) (1.87) (0.84) (1.47) (0.77) (0.21) -- -- -------- -------- -------- -------- -------- ------- ------ Total Distributions (2.21) (1.12) (1.70) (1.00) (0.25) -- -- -------- -------- -------- -------- -------- ------- ------ Net Asset Value, End of Period $ 41.21 $ 32.29 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 ======== ======== ======== ======== ======== ======= ====== Total Return 39.24%* 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $6,614.9 $3,933.9 $2,827.1 $1,677.3 $1,107.0 $ 114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.08%* 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets 1.19%* 1.13% 1.27% 1.19% 0.94% (0.24)% (0.66)%(b)* Portfolio Turnover Rate 17.3% 23.7% 18.0% 29.3% 18.0% 34.0% 0.0% Average Brokerage Commission Paid $ 0.0537 $ 0.0530 n/a n/a n/a n/a n/a *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, the annualized ratio of expenses to average net asset would have been 4.92% and the annualized ratio of net income (loss) to average net assets would have been (3.08%). 56 The Oakmark Family Of Funds THE OAKMARK SELECT FUND Financial Highlights ................................................................................ For a share outstanding throughout the period
Eleven Months Ended September 30, 1997 - -------------------------------------------------------------------------------- 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) 6.35 ------- Total From Investment Operations 6.34 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 $ 16.34 ======= Total Return 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $514.17 Ratio of Expenses to Average Net Assets 1.12%* Ratio of Net Income (Loss) to Average Net Assets (0.11%)* Portfolio Turnover Rate 36.93% Average Commission Rate Paid $ .0573
*Data has been annualized. See accompanying notes to financial statements. THE OAKMARK FAMILY OF FUNDS 57 The Oakmark Small Cap Fund Financial Highlights ................................................................................ For a share outstanding throughout each period
Eleven Year Ended Months Ended October 31, September 30, 1997 1996 - --------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) 7.16 3.21 -------- ------- Total From Investment Operations 7.15 3.19 Less Distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) 0.00 0.00 -------- ------- Total Distributions 0.00 0.00 -------- ------- Net Asset Value, End of Period $ 20.34 $ 13.19 ======== ======= Total Return 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,513.4 $ 218.4 Ratio of Expenses to Average Net Assets 1.37%* 1.61% Ratio of Net Income (Loss) to Average Net Assets (0.25%)* (0.29%) Portfolio Turnover Rate 26.88% 23.15% Average Commission Rate Paid $ 0.0482 $0.0520 *Data has been annualized.
58 The Oakmark Family of Funds The Oakmark Equity and Income Fund Financial Highlights ................................................................................ For a share outstanding throughout each period
Eleven Months Year Ended Ended September 30, 1997 October 31, 1996 - ----------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 11.29 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 3.24 1.19 ------- ------- Total From Investment Operations 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.12) 0.00 Distributions (from capital gains) (0.13) 0.00 ------- ------- Total Distributions (0.25) 0.00 ------- ------- Net Asset Value, End of Period $ 14.49 $ 11.29 ======= ======= Total Return 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 33.46 $ 13.8 Ratio of Expenses to Average Net Assets (a) 1.50%* 2.50% Ratio of Net Income (Loss) to Average Net Assets (a) 2.38%* 1.21% Portfolio Turnover Rate 52.82% 66.35% Average Commission Rate Paid $0.0554 $0.0581 *Data has been annualized.
(a) If the fund paid all of its expenses and there had been no expense reimbursement by the investment adviser, for the period ended September 30, 1997 and the year ended October 31, 1996, the ratios of expenses to average net assets would have been 1.70%* and 2.64% respectively, and the ratios of net income to average net assets would have been 2.18%* and 1.08% respectively. See accompanying notes to financial statements. The Oakmark Family of Funds 59 The Oakmark International Fund Financial Highlights ................................................................................ For a share outstanding throughout each period
Eleven Year Ended October 31, Period Ended Months Ended ------------------------------------------- October 31, September 30, 1997 1996 1995 1994 1993 1992(a) - ---------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.27 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) 3.74 2.90 (0.77) 0.43 4.48 (0.46) -------- -------- ------- -------- ------ ---------- Total From Investment Operations 4.01 2.99 (0.47) 0.64 4.54 (0.20) Less Distributions: Dividends (from net investment income) (0.16) 0.00 0.00 (0.08) (0.25) -- Distributions (from capital gains) 0.00 (1.04) (1.06) (0.15) N -- -------- -------- ------- -------- ------ ---------- Total Distributions (0.16) (1.04) (1.06) (0.23) (0.25) -- -------- -------- ------- -------- ------ ---------- Net Asset Value, End of Period $ 18.77 $ 14.92 $ 12.97 $ 14.50 $14.09 $ 9.80 ======== ======== ======= ======== ====== ========== Total Return 29.63%* 24.90% (3.06)% 4.62% 47.49% (22.81%)* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $1,647.3 $1,172.8 $ 819.7 $1,286.0 $815.4 $ 23.5 Ratio of Expenses to Average Net Assets 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income (Loss) to Average Net Assets 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 61.28% 41.83% 26.49% 55.00% 21.00% 0% Average Commission Rate Paid $ 0.0052 $ 0.0158 n/a n/a n/a n/a *Data has been annualized.
(a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. 60 The Oakmark Family of Funds The Oakmark International Small Cap Fund Financial Highlights ................................................................................ For a share outstanding throughout each period
Eleven Year Months Ended Ended September 30, 1997 October 31, 1996 - --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 11.41 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) 1.10 1.37 -------- -------- Total From Investment Operations 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.08) 0.00 Distributions (from capital gains) (0.36) 0.00 -------- -------- Total Distributions (0.44) 0.00 -------- -------- Net Asset Value, End of Period $ 12.20 $ 11.41 ======== ======== Total Return 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 65.97 $ 39.80 Ratio of Expenses to Average Net Assets 1.93%* 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 1.23%* 0.65%(a) Portfolio Turnover Rate 62.63% 27.44% Average Commission Rate Paid $ 0.0025 $ 0.0036
*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 ratio of expenses to average net assets would have been 2.65% and the ratio of net income to average net assets would have been .50%. See accompanying notes to financial statements. The Oakmark Family of Funds 61 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 International Fund, and The Oakmark International Small Cap Fund (each a series of Harris Associates Investment Trust), including the schedules of investments on pages 6-8, 11-12, 15-17, 20- 23, 27-30 and 34-37, as of September 30, 1997, 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, 1997, 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 International Fund, and The Oakmark International Small Cap Fund of the Harris Associates Investment Trust as of September 30, 1997, the results of their operations, the changes in their net assets, and the financial highlights for the periods indicated thereon in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois October 24, 1997 62 The Oakmark Family of Funds The Oakmark Family Of Funds Trustees and Officers ........................................................................... Trustees Michael J. Friduss Thomas H. Hayden Christine M. Maki Victor A. Morgenstern Allan J. Reich Marv Rotter Burton W. Ruder Peter S. Voss Gary Wilner, M.D. Officers Victor A. Morgenstern--Chairman Robert M. Levy--President Robert J. Sanborn--Executive Vice President David G. Herro--Vice President Clyde S. McGregor--Vice President William C. Nygren--Vice President Steven J. Reid--Vice President Michael J. Welsh--Vice President Donald Terao--Vice President--Finance Anita M. Nagler--Secretary Ann W. Regan--Vice President-- Shareholder Operations and Assistant Secretary Kristi L. Rowsell--Treasurer Other Information Investment Adviser Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602-3790 Transfer Agent State Street Bank and Trust Company Attention: The Oakmark Family of Funds P.O. Box 8510 Boston, Massachusetts 02266-8510 Legal Counsel Bell, Boyd & Lloyd Chicago, Illinois Independent Public Accountants Arthur Andersen LLP Chicago, Illinois For More Information: Please call 1-800-OAKMARK (1-800-625-6275) Website www.oakmark.com 24-hour NAV hotline 1-800-GROWOAK (1-800-476-9625) This report, including the audited financial statements contained herein, is submitted for the general information of the shareholders of the Funds. The report is not authorized for distribution to prospective investors in the Funds unless it is accompanied or preceded by a currently effective prospectus of the Funds. No sales charge to the shareholder or to the new investor is made in offering the shares of the Funds. [LOGO OF OAKMARK FAMILY OF FUNDS] HARRIS ASSOCIATES L.P. 2 NORTH LASALLE STREET CHICAGO, IL 60602-3790 -----END PRIVACY-ENHANCED MESSAGE-----