-----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, KPyMM5QiBn18Rk17SZ0k/vOruNxJqKCQnjGSA8RUxxjFERoGX/hPtv1c8eNhkohB ThcDHY8u6QeHvl0P45mudw== 0000950131-95-003549.txt : 19951220 0000950131-95-003549.hdr.sgml : 19951220 ACCESSION NUMBER: 0000950131-95-003549 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951219 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: 1940 Act SEC FILE NUMBER: 811-06279 FILM NUMBER: 95602685 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 ANNUAL REPORT DATED 10/31/95 [LOGO OF THE OAKMARK FUND] The Oakmark Family of Funds The Oakmark Fund ANNUAL REPORT ---------------------- October 31, 1995 ---------------------- The Oakmark International Fund MEMBER OF ================ NO LOAD 100% MUTUAL FUND COUNCIL ================ No-Load Funds Managed by Harris Associates L.P. [OAKMARK LOGO] The Oakmark Family of Funds
1995 Annual Report Table of Contents Letter from the President..................... 1 The Oakmark Funds Summary..................... 2 The Oakmark Fund Performance Chart.......................... 3 Letter from the Fund Manager............... 3 Financial Statements....................... 8 The Oakmark International Fund Performance Chart.......................... 18 Letter from the Fund Manager............... 18 Financial Statements....................... 22 Report of Independent Public Accountants...... 36 Trustees and Officers......................... 37 Other Important Information................... 37
Questions About Your Account? Call 1-800-626-9392 Fellow Shareholders: We are pleased to present the combined annual reports for the Oakmark Family of Funds. The current report contains the fiscal 1995 information for the Oakmark and Oakmark International Funds. Subsequent annual reports will include the newly launched Oakmark Small Cap, Balanced and International Emerging Value Funds. These new Funds were available November 1, 1995. For the fourth quarter ended October 31, 1995 and the year as a whole, the U.S. stock market was the place to be. Oakmark Fund's returns continued to be robust, up 4.9%* in the quarter, even without participation in the technology sector. In contrast, the money flows out of foreign stocks created a challenging environment in which the Oakmark International Fund lost (5.5)%*. This decline has created some of the most compelling values we have witnessed and the performance of Oakmark International in the month following the quarter-end has us cautiously optimistic (up 3.2% from 10/31/95 to 11/29/95). 'Tis the season for holiday cheer and investment decisions! For those of you thinking about your 1995 IRA contributions, remember these contributions can be made until April 15, 1996. From all of us at The Oakmark Family of Funds, we wish you a happy, healthy and prosperous new year! Sincerely, LOGO VICTOR A. MORGENSTERN President *The Oakmark Fund's average annual total return for the twelve months ended September 30, 1995 and for the period August 5, 1991 (inception) through September 30, 1995 was 23.2% and 33.1% respectively. The Oakmark International Fund's average annual total return for the twelve months ended September 30, 1995 and for the period September 30, 1992 (inception) through September 30, 1995 was 1.5% and 15.8% respectively. The Funds' past performance is no guarantee of future results. Share prices and investment returns will vary, so you may have a gain or loss when you sell shares. THE OAKMARK FUNDS SUMMARY ANNUALIZED PERFORMANCE FOR PERIOD ENDED OCTOBER 31, 1995
Since 3 mo. 6 mo. 1 Year 3 Years Inception - --------------------------------------------------------------------------- The Oakmark Fund 4.9 % 12.3% 21.55 % 23.70% 32.00%(1) The Oakmark International Fund (5.5)% 1.8% (3.06)% 14.40% 13.20%(2)
(1) Inception Date was August 5, 1991 (2) Inception Date was September 30, 1992 TOP FIVE HOLDINGS AND TOP FIVE INDUSTRIES AS OF OCTOBER 31, 1995 THE OAKMARK FUND
Company % of Total Net Assets - ------------------------------------------------------ Phillip Morris Companies, Inc. 6.30% Mellon Bank Corporation 6.04% Lockheed Martin Corporation 5.67% First USA, Inc. 4.30% Anheuser-Busch Companies, Inc. 3.90% Industry % of Fund - ------------------------------------------------------ Food & Beverage 16.10% Other Consumer Goods & Services 11.30% Broadcasting & Publishing 9.40% Other Financial 8.80% Aerospace & Defense 8.20%
THE OAKMARK INTERNATIONAL FUND
Company % of Total Net Assets - -------------------------------------------------------- Lion Nathan Limited (New Zealand) 5.00% Kvaerner (Norway) 4.62% AB Volvo (Sweden) 4.24% YPF Sociedad Anonima (Argentina) 3.61% Cordiant PLC (Great Britain) 3.59% Industry % of Fund - -------------------------------------------------------- Banks 13.70% Other Industrial Goods & Services 9.40% Food 7.50% Aerospace 7.40% Transportation 5.80%
Past performance is no guarantee of future performance. 2 THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (10/31/95) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX. [GRAPH APPEARS HERE]
Measurement Period (Fiscal Year Covered) OAKMARK FUND S&P 500 - ---------------=----- ------------ ------- Measurement Pt- 08/05/91 $10,000 $10,000 10/31/91 $12,100 $10,201 $13,910 $10,719 $14,660 $10,946 $15,910 $11,279 10/31/92 $17,110 $11,216 $19,913 $11,857 $20,136 $11,957 $22,052 $12,276 10/31/93 $24,504 $12,892 $25,648 $13,372 $24,855 $12,593 $25,321 $12,896 10/31/94 $26,653 $13,401 $26,480 $13,444 $28,869 $14,803 $30,883 $16,263 10/31/95 $32,397 $16,931
10/31/95 NAV $28.47
Average Annual Total Return* Through 10/31/95 --------------------------------- Total Return* Total Return* From Fund Inception Last 3 mos. Last 6 mos. From 10/31/94 8/5/91 ------------- ------------- ------------- ------------------- THE OAKMARK FUND 4.9% 12.3% 21.6% 32.0% Standard & Poor's 500 Stock Index* 4.1% 14.4% 26.3% 13.2% Dow-Jones Industrial Average* 1.6% 11.4% 24.8% 14.4% Value Line Composite Index* (1.8)% 6.6% 10.1% 6.6%
REPORT FROM ROBERT J. SANBORN, PORTFOLIO MANAGER Dear Fellow Shareholders: The Oakmark Fund's fiscal year ended October 31, 1995 was a good one. The most significant macroeconomic factor in the strong performance of equities was the dramatic decline in long-term interest rates, driven by continued low levels of inflation. This is confirmed by the price action of the planet's two most important commodities--gold and oil--both of which declined in price over the year. While our Fund generated large absolute returns, its performance lagged behind that of the Standard and Poor's 500. (As Dickens wrote, *Total return includes change in share prices and in each case included 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 performance. LOGO 3 "It was the best of times, it was the worst of times.") This relative underperformance is due to our Fund's lack of high technology holdings. These sectors were among the best-performing in the market during the past year; software, semiconductor, and biotechnology stocks were up an average of fifty- five (!) percent in the past twelve months. As I indicated in my letter last quarter, these stocks do not meet our investment criteria. The companies in our portfolio generally experienced very good business results in the past year. Of our top twenty holdings of a year ago, only one had results that were significantly less than our expectations. Despite the strong performance of our Fund, lower interest rates and the growth in underlying value of our holdings lead me to conclude that the value in our Fund is as good today as it was a year ago. As I have written before, we spend our time monitoring and analyzing the businesses of which all of us are part owners, not in trying to anticipate stock price changes. Two large sectors--consumer brands and financial services-- constitute almost half of our Fund's value. Our larger consumer brand stocks--Philip Morris, Knight Ridder, Anheuser-Busch, Black & Decker, American Brands, Heinz--are all very high-quality, high-return, high-barrier-to-entry businesses with dominant market positions, very loyal end-users, and (to varying degrees) tremendous international opportunities. These companies are prime beneficiaries of the unfolding globalization of the economy. Yet, the market continues to place valuations on them that do not sufficiently differentiate them from more average companies in more competitive businesses. Our large financial services holdings--First USA, Mellon, Torchmark, and AMBAC--have strong niche businesses and benefit from the ongoing consolidation of the financial services industry. We believe that this consolidation is a win/win proposition for the buyers and sellers (a dynamic we have experienced in our defense industry investments). Yet, they each sell at modest valuations at steep discounts to their underlying value. We continue to frame, and will always frame, the investment process as buying an ownership piece of a business for the long term, not as buying merely a piece of paper for the short term. We sold only one of our ten largest holdings of a year ago. Eli Lilly reached our estimate of value and we sold the stock. Trading is expensive--there are commissions, price impacts, and capital gains taxes--and we attempt to minimize our trading activity. Our Fund's turnover is one-seventh that of the typical equity fund. I believe that the largest edge we have is our long-term investment time-frame. 4 What's ahead for 1996? While we do not base any of our investment decisions on predicting macroeconomic variables, let me cite two that are positive for the equity market. The first is the all-time high level of merger and acquisition activity. Many public companies continue to be acquired at substantial premium to public market prices. The globalization of the economy and the efficacy of technology within companies will continue to drive this process. The second factor is the political revolution that is in its early stages in the USA. There is broad consensus that our federal government is too big, too inefficient, and too expensive. The inevitable downsizing of the government--more than 40 percent of our GDP is spent by local, state, and federal governments!-- should result in lower interest rates in the medium term (which will have a positive impact on equity valuations). In the long term, a rationalization of our tax system, perhaps in the form of a flat tax regime, will unleash the tremendous potential of our economy. This process will have a very significant impact on all aspects of our economy. I believe that we at Harris Associates have a time-tested investment philosophy, great people, and a nonbureaucratic culture. These attributes should allow us to continue to add value. We remain focused on generating results that will continue to allow you (and us!!) to realize your financial goals. On a personal note, I cannot believe we are in our fifth year. On behalf of everyone at Harris Associates, I thank you for your support. Managing your hard-earned money remains a great challenge and a great honor. A PRIMER ON GOODWILL As I write this, we are in the midst of the season of goodwill to all people. Yet, in the financial world, goodwill has a far different meaning. Goodwill usually results when a company acquires another company at a price greater than the acquiree's book value. Book value is a balance sheet item that represents the retained book earnings of a company. It has little relation to the true economic value of a company and, therefore is a number we ignore. Goodwill affects the income statement through the accounting process of amortization. Amortization refers to the gradual write-downs of the goodwill, generally over forty years. The word amortization itself is derived from the Latin word for death, and means to "kill off the goodwill." This amortization reduces reported earnings for the entire time 5 period. However, it is important to recognize that it is a non-cash reduction in earnings that has no effect on the intrinsic value of a company. Let me give an example from one of our holdings, Philip Morris (MO). As of 12/30/94, MO had goodwill totalling $19.7 billion, which represented over 37 percent of its total book assets. Most of this was incurred through its purchase of Kraft in 1988. This goodwill resulted in the amortization of $600 million in the year 1994, which reduced reported earnings per share (EPS) by $0.58 (compared to total net EPS of $5.45). Yet, MO can use this $600 million to make an acquisition, repurchase its own shares, or do any number of things to grow shareholder value. A patient shareholder is probably by now muttering. "What's with this goodwill, why is he boring me with this stuff?" Well, seven of our ten largest holdings have meaningful amounts of goodwill that reduce reported EPS. In our view, the market tends to ignore the economic value of the goodwill. For instance, a leading Wall Street brokerage firm recently issued a report on MO that concludes that MO should sell at its historical relative P/E ratio of 75 percent of the market. This, of course, ignores the fact that MO's earnings are artificially reduced by the amortization charge. We evaluate our investments, and all potential investments, as if we were buying the entire business. Thus, we tend to regard some financial parameters (i.e., cash flow) more highly than others regarded more highly by the investment community (i.e., reported EPS). Since we firmly believe that market price and value ultimately converge, our approach is intellectually coherent and, we believe, gives us an edge. BILLY JOHNSON UPDATE An E-mailing shareholder from California writes, "Who the heck is Billy "White Shoes" Johnson?" Well, he was a wide receiver for the Houston Oilers and was an early pioneer of in-your-face touchdown celebrations. Some of you may remember my allusion to Johnson in last quarter's letter. I wrote that, when my prediction on the likely under-performance of high technology stocks comes to fruition, I will do some similar in-your-face crowing. Well, as I write this on November 28, Netscape (NSCP) is trading at $138, up more than 75 percent from just last quarter. So, Billy is bruised, but he knows that we are early in the first quarter, and all that matters is who wins the game. 6 I had the pleasure of making a presentation recently with a very nice guy who manages a pure technology hedge fund. His fund was up over 80 percent this year. He gave very compelling background on the growth of the Internet and how useful technology is, and so forth. Then, some curmudgeon in the crowd, (perhaps a shareholder of The Oakmark Fund), broke the balloon, and asked about the "ridiculous" valuations of these stocks. The manager's sole justification was that technology currently represents "only" thirteen percent of the value of the Standard & Poor's 500, and he saw no reason why it could not get as high as thirty percent. After all, the energy sector got that high in 1980. Shareholders, that is not an intellectually coherent investment approach. If that is the best reason to own technology stocks, Billy will be celebrating soon. OAK LEAF CLUSTER We award the Oak Leaf Cluster to that individual whose input into our Fund had the greatest positive impact on performance. This year the coveted honor goes to our very own John Raitt for his work on the defense stocks. Since these stocks go back to the early days of the Fund, it represents sort of a Lifetime Achievement Award. Lockheed Martin has more than doubled from our cost and McDonnell Douglas has appreciated more than 67 percent. Congratulations, John! On behalf of all shareholders, we like you, we like you! ROBERT J. SANBORN Portfolio Manager harjs @aol.com November 28, 1995 7 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995
Shares Held Common Stocks Market Value - ------------------------------------------------------------------- COMMON STOCKS--93.1% FOOD & BEVERAGE--16.1% 2,106,500 Philip Morris Companies Inc. $ 177,999,250 1,669,100 Anheuser-Busch Companies, Inc. 110,160,600 1,619,100 H.J. Heinz Company 75,288,150 1,420,800 Nabisco Holdings Corp. 38,184,000 1,571,900 Interstate Bakeries 33,599,362 430,000 The Quaker Oats Company 14,673,750 200,000 International Dairy Queen, Inc. (a) 4,250,000 -------------- 454,155,112 APPAREL--.3% 388,500 K-Swiss Inc. 4,419,188 620,600 J. Baker Inc. 3,568,450 -------------- 7,987,638 RETAIL--4.4% 2,920,000 Federated Department Stores, Inc. (a) 74,095,000 1,600,000 Zale Corporation (a) 23,600,000 1,000,000 Carson Pirie Scott & Co. (a) 16,875,000 600,000 Cole National Corporation (a) 7,350,000 777,500 Best Products Co., Inc. (a) 3,838,906 53,800 Rex Stores Corporation (a) 914,600 -------------- 126,673,506 OTHER CONSUMER GOODS & SERVICES--11.3% 1,982,800 American Brands, Inc. 85,012,550 2,437,900 The Black & Decker Corporation 82,583,861 477,700 The Clorox Company 34,274,975 957,500 Whitman Corporation 20,346,875 440,200 First Brands Corporation 20,139,150 583,800 GC Companies, Inc. (a) 18,827,550 400,000 Stanhome Inc. 12,200,000 750,000 Arctco Inc. 8,437,500 575,000 JUNO Lighting Inc. 8,337,500 601,500 Justin Industries, Inc. 6,015,000 281,500 Rollins, Inc. 5,911,500 395,000 Mikasa, Inc. (a) 5,135,000 257,600 Paragon Trade Brands, Inc. (a) 4,089,400 100,000 Alberto-Culver Company 2,700,000 225,525 Rauch Industries, Inc. 2,227,059 51,500 Polaroid 2,201,625 107,000 Armor All 1,765,500 304,000 Drypers Corporation (a) 798,000 -------------- 321,003,045 OIL--.4% 270,000 Murphy Oil Corporation 10,226,250 BANKS--6.1% 3,406,550 Mellon Bank Corporation 170,753,319 340,000 River Bank America (a) 2,465,000 -------------- 173,218,319
See accompanying notes to financial statements. 8 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
Shares Held Common Stocks Market Value - -------------------------------------------------------------------------- INSURANCE--6.5% 2,496,400 Torchmark Corporation $ 103,600,600 984,700 American Financial Group, Inc. 27,571,600 928,200 Old Republic International 26,569,725 501,300 Acordia, Inc. 13,785,750 331,930 MAIC Holdings, Inc. (a) 10,123,865 85,000 Meridian Insurance Group 1,168,750 -------------- 182,820,290 OTHER FINANCIAL--8.8% 2,640,500 First USA, Inc. 121,463,000 2,194,900 AMBAC Inc. 92,460,163 620,000 Capital One Financial Corporation 15,190,000 204,400 Fund American Enterprises Holdings, Inc. (a) 14,103,600 330,000 Duff & Phelps Corporation 3,588,750 102,200 White River Corporation (a) 3,551,450 -------------- 250,356,963 BROADCASTING & PUBLISHING--9.4% 6,329,179 Tele-Communications, Inc. Class A (a) 107,596,043 1,715,400 Knight-Ridder, Inc. 95,204,700 1,432,294 TCI Communications, Inc. (a) 35,270,240 400,000 Gannett 21,750,000 500,000 Adelphia Communications Corp. (a) 4,375,000 200,000 Jones Intercable, Inc. (a) 2,500,000 -------------- 266,695,983 COMPUTER SYSTEMS--.5% 1,014,000 Control Data Systems, Inc. (a) 13,435,500 210,000 InaCom Corporation (a) 2,100,000 -------------- 15,535,500 PHARMACEUTICAL--3.1% 975,000 American Home Products Corporation 86,409,375 MANAGED CARE SERVICES--3.4% 1,740,000 Foundation Health Corporation (a) 73,732,500 420,000 Physicians Health Services, Inc. (a) 13,965,000 500,000 Laboratory Corporation of America Holdings 4,250,000 270,000 Right CHOICE Managed Care, Inc. (a) 3,442,500 -------------- 95,390,000 MEDICAL PRODUCTS--2.4% 648,900 Sybron Corporation (a) 27,578,250 502,000 St. Jude Medical, Inc. (a) 26,731,500 550,000 Spacelabs Medical, Inc. (a) 14,162,500 -------------- 68,472,250 AEROSPACE & DEFENSE--8.2% 2,351,750 Lockheed Martin Corporation 160,212,969 610,000 McDonnell Douglas Corporation 49,867,500 779,600 Logicon, Inc. 17,833,350 54,200 Alliant Techsystems, Inc. (a) 2,520,300 -------------- 230,434,119
See accompanying notes to financial statements. 9 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
Shares Held Common Stocks Market Value - ----------------------------------------------------------------------- FURNITURE & TEXTILES--0% 363,000 Forstmann & Company, Inc. (a) $ 113,438 MACHINERY AND METAL PROCESSING--.1% 237,500 Encore Wire Corporation (a) 2,493,750 OTHER INDUSTRIAL GOODS & SERVICES--4.6% 1,699,700 The Geon Company 42,280,038 508,000 Great Lakes Chemical Corporation 34,099,500 550,000 OM Group, Inc. 15,950,000 191,200 Bandag, Incorporated Class A 9,536,100 554,200 SPX Corporation 8,590,100 190,000 USG Corp. (a) 5,533,750 170,000 UCAR International Inc. (a) 4,845,000 175,000 American Home Star Corporation (a) 2,800,000 182,600 Amtrol Inc. 2,784,650 60,200 Exide 2,641,275 50,000 Griffon Corporation (a) 418,750 71,300 Detrex Corporation (a) 409,975 ------------- 129,889,138 COMMERCIAL REAL ESTATE--1.0% 1,957,200 Host Marriott Corporation (a) 24,220,350 585,700 Catellus Development Corporation (a) 3,221,350 ------------- 27,441,700 FOREIGN SECURITIES--6.5% 2,650,000 DeBeers Consolidated Mines Limited ADR (b) 72,875,000 3,276,500 YPF Sociedad Anonima (b) 56,110,062 888,200 Telefonos de Mexico, S.A. de C.V. (b) 24,425,500 547,700 EVC International NV 17,182,881 697,500 Scitex Corporation Limited 12,119,063 ------------- 182,712,506 TOTAL COMMON STOCKS (COST: $2,133,912,975) 2,632,028,882
COMMERCIAL PAPER--7.1% American Express Credit Corp., 5.70% due 11/22/95 6,000,000 American Express Credit Corp., 5.70% due 11/24/95 5,000,000 American Express Credit Corp., 5.70% due 11/30/95 8,000,000 American Express Credit Corp., 5.70% due 12/13/95 5,000,000 Ford Motor Credit Corp., 5.70% due 11/01/95 5,000,000 Ford Motor Credit Corp., 5.71% due 11/01/95 4,000,000 Ford Motor Credit Corp., 5.76% due 11/02/95 6,000,000 Ford Motor Credit Corp., 5.70% due 11/03/95 8,000,000 Ford Motor Credit Corp., 5.69% due 11/13/95 9,000,000 Ford Motor Credit Corp., 5.70% due 11/17/95 5,000,000 Ford Motor Credit Corp., 5.70% due 11/20/95 6,000,000 Ford Motor Credit Corp., 5.69% due 11/21/95 2,000,000 Ford Motor Credit Corp., 5.70% due 11/27/95 10,000,000
See accompanying notes to financial statements. 10 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED) COMMERCIAL PAPER--7.1% (CONT.) Ford Motor Credit Corp., 5.70% due 11/28/95 $ 4,000,000 Ford Motor Credit Corp., 5.70% due 11/29/95 4,000,000 Ford Motor Credit Corp., 5.70% due 12/01/95 7,000,000 Ford Motor Credit Corp., 5.70% due 12/04/95 7,000,000 Ford Motor Credit Corp., 5.70% due 12/05/95 10,000,000 Ford Motor Credit Corp., 5.70% due 12/06/95 3,000,000 Ford Motor Credit Corp., 5.70% due 12/07/95 6,000,000 Ford Motor Credit Corp., 5.70% due 12/08/95 6,000,000 Ford Motor Credit Corp., 5.70% due 12/11/95 6,000,000 Ford Motor Credit Corp., 5.71% due 12/12/95 4,000,000 General Electric Capital Corp., 5.68% due 11/02/95 7,000,000 General Electric Capital Corp., 5.65% due 11/06/95 5,000,000 General Electric Capital Corp., 5.67% due 11/07/95 7,000,000 General Electric Capital Corp., 5.67% due 11/08/95 9,000,000 General Electric Capital Corp., 5.67% due 11/09/95 6,000,000 General Electric Capital Corp., 5.67% due 11/10/95 10,000,000 General Electric Capital Corp., 5.70% due 11/14/95 7,000,000 General Electric Capital Corp., 5.70% due 11/15/95 6,000,000 General Electric Capital Corp., 5.71% due 11/16/95 4,000,000 General Electric Capital Corp., 5.70% due 12/13/95 4,000,000 -------------- TOTAL COMMERCIAL PAPER (Cost: $201,000,000) 201,000,000 -------------- Total Investments--100.2% (Cost: $2,334,912,975) 2,833,028,882 Other liabilities, less other assets (.2)% (5,959,863) -------------- TOTAL NET ASSETS--100% $2,827,069,019 ==============
- ----------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) At October 31, 1995, net unrealized appreciation of $498,115,907 for federal income tax purposes consisted of gross unrealized appreciation of $553,289,304 and gross unrealized depreciation of $55,173,397. Cost for federal income tax purposes was $2,334,912,975. See accompanying notes to financial statements. 11 THE OAKMARK FUND STATEMENT OF ASSETS AND LIABILITIES--OCTOBER 31, 1995 ASSETS Investments, at value (cost: $2,334,912,975) $2,833,028,882 Cash 545,778 Receivable for: Securities Sold 4,853,140 Fund Shares Sold 5,749,257 Dividends and Interest 4,713,433 15,315,830 ---------- Other Assets 28,583 -------------- 2,848,919,073 LIABILITIES AND NET ASSETS Payable for: Securities Purchased 18,076,273 Fund shares redeemed 900,361 Due to Adviser 2,377,099 Other 496,321 ---------- Total liabilities 21,850,054 -------------- Net assets applicable to Fund shares outstanding $2,827,069,019 ============== Fund Shares Outstanding 99,284,171 ============== PRICING OF SHARES Net asset value per share $28.47 ============== ANALYSIS OF NET ASSETS Paid in Capital $2,218,201,560 Accumulated undistributed net realized gain on sale of investments and foreign currency transactions 87,367,855 Net unrealized appreciation of investments 498,115,907 Accumulated undistributed net investment income 23,383,697 -------------- Net assets applicable to Fund shares outstanding $2,827,069,019 ==============
See accompanying notes to financial statements. 12 THE OAKMARK FUND STATEMENT OF OPERATIONS--OCTOBER 31, 1995
Year Ended October 31, 1995 ---------------- Investment Income: Dividends (net of withholding of $354,146) $ 42,140,243 Interest 10,886,088 ------------ Total investment income 53,026,331 ------------ Expenses: Investment advisory fee 21,215,738 Transfer and dividend disbursing agent fees and expenses 3,144,790 Custodian and accounting fees and expenses 268,307 Legal fees and expenses 70,564 Audit fees and expenses 27,850 Trustees fees and expenses 29,837 Registration and blue sky expenses 165,178 Reports to shareholders 334,371 Amortization of organization cost 34,675 Other--net 162,098 ------------ Total expenses 25,453,408 ------------ Net investment income 27,572,923 Net realized and unrealized gain on investments Net realized gain on sale of investments 87,157,237 Net realized gain (loss) on foreign currency transactions (37,102) Net change in unrealized appreciation 320,305,458 ------------ Net realized and unrealized gain on investments 407,425,593 ------------ Net increase in net assets resulting from operations $434,998,516 ============
See accompanying notes to financial statements. 13 THE OAKMARK FUND STATEMENT OF CHANGES IN NET ASSETS--OCTOBER 31, 1995
Year Ended Year Ended October 31, 1995 October 31, 1994 - ------------------------------------------------------------------------------- From Operations: Net investment income $ 27,572,923 $ 16,288,352 Net realized gain on sale of investments 87,157,237 96,029,651 Net realized gain (loss) on foreign cur- rency transactions (37,102) -- Net change in unrealized appreciation 320,305,458 386,607 -------------- -------------- Net increase in net assets from operations 434,998,516 112,704,610 Distributions to shareholders from: Net investment income (per share $.231 in Fiscal Year 1995 and $.23 in Fiscal Year 1994) (15,107,181) (10,879,838) Net realized short-term gain (per share $.7277 in Fiscal Year 1995 and $.41 in Fiscal Year 1994) (47,575,398) (19,428,508) Net realized long-term gain (per share $.7411 in Fiscal Year 1995 and $.36 in Fiscal Year 1994) (48,452,482) (17,059,178) -------------- -------------- (111,135,061) (47,367,524) From Fund share transactions: Reinvestment of dividends and capital gains distributions 106,504,973 45,046,719 Proceeds from shares sold 1,384,343,262 1,168,751,822 Payments for shares redeemed (664,894,744) (708,888,845) -------------- -------------- Net increase in net assets from Fund share transactions 825,953,491 504,909,696 -------------- -------------- Total increase in net assets 1,149,816,946 570,246,782 Net assets: Beginning of period 1,677,252,073 1,107,005,291 -------------- -------------- End of period (including undistributed net investment income of $23,383,697 and $10,917,955, respectively) $2,827,069,019 $1,677,252,073 ============== ==============
See accompanying notes to financial statements. 14 HARRIS ASSOCIATES INVESTMENT TRUST THE OAKMARK FUND NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("the Fund"), a series of the Harris Associates Investment Trust (a Massachusetts business trust). 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 Trustees. 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 closing 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. Federal income taxes, dividends and distributions to shareholders-- No provision is made for Federal income taxes since the Fund elects to be taxed as a "regulated investment company" and make such distributions to its shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. 2. TRANSACTIONS WITH AFFILIATES The Fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Fund pays the Adviser monthly fees at the annual rate of 1% of the first $2.5 billion of net assets, .95% on the next $2.5 billion of 15 net assets and .90% of the net assets of the fund in excess of $5 billion as determined at the end of each preceding calendar month. The investment advisory agreement of the Fund provides that the Adviser will reimburse the Fund to the extent that its annual expenses, excluding certain expenses, exceed the applicable limits prescribed by any state in which the Fund's shares are offered for sale. In connection with the organization of the Fund, expenses of approximately $146,500 were advanced to the Fund by the Adviser. These expenses are being reimbursed to the Adviser and amortized by the Fund on a straight line basis through July, 1996. The Fund's initial shareholder has agreed that, if any of the initial shares are redeemed during the first 60 months of the Fund's operations, the proceeds of redemption will be reduced by the pro rata share of the unamortized expenses as of the date of redemption, to the extent the Fund is obligated to reimburse such expenses to the Adviser. The pro rata share by which the redemption proceeds shall be reduced shall be derived by dividing the number of original shares redeemed by the total number of original shares outstanding at the time of redemption. Certain officers and trustees of the Fund are also executives and employees of the Adviser. The Fund makes no direct payments to its officers who are affiliated with the Adviser. The Fund paid trustees fees of $29,837 in 1995 and $16,000 in 1994 to trustees of the Fund not affiliated with the Adviser. During the periods ended October 31, 1995 and October 31, 1994 the Fund incurred brokerage commissions of $2,100,849 and $2,286,161, respectively, of which $389,339 and $244,055 were paid to an affiliate of the Adviser. 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):
Year ended Year ended October 31, 1995 October 31, 1994 - ---------------------------------------------------------------------------- Shares issued in reinvestment of dividend and capital gain distributions 4,782 1,948 Shares sold 54,044 48,461 Less shares redeemed (26,065) (29,668) ------- ------- Net increase in shares outstanding 32,761 20,741 ======= =======
4. INVESTMENT TRANSACTIONS
Year ended Year ended October 31, 1995 October 31, 1994 - ------------------------------------------------------------------------------ Investment securities (excluding short term securities) in thousands: Purchases $1,085,381 $733,331 Proceeds from sales 359,990 366,527
16 THE OAKMARK FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended October 31, Period ended 1995 1994 1993 1992 Oct. 31, 1991(a) - ------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 25.21 $ 24.18 $ 17.11 $ 12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.30 0.27 0.17 (0.03)(d) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 4.66 1.76 7.15 5.04 2.11 -------- -------- -------- ------- ------- Total From Investment Operations 4.96 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.23) (0.23) (0.04) -- -- Distributions (from capital gains) (1.47) (0.77) (0.21) -- -- -------- -------- -------- ------- ------- Total Distributions (1.70) (1.00) (0.25) -- -- Net Asset Value, End of Period $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 ======== ======== ======== ======= ======= Total Return 21.55% 8.77% 43.21% 41.40% 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $2,827.1 $1,677.3 $1,107.0 $ 114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.17% 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets 1.27% 1.19% 0.94% (0.24)% (0.66)%(c)* Portfolio Turnover Rate 18% 29% 18% 34% 0%
- ----------- *Ratios for the period have been determined on an annualized basis. (a) From August 5, 1991, the date on which Fund shares were first offered for sale to the public. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. (d) Based on average month-end shares outstanding. 17 THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (10/31/95) AS COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX. [GRAPH APPEARS HERE]
Measurement Period THE OAKMARK M.S. WORLD (Fiscal Year Covered) INTERNATIONAL EX U.S. INDEX - ------------------- ------------- --------- Measurement Pt- 09/30/92 $10,000 $10,000 10/31/92 $ 9,800 $ 9,505 $10,833 $ 9,621 $12,105 $11,764 $12,607 $12,233 10/31/93 $14,454 $12,981 $16,487 $13,786 $15,382 $13,664 $15,194 $13,899 10/31/94 $15,121 $14,265 $13,698 $13,124 $14,399 $14,437 $15,506 $14,911 10/31/95 $14,659 $14,248
Average Annual Total Return* Through 10/31/95 ---------------------------- Total Return* Total Return* From Inception Last 3 mos. Last 6 mos. From 10/31/94 9/30/92 ------------- ------------- ------------- -------------- OAKMARK INTERNATIONAL (5.5)% 1.8% (3.1)% 13.2% Morgan Stanley World ex U.S.* (4.5)% (1.3)% (0.1)% 12.2% Morgan Stanley EAFE* (4.6)% (1.6)% (0.4)% 12.3% Lipper Analytical International Fund Average* (2.1)% 4.7% (0.6)% 12.6%
10/31/95 NAV $12.97 REPORT FROM DAVID G. HERRO, PORTFOLIO MANAGER Dear Fellow Shareholders: A large ship that carries cargo across the ocean will no doubt encounter many types of conditions on its journey; anything from clear skies and still water to the occasional storm at sea. But to an experienced crew with a good ship, the weather really doesn't make much difference. They've made the trip many times before and always deliver the goods to port. *Total return includes change in share prices and in each case included 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 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 106 mutual funds that invest in securities whose primary markets are outside the United States. Past performance is no guarantee of future performance. LOGO 18 In many ways the Oakmark International Fund is experiencing this type of journey. The past year has been turbulent, to say the least. Most foreign markets have been weak since the peso crisis of last year, and our Fund has not escaped the consequences. On a relative basis it's been particularly difficult to compete against the booming U.S. market. But our results are positive, and as I write this (December 1, 1995) our Fund is now up 7.25%* since January 1, 1995. THE GLOBAL PICTURE The Fund's performance in recent months can be traced to three factors: geographic exposure, industry focus and global money flows. First, the Fund's Latin American investments (particularly Mexico) have significantly underperformed. These markets continue to be buffeted by currency and political speculation. Second, investors concerned with the declining rate of worldwide industrial growth, have avoided many of the cyclical companies we find extremely undervalued. Lastly, the flow of investment funds is running against us. We have heard from the large global brokerage firms that there continues to be strong flows of money into the U.S. market and out of foreign markets, generally causing downturns and price volatility in the foreign markets. So, like our ocean freighter analogy, while we have hit some rough water and our speed has slowed, we continue to proceed toward our destination. The most recent weeks indicate we may see smoother water ahead. I remain extremely optimistic about the prospects for both the Fund and foreign makets. The companies we own are strong and diverse, and most importantly, they are selling at bargain basement prices. Consider the following: TELEMEX (4% OF THE PORTFOLIO) CURRENT SITUATION: Down 13.5% in the four weeks through October 31, 1995 yet up 21.5% for the month of November. REASON FOR OPTIMISM: Telemex will generate more than $1 billion (U.S. dollars) a year in free cash with just a trace of debt. The company has been actively buying back stock and has proposed buying even more. All of this has occurred during a harsh recession in Mexico. The stock sells at a price less than 10 times earnings and long-term prospects are bright. 19 VOLVO (4% OF THE PORTFOLIO) CURRENT SITUATION: Down 12% in the four weeks through October 31, 1995, and down 9% for the month of November. REASON FOR OPTIMISM: The company has recognized its problems, replaced management and is attacking costs. With planned asset sales, by 1997 half of the current share price will be in cash on the balance sheet. Management has pledged to use this cash to bolster shareholder value. On an adjusted basis, the stock sells at just 3 times earnings. ASIA PULP AND PAPER (3% OF THE PORTFOLIO) CURRENT SITUATION: Down 15.4% in the four weeks through October 31, 1995, yet up 1.2% for the month of November. The stock was down due to fears of weaker pulp prices. The fears are overdone! There is little new pulp capacity on the horizon, and thus prices will soon stabilize. The company is one of the world's lowest cost producers and is located in the world's fastest growing region. REASON FOR OPTIMISM: It's clear that fears of paper and pulp prices collapsing have been overdone. These prices are supply driven and there is little new capacity coming on stream. The company sells at 4 times normal earnings and below book value. These are just few examples in overseas markets where current share prices do not come close to reflecting true value. This is the nature of equity market investment; over short periods of time price and value seldom match. We believe patient investors will be rewarded, because over the longer term share prices tend to reflect value. Just as storms at sea eventually subside, value and price converge. TRAVELLER'S LOG...AUSTRALASIA In my last quarterly letter I briefly mentioned the differences between the Australian and New Zealand economies. They can be as opposite as night and day, yet they share some similarities as well. For example, both countries seem to be keenly aware of good corporate governance and have responsible, owner-oriented managements. However, the macroeconomic environment of the two countries are quite distinctive. NEW ZEALAND MACRO: During the past 10 years New Zealand has completely deregulated and embraced just about every free market reform imaginable. The results are stunning: huge budget surpluses, surging productivity, very low unemployment, strong economic growth and low inflation. 20 MICRO: We have been able to find a number of examples of strong, competitive companies, though most have proven to be too small for the Fund. Our lone New Zealand position is LION NATHAN, which brews Steinlager and other drinks brands. Lion has close to 50% of the Australasian beer market and is a franchisee for both Pepsi and Gatorade. In addition, the company has opened up brewing operations in China that already are profitable. Lion has wisely used its free cash flow to pay down debt, increase dividends and make intelligent investments. AUSTRALIA MACRO: The country has archaic collective bargaining agreements and is not as open as it should be. As one might predict, Australia has lagged behind New Zealand in productivity and employment growth while suffering a higher rate of inflation. They are still running huge "normalized" budget deficits as well. MICRO: Despite the macro picture, we have found good values in Australia. PIONEER INTERNATIONAL is an excellent example of an extremely well-run, global company. Pioneer has global building materials businesses (concrete, aggregates, cement, etc.) that are well positioned for the continuing boom in global infrastructure development. On top of this, they have prudently used cash to pay down debt and expand their global franchises to the fast growing regions of the world. Ideally, over time Australia will adopt policies similar to New Zealand, adding a positive new element to the Australasian economic environment! DAVID G. HERRO Portfolio Manager OAKIX @aol.com 72242. 772@COMPUSERV.COM December 1, 1995 21 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995
Shares Held Description Market Value - ------------------------------------------------------------------------------- COMMON STOCKS--94.5% CONSUMER NON-DURABLES--4.4% 90,210,000 Yue Yuen Industrial (Holdings) Limited (Hong Athletic Footwear Kong) Manufacturing $ 23,626,790 61,533 Chargeurs S.A. (France) Entertainment & Wool Production Holding Company 12,658,676 ------------ 36,285,466 FOOD--7.5% 18,069,300 Lion Nathan Limited (New Zealand) New Zealand Brewer 41,031,350 4,939,000 Leong Hup Holdings Berhad (Malaysia) Major Poultry Operation in Malaysia and KFC Operator 7,463,896 3,300,265 Burns, Philp & Company Limited (Australia) Yeast and Spices 7,390,904 36,970 Lotte Chilsung Beverage (Korea) Manufacturer of Soft Drinks, Juices, & Sport Drinks 5,314,906 ------------ 61,201,056 HOUSEHOLD PRODUCTS--3.5% 2,017,853 Reckitt & Colman PLC (Great Britain) Household Cleaners and Air Fresheners 21,470,594 3,430,600 London International Group PLC (Great Britain) Latex Products 7,105,274 ------------ 28,575,868 RETAIL--4.9% 24,995,000 Giordano Holdings Limited (Hong Kong) East Asian Clothing Retailer & Manufacturer 20,689,887 462,900 Macintosh (Netherlands) Non-Food Specialty Retailer 13,495,627 16,702,189 Alparagatas Sociedad Anonima Industrial Y Comercial (Argentina) Textiles 5,928,684 ------------ 40,114,198 TELECOMMUNICATIONS--5.4% 1,049,700 Telefonos de Mexico, S.A. de C.V. Telephone Company in (Mexico) (b) Mexico 28,866,750 935,500 Call Net Enterprises, Inc. Common (Canada) (a) Telecommunications 7,855,184 944,300 Call Net Enterprises, Inc. Class B (Canada) (a) Telecommunications 7,752,872 ------------ 44,474,806
See accompanying notes to financial statements. 22 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
Shares Held Description Market Value - ------------------------------------------------------------------------------- TRANSPORTATION--5.8% 1,544,000 AB Volvo (Sweden) Automobiles $ 34,760,112 3,548,033 CIADEA S.A. (Argentina) (a) Assembler and Distributor of Automobiles 12,949,026 ------------- 47,709,138 OIL AND NATURAL GAS--4.0% 1,730,500 YPF Sociedad Anonima (Argentina) (b) Oil Exploration, Production and Marketing 29,634,813 55,609 Total S.A. (France) Oil Production and Refining 3,436,543 ------------- 33,071,356 ELECTRIC--2.7% 4,760,230 Union Electrica Fenosa S.A. (Spain) Spanish Electric Utility 22,152,396 BANKS--13.7% 1,512,850 Svenska Handelsbanken (Sweden) Large Swedish Bank 26,540,828 5,209,175 Banco de Galicia Y Buenos Aires (Argentina) Argentinian Bank 24,584,848 145,100 Banco Popular Espanol (Spain) Large Spanish Bank 23,050,993 1,455,400 Banco Espirito Santo E Comercial de Lisboa, S.A. (Portugal) Portuguese Bank 21,381,306 34,885,000 Grupo Financiero Bancomer, S.A. De C.V. Large Mexican Financial (GFB)--B (Mexico) (a) Group 9,008,898 326,080 Banco Espirito Santo E Comercial de Lisboa, S.A. Rights (Portugal) Portuguese Bank 4,790,447 6,129,630 Grupo Financiero Bancomer, S.A. De C.V. Large Mexican Financial (GFB)--L (Mexico) (a) Group 1,419,493 185,715 Banco Frances del Rio de la Plata S.A. (Argentina) Argentinian Bank 1,350,014 ------------- 112,126,827 INVESTMENT COMPANIES--0.5% 6,000,000 The Central European Growth Fund PLC (Great Britain) Diversified, Closed-End Fund Investing in Central Europe 3,747,036 COMPUTER SYSTEMS--3.0% 1,414,500 Scitex Corporation Limited (Israel) (b) Color Pre-Press Systems 24,576,938
See accompanying notes to financial statements. 23 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
Shares Held Description Market Value - ------------------------------------------------------------------------------- MARKETING SERVICES--3.6% 21,654,328 Cordiant PLC (Great Britain) (a) Advertising Agency Holding Company $ 29,443,039 AEROSPACE--7.4% 2,344,666 British Aerospace Public Limited Company Defense and Civil (Great Britain) Aviation 26,282,501 7,548,737 Rolls-Royce Public Limited Company (Great Britain) Jet Engines 18,379,534 6,248,000 Hong Kong Aircraft Engineering Company Limited (Hong Kong) Commercial Aircraft Overhaul and Maintenance 16,081,224 ------------ 60,743,259 COMPONENTS--1.7% 6,685,000 Varitronix International Holdings Limited (Hong Kong) Liquid Crystal Displays 12,753,178 1,840,000 Chen Hsong Holdings Limited (Hong Kong) Plastic Injection Moulding Machines 1,070,916 ------------ 13,824,094 FORESTRY PRODUCTS--5.2% 2,355,000 Asia Pulp & Paper Company Ltd (a) (Indonesia) Paper & Packaging Products in Asia 24,138,750 360,700 Mo och Domsjo AB (Sweden) Paper, Pulp & Timber 18,359,275 144,000 Empaques Ponderosa, S.A. (Mexico) (a) Boxboard 303,158 ------------ 42,801,183 MACHINERY AND METAL PROCESSING--1.9% 115,849 Strafor Facom (France) Metal Processing, Office Equipment, Mining Tools 13,977,405 6,180,000 Lochpe-Maxion (Brazil) Agricultural Machinery & Automotive Parts 1,927,572 ------------ 15,904,977 MINING AND BUILDING MATERIALS--3.0% 9,854,423 Pioneer International Concrete Products, (Australia) Aggregates 24,170,660
See accompanying notes to financial statements. 24 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
Shares Held Description Market Value - -------------------------------------------------------------------------------- OTHER INDUSTRIAL GOODS AND SERVICES--9.4% 21,596,600,000 Usiminas (Brazil) Steel Production $ 20,208,921 643,200 EVC International NV (Netherlands) Western European PVC Manufacturer 20,178,984 1,466,000 Avesta Sheffield (Sweden) Stainless Steel 14,459,989 65,400 ECCO Travail Temporaire (France) European Temporary Employment Services 10,137,461 700,966 Tung-Ho Steel Enterprise Corp. (Taiwan) (a) Taiwanese Manufacturer of Steel Bars and H- Beams 7,184,902 14,040,000 Lamex Holdings Limited (Hong Kong) Hong Kong's Largest Office Furniture Supplier 3,141,508 60,000 Groupe Legris Industries (France) Europe's Leading Crane Manufacturer 1,742,295 ------------ 77,054,060 SHIPBUILDING--4.6% 951,610 Kvaerner (Norway) Shipbuilding and 37,899,354 Engineering REAL ESTATE AND CONSTRUCTION--2.3% 127,332 Hollandsche Beton Groep nv (Netherlands) Construction 19,207,134 ------------ TOTAL COMMON STOCKS (COST: $868,131,191) 775,082,845 COMMERCIAL PAPER--3.0% Ford Motor Credit Corp., 5.72% due 11/02/95 1,500,000 Ford Motor Credit Corp., 5.73% due 11/02/95 5,000,000 Ford Motor Credit Corp., 5.75% due 11/02/95 5,000,000 Ford Motor Credit Corp., 5.76% due 11/02/95 3,000,000 General Electric Capital Credit Corp., 5.69% due 11/01/95 8,000,000 General Electric Capital Credit Corp., 5.73% due 11/03/95 2,000,000 ------------ TOTAL COMMERCIAL PAPER (COST: $24,500,000) 24,500,000 ------------ Total Investments--97.5% (Cost: $892,631,191) 799,582,845 Foreign currencies--0.0% (Cost: $322,067) 321,211 Other assets, less other liabilities--2.5% (c) 19,827,486 ------------ TOTAL NET ASSETS --100% $819,731,542 ============
- ----------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes portfolio and transaction hedges. (d) At October 31, 1995, net unrealized depreciation of $93,049,202 for federal income tax purposes consisted of gross unrealized appreciation of $69,234,440 and gross unrealized depreciation of $162,283,642. Cost for federal income tax purposes was $892,953,258. See accompanying notes to financial statements. 25 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS (CONTINUED) COUNTRY DIVERSIFICATION--OCTOBER 31, 1995
% of Fund Net Country Assets - --------------------------------------------------------------- ARGENTINA 9.1% Alparagatas Sociedad Anonima Industrial Y Comercial Banco de Galicia y Buenos Aires Banco Frances del Rio de la Plata S.A. CIADEA S.A. YPF Sociedad Anonima AUSTRALIA 3.9% Burns, Philp & Company Limited Pioneer International BRAZIL 2.7% lochpe-Maxion Usiminas CANADA 1.9% Call Net Enterprises Inc. Class B Call Net Enterprises Inc. Common CENTRAL EUROPE 0.5% The Central European Growth Fund PLC FRANCE 5.1% Chargeurs S.A. Ecco S.A Groupe Legris Industries Strafor Facom Total S.A. GREAT BRITAIN 12.5% British Aerospace Public Limited Company Cordiant PLC London International Group PLC Reckitt & Colman PLC Rolls Royce Public Limited Company HONG KONG 9.4% Chen Hsong Holdings Limited Giordan Holdings Limited Hong Kong Aircraft Engineering Company Limited Lamex Holdings Limited Varitronix International Holdings Limited Yue Yuen Industrial (Holdings) Limited INDONESIA 2.9% Asia Pulp & Paper Company Ltd ISRAEL 3.0% Scitex Corporation Limited KOREA 0.6% Lotte Chilsung Beverage
See accompanying notes to financial statements. 26 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS (CONTINUED) COUNTRY DIVERSIFICATION--OCTOBER 31, 1995
% of Fund Net Country Assets - ------------------------------------------------------------- MALAYSIA 0.9% Leong Hup Holdings Berhad MEXICO 4.8% Empaques Ponderosa, S.A. Grupo Financiero Bancomer, S.A. De C.V. (GFB)-B Grupo Financiero Bancomer, S.A. De C.V. (GFB)-L Telefonos de Mexico, S.A. de C.V. NETHERLANDS 6.5% EVC International NV Hollandsche Beton Groep nv Macintosh NEW ZEALAND 5.0% Lion Nathan Limited NORWAY 4.6% Kvaerner PORTUGAL 3.2% Banco Espirito Santo E. Comercial de Lisboa, S.A. SPAIN 5.5% Banco Popular Espanol Union Electrica Fenosa S.A. SWEDEN 11.5% Avesta Sheffield Mo och Domsjo AB Svenska Handelsbanken Volvo AB TAIWAN 0.9% Tung-Ho Steel Enterprise Corp.
See accompanying notes to financial statements. 27 THE OAKMARK INTERNATIONAL FUND STATEMENT OF ASSETS AND LIABILITIES--OCTOBER 31, 1995 ASSETS Investments, at value (cost: $892,631,191) $799,582,845 Cash 399,986 Foreign currency, at value (cost: $322,067) 321,211 Receivable for: Forward foreign currency contracts $ 969,909 Securities sold 29,020,934 Fund shares sold 662,786 Dividends and interest 3,379,012 ----------- Total receivables 34,032,641 Other assets 21,533 ------------ Total assets $834,358,216 LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 2,374,806 Fund shares redeemed 1,884,706 Forward foreign currency contracts 9,103,567 Due to adviser 769,279 Other 494,316 ----------- Total liabilities 14,626,674 ------------ Net assets applicable to Fund shares outstanding $819,731,542 ============ Fund shares outstanding 63,224,193 ============ PRICING OF SHARES Net asset value per share $12.97 ============ ANALYSIS OF NET ASSETS Paid in Capital $862,870,293 Accumulated undistributed net realized gain on sale of investments, forward contracts and foreign cur- rency transactions 26,425,139 Net unrealized depreciation of investments and for- eign currencies (93,049,202) Net unrealized depreciation of foreign currency portfolio hedges (8,062,429) Net unrealized appreciation--other 169,294 Accumulated undistributed net investment income 31,378,447 ------------ Net assets applicable to Fund shares outstanding $819,731,542 ============
See accompanying notes to financial statements. 28 THE OAKMARK INTERNATIONAL FUND STATEMENT OF OPERATIONS--OCTOBER 31, 1995
Year Ended October 31, 1995 ---------------- Investment Income: Dividends $ 28,937,627 Interest 2,162,084 Foreign taxes withheld (3,686,997) ------------- Total investment income 27,412,714 Expenses: Investment advisory fee 9,916,904 Transfer and dividend disbursing agent fees and expenses 1,455,154 Custodian and accounting fees and expenses 1,273,334 Legal fees and expenses 48,041 Audit fees and expenses 37,848 Trustees fees and expenses 18,580 Registration and blue sky expenses 136,505 Reports to shareholders 311,789 Amortization of organization cost 9,490 Other--net 461,762 ------------- Total expenses 13,669,407 ------------- Net investment income 13,743,307 Net realized and unrealized gain (loss) on investments Net realized gain on sale of investments 62,822,164 Net realized loss on foreign currency transactions (26,735,730) Net change in unrealized appreciation (depreciation) of: Investments and foreign currency transactions (120,637,092) Forward foreign currency contracts 17,767,564 Other foreign currency transactions (20,391) ------------- Net realized and unrealized gain (loss) on investments, forward contracts and foreign currency transactions (66,803,485) ------------- Net decrease in net assets resulting from operations $ (53,060,178) =============
See accompanying notes to financial statements. 29 THE OAKMARK INTERNATIONAL FUND STATEMENT OF CHANGES IN NET ASSETS--OCTOBER 31, 1995
Year Ended Year Ended October 31, 1995 October 31, 1994 - ------------------------------------------------------------------------------- From Operations: Net investment income $ 13,743,307 $ 18,774,576 Net realized gain on sale of investments 62,822,164 117,306,013 Net realized gain (loss) on foreign cur- rency trasactions (26,735,730) (39,262,860) Net change in unrealized appreciation (de- preciation) of investments and foreign currencies (120,637,092) (58,275,156) Net change in unrealized appreciation (de- preciation) of forward foreign currency contracts 17,767,564 (27,201,474) Net change in unrealized appreciation (de- preciation) - other (20,391) 145,115 -------------- --------------- Net increase in net assets from operations (53,060,178) 11,486,214 Distributions to shareholders from: Net investment income (per share $.08 in fiscal 1994) 0 (5,086,447) Net realized short-term gain (per share $.6863 in fiscal year 1995 and $.15 in fiscal year 1994) (56,722,392) (10,445,839) Net realized long-term gain (per share $.3725 in fiscal year 1995) (30,791,949) 0 -------------- --------------- (87,514,341) (15,532,286) From Fund share transactions: Reinvestment of dividends and capital gains distributions 81,810,540 15,134,825 Proceeds from shares sold 312,101,705 1,562,821,681 Payments for shares redeemed (719,598,750) (1,103,291,079) -------------- --------------- Net increase (decrease) in net assets from Fund share transactions (325,686,505) 474,665,427 -------------- --------------- Total increase in net assets (466,261,024) 470,619,355 Net assets: Beginning of period 1,285,992,566 815,373,211 -------------- --------------- End of period (including undistributed net investment income of $31,378,447 and $17,635,140, respectively) $ 819,731,542 $ 1,285,992,566 ============== ===============
See accompanying notes to financial statements. 30 HARRIS ASSOCIATES INVESTMENT TRUST THE OAKMARK INTERNATIONAL FUND NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark International Fund ("the Fund"), a series of the Harris Associates Investment Trust (a Massachusetts business trust). Security valuation-- Investments are stated at current market value. The values of portfolio securities are generally based upon market quotations which, depending upon local convention or regulation, may be last sale price, last bid or asked price, or the mean between last bid and asked prices as of, in each case, the close of the appropriate exchange or other designated time. Securities for which quotations are not available and any other assets are valued at a fair value as determined in good faith by the Board of Trustees. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by the Board. 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. 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 Fund does 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 gain 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 Fund's 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. 31 Net unrealized appreciation--other includes the following components: Unrealized appreciation on open securities purchases $ 517 Unrealized appreciation on open securities sales 38,079 Unrealized depreciation on transaction hedge purchases (2,445) Unrealized depreciation on transaction hedge sales (68,784) Unrealized appreciation on dividends and dividend reclaim receivable 202,332 Other--net (405) -------- $169,294 ========
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 on each day the New York Stock 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 October 31, 1995, the Fund had entered into forward foreign currency contracts under which it is obligated to exchange currencies at specified future dates. The Fund's 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 counterparties to meet the terms of their contracts and from movements in currency values. The Fund had the following outstanding contracts at October 31, 1995: 32 Portfolio Hedges:
Unrealized U.S. Appreciation Dollar Settlement (Depreciation) Foreign Currency Proceeds Date at October 31, 1995 - ----------------------------------------------------------------------------- 1,000,000,000 Spanish Pesetas 8,063,216 December 1995 $ (89,487) 1,000,000,000 Spanish Pesetas 8,165,932 January 1996 31,264 2,153,250,000 Spanish Pesetas 17,733,899 February 1996 265,712 1,191,800,000 Spanish Pesetas 9,541,270 February 1996 (116,501) 45,000,000 French Francs 9,410,682 February 1996 224,305 40,534,000 French Francs 8,210,249 February 1996 (63,100) 49,760,000 French Francs 10,000,000 March 1996 (150,518) 18,794,637 Pounds Sterling 29,883,473 January 1996 220,735 12,738,854 Pounds Sterling 19,899,364 March 1996 (177,727) 9,458,000 Netherlands Guilders 5,939,462 February 1996 (89,230) 47,574,000 Netherlands Guilders 30,000,000 March 1996 (380,552) 15,152,000 Netherlands Guilders 9,589,873 April 1996 (97,772) 108,870,000 Norwegian Kroner 17,693,808 November 1995 207,151 156,370,000 Swedish Krona 21,279,173 November 1995 (2,252,006) 78,810,000 Swedish Krona 10,691,901 December 1995 (1,142,003) 198,987,500 Swedish Krona 26,992,336 December 1995 (2,858,049) 113,595,000 Swedish Krona 15,421,531 January 1996 (1,594,651) ----------- Net unrealized depreciation $(8,062,429) ===========
Transaction Hedges: Purchases:
Unrealized Appreciation U.S. Foreign Currency Settlement (Depreciation) Dollar Proceeds Date at October 31, 1995 - ------------------------------------------------------------------- $801,711 5,307,605 Swedish Krona November 1995 $(2,445) ------- Net unrealized depreciation $(2,445) =======
Sales:
Unrealized U.S. Appreciation Dollar Settlement (Depreciation) Foreign Currency Proceeds Date at October 31, 1995 - --------------------------------------------------------------------------- 10,117,320 Australian Dollars $7,642,577 November 1995 $(64,096) 299,023 Brazilian Real 310,835 November 1995 (64) 760,805,389 Spanish Pesetas 6,243,277 November 1995 9,978 9,936,431 French Francs 2,027,222 November 1995 (4,726) 4,664,594 Pounds Sterling 7,358,753 November 1995 (16,100) 521,523 Netherlands Guilders 331,990 November 1995 1,452 2,802,469 New Zealand Dollar 1,845,397 November 1995 (4,540) 149,849,449 Portuguese Escudo 1,014,923 November 1995 5,088 16,494,258 Swedish Krona 2,488,075 November 1995 4,224 -------- Net unrealized depreciation $(68,784) ========
At October 31, 1995, the Fund had sufficient cash and/or securities to cover any commitments under these contracts. Federal income taxes, dividends and distributions to shareholders-- No provision is made for federal income taxes since the Fund elected to be taxed as a "regulated investment company" and makes 33 such distributions to its shareholders as to be relieved of all federal income taxes under provisions of current federal tax law. 2. TRANSACTIONS WITH AFFILIATES The Fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Fund pays the Adviser monthly fees at the annual rate of 1% of the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets and .90% of the net assets of the Fund in excess of $5 billion as determined at the end of each preceding calendar month. The investment advisory agreement of the Fund provides that the Adviser will reimburse the Fund to the extent that its annual expenses, excluding certain expenses, exceed the applicable limits prescribed by any state in which the Fund's shares are offered for sale. In connection with the organization of the Fund, expenses of approximately $47,000 have been advanced to the Fund by the Adviser. These expenses are being reimbursed to the Adviser by the Fund on a straight line basis through September, 1997. Certain officers and trustees of the Fund are also executives and employees of the Adviser. The Fund makes no direct payments to its officers who are affiliated with the Adviser. The Fund paid trustees fees of $18,580 in 1995 and $15,000 in 1994 to trustees not affiliated with the Adviser. During the period ended October 31, 1995, the Fund incurred broker commissions of $2,609,780, of which $71,600 were paid to an affiliate of the Adviser. 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):
Year ended Year ended October 31, 1995 October 31, 1994 - ---------------------------------------------------------- Shares sold 24,062 104,988 Shares issued in rein- vestment of dividends 6,472 1,091 Less shares redeemed (56,012) (75,240) ------- ------- Net (decrease) increase in shares outstanding (25,478) 30,839 ======= =======
4. INVESTMENT TRANSACTIONS
Year ended Year ended October 31, 1995 October 31, 1994 - ------------------------------------------------------------------------------ Investment securities (excluding short term securities) in thousands: Purchases $251,353 $1,121,268 Proceeds from sales 671,180 682,450 ======== ==========
34 THE OAKMARK INTERNATIONAL FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended October 31, Period ended 1995 1994 1993 Oct. 31, 1992(a) - ------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PE- RIOD $14.50 $14.09 $ 9.80 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) (0.77) 0.43 4.48 (0.46) ------ -------- ------ ------ Total From Investment Operations (0.47) 0.64 4.54 (0.20) Less Distributions Dividends (from net investment income) -- (0.08) (0.25) -- Distributions (from capital gains) (1.06) (0.15) -- -- ------ -------- ------ ------ Total Distributions (1.06) (0.23) (0.25) -- ------ -------- ------ ------ Net Asset Value, End of Period $12.97 $14.50 $14.09 $ 9.80 ====== ======== ====== ====== Total Return (3.06)% 4.62% 47.49% (22.81)%* RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period ($mil- lion) $819.7 $1,286.0 $815.4 $23.5 Ratio of Expenses to Average Net Assets 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income (Loss) to Av- erage Net Assets 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 27% 55% 21% 0%
- ----------- *Ratios for the period have been determined on an annualized basis. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. 35 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 and Oakmark International Fund (each a series of Harris Associates Investment Trust), including the schedules of investments, as of October 31, 1995, 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 October 31, 1995, 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 and Oakmark International Fund of the Harris Associates Investment Trust as of October 31, 1995, 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 December 5, 1995 36 THE OAKMARK FUNDS' ANNUAL REPORT OCTOBER 31, 1995 TRUSTEES AND OFFICERS TRUSTEES Christine M. Bucher Allan J. Reich James W. Ford Burton W. Ruder Michael J. Friduss Peter S. Voss Thomas H. Hayden Gary Wilner, M.D. OFFICERS Victor A. Morgenstern--President Robert J. Sanborn--Executive Vice President David G. Herro--Vice President Clyde S. McGregor--Vice President Steven J. Reid--Vice President Adam Schor--Assistant Vice President Michael J. Welsh--Assistant Vice President Donald Terao--Treasurer Anita M. Nagler--Secretary Lauren B. Pitalis--Vice President--Shareholder Operations and Assistant Secretary Kristi L. Rowsell--Assistant Treasurer OTHER INFORMATION TRANSFER AGENT State Street Bank and Trust Company Attention: The Oakmark Family of Funds P.O. Box 8510 Boston, Massachusetts 02266-8510 1-800-626-9392 INVESTMENT ADVISER Harris Associates L.P. LEGAL COUNSEL Bell, Boyd & Lloyd Chicago, Illinois INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen & Co. Chicago, Illinois ADDRESS OF FUND AND ADVISER Two North LaSalle Street, Suite 500 Chicago, Illinois 60602 1-800-OAKMARK (1-800-625-6275) 24-HOUR NAV INFORMATION 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. 37 [LOGO OF THE OAKMARK FUND] Harris Associates L.P. 2 North LaSalle Street Chicago, IL 60602 1-800-OAKMARK -----END PRIVACY-ENHANCED MESSAGE-----