-----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, OMfvBKcx8UkvDPGj/4BOdk7ZWjhIEmQrvoPPuuS6WlZtN/ZrZRDG8dTIk7CRXJrn C/DLAghlZbGpi8lvYT/L+A== 0000950131-96-001152.txt : 19960321 0000950131-96-001152.hdr.sgml : 19960321 ACCESSION NUMBER: 0000950131-96-001152 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960320 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-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-06279 FILM NUMBER: 96536559 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-30B-2 1 QUARTERLY REPORT (Logo of Company) The Oakmark Fund The Oakmark Family of Funds The FIRST Oakmark QUARTER Small Cap REPORT Fund -------------------- January 31, 1996 The -------------------- Oakmark Balanced Fund MEMBER OF ---------------- The 100% NO-LOAD Oakmark MUTUAL FUND International COUNCIL Fund ---------------- No-Load Funds Managed by The Harris Associates L.P. Oakmark Int'l Emerging Value Fund [LOGO] The Oakmark Family of Funds 1996 FIRST QUARTER REPORT TABLE OF CONTENTS
Letter from the President............... 1 The Oakmark Funds Summary............... 2 The Oakmark Fund........................ Performance Chart.................... 4 Letter from the Portfolio Manager.... 4 Schedule of Investments.............. 8 The Oakmark Small Cap Fund Performance Information.............. 11 Letter from the Portfolio Manager.... 11 Schedule of Investments.............. 14 The Oakmark Balanced Fund Performance Information.............. 16 Letter from the Portfolio Manager.... 16 Schedule of Investments.............. 18 The Oakmark International Fund Performance Chart.................... 20 Letter from the Portfolio Managers... 20 Schedule of Investments.............. 23 The Oakmark Int'l Emerging Value Fund Performance Information.............. 29 Letter from the Portfolio Managers... 29 Schedule of Investments.............. 31 Trustees and Officers................... 37 Other Important Information............. 37
QUESTIONS ABOUT YOUR ACCOUNT: If you have questions about your account, please call the Funds' transfer agent at 1-800-626-9392. 24-HOUR NET ASSET VALUE HOTLINE: To obtain the current net asset value per share of any Fund, please call 1-800-GROWOAK (1-800-476-9625). HARRIS ASSOCIATES INVESTMENT TRUST THE OAKMARK FUNDS FIRST QUARTER REPORT 1996 LETTER FROM THE PRESIDENT Fellow shareholders: I am pleased to report that overall The Oakmark Fund Family had a good first fiscal quarter ending January 31, 1996. Our flagship funds, The Oakmark Fund and The Oakmark International Fund, both achieved double digit returns, and our three new funds are off to a good start, as each had positive returns through the initial start-up period. We have continually received positive comments from you about Robert Sanborn's and David Herro's shareholder letters. Thus, I am pleased to highlight the addition of Steven Reid's, Clyde McGregor's, and Adam Schor's shareholder letters. Each one can be found in their respective fund sections. We now have over 1000 shareholders in each of The Oakmark Small Cap and The Oakmark International Emerging Value Funds, and therefore, they are included in the newspaper listing under the OAKMARK heading. The Oakmark Balanced Fund should be included shortly. After the large gains in 1995, the U.S. market is starting to experience increased volatility. As long-term investors, we have learned that such periods usually create buying opportunities for us to purchase securities at attractive valuations, as prices are driven by short-term emotional sentiment. We urge you to continue to focus on long-term performance and use periods of weakness to add to investment positions in The Oakmark Funds. We also would like to remind you that April 15, 1996 is the deadline for IRA contributions for 1995. Sincerely, /s/ Victor Morgenstern VICTOR A. MORGENSTERN President THE OAKMARK FUNDS FAMILY SUMMARY INFORMATION* PERFORMANCE FOR PERIOD ENDED JANUARY 31, 1996
OAKMARK SMALL CAP 3 Months 11.40% 1.80% 6 Months 16.90% N/A Annualized Performance for: 1 Year 36.30% N/A 3 Years 21.90% N/A Since Inception 33.10% 1.80% Value of $10,000 $ 36,091 $ 10,180 from inception date 08/05/91 11/01/95
TOP FIVE HOLDINGS AS OF JANUARY 31, 1996
Company and Philip Morris Amerin Corporation 4.88% % of Total Net Companies 6.09% SPX Corporation 3.63% Assets Mellon Bank Harbor Fed Svgs Bk Fl 3.45% Corporation 5.11% Northwest Savings Lockheed Martin Bank 3.25% Corporation 4.87% Cap Mac Holdings Inc. 3.17% First USA, Inc. 4.81% USWest Media Group 4.00%
TOP FIVE INDUSTRIES AS OF JANUARY 31, 1996
Industries and Food & Beverage 14.80% Other Industrial Goods % of Total Net Broadcasting & & Services 19.20% Assets Publishing 14.00% Machinery & Metal Other Consumer Goods Processing 14.80% and Services 10.40% Banks 12.80% Other Financial 8.80% Insurance 9.90% Aerospace & Defense 7.00% Broadcasting & Publishing 8.70%
*The Oakmark Fund's average annual total return for the twelve months ended December 31, 1995 and the period August 5, 1991 (inception) through December 31, 1995 was 33.4% and 33.0%, respectively. The Oakmark Small Cap Fund's total return for November 1, 1995 (inception) through December 31, 1995 was 3.30%. The Oakmark Balanced Fund's total return for November 1, 1995 (inception) through December 31, 1995 was 2.40%. 2
BALANCED INTERNATIONAL INT'L EMERGING VALUE -------- ------------- -------------------- 2.90% 10.80% 5.30% N/A 4.80% N/A N/A 18.60% N/A N/A 14.50% N/A 2.90% 15.70% 5.30% $10,290 $16,248 $10,530 11/01/95 09/30/92 11/01/95
Juno Lighting 3.55% Cordiant PLC 6.70% Grupo Herdez 4.37% Promus Hotel Corp 3.51% AB Volvo 3.97% Codiant PLC 3.72% US West Media Group 3.46% Kvaerner 3.72% Danieli & Company 3.63% H J Heinz Co 3.42% Telefonos de Mexico, Sanford 3.55% Mellon Bank Corp 3.31% S.A. de C.V. 3.70% Uralita 3.54% Usiminas 3.55% U.S. Treasuries 23.80% Other Industrial Goods Other Industrial Goods Other Consumer Goods & Services 12.90% & Services 13.50% & Services 16.10% Banks 11.20% Industrial Broadcasting & Aerospace 7.60% Components 6.70% Publishing 11.00% Telecommunications 6.80% Mining & Building Other Industrial Goods Marketing Services 6.70% Materials 6.50% & Services 6.90% Machinery & Metal Corporate Bonds 5.40% Processing 6.40% Food & Beverage 6.40%
The Oakmark International Fund's average annual total return for the twelve months ended December 31, 1995 and the period September 30, 1992 (inception) through December 31, 1995 was 8.3% and 13.7%, respectively. The Oakmark International Emerging Value Fund's total return for November 1, 1995 (inception) through December 31, 1995 was (3.70)%. The Funds' past performances are no guarantee of future results. Share prices and investment returns will vary, so you may have a gain or loss when you sell shares. 3 Oakmark Fund THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (1/31/96) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX. [GRAPH APPEARS HERE] [PLOT POINTS TO COME] 1/31/96 NAV $30.56
Average Annual Total Return* Through 1/31/96 -------------------------------- Total Return Total Return From Fund Inception Last 3 mos. Last 6 mos. From 1/31/95 8/5/91 ------------ ------------ ------------ ------------------- THE OAKMARK FUND 11.4% 16.9% 36.3% 33.1% Standard & Poor's 500 Stock Index* 10.0% 14.5% 38.7% 14.9% Dow-Jones Industrial Average* 14.1% 15.9% 43.8% 17.0% Value Line Composite Index* 5.4% 3.5% 20.4% 7.5%
*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. THE OAKMARK FUND REPORT FROM ROBERT J. SANBORN, PORTFOLIO MANAGER Dear Fellow Shareholders: SMOKIN' . . . Company A is a very large public company. Over the past ten years, its operating profit per share has grown at 17.2 percent per year; the Value Line Industrial Composite has grown at 6.1 percent. Over the last ten years, A's Return on Assets (ROA) has averaged 16.5 percent, compared to the Composite of 9.2 percent. In my estimation, long-term ROA is the single best indicator of the quality of a business. 4 Oakmark Fund Company A dominates its business. Its market share in its primary business inside the US (47%) and outside the US (14%) are at all-time highs. Its customers are extremely loyal, perhaps as loyal as customers are to any other mass consumer product in the world. Its growth outside of the US is tremendous, with double-digit volume growth and over 16 percent operating profit growth in 1995. A makes more profits than all of its competitors combined. Take a guess at A's identity. Microsoft? No. Coca-Cola? No. Good guesses, though. Here's a hint. A was the last entrant in its category (in 1917!!), is the top-performing stock from the original Fortune 500 of 40 years ago, and sells at only 70 percent of the valuation of the Value Line Industrial Composite. OK, I'll tell you. Company A is Philip Morris, your Fund's largest holding, and the best business I have ever encountered. It is controversial for sure, and I have heard from many of you. My personal view on smoking--that it is probably risky, as is driving, eating a lot of Ding-Dongs, and many other activities, but that the consumer has concluded that the benefits outweigh the risks--is irrelevant, because we have a legal obligation to invest in those securities that best meet our investment criteria. Philip Morris generates almost two-thirds of its profits from its tobacco business, which is (in terms of profits) half domestic, half international. The Marlboro brand represents more than half of the Company's worldwide units, and a far higher percentage of its profits. Marlboro is undoubtedly the most valuable brand on the planet. Its billboards are instantly recognizable even without the product's name highlighted, and the brand epitomizes the outdoors, individualism, and freedom. Marlboro was actually a brand targeted to females that was transformed into the juggernaut it is by the most famous advertising campaign in history. More important, Philip Morris has marketed the product consistently for decades. Its recent efforts with its "Marlboro Country Store" and "Marlboro Action Team" promotions have been spectacularly successful in reinforcing the Marlboro brand imagery. No other product has ever--ever--been as well-marketed as Marlboro. Philip Morris is a cash-generating monster. It pays a hefty dividend that rises with earnings, makes complementary acquisitions, and has had to make significant investments in strengthening an already-powerful global distribution system. Nevertheless, Philip Morris has been repurchasing its shares (and retiring its debt) in the marketplace, having retired 12 percent in the last five years. In previous letters, I have stated that we believe this is a particularly efficient way to return cash to shareholders. One of your Fund's investment guidelines is to invest with owner-oriented management. I have a very high degree of confidence in this management team. MO has not gotten complacent despite its success. As CEO Geoffrey Bible stated in last year's annual report, "Our all-consuming ambition is to create wealth for owners of Philip Morris. And the best way to do that over the long term is to continue growing profitably and delivering strong cash flows in each of our 5 Oakmark Fund core businesses . . . I'm confident we can do it, and at rates that compare quite favorably with our global competitors and the rest of corporate America." I have had the pleasure of visiting Mr. Bible and company officers Murray Bring and Herbert Millington at MO's headquarters in New York, and I can only relate my positive impression of MO's leadership. They are informal, approachable people, yet with a deep understanding of what will add value to the company they steward. So, we have a great, great business--high returns, extremely high barriers to entry, excellent growth opportunities--with strong management and yet MO trades at only seven times this year's expected operating earnings plus amortization. That is a bargain, and the litigation that has hung over the industry for decades is the leading culprit. While we are confident that the litigation issue will eventually go away without material impact on Philip Morris, I must admit that there is more than average event risk in this holding. However, we believe that we are more than getting paid for our risk. PULL THOSE STAKES!! . . . Shareholders of public companies elect directors, who appoint and oversee management. In our view, management has one mission: to maximize the long-term value per share of the company. Period. Now, politicians of both major parties are arguing that corporations have broader responsibilities. The current Secretary of Labor, Robert Reich (who appeared earlier in these pages advocating that pension funds earmark a portion of their assets to "raise incomes and spark new jobs") and Senator Ted Kennedy say that the federal government should provide incentives for "good" corporate citizenship. Senator Bob Dole recently criticized "corporate greed" and noted that "corporate profits are setting records and so are corporate layoffs." The core of Pat Buchanan's Presidential campaign is an appeal to American workers who fear economic insecurity. Reich suggests that corporate taxes might be adjusted to encourage companies to resist layoffs. Senator Kennedy wants to reward certain "responsible" companies with "most favored company" status. They would earn this prize, and some goodies, for their record in "creating jobs, avoiding layoffs simply to maximize profits, paying adequate wages" and so forth. [Folks, this is all nonsense. Maximizing profits is, after all, the basis of the capitalistic system. Profits allow companies to hire and pay workers. Does Senator Kennedy really believe that companies lay off workers simply to benefit short-term profits? Can you imagine establishing laws and the inevitable bureaucracies to determine which companies are "responsible" and which are not?] Tony Blair, the Labour MP and possible next Prime Minister of Britain, has coined the term "stakeholder capitalism" to describe corporate behavior that goes beyond mere profit maximization. This is the German and Japanese form of capitalism, which includes lifetime employment for many in the corporate sector. The irony of the current infatuation with stakeholder capitalism in the 6 Oakmark Fund US and Britain is that the commitment to stakeholder capitalism in Germany and Japan is waning. Both countries are experiencing a decline in their competitiveness, especially relative to the US. Germany's high cost of production is causing severe problems. In Japan, huge numbers of employed but essentially non-contributing workers (in Japan, they are called "the tribe that sits by the windows") are rendering companies uncompetitive, causing strains within companies, and retarding returns to shareholders. Despite the headlines, the US is producing record industrial production and exports, and American industry is as competitive as it has been in decades. There has always been job insecurity. Government will never be able to eliminate it (although the USSR sure made a decent attempt). The current wailing by politicians of various stripes has exacerbated the perception of insecurity far more than the reality. As Robert Samuelson writes in Newsweek, layoffs account for only a trivially larger share of unemployment compared to the 1970s. Second, a University of Maryland study concludes that trade costs 11.4 million jobs and creates 10.0 million jobs. Since the US is a high value- added economy, the jobs created are better than the jobs lost. What does this have to do with The Oakmark Fund? Well, if any of these proposals were to ever become law, some of our companies might be run differently. They would not be able to initiate the kinds of down-sizing that makes them more competitive and more profitable. They would be forced to be inefficient. Wages would really stagnate. Companies would have to establish departments that would have to interface with the new bureaucrats. Returns to you, the shareholder, would decline. The only winners would be the Washington bureaucrats. Most of the advocates of these proposals forget that the vast majority of investors are also employees. As an employee, we want wages, benefits, and the opportunity to grow. As an investor, via a profit-sharing plan, an IRA or whatever, we want companies to be run for the benefit of their owners--us! Blurring these relationships will only send more power to Washington and subsidize people in jobs that should not exist. At the turn of this century, more than 40 percent of the US work force was in agriculture. Today, less than 5 percent of our labor force is in farming, output has soared, and we are the envy of the world. We should not lament the fact that 35 percent of the work force "lost" jobs. These people devoted their energies and talents to other areas, and we are all better for it. It is high time that we recognize these simple truths. We cannot eliminate economic insecurity, but we can extract more from our economy. Do not discourage capital formation as we do in the US. Make it easy for new companies to start up. Reduce the crippling over-regulation of business. And develop the best-educated work force in the world. ROBERT J. SANBORN Portfolio Manager harjs@aol.com February 24, 1996 7 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 Oakmark Fund
Shares Held Common Stocks Market Value - ------------------------------------------------------------------------- COMMON STOCKS--90.8% FOOD & BEVERAGE--14.8% 2,381,500 Philip Morris Companies Inc. $ 221,479,500 1,669,100 Anheuser-Busch Companies, Inc. 116,002,450 2,597,250 H.J. Heinz Company 89,280,468 2,122,100 Nabisco Holdings Corp. 73,742,974 1,571,900 Interstate Bakeries 33,206,388 200,000 International Dairy Queen, Inc. Class A (a) 4,350,000 -------------- 538,061,780 APPAREL--.2% 388,500 K-Swiss Inc. Class A 3,982,124 620,600 J. Baker Inc. 2,831,488 -------------- 6,813,612 RETAIL--4.1% 3,705,500 Federated Department Stores, Inc. (a) 100,048,500 1,600,000 Zale Corporation (a) 22,100,000 1,000,000 Carson Pirie Scott & Co. (a) 17,875,000 600,000 Cole National Corporation Class A (a) 6,450,000 445,000 Best Products Co., Inc. (a) 1,807,812 53,800 Rex Stores Corporation (a) 699,400 -------------- 148,980,712 OTHER CONSUMER GOODS & SERVICES--10.4% 3,340,200 The Black & Decker Corporation 113,149,274 2,032,800 American Brands, Inc. 92,746,500 477,700 The Clorox Company 39,469,962 470,200 First Brands Corporation 23,216,125 957,500 Whitman Corporation 21,783,125 583,800 GC Companies, Inc. (a) 20,068,125 885,000 JUNO Lighting Inc. 14,381,250 400,000 Stanhome Inc. 10,700,000 757,500 Arctco Inc. 8,427,188 601,500 Justin Industries, Inc. 6,541,313 281,500 Rollins, Inc. 6,122,625 257,600 Paragon Trade Brands, Inc. (a) 5,570,600 395,000 Mikasa, Inc. (a) 4,986,875 100,000 Alberto-Culver Company 3,350,000 225,525 Rauch Industries, Inc. 2,875,444 51,500 Polaroid Corporation 2,311,063 107,000 Armor All Products Corp. 1,631,750 304,000 Drypers Corporation (a) 988,000 -------------- 378,319,219 OIL--.3% 270,000 Murphy Oil Corporation 11,373,750 BANKS--5.2% 3,506,550 Mellon Bank Corporation 185,847,150 340,000 River Bank America (a) 2,975,000 -------------- 188,822,150
8 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) Oakmark Fund
Shares Held Common Stocks Market Value - ------------------------------------------------------------------------------- INSURANCE--6.2% 2,947,000 Torchmark Corporation $ 139,614,125 953,200 Old Republic International 33,481,150 984,700 American Financial Group, Inc. 32,002,750 501,300 Acordia, Inc. 14,851,013 221,200 MAIC Holdings, Inc. (a) 7,023,100 85,000 Meridian Insurance Group 1,211,250 -------------- 228,183,388 OTHER FINANCIAL--8.8% 3,358,000 First USA, Inc. 175,035,750 2,194,900 AMBAC Inc. 105,080,838 620,000 Capital One Financial Corporation 16,662,500 204,400 Fund American Enterprises Holdings, Inc. (a) 15,738,800 102,200 White River Corporation (a) 3,730,300 330,000 Duff & Phelps Corporation 2,268,750 33,000 Duff & Phelps Corporation Preferred Con. Series A Exchangable 845,625 -------------- 319,362,563 BROADCASTING & PUBLISHING--14% 6,894,600 US West Media Group 145,648,424 2,149,400 Knight-Ridder, Inc. 142,666,426 6,729,179 Tele-Communications, Inc. Class A (a) 142,153,906 1,432,294 TCI Communications, Inc. (a) 39,209,048 500,000 Gannett 31,750,000 500,000 Adelphia Communications Corp. (a) 3,750,000 200,000 Jones Intercable, Inc. Class A (a) 2,475,000 -------------- 507,652,804 COMPUTER SYSTEMS--.6% 999,000 Control Data Systems, Inc. (a) 17,357,625 210,000 InaCom Corporation (a) 3,255,000 -------------- 20,612,625 PHARMACEUTICAL--2.7% 975,000 American Home Products Corporation 99,450,000 MANAGED CARE SERVICES--2.7% 1,740,000 Foundation Health Corporation (a) 75,255,000 420,000 Physicians Health Services, Inc. (a) 15,120,000 500,000 Laboratory Corporation of America Holdings 4,187,500 270,000 Right CHOICE Managed Care, Inc. (a) 3,948,750 -------------- 98,511,250 MEDICAL PRODUCTS--1.6% 1,297,800 Sybron Corporation (a) 31,471,650 550,000 Spacelabs Medical, Inc. (a) 14,850,000 303,000 St. Jude Medical, Inc. (a) 13,369,875 -------------- 59,691,525 AEROSPACE & DEFENSE--7.0% 2,351,750 Lockheed Martin Corporation 177,263,156 610,000 McDonnell Douglas Corporation 54,290,000 779,600 Logicon, Inc. 21,341,550 -------------- 252,894,706
9 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) Oakmark Fund
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) 2,404,688 OTHER INDUSTRIAL GOODS & SERVICES--5.2% 1,999,700 The Geon Company 55,991,600 508,000 Great Lakes Chemical Corporation 37,909,500 1,054,100 James River Corporation 27,670,125 426,000 Bandag, Incorporated Class A 21,619,500 550,000 OM Group, Inc. 18,150,000 880,400 SPX Corporation 12,985,900 190,000 USG Corp. (a) 5,652,500 170,000 UCAR International Inc. (a) 5,291,250 182,600 Amtrol Inc. 3,012,900 60,200 Exide Corporation 1,715,700 50,000 Griffon Corporation (a) 462,500 -------------- 190,461,475 COMMERCIAL REAL ESTATE--.9% 2,190,800 Host Marriott Corporation (a) 25,194,200 585,700 Catellus Development Corporation (a) 4,246,325 333,080 Host Marriott Services Corporation (a) 2,123,385 -------------- 31,563,910 FOREIGN SECURITIES--6.0% 2,650,000 DeBeers Consolidated Mines Limited ADR (b) 90,431,250 3,276,500 YPF Sociedad Anonima (b) 74,130,813 888,200 Telefonos de Mexico, S.A. de C.V. (b) 30,087,775 547,700 EVC International NV 15,428,169 697,500 Scitex Corporation Limited 9,765,000 -------------- 219,843,007 TOTAL COMMON STOCKS 3,303,116,602
COMMERCIAL PAPER--9.2% American Express Credit Corp., 5.45% - 5.70% due 02/01/96 - 02/13/96 $ 45,000,000 Ford Motor Credit Corp., 5.36% - 5.58% due 02/01/96 - 03/08/96 171,000,000 General Electric Capital Corp., 5.38% - 5.70% due 02/02/96 - 03/07/96 120,000,000 -------------- TOTAL COMMERCIAL PAPER 336,000,000 -------------- Total Investments--100% 3,639,116,602 Other liabilities, less other assets--0% (1,781,080) -------------- TOTAL NET ASSETS--100% $3,637,335,522 ==============
- ---------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. For the fund's fiscal year ended October 31, 1995, the portfolio turnover was 18% and the fund's expense ratio was 1.17%. 10 Small Cap THE OAKMARK SMALL CAP FUND RESULTS FROM NOVEMBER 1, 1995 (INCEPTION) THRU JANUARY 31, 1996* The Oakmark Small Cap Fund................................................. 1.8% Lipper Small Co. Growth.................................................... 4.0% Russell 2000............................................................... 6.5% S&P 600.................................................................... 5.2%
*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 Lipper Small Company Growth 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 a small market capitalization. Past performance is no guarantee of future results. REPORT FROM STEVEN J. REID, PORTFOLIO MANAGER I am pleased to have the opportunity to address you, the Fund's owners. In this report, I will explain our investment philosophy, the universe of securities in which we invest, and describe some of the holdings of the Fund. INVESTMENT PHILOSOPHY For those of you that are familiar with The Oakmark Family of Funds, what I have to say about our investment philosophy will be extremely familiar; for those of you who are not familiar with The Oakmark Funds, I hope to enlighten you. The Oakmark Small Cap Fund uses the same value-oriented investment philosophy that Harris Associates has employed for over twenty years. The philosophy is intellectually coherent and has served our clients well. The primary tenet of our investment philosophy is to invest in securities that are selling at a significant discount to their underlying value. We define underlying value, or business value, as what a rational business person would pay to own the entire business. In our effort to find securities that meet this criterion, there are four important factors that shape our investment perspective: . We are long-term investors. We view investing not as a sprint but as a marathon. Our investment horizon is long because the businesses in which we invest do not produce faddish results: they build value through the goods or services they produce over the long term. . We are bottom-up, not top-down investors. We do not make forecasts of the stock market, the economy, or interest rates. We research and evaluate every security in which we invest on its own merit. . We invest with owner-oriented managers. We look for management that has a direct stake in the business and whose incentives are tied to growing the value of the business. 11 Small Cap . We are conscious of the costs of investing. Trading has its costs in the form of commissions, capital gains taxes and price impacts. The portfolio will be adequately diversified, but not over-diversified. In summary, we seek to invest in undervalued securities of companies that have excellent long-term prospects with owner-oriented managers. In future quarterlies, I will refer to these basic tenets when discussing the portfolio's investments. THE SMALL CAP INVESTMENT UNIVERSE What is the Small Cap Investment universe? This is a question that is open to interpretation and for which there is no exact definition. Your fund does not hold household names; they are orphans on Wall Street. They may be unknown, unloved, and underfollowed. Most important, they are undervalued and present excellent investment opportunities. I am often asked to quantify the Small Cap universe in terms of market capitalization. Market capitalization is defined as the number of shares outstanding of a company's stock multiplied by the market price. As a reference point, it is worth looking at the market indices that most closely measure the investment universe from which your fund invests. These indices are the Russell 2000 and the S&P Small Cap 600. Within these indices there are companies whose market capitalization range from less than $50 million to greater than $1 billion. The companies in our portfolio have an average market capitalization of about $300 million. Since market capitalization is a function of share price, it is in our best interest to see the indices' market capitalization grow, and your Fund with it, hopefully at a faster rate than the indices. THE HOLDINGS The holdings of your Fund are an eclectic collection of niche producers of goods and services. Our largest holding is Amerin Corporation, a provider of private mortgage insurance. The company was formed by experienced industry executives who, with their own capital and help from others, were able to break through what was once thought to be oligolpolistic barriers of entry into the industry. Today, through their entrepreneurial leadership, they have garnered a 6% market share and are reshaping the distribution system of the industry. 12 Small Cap Another significant holding is Goodmark Foods. Goodmark products are almost unavoidable to anyone who ventures to the checkout line of a convenience store. They are the producer of "Slim Jims" and beef jerky. You may be surprised to know that meat snacks are one of the fastest-growing items among snack foods. Management purchased the company almost fifteen years ago from General Mills in an LBO, and owns 35% of the company. Another unique holding in your Fund is Matthews International, which is the largest manufacturer of a product none of us want to use for a long, long time: cast bronze memorials. The company, which is almost entirely employee-owned, also provides printing and graphics products and services. We were able to purchase the shares of Matthews International because several retirees made their stock available to us. Again, welcome to The Oakmark Small Cap Fund. I am very excited about our investments and look forward to our next quarterly report. As shareholders, you should know that the vast majority of my investable assets are in the Fund. In closing, I would like to thank everyone involved, including our shareholders, for helping to launch the Fund. STEVEN J. REID Portfolio Manager harjs@aol.com February 24, 1996 13 THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 Small Cap
Shares Market Held Common Stocks Value - ---------------------------------------------------------------------- COMMON STOCKS--93.4% FOOD & BEVERAGE--7.1% 50,000 GoodMark Foods, Inc. $ 818,750 40,000 J.M. Smucker Company 750,000 25,000 Eskimo Pie Corporation 456,250 ----------- 2,025,000 RETAIL--5.0% 44,000 Carson Pirie Scott & Co. (a) 786,500 60,000 Cole National Corporation (a) 645,000 ----------- 1,431,500 OTHER CONSUMER GOODS & SERVICES--7.4% 15,000 First Brands Corporation 740,625 50,000 Justin Industries, Inc. 543,750 30,000 JUNO Lighting Inc. 487,500 30,000 Arctco Inc. 333,750 ----------- 2,105,625 BANKS--12.8% 40,000 Harbor Federal Savings Bank 990,000 40,000 Northwest Savings Bank 935,000 45,000 Peoples Bank of Bridgeport Conn 894,375 35,500 Pocahontas Federal Savings & Loan Association 568,000 18,000 Savings Bank of Finger Lakes 297,000 ----------- 3,684,375 INSURANCE--9.9% 54,200 Amerin Guaranty Corporation 1,402,425 40,000 CapMAC Holdings Inc. 910,000 40,000 Life Partners Group, Inc. 525,000 ----------- 2,837,425 OTHER FINANCIAL--1.8% 34,000 Duff & Phelps Credit Rating Co. 522,750 BROADCASTING & PUBLISHING--8.7% 40,000 Big Flower Press Holdings, Inc. 600,000 24,000 Lee Enterprises, Incorporated 501,000 40,000 Jones Intercable, Inc. (a) 495,000 105,000 Graff Pay-Per-View Inc. 472,500 45,000 Granite Broadcasting Corporation 430,313 ----------- 2,498,813 MANAGED CARE SERVICES--1.6% 50,000 Healthcare Services Group, Inc. 468,750
14 THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) Small Cap
Shares Market Held Common Stocks Value - --------------------------------------------------------------------------- MACHINERY AND METAL PROCESSING--14.8% 36,000 Kysor Industrial Corporation $ 873,000 50,000 The Carbide/Graphite Group, Inc. 800,000 40,000 Matthews International Corporation 860,000 100,000 Sudbury, Inc. 812,500 50,000 Northwest Pipe Company 575,000 35,000 Stimsonite Corporation 319,375 ----------- 4,239,875 OTHER INDUSTRIAL GOODS & SERVICES--19.2% 70,700 SPX Corporation 1,042,825 50,000 Amtrol Inc. 825,000 20,000 Fisher Scientific International Inc. 705,000 60,000 Rexene Corporation 637,500 100,000 Dorsey Trailers, Inc. 525,000 50,000 Griffon Corporation (a) 462,500 40,000 Barefoot Inc. 450,000 100,000 Repap Enterprises Incorporated 443,750 35,000 Offshore Logistics, Inc. 437,500 ----------- 5,529,075 COMMERCIAL REAL ESTATE--2.0% 80,000 Catellus Development Corporation (a) 580,000 DIVERSIFIED CONGLOMERATES--3.1% 50,000 U.S. Industries, Inc. 900,000 FIXED INCOME--2.9% CORPORATE BONDS 3,000,000 Harrah's Jazz Bonds 14.25% 11/15/2001 832,500 TOTAL CORPORATE BONDS 832,500 =========== SHORT TERM INVESTMENTS Principal Value Repurchase Agreement - --------------------------------------------------------------------------- 1,533,000 State Street Bank Repurchase Agreement, 5.50% Due 02/01/1996 (Collateralized by US Treasury Obligations) 1,533,000 TOTAL SHORT TERM--5.3% 1,533,000 Total Investments--101.6% 29,188,688 Other liabilities, less other assets--(1.6%) (463,438) TOTAL NET ASSETS--100% $28,725,250 ===========
- ---------- Notes: (a)Non-income producing security. 15 Balanced THE OAKMARK BALANCED FUND RESULTS FROM NOVEMBER 1, 1995 (INCEPTION) THRU JANUARY 31, 1996* The Oakmark Balanced Fund................................................. 2.9% Lipper Balanced Fund Comp................................................. 6.4% Value Line................................................................ 5.4% S&P 500................................................................... 10.0%
*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 Lipper Balanced Fund Index Composite is comprised of 30 Balanced Funds. The Value Line index is an unweighted average of more than 1,000 stocks. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. Past performance is no guarantee of future results. REPORT FROM CLYDE S. MCGREGOR, PORTFOLIO MANAGER Greetings from The Oakmark Balanced Fund! The goal for The Balanced Fund is to produce attractive rates of return with attention to preservation of capital and current income. Our investment philosophy is based on the simple observation that purchasing something for less than it is worth is usually a good thing to do. It is even better when that something is actually a business where people are working hard to make the enterprise value grow. We do not put much faith in prognostications about the future, so we will only pay for what we can measure right now. And, we place great importance in the attitude of corporate managers toward their responsibilities. We invest only where we are comfortable that management acts as if their shareholders are their partners. My colleague Robert Sanborn of The Oakmark Fund has discussed our corporate investment philosophy in detail in previous shareholder letters. The Balanced Fund adheres to the same philosophy. (In fact, 90% of the equities in The Balanced Fund are also held in The Oakmark Fund or The Oakmark Small Cap Fund.) Rather than elaborate on philosophy, it is important that this inaugural report describe our concept of a balanced fund. 1) A balanced fund is an integrated unit. In The Oakmark Balanced Fund we blend together different types of assets to achieve your investment goals. Often investors understand balanced portfolios to be an aggregation of independent segments. We disagree. The component parts of The Oakmark Balanced Fund should work together like the sections of a finely tuned orchestra. 2) The stocks we buy affect our choices of fixed income holdings. Nothing is done in a vacuum. If the Fund's allocation to equities is high, we will orient the fixed income allocation to Treasury notes. Each security in the Fund competes with all other holdings. 3) Our ability to find attractive investment opportunities drives the Fund's asset allocation. Our investing process moves from the bottom up. If we find good stock ideas to be plentiful, the Fund's allocation to 16 Balanced equities will approach the fully invested position of 65%. Or, if we determine that corporate bonds offer compelling rates of return, we will emphasize that sector. We do, however, intend to keep at least 25% of the portfolio invested in US Treasury issues. 4) We do not equate volatility with risk. The academic community describes risk by measuring how much the price of a security fluctuates--both down and up. I think of risk as the probability of losing money in an investment. My focus is to minimize the Fund's downside risk while positioning the portfolio to capture upside volatility. CURRENT PORTFOLIO Clients often ask us our opinions concerning politics, the economy, and other "big picture" items. Harris Associates investment personnel are knowledgeable in these areas, but we prefer to talk about securities. I expect to review interesting issues in the portfolio as a regular feature of these reports. Your portfolio betrays some of the biases of the portfolio manager. Of the twenty companies which have stocks represented in the Fund, three are headquartered in Pittsburgh, my birthplace. Amsco International, which makes sterilizing equipment for hospitals, announced an agreement to merge with Steris Corp. soon after we purchased our holding. Heinz is an above average company with strong growth prospects but only an average stock market valuation. Mellon Bank is attractive because the market prices the stock like other regional banks even though a large portion of the company's earnings derive from investment management activities. The equity portfolio has a large commitment to the media industry. This does not merely reflect the fact that I analyzed media stocks for many years. We believe that issues in the newspaper and cable TV industries are significantly undervalued. Many newspaper company stocks have only recently exceeded their 1987 highs even though their earnings have shown solid growth. As well, cable TV companies have suffered the impact of unfavorable regulation for the last two years; recent events in Washington suggest a trend improvement. We are pleased that the market, despite its elevated level, continues to offer the opportunity to buy shares of good businesses at good prices. This is particularly important to me because my wife and I are the Fund's largest shareholders. (At Harris Associates we believe in eating our own cooking.) Feel free to write or E-mail me with your questions or comments. Welcome to the Fund. CLYDE S. MCGREGOR Portfolio Manager hacsm@aol.com March 11, 1996 17 THE OAKMARK BALANCED FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 Balanced
Number of Shares or Principal Amount Market Value - ------------------------------------------------ EQUITY & EQUIVALENTS--52.2% FOOD & BEVERAGE--3.4% 7,650 H.J. Heinz Company $ 262,968 RETAIL--2.7% Federated Department Stores, Inc. Convertible 210,000 5% 10/1/03 208,950 OTHER CONSUMER GOODS AND SERVICES--16.1% 16,800 JUNO Lighting Inc. 273,000 10,800 Promus Hotel Corporation 270,000 6,900 The Black & Decker Corporation 233,737 19,000 Arctco Inc. 211,375 2,900 The Goodyear Tire & Rubber Company 138,838 2,500 Polaroid 112,188 ---------- 1,239,138 BANKS--3.3% 4,800 Mellon Bank Corporation 254,400 OTHER FINANCIAL--2.7% 4,000 First USA, Inc. 208,500 BROADCASTING AND PUBLISHING--11.0% 12,600 US West Media Group 266,175 3,700 Knight-Ridder, Inc. 245,588 9,600 Lee Enterprises, Incorporated 200,400 4,600 Cablevision Systems Corporation Convertible Preferred 130,525 ---------- 842,688 MEDICAL PRODUCTS--2.9% 15,600 Amsco International, Inc. 222,300 AEROSPACE & DEFENSE--3.2% 2,800 McDonnell Douglas Corporation 249,200 OTHER INDUSTRIAL GOODS AND SERVICES-- 6.9% 13,300 US Industries, Inc. 239,400 7,800 The Geon Company 218,400 2,500 Exide Corporation 71,250 ---------- 529,050 TOTAL EQUITY & EQUIVALENTS 4,017,193 FIXED INCOME--33.2% PREFERRED STOCKS--4.0% 2,900 Tele-Communications, Inc. Preferred Jr. Cl B 6% 204,450 4,010 Everen Capital Corporation Preferred Series A 99,749 ---------- 304,199
18 THE OAKMARK BALANCED FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) Balanced
Number of Shares or Principal Amount Market Value - -------------------------------------------------------- CORPORATE BONDS--5.4% 150,000 Midland Funding Corp. 11, 11.75% due 7/23/05 $ 156,375 100,000 The Vons Companies, Inc. 9.625% 4/1/02 106,250 100,000 Coltec Industries, Inc. 9.75% due 4/1/00 103,500 190,000 Harrah's Jazz 14.25% 11/15/01 52,725 ---------- 418,851 U.S. TREASURIES--23.8% 600,000 US Treasury Note, 6.0% due 10/15/99 617,358 600,000 US Treasury Note, 6.125% due 5/31/97 609,012 600,000 US Treasury Note, 5.25% due 7/31/98 603,342 ---------- 1,829,712 TOTAL FIXED INCOME $2,552,762 REPURCHASE AGREEMENTS--13.5% State Street Bank Repurchase Agreement, 5.5% due 2/1/96 1,035,000 (Collateralized by US Treasury Obliga- tions) TOTAL REPURCHASE AGREEMENTS 1,035,000 TOTAL INVESTMENTS--98.9% 7,604,955 ASSETS, LESS OTHER LIABILITIES--1.1% 80,985 ---------- TOTAL NET ASSETS--100% $7,685,940 ==========
19 International THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (1/31/96) AS COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX. [GRAPH APPEARS HERE] [PLOT POINTS TO COME] 1/31/96 NAV $13.24
Average Annual Total Return* Through 1/31/96 ---------------------------------- Total Return Total Return From Inception Last 3 mos. Last 6 mos. From 1/31/95 9/30/92 ------------ ------------ -------------- --------------- OAKMARK INTERNATIONAL 10.8% 4.8% 18.6% 15.7% Morgan Stanley World ex U.S.* 7.5% 2.7% 16.7% 13.6% Morgan Stanley EAFE* 7.4% 2.5% 16.1% 13.7% Lipper Analytical International Fund Average* 5.7% 3.5% 17.7% 13.5%
*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. THE OAKMARK INTERNATIONAL FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS Dear Fellow Shareholders: We are pleased to report that the Fund has started 1996 with a strong first fiscal quarter return of +10.8%: . This return compares favorably to its peer group and the respective country indices. . More importantly, your Fund's performance since inception (9/30/92) rates well against all benchmarks, RETURNING OVER 62% VERSUS THE LIPPER AVERAGE OF 52% AND AN EAFE RETURN OF 53%. 20 International As always, we encourage shareholder inquiries and we would like to share our responses to some of the most frequently asked questions. ANSWERS TO YOUR MOST FREQUENTLY ASKED QUESTIONS 1. WHY DID THE FUND RETURN 8.5% LAST YEAR WHEN MOST DOMESTIC FUNDS RETURNED BETWEEN 25-40%? Consider the most important performance period--our "since inception" return; looking over the longer term, you can see that our Fund is doing very well. Last year was a banner year for the US market, while most foreign markets significantly underperformed the US market. Remember, our mandate is to invest outside the US. More importantly, we are confident of the future--and your future returns--given the attractiveness of our current portfolio in terms of value. 2. WHAT WILL HAPPEN IN 1997 WHEN HONG KONG'S SOVEREIGNTY REVERTS TO CHINA? Although theories abound, here's ours: THERE WILL BE GREATER INTERACTION BETWEEN HONG KONG AND CHINA ON EVERY CONCEIVABLE FRONT. From a positive perspective, this will mean: . Hong Kong will be the center of economic attention for China's most vibrant area: the South. . Hong Kong will benefit from more opportunities for business, trade, and economic activity. From a negative perspective, this will mean: . Hong Kong's society, one of the world's freest from an economic perspective, will find freedoms muted--AT LEAST TEMPORARILY WHILE CHINA ASSESSES ITS BEHAVIOR TOWARDS AND RELATIONSHIP TO THIS AREA. From a long-term perspective, we believe China's sovereignty in Hong Kong will mean that expected short-term anxieties will translate into long-term gains if private property rights are respected. 3. WITH ALL OF THE NEW COMPETITION IN THE MEXICAN TELECOMMUNICATIONS MARKET ON ITS WAY, IS TELMEX STILL AN ATTRACTIVE STOCK? Despite regional volatility and new competition, Telmex remains an excellent investment. The company has prepared itself to meet future challenges by spending billions of dollars on new equipment over the last five years as well as creating alliances with other telecom companies. Given the growth potential of the market, there is room for other players. Most importantly, the stock is cheap and the company is well-managed. Management has used the massive free cash flow it is generating to benefit shareholders. 21 International 4. WHY SO LITTLE IN THE JAPANESE MARKET? We continue to spend a good deal of time searching for Japanese companies which meet our criteria, but it remains difficult. The majority of Japanese companies appear either systematically overvalued or not managed for the benefit of shareholders. Most have a miserable record of allocating resources properly to build value for shareholders. One company which does meet both our quantitative and qualitative criteria is Kyocera, a manufacturer of ceramic components and electronic parts. 5. WHAT IS THE FUND'S LARGEST HOLDING AND WHY? Just over 6% of the Fund's assets are invested in Cordiant Plc. Cordiant is the parent company of two of the world's largest global advertising networks: Saatchi and Saatchi Advertising Worldwide and Bates Advertising Worldwide. Though the company has gone through some turmoil since the board and its shareholders dismissed its founders, we're confident the stock will begin to move up strongly; this growth will reflect management's well-focused efforts to fortify the corporation by: . hiring new and talented personnel. . refinancing so that the corporation is now debt free on a net basis. . reinforcing a new spirit of cooperation that has resulted in new business. Next quarter, we'll return to the "Traveler's Log." DAVID HERRO MICHAEL WELSH Portfolio Managers 72242.772@Compuserve.com February 26, 1996 22 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 International
Number of Shares or Principal Amount Description Market Value ------------------------------------------------------------------------------- COMMON STOCKS--94.8% CONSUMER NON-DURABLES--5.6% 85,828,000 Yue Yuen Industrial (Holdings) Limited (Hong Athletic Footwear Kong) Manufacturing $ 21,756,148 83,733 Chargeurs S.A. (France) Entertainment & Wool Production Holding Company 19,231,845 120,825 Adidas AG (Germany) Athletic Footwear & Sportswear Manufacturing 6,899,647 ------------ 47,887,640 FOOD--4.8% 11,750,700 Lion Nathan Limited (New Zealand) New Zealand Brewer 27,601,254 4,939,000 Leong Hup Holdings Berhad (Malaysia) Major Poultry Operation in Malaysia and KFC Operator 9,219,518 36,970 Lotte Chilsong Beverage (Korea) Manufacturer of Soft Drinks, Juices, & Sport Drinks 4,312,578 ------------ 41,133,350 HOUSEHOLD PRODUCTS--2.3% 1,715,853 Reckitt & Colman PLC (Great Household Cleaners and Britain) Air Fresheners 17,953,890 1,155,600 London International Group PLC (Great Britain) Latex Products 2,163,587 ------------ 20,117,477 RETAIL--4.6% 19,821,000 Giordano Holdings Limited (Hong Kong) East Asian Clothing Retailer & Manufacturer 19,097,598 462,900 Macintosh (Netherlands) Non-Food Specialty Retailer 11,374,828 16,702,189 Alparagatas Sociedad Anonima Industrial Y Comercial (Argentina) Textiles and Footwear 9,353,226 ------------ 39,825,652 TELECOMMUNICATIONS--6.8% 940,100 Telefonos de Mexico, S.A. de C.V. (Mexico) (b) Telephone 31,845,888 835,000 Telefonica (Spain) Telephone 12,243,207 908,500 Call Net Enterprises, Inc. Common (Canada)(a) Telecommunications 8,098,032 722,500 Call Net Enterprises, Inc. Class B (Canada)(a) Telecommunications 6,505,811 ------------ 58,692,938
23 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) International
Number of Shares or Principal Amount Description Market Value ------------------------------------------------------------------------------- TRANSPORTATION--6.2% 1,829,000 AB Volvo (Sweden) Automobiles and Trucks $ 34,221,359 3,634,637 CIADEA S.A. (Argentina)(a) Assembler and Distributor of Automobiles 19,081,846 ------------ 53,303,205 OIL AND NATURAL GAS--3.4% 1,281,200 YPF Sociedad Anonima (Argentina) (b) Exploration, Production and Marketing 28,987,150 ELECTRIC--2.2% 3,443,230 Union Electrica Fenosa S.A. (Spain) Spanish Electric Utility 18,850,100 BANKS--11.2% 1,680,480 Banco Espirito Santo E Comercial de Lisboa, S.A. (Portugal) Portuguese Bank 25,442,872 1,216,850 Svenska Handelsbanken (Sweden) Largest Swedish Bank 22,942,911 113,793 Banco Popular Espanol Fourth-Largest Spanish (Spain) Bank 20,357,422 1,984,826 Banco de Galicia Y Buenos Aires (Argentina) Argentinian Bank 12,802,128 30,685,000 Grupo Financiero Bancomer, S.A. De C.V. (GFB)(a)-- Large Mexican Financial Series B (Mexico) Group 12,728,593 6,129,630 Grupo Financiero Bancomer, S.A. De C.V. (GFB)(a)-- Large Mexican Financial Series L (Mexico) Group 2,295,000 ------------ 96,568,926 INVESTMENT COMPANIES--.6% 6,000,000 The Central European Growth Fund PLC (Great Britain) Diversified, Closed-End Fund Investing in Central Europe 5,027,933 COMPUTER SYSTEMS--2.2% 1,334,500 Scitex Corporation Limited (Israel) (b) Color Pre-Press Systems 18,683,000 MARKETING SERVICES--6.7% 35,708,656 Cordiant PLC (Great Global Advertising Britain)(a) Agency 57,690,264
24 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) International
Number of Shares or Principal Amount Description Market Value ------------------------------------------------------------------------------- AEROSPACE--7.6% 7,848,737 Rolls-Royce Public Limited Company (Great Britain) Jet Engines $ 24,175,485 6,748,000 Hong Kong Aircraft Engineering Company Limited (Hong Kong) Commercial Aircraft Overhaul and Maintenance 21,032,410 1,529,666 British Aerospace Public Limited Company (Great Britain) Defense Products 20,601,873 ------------ 65,809,768 COMPONENTS--2.0% 6,685,000 Varitronix International Holdings Limited (Hong Kong) Liquid Crystal Displays 13,573,692 35,000 Kyocera Corporation (Japan) Electronic Components 2,485,730 1,840,000 Chen Hsong Holdings Limited (Hong Kong) Plastic Injection Mouldings Machines 1,070,847 ------------ 17,130,269 FORESTRY PRODUCTS--5.1% 2,473,600 Asia Pulp & Paper Company Ltd (Indonesia)(a) Paper & Packaging Products in Asia 24,117,600 440,700 Mo och Domsjo AB (Sweden) Paper, Pulp, Timber 19,028,497 144,000 Empaques Ponderosa, S.A. (Mexico)(a) Boxboard 362,667 ------------ 43,508,764 MACHINERY AND METAL PROCESSING--1.7% 223,298 Strafor Facom (France) Metal Processing, Office Equipment, Mining Tools 13,308,487 7,880,000 Iochpe-Maxion (Brazil) Agricultural Machinery and Automotive Parts 1,329,312 ------------ 14,637,799 MINING AND BUILDING MATERIALS--3.2% 9,780,923 Pioneer International Concrete Products, (Australia) Aggregates 27,462,635
25 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) International
Number of Shares or Principal Amount Description Market Value ------------------------------------------------------------------------------ OTHER INDUSTRIAL GOODS AND SERVICES--12.9% 26,663,700 Usiminas (Brazil) Steel Production $ 30,531,994 2,520,000 Avesta Sheffield (Sweden) Stainless Steel 20,673,575 698,200 EVC International NV (Netherlands) Western European PVC manufacturer 19,667,606 90,699 ECCO S.A. (France) Temporary Services Provider 15,761,252 109,000 Kone Corporation (Finland) Elevators 8,415,696 700,966 Tung-Ho Steel Enterprise Corp. (Taiwan)(a) Major Taiwanese Manufacturer of Steel Bars and H-Beams 6,769,229 146,597 Groupe Legris Industries (France) Europe's Leading Crane Manufacturer 5,458,917 14,040,000 Lamex Holdings Limited (Hong Kong) Hong Kong's Largest Office Furniture Supplier 4,312,485 ------------ 111,590,754 SHIPBUILDING--3.7% 1,040,110 Kvaerner (Norway) Shipbuilding and Engineering 32,061,790 REAL ESTATE AND CONTRUCTION--2.0% 108,732 Hollandsche Beton Groep nv (Netherlands) Construction 16,813,219 ------------ TOTAL COMMON STOCKS $815,782,633
SHORT TERM INVESTMENTS State Street Bank Repurchase Agreement, 5.5% due 02/01/96 (Collateralized by U.S. Treasury Obligations) 20,771,000 Ford Motor Credit Corp., 5.41% - 5.42% due 02/01/96-02/05/96 14,000,000 TOTAL SHORT TERM--4.0% 34,771,000 TOTAL INVESTMENTS--98.8% $850,553,633 OTHER ASSETS--1.2% OTHER ASSETS LESS OTHER LIABILITIES (c) 10,634,071 TOTAL NET ASSETS--100% $861,187,704 ============
- ---------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes portfolio and transaction hedges. For the Fund's fiscal year ending October 31, 1995 the portfolio turnover was 27% and the Fund's expense ratio was 1.40%. 26 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS (CONTINUED) COUNTRY DIVERSIFICATION--JANUARY 31, 1996 International
% of Fund Net Country Assets - --------------------------------------------------------------- ARGENTINA 8.2% Alparagatas Sociedad Anonima Industrial Y Comercial Banco de Galicia Y Buenos Aires CIADEA S.A. YPF Sociedad Anonima AUSTRALIA 3.2% Pioneer International BRAZIL 3.7% Iochpe-Maxion Usiminas CANADA 1.7% Call Net Enterprises Inc. Class B Call Net Enterprises Inc. Common CENTRAL EUROPE 0.6% The Central European Growth Fund PLC FINLAND 1.0% Kone Corporation FRANCE 6.2% Chargeurs S.A. Ecco S.A. Groupe Legris Industries Strafor Facom GERMANY 0.8% Adidas AG GREAT BRITAIN 14.2% 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 Giordano Holdings Limited Hong Kong Aircraft Engineering Company Limited Lamex Holdings Limited Varitronix International Holdings Limited Yue Yuen Industrial (Holdings) Limited INDONESIA Asia Pulp & Paper Company Ltd 2.8% ISRAEL 2.2% Scitex Corporation Limited JAPAN 0.3% Kyocera Corporation
27 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS (CONTINUED) COUNTRY DIVERSIFICATION--JANUARY 31, 1996 International
% of Fund Net Country Assets - ------------------------------------------------------------------- KOREA Lotte Chilsung Beverage 0.5% MALAYSIA Leong Hup Holdings Berhad 1.1% MEXICO 5.5% Empaques Ponderosa, S.A. Grupo Financiero Bancomer, S.A. De C.V. (GFB)--Series B Grupo Financiero Bancomer, S.A. De C.V. (GFB)--Series L Telefonos de Mexico, S.A. de C.V. NETHERLANDS 5.6% EVC International NV Hollandsche Beton Groep nv Macintosh NEW ZEALAND 3.2% Lion Nathan Limited NORWAY 3.7% Kvaerner PORTUGAL 3.0% Banco Espirito Santo E Comercial de Lisboa, S.A. SPAIN 6.0% Banco Popular Espanol Telefonica Union Electrica Fenosa S.A. SWEDEN 11.2% Avesta Sheffield Mo och Domsjo AB Svenska Handelsbanken AB Volvo TAIWAN Tung-Ho Steel Enterprise Corp. 0.8%
28 int'l emerging value THE OAKMARK INTERNATIONAL EMERGING VALUE FUND RESULTS FROM NOVEMBER 1, 1995 (INCEPTION) THRU JANUARY 31, 1996* The Oakmark Int'l Emerging Value Fund...................................... 5.3% Morgan Stanley World ex U.S................................................ 7.5% Lipper Analytical International Fund Average............................... 5.7% Lipper Emerging Market Fund Index.......................................... 8.2%
*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 Lipper International Fund Average includes 106 mutual funds that invest in securities whose primary markets are outside the United States. The Lipper Emerging Market Fund Index is comprised of 10 Emerging Market Funds. Past performance is no guarantee of future results. REPORT FROM DAVID G. HERRO AND ADAM D. SCHOR, PORTFOLIO MANAGERS Welcome to The Oakmark International Emerging Value Fund's inaugural report. We are gratified by our appreciation of 5.35 percent and are even more enthused about our Fund's long-term potential. WHAT IS EMERGING VALUE? And where is it? We buy emerging companies, not countries. The fund is not an emerging markets fund; at quarter end roughly half of our positions were in developed markets. The companies we buy are either small capitalization stocks in developed markets or companies of any size in emerging markets. Some companies we like are small but have strong competitive advantages. Others are larger and well-established, but are emerging as their home countries develop. Examples of both are: . Asia Pulp and Paper of Indonesia supplies the fastest growing paper market in the world. . Cemig, a Brazilian utility, is exploiting the strong electricity demand in its economically revitalized country. . Israel-based Nice Systems produces leading-edge telephone recording technology. . The management of France's Fives-Lille is creating value by restructuring and selling peripheral businesses. The Emerging Value Fund offers us the opportunity to buy these companies--and others offering similar values--and put them in a focused fund. 29 int'l emerging value We believe that these stocks are more inefficiently priced than larger or more well-followed international stocks. We can buy our type of company at an excessive discount to its true net worth. There is little or no brokerage firm coverage of these companies because they do not trade in big volumes. Brokerage firms can't make enough money trading the stocks to justify analyzing them. They are off the beaten path or run by low-key managements focused on making money and not courting international markets. We are confident that the market will eventually recognize the economic value of these companies, and the prices will rise. BOTTOM LINE We believe that the best way to profit from these opportunities is through the disciplined, bottom-up value philosophy we use in the other Oakmark funds. We look at a company's value as it evolves and compare it to the market price, which we know will bounce and dance before finally reconciling with business value. So, with this new fund and our old philosophy, we head out to search for emerging value. Our search will take us around the world to motorcycle plants in India or chemical works in the desert of Israel. And, less exotically, our search will take us to the crowded office buildings of Frankfort and Paris and Tokyo. Wherever we go, we will search for companies not properly priced by the market, buy them and watch as the value emerges. DAVID HERRO ADAM SCHOR 72242.722@compuserve.com oakix@aol.com Portfolio Managers February, 1996 30 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) int'l emerging value
Number of Market Shares Description Value - ------------------------------------------------------------------------------- COMMON STOCKS--93.4% CONSUMER NON-DURABLES--3.0% 550,000 PT Polysindo Eka Integrated Textile Manufacturer Perkasa (Indonesia) $ 299,956 FOOD--6.4% 1,459,000 Grupo Herdez, SA de Manufacturer and Distributor of CV (Mexico) Bottled and Canned Food 436,226 10,943 Soproni Sorgy AR RT Hungarian Brewer (Hungary) 197,772 --------- 633,998 HOUSEHOLD PRODUCTS--4.3% 1,000 WMF (Germany) Tableware and Kitchenware 214,981 11,250 N.V. Koninklijke Bathroom Products Sphinx Gustavsberg (Netherlands) 213,066 --------- 428,047 OTHER CONSUMER GOODS & SERVICES--4.3% 155,000 Vardon PLC (Great Bingo Clubs Britain) 273,819 92,417 Fyffes (Ireland) Distributor of Fresh Fruit, Flowers and Produce in Europe 160,486 --------- 434,305 PHARMACEUTICAL--2.2% 7,000 Egis Gygogyszergyar Hungarian Pharmaceutical Company (Hungary) 217,016 TELECOMMUNICATIONS--2.7% 7,850 Telefonos de Mexico, Telephone S.A. de C.V. (Mexico) (b) 265,919 TRANSPORTATION--3.3% 62,750 CIADEA S.A. Assembler and Distributor of (Argentina) Automobiles 329,438 OIL AND NATURAL GAS--4.9% 6,200 Geophysique (France) Oil Services Company 283,592 9,000 YPF Sociedad Anonima Exploration, Production and (Argentina) (b) Marketing 203,625 --------- 487,217 ELECTRIC--3.1% 12,500,000 Cemig (Brazil) Electric Utility 311,829
31 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) int'l emerging value
Number of Market Shares Description Value - ------------------------------------------------------------------------------ OTHER FINANCIAL--2.8% 171,000 C.E. Heath Insurance and Reinsurance International Broker Holdings Limited (Australia) $ 282,729 BANKS--0.0% 8,800,000 Banco Nacional S.A. Brazilian Bank (Brazil)* 0 COMPUTER SYSTEMS--5.7% 30,000 Nice Systems Ltd. Voice Logging Systems (Israel) 311,250 410,000 Aztech (Singapore) Design and Produce Multimedia Computing Products 255,618 ---------- 566,868 MARKETING SERVICES--3.7% 230,000 Cordiant PLC (Great Global Advertising Agency Britain) 371,584 BROADCASTING & PUBLISHING--3.5% 16,200 Moffat Communications Owner and Operator of Limited (Canada) Television Stations and Cable Systems 185,658 374,000 Oriental Press Group Newspaper Publisher Ltd. (Hong Kong) 163,246 ---------- 348,904 COMPONENTS--6.7% 11,800 Tower Semiconductor Semiconductors Ltd. (Israel) 241,901 440,000 Barlo Group plc Manufacturer of Radiators and (Ireland) Industrial Plastics 220,275 125,000 Pentex Schweizer Manufacturer and Marketer of Circuits Limited Printed Circuit Boards (Singapore) 210,461 ---------- 672,637 FORESTRY PRODUCTS--3.3% 34,000 Asia Pulp & Paper Paper & Packaging Products in Company Ltd Asia 331,500 (Indonesia) MACHINERY AND(METAL PROCESSING--6.4% 3,125 Groupe Fives-Lille Builder of Heavy Machinery (France) 280,992 51,000 Steel & Tube Holdings Produces and Distributes Steel Limited (New Zealand) 257,437 576,000 Iochpe-Maxion Manufacturer of Auto Parts and (Brazil) Farm Machinery 97,168 ---------- 635,597 MINING AND BUILDING MATERIALS--6.5% 39,100 Grupo Uralita (Spain) Manufacturers of Building Products and Chemicals 353,642 7,050 Asia Cement Large Cement Manufacturer in Manufacturing Co. Japan (Korea) 292,684 ---------- 646,326
- ---------- *On November 10, 1995, the Comissao de Valores Mobiliarios suspended trading in Banco Nacional. The Central Bank of Brazil is in the process of appraising the assets and liabilities of Banco Nacional to determine the value, if any, of its equity. To date, this matter has not been resolved. The shares held by the Fund are valued at zero as determined by the pricing committee of the Board of Trustees. 32 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) int'l emerging value
Number of Market Shares Description Value - ------------------------------------------------------------------------------ OTHER INDUSTRIAL GOODS AND SERVICES--13.5% 157,400 Sanford Limited (New Owns and Manages Fisheries Zealand) $ 354,886 11,500 EVC International NV Western European PVC (Netherlands) manufacturer 323,944 71,000 Wattyl (Australia) Paint Company 293,476 745 SwissLog Holding AG Logistics Services (Switzerland) 200,953 7,000 Fukuda Denshi Co., Medical Products Manufacturer Ltd. (Japan) and Distributor 179,470 ---------- 1,352,729 PRODUCTION EQUIPMENT--5.6% 114,300 Danieli (Italy) Steel Mini-Mills Equipment 362,137 34,500 Powerscreen Manufacturer of Industrial International PLC Equipment (Great Britain) 198,988 ---------- 561,125 REAL ESTATE AND CONSTRUCTION--1.5% 2,200 Bau Holdings Construction (Austria) 134,524 12,500 Christiani & Nielsen Structural and Civil (Thailand) Engineering Contractor 12,949 9,679 Christiani & Nielsen Structural and Civil Rights (Thailand) Engineering Contractor 6,207 ---------- 153,680 TOTAL COMMON STOCKS $9,331,404 SHORT TERM INVESTMENTS--8.2% 821,000 State Street Repurchase Agreement, 5.5% due 2/1/96 (Collateralized by U.S. Treasury Obligations) 821,000 TOTAL SHORT TERM INVESTMENTS 821,000 TOTAL INVESTMENTS--101.6% 10,152,404 OTHER LIABILITIES, LESS OTHER ASSETS--(1.6%) (c) (164,358) TOTAL NET ASSETS--100% $9,988,046 ==========
- ---------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes portfolio and transaction hedges. 33 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) int'l emerging value
% of Fund Net Country Assets - ----------------------------------------------------- ARGENTINA 5.3% CIADEA S.A. YPF Sociedad Anonima AUSTRALIA 5.8% C.E. Heath International Holdings Limited Wattyl AUSTRIA 1.3% Bau Holdings BRAZIL 4.1% Banco Nacional S.A. Cemig Iochpe-Maxion CANADA 1.9% Moffat Communications Limited FRANCE 5.7% Geophysique Groupe Fives-Lille GERMANY 2.2% WMF GREAT BRITAIN 8.5% Cordiant PLC Powerscreen International PLC Vardon PLC HONG KONG 1.6% Oriental Press Group Ltd. HUNGARY 4.2% Egis Gyogyszergyar Soproni Sorgyar AR RT INDONESIA Asia Pulp & Paper Company Ltd 6.3% PT Polysindo Eka Perkasa IRELAND 3.8% Barlo Group plc Fyffes ISRAEL 5.5% Nice Systems Ltd. Tower Semiconductor Ltd. ITALY 3.6% Danieli JAPAN 1.8% Fukuda Denshi Co., Ltd.
34 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--JANUARY 31, 1996 (CONTINUED) int'l emerging value
% of Fund Net Country Assets - ----------------------------------------------- KOREA Asia Cement Manufacturing Co. 2.9% MEXICO 7.0% Grupo Herdez, SA de CV Telefonos de Mexico, S.A. de C.V. NETHERLANDS 5.4% EVC International NV N.V. Koninklijke Sphinx Gustavsberg NEW ZEALAND 6.1% Sanford Limited Steel & Tube Holdings Limited SINGAPORE 4.7% Aztech Pentex-Schweizer SPAIN 3.5% Grupo Uralita SWITZERLAND 2.0% Swisslog Holding AG THAILAND 0.2% Christiani & Nielsen Christiani & Nielsen Rights
35 (THIS PAGE INTENTIONALLY LEFT BLANK) 36 THE OAKMARK FUNDS' FIRST QUARTER REPORT JANUARY 31, 1996 TRUSTEES AND OFFICERS TRUSTEES Michael J. Friduss Allan J. Reich Thomas H. Hayden Marv Rotter Christine M. Maki Burton W. Ruder Victor A. Morgenstern Peter S. Voss 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 unaudited 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 COMPANY) Harris Associates L.P. 2 North LaSalle Street Chicago, IL 60602 1-800-OAKMARK -----END PRIVACY-ENHANCED MESSAGE-----