-----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, NpABSxC28YXPHV4erMXqDE/12g+efyvEH7LtkvmXZAzovQkSpTyiv1J2KWC6knWt CdGNXDl13CV+ix2GHCLsWA== 0000950131-96-002847.txt : 19960725 0000950131-96-002847.hdr.sgml : 19960725 ACCESSION NUMBER: 0000950131-96-002847 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960618 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: 96582704 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET SUITE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 BUSINESS PHONE: 8004769625 MAIL ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 N-30D 1 OAKMARK FUNDS SEMI-ANNUAL REPORT THE OAKMARK FUND THE OAKMARK FAMILY of FUNDS SEMI-ANNUAL THE REPORT OAKMARK -------------- SMALL CAP April 30, 1996 FUND -------------- THE OAKMARK BALANCED FUND THE OAKMARK INTERNATIONAL FUND [LOGO APPEARS HERE] THE MEMBER OF OAKMARK ==================== INT'L EMERGING NO-LOAD VALUE FUND 100% MUTUAL FUND COUNCIL (TM) ==================== No-Load Funds Managed by HARRIS ASSOCIATES L.P. [LOGO APPEARS HERE] THE OAKMARK FAMILY OF FUNDS 1996 SEMI-ANNUAL 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................... 19 The Oakmark International Fund Performance Chart......................... 21 Letter from the Portfolio Managers........ 21 Schedule of Investments................... 25 The Oakmark Int'l Emerging Value Fund Performance Information................... 31 Letter from the Portfolio Managers........ 31 Schedule of Investments................... 34 Financial Statements......................... 40 Trustees and Officers........................ 61 Other Important Information.................. 61
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). Letter From the President. . . Fellow Shareholders: I am pleased to report that each of The Oakmark Family of Funds had positive returns during our second fiscal quarter ended April 30, 1996: . THE OAKMARK SMALL CAP and THE OAKMARK INTERNATIONAL FUNDS led the way with exceptionally robust returns of 19.65% and 11.78% respectively. . THE OAKMARK INTERNATIONAL EMERGING VALUE FUND and THE OAKMARK BALANCED FUND also significantly outperformed their peer groups during the quarter by advancing 7.69% and 3.30%. . THE OAKMARK FUND underperformed the S&P Index this quarter, but has still generally kept pace with the unusually strong S&P for the past year. The results of this quarter strongly illustrate that there will be periods when sectors of the investment spectrum--whether defined geographically or by market capitalization--will have wide return variances. By investing in several funds within The Oakmark Family, many of our investors have created a diversified portfolio of global investments, all driven by the same value- oriented investment philosophy. For those investors interested only in U.S. stocks and bonds wherein the asset allocation is within predetermined ranges, we offer The Oakmark Balanced Fund. This fund maintains a more conservative asset allocation strategy and will be less volatile than an all-stock portfolio. To make The Balanced Fund more accessible to shareholders, we have also reduced the minimum initial investment to $1,000. Thank you for your business and your confidence in us. Sincerely, /s/ VICTOR A. MORGENSTERN VICTOR A. MORGENSTERN President THE OAKMARK FUNDS FAMILY SUMMARY INFORMATION* PERFORMANCE FOR PERIOD ENDED APRIL 30, 1996
OAKMARK SMALL CAP ------- --------- 3 Months 2.03% 19.65% 6 Months 13.66% 21.80% Performance for: 1 Year 27.65% N/A 3 Years (Annualized) 22.26% N/A Since Inception (Annualized) 31.66% N/A Value of $10,000 $36,823 $12,180 from inception date 8/05/91 11/01/95
TOP FIVE HOLDINGS AS OF APRIL 30, 1996 Company and Philip Morris Co. 6.51% SPX Corp. 5.66% % of Total Net First USA Inc. 5.00% U.S. Industries Inc. 5.43% Assets Mellon Bank Corp. 4.86% First Brands Corp. 4.08% Lockheed Martin Corp. 4.55% Carbide/Graphite U.S. West Media Group 4.46% Group Inc. 3.82% Peoples Bank of Bridgeport 3.53%
TOP FIVE INDUSTRIES AS OF APRIL 30, 1996 Industries and Broadcasting & Machinery & % of Total Net Publishing 16.80% Metal Processing 15.50% Assets Food & Beverage 16.70% Banks 12.90% Other Consumer Goods Other Industrial Goods and Services 10.30% and Services 12.80% Other Financial 8.10% Other Financial 8.70% Aerospace and Defense 6.60 Retail 8.50%
*The Oakmark Fund's average annual total return for the twelve months ended March 31, 1996 and the period August 5, 1991 (inception) through March 31, 1996 was 27.50% and 32.00%, respectively. The Oakmark Small Cap Fund's total return for November 1, 1995 (inception) through March 31, 1996 was 14.60%. The Oakmark Balanced Fund's total return for November 1, 1995 (inception) through March 31, 1996 was 5.00%. 2
BALANCED INTERNATIONAL INT'L EMERGING VALUE -------- ------------- -------------------- 3.30% 11.78% 7.69% 6.30% 23.90% 13.40% N/A 26.14% N/A N/A 14.47% N/A N/A 18.12% N/A $10,630 $18,162 $11,340 11/01/95 09/30/92 11/01/95 US Industries Inc. 3.98% Cordiant PLC 5.43% European Vinyls US West Media Group 3.88% AB Volvo 4.30% Corp. Int. 3.74% McDonnell Telefonos de Mexico, Polysindo Eka Perk 3.56% Douglas Corp. 3.65% S.A. 3.38% Fyffes 3.34% First USA 3.36% National Australia Fukuda Denshi Co. 3.05% Philip Morris Co. 3.33% Bank 3.32% Asia Pulp & Paper Ltd. 3.01% Usiminas 3.18% Government & Banks 11.20% Other Industrial Goods Agency Securities 28.10% Telecommunications 8.30% & Services 14.00% Other Consumer Goods Steel 7.00% Mining & Building & Services 13.50% Food 6.80% Materials 7.20% Broadcasting Transportation 6.30% Computer Systems 7.00% and Publishing 10.40% Components 6.60% Corporate Bonds 7.90% Food 5.90% Food and Beverage 6.60%
The Oakmark International Fund's average annual total return for the twelve months ended March 31, 1996 and the period September 30, 1992 (inception) through March 31, 1996 was 25.50% and 16.40%, respectively. The Oakmark International Emerging Value Fund's total return for November 1, 1995 (inception) through March 31, 1996 was 9.70%. 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 (4/30/96) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX. [GRAPH APPEARS HERE]
OAKMARK FUND S&P 500 - - ------------------------------------------------------- 8/91 $10,000 $10,000 10/91 12,100 10,201 10/92 17,110 11,216 10/93 24,504 12,892 10/94 26,653 13,401 10/95 32,397 16,931 4/96 36,823 19,239
4/30/96 NAV $31.18
AVERAGE ANNUAL TOTAL RETURN* THROUGH 4/30/96 -------------------------------- TOTAL RETURN TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. LAST 6 MOS. FROM 4/30/95 8/5/91 ------------ ------------ ------------ ------------------- THE OAKMARK FUND 2.0% 13.7% 27.6% 31.7% Standard & Poor's 500 Stock Index* 3.4% 13.7% 30.0% 14.8% Dow-Jones Industrial Average* 3.8% 18.4% 31.9% 17.0% Value Line Composite Index* 6.4% 12.1% 19.4% 8.5%
*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 MID-YEAR UPDATE As we reach the mid-point of our fiscal year, it is my custom to review the portfolio and assess how we're doing. Our results in the fiscal year to date are satisfactory--your Fund is up 13.7 percent, in line with the Standard & Poor's 500, which is also up 13.7 percent. We do not obsess on stock price changes in the short run. Rather, similar to a venture capitalist, we concentrate on the BUSINESS results of the companies which we own (and assume that stock prices will take care of themselves). In general, I am pleased with the progress our holdings continue to make. 4 Oakmark Fund Most of our larger holdings are reporting strong earnings, and have generated business results (and value growth) at least in line with our expectations. Some are re-focusing their business operations (Anheuser-Busch has spun off its bakery operations and sold Eagle Snacks and--to us Cub fans--the hated baseball Cardinals, Knight-Ridder is selling its financial data division, and American Home Products is selling its food operations). We applaud these moves, they demonstrate a commitment to value maximization and will enhance each company's competitiveness. I again note that over half of our twenty largest holdings are in the midst of share repurchase programs. I reiterate that we believe this is the best way to return excess capital to shareholders. There is currently a strong bias towards quality in your Fund. A "quality" business is one that generates higher-than-average returns on invested capital over the long term. These returns are the result of a superior business structure--a differentiated product, loyal (as opposed to merely price- conscious) end-users, modest capital expenditure requirements, barriers to entry, and foreign growth opportunities. Eight of our twenty largest holdings are high-quality consumer brands with these characteristics, yet they sell at unduly modest valuations. With market rotation recently favoring the stocks of companies exposed to a stronger-than-expected economy, these consumer stocks are extremely attractive. We continue to find more candidates for your Fund in this sector. While I believe we will own many of these companies in the long run, we are not wed to this sector. When the market eventually revalues these stocks, we will move on. After all, a great business, except for its market valuation, is a lousy stock. There are times to own lesser-quality companies, such as immediately after the Crash of 1987 and in the fourth quarter of 1990. Your Fund's flexibility should prove beneficial to all of us in the long term. We have added two holdings to our "top twenty" since the end of our fiscal year. US WEST MEDIA GROUP is an attractive collection of cable and programming assets, and a 1995 spin-out of the giant utility US West. DUN & BRADSTREET is a collection of good businesses that has been under-managed for a long time. During 1996, this company will split into three companies. We expect both of these holdings to benefit from their liberation from a vast corporate overseer. Thus, while we do invest for the long term and our portfolio turnover is far less than average, we are also continually scouring the landscape to upgrade your portfolio. Your Fund continues to remain concentrated. Our twenty largest holdings comprise over 72 percent of our equity holdings, versus 70 percent at the end of the fiscal year. You may also notice that I have recently made an effort to reduce our number of total holdings. Many of our smaller holdings cannot make a significant impact on our performance, and, just as some of our companies are shedding peripheral holdings, so am I. The resulting portfolio will allow us to direct our efforts to the holdings that will butter our bread. All of us at Harris Associates are honored to manage your hard-earned money. Personally, I realize I have the greatest job in the world. Even during this 5 Oakmark Fund grim Chicago "spring," I know I'm walking down the sunny side of the street. I am well aware that some of you do not always agree with me and some of you wish we could outperform every quarter (you guys are not bashful), but please know that we continue to always try to do the best for you. THESE ARE THE GOOD OLD DAYS We hear there is a lot of economic insecurity in the US. Critics say the capitalist system is cruel and heartless, and that only a few lucky winners are benefiting from our economy. They say living standards are falling and are lower than 20 years ago, the US is falling behind other nations, the young cannot afford to buy a house. Is this all true? An insightful article by W. Michael Cox and Richard Alm in the December Reason asked the same questions and concludes, "In fact, Americans never had it so good." Let's take homes first. The average first time home-buyer in 1993 was 31 years old, three years older than in 1970. During that same time-period, the median age at which we first marry (an event which often precedes home-buying) has risen the same three years. The average size of a new home is over 2,000 square feet, compared to 1,500 in 1970. Over 75 percent of new homes have air conditioning (34 percent in 1970). Over 75 percent of all households have clothes washers (65 percent in 1970), 96 percent have color TVs (34 percent in 1970), over 70 percent have VCRs (zero in 1970), almost half have dishwashers (25 percent in 1970). Reason has a list of the new and improved products since 1970. A partial listing includes microwaves, cellular phones, answering machines, cable TV, airbags, CDs, personal computers, camcorders, fax machines, aspartame, remote controls (can you imagine a world without remote controls?? Homer Simpson and I shudder!!), movie rentals, soft contact lenses. The list goes on and on (and, somehow, fails to include The Oakmark Fund). Medical advances have been huge: in-vitro fertilization, organ transplants, CAT-scan, biotechnology, anti-depressants. Life expectancy at birth has increased from 70.8 years in 1970 to 75.4 in 1990. The naysayers aver that all this has been purchased with borrowed money. Wrong. The average American's net worth has increased by two percent per year since 1970. They'll aver that the average American is working longer. Wrong. The average work-week has declined from 37.1 hours to 34.5 hours, and vacations and paid holidays have increased from 15.5 days to 22.5 days. With longer life expectancy and earlier retirement, workers have added five extra years of waking leisure to their lives in the past twenty years. Total recreational spending has almost tripled in real terms since 1970. OK, OK, the naysayers admit, we are better off and maybe we're worth more, but still the average worker's real compensation has declined. Wrong. It is true that average real wages have been flat since 1970, and that is an oft- quoted 6 Oakmark Fund statistic. It is highly misleading, though. Fringe benefits as a percentage of compensation have soared since 1970; as payroll taxes have soared, workers and companies opt for more non-wage benefits in the form of health care and retirement programs. With fringe benefits included, average real compensation is up 15 percent. OK, OK, the naysayers will say, we surrender, but still most of the gains are going to those at the top. They have a point here. In 1972, those with advanced degrees made 72 percent more than high school graduates; in 1992, they made 2.5 times more. What's going on here? I suggest that in an increasingly globalized economy, those that can differentiate themselves in terms of human capital will benefit. Also, there is tremendous mobility within income quintiles. A US Treasury study of income tax returns filed from 1979 to 1988 indicated that 86 percent in the bottom quintile in 1979 managed to move to a higher quintile in 1988; almost 15 percent made it to the highest quintile. As the authors note, "More moved from the bottom to the top than stayed in the bottom." Are there unhappy people in the US? Sure. Do we have serious problems? You bet. Let's focus on the real problems, though, and not the phony ones. In terms of material well-being, the average American is better off than ever before. ROBERT J. SANBORN Portfolio Manager harjs@aol.com May 16, 1996 7 Oakmark Fund THE OAKMARK FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED)
Shares Held Common Stocks Market Value - - ------------------------------------------------------------------ COMMON STOCKS--93.5% FOOD & BEVERAGE--16.7% 2,881,500 Philip Morris Companies Inc. $ 259,695,187 3,897,250 H.J. Heinz Company 132,019,344 1,769,100 Anheuser-Busch Companies Inc. 118,750,837 2,422,100 Nabisco Holdings Corp. 74,176,813 585,000 CPC International 40,438,125 1,571,900 Interstate Bakeries 37,332,625 200,000 International Dairy Queen, Inc. (a) 4,225,000 -------------- 666,637,931 APPAREL--0.1% 388,500 K-Swiss Inc., Class A 3,593,625 RETAIL--5.7% 3,745,500 Federated Department Stores, Inc. (a) 125,006,063 954,600 The Kroger Company 39,257,925 1,600,000 Zale Corporation (a) 29,800,000 1,000,000 Carson Pirie Scott & Co. (a) 24,250,000 600,000 Cole National Corporation (a) 9,825,000 53,800 Rex Stores Corporation (a) 840,625 -------------- 228,979,613 OTHER CONSUMER GOODS & SERVICES--10.3% 3,810,400 The Black & Decker Corporation 153,368,600 2,032,800 American Brands, Inc. 84,615,300 477,700 The Clorox Company 39,469,962 940,400 First Brands Corporation 24,920,600 957,500 Whitman Corporation 24,176,875 583,800 GC Companies, Inc. (a) 21,089,775 885,000 JUNO Lighting Inc. 13,109,062 400,000 Stanhome, Inc. 11,800,000 957,500 Arctco, Inc. 9,215,937 601,500 Justin Industries, Inc. 7,744,313 281,500 Rollins, Inc. 6,333,750 257,600 Paragon Trade Brands, Inc. (a) 6,021,400 395,000 Mikasa, Inc. (a) 4,690,625 100,000 Alberto-Culver Company 3,375,000 207,000 Armor All Products Corporation 3,221,438 -------------- 413,152,637 BANKS--4.9% 3,606,550 Mellon Bank Corporation 193,852,063 340,000 River Bank America (a) 2,975,000 -------------- 196,827,063 INSURANCE--6.0% 3,296,200 Torchmark Corporation 141,736,600 1,405,747 Old Republic International 46,389,651 984,700 AmericanFinancial Group, Inc. 30,156,438 501,300 Acordia, Inc. 15,916,275 95,000 MAIC Holdings, Inc. (a) 3,075,625 -------------- 237,274,589
8 Oakmark Fund THE OAKMARK FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held Common Stocks Market Value - - ----------------------------------------------------------------------- OTHER FINANCIAL--8.1% 3,548,000 First USA, Inc. $ 199,575,000 2,194,900 AMBAC Inc. 106,727,012 204,400 Fund American Enterprises Holdings, Inc. 15,636,600 -------------- 321,938,612 BROADCASTING & PUBLISHING--16.8% 9,112,300 U.S. West Media Group 177,689,850 2,174,400 Knight-Ridder, Inc. 157,372,200 2,400,100 Dun + Bradstreet Corporation 146,106,088 6,829,179 Tele-Communications, Inc., Class A (a) 130,608,048 1,432,294 TCI Communications, Inc. (a) 39,209,048 300,000 Gannett 20,512,500 -------------- 671,497,734 PHARMACEUTICAL--2.6% 975,000 American Home Products Corporation 102,862,500 MANAGED CARE SERVICES--2.5% 2,000,000 Foundation Health Corporation (a) 78,250,000 420,000 Physicians Health Services, Inc. (a) 13,755,000 270,000 Right CHOICE Managed Care, Inc. (a) 4,556,250 500,000 Laboratory Corporation of America Holdings 4,250,000 -------------- 100,811,250 MEDICAL PRODUCTS--1.1% 1,297,800 Sybron Corporation (a) 32,769,450 550,000 Spacelabs Medical, Inc. (a) 12,237,500 -------------- 45,006,950 AEROSPACE & DEFENSE--6.6% 2,251,750 Lockheed Martin Corporation 181,547,344 610,000 McDonnell Douglas Corporation 58,865,000 779,600 Logicon, Inc. 23,193,100 -------------- 263,605,444 OTHER INDUSTRIAL GOODS & SERVICES--6.1% 2,839,100 James River Corporation 75,945,925 1,999,700 The Geon Company 52,992,050 935,200 Bandag Incorporated, Class A 45,240,300 880,400 SPX Corporation 20,249,200 246,400 Great Lakes Chemical Corporation 16,816,800 590,000 USG Corporation (a) 15,413,750 170,000 UCAR International Inc. (a) 6,970,000 182,600 Amtrol, Inc. 4,428,050 45,000 OM Group, Inc. 1,715,625 26,300 Bandag Incorporated 1,318,287 -------------- 241,089,987 COMMERCIAL REAL ESTATE--0.9% 2,291,700 Host Marriott Corporation (a) 30,651,487 585,700 Catellus Development Corporation (a) 5,344,513 -------------- 35,996,000
9 Oakmark Fund THE OAKMARK FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held Market Value - - -------------------------------------------------------------------------------- FOREIGN SECURITIES--5.1% 3,035,000 DeBeers Consolidated Mines Limited ADR (b) $ 96,361,250 3,276,500 YPF Sociedad Anonima (b) 71,673,438 547,700 EVC International NV 19,657,747 413,200 Telefonos de Mexico, S.A. de C.V. (b) 14,048,800 -------------- 201,741,235 TOTAL COMMON STOCKS (COST: $2,890,973,375) 3,731,015,170 SHORT TERM INVESTMENTS--6.2% COMMERCIAL PAPER--6.2% American Express Credit Corporation, 5.33% due 5/06/96-5/09/96 $ 40,000,000 Ford Motor Credit Corp., 5.33% due 5/10/96-5/14/96 36,500,000 Ford Motor Credit Corp., 5.31% due 5/15/96-5/16/96 18,000,000 Ford Motor Credit Corp., 5.29% due 5/20/96-5/24/96 47,000,000 Ford Motor Credit Corp., 5.30% due 5/28/96-5/29/96 37,000,000 General Electric Capital Corporation, 5.32% due 5/01/96 17,000,000 General Electric Capital Corporation, 5.36% due 5/02/96 11,000,000 General Electric Capital Corporation, 5.31% due 5/03/96 14,500,000 General Electric Capital Corporation, 5.33% due 5/08/96 3,500,000 General Electric Capital Corporation, 5.29% due 5/17/96 4,500,000 General Electric Capital Corporation, 5.25% due 5/20/96-5/21/96 18,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $247,000,000) 247,000,000 -------------- Total Investments (Cost $3,137,973,375)--99.7% $3,978,015,170 Other assets, less other liabilities--.3% 10,234,270 -------------- TOTAL NET ASSETS--100% $3,988,249,440 ==============
- - ---------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) At April 30, 1996, net unrealized appreciation of $840,041,795 for federal income tax purposes consisted of gross unrealized appreciation of $857,356,493 and gross unrealized depreciation of $17,314,698. AFFILIATED COMPANIES The following companies are considered affiliated because the Fund owns greater than 5% of the outstanding voting shares of the company AMBAC, Inc. 6.25% Spacelabs Medical, Inc. 5.27% Cole National Corporation 5.76% K-Swiss Inc., Class A 9.51% Carson Pirie Scott & Co 6.11% Logicon, Inc. 5.61% First USA, Inc. 6.00% Physicians Health Services, Inc. 7.74% The Geon Company 8.03% Right CHOICE Managed Care, Inc. 7.26% SPX Corporation 6.76%
The aggregate cost and value of investments in these companies at April 30, 1996 was $329,534,565 and $470,953,738, respectively, which represents 11.8% of the total net assets. During the six months ended April 30, 1996, dividends received from these companies was $926,868. See accompanying notes to financial statements. 10 Small Cap THE OAKMARK SMALL CAP FUND RESULTS FROM NOVEMBER 1, 1995 (INCEPTION) THRU APRIL 30, 1996: 4/30/96 NAV $12.18
3 MONTHS* 6 MONTHS* --------- --------- THE OAKMARK SMALL CAP FUND.................................. 19.7% 21.8% Lipper Small Co. Growth..................................... 14.6% 19.3% Russell 2000................................................ 10.4% 17.6% S&P 600..................................................... 10.0% 17.5%
*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 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 Dear Fellow Shareholders: I am pleased to report that your Fund appreciated 19.7% during its second fiscal quarter ended April 30, 1996 and 21.8% since the Fund's inception on November 1, 1995. In the inaugural report to shareholders, I stated that we would compare the investment results of the Fund to both the Russell 2000 and the S&P Small-Cap 600 indices. We were fortunate to have attained results that compared favorably to either index, despite the fact your Fund did not have any exposure to energy or technology, which were very strong sectors in the market. INVESTMENT PHILOSOPHY--REVISITED QUESTION: Does the Fund exclude sectors of the market, such as energy or technology stocks? ANSWER: No. In our ongoing search for companies in which to invest, we did not find any companies in these sectors that met the criteria of our investment philosophy. These are two areas in which we are less likely to have significant investments for two reasons: . First, we use a bottom-up approach to investing. As an example, we do not make predictions of oil prices or factors which might affect them, such as weather or political instability. If we can uncover an oil producer that has oil reserves priced significantly below the cost of finding those reserves, we will consider making an investment in that company (someday we will find that company). 11 Small Cap . Second, we are long-term investors. Today's latest technology is tomorrow's obsolescence. Our investment time horizon is often far longer than the product life-cycle of goods produced by technology companies. However, many of the companies in which your Fund invests are significant users of the products created by technology companies. This allows us to be the beneficiaries of technology without having to determine which technology producer has created the better mouse trap. The key to how your Fund invests lies in adhering to the basic tenet of your Fund's investment philosophy: we invest in securities that are priced at a significant discount to their underlying value. QUESTION: Does the Fund actively trade stocks? ANSWER: No. Our goal is to keep turnover at a minimum due to the costs associated with trading. However, I intend to make sure that the portfolio consists of the most attractive investment opportunities available. QUESTION: Is the Fund still finding attractive investment opportunities? ANSWER: Yes, but please don't call us asking what they are (feel free to call with other questions, however). INVESTMENT PORTFOLIO Your Fund's two largest holdings are SPX Corp., a producer of automotive equipment and tools, and U.S. Industries, Inc., a small conglomerate. These two companies have several things in common. A year ago, both were under- earning, under-managed, and swimming in a sea of debt. Fundamentally, however, each company had sound businesses and tremendous potential. What each company lacked was a capable and focused management which could realize the inherent value of the businesses. Last year, both companies installed new managers who have made significant changes for the benefit of shareholders. John Blystone, the new CEO of SPX Corp. has taken steps to bring down costs and improve profit margins. U.S. Industries is now managed by David Clarke, CEO, and John Raos, President, who have acted quickly to divest uneconomic assets and reduce debt. These managers are bringing about cultural changes within their companies that emphasize operational excellence and high levels of profitability. Most 12 Small Cap importantly, their compensation is tied closely to the returns received by shareholders. During the quarter, an offer was made to acquire Life Partners Group. The stock has been sold, which results in turnover, but we were able to realize the full value of this holding. Congratulations to Harris Associates analyst, Bill Jacobs for sourcing this idea. SUMMERTIME: I SCREAM, YOU SCREAM, WE ALL SCREAM FOR ICE CREAM! Looking out my front window, I can see the glacial change in my lawn from tundra to green grass. Eventually, the midwest will be void of freezing temperatures and the precipitation du jour. This will evolve to the hot humid weather I will be complaining about in the July quarterly report. In the meantime, a dramatic surge in sales should occur for one of your Fund's tastiest holdings, Eskimo Pie. One of our traders, J.P. Tansey, is a big fan of not only the stock, but also the product. He has informed me that he is cutting back on his favorite frozen delight to get back down to fighting weight before the wedding bells ring. Fortunately, the company has introduced a new line of low fat frozen treats under the "Snackwell" name. It appears the company and J.P. Tansey are in great shape for the future. Once again, I would like to thank everyone involved, especially our shareholders, for your support of The Oakmark Small Cap Fund. STEVEN J. REID Portfolio Manager sreid@oakmark.com May 16, 1996 13 Small Cap THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED)
Shares Market Held Common Stocks Value - - -------------------------------------------------------------------- COMMON STOCKS--95.7% FOOD & BEVERAGE--6.5% 120,000 Eskimo Pie Corporation $ 2,460,000 125,000 GoodMark Foods, Inc. 2,015,625 40,000 Smucker (JM) Class B 800,000 ----------- 5,275,625 RETAIL--8.5% 145,000 Cole National Corporation (a) 2,374,375 150,000 Rex Stores Corporation (a) 2,343,750 90,000 Carson Pirie Scott & Co. (a) 2,182,500 ----------- 6,900,625 OTHER CONSUMER GOODS & SERVICES--6.6% 125,000 First Brands Corporation 3,312,500 100,000 Justin Industries, Inc. 1,287,500 30,000 JUNO Lighting Inc. 444,375 30,000 Arctco, Inc. 288,750 ----------- 5,333,125 BANKS--12.9% 135,000 Peoples Bank of Bridgeport Connecticut 2,868,750 85,000 Harbor Federal Savings Bank 2,443,750 140,000 Pocahontas Federal Savings & Loan Association 1,995,000 75,000 Northwest Savings Bank 1,818,750 78,500 Savings Bank of Finger Lakes 1,295,250 4,950 Riverview Savings Bank, FSB 76,725 ----------- 10,498,225 INSURANCE--5.8% 100,000 Renaissancere Holdings, Ltd. 2,725,000 40,000 CapMAC Holdings, Inc. 1,165,000 35,000 Amerin Corporation 791,875 ----------- 4,681,875 OTHER FINANCIAL--8.7% 75,000 ContiFinancial Corporation 2,390,625 54,100 First USA Paymentech Inc. 2,353,350 127,600 Duff & Phelps Credit Rating Company 2,296,800 ----------- 7,040,775 BROADCASTING & PUBLISHING--8.3% 200,000 Granite Broadcasting Corporation 2,550,000 106,500 Lee Enterprises, Incorporated 2,343,000 34,800 Central Newspapers, Class A 1,265,850 40,000 Jones Intercable, Inc. (a) 577,500 ----------- 6,736,350 MANAGED CARE SERVICES--3.3% 275,000 Healthcare Services Group, Inc. 2,715,625
14 Small Cap THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held/ Principal Market Value Value - - ------------------------------------------------------------------- DIVERSIFIED CONGLOMERATES--5.4% 210,000 U.S. Industries, Inc. $ 4,410,000 MACHINERY & METALS--15.5% 175,000 The Carbide/Graphite Group 3,106,250 110,000 Kysor Industrial Corporation 2,832,500 297,500 Sudbury, Inc. 2,714,687 75,500 Mathews International Corporation 2,114,000 38,000 Gardner Denver Machinery Incorporated 903,094 56,500 Northwest Pipe Company 889,875 ----------- 12,560,406 OTHER INDUSTRIAL GOODS & SERVICES--12.8% 200,000 SPX Corporation 4,600,000 130,000 Barefoot Inc. 1,616,875 60,200 Amtrol, Inc. 1,459,850 74,300 Amsco International, Inc. 1,077,350 60,000 Rexene Corporation 772,500 50,000 Griffon Corporation (a) 450,000 100,000 Repap Enterprises Incorporated 425,000 ----------- 10,401,575 COMMERCIAL REAL ESTATE--1.4% 128,000 Catellus Development Corporation (a) 1,168,000 ----------- TOTAL COMMON STOCKS (COST: $68,900,869) 77,722,206 FIXED INCOME--1.6% CORPORATE BONDS--1.6% RECREATION AND ENTERTAINMENT--1.6% 3,000,000 Harrah's Jazz Bonds, 14.25% due 11/15/2001 1,320,000 ----------- TOTAL FIXED INCOME (COST: $1,177,788) 1,320,000 SHORT TERM INVESTMENTS--12.4% COMMERCIAL PAPER--12.4% American Express Credit Corporation, 5.26% due 5/2/96-5/3/96 3,800,000 Ford Motor Credit Corp., 5.20% due 5/1/1996 2,200,000 Ford Motor Credit Corp., 5.26% due 5/6/1996 1,600,000 General Electric Capital Corporation, 5.05% due 5/2/1996 2,500,000 ----------- TOTAL COMMERCIAL PAPER (COST: $10,100,000) 10,100,000 Total Investments (Cost $80,178,657)--109.7% $89,142,206 Other liabilities, less other assets--(9.7%) (7,897,814) ----------- TOTAL NET ASSETS--100% $81,244,392 ===========
- - ---------- Notes: (a) Non-income producing security. (b) At April 30, 1996, net unrealized appreciation of $8,963,549 for federal income tax purposes consisted of gross unrealized appreciation of $9,452,956 and gross unrealized depreciation of $489,407. AFFILIATED COMPANIES At April 30, 1996, the Fund owned 8.7% of Pocohontas Federal Savings & Loan Association. Companies in which the Fund owns greater than 5% are considered affiliated to the Fund. The purchase cost was $2,114,563, market value was $1,995,000, and dividends earned during the six months ended April 30, 1996 were $8,930. See accompanying notes to financial statements. 15 Balanced THE OAKMARK BALANCED FUND RESULTS FROM NOVEMBER 1, 1995 (INCEPTION) THRU APRIL 30, 1996: 4/30/96 NAV $10.63
3 MONTHS* 6 MONTHS* --------- --------- THE OAKMARK BALANCED FUND................................... 3.3% 6.3% Lipper Balanced Fund Index.................................. 1.1% 7.8% Lehman Govt/Corp Bond....................................... -3.6% 0.04% S&P 500..................................................... 3.4% 13.7%
*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 Lehman Govt./Corp. Bond index includes the Lehman Government and Lehman Corporate indices. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. Past performance is no guarantee of future results. REPORT FROM CLYDE S. MCGREGOR, PORTFOLIO MANAGER DEVELOPING INVESTMENT STRATEGIES FOR THE LONG TERM Return, if you will, to October, 19, 1987--to the infamous stock market meltdown. At that time, Harris Associates was managing two equity portfolios for a specialized graduate school. One portfolio was part of the school's endowment fund, the other part of the pension plan for the school's professors. Although each fund had independent investment committees, they shared a financial consultant who had advised both groups in the early 1980's to keep at least 85% of their funds invested in stocks. For several years, all went well--in fact, very well. Both portfolios prospered and both committees enjoyed serene meetings. Then the unthinkable happened: the market collapsed, uncertainty and illiquidity prevailed, and "long term investing" no longer seemed like a relevant concept. Bad Decisions Beget Bad Luck The Sunday following the collapse, the investment committee for the school's endowment fund met. A newer committee member argued with considerable vehemence that the 85% equities policy was inappropriate and that the most prudent course was to liquidate everything. After much discussion, the committee passed his motion. We received notice early the next morning to sell the stocks. In a remarkable demonstration of how bad decisions beget bad luck, the stock market declined another 8% that day. We sold the endowment fund equities for prices we knew were "wrong," but they were all we had to work with at the moment. The endowment fund closed out the month of October down 30%. Meanwhile, the pension committee stuck to its original strategy. The next few months were often rocky, but the market recovered, and by 16 Balanced March 31, 1988, the pension fund portfolio had more than recovered all of its October 1987 losses. The endowment fund was still sitting with 70% of its October 1 value invested in Treasury notes. Adopting Strategies That Withstand The Stress Test Now, I do not recount this story to recommend that all investors should always maintain a 100% stock commitment. After all, I do manage a balanced fund. Nor am I advising that investors always "buy the dips." Rather, I am suggesting that investors know themselves so they can adopt an asset allocation strategy which will stand the tests that time will certainly present. The graduate school's endowment committee had adopted a strategy to which it could not adhere at the point of maximum stress. Precisely at the moment when the strategy could provide utmost value, the committee abandoned it. My second point is that the needs and risk tolerance of investors evolve over time, and this evolution carries implications for asset allocation and investment strategies. In the case of the graduate school above, changes in the endowment committee's membership made necessary a reconsideration of the 85% stock policy long before October, 1987. How Do Your Funds Fit? Where does The Oakmark Balanced Fund fit into all of this? Your Fund maintains a conservative asset allocation of 50-65% stocks, 25-30% Treasury notes, and 10-25% corporate bonds. History has shown that this sort of asset allocation can produce attractive rates of return with considerably less volatility than an all-stock portfolio. In addition, a greater portion of your return will derive from income (which is more certain) and less from capital gain (less certain). These characteristics may not be necessary for all investors, but they are desirable for most--which is why I say, "Investor, know thyself." CURRENT PORTFOLIO Investors regularly say, "The stock market is high. How do you build downside protection into your portfolios?" One way is to own stocks of companies in great businesses at good prices, such as Heinz (branded, packaged foods), Lee Enterprises (newspapers), and Promus Hotel (hotel franchising). These stocks are not immune to market downturns, 17 Balanced but the combination of their valuations, financial characteristics, and business franchises limit their fundamental riskiness. Another option is to buy shares of companies that have wonderful balance sheets, but whose stock prices have declined for transitory reasons. Fund holdings Arctco (snowmobiles) and Juno Lighting suffered significant stock price declines last year based on modest changes in their underlying businesses. Both companies, however, have substantially more cash on the balance sheet than debt, pay good dividends and have been buying back stock. To avoid the possibility of loss completely, one should not own stocks. We believe, however, that investors can reduce the risk of serious loss through these kinds of purchases--and by developing investment strategies that will stand the tests of time. Please feel free to write or E-mail me with your questions and comments. CLYDE S. MCGREGOR Portfolio Manager hacsm@aol.com May 16, 1996 18 Balanced THE OAKMARK BALANCED FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED)
Shares Held/Principal Value Description Market Value - - ----------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--54.6% RETAIL--6.1% 8,500 The Kroger Company $ 349,563 260,000 Federated Department Stores, Inc., 5% Convertible Notes due 10/1/2003 290,550 ---------- 640,113 OTHER CONSUMER GOODS AND SERVICES--13.5% 11,800 Promus Hotel Corporation 334,825 7,900 The Black & Decker Corporation 317,975 33,000 Arctco, Inc. 317,625 20,800 JUNO Lighting Inc. 308,100 2,900 Goodyear Tire & Rubber Company 151,162 ---------- 1,429,687 FOOD & BEVERAGE--6.6% 3,900 Philip Morris Companies Inc. 351,488 10,150 H.J. Heinz Company 343,831 ---------- 695,319 BANKS AND OTHER FINANCIAL--5.8% 6,300 First USA, Inc. 354,375 4,800 Mellon Bank Corporation 258,000 ---------- 612,375 BROADCASTING AND PUBLISHING--10.4% 21,000 U.S. West Media Group 409,500 13,600 Lee Enterprises, Incorporated 299,200 3,700 Knight-Ridder, Inc. 267,787 4,600 Cablevision Systems Corporation 5% Redeemable Exchangeable, Convertible Preferred Stock 119,025 ---------- 1,095,512 MEDICAL PRODUCTS--2.1% 15,600 Amsco International, Inc. 226,200 AEROSPACE & DEFENSE--3.7% 4,000 McDonnell Douglas Corporation 386,000 OTHER INDUSTRIAL GOODS & SERVICES--6.4% 9,800 The Geon Company 259,700 20,000 U.S. Industries, Inc. 420,000 ---------- 679,700 TOTAL EQUITY AND EQUIVALENTS (COST: $5,317,189) 5,764,906 FIXED INCOME--39.7% PREFERRED STOCK--3.7% FINANCIAL SERVICES--1.4% 5,645 Everen Capital Corp., Preferred, Series A 153,130 BROADCASTING & CABLE TV--2.3% 3,900 Tele-Communications, Inc., Preferred Junior Class B 6% 241,800 TOTAL PREFERRED STOCK (COST: $385,678) 394,930
19 Balanced THE OAKMARK BALANCED FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held/Principal Value Description Market Value - - ----------------------------------------------------------------------------- CORPORATE BONDS--7.9% RETAIL--1.0% 100,000 The Vons Companies Inc., 9.625% due 4/01/2002 105,250 BUILDING MATERIALS & CONSTRUCTION--1.5% 150,000 USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 159,937 UTILITIES--1.5% 150,000 Midland Funding Corporation, 11.75% due 7/23/2005 157,688 OTHER INDUSTRIAL GOODS & SERVICES--1.6% 150,000 UCAR Global Enterprises Inc., 12% due 1/15/2005, Senior Subordinated Note 171,000 AEROSPACE AND AUTOMOTIVE--1.5% 150,000 Coltec Industries, Inc., 9.75% due 1/01/2000 153,938 RECREATION AND ENTERTAINMENT--0.8% 190,000 Harrah's Jazz Bonds, 14.25% due 11/15/2001 83,600 TOTAL CORPORATE BONDS (COST: $925,296) 831,413 GOVERNMENT AND AGENCY SECURITIES--28.1% 1,000,000 United States Treasury Notes, 6% due 10/15/99 991,990 600,000 United States Treasury Notes, 6.125% due 5/31/97 602,352 600,000 United States Treasury Notes, 5.25% due 7/31/98 589,242 500,000 United States Treasury Notes, 5.625% due 11/30/2000 484,475 300,000 Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond 295,197 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $3,014,616) 2,963,256 TOTAL FIXED INCOME (COST: $4,325,590) 4,189,599 COMMERCIAL PAPER--4.9% 519,000 American Express Credit Corporation, 5.3%, due 5/01/96 519,000 Total Investments (Cost $10,161,779)--99.2% $10,473,505 Other Assets, Less Other Liabilities--0.8% 88,491 ----------- TOTAL NET ASSETS--100% $10,561,996 ===========
- - ---------- Notes: (a) Non-income producing security. (b) At April 30, 1996, net unrealized appreciation of $311,726 for federal income tax purposes consisted of gross unrealized appreciation of $557,800 and gross unrealized depreciation of $246,074. 20 International THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (4/30/96) AS COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX. [GRAPH APPEARS HERE]
Oakmark International M.S. World Ex U.S. - - --------------------------------------------------------------------- 9/92 $10,000 $10,000 10/92 9,800 9,505 10/93 14,454 12,981 10/94 15,121 14,265 10/95 14,659 14,248 4/96 18,162 16,144
4/30/96 NAV $14.80
AVERAGE ANNUAL TOTAL RETURN* THROUGH 4/30/96 --------------------------- TOTAL RETURN TOTAL RETURN FROM FROM INCEPTION LAST 3 MOS. LAST 6 MOS. 4/30/95 9/30/96 ------------ ------------ ------- -------------- OAKMARK INTERNATIONAL 11.8% 23.9% 26.1% 18.1% Morgan Stanley World ex U.S.* 5.4% 13.3% 11.8% 14.3% Morgan Stanley EAFE* 5.4% 13.2% 11.4% 14.4% Lipper Analytical International Fund Average* 5.3% 12.1% 12.1% 14.4%
*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: Your Fund produced a return of 11.8% for the last fiscal quarter--results which are more than satisfactory on an absolute and relative basis. Nevertheless, we urge you to focus on the most important measure: the Fund's very acceptable since-inception performance of 81.6% or 18.1% annually. We will continue working hard to produce solid LONG-TERM results. 21 International This just-concluded fiscal quarter saw strong performance from our European cyclical investments such as Kvaerner +26%, Volvo +20%, and EVC +31%, and from our largest position, Cordiant +26%. Such results reinforce our belief that the investments in our portfolio represent excellent value. GLOBAL ECONOMIC CHANGES FOR THE GOOD Recently, concerns about the changing nature of the global economy have been voiced here and abroad, reinforcing a prevailing feeling of economic restlessness. From the media to politicians like Ted Kennedy and Pat Buchanan, there have been cries that "something must be done." Proposed solutions include limiting immigration and increasing trade protection on the theory that our problems come from outside our borders. Well, the pundits are dead wrong--again. The global economy is going through a structural change driven by two major trends: . technology, which is rapidly changing the way we live and work . heightened economic growth in the underdeveloped countries of the world The results of these trends are HIGHLY POSITIVE and will lead to higher global living standards throughout the world. The technological revolution has been blamed for a great deal of the publicized job losses as machines have replaced people in certain businesses. But technology has been the source of job creation as well. For example, consider the computer hardware/software industry employment trends over the last 10 years: Growth has been explosive--and these are high paying jobs. Is anyone arguing that it is bad to trade low-paying, obsolete jobs for those which are high pay? Although this is what's happening, the pundits are focusing only on one side of the equation--on job losses. The globalization of the economy is producing the same effect: job losses in industries in which we no longer have a competitive advantage to job creation in industries in which we do. Protectionists like Pat Buchanan are making the absurd suggestion that we should sacrifice growth in high-paying jobs in the aerospace, chemicals, software industries to save low skill, low-paying jobs in industries like textiles. That way lies madness. 22 International Economist Joseph Schumpeter called this process CREATIVE DESTRUCTION: to create something newer and better, something old must be displaced. This is exactly what is happening today. Yes, we need to help address the temporary social side-effects of unemployment in certain sectors, but nothing should be done to impede the process. LACK OF PROTECTION MEANS GROWTH The United States compared to the rest of the Western economies has a relatively free labor market. What has this lack of protection provided? It has provided one of the lowest unemployment rates and one of the greatest job creation records in the developed world. The call for additional government intervention is misguided and would bring nothing but inefficiency--the same inefficiency suffocating economic growth in Germany, Sweden, and Japan, among others. SHAREHOLDERS OF THE WORLD, UNITE! As shareholders of The Oakmark International Fund, you already know that one of our investment criteria is the quality of a company's management. More specifically, we assess management's treatment of shareholders: are shareholders viewed as just one of many constituents, such as employees, bankers, suppliers, and politicians which management must satisfy, or are they viewed properly as the owners of the business? THE CONCEPT OF SHAREHOLDER VALUE Until recently, the concept of shareholder value was well-understood only in the United States and maybe in the United Kingdom. Now, however, as the market for capital is no longer local, but global, companies worldwide are paying close, active attention, rather than paying only lip service, to shareholder value. So far this year, in our Portfolio, we've seen positive proof of this trend. CHARGEURS, for instance, the diversified conglomerate which represents 2% of the Fund, has announced an unprecedented move for a French company: a split into two separate entities, one media and one industrial, to help the market more properly value its dispersed businesses. Management believes they have created a good deal of value in the last five years, and a split-up is the best way for shareholders to realize this value. In another example of management working for the owners, EVC INTERNATIONAL (2.5% of the Fund) has announced one of the first ever 23 International share buy-backs on the Amsterdam exchange. Management believes that the highest return project for the Company's funds is to buy back very undervalued stock. The shares now trade at a substantial discount to the Company's asset value, and at around one-third of the replacement cost of its facilities. Finally, TELEFONOS DE MEXICO (3.4% of the Fund) has spent substantial sums buying stock since economic turmoil hit Mexico and the share price. The Company has repurchased nearly 12% of its total outstanding shares since the beginning of 1995, and has another 5% remaining on its current authorization. That management can accomplish such a feat in the midst of an economic depression is testament to the Company's cash-generating ability and management's shareholder orientation. In our investment process, we will continue to seek out companies and managements which not only generate excess cash from their businesses, but which also redeploy that cash intelligently and in the service of their shareholders. DAVID HERRO MICHAEL WELSH Portfolio Managers 72242.772@Compuserve.com oakix@aol.com May 16, 1996 24 International THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS COUNTRY DIVERSIFICATION--APRIL 30, 1996 (UNAUDITED)
% of Fund Country Net Assets - - --------------------------------------------------------------- ARGENTINA 6.1% Alparagatas Sociedad Anonima Industrial Y Comercial Banco de Galicia Y Buenos Aires CIADEA S.A. YPF Sociedad Anonima AUSTRALIA 5.6% National Australia Bank Limited Pioneer International BRAZIL 3.3% Iochpe-Maxion SA Usiminas CANADA 1.4% Call Net Enterprises Inc., Common Call Net Enterprises Inc., Class B CENTRAL EUROPE 0.5% The Central European Growth Fund PLC FINLAND 1.6% Kone Corporation FRANCE 5.0% Chargeurs S.A. Ecco S.A. Groupe Legris Industries Strafor Facom HONG KONG 6.1% Chen Hsong Holdings Limited Giordano Holdings Limited Hong Kong Aircraft Engineering Company Limited Lame Holdings Limited Varitronix International Holdings Limited Yue Yuen Industrial (Holdings) Limited INDONESIA 2.6% Asia Pulp & Paper Company Ltd ISRAEL 3.0% Bezeq Scitex Corporation Limited JAPAN 2.0% Kyocera Corporation
% of Fund Country Net Assets - - --------------------------------------------------------------- KOREA 2.2% BYC Company Daehan Flour Mills Co., Ltd. Keumkang Lotte Chilsung Beverage Lotte Confectionery Pacific Corporation MALAYSIA 1.0% Leong Hup Holdings Berhad MEXICO 4.6% Empaques Ponderosa, S.A. Grupo Financiero Bancomer, S.A. De C.V. (GFB)-B Grupo Financiero Bancomer, S.A. C.V.-L Telefonos de Mexico, S.A. de C.V. NETHERLANDS 6.3% EVC International NV Hollandsche Beton Groep nv Macintosh Royal Pakhoed N.V. NEW ZEALAND 2.5% Lion Nathan Limited NORWAY 3.0% Kvaerner PORTUGAL 2.5% Banco Espirito Santo E Comercial de Lisboa, S.A. SPAIN 6.4% Banco Popular Espanol Telefonica Union Electrica Fenosa S.A. SWEDEN 11.4% AB Volvo Avesta Sheffield Mo och Domsjo AB Svenska Handelsbanken SWITZERLAND 1.8% Saurer Ltd. TAIWAN 0.8% Tung-Ho Steel Enterprise Corp. UNITED KINGDOM 13.6% British Aerospace Public Limited Company Cordiant PLC Guinness PLC London International Group PLC Reckitt & Colman PLC Rolls-Royce Public Limited Company
25 International THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED)
Shares Held Description Market Value ------------------------------------------------------------------------------ COMMON STOCKS--93.3% CONSUMER NON-DURABLES--4.3% 88,233 Chargeurs S.A. (France) Entertainment & Wool Production Holding Company $ 23,477,576 89,522,000 Yue Yuen Industrial (Holdings) Limited (Hong Athletic Footwear Kong) Manufacturing 21,757,011 24,000 BYC Company (Korea) Textile Manufacturer 2,935,818 35,820 Pacific Corporation Cosmetics and Household (Korea) Goods Manufacturer 814,666 -------------- 48,985,071 FOOD--6.8% 11,500,700 Lion Nathan Limited (New Zealand) New Zealand Brewer 28,678,671 3,580,000 Guinness PLC (United Kingdom) Distiller and Brewer 25,786,994 4,939,000 Leong Hup Holdings Berhad Major Poultry Operation (Malaysia) in Malaysia and KFC Operator 10,994,044 56,000 Lotte Confectionery Confectionary (Korea) Manufacturer 6,476,068 36,970 Lotte Chilsung Beverage Manufacturer of Soft (Korea) Drinks, Juices, & Sport Drinks 4,417,874 29,190 Daehan Flour Mills Co., Ltd. (Korea) Food Processing 1,387,767 -------------- 77,741,418 HOUSEHOLD PRODUCTS--1.7% 1,550,853 Reckitt & Colman PLC Household Cleaners and (United Kingdom) Air Fresheners 16,995,649 1,155,600 London International Group PLC (United Kingdom) Latex Products 2,435,406 -------------- 19,431,055 RETAIL--2.9% 13,403,000 Giordano Holdings Limited East Asian Clothing (Hong Kong) Retailer & Manufacturer 12,388,527 17,430,294 Alparagatas Sociedad Anonima Industrial Y Comercial (Argentina) Textiles 10,337,198 462,900 Macintosh (Netherlands) Non-Food Specialty Retailer 10,319,685 -------------- 33,045,410 TELECOMMUNICATIONS--8.3% 1,130,100 Telefonos de Mexico, S.A. Telephone Company in de C.V. (Mexico) (b) Mexico 38,423,400 1,950,500 Telefonica (Spain) Telephone 34,731,781
26 International THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held Description Market Value ------------------------------------------------------------------------------ 908,500 Call Net Enterprises Inc., Common (Canada) Telecommunications $ 10,242,729 522,500 Call Net Enterprises, Inc., Class B (Canada) (a) Telecommunications 5,756,518 1,863,000 Bezeq (Israel) Telephone Company 5,038,133 -------------- 94,192,561 OIL & NATURAL GAS--2.7% 1,406,200 YPF Sociedad Anonima Exploration, Production (Argentina) (b) and Marketing 30,760,625 TRANSPORTATION--6.3% 2,134,600 AB Volvo (Sweden) Automobiles and Trucks 48,945,721 3,969,637 CIADEA S.A. (Argentina) Assembler and (a) Distributor of Automobiles 23,026,199 -------------- 71,971,920 ELECTRIC--1.8% 3,443,230 Union Electrica Fenosa S.A. (Spain) Spanish Electric Utility 20,599,827 BANKS--11.2% 4,210,000 National Australia Bank Limited (Australia) Largest Australian Bank 37,767,636 1,880,480 Banco Espirito Santo E Comercial de Lisboa, S.A. (Portugal) Portuguese Bank 28,879,742 1,218,850 Svenska Handelsbanken (Sweden) Large Swedish Bank 24,982,327 108,093 Banco Popular Espanol (Spain) Large Spanish Bank 17,913,525 26,635,000 Grupo Financiero Bancomer, S.A. De C.V. Large Mexican Financial (GFB)-B (Mexico) (a) Group 11,829,812 644,826 Banco de Galicia Y Buenos Aires (Argentina) Argentinian Bank 3,856,445 6,129,630 Grupo Financiero Bancomer, S.A. De C.V.- Large Mexican Financial L (Mexico) (a)* Group 2,177,957 -------------- 127,407,444 INVESTMENT COMPANIES--0.5% 6,000,000 The Central European Diversified, Closed-End Growth Fund PLC (United Fund Investing in Kingdom) Central Europe 5,961,162 COMPUTER SYSTEMS--2.6% 1,409,500 Scitex Corporation Limited (Israel) (b)* Color Pre-Press Systems 29,599,500
27 International THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held Description Market Value - - ------------------------------------------------------------------------------- CHEMICALS--3.8% 801,915 EVC International NV Western European PVC (Netherlands) Manufacturer $ 28,781,892 566,500 Royal Pakhoed N.V. Petroleum Products, (Netherlands) Chemical Handling 14,183,163 -------------- 42,965,055 MARKETING SERVICES--5.4% 30,408,656 Cordiant PLC (United Global Advertising Kingdom) (a) Agency 61,796,907 AEROSPACE--5.8% 7,848,737 Rolls-Royce Public Limited Company (United Kingdom) Jet Engines 28,001,666 1,449,666 British Aerospace Public Limited Company (United Kingdom) Defense Products 19,007,362 7,258,800 Hong Kong Aircraft Commercial Aircraft Engineering Company Overhaul and Limited (Hong Kong) Maintenance 18,392,151 -------------- 65,401,179 COMPONENTS--3.2% 304,000 Kyocera Corporation (Japan) Electric Components 22,900,626 6,685,000 Varitronix International Holdings Limited (Hong Kong) Liquid Crystal Displays 12,271,605 1,840,000 Chen Hsong Holdings Plastic Injection Limited (Hong Kong) Moulding Machines 945,511 -------------- 36,117,742 FORESTRY PRODUCTS--4.5% 2,473,600 Asia Pulp & Paper Company Paper & Packaging Ltd (Indonesia) (a) Products in Asia 29,683,200 387,700 Mo och Domsjo AB (Sweden) Paper, Pulp & Timber 20,638,154 144,000 Empaques Ponderosa, S.A. (Mexico) (a) Boxboard 288,775 -------------- 50,610,129 MACHINERY & METALS--3.6% 49,400 Saurer Ltd. (Switzerland) Textile Machinery 20,291,559 141,898 Strafor Facom (France) Metal Processing, Office Equipment, Mining Tools 10,297,388 195,097 Group Legris Industries Europe's Leading Crane (France) Manufacturer 9,665,183 7,880,000 Iochpe-Maxion SA (Brazil) Agricultural Machinery & Automotive Parts 873,702 -------------- 41,127,832
28 International THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held/Principal Value Description Market Value - - ------------------------------------------------------------------------------ MINING AND BUILDING MATERIALS--3.0% 8,180,923 Pioneer International Concrete Products, (Australia) Aggregates $ 24,870,520 126,980 Keumkang (Korea) Building Materials 9,447,018 -------------- 34,317,538 STEEL--7.0% 31,788,700 Usiminas (Brazil) Steel Production 36,207,268 3,405,000 Avesta Sheffield (Sweden) Stainless Steel 35,146,573 700,966 Tung-Ho Steel Enterprise Taiwanese Manufacturer Corp. (Taiwan) (a) of Steel Bars and H- Beams 8,642,911 -------------- 79,996,752 OTHER INDUSTRIAL GOODS & SERVICES--3.2% 167,000 Kone Corporation (Finland) Elevators 18,633,771 62,337 Ecco S.A. (France) Temporary Services Provider 14,005,468 14,040,000 Lamex Holdings Limited Hong Kong's Largest (Hong Kong) Office Furniture Supplier 4,083,770 -------------- 36,723,009 SHIP BUILDING--3.1% 897,110 Kvaerner (Norway) Shipbuilding and Engineering 34,616,626 COMMERCIAL REAL ESTATE--1.6% 108,732 Hollandsche Beton Groep nv (Netherlands) Construction 18,656,089 TOTAL COMMON STOCKS (COST: $968,888,095) 1,062,024,851 COMMERCIAL PAPER--7.7% 7,000,000 American Express Credit Corporation, 5.25% due 5/3/1996 7,000,000 6,000,000 American Express Credit Corporation, 5.25% due 5/6/1996 6,000,000 6,000,000 American Express Credit Corporation, 5.25% due 5/7/1996 6,000,000 5,000,000 American Express Credit Corporation, 5.25% due 5/13/1996 5,000,000 9,000,000 Ford Motor Credit Corp., 5.29% due 5/3/1996 9,000,000 6,000,000 Ford Motor Credit Corp., 5.25% due 5/8/1996 6,000,000 11,000,000 Ford Motor Credit Corp., 5.24% due 5/9/1996 11,000,000 6,500,000 Ford Motor Credit Corp., 5.24% due 5/10/1996 6,500,000 7,000,000 General Electric Capital Corporation, 5.25% due 5/1/1996 7,000,000 7,000,000 General Electric Capital Corporation, 5.25% due 5/2/1996 7,000,000 10,000,000 General Electric Capital Corporation, 5.29% due 5/14/1996 10,000,000 7,000,000 General Electric Capital Corporation, 5.29% due 5/15/1996 7,000,000 TOTAL COMMERCIAL PAPER (COST: $87,500,000) 87,500,000
29 International THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Shares Held/ Principal Value Description Market Value - - ------------------------------------------------------------------------------- REPURCHASE AGREEMENTS--0.1% 748,000 State Street Repurchase Agreement, 4.75% due 5/1/96, fully collaterized by US Treasury obligations $ 748,000 Total investments (cost $1,057,136,095)--101.1% $1,150,272,851 Foreign currencies (cost $6,397,183)--.6% $ 6,372,216 Other liabilities, less other assets--(1.7%)(c) (18,985,379) -------------- TOTAL NET ASSETS--100% $1,137,659,688 ==============
- - ---------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes portfolio and transaction hedges. (d) At April 30, 1996, net unrealized appreciation of $93,111,789 for federal income tax purposes consisted of gross unrealized appreciation of $151,031,121 and gross unrealized depreciation of $57,919,332. AFFILIATED COMPANIES The following companies are considered affiliated because the Fund owns greater than 5% of the outstanding voting shares of the company.
Alparagatas Sociedad Anonima Industrial 6.12% Call Net Enterprises, Inc. Common 9.65% CIADEA, S.A. 5.29% Cordiant PLC 6.82% EVC International NV 5.48% Lamex Holdings Limited 6.33% Leong Hup Holdings Berhad 5.68% Macintosh 6.44%
The aggregate cost and value of investments in these companies at April 30, 1996 was $139,740,085 and $159,582,424, respectively, which represents 13.9% of the total net assets. During the six months ended April 30, 1996, dividends received from these companies was $1,404,267. 30 int'l emerging value THE OAKMARK INTERNATIONAL EMERGING VALUE FUND RESULTS FROM NOVEMBER 1, 1995 (INCEPTION) THRU APRIL 30, 1996* 4/30/96 NAV $11.34
3 MONTHS* 6 MONTHS* --------- --------- The Oakmark Int'l Emerging Value Fund....................... 7.7% 13.4% Morgan Stanley World ex U.S................................. 5.4% 13.2% Lipper Analytical International Fund Average................ 5.7% 12.1% Lipper Emerging Market Fund Index........................... 3.1% 13.4%
*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 second quarter report of The Oakmark International Emerging Value Fund. We are pleased with our performance for the quarter and since inception. We continue to stress a long-term outlook so we try not to get too excited about any single quarter. We would like to mention, however, that according to Lipper Analytical Services, your Fund was the best-performing diversified international fund for the quarter ending March, 1996. OPPORTUNITIES IN INTERNATIONAL INVESTING When making presentations about international investing, the international team at Harris Associates points to the tremendous investment opportunities that result from developing international economies and companies. It is a theme we have discussed often in the quarterly reports of Oakmark International. COMMON--AND MISGUIDED--CONCERNS ABOUT INTERNATIONAL INVESTING First, international markets scare a lot of investors. When we talk about changes in Argentina, Indonesia, or India, many investors become wary. Sending their money to these countries is a difficult jump into the unknown for some investors. Second, many investors who actually believe in the opportunities of international investing still prefer to wait for some sign indicating the right moment to leap. To address the concerns of those fearful about entering foreign markets, let's go to Malaysia nine months ago. One evening in Kuala Lumpur, Adam Schor left his hotel to look for a restaurant. First, he came across a Hard Rock Cafe, a chain with restaurants around the world, 31 int'l emerging value including one less than a mile from his Chicago home. Next, he saw TGI Fridays, another U.S. chain. Farther down the road, he would have found McDonalds and KFC outlets. The next day, in a small town in northwest Malaysia, he met with the CEO of a real estate company who informed him, "I don't believe O.J. is innocent." The CEO then discussed in detail the trial and the verdict, which had been announced--on the other side of the world-- barely eight hours earlier. Listening to the CEO and recalling his hamburger at the Hard Rock Cafe reminded Adam how small the world has become. Sure it's a cliche. But to investors in an international equity fund, a shrinking world means expanding opportunities. It means that the productivity gap between nations is closing. It means smaller differences in how companies are run. This narrowing creates tremendous opportunities for investors. We can set the U.S. economy as our model of a mature economy and a U.S. corporation as our model of a company operating in such an economy. As other countries catch up to this model, we will see strong growth, tremendous efficiency gains, and an overall improvement in the treatment of shareholders. The driving need for new capital will fuel this change and will benefit shareholders in these companies. If one is cautious about valuations, and picks investments carefully, it is possible to achieve very good returns by owning those companies that close the gaps most quickly. EXPANSION IN EMERGING MARKETS Fifty years ago, many now mature industries in the U.S. were coming of age. Now, in emerging markets, the pattern is repeating. Industries considered mature in the U.S., such as autos, building materials, paper, and retail, are growing sharply. That's why we're excited about Ciadea, an Argentine auto maker, and about PT Polysindo in Indonesia. Polysindo is a quickly expanding integrated textile manufacturer. In these companies and others, we have a chance to enter fast-growing industries early and at good prices. EFFICIENCY GAINING GROUND IN EUROPE Europe too will see the gap close. In a competitive global economy, development causes ripples. So, as Asia and Latin America get more competitive, Europe feels the pressure. Efficiency gains often require capital, and so many European companies are facing the need to increase their stock prices and lower their costs of capital. We're seeing a few companies act to enhance shareholder value. So far, its a ripple, not a wave, but the change is coming. 32 INT'L EMERGING VALUE Consider the share buyback authorized by EVC, your Fund's largest holding. Although common in the U.S., a buyback was so rare in the Netherlands that local Dutch analysts did not understand how it worked. As was detailed in the Oakmark International letter this quarter, other companies outside the U.S. are treating their shareholders better, too. It's a further sign that, even in developed nations, the closing gap between U.S. companies and international companies can help shareholders. We want to take advantage of historical U.S. dynamics now showing up in the rest of the world. By the way, some suggest buying U.S. companies which are expanding overseas as a way to participate. It's true many U.S. companies are turning overseas to find growth. It seems to us, however, a very diluted way to taste the opportunity. THE HELP YOURSELF SIGN Meanwhile, many believe in the attractiveness of international investing but can't figure out the timing. If you're in a crowded room, and in the corner, you see bushels of money and the sign Help Yourself, you don't wait for the crowd before you make your move. You hit the corner on your own and start collecting your bounty. If you waited for the crowd and tried to move with them, you'd be left with little money and many bruises. Trying to guess when markets will recognize the international values we've found is like trying to guess the behavior of the crowd. Waiting for a signal means you're content to run with the pack rather than ahead of it. It's a strategy destined to be no better than average--and being average is far short of our goal for your Fund and your investment returns. David Herro Adam Schor 72242.722@compuserve.com oakix@aol.com Portfolio Managers May 16, 1996 33 INT'L EMERGING VALUE THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS COUNTRY DIVERSIFICATION--APRIL 30, 1996 (UNAUDITED)
% of Fund Country Net Assets - - ------------------------------------------------ ARGENTINA 8.8% Alparagatas Sociedad Anonima Industrial Y Comercial CIADEA S.A. Disco S.A. YPF Sociedad Anonima AUSTRALIA 9.7% C.E. Heath International Holdings Limited Parbury Limited Solution 6 Holdings Limited Wattyl AUSTRIA 0.7% Bau Holdings BRAZIL 1.6% Banco Nacional S.A. Cemig Iochpe-Maxion SA CANADA 2.4% Moffat Communications Limited FRANCE 5.8% Geophysique Groupe Fives-Lille The NSC Group GERMANY 1.6% WMF HONG KONG 5.4% Oriental Press Group Ltd. Tech Tronic Industries Company Limited Yip's Hang Cheung (Holdings) Limited HUNGARY 2.3% Egis Gyogyszergyar Soproni Sorgyar AR RT INDIA 0.2% Zee Telefilms INDONESIA 6.6% Asia Pulp & Paper Company Ltd PT Polysindo Eka Perkasa IRELAND 5.0% Barlo Group plc Fyffes ISRAEL 5.1% Nice Systems Ltd. Tower Semiconductor Limited ITALY 1.7% Danieli JAPAN 3.0% Fukuda Denshi Co., Ltd. KOREA 4.7% Asia Cement Manufacturing Co. Chosun Brewery Daehan Flour Mills Co., Ltd. MEXICO 4.9% Grupo Herdez, SA de CV Telefonos de Mexico, S.A. de C.V. NETHERLANDS 5.5% EVC International NV N.V. Koninklijke Sphinx Gustavsberg NEW ZEALAND 3.4% Sanford Limited Steel & Tube Holdings Ltd SINGAPORE 4.4% Aztech Pentex-Schweizer Circuits Limited SPAIN 2.3% Grupo Uralita SWITZERLAND 1.4% Swisslog Holding AG THAILAND 0.1% Christiani & Nielsen UNITED KINGDOM 5.0% Cordiant PLC Powerscreen International PLC Vardon PLC
34 INT'L EMERGING VALUE THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED)
Number of Market Shares Description Value - - -------------------------------------------------------------------------------- COMMON STOCKS--91.6% CONSUMER NON-DURABLES--3.6% 1,326,000 PT Polysindo EKA Integrated Textile Manufacturer Perkasa (Indonesia) $ 838,162 FOOD--5.9% 2,086,000 Grupo Herdez, SA de Manufacturer and Distributor CV (Mexico) of Bottled and Canned Food 668,194 8,410 Chosun Brewery Korean Brewer 289,609 (Korea) 4,500 Daehan Flour Mills Food Processing Co., Ltd. (Korea) 213,941 13,155 Soproni Sorgy AR RT Hungarian Brewer (Hungary) 205,860 ----------- 1,377,604 HOUSEHOLD PRODUCTS--3.3% 25,550 N. V. Koninklijke Bathroom Products Sphinx Gustavsberg (Netherlands) 418,999 2,000 WMF (Germany) Tableware and Kitchenware 365,798 ----------- 784,797 RETAIL--4.8% 40,000 Disco S. A. Grocery Store Chain 635,000 (Argentina) 850,000 Alparagatas Sociedad Textiles Anonima Industrial Y Comercial (Argentina) 504,100 ----------- 1,139,100 OTHER CONSUMER GOODS & SERVICES--4.6% 466,917 Fyffes (Ireland) Distributor of Fresh Fruit, Flowers and Produce in Europe 785,101 155,000 Vardon PLC (United Bingo Clubs Kingdom) 307,993 ----------- 1,093,094 TELECOMMUNICATIONS--2.0% 13,950 Telefonos de Mexico, Telephone Company in Mexico S.A. de C.V. (Mexico) (b) 474,300 OIL & NATURAL GAS--3.6% 6,200 Geophysique (France) Oil Services Company 428,331 19,000 YPF Sociedad Anonima Exploration, Production and (Argentina) (b) Marketing 415,625 ----------- 843,956 TRANSPORTATION--2.3% 92,250 CIADEA S.A. Assembler and Distributor of (Argentina) (a) Automobiles 535,103 ELECTRIC--1.3% 12,500,000 Cemig (Brazil) Electric Utility 314,988
35 INT'L EMERGING VALUE THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Number of Market Shares Description Value - - -------------------------------------------------------------------------------- BANKS--0.0% 8,800,000 Banco Nacional S.A. Brazilian Bank (Brazil) (d) $ 0 OTHER FINANCIAL--2.2% 286,000 CE Heath Insurance and Reinsurance International Broker Holdings Limited (Australia) 512,239 BROADCASTING & PUBLISHING--3.3% 46,200 Moffat Communications Owner and Operator of Limited (Canada) Television Stations and Cable Systems 559,897 374,000 Oriental Press Group Newspaper Publisher Ltd. (Hong Kong) 174,055 10,900 Zee Telefilms, B Broadcasting and TV Shares (India) 41,013 ----------- 774,965 COMPUTER SYSTEMS--7.0% 730,000 Solution 6 Holdings Design Computer Limited (Australia) Systems/Consultants 567,714 35,000 Nice Systems (Israel) Voice Logging Systems 535,938 855,000 Aztech (Singapore) Design and Produce Multimedia Computing Products 535,211 ----------- 1,638,863 PHARMACEUTICAL--1.4% 7,600 Egis Gygogyszergyar Hungarian Pharmaceutical (Hungary) Company 329,506 CHEMICALS--3.7% 24,500 EVC International NV Western European PVC (Netherlands) Manufacturer 879,341 MARKETING SERVICES--2.7% 310,000 Cordiant PLC (United Advertising Agency Holding Kingdom) (a) Company 629,986 COMPONENTS--6.6% 41,900 Tower Semiconductor Semi Conductors Limited (Israel) 670,400 312,000 Pentex Schweizer Manufacturer and Marketer of Circuits Limited Printed Circuit Boards (Singapore) 492,702 790,000 Barlo Group PLC Manufacturer of Radiators and (Ireland) Industrial Plastics 381,286 ----------- 1,544,388 FORESTRY PRODUCTS--3.0% 59,000 Asia Pulp & Paper Paper & Packaging Products in Company Ltd Asia (Indonesia) (a) 708,000
36 INT'L EMERGING VALUE THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED)
Number of Market Shares Description Value - - ------------------------------------------------------------------------------- MACHINERY & METALS--3.1% 3,125 Groupe Fives-Lille Builder of Heavy Machinery (France) $ 330,189 60,500 Steel & Tube Holdings Produces and Distributes Steel Ltd. (New Zealand) 328,330 576,000 Iochpe-Maxion SA Agricultural Machinery & (Brazil) Automotive Parts 63,864 ----------- 722,383 MINING AND BUILDING MATERIALS--7.2% 14,050 Asia Cement Large Cement Manufacturer Manufacturing Co. (Korea) 595,760 1,398,959 Parbury Limited Manufactures Building Products (Australia) 560,463 55,100 Grupo Uralita (Spain) Manufacturers of Building Products and Chemicals 541,470 ----------- 1,697,693 OTHER INDUSTRIAL GOODS & SERVICES--14.0% 25,000 Fukuda Denshi Co., Medical Products Manufacturer Ltd. (Japan) and Distributor 716,983 161,067 Wattyl (Australia) Paint Company 676,912 4,870,000 Yip's Hang Cheung Hong Kong Paint Company (Holdings) Limited 648,452 211,400 Sanford Limited (New Owns and Manages Fisheries Zealand) 464,711 3,550,000 TechTronic Industries Manufactures Electric Hand Company Limited Tools (Hong Kong) 454,334 1,045 SwissLog Holding AG Logistics Services (Switzerland) 334,979 ----------- 3,296,371 PRODUCTION EQUIPMENT--5.3% 4,260 The NSC Group Manufacturer of Textile (France) Equipment 602,624 114,300 Danieli (Italy) Steel Mini-Mills Equipment 411,246 34,500 Powerscreen Manufacturer of Industrial International PLC Equipment (United Kingdom) (a) 236,821 ----------- 1,250,691 COMMERCIAL REAL ESTATE--0.7% 2,600 Bau Holdings Construction (Austria) 154,575 22,179 Christiani & Nielsen Structural and Civil (Thailand) Engineering Contractor 13,398 ----------- 167,973 TOTAL COMMON STOCKS (COST: $19,897,872) $21,553,503
37 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND SCHEDULE OF INVESTMENTS--APRIL 30, 1996 (UNAUDITED) (CONTINUED) int'l emerging value
Principal Market Value Description Value - - -------------------------------------------------------------------------------- COMMERCIAL PAPER--9.0% 697,000 American Express Credit Corporation, 5.05% due 5/2/1996 $ 697,000 710,000 Ford Motor Credit Corp. 5.29% due 5/31/1996 710,000 710,000 General Electric Capital Corporation, 5.00% due 5/1/1996 710,000 ----------- TOTAL COMMERCIAL PAPER (COST: $2,117,000) 2,117,000 Total Investments (Cost $22,014,872)--100.6% 23,670,503 Foreign Currencies (Cost $172,677)--.7% 171,887 Other Liabilities, Less Other Assets--1.3%(c) (310,937) ----------- TOTAL NET ASSETS--100% $23,531,453 ===========
- - ---------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes portfolio and transaction hedges. (d) On November 10, 1995, the Commissao de Valores Mobilliarious 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. The shares are valued at zero as determined by the pricing committee of the Board of Directors. (e) At April 30, 1996, net unrealized appreciation $1,654,841 for federal income tax purposes consisted of gross unrealized appreciation of $2,275,906 and gross unrealized depreciation of $621,065. 38 [THIS PAGE INTENTIONALLY LEFT BLANK] 39 THE OAKMARK SERIES OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--APRIL 30, 1996 (UNAUDITED)
Oakmark Fund - - ------------------------------------------------------------------------------------------------ ASSETS Investments, at value $3,978,015,170 Cash 494,842 Foreign currency, at value 0 Receivable for: Forward foreign currency contracts 0 Securities sold 6,177,064 Fund shares sold 6,962,842 Dividends and interest 6,808,028 Expense reimbursement 0 -------------- Total receivables 19,947,934 Other assets 20,201 -------------- Total assets $3,998,478,147 ============== LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 0 Fund shares redeemed 5,610,397 Forward foreign currency contracts 0 Due to Adviser 3,271,182 Other 1,347,129 -------------- Total liabilities 10,228,708 -------------- Net assets applicable to Fund shares outstanding $3,988,249,440 ============== Fund shares outstanding 127,913,063 ============== PRICING OF SHARES Net asset value per share $ 31.18 ============== ANALYSIS OF NET ASSETS Paid in capital $3,079,693,971 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency transactions 53,922,423 Net unrealized appreciation (depreciation) of investments 840,041,795 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 Net unrealized appreciation (depreciation)--other 0 Accumulated undisturbed net investment income (loss) 14,591,251 -------------- Net assets applicable to Fund shares outstanding $3,988,249,440 ==============
See accompanying notes to financial statements. 40
Small International Cap Balanced International Emerging Fund Fund Fund Fund - - ------------------------------------------------------------------- $89,142,206 $10,473,505 $1,150,272,851 $23,670,503 124,586 2,955 140 615,219 0 0 6,372,216 171,887 0 0 4,955,977 1,007 $ 238,140 $ 36,375 $ 4,758,702 $ 0 1,452,007 13,950 15,695,616 361,228 73,631 57,048 10,430,694 82,050 0 22,946 0 71,227 - - ----------- ----------- -------------- ----------- 1,763,778 130,319 35,840,989 515,562 46,562 46,580 16,277 46,663 - - ----------- ----------- -------------- ----------- $91,077,132 $10,653,359 $1,192,502,473 $25,019,834 =========== =========== ============== =========== $ 9,686,578 $ 20,000 $ 49,017,299 $ 1,343,665 2,436 11,602 2,368,463 2,268 0 0 142,794 386 45,834 24,407 799,313 53,995 97,891 35,354 2,514,916 88,067 - - ----------- ----------- -------------- ----------- 9,832,739 91,363 54,842,785 1,488,381 - - ----------- ----------- -------------- ----------- $81,244,392 $10,561,996 $1,137,659,688 $23,531,453 =========== =========== ============== =========== 6,671,620 994,021 76,848,495 2,074,605 =========== =========== ============== =========== $ 12.18 $ 10.63 $ 14.80 $ 11.34 =========== =========== ============== =========== $72,737,034 $10,113,414 $1,053,052,858 $21,823,786 (373,364) 84,936 (52,363,884) 39,971 8,963,549 311,726 93,111,789 1,654,841 0 0 4,878,957 0 0 0 72,288 311 (82,827) 51,920 38,907,680 12,724 - - ----------- ----------- -------------- ----------- $81,244,392 $10,561,996 $1,137,659,688 $23,531,453 =========== =========== ============== ===========
41 THE OAKMARK SERIES OF FUNDS STATEMENT OF OPERATIONS--FOR THE SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
Oakmark Fund - - -------------------------------------------------------------------------- Investment income: Dividends $ 33,317,126 Interest 7,808,309 Foreign taxes withheld (342,961) ------------ Total investment income 40,782,474 ------------ Expenses: Investment advisory fee 17,007,458 Transfer and dividend disbursing fees 1,930,082 Custodian and accounting fees 215,152 Legal expenses 26,307 Audit expenses 7,749 Trustees fees 37,217 Registration and blue sky expenses 523,036 Reports to shareholders 111,899 Insurance expense 18,200 Organization expense 17,290 Other 371,321 ------------ Total expenses 20,265,711 Less expense offset arrangements (11,931) Less expense reimbursement 0 ------------ Net Expenses 20,253,780 ------------ Net investment income (loss) 20,528,694 Net realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain (loss) on investments 53,847,985 Net realized gain (loss) on foreign currency transactions 0 Net change in appreciation (depreciation) of investments and foreign currencies 341,925,887 Net change in appreciation (depreciation) of forward currency exchange contracts 0 Net change in appreciation (depreciation)--other 0 ------------ Net realized and unrealized gain (loss) on investments and foreign currency transactions 395,773,872 ------------ Net increase (decrease) in net assets resulting from operations $416,302,566 ============
See accompanying notes to financial statements. 42
Small International Cap Balanced International Emerging Fund Fund Fund Fund - - ------------------------------------------------------------------- $ 189,536 $ 48,665 $ 14,621,464 $ 136,895 75,764 97,656 816,807 24,057 0 0 (1,830,970) (14,708) ---------- -------- ------------ ---------- 265,300 146,321 13,607,301 146,244 ---------- -------- ------------ ---------- 160,156 24,407 4,253,328 53,995 86,102 23,107 1,102,277 42,212 10,250 5,650 411,853 40,139 5,307 5,432 10,458 5,391 11,608 10,649 10,503 12,643 5,914 5,774 14,664 5,796 54,558 35,114 (15,060) 37,724 9,853 2,083 60,710 4,155 5,712 5,703 18,200 5,703 723 723 4,732 723 1,929 769 211,495 665 ---------- -------- ------------ ---------- 352,112 119,411 6,083,160 209,146 (3,985) (2,065) (5,093) (4,349) 0 (22,946) 0 (71,277) ---------- -------- ------------ ---------- 348,127 94,000 6,078,067 133,520 ---------- -------- ------------ ---------- (82,827) 51,920 7,529,234 12,724 (373,364) 84,936 (13,484,025) 49,562 0 0 (3,188,626) (9,771) 8,963,549 311,726 186,160,991 1,654,841 0 0 12,941,386 0 0 0 (97,006) 311 ---------- -------- ------------ ---------- 8,590,185 396,662 182,332,720 1,694,943 ---------- -------- ------------ ---------- $8,507,358 $448,582 $189,861,954 $1,707,667 ========== ======== ============ ==========
43 THE OAKMARK FUND STATEMENT OF CHANGES IN NET ASSETS--APRIL 30, 1996
Six Months Year Ended Ended April 30, October 31, 1996 1995 - - ------------------------------------------------------------------------------ (unaudited) From Operations: Net investment income $ 20,528,694 $ 27,572,923 Net realized gain on sale of investments 53,847,985 87,157,237 Net realized gain (loss) on foreign currency transactions 0 (37,102) Net change in unrealized appreciation 341,925,887 320,305,458 -------------- -------------- Net increase in net assets from operations 416,302,566 434,998,516 Distribution to shareholders from: Net investment income (per share $.2841 in fiscal 1996 and $.231 in fiscal 1995) (29,455,258) (15,107,180) Net realized short-term gain (per share $.042 in fiscal 1996 and $.7277 in fiscal 1995) (4,354,278) (47,575,398) Net realized long-term gain (per share $.7987 in fiscal 1996 and $.7411 in fiscal 1995) (82,805,021) (48,452,482) -------------- -------------- Total distributions to shareholders (116,614,557) (111,135,060) From Fund share transactions: Reinvestment of dividends and capital gain distributions 110,930,311 106,504,973 Proceeds from shares sold 1,265,779,050 1,384,343,262 Payments for shares redeemed (515,216,950) (664,894,744) -------------- -------------- Net increase in net assets from Fund share transactions 861,492,411 825,953,491 -------------- -------------- Total increase in net assets 1,161,180,420 1,149,816,947 Net assets: Beginning of period 2,827,069,020 1,677,252,073 -------------- -------------- End of period (including undistributed net investment income of $14,591,251 and $23,383,697, respectively) $3,988,249,440 $2,827,069,020 ============== ==============
See accompanying notes to the financial statements. 44 THE OAKMARK SMALL CAP FUND STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 1996 - - ----------------------------------------------------------------------------- (Unaudited) From Operations: Net investment income (loss) $ (82,827) Net realized gain (loss) on sale of investments (373,364) Net realized gain (loss) on foreign currency transactions 0 Net change in unrealized appreciation 8,963,549 ----------- Net increase in net assets from operations 8,507,358 Distribution to shareholders from: Net investment income 0 Net realized short-term gain 0 Net realized long-term gain 0 ----------- Total distributions to shareholders 0 From Fund share transactions: Reinvestment of dividends and capital gain distributions 0 Proceeds from shares sold 74,359,471 Payments for shares redeemed, net of fees (1,622,437) ----------- Net increase in net assets from Fund share transactions 72,737,034 ----------- Total increase in net assets 81,244,392 Net assets: Beginning of period 0 ----------- End of period (including undistributed net investment loss of $82,827) $81,244,392 ===========
See accompanying notes to the financial statements. 45 THE OAKMARK BALANCED FUND STATEMENT OF CHANGES IN NET ASSETS--APRIL 30, 1996
Six Months Ended April 30, 1996 - - ------------------------------------------------------------------------------- (Unaudited) From Operations: Net investment income $ 51,920 Net realized gain on sale of investments 84,936 Net realized gain (loss) on foreign currency transactions 0 Net change in unrealized appreciation 311,726 ----------- Net increase in net assets from operations 448,582 Distribution to shareholders from: Net investment income 0 Net realized short-term gain 0 Net realized long-term gain 0 ----------- Total distributions to shareholders 0 From Fund share transactions: Reinvestment of dividends and capital gain distributions 0 Proceeds from shares sold 11,165,384 Payments for shares redeemed (1,051,970) ----------- Net increase in net assets from Fund share transactions 10,113,414 ----------- Total increase in net assets 10,561,996 Net assets: Beginning of period 0 ----------- End of period (including undistributed net investment income of $51,920) $10,561,996 ===========
See accompanying notes to the financial statements. 46 THE OAKMARK INTERNATIONAL FUND STATEMENT OF CHANGES IN NET ASSETS--APRIL 30, 1996
Six Months Ended Year Ended April 30, 1996 October 31, 1995 - - ------------------------------------------------------------------------------- (unaudited) From Operations: Net investment income $ 7,529,234 $ 13,743,307 Net realized gain (loss) on investments (13,484,025) 62,822,164 Net realized gain (loss) on foreign currency transactions (3,188,626) (26,735,730) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 186,160,991 (120,637,092) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 12,941,386 17,767,564 Net change in unrealized appreciation (depreciation)--other (97,006) (20,391) -------------- ------------- Net increase (decrease) in net assets resulting from operations 189,861,954 (53,060,178) Distribution to shareholders from: Net investment income (per share $.00 in fiscal 1996 and $.00 in fiscal 1995) 0 0 Net realized short-term gain (per share $.5020 in fiscal 1996 and $.6863 in fiscal 1995) (29,886,815) (56,722,392) Net realized long-term gain (per share $.5413 in fiscal 1996 and $.3725 in fiscal 1995) (32,229,557) (30,791,949) -------------- ------------- Total distributions to shareholders (62,116,372) (87,514,341) From Fund share transactions: Proceeds from shares sold 312,448,484 81,810,540 Reinvestment of dividends 57,835,528 312,101,705 Payments for shares redeemed (180,101,448) (719,598,750) -------------- ------------- Net increase in net assets from Fund share transactions 190,182,564 (325,686,505) -------------- ------------- Total increase (decrease) in net assets 317,928,146 (466,261,024) Net assets: Beginning of period 819,731,542 1,285,992,566 -------------- ------------- End of period (including undistributed net investment income of $38,907,680 and $31,378,447, respectively) $1,137,659,688 $ 819,731,542 ============== =============
See accompanying notes to the financial statements. 47 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND STATEMENT OF CHANGE IN NET ASSETS--APRIL 30, 1996
Six Months Ended April 30, 1996 - - ------------------------------------------------------------------------------ (unaudited) From Operations: Net investment income $ 12,724 Net realized gain (loss) on investments 49,562 Net realized gain (loss) on foreign currency transactions (9,771) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 1,654,841 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 Net change in unrealized appreciation (depreciation)--other 311 ----------- Net increase (decrease) in net assets resulting from operations 1,707,667 Distribution to shareholders from: Net investment income 0 Net realized short-term gain 0 Net realized long-term gain 0 ----------- Total distributions to shareholders 0 From Fund share transactions: Proceeds from shares sold 22,756,557 Reinvestment of dividends 0 Payments for shares redeemed, net of fees (932,771) ----------- Net increase in net assets from Fund share transactions 21,823,786 ----------- Total increase (decrease) in net assets 23,531,453 Net assets: Beginning of period 0 ----------- End of period (including undistributed net investment income of $12,724) respectively) $23,531,453 ===========
See accompanying notes to the financial statements. 48 HARRIS ASSOCIATES INVESTMENT TRUST 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Balanced Fund ("Balanced"), The Oakmark International Fund ("International"), and The Oakmark International Emerging Value Fund ("Int'l Emerging Value") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. Security valuation-- Investments are stated at current value. Securities traded on securities exchanges and securities traded on the NASDAQ National Market are valued at the last sales price on the day of valuation, or if lacking any reported sales that day, at the most recent bid quotation. Over-the-counter securities not so traded are valued at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the date of valuation are valued on an amortized cost basis which approximates market value. Securities for which quotations are not readily available are valued at a fair value as determined by the pricing committee of the board of Trustees. Foreign currency translations-- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains 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 49 between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. As of April 30, 1996, only the International and Int'l Emerging Value funds had foreign currency transactions. Net unrealized appreciation--other includes the following components:
Int'l Emerging International Value - - -------------------------------------------------------------------------------- Unrealized appreciation (depreciation) on open securities purchases $ 89,891 $(73) Unrealized appreciation (depreciation) on transaction hedge purchases (65,773) 621 Unrealized appreciation (depreciation) on dividends and dividend reclaim receivables 49,762 (289) Unrealized appreciation (depreciation) on sales receivables (9,305) Other--net 7,713 52 -------- ---- Net unrealized appreciation (depreciation)--other $ 72,288 $311 ======== ====
Security transactions and investment income-- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. Forward foreign currency contracts-- At April 30, 1996, International and Int'l Emerging Value had each entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in currency values. The International Fund had the following outstanding contracts at April 30, 1996: 50 Portfolio Hedges:
Unrealized Appreciation US Dollar Settlement (Depreciation) Proceeds Foreign Currency Date at April 30, 1996 - - ------------------------------------------------------------------------------- $ 8,107,013 1,000,000,000 Spanish Pesetas July 1996 $ 277,267 10,000,000 1,273,500,000 Spanish Pesetas August 1996 40,340 9,466,243 1,191,800,000 Spanish Pesetas August 1996 151,176 15,000,000 1,894,200,000 Spanish Pesetas September 1996 215,285 8,839,996 45,000,000 French Francs August 1996 92,858 8,040,067 40,534,000 French Francs August 1996 155,476 9,886,551 49,760,000 French Francs September 1996 190,001 14,126,320 9,400,000 Pounds Sterling July 1996 (5,916) 5,000,000 3,276,325 Pounds Sterling September 1996 77,340 19,331,211 12,738,854 Pounds Sterling September 1996 192,566 5,816,370 9,458,000 Netherlands Guilders August 1996 250,399 10,000,000 16,366,000 Netherlands Guilders September 1996 342,668 29,114,164 47,574,000 Netherlands Guilders September 1996 1,032,527 9,161,376 15,152,000 Netherlands Guilders October 1996 199,742 17,459,707 108,870,000 Norwegian Kroner May 1996 884,770 23,039,295 156,370,000 Swedish Krona May 1996 (11,448) 11,909,331 78,810,000 Swedish Krona June 1996 303,097 29,580,442 198,987,500 Swedish Krona June 1996 283,372 16,927,192 113,595,000 Swedish Krona July 1996 207,437 ---------- $4,878,957 ==========
Transaction Hedges: Foreign Currency Purchases
Unrealized Appreciation Settlement (Depreciation) US Dollar Foreign Currency Proceeds Date at April 30, 1996 - - ------------------------------------------------------------------------- $5,931,068 6,841,370 Australian Dollars May 1996 $(17,812) 5,531,068 6,835,294 Swiss Franc May 1996 (25,838) 5,563,903 704,796,732 Spanish Peseta May 1996 (23,127) 7,038,136 4,663,012 Pound Sterling May 1996 (18,699) 427,725 3,303,398 Hong Kong Dollar May 1996 (34) 3,521,006 373,818,600 Japanese Yen May 1996 52,615 1,807,808 3,085,457 Netherlands Guilder May 1996 (7,133) 3,067,722 480,126,250 Portuguese Escudo May 1996 (6,864) 6,266,331 42,336,437 Swedish Krona May 1996 (23,492) -------- $(70,384) ========
Foreign Currency Sales
Unrealized Appreciation U.S. Dollar Settlement (Depreciation) Foreign Currency Cost Date at April 30, 1996 - - ----------------------------------------------------------------------- 815,865 Pound Sterling $1,233,929 May 1996 $ 5,772 12,768,505 Norwegian Kroner 1,944,843 May 1996 1,269 10,762,200 Swedish Krona 1,584,541 May 1996 (2,430) ------- $ 4,611 =======
51 The Int'l Emerging Value Fund had the following outstanding transaction hedges on purchases of securities:
Unrealized Appreciation Settlement (Depreciation) US Dollar Foreign Currency Proceeds Date at April 30, 1996 - - ----------------------------------------------------------------------------- $73,284 92,799 Australian Dollars May, 1996 $(386) 82,444 105,024 Australian Dollars May, 1996 58 125,322 170,626 Canadian Dollars May, 1996 (0) 52,402 5,580,810 Japanese Yen May, 1996 949 ----- $ 621 =====
At April 30, 1996, International and Int'l Emerging Value funds each 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 Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. 2. TRANSACTIONS WITH AFFILIATES Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets and .85% on the excess of $5 billion of net assets as determined at the end of each calendar month. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets and .90% on the excess of $5 billion of net assets as determined at the end of each calendar month. Small Cap pays 1.25% of net assets, Balanced pays .75% of net assets and Int'l Emerging Value pays 1.25% of net assets. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. The investment advisory agreement of each Fund provides that the Adviser will reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed the applicable limits prescribed by any state in which the Fund's shares are offered for sale. For the six months ended April 30, 1996 the Adviser has voluntarily waived $22,946 of expenses for Balanced and $71,277 for Int'l Emerging Value. In connection with the organization of the Funds, the Adviser advanced expenses of approximately $146,500 and $47,000 to Oakmark and International and approximately $7,283 each to Small Cap, 52 Balanced and Int'l Emerging Value. These expenses are being amortized on a straight line basis through July, 1996 for Oakmark, September, 1997 for International and October, 2000 for Small Cap, Balanced and Int'l Emerging Value. Registration expenses of approximately $56,751, $56,811 and $56,726 were advanced by the Adviser to Small Cap, Balanced and Int'l Emerging Value, respectively. Registration expenses are being amortized on a straight line basis through October, 1996. During the six months ended April 30, 1996, the Funds incurred brokerage commissions of $1,624,431, $1,511,546, $115,621, $9,821 and $92,656 of which $569,970, $40,514, $48,686, $8,732 and $1,471 were paid by Oakmark, International, Small Cap, Balanced and Int'l Emerging Value, respectively, 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):
Int'l Six Months Ended Small Emerging April 30, 1996 Oakmark Cap Balanced International Value - - ------------------------------------------------------------------------------ Shares sold 41,796 6,828 1,095 22,610 2,162 Shares issued in reinvestment of dividends 3,731 0 0 4,756 0 Less shares redeemed (16,898) (156) (101) (13,742) (87) ------- ----- ----- ------- ----- Net increase in shares outstanding 28,629 6,672 994 13,624 2,075 ======= ===== ===== ======= ===== Year Ended October 31, 1995 Oakmark International - - ------------------------------------------------------------------------------ Shares sold 54,044 24,062 Shares issued in reinvestment of dividends 4,782 6,472 Less shares redeemed (26,065) (56,012) ------- ------- Net increase in shares outstanding 32,761 (25,478) ======= =======
53 4. INVESTMENT TRANSACTIONS Transactions in investment securities, excluding short term securities, were as follows (in thousands):
Int'l Six Months Ended Small Emerging April 30, 1996 Oakmark Cap Balanced International Value - - ----------------------------------------------------------------------- Purchases $ 939,978 $76,362 $10,156 $256,910 $20,491 Proceeds from sales 236,765 5,910 598 213,226 643 Year Ended October 31, 1995 Oakmark International - - ----------------------------------------------------------------------- Purchases $1,085,381 $251,353 Proceeds from sales 359,990 671,180
The market values (in thousands) of securities on loan to broker-dealers at April 30, 1996 are shown below. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The Funds receive income from lending securities by investing the collateral and continue to earn income on the loaned securities. Security loans are subject to the risk of failure by the borrower to return the loaned securities in which case the Funds could incur a loss.
Int'l Small Emerging Oakmark Cap Balanced International Value - - ------------------------------------------------------------------------- Market Value of Securities Loaned n/a $5,102 $1,817 $73,920 $48 Collateral (Cash and U.S. Treasuries) n/a 5,448 1,898 79,091 51
5. SHAREHOLDER MEETING On January 30, 1996 each Fund held a meeting of shareholders to vote on a new investment advisory agreement for the Fund with the Adviser with the same terms as its current advisory agreement. Shareholders of Oakmark also voted on a proposed amendment to the Fund's investment policies that, if adopted, would permit the Fund to invest in repurchase agreements and to lend portfolio securities. A tabulation of results is shown below.
Int'l Small Emerging (in thousands) Oakmark Cap Balanced International Value - - -------------------------------------------------------------------- Advisory Agreement For 73,642 1,272 372 38,262 475 Against 1,441 11 1 573 6 Abstain 1,977 26 1 715 5 Repurchase Agreements For 51,570 Against 4,304 Abstentions 2,240 Broker non-votes 18,946 Securities Lending For 49,663 Against 5,985 Abstain 2,467 Broker non-votes 18,946
54 [THIS PAGE INTENTIONALLY LEFT BLANK] 55 THE OAKMARK FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year Ended October 31, Period Ended Six Months Ended ------------------------------------ October 31, April 30, 1996 1995 1994 1993 1992 1991(a) - - ---------------------------------------------------------------------------------------------------------------------------- (unaudited) Net Asset Value, Beginning of Period $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.15 0.30 0.27 0.17 (0.03)(d) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 3.68 4.66 1.76 7.15 5.04 2.11 -------- -------- -------- -------- ------ ------ Total From Investment Operations 3.83 4.96 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.28) (0.23) (0.23) (0.04) 0.00 0.00 Distributions (from capital gains) (0.84) (1.47) (0.77) (0.21) 0.00 0.00 -------- -------- -------- -------- ------ ------ Total Distributions (1.12) (1.70) (0.10) (0.25) 0.00 0.00 -------- -------- -------- -------- ------ ------ Net Asset Value, End of Period $ 31.18 $ 28.47 $ 25.21 $ 24.18 $17.11 $12.10 ======== ======== ======== ======== ====== ====== Total Return 13.66% 21.55% 8.77% 43.21% 41.40% 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $3,988.2 $2,827.1 $1,677.3 $1,107.0 $114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.15%* 1.17% 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets 1.16%* 1.27% 1.19% 0.94% (0.24)% (0.66)%(c)* Portfolio Turnover Rate 6.7% 18.0% 29.3% 18.0% 34.0% 0.0% Average Commission Rate Paid $ 0.0534(e)
- - ------------ *Ratios have been determined on an annualized basis. (a) From August 5, 1991, the date on which the 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. (e) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. 56 THE OAKMARK INTERNATIONAL FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year Ended October 31, Period Ended Six Months Ended ------------------------- October 31, April 30, 1996 1995 1994 1993 1992(a) - - ----------------------------------------------------------------------------------------------------------- (unaudited) Net Asset Value, Beginning of Period $ 12.97 $14.50 $ 14.09 $ 9.80 $ 10.00 Income From Investment Operations: Net Investment Income 0.01 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) 2.86 (0.77) 0.43 4.48 (0.46) -------- ------ -------- ------ ------- Total From Investment Operations 2.87 (0.47) 0.64 4.54 (0.20) Less Distributions: Dividends (from net investment income) 0.00 0.00 (0.08) (0.25) 0.00 Distributions (from capital gains) (1.04) (1.06) (0.15) 0.00 0.00 -------- ------ -------- ------ ------- Total Distributions (1.04) (1.06) (0.23) (0.25) 0.00 -------- ------ -------- ------ ------- Net Asset Value, End of Period $ 14.80 $12.97 $ 14.50 $14.09 $ 9.80 ======== ====== ======== ====== ======= Total Return 23.90% (3.06)% 4.62% 47.49% (22.81)%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $1,137.7 $819.7 $1,286.0 $815.4 $ 23.5 Ratio of Expenses to Average Net Assets 1.36%* 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income to Average Net Assets 1.68%* 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 25% 27% 55% 21% 0% Average Commission Rate Paid $ 0.0160(b)
- - ------------ *Ratios have been determined on an annualized basis. (a) From September 30, 1992, the date on which the Fund Shares were first offered for sale to the public. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. 57 THE OAKMARK SMALL CAP FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Six Months Ended April 30, 1996 - - ----------------------------------------------------------------------- (Unaudited) Net Asset Value, Beginning of Period $10.00 Income From Investment Operations: Net Investment Income (Loss) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 2.19 ------- Total From Investment Operations 2.18 Less Distributions: Dividends (from net investment income) 0.00 Distributions (from capital gains) 0.00 ------- Total Distributions 0.00 ------- Net Asset Value, End of Period $ 12.18 ======= Total Return 21.80% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 81.2 Ratio of Expenses to Average Net Assets* 2.12%* Ratio of Net Income (Loss) to Average Net Assets* (0.50)%* Portfolio Turnover Rate 17.8% Average Commission Rate Paid $0.0544(a)
- - ---------- *Ratios have been determined on an annualized basis using average daily net assets. (a) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. 58 THE OAKMARK BALANCED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Six Months Ended April 30, 1996 - - ----------------------------------------------------------------------- (Unaudited) Net Asset Value, Beginning of Period $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.05 Net Gains or Losses on Securities (both realized and unrealized) 0.58 ------- Total From Investment Operations 0.63 Less Distributions: Dividends (from net investment income) 0.00 Distributions (from capital gains) 0.00 ------- Total Distributions 0.00 ------- Net Asset Value, End of Period $ 10.63 ======= Total Return 6.30% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 10.6 Ratio of Expenses to Average Net Assets* 2.50%(a)* Ratio of Net Income to Average Net Assets* 1.34%(a)* Portfolio Turnover Rate 7.8% Average Commission Rate Paid $0.0597(b)
- - ---------- *Ratios have been determined on an annualized basis using average daily net assets. (a) If the fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, the ratio of expense to average net assets would have been 3.09% and the ratio of net income (loss) to average net assets would have been .75%. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. 59 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Six Months Ended April 30, 1996 - - ---------------------------------------------------------------------- (unaudited) Net Asset Value, Beginning of Period $10.00 Income From Investment Operations: Net Investment Income 0.01 Net Gains or Losses on Securities (both realized and unrealized) 1.33 ------- Total From Investment Operations 1.34 Less Distributions: Dividends (from net investment income) 0.00 Distributions (from capital gains) 0.00 ------- Total Distributions 0.00 ------- Net Asset Value, End of Period $11.34 ======= Total Return 13.40% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 23.5 Ratio of Expenses to Average Net Assets* 2.50%*(a) Ratio of Net Income to Average Net Assets* 0.23%*(a) Portfolio Turnover Rate 5.83% Average Commission Rate Paid $0.0047(b)
- - ---------- *Ratios have been determined on an annualized basis using average daily net assets. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, the ratio of expenses to average net assets would have been 4.72% and the ratio of net income (loss) to average net assets would have been (2.77)%. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. 60 THE OAKMARK FUNDS' SEMI-ANNUAL REPORT APRIL 30, 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 Ann W. Regan--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 LLP 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 APPEARS HERE] Harris Associates L.P. 2 North LaSalle Street Chicago, IL 60602 1-800-OAKMARK -----END PRIVACY-ENHANCED MESSAGE-----