-----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, GNJhGrjIduDqzN1lSoAO4bChnzkpbvLAJdLpDXQQpBdeOk8QMY3hseuPuM0XQdpr x6q/9QP0PynZ+nvNtsmyrw== 0000950131-96-006389.txt : 19961220 0000950131-96-006389.hdr.sgml : 19961220 ACCESSION NUMBER: 0000950131-96-006389 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961219 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: 96683334 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET SUITE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 BUSINESS PHONE: 8004769625 MAIL ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 N-30D 1 ANNUAL REPORT FOR OAKMARK FUNDS ANNUAL REPORT October 31, 1996 The Oakmark Fund The Oakmark Small Cap Fund The Oakmark Balanced Fund The Oakmark International Fund The Oakmark International Emerging Value Fund MEMBER OF =================== NO-LOAD 100% MUTUAL FUND COUNCIL =================== Managed by HARRIS ASSOCIATES L.P. OAKMARK THE OAKMARK FAMILY OF FUNDS 1996 Annual Report ---------------------------------------------------------------------
LETTER FROM THE PRESIDENT........................... 1 THE OAKMARK FAMILY OF FUNDS SUMMARY................. 2 THE OAKMARK FUND Performance Information............................ 4 Letter from the Portfolio Manager.................. 4 Schedule of Investments............................ 7 THE OAKMARK SMALL CAP FUND Performance Information........................... 11 Letter from the Portfolio Manager................. 11 Schedule of Investments........................... 13 THE OAKMARK BALANCED FUND Performance Information........................... 16 Letter from the Portfolio Manager................. 16 Schedule of Investments........................... 18 THE OAKMARK INTERNATIONAL FUND Performance Information........................... 21 Letter from the Portfolio Managers................ 21 International Diversification Chart............... 23 Schedule of Investments........................... 24 THE OAKMARK INT'L EMERGING VALUE FUND Performance Information........................... 28 Letter from the Portfolio Managers................ 28 International Diversification Chart............... 30 Schedule of Investments........................... 31 FINANCIAL STATEMENTS............................... 34 TRUSTEES AND OFFICERS.............................. 49
FOR MORE INFORMATION: Please call 1-800-OAKMARK (1-800-625-6275). 24-HOUR NET ASSET VALUE HOTLINE: To obtain the current net asset value of a Fund, please call 1-800-GROWOAK (1-800-476-9625). Letter from the President . . . - -------------------------------------------------------------------------------- [PHOTO OF VICTOR A. MORGENSTERN APPEARS HERE] Fellow Shareholders: We are pleased to present the annual report for The Oakmark Family of Funds. For our fiscal year-end October 31, 1996, our Family was five-strong and as I write this, we have just launched our newest member, The Oakmark Select Fund, a non-diversified equity fund. We passed several important milestones this year. The Oakmark Fund had its fifth birthday and notably is the top-performing fund (out of 250) in the Lipper growth fund category for the five years ended October 31, 1996. The Oakmark Small Cap Fund, The Oakmark Balanced Fund and The Oakmark International Emerging Value Fund had their first birthdays, with Small Cap and International Emerging Value significantly outperforming their respective benchmarks. We have built our six-fund family very carefully, and we believe we are well along in meeting our long-term goal: being the best value-oriented fund family. Each of our Funds employs the same value-oriented investment philosophy applied across both the domestic and international spectrum. Also, each Fund uses the resources of the entire Harris Associates research team. All of our analysts are generalists and apply the same value philosophy to their work. The reports that follow highlight some of the Fund managers' selections in creating their respective portfolios. We have redesigned our annual report this year to make it more readable and user-friendly. We are mindful of its overall size and, therefore, used a self- mailer to reduce costs. Kudos to Jeani Meola, Ann Regan and our outside consultant (and logo designer), Jude Mahler, for the new look. As always, your comments and suggestions for improvement are solicited. Thank you for your support and best wishes for a healthy, happy and prosperous new year! /s/ Victor A. Morgenstern Victor A. Morgenstern, President [LOGO OF OAKMARK FAMILY OF FUNDS] 1 The Oakmark Family of Funds Summary Information* ------------------------------------------------------------------------------
Performance for Period Ended The Oakmark Fund The Oakmark October 31, 1996 Small Cap Fund =========================================================================================================== 3 Months 7.6% 11.5% - ----------------------------------------------------------------------------------------------------------- 6 Months 3.9% 8.3% - ----------------------------------------------------------------------------------------------------------- Performance for: 1 Year 18.1% 31.9% - ----------------------------------------------------------------------------------------------------------- 3 Years 16.0%** N/A - ----------------------------------------------------------------------------------------------------------- 5 Years 25.8%** N/A - ----------------------------------------------------------------------------------------------------------- Since inception 29.2%** 31.9% Value of $10,000 $38,252 $13,190 from inception date 08/05/91 11/01/95 =========================================================================================================== Top Five Holdings as of October 31, 1996 Company and % of Total Net Assets Philip Morris Co. 6.3% US Industries, Inc. New 5.7% Mellon Bank Corp. 6.0% SPX Corp. 5.5% First USA, Inc. 5.2% Catellus Dev. Corp. 5.3% Dun & Bradstreet 4.8% First Brands Corp. 4.1% Knight Ridder, Inc. 4.1% Premark International, Inc. 4.1% =========================================================================================================== Top Five Industries as of October 31, 1996 Industries and % of Total Net Assets Food & Beverage 17.7% Other Industrial Goods & Services 16.9% Broadcasting & Machinery & Metal Publishing 13.3% Processing 12.8% Other Consumer Goods Banks 10.7% & Services 12.5% Other Financial 10.3% Insurance 9.1% Insurance 6.4% Broadcasting & Publishing 8.9%
*The Oakmark Fund's average annual total returns for the twelve months ended September 30, 1996 and for the period August 5, 1991 (inception) through September 30, 1996 were 15.5% and 29.5%, respectively. The Oakmark Small Cap Fund's total return for November 1, 1995 (inception) through September 30, 1996 was 32.5%. The Oakmark Balanced Fund's total return for November 1, 1995 (inception) through September 30, 1996 was 11.1%. **Annualized. 2 The Oakmark Family of Funds
The Oakmark The Oakmark The Oakmark Int'l Balanced Fund International Fund Emerging Value Fund 5.9% 3.8% 3.4% 6.2% .8% .6% 12.9% 24.9% 14.1% N/A 8.2%** N/A N/A N/A N/A 12.9% 16.0%** 14.1% $11,290 $18,309 $11,410 11/01/95 09/30/92 11/01/95 - ----------------------------------------------------------------------------------------------------------------- US Industries, Inc. New 4.7% National Australia Bank 4.8% Sanford Limited 4.5% Premark International, Inc. 3.4% AB Volvo 4.5% Parbury Limited 4.1% Lee Enterprises, Inc. 3.3% Cordiant PLC 4.3% Cordiant PLC 3.8% Mellon Bank Corp. 3.2% Usiminas 3.7% Solution 6 Holdings Ltd. 3.7% McDonnell Douglas Corp. 3.2% Telefonica 3.5% Yip's Hang Cheung (Holdings) Limited 3.7% - ----------------------------------------------------------------------------------------------------------------- Government & Agency Banks 13.7% Other Industrial Goods Securities 27.4% & Services 17.9% Other Consumer Goods Telecommunications 11.3% Mining & Building & Services 20.9% Materials 8.2% Other Industrial Goods Food 10.2% Other Consumer Goods & Services 8.1% & Services 7.8% Other Financial 6.2% Steel 8.9% Components 6.3% Broadcasting & Publishing 5.8% Aerospace 6.2% Broadcasting & Publishing 6.0% - -----------------------------------------------------------------------------------------------------------------
The Oakmark International Fund's average annual total returns for the twelve months ended September 30, 1996 and for the period September 30, 1992 (inception) through September 30, 1996 were 18.3% and 16.4%, respectively. The Oakmark International Emerging Value Fund's total return for November 1, 1995 (inception) through September 30, 1996 was 15.9%. 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. The Oakmark Family of Funds 3 The Oakmark Fund Report from Robert J. Sanborn, Portfolio Manager [PHOTO OF ROBERT J. SANBORN APPEARS HERE] Annual Portfolio Update The Oakmark Fund's fiscal year ended October 31, 1996 was eerily reminiscent of our 1995 fiscal year. As Yogi Berra might say, "It's deja vu all over again." A very similar macroeconomic environment--slow, steady growth; continued low inflation, with the price of gold down again; long-term interest rates down again--provided a good context for equities. As in fiscal 1995, your Fund generated strong absolute returns but lagged those of the Standard & Poor's 500. More than half of this relative gap is attributable to our investments in cable companies. Increased competition and very heavy required capital expenditures have combined to retard value growth in this industry. Our estimate of the underlying value of Tele-Communications Inc. (TCOMA), for example, has been stagnant for a few years. This is contrary to our expectations of a few years ago, and explains the disappointing stock performance. Like my weekly hoops game at the 'Y' where you call your own fouls, this has been my bad. While these stocks have been poor performers of late, this does not mean that we are sick of them, or embarrassed by them, or need to sell them to gain perspective. Our long-time shareholders know that investments in this industry have been very kind to us over the long term. At current prices, we find our cable holdings--TCOMA, U.S. West Media Group, and TCI Liberty Media--extremely undervalued. In general, as in fiscal 1995, the rest of our holdings' businesses performed at least as well as our expectations. In fact, the discount to underlying value in the portfolio is greater today than a year ago. While we, as always, make our investments one by one, two sectors--consumer non- durable companies (Philip Morris, Knight Ridder, Black & Decker, Heinz, Anheuser-Busch, and American Brands, et. al.) and financial services (First USA, Mellon, Torchmark, and Ambac, et. al.)--comprise almost one-half and one-quarter The value of a $10,000 investment in The Oakmark Fund from its inception (8/5/91) to present (10/31/96) as compared to the Standard & Poor's 500 Index [GRAPH APPEARS HERE]
Average Annual Total Return* 10/31/96 NAV $32.39 Through 10/31/96 ---------------------------- From Fund Total Return Inception Last 3 mos. From 10/31/95 8/5/91 - ------------------------------------------------------------------------------------------- THE OAKMARK FUND 7.6% 18.1% 29.2% Standard & Poor's 500 Stock Index* 10.9% 24.1% 15.2% Dow-Jones Industrial Average* 9.7% 29.8% 17.3% Value Line Composite Index* 7.5% 12.5% 7.7%
*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 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. 4 The Oakmark Fund of the value of your Fund, respectively. At the risk of repetition, I want to comment briefly on our consumer holdings. These companies are well above-average, with high barriers to entry, dominant market shares, loyal customers, and good international prospects. These characteristics tend to produce well-above-average returns on assets and very high free cash flow, which many of our holdings are using to repurchase their own shares. Still, the market is not yet rewarding these above-average businesses with the above-average valuations they deserve. It is common for us to agree on the facts with market participants, yet reach different investment conclusions. It reminds me of the scene in Annie Hall in which Alvie Singer and Annie are having sessions with their respective psychoanalysts. In the scene, each character states that the couple's love life is a source of frustration. The analysts ask each how often they make love. "Oh, all the time," answers Annie; "Hardly ever," responds Alvie. Then in unison they each add, "Three times a week." So it is with our consumer stocks. Yet, rather than waste any time trying to anticipate when the market will value these stocks appropriately, we patiently wait for price and value to converge. In the meantime, the superior value growth that we expect these holdings to produce should benefit your Fund. In fact, we continue to find additional candidates for investment in this sector. Your Fund continues its high concentration and low portfolio turnover. Our twenty largest holdings comprise over 70 percent of our value, up from 67 percent last year. Our five largest holdings comprise over 26 percent of our holdings. As I have stated before, we believe in putting our absolute best ideas in your Fund, and have no interest in becoming a closet index fund. I characterize our portfolio as diversified without being overdiversified. We are long-term investors who buy ownership pieces of companies for the long term. Given that our holdings have produced strong business results, yet below- average stock price performance, it should be no surprise that our portfolio turnover was quite low last year. In fact, we sold only one (Federated Department Stores) of our twenty largest holdings last year. However, we sold several other holdings--Clorox, Interstate Bakeries, Zale, and St. Jude Medical, et. al.--as they approached our estimate of value. Professional investors too often mistake trading activity for investment activity. The correct level of trading is that which optimizes returns. This reminds me of a scene from another movie, Amadeus. The young Mozart is playing a new composition for Salieri and the King. Finishing, he seeks the King's approval. After offering tepid enthusiasm, the King adds, "There are too many notes." Of cour se, Mozart knows that the work has the exact number of notes to convey what he is trying to communicate. No more, no less. So it is with our trading. We are fortunate to have the services of Harris Associates' crack trading team-- Connie Twomey, Tony Sinople, newlywed John Tansey, and Betsy Burns. We could not have a more reliable, professional, and experienced group implementing our philosophy. (And, except for John, no one even vaguely resembles any character on Lifetime TV's "Traders".) What is ahead for 1997? On the one hand, anecdotal evidence indicates a frothy market; on the other hand, I like our quality portfolio a lot, and would much prefer owning it than cash over the next five years. As the curtain falls on another year, I want to thank you again for your support and confidence over the past five-plus years. The Crash of 1987 Revisited A little over nine years ago, on October 19, 1987, the most singular day of my investment career occurred. On "Black Monday," the Dow dropped 508 points, a decline of 22.6 percent, the biggest one-day drop in history. In fact, the drop was actually worse than that, since the more-liquid S&P 500 futures index declined by over 29 percent that day. By contrast, the worst single-day percentage decline in the 1929 market crash was "only" 12.8 percent. At the time, I was working for a large pension fund in Columbus, Ohio. Some colleagues, other investment friends and I met at a tavern to lick our wounds. As I recall, the consensus was that we had all seen it coming (of course), that the Crash would have profound negative effects on the economy and the market, and also on our careers. The consensus was wrong. Next year, there will be a lot of tenth anniversary observations about The The Oakmark Fund 5 Crash of 1987. Let's beat them all by a year, and ask ourselves, what was the cause of the Crash and what is its legacy? And, what can we learn from it? Many explanations for THE cause have been offered: a confrontation between Iran and the US, an SEC ruling that would chill the corporate acquisition market, an increase in inflationary expectations. These are all unsatisfactory, however. In my estimation, the biggest cause of the Crash was complacency on the part of institutional investors who had convinced themselves that they had protected their portfolios from any significant downside. This delusion was fostered by the growing use of something called "dynamic hedging," or, more commonly, "portfolio insurance." Portfolio insurance was based on the beguiling notion that it's better to own more stocks when the market is going up than when it's going down. An investor would simply buy more stocks in a rising market and sell stocks in a declining market. (Some of you may recognize the "stop-loss" trading technique in this strategy. You are correct-but "dynamic hedging" sounded a lot better and more sophisticated when the purveyors of portfolio insurance made their sales calls.) One of the problems with portfolio insurance was that it required orderly, liquid markets to implement. Another problem was that it required participants to sell more and more stock into declining markets, thus exacerbating any price weakness. The SEC concluded that the relatively small $200 million of portfolios being managed with portfolio insurance at the market peak of 1987 mushroomed to as high as $90 billion after the Crash. The Crash had little to no effect on the economy, and did not scare individual investors away from the stock market. The greatest growth in individual participation in the US equity market occurred after the Crash. If one had bought the Dow after the Crash, and held until today, he would have earned about 17.5 percent annually. If one had bought the day BEFORE the Crash, he would still have earned over 14.5 percent. The key investment decision has never been when to buy equities, but rather to allocate the majority of your long-term assets to equities. The importance of a long-term investment time-horizon is the most crucial lesson from the Crash of 1987. Stocks in the US have significantly outperformed bonds, cash, and inflation over the past 70 years. For example, from 1926 to 1996, stocks have generated annual returns of 10 percent, vs. 5 percent for bonds, 3 percent for cash, and 3 percent for inflation. The longer one's holding period, the more compelling the case for stocks. In the years 1926 to 1995, for example, stocks have outperformed bonds 61 percent of the years; however, as the holding period rises to 5, 10, and 20 years, stocks outperform 77%, 89%, and 98%, respectively. While there is, of course, no assurance that these relationships will persist, I suspect they will. There is evidence of froth in today's market: record issuance of IPOs, dramatic growth in mutual fund and personal investing media coverage, record attendance at the Schwab advisors' conference. Nevertheless, I have no intention of trying to time the market, and I am very comfortable with the absolute and relative value of our holdings. Prepare yourself for the occasional Crash, and regard it as part of the price for growing your wealth in the long run. /S/ Robert J. Sanborn Robert J. Sanborn Portfolio Manager harjs@aol.com November 6, 1996 6 The Oakmark Fund The Oakmark Fund Schedule of Investments-October 31, 1996
Shares Held Market Value - ------------------------------------------------------------------------ Common Stocks-94.6% Food & Beverage-17.7% Philip Morris Companies Inc. 2,670,400 $ 247,345,800 H.J. Heinz Company 4,007,250 142,257,375 Anheuser-Busch Companies Inc. 3,538,200 136,220,700 Nabisco Holdings Corp. 2,422,100 90,223,225 CPC International 843,100 66,499,513 Ralston Purina Group 189,900 12,557,137 -------------- 695,103,750 Retail-1.7% The Kroger Company 954,600 $ 42,599,025 Carson Pirie Scott & Co. (a) 1,000,000 24,875,000 Cole National Corporation (a) 20,000 472,500 -------------- 67,946,525 Telecommunications-3.9% U.S. West Media Group 9,918,400 $ 154,975,000 Other Consumer Goods & Services-12.5% The Black & Decker Corporation 3,810,400 $ 142,413,700 Polaroid 2,922,600 118,730,625 American Brands, Inc. 2,435,500 116,295,125 First Brands Corporation 940,400 26,683,850 Whitman Corporation 957,500 23,219,375 Brunswick Corporation 779,700 18,322,950 GC Companies, Inc. (a) 500,000 16,937,500 JUNO Lighting Inc. 885,000 13,772,813 Arctic Cat, Inc. 957,500 8,976,562 Justin Industries, Inc. 601,500 6,165,375 -------------- 491,517,875 Banks-6.0% Mellon Bank Corporation 3,606,550 $ 234,876,569 River Bank America (a) 340,000 3,060,000 -------------- 237,936,569 Insurance-6.4% Torchmark Corporation 3,296,200 $ 159,453,675 Old Republic International 2,108,620 52,188,345 American Financial Group, Inc. 684,700 24,563,613 Acordia, Inc. 501,300 14,287,050 -------------- 250,492,683 Other Financial-10.3% FirstUSA, Inc. 3,548,000 $ 204,010,000 AMBAC Inc. 2,194,900 137,181,250 Federal National Mortgage Association 1,184,500 46,343,563 Fund American Enterprises Holdings, Inc. 204,400 18,319,350 -------------- 405,854,163
See accompanying notes to financial statements. The Oakmark Fund 7 The Oakmark Fund Schedule of Investments-October 31, 1996 cont.
Shares Held Market Value - -------------------------------------------------------------------------------- Common Stocks-94.6% (cont.) Broadcasting & Publishing-13.3% Dun & Bradstreet Corporation 3,256,200 $ 188,452,575 Knight-Ridder, Inc. 4,348,800 162,536,400 Tele-Communications, Inc. Class A (a) 9,179,179 114,166,038 TCI Communications, Inc. (a) 2,113,494 54,422,470 AC Nielson Corporation 311,700 4,792,387 -------------- 524,369,870 Pharmaceutical-2.7% American Home Products Corporation 1,720,600 $ 105,386,750 Managed Care Services-1.6% Foundation Health Corporation (a) 1,813,700 $ 54,184,288 Physicians Health Services, Inc. (a) 420,000 7,035,000 Right CHOICE Managed Care, Inc. (a) 270,000 2,666,250 -------------- 63,885,538 Medical Products-1.0% Sybron Corporation (a) 1,297,800 $ 37,798,425 Aerospace & Defense-5.3% Lockheed Martin Corporation 1,287,210 $ 115,366,196 McDonnell Douglas Corporation 1,220,000 66,490,000 Logicon, Inc. 654,800 27,092,350 -------------- 208,948,546 Other Industrial Goods & Services-5.4% James River Corporation 2,839,100 $ 89,431,650 Bandag Incorporated, Class A 1,014,300 47,164,950 SPX Corporation 880,400 24,981,350 The Geon Company 912,100 17,899,963 USG Corporation (a) 590,000 17,405,000 UCAR International Inc. (a) 253,000 9,898,625 Premark International, Inc. 186,200 3,886,925 Bandag Incorporated 26,300 1,249,250 -------------- 211,917,713 Commercial Real Estate-1.0% Host Marriott Corporation (a) 2,291,700 $ 35,234,888 Catellus Development Corporation (a) 585,700 5,783,787 -------------- 41,018,675 Foreign Securities-5.8% DeBeers Consolidated Mines Ltd. ADR (b) 3,135,000 $ 92,482,500 YPF Sociedad Anonima (b) 3,276,500 74,540,375 Unilever NV 297,000 45,403,875 EVC International NV 547,700 15,139,465 -------------- 227,566,215 Total Common Stocks (Cost: $2,936,176,488) 3,724,718,297
See accompanying notes to financial statements. 8 The Oakmark Fund The Oakmark Fund Schedule of Investments-October 31, 1996 cont.
Shares Held/ Principal Value Market Value - -------------------------------------------------------------------------- Common Stocks Sold Short-0.0% Broadcasting &Publishing Cognizant Corporation (65,800) $ (2,056,250) -------------- Total Common Stocks Sold Short (Proceeds: $2,062,103) (2,056,250) Short-Term Investments-5.0% Commercial Paper-4.7% American Express Credit Corporation, 5.30% due 11/5/1996 $25,000,000 $ 25,000,000 Ford Motor Credit Corporation, 5.35% due 11/4/1996 25,000,000 25,000,000 Ford Motor Credit Corporation, 5.26% due 11/4/1996 25,000,000 25,000,000 Ford Motor Credit Corporation, 5.37% due 11/4/1996 50,000,000 50,000,000 General Electric Capital Corporation, 5.65% due 11/1/1996 10,000,000 10,000,000 General Electric Capital Corporation, 5.65% due 11/1/1996 50,000,000 50,000,000 -------------- Total Commercial Paper 185,000,000 Repurchase Agreements-0.3% State Street Repurchase Agreement, 5.55% due 11/1/1996 Collateralized by US Treasury Securities $12,061,000 $ 12,061,000 -------------- Total Repurchase Agreements 12,061,000 Total Short-Term Investments (Cost: $197,061,000) 197,061,000 Total Investments (Cost $3,131,175,385)-99.6% $3,919,723,047 Other assets, less other liabilities-0.4% 14,212,613 -------------- Total Net Assets-100% $3,933,935,660 ==============
See accompanying notes to financial statements. The Oakmark Fund 9 The Oakmark Fund Schedule of Investments-October 31, 1996 cont. - --------------------------------------------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) At October 31, 1996, net unrealized appreciation of $788,547,662 for federal income tax purposes consisted of gross unrealized appreciation of $878,790,727 and gross unrealized depreciation of $90,243,065. Each of the following companies is considered affiliated because the Fund owns greater than 5% of the outstanding voting shares of the company.
AMBAC, Inc. 6.27% GC Companies, Inc. 6.4% Bandag Inc. Class A 8.75% Polaroid Corporation 6.3% Carson Pirie Scott & Co 5.96% SPX Corporation 6.19% First USA, Inc. 5.92%
The aggregate cost and value of investments in these companies at October 31, 1996 was $424,717,809 and $573,880,675 respectively, which represents 14.6% of the total net assets. During the year ended October 31, 1996, dividends received from these companies was $3,642,783. See accompanying notes to financial statements. 10 The Oakmark Fund The Oakmark Small Cap Fund Report from Steven J. Reid, Portfolio Manager [PHOTO OF STEVEN J. REID APPEARS HERE] Trick or Treat!!! On Halloween, October 31, 1996, your Fund completed its first fiscal year of operation. It was truly an outstanding year. We as shareholders were treated to gains of 31.9% for the year and 11.5% for the fourth quarter. Our results were significantly better than the relevant indices. As the Fund's fiscal year ended, so did the beautiful fall weather in the Midwest. The abrupt change in temperatures for Halloween was a frosty surprise for many trick-or-treaters. As one of the many thousands who were able to participate in this year's quest for candy, the change in weather was a very mean trick. What Happened I have been asked numerous times to explain the results of The Oakmark Small Cap Fund. My one word answer is philosophy. We at Harris Associates and The Oakmark Funds wholeheartedly embrace a value-oriented investment philosophy. Over the long term our philosophy of investing has rewarded our shareholders. However, it would be remiss on my part not to acknowledge the unique performance of several of the Fund's holdings and highlight some of the characteristics we look for in our investment process. Catellus Development Corporation, SPX Corporation, and U.S. Industries, Inc. are the Fund's three largest holdings. All of these companies have performed well and have earned their place at the top of the heap in the portfolio. In particular, SPX Corp. stands out as a shining example of what we look for when we invest in a stock for your Fund. Henry Berghoef sourced this idea, and our hats are off to you Henry! SPX Corporation is a long-established Muskegon, Michigan-based company that operates a group of very fine businesses. The company had lost focus in the last several years, and as a result its performance and stock price had deteriorated significantly. SPX came to our attention when it was announced that a new management team would be brought in to revitalize the company. The Value of a $10,000 Investment in The Oakmark Small Cap Fund from its Inception (11/1/95) to Present (10/31/96) as compared to the Russell 2000 [GRAPH APPEARS HERE]
Total Return* 10/31/96 NAV $13.19 Through 10/31/96 Total Return From Fund Inception Last 3 mos.. 11/1/95 - ------------------------------------------------------------------ The Oakmark Small Cap Fund 11.5% 31.9% Lipper Small Co. Growth* 8.6% 17.1% Russell 2000* 7.8% 15.0% S&P 600* 9.8% 19.3%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The Lipper Small 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. The Oakmark Small Cap Fund 11 Soon after that John Blystone was selected as the new President and Chief Executive Officer. John's mission was two-fold. First, he needed to reshape the culture of the company. This meant providing proper incentives related to the performance of the individual business units and giving employees at all levels the opportunity and responsibility to improve results. Second, it required rationalizing several aspects of the business. As John told us, "I probably have to grow by shrinking." After careful analysis, management decided that several business units would be sold to repay debt that the company had incurred over the years, thus allowing management to focus on the core remaining businesses. It is worth noting that while all of this was taking place Wall Street remained skeptical. This provided the opportunity for us to purchase shares at an attractive valuation for your Fund. Both the performance of the operating businesses of SPX and shares of the stock have improved. We still see tremendous potential and have noted that Wall Street has begun to catch on. In the meantime, we wish John and his management team continued success. Outlook As you may know, we don't make forecasts regarding the stock market, the economy, or interest rates. We adhere to a bottom-up approach to investing. Every security is researched and evaluated on its own merit. In a recent issue of a major financial periodical they listed their 100 most attractive small company investments. I was pleased to see, and take comfort in knowing, that not one of our holdings in the Fund was a part of this list. We still see excellent opportunities for investing and are elated that other people are not seeing what we do. Once again, I would like to thank everyone involved, especially our shareholders, for your support of The Oakmark Small Cap Fund. /s/ Steven J. Reid Steven J. Reid Portfolio Manager sreid@oakmark.com October 31, 1996 12 The Oakmark Small Cap Fund THE OAKMARK SMALL CAP FUND Schedule of Investments--October 31, 1996
Shares Held Market Value - ----------------------------------------------------------------------------- Common Stocks--94.9% Food & Beverage-3.8% GoodMark Foods, Inc. 258,500 $ 4,459,125 Ralcorp Holdings, Inc. (a) 186,500 3,916,500 ----------- 8,375,625 Retail--6.4% Cole National Corporation (a) 325,000 $ 7,678,125 Carson Pirie Scott & Co. (a) 175,000 4,353,125 Rex Stores Corporation (a) 200,000 1,900,000 ----------- 13,931,250 Other Consumer Goods & Services--5.9% First Brands Corporation 315,000 $ 8,938,125 Justin Industries, Inc. 207,400 2,125,850 Triarc Companies, Inc. (a) 150,000 1,762,500 ----------- 12,826,475 Banks--10.7% Peoples Bank of Bridgeport Connecticut 300,000 $ 7,725,000 Harbor Federal Savings Bank 160,000 5,060,000 Texas Regional Bancshares, Inc. 145,000 4,676,250 Northwest Savings Bank 215,000 2,687,500 Pocahontas Federal Savings & Loan Association 140,000 1,995,000 Savings Bank of Finger Lakes 86,500 1,167,750 ----------- 23,311,500 Insurance--9.1% Renaissance Holdings, Ltd 260,000 $ 7,572,500 Chartwell Re Corporation 257,000 6,521,375 Highlands Insurance Group, Inc. (a) 294,200 5,810,450 ----------- 19,904,325 Other Financial--3.4% Duff & Phelps Credit Rating Company 251,500 $ 5,564,438 First USA Paymentech Inc. 50,000 1,850,000 ----------- 7,414,438 Broadcasting & Publishing--8.9% Granite Broadcasting Corporation 500,000 $ 5,750,000 Cablevision Systems Corporation (a) 175,000 5,446,875 Lee Enterprises, Incorporated 184,300 4,215,862 Central Newspapers, Class A. 100,000 4,025,000 ----------- 19,437,737 Computer Systems--1.9% Imation Corporation (a) 150,000 $ 4,106,250 Managed Care Services--1.5% Healthcare Services Group, Inc. 355,000 $ 3,416,875
See accompanying notes to financial statements. THE OAKMARK SMALL CAP FUND 13 THE OAKMARK SMALL CAP FUND Schedule of Investments--October 31, 1996 cont.
Shares Held/ Principal Value Market Value - ------------------------------------------------------------------------------- Common Stocks--94.9% (cont.) Machinery and Metal Processing--12.8% Gardner Denver Machinery Incorporated 237,500 $ 7,481,250 Kysor Industrial Corporation 175,800 5,120,175 The Carbide/Graphite Group 292,000 4,763,250 Sudbury, Inc. 350,000 3,937,500 Northwest Pipe Company 200,000 3,450,000 Matthews International Corporation 105,000 3,110,625 ------------ 27,862,800 Other Industrial Goods & Services--16.9% SPX Corporation 420,000 $ 11,917,500 Premark International, Inc. 425,000 8,871,875 Zurn Industries, Inc. 250,000 6,281,250 MagneTek, Inc. (a) 500,000 5,562,500 Dal-Tile International Inc. (a) 250,000 4,375,000 ------------ 37,008,125 Commercial Real Estate--7.9% Catellus Development Corporation (a) 1,175,000 $ 11,603,125 Innkeepers USA Trust 255,000 2,996,250 Castle & Cooke, Inc. (a) 170,000 2,613,750 ------------ 17,213,125 Diversified Conglomerates--5.7% U.S. Industries, Inc. New (a) 460,000 $ 12,420,000 TOTAL COMMON STOCKS (COST: $187,590,109) 207,228,525 Corporate Bonds--1.7% Harrah's Jazz Bonds, 14.25% due 11/15/2001 (c) $6,700,000 $ 3,768,750 TOTAL CORPORATE BONDS (Cost: $3,304,413) 3,768,750 Short-Term Investments--2.7% Commercial Paper--2.3% American Express Credit Corporation, 5.30% due 11/5/1996 $1,000,000 $ 1,000,000 Ford Motor Credit Corporation, 5.37% due 11/4/1996 2,000,000 2,000,000 General Electric Capital Corporation, 5.65% due 11/1/1996 2,000,000 2,000,000 ------------ TOTAL COMMERCIAL PAPER 5,000,000
See accompanying notes to financial statements. 14 THE OAKMARK SMALL CAP FUND The Oakmark Small Cap Fund Schedule of Investments--October 31, 1996 cont.
Repurchase Agreements--0.4% Principal Value Market Value - --------------------------------------------------------------------------------- State Street Repurchase Agreement, 5.55% due 11/1/1996 Collateralized US Treasury Securities........................... $845,000 $ 845,000 ------------ Total Repurchase Agreements...................... 845,000 Total Short-Term Investments (Cost: $5,845,000).. 5,845,000 Total Investments (Cost $196,739,522)--99.3%..... 216,842,275 Other assets, less other liabilities--.7%........ 1,578,132 ------------ Total Net Assets--100%........................... $218,420,407 ============
- ----------------------------------------- Notes: (a) Non-income producing security. (b) At October 31, 1996, net unrealized appreciation of $20,102,753 for federal income tax purposes consisted of gross unrealized appreciation of $24,650,766 and gross unrealized depreciation of $4,548,013. (c) This bond is currently in default and the Fund is no longer accruing interest. - ----------------------------------------- At October 31, 1996, the Fund owned 8.7% of Pocohontas Federal Savings & Loan Association and 5.8% of Granite Broadcasting. Companies in which the Fund owns greater than 5% are considered affiliated to the Fund. The purchase cost was $8,438,933, market value was $7,745,000 and represents 3.5% of the total net assets. Dividends earned during the year ended October 31, 1996 were $68,880. THE OAKMARK SMALL CAP FUND 15 The Oakmark Balanced Fund Report from Clyde S. McGregor, Portfolio Manager ---------------------------------------------------------------------------- [PHOTO OF CLYDE S. MCGREGOR APPEARS HERE] Fiscal Year-End Review The Oakmark Balanced Fund is now a one-year old, and I would like to thank my fellow shareholders for their support as well as their insightful questions and comments in the inaugural year. While not without nervous moments, the year was a successful beginning for the Fund. Oakmark Balanced returned 12.9% for the fiscal year, 5.9% for the fourth fiscal quarter. One of our goals for the Balanced Fund is to produce returns that are more consistent and less volatile than those exhibited by funds which invest only in stocks. Given that goal, I am particularly pleased that in the Fund's first year of existence each quarter produced a positive result. Deals/Acquisitions Recently, announcements of large acquisitions and mergers have dominated the financial news. Deals such as the bidding war for Conrail or the MCI/British Telecom merger get most of the media coverage, but they are merely representative of the high level of activity. Shareholders sometimes assume that we invest with the expectation that our holdings will be taken over. While our portfolios do occasionally experience such pleasant surprises, they benefit more from our ability to derive useful valuation tools from publicly announced transactions. For example, in September, A.H. Belo announced that it would acquire the Providence Journal Company. While we did not own shares in either Belo or Providence Journal, we studied the transaction for what it might tell us about the value of Lee Enterprises, your Fund's third largest equity holding. Providence and Lee both own newspapers and television stations. If we look at the pricing of the media properties in the Providence acquisition and apply similar valuations to Lee's properties, we find that Lee's current market price is approximately one-half of the company's value to a possible purchaser. - -------------------------------------------------------------------------------- The value of a $10,000 investment in The Oakmark Balanced Fund from its inception (11/1/95) to present (10/31/96) as compared to the Lipper Balanced Fund Index [GRAPH APPEARS HERE]
Total Return* 10/31/96 NAV $11.29 Through 10/31/96 Total Return From Fund Inception Last 3 mos. 11/1/95 - -------------------------------------------------------------------------------- The Oakmark Balanced Fund 5.9% 12.9% Lipper Balanced Fund Index* 7.4% 14.5% Lehman Govt./Corp. Bond* 3.9% 5.4% S&P 500* 10.9% 24.1%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The Lipper Balanced Fund Index Composite is comprised of 30 Balanced Funds. The Lehman Govt./Corp. Bond Index includes the Lehman Government and Lehman Corporate indices. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. Past performance is no guarantee of future results. 16 The Oakmark Balanced Fund We own Lee Enterprises shares not in anticipation of the company's acquisition but because we have determined that the company has irreplaceable media properties, a strong balance sheet, and a management team which is both competent and shareholder-oriented. We expect that this combination of assets and management will produce substantial growth in business value over time. An acquisition of the company would be at best a mixed blessing. Implicit in corporate transactions like the Providence Journal acquisition are clues to understanding the economics of a business and how consolidation can add to value. We will continue to study mergers and acquisitions because they offer an insightful look into how people in an industry value companies. Corporate Restructuring In corporate America today it seems that everything is in flux. Mergers and acquisitions receive the lion's share of media attention, but companies which restructure their operations are even more common. Restructured companies have been a fertile source of investment ideas for Harris Associates since our establishment more than 20 years ago. We have found that companies which restructure are often mispriced in the stock market. At the same time, the restructuring often better aligns the interests of management with their shareholders. Many of the companies in which your Fund has invested have significantly changed their composition in the last two years. For example, Premark International spun off its Tupperware division, US Industries was itself spun off from its English parent, Associates First Capital was partially divested by Ford Motor, and Dun & Bradstreet split itself into three parts in November. In each of these restructured companies we have discovered undervaluation as well as new management focus, incentive, and initiative. We expect the high level of corporate restructuring which we observe today to continue. If so, we know where we will find many of our ideas in the future. Mighty Oaks Awards My partner Robert Sanborn created the Oak Leaf Cluster Award for the person who contributes an idea which has the greatest positive impact on The Oakmark Fund. Believing this to be a good idea, I have considered a variety of titles for an award specific to the Balanced Fund. (The Balance Beam Award? This sounds like a leftover from the Olympics, and I would never be confused with a gymnast.) I finally settled on the Mighty Oaks Award because that is the name of our firm's softball team. For the award, I will give the recipients t-shirts that are already made up for the team (as a value investor, I am always looking for ways to minimize costs). This year we have two winners, one for fixed income and one for stocks. In my last quarterly report I wrote at some length about Everen Capital Preferred, which Bill Nygren, our Director of Research and manager of the new Select Fund, recommended for The Balanced Fund. In view of this holding's 38% return to the Fund, Bill is the winner of the first fixed income award. On the equity side, the winner is Steve Reid (the manager of the Small Cap Fund). Steve's recommendation of US Industries achieved an 80% return for the Fund. Mentioned above in the section on restructuring, US Industries is a fine example of how an unwanted business unit can generate newfound profitability once separated from its corporate parent. My best wishes for a happy holiday season and a prosperous 1997 accompany this report. Please write or E-mail me with your questions or comments. /s/ Clyde S. McGregor Clyde S. McGregor Portfolio Manager hacsm@aol.com November 5, 1996 The Oakmark Balanced Fund 17 The Oakmark Balanced Fund Schedule of Investments--October 31, 1996
Shares Held Market Value - ------------------------------------------------------------------------------- Equity and Equivalents--57.1% Food & Beverage--5.2% Philip Morris Companies, Inc..................... 3,900 $ 361,238 H.J. Heinz Company............................... 10,150 360,325 ---------- 721,563 Retail--2.7% The Kroger Company............................... 8,500 $ 379,312 Other Consumer Goods & Services--20.9% Armstrong World Industries, Inc.................. 6,500 $ 433,875 Promus Hotel Corporation......................... 13,400 425,450 JUNO Lighting Inc................................ 26,800 417,075 Arctic Cat, Inc.................................. 44,200 414,375 National Presto Industries, Inc.................. 11,000 412,500 Polaroid Corporation............................. 10,000 406,250 The Black & Decker Corporation................... 9,900 370,013 ---------- 2,879,538 Banks--3.2% Mellon Bank Corporation.......................... 6,700 $ 436,337 Other Financial--6.2% Associates First Capital Corporation............. 10,000 $ 433,750 First USA, Inc................................... 7,300 419,750 ---------- 853,500 Broadcasting & Publishing--5.8% Lee Enterprises, Incorporated.................... 20,100 $ 459,788 Dun & Bradstreet Corporation..................... 6,000 347,250 ---------- 807,038 Aerospace & Defense--3.2% McDonnell Douglas Corporation.................... 8,000 $ 436,000 Other Industrial Goods & Services--8.1% U.S. Industries, Inc. (a)........................ 24,000 $ 648,000 Premark International, Inc....................... 22,500 469,687 ---------- 1,117,687 Commercial Real Estate--1.8% Catellus Development Corp. $ 247,115 Total Equity and Equivalents (cost: $7,001,071).. 7,878,090
See accompanying notes to financial statements. 18 The Oakmark Balanced Fund The Oakmark Balanced Fund Schedule of Investments--October 31, 1996 cont.
Shares Held/ Market Value Principal Value - ------------------------------------------------------------------------- Fixed Income--39.3% Preferred Stocks--1.7% Broadcasting & Cable TV--1.7% Tele-Communications, Inc. Preferred Junior Class B, 6% 3,900 $ 236,925 Total Preferred Stock (Cost: $257,263) 236,925 Corporate Bonds--Value 10.2% Retail--1.1% The Vons Companies, Inc. 9.625% due 4/1/2002 $150,000 $ 157,500 Building Materials & Construction--1.2% USG Corporation 9.25% due 9/15/2001 Senior Notes Series B $150,000 $ 159,938 Utilities--1.2% Midland Funding Corp. 11.75% due 7/23/2005 $150,000 $ 163,500 Other Industrial Goods & Services--3.3% UCAR Global Enterprise Inc. 12% due 1/15/2005 Senior Subordinate $250,000 $ 288,125 SPX Corp. 11.75% due 6/1/2002 $150,000 162,750 ---------- 450,875 Aerospace & Automotive--1.1% Coltec Industries, Inc. 9.75% due 1/1/2000 $150,000 $ 155,812 Other Consumer Goods & Services--2.3% Samsonite Corp. 11.125% due 7/15/2005 $300,000 $ 319,500 Total Corporate Bonds (Cost: $1,400,924) 1,407,125
See accompanying notes to financial statements. The Oakmark Balanced Fund 19 The Oakmark Balanced Fund Schedule of Investments--October 31, 1996 cont.
Principal Value Market Value - -------------------------------------------------------------------------------- Fixed Income--39.3% (cont.) Government & Agency Securities--27.4% United States Treasury Notes, 7.875% due 8/15/2001 $ 200,000 $ 214,656 United States Treasury Notes, 6.375% due 8/15/2002 700,000 708,071 United States Treasury Notes, 7.125% due 9/30/1999 1,100,000 1,134,914 United States Treasury Notes, 8.5% due 5/15/1997 800,000 813,216 United States Treasury Notes, 6.625% due 7/31/2001 600,000 612,864 Federal Home Loan Bank, 6.405% due 4/10/2001 Consolidated Bond 300,000 301,734 ----------- 3,785,455 Total Government & Agency Securities (Cost: $3,744,619) 3,785,455 Total Fixed Income (cost: $5,402,806) 5,429,505 Short-Term Investments--6.2% Commercial Paper--6.2% American Express Credit Corporation, 5.30% due 11/15/1996 $ 250,000 $ 250,000 Ford Motor Credit Corporation, 5.37% due 11/4/1996 250,000 250,000 General Electric Capital Corporation, 5.65% due 11/1/1996 350,000 350,000 ----------- 850,000 Total Commercial Paper (Cost: $850,000) 850,000 Total Investments (Cost: $13,253,877)--102.6% $14,157,595 Other liabilities, less other assets--(2.6%) (358,669) ----------- Total Net Assets--100% $13,798,926 ===========
- ---------------------- Notes: (a) Non- income producing security. (b) At October 31, 1996, net unrealized appreciation of $903,718 for federal income tax purposes consisted of gross unrealized appreciation of $1,008,877 and gross unrealized depreciation of $105,159. See accompanying notes to financial statements. 20 The Oakmark Balanced Fund The Oakmark International Fund Report from David G. Herro and Michael J. Welsh, Portfolio Managers [PHOTO OF DAVID G. HERRO APPEARS HERE] [PHOTO OF MICHAEL J. WELSH APPEARS HERE] Fellow shareholders: Our fiscal year ends with your Fund up 24.9%! This performance compares very favorably to other international funds as represented by the Lipper International Index and to all the recognized international indices. For example, over the same period the Lipper International and Morgan Stanley World- ex US indices were up only 12.7% and 11.2%, respectively. While the performance of the Fund for the last twelve months has been outstanding, we are more heartened by our long-term performance. The Oakmark International Fund has returned 16.0% on an annualized basis since inception, while the Lipper International and Morgan Stanley World-ex US have returned 12.6% and 11.9%, respectively, over the same period. Performance Analysis For our fourth annual report (really our fifth, but our first fiscal year was only a little over a month), let's look at those companies that helped and hurt us the most over the last twelve months. These are the stocks that had the biggest absolute dollar impact (as opposed to the biggest percentage movers) on the Fund's performance. The Winners... Rolls-Royce and British Aerospace performed exceptionally well, up 65% and 64%, respectively. Rolls was rewarded by the market for receiving a rash of new orders for its new Trent aircraft engines from Boeing and Airbus. British Aerospace continued its remarkable run as investors continued to recognize its preeminence in the consolidating European defense industry. We have owned British Aerospace since the The value of a $10,000 investment in The Oakmark International Fund from its inception (9/30/92) to present (10/31/96) as compared to the Morgan Stanley World ex U.S. Index [GRAPH APPEARS HERE]
Average Annual Total Return* 10/31/96 NAV $14.92 Through 10/31/96 ---------------------------- Total Return From From Inception Last 3 mos. 10/31/95 9/30/92 - --------------------------------------------------------------------------------------- Oakmark International 3.8% 24.9% 16.0% Morgan Stanley World ex U.S.* 2.4% 11.2% 11.9% Morgan Stanley EAFE* 1.8% 10.5% 11.8% Lipper Analytical International Fund Average* 3.4% 12.7% 12.6%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The 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 results. The Oakmark International Fund 21 Fund's inception and it clearly has been one of our single best ideas. Chargeurs, prompted by a lack of market understanding of its assets, pioneered the idea of the de-merger in France. The company split itself into two entities to unlock value which had been hidden by its former holding company structure. The shares were up 59% for the fiscal year. Telefonica de Espana was up 52% over the last twelve months. With Telefonica, the market began to recognize the value of some of its assets in Latin America and the gains in efficiency that management has made over the past several years in Spain. Cordiant, another long-term holding, came storming back in 1996 with a new chairman and a renewed sense of purpose. Cordiant's shares were up 20% for the fiscal year and the company remains substantially undervalued compared to other advertising firms of similar size and quality. and the... Losers were fewer and of smaller portfolio impact. The Israeli company Scitex, which comprised 2% of the portfolio in January, had the biggest negative impact on the portfolio, with its shares dropping 43%. Initially, we were attracted to Scitex for its cheap valuation and market leader position which we thought compensated for other weaknesses. They didn't. EVC International (down 5%) and Asia Pulp and Paper (down 4%) felt the pain of lower commodity prices. We still are very happy with these investments on a long-term horizon. EVC remains extremely cheap on trend earnings, sits at 2/3rds of book value (and at 25% of replacement cost), has solid shareholder- oriented management, and yields 6.4%. Asia Pulp, with its Indonesian production base, remains one of the world's lowest cost producers, is moving up the value- added chain in terms of products, and is located in the fastest growing area of consumption in the world. Although the share price is down 31% from where we first starting buying, it is still too early to judge the success of our investment in Technology Resources, a Malaysian cellular operator. Our loss in Kvaerner (down 10%) was due in part to company management spending more time looking to buy new businesses rather than running the ones they already had. The result was recurring earnings disappointments in its core operations. We have since sold our entire position. Going Forward We had an excellent fiscal year 1996 and we remain optimistic about overseas markets going forward. Valuations in many cases are very attractive and we continue to find excellent opportunities. Our continued optimism is reflected in the substantial changes from last year in our top twenty holdings. Seven of the top twenty are new positions: National Australia Bank, Telefonica de Espana, Guinness, Saurer, Bezeq, Pakhoed, and Kyocera. As you know, we believe in structuring our portfolio with fewer positions so that our best ideas can have a more meaningful impact on the Fund's net asset value. The presence of many new names in the top twenty holdings reflects our optimism in finding substantial new opportunities for The Oakmark International Fund. /s/ David G. Herro David G. Herro /s/ Michael J. Welsh Michael J. Welsh Portfolio Managers 72242.722@compuserv.com oakix@aol.com October 31, 1996 22 The Oakmark International Fund The Oakmark International Fund International Diversification--October 31, 1996 [PIE CHART OF THE OAKMARK INTERNATIONAL FUND, INTERNATIONAL DIVERSIFICATION OCTOBER 31, 1996 APPEARS HERE]
Europe 51.8% Pacific Rim 25.2% Latin America 13.9% Other Countries 3.9% % of Fund % of Fund Net Assets Net Assets - ---------------------------- ---------------------------- [_] Europe 51.8% [_] Pacific Rim 25.2% Great Britain 14.5% Australia 6.8% Sweden 13.5% Hong Kong 6.3% Netherlands 5.1% New Zealand 2.9% Spain 5.1% Indonesia 2.7% France 3.9% Korea 2.4% Portugal 3.4% Japan 1.9% Switzerland 2.5% Malaysia 1.9% Italy 1.9% Taiwan 0.3% Finland 1.4% Germany 0.5% [_] Latin America 13.9% [_] Other Countries 3.9% Argentina 5.7% Israel 3.1% Mexico 4.5% Canada 0.8% Brazil 3.7%
The Oakmark International Fund 23 THE OAKMARK INTERNATIONAL FUND Schedule of Investments--October 31, 1996
Description Shares Held Market Value - ---------------------------------------------------------------------------------------------- Common Stocks--94.9% Consumer Non-durables--3.7% Yue Yuen Industrial Athletic Footwear Manufacturing (Holdings) Limited (Hong Kong) 81,328,000 $ 24,191,614 Chargeurs International Entertainment & Wool S.A. (France) Production Holding Company 334,324 14,517,345 BYC Company (Korea) Textile Manufacturer 31,230 3,628,539 Pacific Corporation (Korea) Cosmetics and Household Goods Manufacturer 35,820 641,617 ------------ 42,979,115 Food--10.2% Guinness PLC (Great Britain) Distiller & Brewer 5,595,000 $ 40,204,956 Lion Nathan Limited Brewer (New Zealand) 12,113,200 31,279,222 Parmalat Finanziaria S.p.A. Dairy Products (Italy) 15,440,000 22,137,113 Leong Hup Holdings Major Poultry Operation Berhad (Malaysia) and KFC Operator 8,214,666 9,233,980 Lotte Confectionery (Korea) Confectionary Manufacturer 56,000 8,370,348 Lotte Chilsung Manufacturer of Soft Drinks, Beverage (Korea) Juices, & Sport Drinks 44,770 5,797,749 Daehan Flour Mills Food Processing Co., Ltd. (Korea) 31,770 2,307,050 ------------ 119,330,418 Household Products--1.9% Reckitt & Colman PLC Household Cleaners and (Great Britain) Air Fresheners 1,950,853 $ 22,496,409 Retail-2.3% Giordano Holdings East Asian Clothing Retailer Limited (Hong Kong) & Manufacturer 12,361,000 $ 12,469,388 Alparagatas Sociedad Textiles Anonima Industrial Y Comercial (Argentina) 17,430,294 11,505,145 Macintosh (Netherlands) Non-Food Specialty Retailer 140,950 3,322,920 ------------ 27,297,453 Telecommunications--11.3% Telefonica (Spain) Telecommunications 2,050,500 $ 41,140,170 Telefonos de Mexico, Telephone Company S.A. de C.V. (Mexico) (b) 1,295,100 39,500,550 Bezeq (Israel) Telephone Company 11,654,271 28,451,074 Technology Resources Telecommunications Industries Berhad (Malaysia) 5,520,000 13,218,286 Call Net Enterprises, Inc. Telecommunications Common (Canada) (a) 899,600 9,733,025 ------------ $132,043,105
See accompanying notes to financial statements. 24 The Oakmark International Fund THE OAKMARK INTERNATIONAL FUND Schedule of Investments--October 31, 1996 cont.
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Common Stocks (cont.)--94.9% Transportation--5.8% AB Volvo (Sweden) Automobiles 2,534,600 $ 52,613,851 CIADEA S.A. (Argentina) (a) Assembler and Distributor of Automobiles 3,517,246 15,758,839 ---------- 68,372,690 Oil and Natural Gas--3.4% YPF Sociedad Anonima Oil Exploration, Production (Argentina) (b) and Marketing 1,756,200 $ 39,953,550 Banks--13.7% National Australia Bank Largest Australian Bank Limited (Australia) 5,145,000 $ 56,482,443 Banco Espirito Santo E Portuguese Bank Comercial de Lisboa, S.A. (Portugal) 2,275,480 39,993,735 Svenska Handelsbanken Largest Swedish Bank (Sweden) 1,268,850 31,259,592 Banco Popular Espanol Fourth-largest Spanish Bank (Spain) 100,093 19,132,946 Grupo Financiero Large Mexican Financial Bancomer, S.A. De C.V. Group (GFB)-B (Mexico) (a) 26,635,000 11,300,199 Grupo Financiero Large Mexican Financial Bancomer, S.A. De C.V. Group (GFB) - L (Mexico) (a) 6,129,630 2,097,230 ----------- 160,266,145 Other Financial--0.2% Sedgwick Group plc Insurance Broker, (Great Britain) Financial Services 1,150,000 $ 2,330,322 Broadcasting & Publishing--2.0% Pathe (France) Television & Film 88,233 $ 23,799,180 Computer Systems--0.2% Scitex Corporation Limited Color Pre-Press Systems (Israel) (b) 179,300 $ 1,770,588 Marketing Services--4.3% Cordiant PLC Advertising Agency (Great Britain) (a) Holding Company 30,408,656 $ 50,730,587 Aerospace--6.2% Rolls-Royce Public Limited Jet Engines Company (Great Britain) 7,566,479 $ 31,219,115 British Aerospace Public Defense and Civil Aviation Limited Company (Great Britain) 1,209,666 22,927,345 Hong Kong Aircraft Commercial Aircraft Overhaul Engineering Company and Maintenance Limited (Hong Kong) 7,504,400 19,119,614 ---------- 73,266,074
See accompanying notes to financial statements. The Oakmark International Fund 25 THE OAKMARK INTERNATIONAL FUND Schedule of Investments--October 31, 1996 cont.
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------------------------ Common Stocks (cont.)--94.9% Chemicals--4.8% Royal Pakhoed N.V. Petroleum Products, Chemical (Netherlands) Handling 943,383 $29,357,354 EVC International NV Western European PVC (Netherlands) Manufacturer 989,165 27,342,393 ---------- 56,699,747 Components--3.0% Kyocera Corporation Electric Components (Japan) 334,000 $22,031,004 Varitronix International Liquid Crystal Displays Holdings Limited (Hong Kong) 7,177,000 13,087,569 ---------- 35,118,573 Forestry Products--4.2% Asia Pulp & Paper Company Paper & Packaging Products Ltd (Indonesia) (a) 3,210,600 $31,704,675 Mo och Domsjo AB (Sweden) Paper, Pulp & Timber 624,500 17,189,729 ---------- 48,894,404 Machinery and Metal Processing--2.6% Saurer Ltd. (Switzerland) Textile Machinery 70,000 $29,406,645 Iochpe-Maxion SA (Brazil) Agricultural Machinery & Automotive Parts 7,880,000 759,315 ---------- 30,165,960 Mining and Building Material--2.7% Pioneer International Concrete Products, Aggregates (Australia) 8,530,923 $22,720,277 Keumkang Ltd. (Korea) Building Materials 126,980 7,007,913 Fletcher Challenge Ltd. Building Materials & Services (New Zealand) 835,104 2,245,062 ---------- 31,973,252 Other Industrial Goods and Services--3.0% Kone Corporation (Finland) Elevators 161,870 $15,990,685 Groupe Legris Industries Europe's Leading Crane (France) Manufacturer 195,097 7,590,180 Buderus AG (Germany) German Industrial Manufacturing 14,000 6,332,541 Lamex Holdings Limited Hong Kong's Largest Office (Hong Kong) Furniture Supplier 14,040,000 4,948,010 ---------- 34,861,416 Steel--8.9% Usiminas (Brazil) Steel Production 41,063,700,000 $43,166,046 Avesta Sheffield (Sweden) Stainless Steel 3,575,000 35,882,111 Svenskt Stal AB, Series A Steel (Sweden) 1,410,000 20,584,881 Tung-Ho Steel Enterprise Manufacturer of Corp. (Taiwan) (a) Steel Bars and H-Beams 374,000 3,570,466 See accompanying notes to financial statements.
26 The Oakmark International Fund THE OAKMARK INTERNATIONAL FUND Schedule of Investments-October 31, 1996 cont.
Shares Held/ Description Principal Value Market Value - --------------------------------------------------------------------------------------------------- Common Stocks (cont.)--94.9% Svenskt Stal AB, Series B Steel (Sweden) 65,200 $ 946,911 -------------- 104,150,415 Diversified Conglomerates--0.5% Koor Industries Limited Israeli Holding Company (Israel) 378,200 $ 6,571,224 TOTAL COMMON STOCKS (COST: $1,029,710,841) 1,113,070,627 Short-Term Investments--5.3% Commercial Paper--5.1% American Express Credit Corporation, 5.30% due 11/5/1996 $10,000,000 $ 10,000,000 Ford Motor Credit Corp., 5.35% due 11/4/1996 10,000,000 10,000,000 Ford Motor Credit Corp., 5.37% due 11/4/1996 20,000,000 20,000,000 General Electric Capital Corp., 5.65% due 11/1/1996 20,000,000 20,000,000 TOTAL COMMERCIAL PAPER 60,000,000 Repurchase Agreements--0.2% State Street Repurchase Agreement, 5.55% due 11/1/1996 $ 2,412,000 $ 2,412,000 Collateralized by US Treasury Securities TOTAL REPURCHASE AGREEMENTS 2,412,000 TOTAL SHORT-TERM INVESTMENTS (COST: $62,412,000) 62,412,000 Total Investments - (Cost $1,092,122,841) - 100.2% $1,175,482,627 Foreign currencies - (Cost $7,407,430) - .6% 7,380,858 Other liabilities, less other assets - (.8%)(c) (10,096,291) -------------- TOTAL NET ASSETS - 100% $1,172,767,194 ==============
- ------------------------------------------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes portfolio and transaction hedges. (d) At October 31, 1996, net unrealized appreciation of $83,359,786 for federal income tax purposes consisted of gross unrealized appreciation of $155,931,431 and gross unrealized depreciation of $72,571,645. The following companies are considered affiliated because the Fund owns greater than 5% of the outstanding voting shares of the company:
Alparagatas Sociedad Anomia Industrial Y. 6.49% EVC International NV 6.76% BYC Company 5.00% Lamex Holdings Limited 5.01% Call Net Enterprises, Inc. Common 5.18% Leong Hup Holdings Berhad 5.43% Cordiant PLC 6.85%
The aggregate cost and value of investments in these companies at October 31, 1996 was $123,905,187 and $117,121,679, respectively, which represents 10.0% of the total net assets. During the year ended October 31, 1996, dividends received from these companies was $1,779,766. See accompanying notes to financial statements. THE OAKMARK INTERNATIONAL FUND 27 THE OAKMARK INT'L EMERGING VALUE FUND Report from David Herro and Adam Schor, Portfolio Managers [PHOTO OF DAVID HERRO APPEARS HERE] [PHOTO OF ADAM SCHOR APPEARS HERE] - -------------------------------------------------------------------------------- The value of a $10,000 investment in The Oakmark International Emerging Value Fund from its inception (11/1/95) to present (10/31/96) as compared to the Morgan Stanley World ex U.S. index [GRAPH APPEARS HERE]
Total Return* 10/31/96 NAV $11.41 Through 10/31/96 Total Return From Fund Inception Last 3 Months 11/1/95 - -------------------------------------------------------------------------------- THE OAKMARK INT'L EMERGING VALUE FUND 3.4% 14.1% Morgan Stanley World ex U.S.* 2.4% 11.2% Lipper Analytical International Fund Average* 3.4% 12.7% Lipper Emerging Market Fund Index* 1.3% 9.6%
*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. ROOKIE SEASON IN REVIEW We are happy with our first fiscal year which ended October 31, 1996. The Fund was up 14.1%. We outpaced our benchmarks including the Morgan Stanley World ex U.S which was up 11.2%. In addition, Lipper Analytical Services, Inc., ranked the Fund fifth among 339 international funds, making it one of the top performers from January through October, 1996. The international markets were fairly quiet this year, especially compared to the thunderous stampede of the U.S. market. While the average international fund was up 9.56% and most markets were up for the last twelve months, the international markets lacked the surge that we expected. Some markets rallied: Hungary almost doubled; several Latin American countries increased by 50%. And some markets went in the other direction: Thailand and India each fell more than 20%. Investors, who in 1993 loved emerging markets and in 1995 hated them, seemed to be indifferent in 1996. Emerging markets, on average, were up 4.3% during this rather lackluster period. In the stock market, nothing moves in a straight line. Our Fund surged and paused, retrenched and surged again in its initial year. It's interesting to note that relatively few trading days, perhaps fewer than 20, accounted for the difference in our Fund and an average international fund. Market timers should take note. You would have needed to be extremely lucky to have made more than an investor who merely bought and held our Fund. HOME RUNS This Fund picks stocks, not countries. Our top performing shares, when you combine movement in the share price with the size of the holding in our portfolio, were examples of small companies that are undervalued by the market. 28 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND Our biggest contributor was NICE SYSTEMS. Nice produces the leading digital telephone recording system. When our traders call the traders on Wall Street to execute a trade, the conversation very well may be recorded on a system produced by Israeli-based Nice. If there is ever a need to retrieve the recording, you just push a couple buttons, as you would to retrieve a document off your hard drive. Nice was a fast growing company moving into profitability in a quickly developed market. Being value investors does not preclude us from buying companies growing quickly. It means that we buy stocks trading at a discount to their economic values. We did that with Nice, buying at $10 and selling at $27, when our target was passed. We have mentioned in previous fund reports PT POLYSINDO EKA PERKASA, an Indonesian textile company that we like because of its expansion and vertical integration. The textile business is generally a lousy business, unless you are a low-cost producer and located in one of the fastest growing markets in the world. Polysindo scores on both counts. We bought the company at about 800 (after adjusting for a rights issue). At the time, we were looking at the increase in profits that we expect will occur in 1997 when Polysindo's planned expansion comes on line. The myopic market was looking at ho-hum 1996 results. We still hold Polysindo, currently trading at about 1250. Meanwhile, two names we share with Oakmark International paid us back for our patience. We acquired initial positions in CORDIANT and CIADEA while their prices were weak. Cordiant, a global advertising agency based in England, rallied during our fiscal year. The company has new management that is focused on increasing profitability and shareholder value, a trait not found two years ago. Ciadea, an Argentine car maker, rallied as the Argentine economy showed signs of recovery. The stock pulled back in the last few months. We sold most of our holding when the price passed our sell target. Rounding out our list of top five contributors was EGIS PHARMACEUTICALS, which soared more than 200% this year. The Hungarian drug company was a large position for us early in the year. When the Hungarian market got hot later this year, we were already there when investors discovered this gem trading at six times earnings and growing 15% per year. We have sold most of the position now that it has reached our target. Egis demonstrated our basic tenet of investing. It is impossible to determine when a stock adjusts to reflect the value of the business but when it does, it happens quickly. It's like riding a train. You want to be there before it moves and not try to catch it while it's moving. GROUND OUTS We relish the big hits, of course, but we missed a couple of times too during the year. We were stung in Brazil when the government intervened in BANCO NACIONAL. Investigators found fraud used to deceive auditors and investors about the health of the bank. Shareholders suffered. Two technology stocks also hurt us. The stock price of TOWER SEMICONDUCTOR in Israel dropped 50% in 1996 when it lost a major customer during the slowdown in the semiconductor industry. Since our year end, Tower has climbed back a bit and has paid a special dividend equal to 20% of its stock price. The stock is trading just above the cash on the balance sheet -- and we think it's still undervalued. We continue to hold Tower in the portfolio. We calculated that sound card and CD-ROM maker AZTECH SYSTEMS would go up. It didn't. Inventory problems and price pressure in the fast changing CD-ROM business depressed profitability and the stock price. We adjusted our evaluation of the prospects and the business and sold the stock when it bounced to our new lowered sell target. 'TWEENERS In between the Nices and Nacionals were a host of stocks that provided steady but less glamorous appreciation. We continue to hold stocks we think are priced below their values without trying to time the moves. The stocks we sold hit their targets and more attractive names replaced them. We have high expectations for the years to come. We hope this first year has laid a solid foundation for our future for us as a fund and yours as a shareholder. /s/ David Herro David Herro /s/ Adam Schor Adam Schor Portfolio Managers 72242.772@compuserve.com oakix@aol.com November 5, 1996 The Oakmark International Emerging Value Fund 29 The Oakmark Int'l Emerging Value Fund International Diversification--October 31, 1996 [PIE CHART OF THE OAKMARK INTERNATIONAL EMERGING VALUE FUND, INTERNATIONAL DIVERSIFICATION, OCTOBER 31, 1996 APPEARS HERE] Pacific Rim 45.0% Europe 35.3% Latin America 11.8% Other Countries 4.4% % of Fund Net Assets - ------------------------------------------------ [_] EUROPE 35.3% Ireland 7.7% Great Britain 7.1% Netherlands 4.6% France 3.6% Sweden 3.4% Spain 2.3% Germany 2.1% Italy 2.1% Hungary 1.7% Switzerland 0.7% [_] LATIN AMERICA 11.8% Argentina 6.4% Mexico 5.4% [_] PACIFIC RIM 45.0% Australia 10.6% Indonesia 8.0% Korea 7.2% New Zealand 6.6% Hong Kong 6.3% Japan 3.2% Singapore 3.1% [_] OTHER COUNTRIES 4.4% Israel 1.9% Canada 1.7% India 0.8% 30 The Oakmark International Emerging Value Fund The Oakmark Int'l Emerging Value Fund Schedule of Investments-October 31, 1996
Description Shares Held Market Value - --------------------------------------------------------------------------------------------------------------- Common Stocks-96.3% Consumer Non-Durables-3.6% PT Polysindo EKA Perkasa Integrated Textile Manufacturer (Indonesia) 2,652,000 $1,423,174 Food-5.4% Grupo Herdez, SA de CV Manufacturer and Distributor of (Mexico) Bottled and Canned Food 3,674,000 $1,234,190 Chosun Brewery (Korea) Brewer 14,410 383,685 Daehan Flour Mills Co., Ltd. Food Processing (Korea) 4,500 326,777 Soproni Sorgy AR RT Brewer (Hungary) 13,155 194,720 ---------- 2,139,372 Household Products-5.5% WMF (Germany) Tableware and Kitchenware 4,500 $ 820,126 N.V. Koninklijke Sphinx Bathroom Products Gustavsberg (Netherlands) 54,159 743,741 Enix Corporation (Japan) Manufactures home-use electronic appliances, computer 26,000 632,559 ---------- 2,196,426 Retail-3.1% Alparagatas Sociedad Anonima Textiles and Footwear Industrial Y Comercial (Argentina) 1,885,000 $1,244,224 Other Consumer Goods & Services-7.8% Vardon PLC (United Kingdom) Bingo Parlors 915,000 $1,317,993 Fyffes (Ireland) Distributor of Fresh Fruit, Flowers and Produce in Europe 578,133 950,846 PT Steady Safe (Indonesia) Taxi Company 862,500 833,137 ---------- 3,101,976 Pharmaceutical-1.2% Egis Gygogyszergyar (Hungary) Pharmaceutical Company 7,600 $ 468,810 Telecommunications-2.3% Telefonos de Mexico, Telephone Company S.A. de C.V. (Mexico) (b) 29,950 $ 913,475 Transportation-1.0% CIADEA S.A. (Argentina) (a) Assembler and Distributor of Automobiles 84,975 $ 380,726 Oil and Natural Gas-2.3% YPF Sociedad Anonima Exploration, Production (Argentina) (b) and Marketing 40,500 $ 921,375 Banks-2.5% Anglo Irish Bank Corporation Bank plc (Ireland) 860,000 $1,008,305 See accompanying notes to financial statements.
The Oakmark International Emerging Value Fund 31 The Oakmark Int'l Emerging Value Fund Schedule of Investments-October 31, 1996 cont.
Description Shares Held Market Value - --------------------------------------------------------------------------------------------------------------- Common Stocks-96.3% (cont.) Other Financial-1.3% HIH Winterthur International Insurance and Reinsurance Holdings Ltd. (Australia) Broker 9,243 $ 22,492 JCG Holdings Ltd. (Hong Kong) Investment Holding Company 518,000 482,347 ---------- 504,839 Computer Systems-5.3% Aztech (Singapore) Design and Produce Multimedia Computing Products 1,675,000 $ 594,604 Solution 6 Holdings Design Computer Systems Limited (Australia) Consultants 1,382,500 1,490,330 ---------- 2,084,934 Marketing Services-3.8% Cordiant PLC Global Advertising Agency (United Kingdom) (a) 910,000 $1,518,148 Broadcasting & Publishing-6.0% Moffat Communications Owner and Operator of Television Limited (Canada) Stations and Cable Systems 46,700 $ 662,066 Woong Jim Publishing Co. (Korea) Publisher 23,045 1,436,390 Zee Telefilms, B Shares (India) Broadcasting and TV 85,900 301,372 ---------- 2,399,828 Chemicals-2.8% EVC International NV Western European PVC (Netherlands) Manufacturer 39,600 $1,094,619 Components-6.3% Tower Semiconductor Ltd. (Israel) Semiconductors 108,400 $ 758,800 Barlo Group PLC (Ireland) Manufacturer of Radiators and Industrial Plastics 1,605,000 1,097,704 Pentex Schweizer Circuits Manufacturer and Marketer of Limited (Singapore) Printed Circuit Boards 546,000 643,493 ---------- 2,499,997 Forestry Products-2.3% Asia Pulp & Paper Company Paper & Packaging Ltd (Indonesia)(a) Products in Asia 94,000 $ 928,250 Machinery and Metal Processing-2.8% Groupe Fives-Lille (France) Builder of Heavy Machinery 3,125 $ 283,007 Steel & Tube Holdings Ltd. Produces and Distributes Steel (New Zealand) 150,500 832,621 ---------- 1,115,628 Mining and Building Materials-8.2% Groupo Uralita (Spain) Manufacturers of Building Products and Chemicals 117,100 $ 917,748 Asia Cement Mfg. Co. (Korea) Large Cement Manufacturer 22,550 717,779 See accompanying notes to financial statements.
32 The Oakmark International Emerging Value Fund The Oakmark Int'l Emerging Value Fund Schedule of Investments-October 31, 1996 cont.
Shares Held/ Description Principal Value Market Value - ------------------------------------------------------------------------------------------------------------ Common Stocks-96.3% (cont.) Mining and Building Materials-continued Parbury Limited (Australia) Manufactures Building Products 3,174,277 $ 1,635,447 ----------- 3,270,974 Other Industrial Goods and Services-17.9% BT Industries AB (Sweden) Fork Lifts & Transportation Equipment 78,000 $ 1,340,390 Sanford Limited (New Zealand) Owns and Manages Fisheries 936,400 1,788,666 Wattyl (Australia) Paint Company 277,926 1,053,017 SwissLog Holding AG Logistics Services (Switzerland) 1,045 280,265 Fukuda Denshi Co., Ltd. (Japan) Medical Products Manufacturer and Distributor 29,000 634,228 TechTronic Industries Company Manufactures Electric Limited (Hong Kong) Hand Tools 3,850,000 542,730 Yip's Hang Cheung (Holdings) Paint Company Limited (Hong Kong) 10,090,000 1,474,574 ----------- 7,113,870 Production Equipment-4.9% Danieli & Company (Italy) Steel Mini-Mills Equipment 260,300 $ 827,057 The NSC Group (France) Wool Textile Manufacturer 8,977 1,139,574 ----------- 1,966,631 Total Common Stocks (Cost: $38,001,263) 38,295,581 Short-Term Investments-3.9% Commercial Paper-3.2% American Express Credit Corporation, 5.30% due 11/5/1996 250,000 $ 250,000 Ford Motor Credit Corp., 5.37% due 11/4/1996 500,000 500,000 General Electric Capital Corp., 5.65% due 11/1/1996 500,000 500,000 ----------- Total Commercial Paper 1,250,000 Repurchase Agreements-0.7% State Street Repurchase Agreement, 5.55% due 11/1/1996 269,000 $ 269,000 Total Short-Term Investments (Cost: $1,519,000) 1,519,000 Total Investments (Cost: $39,520,263) - 100.2% $39,814,581 Foreign currencies (Cost: $335,539) - .8%.. 337,614 Other liabilities, less other assets - (1.0%)(c) (400,154) ----------- Total Net Assets - 100% $39,752,041 ===========
- --------------------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes transaction hedges. (d) At October 31, 1996, net unrealized appreciation of $294,318 for federal income tax purposes consisted of gross unrealized appreciation of $3,159,068 and gross depreciation of $2,864,750. The Oakmark International Emerging Value Fund 33 The Oakmark Family of Funds Statement of Assets and Liabilities-October 31, 1996
The Oakmark Fund The Oakmark Small Cap Fund - ---------------------------------------------------------------------------------------------------------------------------------- Assets Investments, at value $3,921,779,297 (cost: $3,133,237,488) $ 216,842,275 (cost: $196,739,522) Cash 843 945 Foreign currency, at value 0 0 Receivable for: Forward foreign currency contracts 0 0 Securities sold 25,477,664 1,153,092 Fund shares sold 3,182,096 1,005,698 Dividends and interest 4,783,234 153,665 Expense reimbursement 0 0 -------------- -------------- Total receivables 33,442,994 2,312,455 Other assets 5,657 14,299 -------------- -------------- Total assets $3,955,228,791 $ 219,169,974 ============== ============== Liabilities and Net Assets Securities sold, not yet purchased, at value $ 2,056,250 (proceeds: $2,062,103) $ 0 Payable for: Securities purchased 8,666,525 140,505 Fund shares redeemed 5,783,091 214,453 Due to adviser 3,224,222 205,533 Forward foreign currency contracts 0 0 Other 1,563,043 189,076 -------------- -------------- Total liabilities 21,293,131 749,567 -------------- -------------- Net assets applicable to fund shares outstanding $3,933,935,660 $ 218,420,407 ============== ============== Fund shares outstanding 121,452,592 16,553,945 ============== ============== Pricing of Shares Net asset value per share $ 32.39 $ 13.19 ============== ============== Analysis of Net Assets Paid in capital $2,883,530,157 $ 198,837,145 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 226,361,549 (243,291) Net unrealized appreciation of investments 788,547,662 20,102,753 Net unrealized depreciation of foreign currency portfolio hedges 0 0 Net unrealized appreciation - other 0 0 Accumulated undistributed net investment income (loss) 35,496,292 (276,200) -------------- -------------- Net assets applicable to Fund shares outstanding $3,933,935,660 $ 218,420,407 ============== ==============
34 The Oakmark Family of Funds
The Oakmark The Oakmark Int'l The Oakmark International Emerging Value Balanced Fund Fund Fund $14,157,595 (cost: $13,253,877) $1,175,482,627 (cost: $1,092,122,841) $39,814,581 (cost: $39,520,263) 594 439 498 0 7,380,858 (cost: $7,407,430) 337,614 (cost: $335,539) 0 741,937 86 0 2,623,708 168,485 34,800 1,691,832 111,078 107,501 2,005,064 291,013 11,060 0 35,441 - ----------- ------------- ----------- 153,361 7,062,541 606,103 14,277 9,476 14,403 - ----------- -------------- ----------- $14,325,827 $1,189,935,941 $40,773,199 =========== ============== =========== $ 0 $ 0 $ 0 451,600 10,396,988 827,277 0 1,187,134 4,089 32,377 1,003,619 81,097 0 3,783,399 177 42,924 797,607 108,518 - ----------- -------------- ----------- 526,901 17,168,747 1,021,158 - ----------- -------------- ----------- $13,798,926 $1,172,767,194 $39,752,041 =========== ============== =========== 1,222,137 78,606,944 3,482,519 =========== ============== =========== $ 11.29 $ 14.92 $ 11.41 =========== ============== =========== $12,607,741 $1,080,224,970 $38,042,778 161,939 (33,901,942) 1,259,557 903,718 83,333,214 296,393 0 (2,896,488) 0 0 (194,131) (1,788) 125,528 46,201,571 155,101 - ----------- -------------- ----------- $13,798,926 $1,172,767,194 $39,752,041 =========== ============== ===========
See accompanying notes to financial statements. The Oakmark Family of Funds #35 The Oakmark Family of Funds Statement of Operations--October 31, 1996 --------------------------------------------------------------
The Oakmark The Oakmark Fund Small Cap Fund Investment Income: Dividends $ 69,135,177 $ 930,817 Interest 15,845,858 302,068 Securities lending income 0 19,400 Foreign taxes withheld 0 0 ------------ ----------- Total investment income 84,981,035 1,252,285 Expenses: Investment advisory fee 36,082,925 956,809 Transfer and dividend disbursing agent fees 4,398,544 250,126 Custodian and accounting fees 439,430 36,616 Legal expenses 46,842 10,970 Audit expenses 17,176 21,034 Trustees fees 69,705 13,688 Registration and blue sky expenses 573,243 181,799 Reports to shareholders 836,558 26,164 Insurance expense 58,501 3,671 Organization expense 23,768 1,457 Other--net 881,263 26,469 ------------ ----------- Total expenses 43,427,955 1,528,803 Expense offset arrangements (15,263) (318) Expense reimbursement 0 0 ------------ ----------- Net expenses 43,412,692 1,528,485 ------------- ----------- Net investment income (loss) 41,568,343 (276,200) Net realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain (loss) on investments 226,166,113 (243,291) Net realized (loss) on foreign currency transactions (12,777) 0 Net change in unrealized appreciation of investments and foreign currencies 290,431,755 20,102,753 Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in (depreciation)--other 0 0 ------------ ----------- Net realized and unrealized gain on investments and foreign currency transactions 516,585,091 19,859,462 ------------ ----------- Net increase (decrease) in net assets resulting from operations $558,153,434 $19,583,262 ============ ===========
36 THE OAKMARK FAMILY OF FUNDS
The Oakmark The Oakmark The Oakmark Int'l Balanced Fund International Emerging Value Fund Fund ------------- ------------- ----------------- $ 118,500 $ 29,460,152 $ 744,076 261,357 1,708,929 70,932 3,897 376,919 5,649 0 (3,243,211) (70,675) ---------- ------------ ---------- 383,754 28,302,789 749,982 69,005 10,113,272 258,427 45,412 1,298,501 93,991 23,552 1,306,439 103,589 10,285 19,589 10,288 20,075 22,047 24,187 12,749 28,936 12,970 83,142 14,675 112,215 3,694 215,584 9,933 961 0 1,678 1,457 9,516 1,457 2,364 457,287 5,966 ---------- ------------ ---------- 272,696 13,485,846 634,701 (225) (6,181) (4,379) (14,245) 0 (35,441) ---------- ------------ ---------- 258,226 13,479,665 594,881 ---------- ------------ ---------- 125,528 14,823,124 155,101 161,939 2,806,950 1,284,213 0 (1,017,660) (24,656) 903,718 176,382,416 296,393 0 5,165,941 0 0 (363,425) (1,788) ---------- ------------ ---------- 1,065,657 182,974,222 1,554,162 ---------- ------------ ---------- $1,191,185 $197,797,346 $1,709,263 ========== ============ ==========
See accompanying notes to financial statements. THE OAKMARK FAMILY OF FUNDS 37 THE OAKMARK FAMILY OF FUNDS
Statement of Changes in Net Assets--October 31, 1996 -------------------------------------------------------------------------------------------------------------------- THE THE THE OAKMARK FUND OAKMARK OAKMARK SMALL CAP BALANCED FUND FUND ---------------------------------------- ------------------ ------------------ Year Ended Year Ended Year Ended Year Ended October 31, 1996 October 31, 1995 October 31, 1996 October 31, 1996 - ----------------------------------------------------------------------- ------------------- ------------------ ------------------ From Operations: Net investment income $ 41,568,343 $ 27,572,923 $ (276,200) $ 125,528 Net realized gain on sale of investments 226,166,113 87,157,237 (243,291) 161,939 Net realized gain (loss) on foreign currency transactions (12,777) (37,102) 0 0 Net change in unrealized appreciation 290,431,755 320,305,458 20,102,753 903,718 --------------- -------------- ------------ ----------- Net increase in net assets from operations 558,153,434 434,998,516 19,583,262 1,191,185 Distributions to shareholders from (Oakmark Fund only): Net investment income (per share $.2841 in Fiscal Year 1996 and $.231 in Fiscal Year 1995) (29,455,748) (15,107,180) 0 0 Net realized short-term gain (per share $.042 in Fiscal Year 1996 and $.7277 in Fiscal Year 1995) (4,354,309) (47,575,398) 0 0 Net realized long-term gain (per share $.7987 in Fiscal Year 1996 and $.7411 in Fiscal Year 1995) (82,805,333) (48,452,482) 0 0 --------------- -------------- ------------ ----------- Total distributions to shareholders (116,615,390) (111,135,060) 0 0 From Fund share transactions: Reinvestment of dividends and capital gains distributions 110,976,647 106,504,973 0 0 Proceeds from shares sold 1,810,842,079 1,384,343,262 224,762,208 15,231,573 Payments for shares redeemed, net of fees (1,256,490,130) (664,894,744) (25,925,063) (2,623,832) --------------- -------------- ------------ ----------- Net increase in net assets from Fund share transactions 665,328,596 825,953,491 198,837,145 12,607,741 --------------- -------------- ------------ ----------- Total increase in net assets 1,106,866,640 1,149,816,947 218,420,407 13,798,926 Net assets: Beginning of period 2,827,069,020 1,677,252,073 0 0 --------------- -------------- ------------ ----------- End of period $ 3,933,935,660 $2,827,069,020 $218,420,407 $13,798,926 =============== ============== ============ =========== Undistributed net investment Income (loss) $ 35,496,292 $ 23,383,697 $ (276,200) $ 125,528 =============== ============== ============ ===========
38 The Oakmark Family Of Funds
THE OAKMARK INT'L INTERNATIONAL EMERGING FUND VALUE FUND Year Ended Year Ended Year Ended October 31, 1996 October 31, 1995 October 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------ From Operations: Net investment income $ 14,823,124 $ 13,743,307 $ 155,101 Net realized gain (loss) on investments 2,806,950 62,822,164 1,284,213 Net realized gain (loss) on foreign currency transactions (1,017,660) (26,735,730) (24,656) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 176,382,416 (120,637,092) 296,393 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 5,165,941 17,767,564 0 Net change in unrealized appreciation (depreciation) --other (363,425) (20,391) (1,788) -------------- -------------- ---------------- Net increase (decrease) in net assets resulting from operations 197,797,346 (53,060,178) 1,709,263 Distribution to shareholders from (International Fund only): Net investment income 0 0 0 Net realized short-term gain (per share $.5020 in fiscal 1996 and $.6863 in fiscal 1995) (29,886,815) (56,722,392) 0 Net realized long-term gain (per share $.5413 in fiscal 1996 and $.3725 in fiscal 1995) (32,229,556) (30,791,949) 0 -------------- -------------- ---------------- Total distributions to shareholders (62,116,371) (87,514,341) 0 From Fund share transactions: Proceeds from shares sold 563,952,538 312,101,705 43,181,467 Reinvestment of dividends 57,852,161 81,810,540 Payments for shares redeemed (404,450,022) (719,598,750) (5,138,689) -------------- -------------- ---------------- Net increase in net assets from Fund share transactions 217,354,677 (325,686,505) 38,042,778 -------------- -------------- ---------------- Total increase (decrease) in net assets 353,035,652 (466,261,024) 39,752,041 Net assets: Beginning of period 819,731,542 1,285,992,566 0 -------------- -------------- ---------------- End of period $1,172,767,194 $ 819,731,542 $ 39,752,041 ============== ============== ================ Undistributed net investment income $ 46,201,571 $ 31,378,447 $ 155,101 ============== ============== ================ See accompanying notes to financial statements. The Oakmark Family Of Funds 39
The Oakmark Family of Funds Notes to Financial Statements 1. Significant Accounting Policies The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark 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 reported 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 Trustees. Foreign currency translations-- Values of instruments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges.
At October 31, 1996, only the International and Int'l Emerging Value funds had foreign currency transactions. "Net unrealized depreciation--other," includes the following components: Int'l Emerging International Value - ------------------------------------------------------------------------------------------ Unrealized appreciation (depreciation) on open securities purchases & sales (net) $ (81,972) $ (2,268) Unrealized appreciation (depreciation) on transaction hedge purchases 82,950 (90) Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable 38,457 592 Unrealized depreciation on transaction hedge sales (227,924) (1) Other--net (5,642) (21) --------- ------- Net Unrealized Depreciation--other $ (194,131) $ (1,788) ========= =======
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 October 31, 1996, International and Int'l Emerging Value had entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counterparties to meet the terms of the contracts and from movements in currency values. The International Fund had the following outstanding contracts at October 31, 1996: 40 The Oakmark Family of Funds
Portfolio Hedges: Unrealized Appreciation US Dollar Settlement (Depreciation) at Proceeds Foreign Currency Date October 31, 1996 - -------------------------------------------------------------------------------------------- $15,000,000 18,490,500 Swiss Francs May 1997 $ 101,883 10,039,417 1,273,500,000 Spanish Pesetas February 1997 95,801 9,377,606 1,191,800,000 Spanish Pesetas February 1997 75,970 14,792,659 1,894,200,000 Spanish Pesetas March 1997 22,744 8,022,563 40,534,000 French Francs February 1997 44,907 9,822,345 49,760,000 French Francs March 1997 11,115 10,000,000 50,525,000 French Francs May 1997 19,802 14,611,830 9,400,000 Pounds Sterling January 1997 (660,679) 5,084,856 3,276,325 Pounds Sterling March 1997 (232,032) 19,872,612 12,738,854 Pounds Sterling March 1997 (797,212) 15,000,000 9,217,157 Pounds Sterling May 1997 54,262 5,742,562 9,458,000 Netherlands Guilders February 1997 126,366 28,419,355 47,574,000 Netherlands Guilders March 1997 103,773 20,000,000 137,110,000 Swedish Krona November 1996 (853,888) 11,710,601 78,810,000 Swedish Krona December 1996 (281,801) 29,866,792 198,987,500 Swedish Krona December 1996 (423,883) 16,996,843 113,595,000 Swedish Krona January 1997 (303,616) ------------ $ (2,896,488) ============ Transaction Hedges: Foreign Currency Purchases Unrealized Appreciation Settlement (Depreciation) at US Dollar Foreign Currency Proceeds Date October 31, 1996 - -------------------------------------------------------------------------------------------- $ 1,591,033 2,406,914 German Deutsche Marks November 1996 $ (1,681) 141,497 722,342 French Francs November 1996 (208) 399,654 247,725 Pounds Sterling November 1996 3,544 498,701 309,656 Pounds Sterling November 1996 5,296 101,184 61,932 Pounds Sterling November 1996 (384) 507,907 312,174 Pounds Sterling November 1996 189 10,149,797 65,250,000 Norwegian Krone November 1996 76,194 ------------- $ 82,950 ============= Foreign Currency Sales Unrealized Appreciation US Dollar Settlement (Depreciation) at Proceeds Foreign Currency Date October 31, 1996 - -------------------------------------------------------------------------------------------- $ 3,136,185 2,483,859 Australian Dollars November 1996 $ (2,021) 47,892 18,952 Malaysian Ringgit November 1996 (4) 201,693 118,965 Netherlands Guilder November 1996 91 65,250,000 10,000,000 Norwegian Krone November 1996 (225,990) ---------- $ (227,924) ==========
The Oakmark Family of Funds 41 Notes to Financial Statements (continued) ----------------------------------------------------------------------------- The Int'l Emerging Value Fund had the following outstanding transaction hedges on purchases of securities: Foreign Currency Purchases
Unrealized Appreciation Settlement (Depreciation) at US Dollar Foreign Currency Proceeds Date October 31, 1996 - ---------------------------------------------------------------------------- $36,223 84,326,640 Indonesian Rupiah November 1996 $ (20) 55,886 6,370,420 Japanese Yen November 1996 66 48,650 5,538,788 Japanese Yen November 1996 (2) 98,074 11,150,968 Japanese Yen November 1996 (134) ----- $ (90) ===== Foreign Currency Sales Unrealized Appreciation US Dollar Settlement (Depreciation) at Proceeds Foreign Currency Date October 31, 1996 - ---------------------------------------------------------------------------- $57,341 80,736 Singapore Dollar November 1996 $ 20 56,699 84,116 Singapore Dollar November 1996 (21) ----- $ (1) =====
At October 31, 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. ("the Adviser"). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets and .85% on the excess of $5 billion of net assets. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets and .90% on the excess of $5 billion of net assets as determined at the end of each calendar month. 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 monthly fee is calculated on the total net assets as determined at the end of the preceding calendar month. The Trust believes that the most restrictive expense limitation of any state is 2.5% of the first $30 million of a Fund's average net assets, 2% of the next $70 million and 1.5% thereafter. The Adviser has voluntarily agreed to reimburse each of Small Cap Fund, Balanced Fund and International Emerging Fund to the extent that the Fund's annual ordinary operating expenses exceed 2.5% of its average net assets through October 31, 1997, subject to earlier termination by the Adviser on 30 days' notice to the Fund. For the year ended October 31, 1996, the Adviser has reimbursed $14,245 of expenses for Balanced and $35,441 for Int'l Emerging Value. In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International and approximately $7,283 each to Small Cap, Balanced and Int'l Emerging Value by the Adviser. These expenses are being amortized on a straight line basis through September, 1997 for International and October, 2000 for Small Cap, Balanced and Int'l Emerging Value. Oakmark has fully amortized all organization expenses at October 31, 1996. Registration expenses of approximately $56,751, $56,811 and $56,726 were advanced to Small Cap, Balanced and Int'l Emerging Value, respectively, by the Adviser. Registration expenses have been fully amortized at October, 1996. During the year ended October 31, 1996, the Funds incurred brokerage commissions of $2,863,961, $2,804,611, $404,602, $19,797 and $198,847 of which $1,192,641, $82,872, $132,729, $14,487 and $6,128 were paid by Oakmark, International, Small Cap, Balanced and Int'l Emerging Value, respectively, to an affiliate of the Adviser. 42 The Oakmark Family of Funds 3. Fund Share Transactions Proceeds and payments on Fund shares as shown in the statement of changes in net assets are in respect of the following number of shares (in thousands):
Year Ended October 31, 1996 -------------------------------------------------- Int'l Small Emerging Oakmark Cap Balanced Int'l Value - ------------------------------------------------------------------------------- Shares sold 59,070 18,656 1,466 39,590 3,943 Shares issued in reinvest- ment of dividends 3,733 0 0 4,757 0 Less shares redeemed (40,632) (2,102) (244) (28,966) (460) -------- ------- ------ -------- ------ Net increase in shares outstanding 22,171 16,554 1,222 15,381 3,483 ======== ======= ====== ======== ====== 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) ======= =======
Small Cap and Int'l Emerging Value withheld $156,963 and $34,552, respectively, in redemption fees for shares redeemed within six months of purchase. 4. Investment transactions Transactions in investment securities (excluding short-term securities) were as follows (in thousands):
Int'l Small Emerging Oakmark Cap Balanced Int'l Value - ------------------------------------------------------------------------------- Purchases $1,382,109 $212,132 $18,686 $567,709 $43,027 Proceeds from sales 808,074 20,995 6,430 408,936 6,310
The market values (in thousands) of securities on loan to broker-dealers at October 31, 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 Int'l Value - ------------------------------------------------------------------------------- Market Value of Securities Loaned n/a $ 9,794 $1,079 $149,521 $3,566 Collateral (Cash and U.S. Treasuries) n/a 10,440 1,120 164,784 3,805
5. Shareholder Meeting (Unaudited) On January 30, 1996 the Funds held a meeting of shareholders to approve or disapprove a new investment advisory agreement for each Fund with the Adviser with the same terms as the Funds' prior advisory agreements. For shareholders of Oakmark only, approval was requested to amend Oakmark's fundamental investment restrictions and permit investments in repurchase agreements and lending of portfolio securities. A tabulation of results is shown below.
Int'l Small Emerging (in thousands) Oakmark Cap Balanced Int'l Value - ------------------------------------------------------------------------------- Advisory Agreement For 73,642 372 38,262 475 Against 1,441 11 1 573 6 Abstentions 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 or withheld 5,985 Abstentions 2,467 Broker non-votes 18,946
The Oakmark Family Of Funds 43 The Oakmark Fund Financial Highlights For a share outstanding throughout each period
Year Ended October 31, Period Ended ----------------------------------------------------------- October 31, 1996 1995 1994 1993 1992 1991 (a) - ------------------------------------------------------------------------------------------------------------------------------------ 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) 0.34 0.30 0.27 0.17 (0.03) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 4.70 4.66 1.76 7.15 5.04 2.11 -------- -------- -------- -------- ------ ------ Total From Investment Operations: 5.04 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) (1.00) (0.25) 0.00 0.00 -------- -------- -------- -------- ------ ------ Net Asset Value, End of Period $ 32.39 $ 28.47 $ 25.21 $ 24.18 $17.11 $12.10 ======== ======== ======== ======== ====== ====== Total Return 18.07% 21.55% 8.77% 43.21% 41.40% 87.10% Ratios/Supplemental Data: Net Assets, End of Period ($million) $3,933.9 $2,827.1 $1,677.3 $1,107.0 $114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets 1.13% 1.27% 1.19% 0.94% -0.24% -0.66%(c)* Portfolio Turnover Rate 23.7% 18.0% 29.3% 18.0% 34.0% 0.0% Average Commission Rate Paid(d) $ 0.0530
- ------------------------ *Ratios have been determined on an annualized basis. (a) From August 5, 1991, the date on which Fund shares were first offered for sale to the public. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. (d) 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. 44 The Oakmark Fund THE OAKMARK SMALL CAP AND BALANCED FUNDS Financial Highlights For a share outstanding throughout each period
Small Cap Fund Balanced Fund Year Ended October 31, 1996 Year Ended October 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 10.00 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.02) 0.10 Net Gains or Losses on Securities (both realized and unrealized) 3.21 1.19 ------- ------- Total From Investment Operations: 3.19 1.29 Less Distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) 0.00 0.00 ------- ------- Total Distributions 0.00 0.00 ------- ------- Net Asset Value, End of Period $ 13.19 $ 11.29 ======= ======= Total Return 31.94% 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 218.4 $ 13.8 Ratio of Expenses to Average Net Assets 1.61% 2.50% (a) Ratio of Net Income (Loss) to Average Net Assets (0.29)% 1.21% (a) Portfolio Turnover Rate 23.15% 66.35% Average Commission Rate Paid $0.0520 $0.0581
- -------------------------------------- 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 2.64% and the ratio of net income (loss) to average net assets would have been 1.08%. The Oakmark Small Cap and Balanced Funds 45 THE OAKMARK INTERNATIONAL FUND FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Year Ended October 31, Period Ended ----------------------------------------------- October 31, 1996 1995 1994 1993 1992(a) - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 12.97 $14.50 $ 14.09 $ 9.80 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) 2.90 (0.77) 0.43 4.48 (0.46) -------- ------ -------- ------ -------- Total From Investment Operations: 2.99 (0.47) 0.64 4.54 (0.20) Less Distributions: Dividends (from net investment income) 0.00 0.00 (0.08) (0.25) - Distributions (from capital gains) (1.04) (1.06) (0.15) (0.0) - -------- ------ -------- ------ -------- Total Distributions (1.04) (1.06) (0.23) (0.25) - -------- ------ -------- ------ -------- Net Asset Value, End of Period $ 14.92 $12.97 $ 14.50 $14.09 $ 9.80 ======== ====== ======== ====== ======== Total Return 24.90% (3.06%) 4.62% 47.49% (22.81%) Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,172.8 $819.7 $1,286.0 $815.4 $ 23.5 Ratio of Expenses to Average Net Assets 1.32% 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income (Loss) to Average Net Assets 1.45% 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 42% 26% 55% 21% 0% Average Commission Rate Paid(b) $ 0.0158
- -------------------------------------- * Ratios have been determined on an annualized basis. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. (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. 46 The Oakmark International Fund The Oakmark Int'l Emerging Value Fund Financial Highlights For a share outstanding throughout the period
Year Ended October 31, 1996 Net Asset Value, Beginning of Period................ $ 10.00 Income From Investment Operations: Net Investment Income (Loss)...................... 0.04 Net Gains or Losses on Securities (both realized and unrealized).................... 1.37 ------- Total From Investment Operations:................... 1.41 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...................... $ 11.41 ======= Total Return........................................ 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million).............. $ 39.8 Ratio of Expenses to Average Net Assets........... 2.50% (a) Ratio of Net Income (Loss) to Average Net Assets.. 0.65% (a) Portfolio Turnover Rate........................... 27.44% Average Commission Rate Paid...................... $0.0036 (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 2.65% and the ratio of net income (loss) to average net assets would have been .50%.
The Oakmark International Emerging Value Fund 47 The Oakmark Family Of Funds Report of Independent Public Accountants To the Shareholders and Board of Trustees of Harris Associates Investment Trust: We have audited the accompanying statements of assets and liabilities of The Oakmark Fund, The Oakmark Small Cap Fund, The Oakmark Balanced Fund, The Oakmark International Fund, and The Oakmark International Emerging Value Fund (each a series of Harris Associates Investment Trust), including the schedules of investments on pages 7-10, 13-15, 18-20, 24-27, and 31-33, as of October 31, 1996, and the related statements of operations, statements of changes in net assets and the financial highlights for the periods indicated thereon. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1996, by correspondence with the custodian and brokers. As to securities purchased but not received, we requested confirmation from brokers, and when replies were not received, we carried out alternative auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of The Oakmark Fund, The Oakmark Small Cap Fund, The Oakmark Balanced Fund, The Oakmark International Fund, and The Oakmark International Emerging Value Fund of the Harris Associates Investment Trust as of October 31, 1996, the results of their operations, the changes in their net assets and the financial highlights for the periods indicated thereon in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois December 6, 1996 48 The Oakmark Family of Funds THE OAKMARK FAMILY Of FUNDS Trustees and Officers - ------------------------------------------------------------------------------
Trustees Other Information Michael J. Friduss Thomas H. Hayden Transfer Agent Christine M. Maki State Street Bank and Trust Company Victor A. Morgenstern Attention: The Oakmark Family of Funds Allan J. Reich P.O. Box 8510 Marv Rotter Boston, Massachusetts 02266-8510 Burton W. Ruder Peter S. Voss Investment Adviser Gary Wilner, M.D. Harris Associates L.P. Officers Legal Counsel Victor A. Morgenstern--President Bell, Boyd & Lloyd Robert J. Sanborn--Executive Vice President Chicago, Illinois David G. Herro--Vice President Clyde S. McGregor--Vice President Independent Public Accountants William C. Nygren--Vice President Arthur Andersen LLP Steven J. Reid--Vice President Chicago, Illinois Adam Schor--Assistant Vice President Michael J. Welsh--Assistant Vice President Address of Fund and Adviser Donald Terao--Treasurer Two North LaSalle Street, Suite 500 Anita M. Nagler--Secretary Chicago, Illinois 60602 Ann W. Regan--Vice President-- 1-800-OAKMARK (1-800-625-6275) Shareholder Operations and Assistant Secretary Kristi L. Rowsell--Assistant Treasurer 24-hour NAV hotline 1-800-GROWOAK (1-800-476-9625)
This report, including the audited financial statements contained herein, is submitted for the general information of the shareholders of the Funds. The report is not authorized for distribution to prospective investors in the Funds unless it is accompanied or preceded by a currently effective prospectus of the Funds. No sales charge to the shareholder or to the new investor is made in offering the shares of the Funds. [LOGO OAKKMARK ] [FAMILY OF FUNDS] HARRIS ASSOCIATES L.P. 2 NORTH LASALLE STREET CHICAGO, IL 60602-3790 -----END PRIVACY-ENHANCED MESSAGE-----