-----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, NQbpXRraG+iVRTra/FEIf0X6hIViFUqHrqpNdiG2SZmid8gHK0FvGap/+8TPapsD KRtRre6gUzMyWqENlZacew== 0000950131-97-003889.txt : 19970612 0000950131-97-003889.hdr.sgml : 19970612 ACCESSION NUMBER: 0000950131-97-003889 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970611 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: 97622314 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 SEMI-ANNUAL REPORT FOR OAKMARK FUNDS SEMI-ANNUAL REPORT April 30, 1997 The Oakmark Fund The Oakmark Select Fund The Oakmark Small Cap Fund The Oakmark Balanced Fund The Oakmark International Fund The Oakmark International Small Cap Fund MEMBER OF - ---------------- 100% NO-LOAD MUTUAL FUND COUNCIL - ---------------- Managed by Harris Associates L.P. OAKMARK The Oakmark Family of Funds 1997 Semi-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.............................. 6 The Oakmark Select Fund Performance Information.............................. 9 Letter from the Portfolio Manager.................... 9 Schedule of Investments.............................. 11 The Oakmark Small Cap Fund Performance Information.............................. 13 Letter from the Portfolio Manager.................... 13 Schedule of Investments.............................. 15 The Oakmark Balanced Fund Performance Information.............................. 18 Letter from the Portfolio Manager.................... 18 Schedule of Investments.............................. 20 The Oakmark International Fund Performance Information.............................. 23 Letter from the Portfolio Managers................... 23 International Diversification Chart.................. 25 Schedule of Investments.............................. 26 The Oakmark Int'l Small Cap Fund Performance Information.............................. 31 Letter from the Portfolio Managers................... 31 International Diversification Chart.................. 33 Schedule of Investments.............................. 34 Financial Statements.................................. 38 Trustees and Officers................................. 61 For More Information: Please call 1-800-OAKMARK (1-800-625-6275) or access our Web site at www.oakmark.com 24-Hour Net Asset Value Hotline and Web Site: To obtain the current net asset value of a Fund, please call 1-800-GROWOAK (1-800-476-9625) or access our Web site at www.oakmark. com Letter from the President . . . - -------------------------------------------------------------------------------- Fellow Shareholders, I am pleased to present the semiannual report for The Oakmark Family of Funds. This past quarter was one which generally rewarded the patient investor. The individual fund results, as well as the portfolio managers' commentaries, are presented in the following sections of this report. Market Timing As value investors, we firmly believe that over time security prices and underlying company values converge. Experience has taught us that while the time frame for this convergence is very uncertain, inevitably patience is rewarded. But what is the potential cost of not being patient and "staying the course" during volatile periods? As a long-term investor, the short-term decision to "temporarily" get out of the market requires two correct decisions. [PHOTO HERE] The first relates to identifying the right time to sell, with its attendant costs and tax implications; and, the second relates to choosing the right time to buy back in. Several years ago the folks at the University of Michigan looked at one of the best bull market periods, 1982-1987, and did a piece on "The Penalty for Missing the Market" which is summarized in the following table: The Penalty for Missing the Market (1982-1987 Bull Market)* - -------------------------------------------------------------------------------- Period of Investment S&P 500 Annualized Return - -------------------- ------------------------- Full 1,276 Trading Days 26.3% Less the 10 Best Days 18.3 Less the 20 Best Days 13.1 *Aug 12, 1982-Aug 25, 1987 Similarly, we tested the performance of The Oakmark Fund for the period since inception, August, 1991 through April 30, 1997. The results presented below are remarkably similar to the University of Michigan study. The Potential Penalty for Trading In and Out of The Oakmark Fund - -------------------------------------------------------------------------------- The Oakmark Fund Annualized Total - ---------------- ---------- ----- Full 1,447 Trading Days 29.6% 342% Less the 10 Best Days 18.7 167 Less the 20 Best Days 14.8 121 Both of the above studies show that a significant part of the long-term result may be affected by being out of the investment for a very short period. The elimination of less than 2 percent of the trading days reduced the cumulative return by nearly 65%! While no one expects to be unlucky enough to miss all these days, the potential penalty for missing just a few is very high. As we have learned from recent experience, there will be times when increased market volatility will test your resolve to be long-term investors. Once you have made the appropriate asset allocation to stocks and own a fund you have confidence in (hopefully one of The Oakmark Family!), don't sabotage the potential return by short-term trading. In our ongoing efforts to upgrade our level of service and reduce costs, we have created our own Web site, www.oakmark.com. The Funds' prospectus, application, quarterly report, and daily net asset values are available on the site. We have also enhanced our audio response system and are enclosing a brochure that describes its use, including all the new features. Thanks for your support and confidence in us. Very truly yours, /s/ Victor A. Morgenstern Victor A. Morgenstern 1 The Oakmark Family of Funds Summary Information*
Performance for Period Ended The Oakmark The Oakmark April 30, 1997 Fund Select Fund --------------------------------------------------------------------------------------------------------------- 3 Months 2.5% -2.0% 6 Months 15.5% 22.5% Performance for: 1 Year 20.0% N/A 3 Years 21.1%** N/A 5 Years 24.7%** N/A Since inception 29.6%** 22.5% Value of $10,000 $44,197 $12,250 from inception date 08/05/91 11/01/96 --------------------------------------------------------------------------------------------------------------- Top Five Holdings Philip Morris U.S. Industries, Inc. 16.1% as of April 30, 1997 Companies, Inc. 7.2% Tele-Communications, Company and % of Total Net Assets First USA, Inc. 7.0% Liberty Media, Class A 15.4% Mellon Bank Corp. 6.1% USG Corporation 6.1% The Black & Decker Corp. 4.8% Partner ReLtd. 5.9% Polaroid Corporation 4.0% Polaroid Corporation 5.1% --------------------------------------------------------------------------------------------------------------- Top Five Industries Food & Beverage 17.0% Diversified as of April 30, 1997 Conglomerates 16.1% Other Consumer Industries and % of Total Net Assets Goods & Services 14.0% TV Programming 15.4% Broadcasting & Broadcasting & Publishing 12.6% Cable TV 13.1% Other Financial 12.3% Other Consumer Goods & Services 8.7% Foreign Securities 6.5% Publishing 7.8%
*The Oakmark Fund's average annual total returns for the twelve months ended March 31, 1997 and for the period August 5, 1991 (inception) through March 31, 1997 were 16.7% and 29.1%, respectively. The Oakmark Select Fund's total return for November 1, 1996 (inception) through March 31, 1997 was 21.4%. The Oakmark Small Cap Fund's average annual total returns for the twelve months ended March 31, 1997 and for the period November 1, 1995 (inception) through March 31, 1997 were 32.8% and 34.5%, respectively. The Oakmark Balanced Fund's average annual total returns for the twelve months ended March 31, 1997 and for the period November 1, 1995 (inception) through March 31, 1997 were 15.7% and 14.8%, respectively. 2 The Oakmark Family of Funds
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK SMALL CAP BALANCED INTERNATIONAL INT'L SMALL CAP FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- -0.1% 1.4% 6.2% 0.1% - ------------------------------------------------------------------------------------------------------------------------------- 15.0% 10.1% 15.5% 6.5% - ------------------------------------------------------------------------------------------------------------------------------- 24.6% 16.9% 16.4% 7.2% - ------------------------------------------------------------------------------------------------------------------------------- N/A N/A 11.2%** N/A - ------------------------------------------------------------------------------------------------------------------------------- N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------- 32.1%** 15.6%** 17.8%** 13.9%** $15,170 $12,429 $21,149 $12,152 11/01/95 11/01/95 09/30/92 11/01/95 - ------------------------------------------------------------------------------------------------------------------------------- SPX Corp. 7.4% U.S. Industries, Inc. 4.3% Cordiant plc 4.6% Enix Corporation 3.9% U.S. Industries, Inc. 6.4% Premark International, Guinness plc 4.3% JCG Holdings Ltd. 3.8% Inc. 3.8% Catellus Dev. Corp. 5.0% AB Volvo 4.0% Cordiant plc 3.6% Old Republic People's Bank of International Corp. 3.6% Telefonos de Mexico, Sanford Ltd. 3.6% Bridgeport, CT 4.8% S.A. 3.9% First USA, Inc. 3.5% Vardon plc 3.3% Cablevision Systems Nestle SA 3.3% Corp. 3.3% Borg-Warner Automotive, Inc. 3.1% - ------------------------------------------------------------------------------------------------------------------------------- Other Industrial Government & Food & Beverage 15.9% Other Industrial Goods & Services 17.4% Agency Securities 26.6% Goods & Services 13.4% Telecommunications 12.6% Other Consumer Broadcasting & Other Consumer Goods Goods & Services 11.7% Publishing 10.4% & Services 13.8% Banks 12.0% Food & Beverage 8.9% Insurance 9.7% Broadcasting & Steel 5.7% Publishing 7.8% Household Products 7.1% Machinery & Other Industrial Metal Processing 8.9% Insurance 6.6% Goods & Services 5.5% Other Financial 6.1% Commercial Other Financial 6.0% Real Estate 7.4% - -------------------------------------------------------------------------------------------------------------------------------
The Oakmark International Fund's average annual total returns for the twelve months ended March 31, 1997 and for the period September 30, 1992 (inception) through March 31, 1997 were 23.2% and 17.9%, respectively. The Oakmark International Small Cap Fund's average annual total returns for the twelve months ended March 31, 1997 and for the period November 1, 1995 (inception) through March 31, 1997 were 10.1% and 14.3%, respectively. 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. **Annualized. The Oakmark Family of Funds 3 THE OAKMARK FUND Report from Robert J. Sanborn, Portfolio Manager ------------------------------------------------------------------------- [PHOTO APPEARS HERE] As we reach the mid-point of your Fund's fiscal year, it is my custom to review the portfolio and assess how we're doing. Our results year-to-date are doubly satisfactory: on an absolute basis, your Fund returned 15.5 percent, about a percentage point more than the Standard & Poor's 500. These are benign times in which to invest in equities, particularly those of larger-capitalization US companies. (The smaller cap stocks have continued to lag behind their big cap brethren.) Inflation remains subdued (both the price of gold and oil declined in the six-month period), US business is super-competitive globally, and Boomers continue to allocate more of their assets to equities. I would inject a cautionary note, however. In the six months between October 31, 1996 and now, the yield on the US government 30-year bond has risen from 6.7 percent to 6.9 percent. All things equal, this decoupling of the performance of US stocks and bonds means that bonds are now tougher competition. Just as consumers alter their buying patterns in response to changing relative prices, so do investors. This does not mean that we prefer bonds to stocks. It does mean that generally valuation for the overall market has deteriorated in the past six months. The real value of a business is dependent on the level of long-term interest rates. With interest rates up a bit (and, of course, bond prices down) and stock prices up a lot, the stock market is not as attractive as it was. Some of our holdings have attained our estimates of value, and we have sold them. Our cash level is at an all-time high. Again, this does not mean that we "don't like the market." It does mean that we are having a tougher time finding individual holdings that meet our criteria. We have not made major changes to your Fund. Any prospective holding must dominate our current holdings; we never shuffle our investments merely for the sake of change. Our current twenty largest holdings were all substantial holdings in October. We have increased our investments in Black & Decker and Polaroid as the market over-reacted to some short-term developments. In general, your Fund remains heavily invested in high-quality businesses, particularly consumer brands - -------------------------------------------------------------------------------
The value of a $10,000 investment in The Oakmark Fund from its inception (8/5/91) to present (4/30/97) as compared to the Standard & Poor's 500 index [GRAPH APPEARS HERE] The Oakmark Fund S & P 500 - ---------------------------------------------- 8/91 $10,000 $10,000 - ---------------------------------------------- 1/92 $13,910 $10,719 - ---------------------------------------------- 1/93 $19,913 $11,857 - ---------------------------------------------- 1/94 $25,648 $13,372 - ---------------------------------------------- 1/95 $26,480 $13,444 - ---------------------------------------------- 1/96 $36,091 $17,213 - ---------------------------------------------- 1/97 $43,112 $23,512 - ---------------------------------------------- 4/97 $44,197 $24,070 - ----------------------------------------------
4/30/97 NAV $35.02 Average Annual Total Return* Through 4/30/97 ---------------------------- Total Return From Fund Inception Last 3 mos. 8/5/91 - ---------------------------------------------------------------------------------------- THE OAKMARK FUND 2.5% 29.6% Standard & Poor's 500 w/inc Stock Index** 2.4% 16.5% Dow Jones Industrial Average w/inc** 3.4% 18.9% Value Line Composite Index** -2.6% 8.0%
*Total return includes change in share prices and in each case, except for the Value Line Index, includes reinvestment of any dividends, interest 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 and financial services. In fact, I consider seventeen of our twenty largest holdings as being structurally superior businesses. Your Fund remains concentrated, with the twenty largest holdings constituting over 75 percent of our holdings. The five largest constitute 33 percent of our holdings. We believe that attractive investment opportunities are scarce, and we believe most mutual funds (let alone most mutual fund investors!) are overly diversified and offer scant chance to outperform an index fund over the long term. Much of the media treats the equity market as if it were a casino or a sporting event. I find it amusing to tune into one of the ubiquitous market shows on a big up or down day; the corresponding gleeful or funereal tone is a hoot. People, do not let all the noise out there deter you from what you are trying to accomplish with your investment in The Oakmark Fund, and that is increasing your spending power in the long run. Value vs. Momentum Investing, With a Guest Appearance from Billy "White Shoes" Johnson I have received many letters from you asking the differences between value and momentum investing. In brief, value investing: good; momentum investing: bad. Seriously, these two philosophies frame the investment process quite differently. At the risk of oversimplification, the major difference is that value investors like ourselves focus on price, and what you are getting for that price. Momentum investors tend to focus on those companies with the fastest growth rates--period. At conferences at which I have attended, I have heard many momentum fund managers state, "In the WXYZ Fund, we aim to own the best, fastest-growing companies in America." The appeal of value investing to all of us at The Oakmark Funds is that it has the happy characteristic of being simpatico with how people conduct virtually all their economic and financial affairs. If price did not matter, most cars on the road would be Ferraris or BMWs. But--alas!--price does matter, and car shoppers, thinking like value investors, frame their car purchases with respect to budgets and alternatives. Similarly, when entire businesses are bought, the buyer always is relating to what one is getting relative to what one is paying. A relative indifference to valuation introduces a significant risk element, in the form of added volatility, to a portfolio. Of the 250-plus funds with five- year records in the Lipper Growth (for growth in capital) category, The Oakmark Fund has the highest total return for the five years ending April 30, 1997. The runner-up is a large, well-known momentum fund. However, the two funds are quite different when it comes to risk. For the 21 calendar quarters ending March 31, 1997, The Oakmark Fund had two negative-return quarters; the momentum fund, let's call it WXYZ Fund, had six. The range of The Oakmark Fund's returns ran from -4.2 percent to +15.5 percent; the range of WXYZ's returns was -19.8 percent to +42.2 percent. Momentum funds tend to trade a lot, which is expensive and tax-inefficient. WXYZ Fund's turnover for the years 1992-6 is as follows: 115%, 209, 94, 119, and 45; The Oakmark Fund's turnover for those same years: 34%, 18, 29, 18, 19. In simple terms, the WXYZ momentum fund turns over its portfolio every ten months, whereas The Oakmark Fund turns over our portfolio every five years! What does this have to do with Billy "White Shoes" Johnson? Well, those of you who read these carefully may remember that he first appeared in our July 31, 1995 quarterly. In that letter, I discussed the overheated IPO market, especially for technology issues. I mentioned a few recent IPOs that had soared on the first day of trading, and explained why we in The Oakmark Fund avoided earning this sort of "easy" money. ARCSYS (now called Avant!) went public at $13, soared to $26 on the first day, got as high as $51, and now trades at $21. Oak Technology went public at $14, ran to $21 on day one, got as high as $29, and now trades at $9. Netscape came public at $14, traded to $38 on day one, got as high as $87, and now trades at $30. I said at the time that this sector was very vulnerable, and if I were proved right, I would do a victory dance ala' Billy, the seminal genius of end-zone celebrations while a receiver for the Houston Oilers. At the risk of flouting the investment gods, this fund manager is now doing the "Billy." (Count yourselves fortunate that your eyes do not have to witness this spectacle.) Many of the momentum funds like WXYZ own these sorts of stocks, and are down 20 percent or more year-to-date. It was a little frustrating not making the "easy" money in 1995 and 1996, but it sure is gratifying keeping the "hard-earned" money in 1997. /s/ Robert J. Sanborn Robert J. Sanborn Portfolio Manager rsanborn@oakmark.com* May 9, 1997 *Please note my new e-mail address. The Oakmark Fund 5 The Oakmark Fund Schedule of Investments--April 30, 1997 (Unaudited)
Shares Held Market Value - ---------------------------------------------------------------------------------------- Common Stocks--86.5% Food & Beverage--17.0% Philip Morris Companies Inc. 8,911,200 $ 350,878,500 H.J. Heinz Company 4,007,250 166,300,875 Anheuser-Busch Companies Inc. 3,538,200 151,700,325 Nabisco Holdings Corporation 2,422,100 92,948,087 CPC International, Inc. 843,100 69,661,138 -------------- 831,488,925 Retail--0.6% Carson Pirie Scott & Company (a) (d) 1,000,000 $ 29,750,000 Other Consumer Goods & Services--14.0% The Black & Decker Corporation (d) 6,947,200 $ 232,731,200 Polaroid Corporation (d) 4,062,400 197,026,400 American Brands, Inc. 2,435,500 130,908,125 Brunswick Corporation 1,100,000 31,075,000 First Brands Corporation 1,070,400 27,161,400 Whitman Corporation 957,500 22,142,187 GC Companies, Inc. (a) (d) 397,000 15,929,625 Juno Lighting, Incorporated 885,000 13,717,500 Arctic Cat, Inc. 957,500 9,575,000 Justin Industries 601,500 6,691,688 -------------- 686,958,125 Banks--6.1% Mellon Bank Corporation 3,606,550 $ 299,794,469 Insurance--2.2% Old Republic International Corporation 2,748,620 $ 77,648,515 American Financial Group, Inc. 684,700 23,878,912 Acordia, Inc. 154,500 4,886,063 -------------- 106,413,490 Other Financial--12.3% First USA, Inc. (d) 7,096,000 $ 341,495,000 AMBAC, Inc. (d) 2,194,900 142,119,775 Fannie Mae 2,532,500 104,149,062 Fund American Enterprises Inc. 168,500 16,828,938 -------------- 604,592,775 Broadcasting & Publishing--12.6% Knight-Ridder, Inc. 4,534,600 $ 176,282,575 Dun & Bradstreet Corporation 5,976,000 147,159,000 Tele-Communications, Inc., Class A (a) 10,379,179 143,362,410 ACNielsen Corporation (d) 4,764,000 71,460,000 Tele-Communications, Liberty Media, Class A (a) 3,657,741 68,811,253 TCI Satellite Entertainment, Inc., Class A (a) 1,217,917 9,134,377 -------------- 616,209,615
See accompanying notes to financial statements. 6 The Oakmark Fund - -------------------------------------------------------------------------------- THE OAKMARK FUND SCHEDULE OF INVESTMENTS-APRIL 30, 1997 (UNAUDITED) CONT. - --------------------------------------------------------------------------------
Shares Held Market Value - ----------------------------------------------------------------------------------------- Common Stocks--86.5% (cont.) Telecommunications--3.5% U.S. West Media Group (a) 10,020,800 $ 172,858,800 Managed Care Services--1.3% Foundation Health Systems, Inc. (a) 2,357,810 $ 63,660,870 Medical Products--1.1% Sybron International Corporation (a) 1,567,800 $ 52,129,350 Aerospace & Defense--4.1% Lockheed Martin Corporation 1,125,000 $ 100,687,500 McDonnell Douglas Corporation 1,220,000 72,437,500 Logicon, Inc. 654,800 26,028,300 -------------- 199,153,300 Other Industrial Goods & Services--5.0% James River Corporation of Virginia 3,094,100 $ 92,436,237 SPX Corporation (d) 967,900 52,871,538 Bandag Incorporated, Class A (a) 1,104,100 50,236,550 The Geon Company 971,600 21,253,750 UCAR International, Inc. (a) 303,500 12,747,000 Premark International, Inc. 328,400 8,045,800 W.R. Grace & Company 122,800 6,385,600 -------------- 243,976,475 Commercial Real Estate--0.2% Catellus Development Corporation (a) 341,300 $ 5,034,175 Host Marriott Corp. (a) 200,000 3,475,000 -------------- 8,509,175 Foreign Securities--6.5% DeBeers Consolidated Mines Limited ADR (b) 3,246,000 $ 116,805,281 Unilever NV (b) 476,000 93,415,000 YPF Sociedad Anonima (b) 3,276,500 90,513,313 European Vinyls Corporation International N. V 547,700 15,686,321 -------------- 316,419,915 Total Common Stocks (Cost: $3,012,435,009) 4,231,915,284
The Oakmark Fund 7 See accompanying notes to financial statements. THE OAKMARK FUND Schedule of Investments--April 30, 1997 (Unaudited) cont.
Principal Value Market Value ------------------------------------------------------------------------------------------------- Short-Term Investments--13.3% U.S. Government Bills--1.0% United States Treasury Bills, 5.36% due 9/18/1997 $ 25,000,000 $ 24,478,889 United States Treasury Bills, 5.40% due 10/16/1997 25,000,000 24,369,416 -------------- Total U.S. Government Bills (Cost: $48,848,305) 48,848,305 Commercial Paper--11.5% American Express Credit Corp., 5.34%--5.54% due 5/2--6/9/97 $180,000,000 $ 180,000,000 Ford Motor Credit Corp., 5.41%--5.57% due 5/2--6/17/97 190,000,000 190,000,000 General Electric Capital Corporation, 5.42%--5.65% due 5/1--6/20/97 195,000,000 195,000,000 -------------- Total Commercial Paper (Cost: $565,000,000) 565,000,000 Repurchase Agreements--0.8% State Street Repurchase Agreement, 5.37% due 5/1/1997 $ 38,793,000 $ 38,793,000 -------------- Total Repurchase Agreements (Cost: $38,793,000) 38,793,000 Total Short Term Investments (Cost: $652,641,305) 652,641,305 Total Investments (Cost $3,665,076,314)--99.8% (c) 4,884,556,589 Foreign currencies (Cost $482,705)--0.0% 477,899 Other assets in excess of other liabilities--0.2% 9,973,589 -------------- Total Net Assets--100% $4,895,008,077 ==============
----------------------------------------------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) At April 30, 1997, net unrealized appreciation of $1,219,475,468 for federal income tax purposes consisted of gross unrealized appreciation of $1,264,288,669 and gross unrealized depreciation of $44,813,201. (d) See footnote number five to the financial statements regarding transactions in securities of affiliated issuers. See accompanying notes to financial statements. 8 THE OAKMARK FUND The Oakmark Select Fund Report from Bill Nygren, Portfolio Manager ------------------------------------------------------------------------- [PHOTO APPEARS HERE] The accompanying chart of stock market indices shows that during the three months ended April 30, the recent trend continued of very large stocks outperforming average-sized stocks. The Oakmark Select Fund was down 2.0% for the quarter. That compares poorly to the 2.4% gain in the S&P 500, but is consistent with losses realized in broader indices. For the six months since your Fund's inception, its gain of 22.5% compares very favorably to all the indices. Again, I'd like to caution against focusing on short-term performance numbers. As the period of time gets shorter, the numbers become more random. Our goal is exceptional long-term performance. That "long term" will include "short terms" that are exceptional and "short terms" that are disappointing. Don't get distracted by the short terms. As a well known political figure says, "Keep your eyes on the prize!" When you compare this quarter's portfolio with last quarter's, you'll notice quite a change. Three stocks that previously accounted for 27% of the portfolio have been sold. You should now be asking, "Why is this Fund that preaches long- term value-investing experiencing such rapid turnover?" We buy stocks when they are selling at large discounts to our estimate of intrinsic value. When we buy a stock, we expect to hold it for several years. We set our sell targets based on intrinsic value and expect both value and our targets to move upward as time goes on. We sell stocks for two basic reasons. Our preferred reason to sell is when the stock price increases and we no longer feel the stock is inexpensive relative to its value. The less pleasant reason is when we make mistakes. If new information causes us to lower our estimate of intrinsic value, a stock that has gone down could also be fully valued and would also be sold. The good news is that the portfolio changes last quarter in The Oakmark Select Fund were caused by successful stock performance. As you may recall, stock prices for two of our holdings, First USA and McDonnell Douglas, rose in response to takeover proposals. Despite thinking these acquisitions are good strategic moves, in my judgement, the acquirers' stocks are not selling at as large a discount to intrinsic value as are the other stocks we own. Therefore, both stocks were sold. - -------------------------------------------------------------------------------- Results from Fund Inception (11/1/96) through 4/30/97
4/30/97 NAV $12.25 Total Return* Through 4/30/97 ------------------- Total Return From Fund Inception Last 3 mos. 11/1/96 - -------------------------------------------------------------------------------- The Oakmark Select Fund -2.0% 22.5% Standard & Poor's 500 w/inc Stock Index** 2.4% 14.7% Standard & Poor's MidCap 400 w/inc Index** -2.6% 6.9% Value Line Composite Index** -2.6% 5.2%
*Total return includes change in share prices and in each case, except for the Value Line Index, includes reinvestment of any dividends, interest and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future performance. - -------------------------------------------------------------------------------- The Oakmark Select Fund 9 Our third sale was SPX Corp. When SPX was purchased in November, it represented 4% of our portfolio. SPX quickly appreciated to a price where I was unwilling to purchase more shares. By March, SPX represented under 1% of the portfolio and it was sold for a gain of 65%. As you know, The Oakmark Select Fund is very concentrated. If a stock position is too small to be meaningful, and we are unwilling to add to it, it will be sold. Despite last quarter's high turnover, you should be confident that we are consistently applying our long-term value philosophy. On the buy side, US Industries is now your Fund's largest holding. US Industries is a collection of US-based businesses that was spun off from Hanson PLC two years ago. One of its largest and best-known businesses is Jacuzzi. In February, US Industries Chairman and CEO, David Clarke, visited our office. In addition to those titles, David is also a large shareholder of this company. One of his comments captures what we mean by investing with owner-oriented managements. In discussing how he invests US Industries' money, David said "Acquisitions need to be significantly more attractive than share repurchase or why would we even do it? I'd rather buy what we know best, our own stock". In a world where many managers make acquisitions just to get bigger, it's refreshing to hear David's common-sense approach. You should take great comfort that when US Industries makes an acquisition, they expect it to lead to a higher share price. Just as we look for "owner-oriented" managements, you should look for "owner- oriented" fund managers. I am both the portfolio manager and a shareholder of The Oakmark Select Fund. As with you, I will measure our long term success only by our share price. Thank you again for your support. /s/ Bill Nygren - ---------------- Bill Nygren Portfolio Manager bnygren@oakmark.com May 2, 1997 10 The Oakmark Select Fund The Oakmark Select Fund Schedule of Investments--April 30, 1997 (Unaudited)
Shares Held Market Value - --------------------------------------------------------------------------------------------------------- Common Stocks--93.6% Other Consumer Goods & Services-- 8.7% Polaroid Corporation 206,000 $ 9,991,000 Brunswick Corporation 255,900 7,229,175 ------------ 17,220,175 Banks--4.7% People's Bank of Bridgeport, Connecticut 309,000 $ 9,270,000 Insurance--5.9% PartnerRe Ltd. 348,000 $ 11,701,500 Broadcasting & Cable TV--13.1% TCI Satellite Entertainment, Inc., Class A (a) 1,235,000 $ 9,262,500 Cablevision Systems Corporation (a) 271,100 8,539,650 U.S. West Media Group (a) 469,000 8,090,250 ------------ 25,892,400 TV Programming--15.4% Tele-Communications, Liberty Media, Class A (a) 1,614,500 $ 30,372,781 Publishing--7.8% ACNielsen Corporation 560,700 $ 8,410,500 Dun & Bradstreet Corporation 287,000 7,067,375 ------------ 15,477,875 Data Storage--3.9% Imation Corporation (a) 327,000 $ 7,725,375 Building Materials & Construction--6.1% USG Corporation (a) 351,000 $ 12,021,750 Oil & Natural Gas--7.0% Union Texas Petroleum Holdings, Inc. 425,000 $ 8,021,875 Titan Exploration, Inc. (a) 780,000 5,850,000 ------------ 13,871,875 Other Industrial Goods & Services--4.9% Premark International, Inc. 395,000 $ 9,677,500 Diversified Conglomerates--16.1% U.S. Industries, Inc. (a) 880,200 $ 31,797,225 Total Common Stocks (Cost: $188,329,947) 185,028,456
See accompanying notes to financial statements. The Oakmark Select Fund 11 THE OAKMARK SELECT FUND Schedule of Investments--April 30, 1997 (Unaudited) cont.
Principal Value Market Value - --------------------------------------------------------------------------------------------------------- Short-Term Investments--5.3% Commercial Paper--4.6% Ford Motor Credit Corp., 5.46% due 5/12/1997 2,000,000 $ 2,000,000 American Express Credit Corp., 5.49% due 5/1/1997 2,000,000 2,000,000 General Electric Capital Corporation, 5.65% due 5/1/1997 5,000,000 5,000,000 ------------ Total Commercial Paper (Cost: $9,000,000) 9,000,000 Repurchase Agreements--0.7% State Street Repurchase Agreement, 5.37% due 5/1/1997 1,421,000 $ 1,421,000 ------------ Total Repurchase Agreements (Cost: $1,421,000) 1,421,000 Total Short-Term Investments (Cost: $10,421,000) 10,421,000 Total Investments (Cost $198,750,947)--98.9%(b) $195,449,456 Other assets in excess of other liabilities--1.1% 2,153,232 ------------ Total Net Assets $197,602,688 ============
- --------------------------------------------- Notes: (a) Non-income producing security. (b) At April 30, 1997, net unrealized depreciation of $3,301,491 for federal income tax purposes consisted of gross unrealized appreciation of $4,362,670 and gross unrealized depreciation of $7,664,161. See accompanying notes to financial statements. 12 The Oakmark Select Fund The Oakmark Small Cap Fund Report from Steven J. Reid, Portfolio Manager ------------------------------------------------------------------------- [PHOTO APPEARS HERE] Intermission April 30, 1997 marked the half way point of The Oakmark Small Cap Fund's fiscal year. For the six month period, your Fund gained 15.0%. This is substantially better than the relevant indices. The Fund's second fiscal quarter ended with a $0.01 decline in the net asset value; this equated to a loss of 0.07%. The indices to which your Fund is compared declined considerably more. - -------------------------------------------------------------------------------- The Value of a $10,000 Investment in The Oakmark Small Cap Fund from its Inception (11/1/95) to Present (4/30/97) as compared to the Russell 2000
Oakmark Small Cap Fund Russell 2000 - --------------------------------------------------- 10/95 $10,000 $10,000 1/96 $10,180 $10,646 4/96 $12,180 $11,756 7/96 $11,830 $10,667 10/96 $13,190 $11,496 1/97 $15,180 $12,471 4/97 $15,170 $11,848
4/30/97 NAV $15.17
Average Annual Total Return* Through 4/30/97 ---------------------------- Total Return From Fund Inception Last 3 mos. 11/1/95 - ----------------------------------------------------------------------------------- The Oakmark Small Cap Fund -0.1% 32.1% Lipper Small Co. Growth** -12.2% 4.9% Russell 2000 w/inc** -6.8% 12.0% S&P Small Cap 600 w/inc** -6.0% 14.6%
*Total return includes change in share prices and in each case includes reinvestment of any dividends, interest 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. Several significant events occurred that explain recent results. On the positive side, Kysor Industrial Corp. was acquired by Scotsman Industries Inc., also a holding of your Fund, for $43 per share in cash. Our only regret is that Scotsman did not offer the option of receiving their shares in lieu of cash. SPX Corp., your Fund's largest holding, announced that they would repurchase up to 18% of their outstanding shares in a Dutch Auction at prices up to $56 per share. Triarc Companies, Inc. announced several transactions that are expected to increase the value of the company over the long term. On a less than positive note, we were not exempt from the overall market decline. Financial companies were generally hit the hardest as a group. Several of our holdings did not or were not expected to produce the near-term results on which other investors focus so closely. As long-term investors, we see these situations as opportunities and we can and do try to take advantage of them. The Value of Long-Term Investing During the quarter it seemed that a lot happened, but very little changed. The Fund rose to an all-time high in early March and promptly gave up those gains and then some before returning to virtually where we were at the end of January. Why did this happen? Well no one knows for sure, but it appears that Wall Street became obsessed with several short-term events--the Fed's decision to raise interest rates and anticipation of second quarter earnings, coupled with the fear of companies not meeting expectations. Last, many investors became concerned over the possibility of an overall market correction. I am pleased to be able to say that the overall operating results and prospects of the The Oakmark Small Cap Fund 13 companies in which we have invested continue to be quite good. The only significant changes we saw were in the price of their shares. Our perspective as long-term investors is to focus on investing in individual companies. While the overall level of interest rates will affect economic activity and the valuation of companies, the recent increase in rates is relatively unimportant for the companies in which we have invested. We look at the goods or services our companies provide and the long-term prospects for them. In fact, we do not attempt to predict the direction, or magnitude of change in interest rates or the stock market. I realized long ago that many of the well known pundits of prediction had very poor batting averages over the long term. Thus, we happily accept that the risk of not being invested is far greater than attempting to invest based on predictions of macro outcomes over the long term. I was particularly amused by an article in the Wall Street Journal regarding the superior share price performance of small companies vs. large companies. The article referred to this as the "small-cap effect" and offered that a recent study showed that $1 invested in small companies at the end of 1926 would be worth $3990 at the end of 1996. Whereas, $1 invested in large companies would only be worth $1370 over the same period. Several experts were interviewed to garner their views on the subject. One particularly vocal opponent contended that if one were to eliminate the 9 year period from the end of 1974 through the end of 1983, the returns from small companies since 1926 were inferior to those of large companies. Several thoughts come to mind. First, the data might not be reliable. It is very likely that small companies in 1926 either don't exist anymore or are large companies now. After all, large companies are small companies that grew up. Second, data manipulation is a dangerous thing. The elimination of 9 years from a 70 year study seems statistically significant. Such that I am willing to predict that if we eliminate the economies of China and India, global economic development will not be as robust as once estimated. What we can take away from this data is the importance of investing for the long term, or in other words, being there--not to mention the very desirable returns of equity investing over the long term. What Would A Rational Business Person Pay To Own This? This is the question we ask ourselves when valuing the companies in which we invest. I mentioned earlier that Triarc Companies Inc., the producer of Royal Crown and Mistic Brands beverages and the franchisor of Arby's restaurants, made several strategic changes to their business mix. Of particular interest was the purchase of Snapple. Snapple was acquired by Quaker Oats in late 1994 for $1.7 bil. At the time, we did not understand the rationale for the price Quaker paid. It was a time when ready-to-drink teas were experiencing tremendous growth and the brand commanded a premium. In March of this year, our friends at Triarc bought Snapple for $300 mil. The important point is that Triarc's managers think like owners (which they are), so they waited until the price was right. This kind of patience pays off for all of us. Weather Having used up my allotment of one prediction per letter, I will forgo any thoughts on the weather. I will share with you that one of our readers, and a graduate student in meteorology, is particularly interested in my prediction of snow for the Midwest in May. Earlier this week, parts of Michigan and Wisconsin received more than 8 inches of snow. I feel relieved not to have predicted the once-in-100-year flooding. Once again, I would like to thank everyone involved, especially our shareholders, for your support. /s/ Steven J. Reid Steven J. Reid Portfolio Manager sreid@oakmark.com May 14, 1997 14 The Oakmark Small Cap Fund The Oakmark Small Cap Fund Schedule of Investments--April 30, 1997 (Unaudited)
Shares Held Market Value - ------------------------------------------------------------------------------- Common Stocks--93.4% Food & Beverage--6.6% Triarc Companies, Inc. (a) 1,000,000 $ 18,625,000 Ralcorp Holdings, Inc. (a) 1,200,000 12,300,000 International Multifoods Corporation 351,200 8,736,100 GoodMark Foods, Inc. 91,900 1,183,213 ------------ 40,844,313 Retail--5.3% Carson Pirie Scott & Company (a) 511,500 $ 15,217,125 Zale Corporation (a) 523,900 9,692,150 Cole National Corporation (a) 254,700 8,405,100 ------------ 33,314,375 Other Consumer Goods & Services--5.7% Scotsman Industries, Inc. (d) 662,100 $ 16,883,550 First Brands Corporation 600,000 15,225,000 Justin Industries 207,400 2,307,325 GC Companies, Inc. (a) 30,200 1,211,775 ------------ 35,627,650 Banks--7.0% People's Bank of Bridgeport, Connecticut 1,000,000 $ 30,000,000 Harbor Federal Savings Bank 160,000 5,880,000 Northwest Savings Bank 260,000 3,835,000 Pocahontas Federal Savings and Loan Association (d) 140,000 2,485,000 Savings Bank of the Finger Lakes 94,000 1,386,500 Fidelity Bancshares, Inc. (a) 5,700 108,300 ------------ 43,694,800 Insurance--9.7% RenaissanceRe Holdings Limited 504,500 $ 18,666,500 Highlands Insurance Group, Inc. (a) (d) 900,000 15,862,500 Chartwell Re Corporation (d) 500,000 12,750,000 PXRE Corporation 385,000 9,769,375 Danielson Holding Corporation (a) 452,400 3,053,700 ------------ 60,102,075 Other Financial--1.2% Duff & Phelps Credit Rating Company (d) 296,800 $ 7,753,900 Broadcasting & Publishing--10.4% Cablevision Systems Corporation (a) 650,000 $ 20,475,000 TCI Satellite Entertainment, Inc., Class A (a) 2,250,000 16,875,000 Lee Enterprises, Inc. 500,000 12,312,500 Central Newspapers, Inc., Class A 180,000 9,697,500 Granite Broadcasting Corporation (a) (d) 625,000 5,156,250 ------------ 64,516,250
See accompanying notes to financial statements. The Oakmark Small Cap Fund 15 The Oakmark Small Cap Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Shares Held/ Principal Value Market Value - -------------------------------------------------------------------------------- Common Stocks--93.4% (cont.) Data Storage--0.6% Imation Corporation (a) 150,000 $ 3,543,750 Aerospace & Defense--3.0% Logicon, Inc. 281,900 $ 11,205,525 Tracor, Inc. (a) 350,000 7,612,500 ------------ 18,818,025 Machinery & Metal Processing--8.9% Gardner Denver Machinery, Inc. (a) (d) 850,000 $ 19,337,500 The Carbide/Graphite Group, Inc. (a) (d) 800,000 18,100,000 Matthews International Corporation, Class A 308,500 9,023,625 Northwest Pipe Company (a) (d) 500,000 8,000,000 Graco, Inc. 41,200 973,350 ------------ 55,434,475 Building Materials & Construction--1.4% NVR Inc. (a) (d) 700,000 $ 8,925,000 Oil & Natural Gas--2.4% Titan Exploration, Inc. (a) (d) 1,956,400 $ 14,673,000 Other Industrial Goods & Services--17.4% SPX Corporation (d) 844,100 $ 46,108,962 MagneTek, Inc. (a) 1,050,000 17,587,500 Essex International, Inc. (a) 648,300 11,669,400 Zurn Industries, Inc. 450,000 11,137,500 Binks Manufacturing Company (d) 206,000 8,368,750 Premark International, Inc. 225,000 5,512,500 Columbus McKinnon Corporation 260,000 4,712,500 Dal-Tile International Inc. (a) 248,400 3,229,200 ------------ 108,326,312 Commercial Real Estate--7.4% Catellus Development Corporation (a) 2,090,500 $ 30,834,875 Castle & Cooke, Inc. (a) (d) 1,125,000 15,468,750 ------------ 46,303,625 Diversified Conglomerates--6.4% U.S. Industries, Inc. (a) 1,100,000 $ 39,737,500 Total Common Stocks (Cost: $546,472,851) 581,615,050
See accompanying notes to financial statements. 16 The Oakmark Small Cap Fund The Oakmark Small Cap Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Principal Value Market Value - -------------------------------------------------------------------------------- Corporate Bonds--0.5% Recreation & Entertainment--0.5% Harrah's Jazz Bonds, 14.25% due 11/15/2001 (c) 6,700,000 $ 2,881,000 Total Corporate Bonds (Cost: $3,304,413) 2,881,000 Commercial Paper--5.1% American Express Credit Corp., 5.49% due 5/1/1997 2,000,000 $ 2,000,000 American Express Credit Corp., 5.48% due 5/5/1997 2,000,000 2,000,000 American Express Credit Corp., 5.49% due 5/6/1997 5,000,000 5,000,000 Ford Motor Credit Corp., 5.46% due 5/12/1997 2,000,000 2,000,000 Ford Motor Credit Corp., 5.48% due 5/20/1997 2,000,000 2,000,000 Ford Motor Credit Corp., 5.55% due 6/10/1997 2,000,000 2,000,000 Ford Motor Credit Corp., 5.55% due 6/13/1997 2,000,000 2,000,000 General Electric Capital Corporation, 5.65% due 5/1/1997 15,000,000 15,000,000 Total Commercial Paper (Cost: $32,000,000) 32,000,000 Repurchase Agreements--0.9% State Street Repurchase Agreement, 5.37% due 5/1/1997 5,525,000 $ 5,525,000 Total Repurchase Agreements (Cost: $5,525,000) 5,525,000 Total Short-Term Investments (Cost: $37,525,000) 37,525,000 Total Investments (Cost $587,302,264)--99.9% (b) 622,021,050 Other assets in excess of other liabilities--.1% 819,349 ------------ Total Net Assets $622,840,399 ============
- ------------------------------------- Notes: (a) Non-income producing security. (b) At April 30, 1997, net unrealized appreciation of $34,718,766 for federal income tax purposes consisted of gross unrealized appreciation of $61,140,703 and gross unrealized depreciation of $26,421,937. (c) This bond is currently in default and the fund is no longer accruing interest. (d) See footnote number five to the financial statements regarding transactions of securities of affiliated issuers. See accompanying notes to financial statements. The Oakmark Small Cap Fund 17 The Oakmark Balanced Fund Report from Clyde S. McGregor, Portfolio Manager ------------------------------------------------------------------------- The value of a $10,000 investment in The Oakmark Balanced Fund from its inception (11/1/95) to present (4/30/97) as compared to the Lipper Balanced Fund Index
Lipper Balanced Fund Index The Oakmark Balanced Fund $12,244 10/95 $10,000 $10,000 1/96 $10,642 $10,290 4/96 $10,778 $10,630 7/96 $10,665 $10,660 10/96 $11,449 $11,290 1/97 $12,197 $12,255 4/97 $12,244 $12,429
4/30/97 NAV $12.16
Average Annual Total Return* Through 4/30/97 ---------------------------- Total Return From Fund Inception Last 3 mos. 11/1/95 - ---------------------------------------------------------------------------- The Oakmark Balanced Fund 1.4% 15.6% Lipper Balanced Fund Index** 0.4% 14.5% Lehman Govt./Corp. Bond** 0.5% 4.5% S&P 500 w/inc** 2.4% 26.5%
*Total return includes change in share prices and in each case includes reinvestment of any dividends, interest and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The 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. [PHOTO APPEARS HERE] Quarter Review The second fiscal quarter demonstrated the value of our balanced approach in a difficult period. Your Fund returned 1.4%. Both stocks and bonds were profitable despite the fact that in March the Federal Reserve raised its target interest rate for Fed Funds for the first time in two years. We are pleased that the Fund extended its record of positive returns in each quarter since inception. Balanced funds are not immune to market swings, but they do reduce volatility of returns. Part of this lower volatility is an outcome of owning different kinds of assets, and part results from a greater proportion of return coming from income (which is more certain) and less from appreciation (which is less certain). In the current environment where stock prices are at record highs and Alan Greenspan is putting upward pressure on interest rates, The Balanced Fund speaks to the needs of long-term investors seeking growth, income, and capital preservation. I would also like to take this opportunity to point out that the Fund's expenses are now capped at 1.5% per annum. The Fund's returns have been quite competitive within the universe of similar funds (11th place out of 290 for the 52 weeks ended April 3) despite an above average expense ratio. This handicap departed as of March 1. Market Outlook At Harris Associates we do not attempt to forecast the economy, nor do we develop our portfolios based on some understanding of the investing environment. We build our portfolios from the bottom up selecting only securities which we determine to be significantly undervalued regardless of the macro picture. As manager of The Oakmark Balanced Fund, however, I am committing assets to several different asset classes, so it is important that I have a point of view about the overall context. Federal Reserve policy is always one of the key factors creating the investing environment, but given the March rate hike, Fed policy has taken on even 18 The Oakmark Balanced Fund greater importance. The Fed last began to tighten money in 1994, eventually raising rates six times during the year. These actions had a dramatic impact on the bond market in 1994, which suffered its worst year since the 1920's. The bond market's weakness also made it impossible for stocks to make any headway despite a respectable increase in corporate profits. I do not believe that 1997 is setting up to be a close copy of 1994. Economic conditions are quite different: 1. Interest rates began this cycle much higher across the entire yield curve than they were at the beginning of 1994. Real rates (interest rates after subtracting the rate of inflation) are at historically high levels. 2. Price indices for industrial commodities are falling today, but in 1994 they were showing increases. Corporate managers continue to complain that they have no ability to increase prices. 3. Gold's price is particularly weak. In the 1994 cycle it rose more than 10%. 4. The dollar is quite strong relative to other currencies. 5. The Federal budget deficit has shrunk considerably over the last three years even without a balanced budget agreement. In fact, the Treasury will actually pay down approximately $65 billion in outstanding debt this calendar quarter. Aside from these fundamental indicators, I also see a vital difference in the structure of the markets. Today, the kind of aggressive speculation in the bond market which was present at the beginning of 1994 is not evident. In 1992 and 1993 large amounts of speculative capital had been devoted to the "carry trade" (borrowing short term and investing in intermediate term Treasury notes). When short rates began to rise, the economics underlying these highly leveraged bets began to turn unfavorable, and the resulting rush for the exits greatly intensified the bond market's pain. I believe that Fed Chair Greenspan defines his role in terms of smoothing out US economic activity and stamping out speculation wherever it may be found. Greenspan has studied the Japanese experience of the last decade where speculation in several asset classes was not damped but was often unwittingly aided. Having brought reality back to the bond market in 1994, he is seeking to prevent a speculative blowoff in stocks now. He spoke first of "irrational exuberance" in December, reiterated his warning in February, and, equity investors still not listening, he acted in March. Having observed the recent strong recovery in the markets, he will probably do so again. Given this interest rate backdrop, I look for the markets in 1997 to be choppy and erratic, but I do not expect a great bear market in bonds as in 1994 or a stock market collapse as in 1987. Bond Calls and Tender Offers Our strategy when investing in corporate bonds and preferred stocks is to identify issues from companies which are enjoying material improvement in their financial condition. Ideally, we will invest in such issues before the bond rating agencies and other investors have recognized this improvement. One problem with this approach is that the issuing concerns sometimes experience more rapid improvement than we might prefer. The result is often an early bond call or a tender offer. In the second fiscal quarter a tender offer for one bond, a partial call of another, and a complete call of a third related to the unexpected takeover of the issuer caused your Fund's commitment to corporate fixed income investments to shrink. I am aggressively seeking replacement issues. I will not, however, compromise our standards because we have become "underweighted" in this area. In the fixed income market, yield spreads between issues of higher and lower quality move around over time. I perceive current spreads to be inadequate, reflecting considerable optimism about our nation's economy. I, too, believe that the economy is in fine shape, but I will not invest The Fund's assets based on that assumption. When we can again find issues that meet our standards of improving financial condition combined with attractive pricing, I will rebuild this segment of the portfolio. As always, I welcome your questions or comments. For all of you internet com- municators, please note my new address for e-mail. /s/ Clyde S. McGregor Clyde S. McGregor Portfolio Manager mcgregor@oakmark.com May 6, 1997 The Oakmark Balanced Fund 19 The Oakmark Balanced Fund Schedule of Investments--April 30, 1997 (Unaudited)
Shares Held Market Value - ------------------------------------------------------------------------------------ Equity and Equivalents--52.9% Food & Beverage--2.9% Philip Morris Companies Inc. 14,700 $ 578,813 Other Consumer Goods & Services--13.8% Borg-Warner Automotive, Inc. 15,000 $ 630,000 Juno Lighting, Incorporated 38,300 593,650 Armstrong World Industries, Inc. 8,900 585,175 National Presto Industries, Inc. 14,000 511,000 Promus Hotel Corporation (a) 13,400 472,350 ----------- 2,792,175 Banks--2.8% Mellon Bank Corporation 6,700 $ 556,938 Insurance--6.6% Old Republic International Corporation 25,500 $ 720,375 PartnerRe Ltd. 18,200 611,975 ----------- 1,332,350 Other Financial--6.0% First USA, Inc. 14,600 $ 702,625 Associates First Capital Corporation, Class A 10,000 512,500 ----------- 1,215,125 Broadcasting & Publishing--7.8% Tele-Communications, Liberty Media, Class A (a) 29,000 $ 545,562 Lee Enterprises, Inc. 21,400 526,975 Dun & Bradstreet Corporation 20,000 492,500 ----------- 1,565,037 Aerospace & Defense--2.4% McDonnell Douglas Corporation 8,000 $ 475,000 Other Industrial Goods & Services--3.8% Premark International, Inc. 31,500 $ 771,750 Commercial Real Estate--2.5% Catellus Development Corporation (a) 34,728 $ 512,238 Diversified Conglomerates--4.3% U.S. Industries, Inc. (a) 24,000 $ 867,000 Total Equity and Equivalents (Cost: $8,780,740) 10,666,426
See accompanying notes to financial statements. 20 The Oakmark Balanced Fund The Oakmark Balanced Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Shares Held/ Principal Value Market Value - ------------------------------------------------------------------------------------ Fixed Income--33.6% Preferred Stock--1.9% Broadcasting & Cable TV--1.9% Tele-Communications, Inc., Preferred Junior Class B, 6% 5,800 $ 382,800 Total Preferred Stock (Cost: $379,100) 382,800 Corporate Bonds--5.1% Other Consumer Goods & Services--1.1% Samsonite Corporation, 11.125% due 7/15/2005, Senior Subordinated Note Series B 200,000 $ 222,250 Aerospace & Automotive--0.8% Coltec Industries, Inc., 9.75% due 4/1/2000 150,000 $ 160,500 Building Materials & Construction--0.8% USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 150,000 $ 157,313 Utilities--0.8% Midland Funding Corporation, 11.75% due 7/23/2005 150,000 $ 162,562 Other Industrial Goods & Services--1.6% UCAR Global Enterprises Inc., 12.00% due 1/15/2005, Senior Subordinated Note 300,000 $ 336,750 Total Corporate Bonds (Cost: $1,030,811) 1,039,375 Government and Agency Securities--26.6% U.S. Government Bonds--25.1% United States Treasury Notes, 7.125% due 9/30/1999 2,400,000 $ 2,440,824 United States Treasury Notes, 7.50% due 5/15/2002 1,500,000 1,559,970 United States Treasury Notes, 7.875% due 11/15/2004 1,000,000 1,067,980 ----------- 5,068,774
See accompanying notes to financial statements. The Oakmark Balanced Fund 21 The Oakmark Balanced Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Principal Value Market Value - --------------------------------------------------------------------------------- Fixed Income--33.6% (cont.) U.S. Government Agencies--1.5% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond 300,000 $ 296,451 Total Government and Agency Securities (Cost: $5,346,469) 5,365,225 Total Fixed Income (Cost: $6,756,380) 6,787,400 Short Term Investments--14.2% Commercial Paper--10.7% Ford Motor Credit Corp., 5.41%-5.51% due 5/1-5/20/1997 800,000 $ 800,000 American Express Credit Corp., 5.45%-5.53% due 5/5-6/9/1997 550,000 550,000 General Electric Capital Corporation, 5.42%-5.65% due 5/1-6/13/1997 800,000 800,000 Total Commercial Paper (Cost: $2,150,000) 2,150,000 Repurchase Agreements--3.5% State Street Repurchase Agreement, 5.37% due 5/1/1997 711,000 $ 711,000 Total Repurchase Agreements (Cost: $711,000) 711,000 Total Short Term Investments (Cost: $2,861,000) 2,861,000 Total Investments (Cost $18,398,120)--100.7%(b) $20,314,826 Other liabilities in excess of other assets--(.7%) (150,541) ----------- Total Net Assets $20,164,285 ===========
- ---------------------- Notes: (a) Non-income producing security. (b) At April 30, 1997, net unrealized appreciation of $1,916,706 for federal income tax purposes consisted of gross unrealized appreciation of $2,080,600 and gross unrealized depreciation of $163,894. See accompanying notes to financial statements. 22 The Oakmark Balanced Fund The Oakmark International Fund Report from David G. Herro and Michael J. Welsh, Portfolio Managers [PHOTO APPEARS HERE] [PHOTO APPEARS HERE] The value of a $10,000 investment in The Oakmark International Fund from its inception (9/30/92) to present (4/30/97) as compared to the Morgan Stanley World ex U.S. Index
[GRAPH GOES HERE] OAKMARK M.S. WORLD INTERNATIONAL 8/91 $10,000 $10,000 - ---------------------------------------------------------------- 10/91 $12,100 $10,201 - ---------------------------------------------------------------- 1/92 $13,910 $10,719 - ---------------------------------------------------------------- 4/92 $14,660 $10,946 - ---------------------------------------------------------------- 7/92 $15,910 $11,279 - ---------------------------------------------------------------- 10/92 $17,110 $11,216 - ---------------------------------------------------------------- 1/94 $19,913 $11,857 - ---------------------------------------------------------------- 4/94 $24,855 $13,372 - ---------------------------------------------------------------- 7/94 $25,321 $12,896 - ---------------------------------------------------------------- 10/94 $26,653 $13,401 - ---------------------------------------------------------------- 1/95 $26,653 $13,444 - ---------------------------------------------------------------- 4/95 $28,869 $14,803 - ---------------------------------------------------------------- 7/95 $30,863 $16,263 - ---------------------------------------------------------------- 10/95 $32,397 $16,931 - ---------------------------------------------------------------- 1/96 $36,091 $17,213 - ---------------------------------------------------------------- 4/96 $36,823 $19,239 - ---------------------------------------------------------------- 7/96 $35,559 $18,933 - ---------------------------------------------------------------- 10/96 $38,252 $20,989 - ---------------------------------------------------------------- 1/97 $43,112 $23,512 - ---------------------------------------------------------------- 4/97 $44,197 $24,070 - ----------------------------------------------------------------
Average Annual Total Return* 4/30/97 NAV $17.05 Through 4/30/97 ---------------------------- Total Return From Inception Last 3 mos. 9/30/92 - ---------------------------------------------------------------------------------------- Oakmark International 6.2% 17.8% Morgan Stanley World ex U.S. w/inc** 2.2% 11.0% Morgan Stanley EAFE w/inc** 2.5% 10.8% Lipper Analytical International Fund Average** 2.8% 13.3%
*Total return includes change in share prices and in each case includes reinvestment of any dividends, interest and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Morgan Stanley World ex U.S. Index includes 19 country sub-indexes. The Morgan Stanley EAFE Free Index refers to Europe, Asia and the Far East and includes 18 country sub-indexes. The Lipper International Fund Average includes 106 mutual funds that invest in securities whose primary markets are outside the United States. Past performance is no guarantee of future results. Fellow shareholders: Your Fund continues to deliver significant results. Our second quarter return of 6.2% compares favorably to the Morgan Stanley EAFE index return of 2.5%. More importantly, your Fund has achieved an annualized return of 17.8% since inception. This compares to a 10.8% return for EAFE and a 13.3% return for the Lipper average of diversified international funds. We continue to find excellent long-term investment opportunities overseas and believe that the long-term prospects of international markets are extremely attractive. TO ANSWER A FEW QUESTIONS... On occasion we like to use this space to directly address recent commonly asked questions about the Fund. Q. What is the reason for the Fund's strong performance? A. We believe we have done well because of our disciplined approach to value investing. Discipline to us means doing thorough research, visiting countless companies, keeping composure in weak markets and buying stocks that are out of favor for short-term reasons. Q. Why not invest in Russia? A. Though Russia appears to offer value for long-term holders, at this time there is not the legal or regulatory framework in place to protect foreign investors. While the market's potential reward could be large, constantly changing laws and taxes, lax (non-existing) corporate governance procedures and the strong influence of organized crime stand in the way of realizing this reward. THE OAKMARK INTERNATIONAL FUND 23 Q. What will happen to Hong Kong after June 30th? A. One can only speculate as to what changes face Hong Kong as its sovereignty changes from British to PRC. However, confidence remains strong and long-term benefits will most likely overpower the short-term transitional strains. The real key is the strength of the Hong Kong people and their ability to adapt to change. They are excellent businesspeople for the most part and we feel they will be able to aptly respond to the change. At the same time, China is a huge investor in Hong Kong, so it is in China's own financial interest not to rock the boat. Finally, southern China, itself, has also been a capitalist hotbed of economic growth. There is a good possibility that, over time, the rest of China will become more like Hong Kong and the South than the reverse. Q. How do you come up with stock ideas? A. We spend the majority of our analytical time searching for companies that meet our value criteria. One recurring place we look for candidates is among companies hitting new lows or that have underperformed their respective stock markets. We also give extra attention to searching for ideas in markets that have been weak. If a company looks interesting from a quantitative standpoint, we then like to meet management and gather other qualitative information about the company. If, after all of this, we decide the company represents good value and is managed by people committed to building value, we will put the stock on our buy list. Q. Where are your favorite areas to invest? A. We don't have any favorite "areas." We base our investment selection only on companies. It does not matter to us where a company is located or in what industry it does business (although we require proper legal and regulatory protection, as mentioned above with Russia). We seek only companies that are inexpensively priced (the lowest price for the amount of cashflow generation) and that are managed by people who allocate the company's surplus capital in a way beneficial to owners. Q. Are you still hedging currency? What impact does the dollar's rise have on the Fund's performance? A. We are still partially hedged, but are slowly unwinding our currency hedges. Our policy has always been to use currency hedging defensively. We hedge only when we believe that a wide divergence between the U.S. dollar and the local currency presents an undue currency risk for the Fund in holding an equity position. With the recent appreciation of the dollar, most of this unsustainable divergence has been erased. There are two ways the dollar's rise impacts your Fund's performance--one short term and one long term. In the short run, as the dollar increases and foreign currencies fall, your Fund's net asset value drops to reflect this. However, if your Fund is partially hedged, some of this "loss" would be offset through the increased value of the hedges. In the longer term, foreign stocks usually do better in weak home currency environments as many compete against U.S. companies and many have U.S. dollar or dollar-linked revenues that become larger when translated back into their local currency. In the long term, we generally feel a strong dollar is a net positive for those who invest internationally. It is probably one of the reasons why both the European and Japanese stock markets appear to have awakened. Q. Still underweight in Japan...why? A. Remember that we invest in companies only if we see value and managers who care about shareholders' interests. Though we have found some companies in Japan that fit our criteria, it has been difficult to find them. The big problem is usually a lack of management commitment to building shareholder value. Things appear to be getting better in terms of greater shareholder orientation in Japan. Driven by deregulation in financial services and widening pension shortfalls, even domestic financial institutions are starting to put pressure on company managements to enhance returns. And surprisingly, a few dozen companies have started share buyback programs (we own one of them in Oakmark International, Amway Japan) as a way of returning surplus capital to the owners. Hopefully, this is the beginning of a trend which will result in victory for the much beleaguered shareholders of Japanese companies. That's it for now. Hope this answered some of the questions you had regarding The Oakmark International Fund. And, as always, you can e-mail us at the addresses listed below. /s/ David G. Herro David G. Herro Portfolio Manager 72242.772@compuserve.com /s/ Michael J. Welsh Michael J. Welsh Co-Portfolio Manager 102521.2142@compuserve.com 24 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND International Diversification--April 30, 1997 [PIE GRAPH GOES HERE] Europe Pacific Rim Latin America Other Countries % of Fund % of Fund Net Assets Net Assets - --------------------------------- ------------------------------ [_] Europe 46.3% [_] Pacific Rim 25.9% Great Britain 19.3% Hong Kong 8.1% Sweden 7.7% Australia 5.1% France 6.0% New Zealand 3.8% Switzerland 3.3% Indonesia 3.2% Spain 2.9% Japan 2.0% Portugal 2.8% Korea 1.8% Netherlands 2.2% Malaysia 1.6% Finland 1.3% Thailand 0.3% Germany 0.5% Taiwan 0.0% Italy 0.3% [_] Latin America 15.8% [_] Other Countries 3.6% Brazil 6.0% Israel 3.6% Argentina 5.1% Mexico 4.7% 25
THE OAKMARK INTERNATIONAL FUND Schedule of Investments--April 30, 1997 (Unaudited) Description Shares Held Market Value Common Stocks--91.6% Consumer Non-durables--4.8% Chargeurs International Wool Production Holding Company Sa (France), (a) (e) 569,169 $ 33,644,017 Yue Yuen Industrial Athletic Footwear Manufacturing Holdings (Hong Kong) 15,165,600 33,477,281 BYC Co. Ltd. (Korea) (e) Textile Manufacturer 31,230 3,781,211 ----------- 70,902,509 Food & Beverage--15.9% Guinness plc Distiller & Brewer (Great Britain) 7,745,000 $ 64,018,639 Nestle SA (Switzerland) Producer of Foods & Drinks 40,900 49,664,880 Lion Nathan Limited New Zealand Brewer (New Zealand) 18,073,200 43,475,913 Quilmes Industrial SA Brewer (Argentina) 2,902,300 32,288,087 Pernod Ricard (France) Manufactures Wines, Spirits, & Fruit Juices 495,937 25,482,996 Tate & Lyle PLC Sugar Producer & Distributor (Great Britain) 1,175,000 8,750,608 Lotte Confectionery Confectionary Manufacturer Company (Korea) 61,000 8,411,435 Lotte Chilsung Beverage Manufacturer of Soft Drinks, Company (Korea) Juices, & Sport Drinks 44,770 4,692,819 ----------- 236,785,377 Household Products--4.2% Reckitt & Colman plc Household Cleaners (Great Britain) & Air Fresheners 2,485,229 $ 33,733,862 Amway Japan Limited Marketing of Household Products (Japan) 888,900 27,100,823 Amway Japan Limited Marketing of Household Products ADR (Japan), (b) 149,400 2,259,675 ------------ 63,094,360 Retail--1.0% Giordano International East Asian Clothing Retailer Limited (Hong Kong) & Manufacturer 26,853,000 $ 14,559,169 Other Consumer Goods & Services--0.0% Heiwa Corp (Japan) Pachinko Machine Manufacturer 31,000 $ 410,289 Sankyo Company Ltd. (Japan) Pachinko Machine Manufacturer 16,900 390,097 ------------ 800,386 Telecommunications--12.6% Telefonos de Mexico SA, Telephone Company in Mexico (Mexico), (b) 1,415,100 $ 58,372,875 Bezeq (Israel) Telephone Company 13,629,271 34,563,662 Telefonica de Espana (Spain) Spanish Telecommunications 1,000,500 25,627,526
See accompanying notes to financial statements. 26 THE OAKMARK INTERNATIONAL FUND Schedule of Investments--April 30, 1997 (Unaudited) cont.
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------------------------------ Common Stocks--91.6% (cont.) Telecommunications--continued Technology Resources Telecommunications Industries Berhad (Malaysia) 12,770,000 $ 23,395,731 Asia Satellite Telecommunications Telecommunications Holdings Ltd. (Hong Kong), (a) 826,500 21,282,375 Telecomunicacoes Telecommunications Brasileiras S/A (Brazil) 173,100,000 18,636,530 Stet Societa' Finanziaria Telecommunications Telefonica S.p.A. (Italy) 1,100,000 5,200,695 --------------- 187,079,394 Transportation--4.0% AB Volvo (Sweden) Automobiles and Trucks 2,384,600 $ 60,035,247 Oil & Natural Gas--2.9% YPF Sociedad Anonima Oil Exploration, Production (Argentina), (b) and Marketing 1,556,200 $ 42,990,025 Banks--12.0% National Australia Bank Ltd. Largest Australian Bank (Australia) 3,380,651 $ 46,268,755 Banco Espirito Santo e Portuguese Bank Comercial de Lisboa SA (Portugal) 2,085,480 41,085,815 Uniao de Bancos Brasileiros Major Brazilian Bank SA (Brazil) 583,825,000 21,568,862 Compagnie Financiere de French Financial Services Group Paribas (France) 336,000 21,191,056 Svenska Handelsbanken, Large Swedish Bank Class A (Sweden) 684,650 18,851,505 Banco Popular Espanol Large Spanish Bank SA (Spain) 85,093 18,042,358 Grupo Financiero Bancomer, Large Mexican Financial Group S.A. de C.V. (GFB)-B (Mexico), (a) 26,635,000 9,317,977 Grupo Financiero Bancomer, Large Mexican Financial Group S.A. de C.V.- L (Mexico), (a) 6,129,630 1,835,842 --------------- 178,162,170 Other Financial--2.6% Sedgwick Group plc Insurance Broker, Financial Services 19,275,000 $ 39,049,838 (Great Britain) See accompanying notes to financial statements. THE OAKMARK INTERNATIONAL FUND 27
THE OAKMARK INTERNATIONAL FUND Schedule of Investments--April 30, 1997 (Unaudited) cont.
Description Shares Held Market Value - --------------------------------------------------------------------------------------------------------------------------------- Common Stocks--91.6% (cont.) Marketing Services--4.6% Cordiant plc (Great Britain), (a) (e) Global Advertising Agency 32,538,656 $ 68,557,946 Aerospace--3.6% Rolls-Royce plc (Great Britain) Jet Engines 6,966,479 $ 27,380,408 Hong Kong Aircraft Commercial Aircraft Overhaul Engineering Company Ltd. & Maintenance (Hong Kong) 9,122,600 26,379,170 ------------- 53,759,578 Chemicals--3.1% European Vinyls Corporation Western European PVC International N.V. Manufacturer (Netherlands) (e) 1,154,165 $ 33,055,693 Fernz Corporation Ltd. Agricultural & Industrial (New Zealand) Chemical Producer 3,973,000 13,358,094 ------------- 46,413,787 Components--1.4% Varitronix International Liquid Crystal Displays Limited (Hong Kong) (e) 14,977,000 $ 20,880,604 Forestry Products--3.2% Asia Pulp & Paper Paper & Packaging Products in Asia Company Ltd (Indonesia), (a) (b) 3,535,600 $ 47,288,650 Mining and Building Materials--3.0% Pioneer International Concrete Products, Aggregates (Australia) 8,870,923 $ 29,193,867 Keumkang Ltd. (Korea) Building Materials 240,980 10,698,215 Siam City Cement Public Cement Producer Company Limited, Foreign Shares (Thailand) 801,900 3,745,116 Siam City Cement Public Cement Producer Company Limited, Local Shares (Thailand) 204,700 956,011 ------------- 44,593,209 Other Industrial Goods & Services--5.5% Tomkins plc Industrial Management Company (Great Britain) 10,600,000 $ 45,784,441 Kone Corporation (Finland) Elevators 161,870 19,080,515 Legris Industries (France) Europe's Leading Crane Manufacturer 195,097 9,092,159 Buderus AG (Germany), (a) Industrial Manufacturing Firm 15,450 7,244,139 ------------- 81,201,254
See accompanying notes to financial statements. 28 THE OAKMARK INTERNATIONAL FUND The Oakmark International Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Shares Held/ Description Principal Value Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Common Stocks--91.6% (cont.) Steel--5.7% Usiminas (Brazil), (a) Steel Production 41,063,700,000 $ 48,650,928 Avesta Sheffield AB (Sweden) Stainless Steel 3,575,000 35,546,292 Tung-Ho Steel Enterprise Taiwanese Manufacturer of Corp. (Taiwan), (a) Steel Bars & H-Beams 34,000 451,918 -------------- 84,649,138 Diversified Conglomerates--1.5% Koor Industries Limited, Israeli Holding Company ADR (Israel), (a) (b) 1,058,600 $ 18,393,175 Lamex Holdings Ltd. Hong Kong's Largest Office (Hong Kong) (e) Furniture Supplier 14,040,000 3,670,174 Koor Industries Limited Israeli Holding Company (Israel), (a) 5,660 488,307 -------------- 22,551,656 Total Common Stocks (Cost: $1,219,970,092) 1,363,354,297 Short Term Investments--7.8% U.S. Government Bills--0.3% United States Treasury Bills, 5.47% due 10/16/1997 5,000,000 $ 4,872,367 Commercial Paper--6.7% American Express Credit Corp., 5.46-5.54% due 5/7-5/22/1997 25,000,000 $ 25,000,000 Ford Motor Credit Corp., 5.48- 5.55% due 5/12-6/13/1997 30,000,000 30,000,000 General Electric Capital Corporation, 5.49-5.65% due 5/1-6/20/1997 45,000,000 45,000,000 -------------- Total Commercial Paper 100,000,000
See accompanying notes to financial statements. THE OAKMARK INTERNATIONAL FUND 29 THE OAKMARK INTERNATIONAL FUND Schedule of Investments--April 30, 1997 (Unaudited) cont.
Principal Value Market Value - ----------------------------------------------------------------------------------------------------------------------------------- Short Term Investments--7.8% (cont.) Repurchase Agreements--0.8% State Street Repurchase Agreement, 5.37% due 5/1/1997 11,391,000 $ 11,391,000 Total Repurchase Agreements 11,391,000 Total Short-Term Investments (Cost: $116,263,367) 116,263,367 Total Investments (Cost $1,336,233,459)-99.4% (d) $1,479,617,664 Foreign Currencies (Cost $5,092,823)-.3% (d) 5,070,077 Other assets in excess of other liabilities-.3% 3,795,512 -------------- Total Net Assets--100% $1,488,483,253 ==============
- ----------------------------------------------------------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes portfolio and transaction hedges. (d) At April 30, 1997, net unrealized appreciation of $143,361,460 for federal income tax purposes consisted of gross unrealized appreciation of $201,449,089 and gross unrealized depreciation of $58,087,629. (e) See footnote number five to the financial statements regarding transactions in securities of affiliated issuers. See accompanying notes to financial statements. 30 THE OAKMARK INTERNATIONAL FUND The Oakmark Int'l Small Cap Fund Report from David G. Herro and Michael J. Welsh, Portfolio Managers [PHOTOS APPEAR HERE] The value of a $10,000 investment in The Oakmark International Small Cap Fund from its inception (11/1/95) to present (4/30/97) as compared to the Morgan Stanley World ex U.S. index [GRAPH APPEARS HERE]
The Oakmark International M.S. World ex Small Cap Fund $12,152 U.S. Index $11,310 ------------------------- ------------------ 10/95 $10,000 $10,000 1/96 10,530 10,747 4/96 11,340 11,331 7/96 11,040 10,858 10/96 11,410 11,120 1/97 12,142 11,062 4/97 12,152 11,310
4/30/97 NAV $11.70 Average Annual Total Return* Through 4/30/97 ---------------------------- Total Return From Inception Last 3 mos. 11/1/95 - ------------------------------------------------------------------------------------------------------ The Oakmark Int'l Small Cap Fund 0.1% 13.9% Morgan Stanley World ex U.S. w/inc** 2.2% 8.6% Lipper Analytical International Fund Average** 2.8% 14.5% Micropal Int'l Small Co Fund Index -0.1% 11.8%
* Total return includes change in share prices and in each case includes reinvestment of any dividends, interest and capital gain distributions. ** Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Morgan Stanley World ex U.S. Index includes 19 country sub-indexes. The Lipper International Fund Average includes 106 mutual funds that invest in securities whose primary markets are outside the United States. The Micropal Int'l Small Co Fund Index sector average is an unweighted index comprised of all funds within the International Small Company Fund sector. Past performance is no guarantee of future results. Fellow Shareholders: We are pleased to announce that Michael Welsh, co-portfolio manager of The Oakmark International Fund, has succeeded Adam Schor as the co-manager of this Fund. This coincides with Adam's leaving Harris Associates to pursue new opportunities. We want to thank Adam for his valuable contribution to The Oakmark Family of Funds. Since your Fund's inception, it has returned on an annualized basis 13.9%. This quarter, your Fund was up 0.1% as compared to 2.2% for the Morgan Stanley World ex U.S. and 2.8% for the Lipper Analytical International Fund Index. We're happy with the record of this Fund. But, this year, some shareholders have asked us why it is lagging The Oakmark International Fund. There is no one answer. Each Fund invests in different types of stocks. This Fund focuses on small companies while Oakmark International tends to buy medium and large-sized firms. Recently, larger international companies have performed better than the smaller names. This happens from time to time, and we don't get concerned about any short-term deviation in performance. The season is young and both Funds have good stocks. (We introduce a new one below.) As we have said before, our portfolio of small companies consists of well managed businesses at unbelievable prices. As more capital goes overseas and stock investing becomes more global, these values will not remain undiscovered. Small companies in general can be great opportunities. Being small makes THE OAKMARK INTERNATIONAL SMALL CAP FUND 31 growth easier. Sometimes it takes just one new contract for a small company to dramatically increase sales and profits. Small firms are often more flexible and so can act more quickly than their larger counterparts. They can be more innovative and nimble and can take advantage of niches. They can be more responsive to changing customer needs or market conditions. Sometimes the best industry for a small firm is one with a few large established players. These behemoths are often predictable, slow to react and too fixed in tradition to recognize a new competitor. We believe in the fundamentals of our firms and certainly the values. Over time, that's all that matters. We are confident that our portfolio of stocks will produce the returns they should. Let's look at a new addition to our portfolio. One of our largest positions is Enix, a major developer of game software in Japan. Enix offers everything we like to see before investing in a company. We often mention our difficulty in finding appropriate investment opportunities in Japan. Here's an exception and an example of how we focus on companies, not countries. Management runs the business well. Enix is one of Nintendo's most important software suppliers, giving Enix the chance for good profitability on titles. The company recently increased its revenue potential by developing software for Sony PlayStation, the game platform with the largest installed base in Japan. Enix's entertainment publishing business also provides high returns and diminishes somewhat the cyclical nature of the game software business. Management focuses on increasing the equity value of the firm. Enix's management spends money wisely and focuses on return on capital. Part of the reason for this focus is that company president and founder Yasuhiro Fukushima and his family own more than 60% of the firm. After Japanese regulations changed, Enix was one of the first companies to announce a buy back program. The underlying business is highly cash generative. Software development and publishing produce excellent free cash flow. The revenues of the game business are cyclical because of the delays between new game introductions, yet Enix's flexible cost structure (and its other publishing businesses) allows it to generate excess cash even in the tough years. Enix's stock is cheap. We calculate that we're paying less than five times normal operating profit and less than one times revenue for a high return business whose managers are on our side. A cheap price. Despite using some cash to buy back six percent of its shares, Enix still has one-third of its market capitalization as cash in the bank. /s/ David G. Herro David G. Herro Portfolio Manager 72242.772@compuserve.com /s/ Michael J. Welsh Michael J. Welsh Co-Portfolio Manager 102521.2142@compuserve.com 32 THE OAKMARK INTERNATIONAL SMALL CAP FUND The Oakmark Int'l Small Cap Fund International Diversification--April 30, 1997 [PIE CHART APPEARS HERE] Pacific Rim Europe Latin America Other Countries
% of Fund % of Fund Net Assets Net Assets - ---------------------------------- --------------------------------------- [_] Europe 31.7% [_] Pacific Rim 49.0% Great Britain 9.1% Hong Kong 11.7% Ireland 5.4% New Zealand 8.5% France 5.0% Indonesia 7.7% Germany 4.6% Australia 6.6% Netherlands 2.5% Japan 6.3% Italy 2.3% Korea 5.5% Spain 2.3% Singapore 1.2% Turkey 0.4% Philippines 1.2% Austria 0.1% Thailand 0.3% [_] Latin America 2.9% [_] Other Countries 7.5% Mexico 2.9% Israel 5.4% Canada 1.7% India 0.4%
The Oakmark International Small Cap Fund 33 The Oakmark Int'l Small Cap Fund Schedule of Investments--April 30, 1997 (Unaudited)
Description Shares Held Market Value - ----------------------------------------------------------------------------------------------------------------------------- Common Stocks--91.1% Consumer Non-Durables--5.3% PT Polysindo Eka Perkasa Integrated Textile Manufacturer (Indonesia) 2,652,000 $ 1,473,333 Designer Textiles (NZ) Limited Manufactures Knit Fabrics (New Zealand) (e) 2,835,000 1,277,470 Altinyildiz Mensucat ve Textile Manufacturer Konfeksiyon Fabrikalari A.S. (Turkey) 1,800,000 242,292 ----------- 2,993,095 Food & Beverage--8.9% Grupo Herdez S.A., Class B Manufacturer and Distributor (Mexico) of Bottled and Canned Food 4,024,000 $ 1,671,075 Taittinger (France) Producer of Wine & Spirits 4,533 1,596,821 DB Group Ltd. (New Zealand) Producer of Beer, Wine, & Liquor 483,750 754,550 Alaska Milk Corporation Milk Producer (Philippines), (a) 7,200,000 649,829 Chosun Brewery Company Korean Brewer (Korea) 14,410 379,636 ----------- 5,051,911 Household Products--7.1% Enix Corporation (Japan) Entertainment Software 115,100 $ 2,203,435 WMF (Germany) Tableware and Kitchenware 10,000 1,674,558 N. V. Koninklijke Sphinx Bathroom Products Gustavsberg (Netherlands), (a) 15,159 146,276 ----------- 4,024,269 Retail--0.6% Daimon (Japan) Liquor Retailer & Distributor 49,200 $ 354,654 Other Consumer Goods & Services--11.7% Vardon plc (Great Britain) Bingo Clubs 915,000 $ 1,853,728 Innovative International Auto Parts & Equipment Holdings (Hong Kong) 3,530,000 1,526,560 PT Steady Safe (Indonesia) Transportation 1,374,500 1,343,390 Fyffes plc (Ireland) Distributor of Fresh Fruit, Flowers and Produce in Europe 678,133 967,017 CeWe Color Holding AG Photo Equipment & Supplies (Germany) 4,100 944,624 ----------- 6,635,319 Telecommunications--2.5% Tadiran Ltd. (Israel), (a) Telecommunication Equipment 53,984 $ 1,421,570 Banks--1.9% Anglo Irish Bank Corporation Irish Bank plc (Ireland) 860,000 $ 1,071,450
See accompanying notes to financial statements. 34 The Oakmark International Small Cap Fund The Oakmark Int'l Small Cap Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Common Stocks--91.1% (cont.) Other Financial-6.1% JCG Holdings Ltd. Investment Holding Company (Hong Kong) 2,704,000 $ 2,164,178 Lambert Fenchurch Group plc Insurance Broker (Great Britain) 695,000 1,244,692 HIH Winterhur International Insurance and Reinsurance Broker Holdings Ltd. (Australia) 9,243 21,552 -------------- 3,430,422 Computer Systems-2.4% Solution 6 Holdings Ld. Design Computer Systems/ (Australia), (a) (e) Consultants 3,437,500 $ 1,340,365 Marketing Services-3.6% Cordiant plc, (Great Britain) (a) Global Advertising Agency 970,000 $ 2,043,760 Broadcasting & Publishing-4.7% Woong Jin Publishing Company Publisher (Korea) 23,736 $ 1,543,372 Moffat Communications Owner and Operator of Television Limited (Canada) Stations and Cable Systems 45,500 700,250 Zee Telefilms Ltd. (India) Broadcasting & TV 85,900 223,429 Matichon Public Company Newspaper Publisher Limited (Thailand) 70,400 194,040 -------------- 2,661,091 Chemicals-2.3% European Vinyls Corporation Western European PVC International N.V. Manufacturer (Netherlands) 44,600 $ 1,277,360 Components-5.9% Tower Semiconductor Ltd. Semiconductors (Israel), (a) (b) 132,300 $ 1,653,750 Barlo Group plc, (Ireland) Manufacturer of Radiators and Industrial Plastics 1,605,000 1,011,858 Pentex-Schweizer Circuits Ltd. Manufacturer and Marketer (Singapore) of Printed Circuit Boards 546,000 675,192 -------------- 3,340,800 Forestry Products-3.2% Asia Pulp & Paper Company Ltd. Paper & Packaging (Indonesia), (a) (b) Products in Asia 114,000 $ 1,524,750 Harmac Pacific, Inc. Pulp Producer (Canada), (a) 25,700 255,712 -------------- 1,780,462
See accompanying notes to financial statements. The Oakmark International Small Cap Fund 35 The Oakmark Int'l Small Cap Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------------------------------------ Common Stocks--91.1% (cont.) Machinery & Metal Processing-1.3% Steel & Tube Holdings Ltd. Produces and Distributes Steel (New Zealand) 150,500 $ 751,196 Mining And Building Materials-5.7% Uralita, SA (Spain) Manufacturers of Building Products and Chemicals 153,100 $ 1,272,299 Asia Cement Manufacturing Large Cement Manufacturer Company Ltd. (Korea) 36,150 1,175,280 Parbury Limited (Australia) Manufactures Building Products 1,327,032 755,466 -------------- 3,203,045 Other Industrial Goods & Services-13.4% Sanford Ltd. (New Zealand) Owns and Manages Fisheries 1,030,040 $ 2,035,088 Wattyl Limited, (Australia) Paint Company 349,091 1,619,817 Yip's Hang Cheung Ltd. Paint Company (Hong Kong) 12,614,000 1,612,065 Techtronic Industries Company Manufactures Electric Hand Tools (Hong Kong) 7,740,000 1,308,901 Fukuda Denshi (Japan) Medical Products Manufacturer and Distributor 52,000 991,373 VAE Eisenbahnsysteme AG Manufactures Rail-Related Products (Austria) 400 38,711 -------------- 7,605,955 Production Equipment-4.5% Danieli & Company (Italy) Steel Mini-Mills Equipment 360,300 $ 1,296,274 NSC Groupe (France) Manufacturer of Textile Equipment 9,830 1,242,961 -------------- 2,539,235 Total Common Stocks (Cost: $50,632,715) 51,525,959
See accompanying notes to financial statements. 36 The Oakmark International Small Cap Fund The Oakmark Int'l Small Cap Fund Schedule of Investments--April 30, 1997 (Unaudited) cont.
Principal Value Market Value - --------------------------------------------------------------------------------------------------- Short Term Investments--3.1% Commercial Paper--2.5% American Express Credit Corporation, 5.50-5.53% due 5/7/-6/9/1997 650,000 $ 650,000 Ford Motor Credit Corp., 5.46-5.55% due 5/12-6/6/1997 500,000 500,000 General Electric Capital Corporation, 5.45% due 5/5/1997 250,000 250,000 ---------- 1,400,000 Repurchase Agreements--0.6% State Street Repurchase Agreement, 5.37% due 5/1/1997 329,000 $ 329,000 Total Repurchase Agreements 329,000 Total Short Term Investments (Cost: $1,729,000) 1,729,000 Total Investments (Cost: $52,361,715)--94.2% (d) $53,254,959 Foreign Currencies (Proceeds: $297,574)--.5% (d) 296,653 Other assets in excess of other liabilities--5.3% 3,008,446 ----------- Total Net Assets--100% $56,560,058 ===========
- ---------------------------------------------- Notes: (a) Non-income producing security. (b) Represents an American Depositary Receipt. (c) Includes transaction hedges. (d) At April 30, 1997, net unrealized appreciation of $892,323 for federal income tax purposes consisted of gross unrealized appreciation of $5,191,641 and gross depreciation of $4,299,318. (e) See footnote number five to the financial statements regarding transactions in securities of affiliated issuers. See accompanying notes to financial statements. The Oakmark International Small Cap Fund 37 The Oakmark Family of Funds Statement of Assets and Liabilities--April 30,1997 (Unaudited)
The Oakmark The Oakmark Fund Select Fund - ---------------------------------------------------------------------------------------------------------------------------------- Assets Investments, at value $4,884,556,589 (cost:$3,665,076,314) $ 195,449,456 (cost: $198,750,947) Cash 2,361,753 875 Foreign currency, at value 477,899 (cost: $482,705) 0 Receivable for: Forward foreign currency contracts 0 0 Securities sold 8,647,936 0 Fund shares sold 16,327,079 3,020,893 Dividends and interest 8,133,924 105,907 Expense reimbursement 0 0 -------------- ------------- Total receivables 33,108,939 3,126,800 Other assets 0 37,440 -------------- ------------- Total assets $4,920,505,180 $ 198,614,571 ============== ============= Liabilities and Net Assets Payable for: Securities purchased 18,377,253 498,999 Fund shares redeemed 2,222,471 146,228 Due to adviser 3,728,789 167,061 Forward foreign currency contracts 0 0 Other 1,168,590 199,595 -------------- ------------- Total liabilities 25,497,103 1,011,883 -------------- ------------- Net assets applicable to fund shares outstanding $4,895,008,077 $ 197,602,688 ============== ============= Fund shares outstanding 139,781,152 16,135,055 ============== ============= Pricing of Shares Net asset value per share $ 35.02 $ 12.25 ============== ============= Analysis of Net Assets Paid in capital $3,499,224,395 $ 195,473,640 Accumulated undistributed net realized gain on sale of investments, forward contracts and foreign currency exchange transactions 156,941,679 5,633,992 Net unrealized appreciation/depreciation of investments 1,219,475,468 (3,301,491) Net unrealized appreciation of foreign currency portfolio hedges 0 0 Net unrealized appreciation--other 0 0 Accumulated undistributed net investment income (loss) 19,366,535 (203,453) -------------- ------------- Net assets applicable to Fund shares outstanding $4,895,008,077 $ 197,602,688 ============== =============
38 The Oakmark Family of Funds
The Oakmark The Oakmark The Oakmark Small Cap Balanced International Fund Fund Fund - ---------------------------------------------------------------------------------------------------------------------------- $622,021,050 (cost: $587,302,264) $20,314,826 (cost: $18,398,120) $1,479,617,664 (cost: $1,336,233,459) 863 390 154 0 0 5,070,077 (cost: $5,092,823) 0 0 13,349,190 17,424 0 7,135,027 8,075,394 75,950 10,923,306 361,542 139,364 7,414,915 0 6,100 0 - ------------ ----------- -------------- 8,454,360 221,414 38,822,438 5,103 5,103 3,688 - ------------ ----------- -------------- $630,481,376 $20,541,733 $1,523,514,021 ============ =========== ============== 6,219,520 325,068 31,620,184 465,065 1,481 771,488 656,983 12,833 1,172,172 0 0 124,591 299,409 38,066 1,342,333 - ------------ ----------- -------------- 7,640,977 377,448 35,030,768 - ------------ ----------- -------------- $622,840,399 $20,164,285 $1,488,483,253 ============ =========== ============== 41,063,312 1,658,346 87,278,812 ============ =========== ============== $ 15.17 $ 12.16 $ 17.05 ============ =========== ============== $570,738,711 $17,891,490 $1,224,972,152 18,268,189 132,261 60,388,114 34,718,786 1,916,705 143,361,460 0 0 13,291,009 0 0 (138,008) (885,287) 223,829 46,608,526 - ------------ ----------- -------------- $622,840,399 $20,164,285 $1,488,483,253 ============ =========== ============== The Oakmark Int'l Small Cap Fund - -------------------------------- $53,254,959 (cost: $52,361,715) 385 296,653 (cost: $297,574) 303 3,430,390 390,018 75,085 0 ----------- 3,895,796 5,103 ----------- $57,452,896 =========== 740,059 16,483 57,356 2,001 76,939 ----------- 892,838 ----------- $56,560,058 =========== 4,833,387 =========== $ 11.70 $53,685,530 1,992,796 892,323 0 (4,417) (6,174) ----------- $56,560,058 ===========
See accompanying notes to financial statements The Oakmark Family of Funds 39 The Oakmark Family of Funds Statement of Operations--April 30, 1997 (Unaudited)
The Oakmark The Oakmark Fund Select Fund - ------------------------------------------------------------------------------------ Investment Income: Dividends $ 38,786,131 $ 337,622 Interest Income 10,996,923 197,112 Securities lending income 0 4,001 Foreign taxes withheld (106,561) 0 ------------ ----------- Total investment income 49,676,493 538,735 Expenses: Investment advisory fee 21,119,623 447,345 Transfer and dividend disbursing agent fees 1,579,924 75,989 Reports to shareholders 391,379 5,504 Custodian and accounting fees 256,285 18,385 Registration and blue sky expenses 184,360 130,657 Legal fees 23,007 8,940 Audit fees 8,437 9,804 Trustees fees 53,513 9,702 Amortization of organization cost 0 354 Other 666,240 36,268 ------------ ----------- Total expenses 24,282,768 742,948 Expense offset arrangements (11,354) (760) Expense reimbursement 0 0 ------------ ----------- Net expenses 24,271,414 742,188 ------------ ----------- Net investment income (loss) 25,405,079 (203,453) Net realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain on investments 156,689,717 5,633,992 Net realized gain (loss) on foreign currency transactions 2,143 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 430,927,806 (3,301,491) Net change in appreciation of forward currency exchange contracts 0 0 Net change in appreciation (depreciation)--other 0 0 Net realized and unrealized gain on investments and foreign currency transactions 587,619,666 2,332,501 ------------ ----------- Net increase in net assets resulting from operations $613,024,745 $2,129,048 ============ ==========
40 The Oakmark Family of Funds
The Oakmark The Oakmark The Oakmark The Oakmark Small Cap Balanced International Int'l Small Cap Fund Fund Fund Fund - ----------------------------------------------------------------------- $ 1,620,777 $ 139,463 $ 20,403,305 $ 580,566 845,849 230,271 1,927,671 56,964 45,224 3,690 506,988 14,607 0 0 (1,859,189) (50,505) ----------- ---------- ------------ ---------- 2,511,850 373,424 20,978,775 601,632 2,509,799 61,548 6,324,716 300,539 205,210 26,328 485,088 45,134 39,537 1,688 158,074 7,177 51,046 20,265 736,644 67,556 169,329 21,358 59,888 24,017 7,805 4,879 8,454 4,941 8,194 8,937 12,394 11,373 16,286 12,403 23,147 12,871 722 722 4,706 722 122,795 2,363 284,263 9,685 ----------- ---------- ------------ ---------- 3,130,723 160,491 8,097,374 484,015 (9,785) (135) (3,479) (325) 0 (33,700) 0 0 ----------- ---------- ------------ ---------- 3,120,938 126,656 8,093,895 483,690 ----------- ---------- ------------ ---------- (609,088) 246,768 12,884,880 117,942 18,511,480 132,510 86,831,881 2,062,598 0 0 7,458,175 (44,245) 14,616,034 1,012,987 60,028,246 595,930 0 0 16,187,497 0 0 0 56,122 (2,629) 33,127,514 1,145,497 170,561,921 2,611,654 ----------- ---------- ------------ ---------- $32,518,426 $1,392,265 $183,446,801 $2,729,596 =========== ========== ============ ==========
See accompanying notes to financial statements. The Oakmark Family of Funds 41 THE OAKMARK FAMILY OF FUNDS Statement of Changes in Net Assets--April 30, 1997
The Oakmark Fund Period Ended Year Ended April 30, 1997 October 31, 1996 (Unaudited) - ---------------------------------------------------------------------------------------------------- From Operations: Net investment income $ 25,405,079 $ 41,568,343 Net realized gain on sale of investments 156,689,717 226,166,113 Net realized gain (loss) on foreign currency transactions 2,143 (12,777) Net change in unrealized appreciation 430,927,806 290,431,755 -------------- --------------- Net increase in net assets from operations 613,024,745 558,153,434 From distributions to shareholders: Net investment income (per share $.3441 in Fiscal Year 1997 and $.2841 in Fiscal Year 1996) (41,659,891) (29,455,748) Net realized short-term gain (per share $.1152 in Fiscal Year 1997 and $.042 in Fiscal Year 1996) (13,947,126) (4,354,309) Net realized long-term gain (per share $1.7514 in Fiscal Year 1997 and $.7987 in Fiscal Year 1996) (212,039,549) (82,805,333) -------------- --------------- Total distributions to shareholders (267,646,566) (116,615,390) From Fund share transactions: Proceeds from shares sold 902,938,915 1,810,842,079 Reinvestment of dividends and capital gains distributions 256,259,031 110,976,647 Payments for shares redeemed (543,503,708) (1,256,490,130) -------------- --------------- Net increase in net assets from Fund share transactions 615,694,238 665,328,596 -------------- --------------- Total increase in net assets 961,072,417 1,106,866,640 Net assets: Beginning of period 3,933,935,660 2,827,069,020 -------------- --------------- End of period (including undistributed net investment income of $19,366,535 for 1997 and $35,496,292 for 1996) $4,895,008,077 $ 3,933,935,660 ============== ===============
See accompanying notes to financial statements. 42 The Oakmark Family Of Funds
The Oakmark Select Fund Period Ended April 30, 1997 (Unaudited) - ------------------------------------------------------------------------- From Operations: Net investment income (loss) $ (203,453) Net realized gain on sale of investments 5,633,992 Net change in unrealized appreciation (3,301,491) ------------- Net increase in net assets from operations 2,129,048 From distributions to shareholders: Net investment income 0 Net realized short-term gain 0 Net realized long-term gain 0 ------------- Total distributions to shareholders 0 From Fund share transactions: Proceeds from shares sold 255,598,337 Reinvestment of dividends and capital gains distributions 0 Payments for shares redeemed (60,124,697) ------------- Net increase in net assets from Fund share transactions 195,473,640 ------------- Total increase in net assets 197,602,688 Net assets: Beginning of period 0 ------------- End of period (including undistributed net invest- ment loss of $203,453) $ 197,602,688 =============
See accompanying notes to financial statements. The Oakmark Family Of Funds 43 The Oakmark Family Of Funds Statement of Changes in Net Assets--April 30, 1997 (Continued)
The Oakmark Small Cap Fund Period Ended Year Ended April 30, 1997 October 31, 1996 (Unaudited) - ------------------------------------------------------------------------------------------------------ From Operations: Net investment loss $ (609,088) $ (276,200) Net realized gain (loss) on sale of investments 18,511,480 (243,291) Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation 14,616,034 20,102,753 ------------- ------------ Net increase in net assets from operations 32,518,426 19,583,262 From distributions to shareholders: Net investment income 0 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0 ------------- ------------ Total distributions to shareholders 0 0 From Fund share transactions: Proceeds from shares sold 568,723,911 224,762,208 Reinvestment of dividends and capital gains distributions 0 0 Payments for shares redeemed, net of fees (196,822,345) (25,925,063) ------------- ------------ Net increase in net assets from Fund share transactions 371,901,566 198,837,145 ------------- ------------ Total increase in net assets 404,419,992 218,420,407 Net assets: Beginning of period 218,420,407 0 ------------- ------------ End of period (including undistributed net invest- ment loss of $885,287 for 1997 and $276,200 for 1996) $ 622,840,399 $ 218,420,407 ============= =============
See accompanying notes to financial statements. 44 The Oakmark Family Of Funds
The Oakmark Balanced Fund Period Ended Year Ended April 30, 1997 October 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------- From Operations: Net investment income $ 246,768 $ 125,528 Net realized gain on sale of investments 132,510 161,939 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation 1,012,987 903,718 ----------- ---------- Net increase in net assets from operations 1,392,265 1,191,185 From distributions to shareholders: Net investment income (per share $.1202 in Fiscal Year 1997) (1,148,467) 0 Net realized short-term gain (per share $.1311 in Fiscal Year 1997) (162,188) 0 Net realized long-term gain 0 0 ----------- ---------- Total distributions to shareholders (310,655) 0 From Fund share transactions: Proceeds from shares sold 10,588,780 15,231,573 Reinvestment of dividends and capital gains distributions 288,062 0 Payments for shares redeemed, net of fees (5,593,093) (2,623,832) ----------- ---------- Net increase in net assets from Fund share transactions 5,283,749 12,607,741 ----------- ---------- Total increase in net assets 6,365,359 13,798,926 Net assets: Beginning of period 13,798,925 0 ----------- ---------- End of period (including undistributed net invest- ment income of $233,829 for 1997 and $125,528 for 1996) $20,164,285 $13,798,926 =========== ===========
See accompanying notes to financial statements. The Oakmark Family Of Funds 45 The Oakmark Family of Funds Statement of Changes in Net Assets--April 30, 1997 (continued)
The Oakmark International Fund Period Ended Year Ended April 30, 1997 October 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------- From Operations: Net investment income $ 12,884,880 $ 14,823,124 Net realized gain on sale of investments 86,831,881 2,806,950 Net realized gain (loss) on foreign currency transactions 7,458,175 (1,017,660) Net change in unrealized appreciation of investments 60,028,246 176,382,416 Net change in unrealized appreciation of forward currency exchange contracts 16,187,497 5,165,941 Net change in unrealized appreciation--other 56,122 (363,425) -------------- -------------- Net increase in net assets from operations 183,446,801 197,797,346 From distributions to shareholders: Net investment income (per share $1.1617 in Fiscal Year 1997) (12,477,926) 0 Net realized short-term gain (per share $.0000 in Fiscal Year 1997 and $.5020 in Fiscal Year 1996) 0 (29,886,815) Net realized long-term gain (per share $.0000 in Fiscal Year 1996 and $.5413 in Fiscal Year 1996) 0 (32,229,556) Total distributions to shareholders (12,477,926) (62,116,371) -------------- -------------- From Fund share transactions: Proceeds from shares sold 325,777,624 563,952,538 Reinvestment of dividends and capital gains distributions 11,889,126 57,852,161 Payments for shares redeemed (192,919,566) (404,450,022) -------------- -------------- Net increase in net assets from Fund share transactions 144,747,184 217,354,677 -------------- -------------- Total increase in net assets 315,716,059 $ 353,035,652 Net assets: Beginning of period $1,172,767,194 $ 819,731,542 -------------- -------------- End of period (including undistributed net investment income of $46,608,526 for 1997 and $46,201,571 for 1996) $1,488,483,253 $1,172,767,194 ============== ==============
See accompanying notes to financial statements. 46 The Oakmark Family Of Funds
The Oakmark International Small Cap Fund Period Ended Year Ended April 30, 1997 October 31, 1996 (Unaudited) - -------------------------------------------------------------------------------------------------------- From Operations: Net investment income $ 117,942 $ 155,101 Net realized gain on sale of investments 2,062,598 1,284,213 Net realized loss on foreign currency transactions (44,245) (35,656) Net change in unrealized appreciation of investments and foreign currencies 595,930 296,393 Net change in unrealized appreciation of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation) --other (2,629) (1,789) ----------- ------------ Net increase in net assets resulting from operations 2,729,596 1,709,263 From distributions to shareholders: Net investment income ($.08 in fiscal year ended 1997) (279,216) 0 Net realized short-term gain ($.36 in fiscal year ended 1997) (1,285,114) 0 Net realized long-term gain 0 0 ----------- ------------ Total distributions to shareholders (1,564,330) 0 From Fund share transactions: Proceeds from shares sold 27,618,561 43,181,467 Reinvestment of dividends 1,523,967 0 Payments for shares redeemed, net of fees (13,499,777) (5,138,689) ----------- ------------ Net increase in net assets from Fund share transactions 15,642,751 38,042,778 ----------- ------------ Total increase in net assets 16,808,017 39,752,041 Net assets: Beginning of period $ 39,752,041 $ 0 ============ ============ End of period (Including undistributed net investment income (loss) of ($6,174) in 1997 and $155,101 in 1996) $ 56,560,058 $ 39,752,041 ============ ============
See accompanying notes to financial statements. The Oakmark Family Of Funds 47 The Oakmark Family of Funds Notes to Financial Statements 1. Significant Accounting Policies The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Balanced Fund ("Balanced"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). The International Small Cap Fund was named The Oakmark International Emerging Value Fund prior to March 1, 1997. These accounting policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. Security valuation-- Investments are stated at current value. Securities traded on securities exchanges and securities traded on the NASDAQ National Market are valued at the last sales price on the day of valuation, or if lacking any reported sales that day, at the most recent bid quotation. Over-the-counter securities not so traded are valued at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the date of valuation are valued on an amortized cost basis which approximates market value. Securities for which quotations are not readily available are valued at a fair value as determined by the Trustees. Foreign currency translations-- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference 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 April 30, 1997, only the International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized depreciation--other includes the following components:
Int'l Small International Cap - ------------------------------------------------------------------------------- Unrealized depreciation on dividends and dividend reclaims receivable $(113,606) $ (2,387) Unrealized appreciation (depreciation) on open securities purchases and sales 29,307 (368) Unrealized depreciation on transaction hedge purchases and sales (66,410) (1,697) Other--net 12,701 35 --------- -------- Net Unrealized Depreciation--Other $(138,008) $ (4,417) - -------------------------------------------------------------------------------
Security transactions and investment income-- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. Forward foreign currency contracts-- At April 30, 1997, International and Int'l Small Cap had entered into forward foreign currency contracts under which it is obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in currency values. 48 The Oakmark Family of Funds The International Fund had the following outstanding contracts at April 30, 1997:
Portfolio Hedges: Unrealized Appreciation US Dollars Settlement (Depreciation) at Purchased Foreign Currency Sold Date April 30, 1997 - ---------------------------------------------------------------------------------------- $ 8,697,411 50,525,000 French Francs May 1997 $1,302,589 7,500,000 4,576,938 Pounds Sterling May 1997 82,802 15,030,417 9,217,157 Pounds Sterling May 1997 (30,417) 15,260,430 9,400,000 Pounds Sterling July 1997 48,868 20,673,886 12,738,854 Pounds Sterling September 1997 81,147 30,000,000 18,426,387 Pounds Sterling October 1997 224,360 20,000,000 12,383,901 Pounds Sterling November 1997 (8,338) 14,977,879 9,217,156 Pounds Sterling November 1997 85,965 10,000,000 65,855,000 Swedish Krona May 1997 1,602,577 11,718,088 78,810,000 Swedish Krona June 1997 1,657,959 29,355,683 198,987,500 Swedish Krona June 1997 3,937,165 16,436,840 113,595,000 Swedish Krona July 1997 1,910,627 12,604,294 18,490,500 Swiss Francs May 1997 2,395,705 ---------- 13,291,009 ========== Transaction Hedges: Foreign Currency Purchases Unrealized Appreciation US Dollars Settlement (Depreciation) at Sold Foreign Currency Purchased Date April 30, 1997 - --------------------------------------------------------------------------------------- $ 1,184,042 6,841,393 French Francs May 1997 $ (11,868) 813,375 4,727,741 French Francs May 1997 (3,345) 724,986 4,217,603 French Francs May 1997 (2,360) 4,062,526 2,497,864 Pounds Sterling May 1997 (14,124) 1,878,783 1,156,744 Pounds Sterling May 1997 (3,996) 1,849,012 1,138,414 Pounds Sterling May 1997 (3,933) 1,182,142 76,980 Pounds Sterling May 1997 (3,893) 1,120,039 688,788 Pounds Sterling May 1997 (3,688) 756,578 463,220 Pounds Sterling May 1997 (5,815) 941,206 579,025 Pounds Sterling May 1997 (2,753) 342,315 2,651,568 Hong Kong Dollar May 1997 (22) 5,222,875 8,932,422,400 Italian Lira May 1997 (5,872) 872,135 109,522,720 Japanese Yen May 1997 (9,310) 401,729 50,939,296 Japanese Yen May 1997 (427) 386,138 48,962,244 Japanese Yen May 1997 (411) 488,013 1,218,569 Malaysian Ringgit May 1997 (2,682) 753,868 1,885,046 Malaysian Ringgit May 1997 (3,093) 528,360 1,324,915 Malaysian Ringgit May 1997 (673) 792,556 1,988,918 Malaysian Ringgit May 1997 (410) 634,754 914,630 New Zealand Dollar May 1997 (694) 32,733 47,275 New Zealand Dollar May 1997 40 1,046,884 1,505,874 New Zealand Dollar May 1997 (2,950) 1,939,700 2,792,945 New Zealand Dollar May 1997 (3,517) ---------- $ (85,796) ==========
THE OAKMARK FAMILY OF FUNDS 49 Notes to Financial Statements (continued) - --------------------------------------------------------------------------------
Foreign Currency Sales Unrealized US Dollars Settlement Appreciation at Purchased Foreign Currency Sold Date April 30, 1997 -------------------------------------------------------------------------- $3,089,068 1,899,328 Pounds Sterling May 1997 $ 10,740 4,065,346 2,502,984 Pounds Sterling May 1997 8,646 ---------- $ 19,386 ==========
The Int'l Small Cap Fund had the following outstanding transaction hedges on purchases of securities:
Foreign Currency Purchases Unrealized US Dollars Settlement (Depreciation) at Sold Foreign Currency Purchased Date April 30, 1997 ---------------------------------------------------------------------------- $ 59,970 76,659 Australian Dollars May 1997 (189) 78,589 457,738 French Francs May 1997 (162) 355,344 218,519 Pounds Sterling May 1997 (1,170) 28,663 3,628,820 Japanese Yen May 1997 (75) 140,781 19,032,186,344 Turkish Lira May 1997 (405) ------- $(2,001) ======= Foreign Currency Sales Unrealized US Dollars Settlement Appreciation at Purchased Foreign Currency Sold Date April 30, 1997 ---------------------------------------------------------------------------- $120,662 234,494 Netherlands Guilders May 1997 303
At April 30, 1997, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. Federal income taxes, dividends and distributions to shareholders -- No provision is made for Federal income taxes since the Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. 2. Transactions with affiliates Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows: Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets and .85% on the excess of $5 billion of net assets. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets and .90% on the excess of $5 billion of net assets as determined at the end of each calendar month. Select pays 1% of net assets, Small Cap pays 1.25% of net assets, Balanced pays .75% of net assets and Int'l Small Cap pays 1.25% of net assets. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. Effective March 1, 1997, the Adviser has agreed to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% of total net assets for domestic funds and 2% for international funds. For the six months ended April 30, 1997, the Adviser has waived $33,700 of expenses for Balanced. In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International, approximately $7,283 each to Small Cap, Balanced and Int'l Small Cap, and $3,500 to Select by the Adviser. These expenses are being amortized on a straight line basis through September, 1997 for International, October, 2000 for Small Cap, Balanced and Int'l Small Cap, and October, 2001 for Select. Oakmark has fully amortized all organization expenses. Registration expenses of approximately $62,282, $56,751, $56,811 and $56,726 were advanced to Select, Small Cap, Balanced and Int'l Small Cap, respectively, by the Adviser. Registration expenses have been fully amortized for all funds except Select. 50 THE OAKMARK FAMILY OF FUNDS During the six months ended April 30, 1997, the Funds incurred brokerage commissions of $1,495,863, $408,573, $884,336, $10,489, $2,658,116 and $143,426 of which $489,509, $247,921, $262,533, $7,009, $732, and $732 were paid by Oakmark, Select, Small Cap, Balanced, International and Int'l Small Cap, respectively, to an affiliate of the Adviser. 3. Fund share transactions Proceeds and payments on Fund shares as shown in the statement of changes in net assets are in respect to the following number of shares (in thousands):
Period Ended April 30, 1997 ------------------------------------------------------------- Int'l Small Small Oakmark Select Cap Balanced Int'l Cap - -------------------------------------------------------------------------------------------- Shares sold 26,406 21,077 37,457 882 19,961 2,379 Shares issued in reinvestment of dividends 7,958 0 0 25 792 135 Less shares redeemed (16,035) (4,942) (12,948) (471) (12,081) (1,163) -------- -------- -------- ----- -------- ------- Net increase in shares outstanding 18,329 16,135 24,509 436 8,672 1,351 ======== ======== ======== ===== ======== =======
Year Ended October 31, 1996 --------------------------------------------------- Int'l Small Small Oakmark Cap Balanced Int'l Cap - ----------------------------------------------------------------------------------- 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 ======== ======= ===== ======= =====
4. Investment transactions Transactions in investment securities (excluding short term securities) were as follows (in thousands):
Int'l Small Small Oakmark Select Cap Balanced Int'l Cap - --------------------------------------------------------------------------------------------- Purchases $496,048 $232,982 $442,515 $ 10,976 $477,537 $26,409 Proceeds from sales 574,417 50,286 102,144 7,953 374,109 15,840 - ---------------------------------------------------------------------------------------------
The market values (in thousands) of securities on loan to broker-dealers at April 30, 1997 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. The Oakmark Fund does not lend securities.
Int'l Small Small Select Cap Balanced Int'l Cap - ------------------------------------------------------------------------------------------ Market Value of Securities Loaned $28,825 $66,833 $1,792 $263,182 $3,822 Collateral (Cash and U.S. Treasuries) 29,842 70,331 1,834 276,078 4,008 - ------------------------------------------------------------------------------------------
5. Transactions in Securities of Affiliated Issuers Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of a Fund's transactions in the securities of these issuers during the six months ended April 30, 1997 is set forth below: Summary of Transactions with Affiliated Companies The Oakmark Fund
Purchase Sales Dividend Market Affiliates Cost Cost Income Value - -------------------------------------------------------------------------------------- AMBAC Inc. $ -- $ -- $ 724,317 $ 142,119,775 ACNielsen Corporation 53,012,045 -- -- 71,460,000 The Black & Decker Corporation 99,457,501 -- 1,327,104 232,731,200 Carson Pirie Scott & Co. -- -- -- 29,750,000 First USA, Inc. -- -- 851,520 341,495,000 GC Companies, Inc. -- 3,470,984 -- 15,929,625 Polaroid 47,422,336 -- 1,084,380 197,026,400 SPX Corporation 2,541,875 -- 184,830 52,871,538 - -------------------------------------------------------------------------------------- TOTALS $202,433,757 $3,470,984 $4,172,151 $1,083,383,538 - -------------------------------------------------------------------------------------- The Oakmark Family of Funds 51
Notes to Financial Statements (continued) ------------------------------------------------------------------ Summary of Transactions with Affiliated Companies The Oakmark Small Cap Fund
Purchase Sales Dividend Market Affiliates Cost Cost Income Value - ---------------------------------------------------------------------------- Binks Manufacturing $ 8,186,731 $ -- $ $ 8,368,750 Castle & Cooke, Inc. 15,253,217 82,277 -- 15,468,750 The Carbide/Graphite Group 11,684,094 1,338,080 -- 18,100,000 Chartwell Re Corporation 8,318,229 1,612,626 27,000 12,750,000 Duff & Phelps Credit Rating Company 1,118,438 -- 16,005 7,753,900 Gardner Denver Machinery Incorporated 8,679,193 -- -- 19,337,500 Granite Broadcasting Corporation 1,364,703 -- -- 5,516,250 Highlands Insurance Group, Inc. 14,137,406 1,631,001 -- 15,862,500 NVR, Inc. 9,822,312 1,323,089 -- 8,925,000 Northwest Pipe Company 4,900,750 -- -- 8,000,000 Pocahontas Federal Savings & Loan Association -- -- 60,900 2,485,000 Scotsman Industries, Inc. 17,455,659 234,367 18,298 16,883,550 SPX Corporation 22,712,788 5,209,409 123,500 46,108,963 Titan Exploration, Inc. 22,836,175 -- -- 14,673,000 - ---------------------------------------------------------------------------- TOTALS $146,469,695 $11,430,849 $245,703 $200,233,162 - ----------------------------------------------------------------------------
Summary of Transactions with Affiliated Companies The Oakmark International Fund
Purchase Sales Dividend Market Affiliates Cost Cost Income Value - ------------------------------------------------------------------------- BYC Company $ -- $ -- $ 21,901 $ 3,781,211 Chargeurs Inter- national Sa 11,479,091 -- -- 33,644,017 Cordiant plc 6,518,121 4,256,573 -- 68,557,946 EVC International NV 5,066,737 -- 946,695 33,055,693 Lamex Holdings Limited -- -- 157,892 3,670,174 Varitronix Inter- national Holdings Limited 12,550,909 -- -- 20,880,604 - ------------------------------------------------------------------------- TOTALS $35,614,858 $4,256,573 $1,126,488 $163,589,645 - -------------------------------------------------------------------------
Summary of Transactions with Affiliated Companies The Oakmark International Small Cap Fund
Purchase Sales Dividend Market Affiliates Cost Cost Income Value - -------------------------------------------------------------------------- Designer Texiltes (NZ) Limited $ 1,705,701 $ -- $ -- $1,277,470 Solution 6 Holdings Limited 1,569,845 $ -- -- 1,340,365 - -------------------------------------------------------------------------- TOTALS $ 3,275,546 $ -- $ -- $2,617,835 - --------------------------------------------------------------------------
52 The Oakmark Familty of Funds The Oakmark Fund Financial Highlights For a share outstanding throughout each period
Period Ended Year Ended Period Ended April 30, 1997 1996 1995 1994 1993 1992 Oct. 31, 1991(a) - ------------------------------------------------------------------------------------------------------------------------------------ (Unaudited) Net Asset Value, Beginning of Period $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.19 0.34 0.30 0.27 0.17 (0.03) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 4.65 4.70 4.66 1.76 7.15 5.04 2.11 -------- -------- -------- -------- -------- ------ ------ Total From Investment Operations: 4.84 5.04 4.96 2.03 7.32 5.01 2.10 -------- -------- -------- -------- -------- ------ ------ Less Distributions: Dividends (from net investment income) (0.34) (0.28) (0.23) (0.23) (0.04) -- -- Distributions (from capital gains) (1.87) (0.84) (1.47) (0.77) (0.21) -- -- -------- -------- -------- -------- -------- ------ ------ Total Distributions (2.21) (1.12) (1.70) (1.00) (0.25) -- -- Net Asset Value, End of Period $ 35.02 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $17.11 $12.10 ======== ======== ======== ======== ======== ====== ====== Total Return 15.54% 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%(d) Ratios/Supplemental Data: Net Assets, End of Period ($million) $4,895.0 $3,933.9 $2,827.1 $1,677.3 $1,107.0 $114.7 $4.8 Ratio of Expenses to Average Net Assets (d) 1.10% 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b) Ratio of Net Income (Loss) to Average Net Assets (d) 1.15% 1.13% 1.27% 1.19% 0.94% (0.24%) (0.66%)(c) Portfolio Turnover Rate 14.4% 23.7% 18.0% 29.3% 18.0% 34.0% 0.0% Average Commission Rate Paid $ 0.0524 $ 0.0530
- ----------------------------------------------------------- (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) Data has been annualized. THE OAKMARK FAMILY OF FUNDS 53 The Oakmark Select Fund Financial Highlights
For a share outstanding throughout the period Period Ended April 30, 1997 - ----------------------------------------------------------------- (Unaudited) Net Asset Value, Beginning of Period $10.00 Income From Investment Operations: Net Investment Income (Loss) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 2.26 ------ Total From Investment Operations: 2.25 ------ Less Distributions: Dividends (from net investments income) 0.00 Distributions (from capital gains) 0.00 ------ Total Distributions 0.00 Net Asset Value, End of Period $12.25 ====== Total Return 22.50% Ratios/Supplemental Data: Net Assets, End of Period ($million) $197.60 Ratio of Expenses to Average net Assets (a) 1.22% Ratio of Net Income (Loss) to Average Net Assets (a) -0.33% Portfolio Turnover Rate 42.62% Average Commission Rate Paid $0.0567
- -------------------------------- (a) Ratios have been annualized. 54 THE OAKMARK FAMILY OF FUNDS The Oakmark Small Cap Fund Financial Highlights For a share outstanding throughout each period
Period Ended Year Ended April 30, 1997 Oct. 31, 1996 ------------------------------------------------------------------------ (Unaudited) Net Asset Value, Beginning $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.00) (0.02) Net Gains or Losses on Securities (both realized and unrealized) 1.98 3.21 ------- ------- Total From Investment Operations: 1.98 3.19 Less Distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) 0.00 0.00 ------- ------- Total Distributions 0.00 0.00 Net Asset Value, End of Period $ 15.17 $ 13.19 ======= ======= Total Return 15.01% 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 622.8 $ 218.4 Ratio of Expenses to Average Net Assets (a) 1.45% 1.61% Ratio of Net Income (Loss) to Average Net Assets (a) (.25%) (.29%) Portfolio Turnover Rate 25.06% 23.15% Average Commission Rate Paid $0.0480 $0.0520
- ---------------- (a) Ratios have been annualized. The Oakmark Family of Funds 55 The Oakmark Balanced Fund Financial Highlights For a share outstanding throughout each period
Period Ended Year Ended April 30, 1997 Oct. 31, 1996 ------------------------------------------------------------------------- (Unaudited) Net Asset Value, Beginning of Period $ 11.29 $ 10.00 Income From Investment Operations: Net Investment Income 0.15 0.10 Net Gains or Losses on Securities (both realized and unrealized) 0.97 1.19 ------- ------- Total From Investment Operations: 1.12 1.29 Less Distributions: Dividends (from net investment income) (0.12) 0.00 Distributions (from capital gains) (0.13) 0.00 ------- ------- Total Distributions (0.25) 0.00 Net Asset Value, End of Period $ 12.16 $ 11.29 ======= ======= Total Return 10.09% 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 20.16 $ 13.8 Ratio of Expenses to Average Net Assets (a) 1.50% 2.50% Ratio of Net Income to Average Net Assets (a) 2.91% 1.21% Portfolio Turnover Rate 51.21% 66.35% Average Commission Rate Paid $0.0589 $0.0581
- ---------------- (a) If the fund paid all of its expenses and there had been no expense reimbursement by the investment adviser, for the period ended April 30, 1997 and the year ended October 31, 1996, the ratios of expenses to average net assets would have been 1.89% and 2.64% respectively, and the ratios of net income to average net assets would have been 2.52% and 1.08% respectively. 56 The Oakmark Family of Funds The Oakmark International Fund Financial Highlights For a share outstanding throughout each period
Year Ended October 31, Period Ended -------------------------------------------------------------- April 30, 1997 1996 1995 1994 1993 1992(a) - --------------------------------------------------------------------------------------------------------------------------------- (Unaudited) Net Asset Value, Beginning of Period $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00 Income From Investment Operations: Net Investment Income 0.11 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) 2.18 2.90 (0.77) 0.43 4.48 (0.46) -------- -------- ------- -------- -------- -------- Total From Investment Operations: 2.29 2.99 (0.47) 0.64 4.54 (0.2) Less Distributions: Dividends (from net investment income) (0.16) 0.00 0.00 (.08) (.25) -- Distributions (from capital gains) 0.00 (1.04) (1.06) (0.15) -- -- -------- -------- ------- -------- -------- -------- Total Distributions (0.16) (1.04) (1.06) (0.23) (.25) -- -------- -------- ------- -------- -------- -------- Net Asset Value, End of Period $ 17.05 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 ======== ======== ======= ======== ======== ======== Total Return 15.51% 24.90% (3.06%) 4.62% 47.49% (22.81%) Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,488.5 $1,172.8 $819.7 $1,286.0 $ 815.4 $ 23.5 Ratio of Expenses to Average Net Assets (b) 1.25% 1.32% 1.40% 1.37% 1.26% 2.04 Ratio of Net Income to Average Net Assets (b) 1.99% 1.45% 1.40% 1.44% 1.55% 37.02% Portfolio Turnover Rate 31% 42% 26% 55% 21% 0 Average Commission Rate Paid $ 0.0031 $ 0.0158 - ---------------------------------------------------------------------------------------------------------------------------------- (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. (b) Ratios have been annualized. The Oakmark Family of Funds 57
The Oakmark Int'l Small Cap Fund Financial Highlights For a share outstanding throughout each period
Period Ended Year Ended April 30, 1997 Oct. 31, 1996 - ------------------------------------------------------------------------------ (Unaudited) Net Asset Value, Beginning of Period $ 11.41 $ 10.00 Income From Investment Operations: Net Investment Income 0.03 0.04 Net Gains or Losses on Securities (both realized and unrealized) 0.70 1.37 ------- ------- Total From Investment Operations: 0.73 1.41 Less Distributions: Dividends (from net investment income) (0.08) 0.00 Distributions (from capital gains) (0.36) 0.00 ------- ------- Total Distributions (0.44) 0.00 Net Asset Value, End of Period $ 11.70 $ 11.41 ======= ======= Total Return 6.51% 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 56.56 $ 39.8 Ratio of Expenses to Average Net Assets 1.96% 2.50% (a) Ratio of Net Income to Average Net Assets 0.48% 0.65% (a) Portfolio Turnover Rate 33.70% 27.44% Average Commission Rate Paid $0.0039 $0.0036 - ---------------------------------------------
(a) If the fund paid all of its expenses and there had been no expense reimbursement by the investment adviser, for the year ended October 31, 1996, the ratio of expenses to average net assets would have been 2.65% and the ratio of net income to average net assets would have been .50%. 58 The Oakmark Family of Funds [Logo of Oakmark Family of Funds] The Oakmark Family of Funds 59 [Logo of Oakmark Family of Funds] 60 The Oakmark Family of Funds The Oakmark Family Of Funds Trustees and Officers Trustees Michael J. Friduss Thomas H. Hayden Christine M. Maki Victor A. Morgenstern Allan J. Reich Marv Rotter Burton W. Ruder Peter S. Voss Gary Wilner, M.D. Officers Victor A. Morgenstern--President Robert J. Sanborn--Executive Vice President David G. Herro--Vice President Clyde S. McGregor--Vice President William C. Nygren--Vice President Steven J. Reid--Vice President Michael J. Welsh--Assistant Vice President Donald Terao--Treasurer Anita M. Nagler--Secretary Ann W. Regan--Vice President-- Shareholder Operations and Assistant Secretary Kristi L. Rowsell--Assistant Treasurer Other Information Transfer Agent State Street Bank and Trust Company Attention: The Oakmark Family of Funds P.O. Box 8510 Boston, Massachusetts 02266-8510 Investment Adviser Harris Associates L.P. Legal Counsel Bell, Boyd & Lloyd Chicago, Illinois Independent Public Accountants Arthur Andersen LLP Chicago, Illinois Address of Funds and Adviser Two North LaSalle Street, Suite 500 Chicago, Illinois 60602 1-800-OAKMARK (1-800-625-6275) 24-hour NAV hotline 1-800-GROWOAK (1-800-476-9625) Web site www.oakmark.com This report, including the unaudited financial statements contained herein, is submitted for the general information of the shareholders of the Funds. The report is not authorized for distribution to prospective investors in the Funds unless it is accompanied or preceded by a currently effective prospectus of the Funds. No sales charge to the shareholder or to the new investor is made in offering the shares of the Funds. [Logo of Oakmark Family of Funds] HARRIS ASSOCIATES L.P. 2 NORTH LASALLE STREET CHICAGO, IL 60602-3790 -----END PRIVACY-ENHANCED MESSAGE-----