-----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, HHN4K3x3CHlQlZu6jiitP5hquwh7TjfNS1MBZBwsDLSp43Zyz+o0cN+KdIlzO4Id Ti+g6idNBLKZXxktlM7n0w== 0000950131-98-000293.txt : 19980126 0000950131-98-000293.hdr.sgml : 19980126 ACCESSION NUMBER: 0000950131-98-000293 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19980123 EFFECTIVENESS DATE: 19980123 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: 485BPOS SEC ACT: SEC FILE NUMBER: 033-38953 FILM NUMBER: 98511848 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-06279 FILM NUMBER: 98511849 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO N LASALLE ST STE 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 485BPOS 1 POST-EFFECTIVE AMENDMENT NO. 20 As filed with the Securities and Exchange Commission on January 23, 1998 Securities Act registration no. 33-38953 Investment Company Act file no. 811-06279 ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A ________________________________________________________________________________ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Post-Effective Amendment No. 20 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 22 [X] ________________________________________________________________________________ HARRIS ASSOCIATES INVESTMENT TRUST (Registrant) Two North La Salle Street, Suite 500 Chicago, Illinois 60602-3790 Telephone number 312/621-0600 ________________________________________________________________________________ Victor A. Morgenstern Cameron S. Avery Harris Associates L.P. Bell, Boyd & Lloyd Two North La Salle Street, #500 70 West Madison Street, #3300 Chicago, Illinois 60602 Chicago, Illinois 60602 (Agents for service) ________________________________________________________________________________ Amending Parts A, B and C and filing Exhibits ________________________________________________________________________________ It is proposed that this filing will become effective: ------ immediately upon filing pursuant to rule 485(b) X on January 25, 1998 pursuant to rule 485(b) ------ ------ 60 days after filing pursuant to rule 485(a)(1) ------ on _____________ pursuant to rule 485(a)(1) by acceleration ------ 75 days after filing pursuant to rule 485(a)(2) ------ on _____________ pursuant to rule 485(a)(2) ________________________________________________________________________________ HARRIS ASSOCIATES INVESTMENT TRUST Cross-reference sheet pursuant to rule 495(a) of Regulation C
Item Location or caption* - ---- -------------------- Part A (Prospectus) ------------------- 1 (a) & (b) Front Cover 2 (a) Expenses (b) & (c) Summary 3 (a) Financial Highlights (b) Not Applicable (c) Performance Information (d) Financial Highlights 4 (a)(i) The Funds; Other Information (a)(ii) & (b) The Funds (c) The Funds 5 (a) Management of the Funds (b) Management of the Funds; Inside Back Cover; Expenses (c) Management of the Funds (d) Not applicable (e) Inside Back Cover (f) Expenses (g) Management of the Funds 5 (a) Not applicable (the specified information is included in registrant's annual reports to shareholders) 6 (a) Other Information (b) Not Applicable (c)-(e) Other Information (f) Distributions (g) Taxes 7 Purchasing and Redeeming Shares - How to Purchase Shares; Purchasing and Redeeming Shares - Shareholder Services (a) Not Applicable (b) Purchasing and Redeeming Shares - How to Purchase Shares; Purchasing and Redeeming Shares - Net Asset Value (c) Not Applicable (d) Front cover; Purchasing and Redeeming Shares - How to Purchase Shares (e) & (f) Not Applicable 8 (a)-(d) Purchasing and Redeeming Shares - How to Redeem Shares 9 Not Applicable
- -------------------------- * References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. i
Item Location or caption* - ---- -------------------------------------------- Part B (Statement of Additional Information) -------------------------------------------- 10 (a) & (b) Front Cover 11 Table of Contents 12 Not Applicable 13 (a) The Funds; How the Funds Invest (c) Investment Restrictions (d) Not applicable 14 (a) & (b) Part A - Management of the Funds (c) Not Applicable 15 (a) Not Applicable (b) Principal Shareholders (c) Trustees and Officers 16 (a) & (b) Part A - Management of the Funds; Part B - Investment Adviser; Trustees and Officers (c) Not Applicable (d) Custodian (e)-(g) Not Applicable (h) Custodian; Independent Public Accountants (i) Not Applicable 17 (a)-(d) Portfolio Transactions (e) Not Applicable 18 (a) & (b) Not Applicable 19 (a)-(c) Purchasing and Redeeming Shares 20 Additional Tax Information; Taxation of Foreign Shareholders 21 (a)-(c) Not Applicable 22 (a) Not Applicable (b) Performance Information 23 Financial Statements
- ------------------- *References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. ii
Item Location or caption* - ---- -------------------------------------------- Part c (Other Information) -------------------------------------------- 24 Financial statements and exhibits 25 Persons controlled by or under common control with registrant 26 Number of holders of securities 27 Indemnification 28 Business and other connections of investment adviser 29 Principal underwriters 30 Location of accounts and records 31 Management services 32 Undertakings
- ------------------- *References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. iii PROSPECTUS January 25, 1998 THE OAKMARK FUND THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND Formerly 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 1998 Prospectus --------------------------------------------------------------------------- Highlights.............................................. 2 Shareholder Transaction Expenses...................... 3 Annual Fund Operating Expenses........................ 4 Financial Highlights.................................. 5 The Funds............................................... 10 How the Funds Invest.................................. 10 Investment Techniques................................. 14 Risk Factors.......................................... 17 Restrictions on the Funds' Investments................ 20 Purchasing and Redeeming Shares......................... 21 How to Purchase Shares................................ 21 How to Redeem Shares.................................. 23 Shareholder Services.................................. 27 Net Asset Value....................................... 28 Distributions........................................... 28 Taxes................................................... 29 Management of the Funds................................. 29 Trustees and Officers................................... 32 Performance Information................................. 34 Other Information....................................... 35
[LOGO OF OAKMARK FAMILY OF FUNDS] For More Information Access our website at www.oakmark.com or call 1-800-OAKMARK (1-800-625-6275). Website and 24-Hour Net Asset Value Hotline Access our website at www.oakmark.com to obtain the current net asset value per share of a Fund, or call 1-800-GROWOAK (1-800-476-9625). The Oakmark family of funds January 25, 1998 - --------------------------------------------------------------------------------
Fund/Ticker Symbol Investment Objective - -------------------------------------------------------------------------------- THE OAKMARK FUND Long-Term Capital Appreciation OAKMX The Fund invests primarily in U.S. equity securities. - -------------------------------------------------------------------------------- THE OAKMARK Long-Term Capital Appreciation SELECT FUND The Fund invests primarily in a non-diversified OAKLX portfolio of U.S. equity securities. - -------------------------------------------------------------------------------- THE OAKMARK Long-Term Capital Appreciation SMALL CAP FUND The Fund invests primarily in U.S. equity OAKSX securities of companies with small market (generally closed to capitalizations. new investors) - -------------------------------------------------------------------------------- THE OAKMARK High Current Income and Preservation EQUITY AND and Growth of Capital. The Fund invests INCOME FUND primarily in a diversified portfolio of U.S. (formerly named The Oakmark equity and fixed-income securities. Balanced Fund) OAKBX - -------------------------------------------------------------------------------- THE OAKMARK Long-Term Capital Appreciation INTERNATIONAL FUND The Fund invests primarily in equity OAKIX securities of non-U.S. issuers. - -------------------------------------------------------------------------------- THE OAKMARK Long-Term Capital Appreciation INTERNATIONAL The Fund invests primarily in equity SMALL CAP FUND securities of non-U.S. issuers with small OAKEX market capitalizations. - --------------------------------------------------------------------------------
NO LOAD, NO SALES CHARGE, NO 12b-1 FEES Minimum Initial Investment--$1,000, or $500 for Educational IRA Minimum Subsequent Investments--$100 (see "Purchasing and Redeeming Shares -- How to Purchase Shares") Each "Fund" is a series of Harris Associates Investment Trust. The Funds may invest to a limited extent in high-yield, high-risk bonds and in other securities that entail certain risks. See "The Funds -- Risk Factors." This prospectus contains information you should know before investing. Please retain it for future reference. A Statement of Additional Information regarding the Funds dated the date of this prospectus has been filed with the Securities and Exchange Commission and (together with any supplement to it) is incorporated by reference. That Statement may be obtained at no charge by writing or telephoning the transfer agent at its address or telephone number shown inside the back cover. The Statement, material incorporated by reference and other information regarding registrants that file electronically with the Commission is available at website http://www.sec.gov. These securities have not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Prospectus 1 HIGHLIGHTS Harris Associates Investment Trust (the "Trust") provides investors an opportunity to pool their money to achieve economies of scale and diversification, and to take advantage of the professional investment expertise of Harris Associates L.P. (the "Adviser"). The Trust currently issues shares in six series (collectively, the "Funds" and generally, a "Fund"). Each series has distinct investment objectives and policies, and a shareholder's interest is limited to the series in which he or she owns shares. The six series are: The Oakmark Fund ("Oakmark Fund"), The Oakmark Select Fund ("Select Fund"), The Oakmark Small Cap Fund ("Small Cap Fund"), The Oakmark Equity and Income Fund, formerly named The Oakmark Balanced Fund ("Equity and Income Fund"), The Oakmark International Fund ("International Fund") and The Oakmark International Small Cap Fund ("International Small Cap Fund"). Each is a "no-load" fund, and there are no sales or 12b-1 charges. The Trust is designed for long-term investors, including those who wish to use shares of one or more series as a funding vehicle for tax-deferred plans (including tax-qualified retirement plans and Individual Retirement Account (IRA) plans and Educational IRAs), and not for investors who intend to liquidate their investments after a short period of time. Only Equity and Income Fund is intended to present a balanced investment program between growth and income. The chief consideration in selecting equity securities for each Fund's portfolio is the size of the discount of market price relative to the economic value of the security as determined by the Adviser. The Trust's investment philosophy is predicated on the belief that over time market price and value converge and that investment in securities priced significantly below long-term value presents the best opportunity to achieve long-term capital appreciation. Oakmark Fund seeks long-term capital appreciation by investing primarily in U.S. equity securities. Select Fund seeks long-term capital appreciation by investing primarily in a non-diversified portfolio of U.S. equity securities. Small Cap Fund* seeks long-term capital appreciation by investing primarily in U.S. equity securities of companies with small market capitalizations. Equity and Income Fund seeks high current income and preservation and growth of capital by investing primarily in a diversified portfolio of U.S. equity and fixed-income securities. International Fund seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers. International Small Cap Fund seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers with small market capitalizations. - ----------------- *The Oakmark Small Cap Fund is closed to new investors except for purchases by eligible investors as described below under "Purchasing and Redeeming Shares-- How to Purchase Shares." 2 THE OAKMARK FAMILY OF FUNDS Risks The Funds are intended for long-term investors who can accept fluctuations in value and other risks associated with seeking the investment objectives of the respective Funds through investments in the types of securities in which the Funds may invest. You should understand and consider carefully the risks involved in a Fund before investing in that Fund. See "Risk Factors" for a more detailed discussion. Purchases The minimum initial investment for each Fund is $1,000 (or $500 in the case of an Educational IRA); each additional investment must be at least $100. Shares may be purchased by check, by wire transfer, by electronic transfer or by exchange. See "Purchasing and Redeeming Shares --How to Purchase Shares." Redemptions For information on redeeming Fund shares, see "Purchasing and Redeeming Shares-- How to Redeem Shares." Net Asset Value The purchase and redemption price of a Fund's shares is the net asset value per share. The net asset value is determined as of the close of regular session trading on the New York Stock Exchange. See "Net Asset Value." Adviser Harris Associates L.P. (the "Adviser") provides management and investment advisory services to the Funds. See "Management of the Funds." SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------ Commission to purchase shares (sales load) None - ------------------------------------------------------------ Commission to reinvest dividends None - ------------------------------------------------------------ Deferred sales load None - ------------------------------------------------------------ Redemption fee* None - ------------------------------------------------------------ Fee to exchange shares None - ------------------------------------------------------------
- ------------------ *If you request payment of redemption proceeds by wire transfer, you must pay the cost of the wire transfer (currently $5). PROSPECTUS 3 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) The following table is intended to help you understand the costs and expenses that an investor in the Funds may bear directly or indirectly. For a more complete explanation of the fees and expenses borne by the Funds, see the discussions under the prospectus headings "Purchasing and Redeeming Shares--How to Purchase Shares" and "Management of the Funds," as well as the Statement of Additional Information incorporated by reference into this prospectus.
Equity and Int'l Oakmark Select Small Cap Income Int'l Small Cap Fund Fund Fund Fund Fund Fund - --------------------------------------------------------------------------------------- Investment management fees (a) .93% .80% 1.15% .71% .99% 1.23% - --------------------------------------------------------------------------------------- 12b-1 fees None None None None None None - --------------------------------------------------------------------------------------- Other expenses (after reimbursement of certain expenses) .15 .32 .22 .79(a) .27 .70 - --------------------------------------------------------------------------------------- Total Fund operating expenses (after reimbursement of certain expenses) 1.08% 1.12% 1.37% 1.50%(a) 1.26% 1.93% - ---------------------------------------------------------------------------------------
(a) In the case of Equity and Income Fund, the percentages shown have been computed giving effect to the Adviser's agreement to limit the Fund's ordinary operating expenses. See "Management of the Funds." Absent that limitation, the "Other Expenses" and "Total Fund Operating Expenses" of Equity and Income Fund would be .99% and 1.70%, respectively. The following example illustrates the expenses that you would pay on a $1,000 investment in each Fund over various time periods assuming (1) a 5% annual rate of return, (2) the operating expense percentages listed in the table above remain the same through each of the periods, (3) reinvestment of all dividends and capital gain distributions, and (4) redemption at the end of each time period.
1 year 3 years 5 years 10 years - ------------------------------------------------------------------ Oakmark Fund $11 $34 $ 59 $131 - ------------------------------------------------------------------ Select Fund 11 35 61 135 - ------------------------------------------------------------------ Small Cap Fund 14 43 75 165 - ------------------------------------------------------------------ Equity and Income Fund 15 47 82 179 - ------------------------------------------------------------------ International Fund 13 40 69 152 - ------------------------------------------------------------------ International Small Cap Fund 20 61 104 225 - ------------------------------------------------------------------
This example should not be considered a representation of past or future expenses or performance. Actual expenses may be greater or less than those shown. 4 The Oakmark Family of Funds FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The tables below for Oakmark Fund, Select Fund, Small Cap Fund, Equity and Income Fund, International Fund and International Small Cap Fund reflect the results of the operations for a share outstanding throughout the periods shown and have been audited by Arthur Andersen LLP, independent public accountants. These tables should be read in conjunction with the Fund's financial statements and notes thereto, which may be obtained from the Trust upon request without charge.
Oakmark Fund Eleven Months Ended Year Ended October 31, September 30, ==================================================================== 1997 1996 1995 1994 1993 1992 1991(a) ======================================================================================================================== 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) 0.36 .34 .30 .27 .17 (.03) (.01) - ------------------------------------------------------------------------------------------------------------------------ Net gains or losses on securities (both realized and unrealized) 10.67 4.70 4.66 1.76 7.15 5.04 2.11 - ------------------------------------------------------------------------------------------------------------------------ Total from investment operations 11.03 5.04 4.96 2.03 7.32 5.01 2.10 Less distributions: Dividends (from net investment income) (0.34) (.28) (.23) (.23) (.04) -- -- - ------------------------------------------------------------------------------------------------------------------------ Distributions (from capital gains) (1.87) (.84) (1.47) (.77) (.21) -- -- - ------------------------------------------------------------------------------------------------------------------------ Total distributions (2.21) (1.12) (1.70) (1.00) (.25) -- -- - ------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $41.21 $32.39 $28.47 $25.21 $24.18 $17.11 $12.10 - ------------------------------------------------------------------------------------------------------------------------ Total return 39.24%* 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%* - ------------------------------------------------------------------------------------------------------------------------
Prospectus 5
Oakmark Fund con't Eleven Months Ended Year Ended October 31, September 30, ========================================================================== 1997 1996 1995 1994 1993 1992 1991(a) ============================================================================================================================== Ratios/supplemental data: Net assets, end of period ($ million) $6,614.9 $3,933.9 $2,827.1 $1,677.3 $1,107.0 $114.7 $4.8 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets 1.08%* 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)* - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net income (loss) to average net assets 1.19%* 1.13% 1.27% 1.19% .94% (.24)% (.66%)(b)* - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 17% 24% 18% 29% 18% 34% 0% - ------------------------------------------------------------------------------------------------------------------------------ Average brokerage commission paid per share $ 0.0537 $ .0530 N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------
- ------------------------ * Data has been annualized. (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, the annualized ratio of expenses to average net assets would have been 4.92% and the annualized ratio of net income (loss) to average net assets would have been (3.08%). 6 THE OAKMARK FAMILY OF FUNDS
SELECT SMALL CAP EQUITY AND INCOME(a) ======== ====================== ====================== Eleven Eleven Eleven Months Months Year Months Year Ended Ended Ended Ended Ended Sept. 30, Sept. 30, Oct. 31, Sept. 30, Oct. 31, 1997 1997 1996 1997 1996 =========================================================================================================== Net Asset Value, beginning of period $ 10.00 $ 13.19 $ 10.00 $11.29 $10.00 - ----------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.01) (0.01) (0.02) 0.21 0.10 - ----------------------------------------------------------------------------------------------------------- Net gains or losses on securities (both realized and unrealized) 6.35 7.16 3.21 3.24 1.19 --------- --------- -------- ------- -------- Total from investment operations 6.34 7.15 3.19 3.45 1.29 - ----------------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------------- Dividends (from net investment income) 0.00 0.00 0.00 (0.12) 0.00 - ----------------------------------------------------------------------------------------------------------- Distributions (from capital gains) 0.00 0.00 0.00 (0.13) 0.00 --------- --------- -------- ------- -------- Total distributions 0.00 0.00 0.00 (0.25) 0.00 --------- --------- -------- ------- -------- Net asset value, end of period $ 16.34 $ 20.34 $ 13.19 $14.49 $11.29 --------- --------- -------- ------- -------- Total return 69.16%* 59.14%* 31.94% 34.01%* 12.91% - ----------------------------------------------------------------------------------------------------------- Ratios/supplemental data: Net assets, end of period ($ million) $ 514.17 $1,513.4 $ 218.4 $ 33.46 $ 13.8 - ----------------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets 1.12%* 1.37%* 1.61% 1.50%* 2.50% - ----------------------------------------------------------------------------------------------------------- Ratio of net income (loss) to average net assets (0.11%)*** (0.25%)* (0.29%) 2.38%* 1.21% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 37% 27% 23% 53% 66% - ----------------------------------------------------------------------------------------------------------- Average brokerage commission paid per share $ .0573 $ 0.0482 $0.0520 $ 0.0554 $ 0.0581 - ----------------------------------------------------------------------------------------------------------- - ---------------------------- * Data has been annualized.
(a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, for the period ended September 30, 1997 and the year ended October 31, 1996, the ratios of expenses to average net assets would have been 1.70%* and 2.64% respectively, and the ratios of net income to average net assets would have been 2.18%* and 1.08% respectively.
For the Funds named below, bank borrowing activity for the eleven months ended September 30, 1997 was as follows: Average Maximum Debt Amount Debt Weighted Outstanding Outstanding Outstanding Average During During at End Interest Period Period of Period Rate (in thousands) (in thousands) ======================================================================================================================== Select Fund $0 6.217% $126 10,000 Small Cap Fund $0 6.318% $198 19,000 Equity and Income Fund $0 6.125% $ 6 1,000
Prospectus 7 INTERNATIONAl FUND
Eleven Months Ended Year Ended October 31, September 30, --------------------------------------------------------------- 1997 1996 1995 1994 1993 1992(a) - --------------------------------------------------------------------------------------------------------------------- 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 0.27 .09 .30 .21 .06 .26 - --------------------------------------------------------------------------------------------------------------------- Net gains or losses on securities (both realized and unrealized) 3.74 2.90 (.77) .43 4.48 (.46) ---- ---- ----- --- ---- ----- Total from investment operations 4.01 2.99 (.47) .64 4.54 (.20) - --------------------------------------------------------------------------------------------------------------------- Less distributions: - --------------------------------------------------------------------------------------------------------------------- Dividends (from net investment income) (0.16) .00 -- (.08) (.25) -- ------ ------ ------ ------ ------ ----- Distributions (from capital gains) (0.00) (1.04) (1.06) (.15) -- -- ------ ------ ------ ------ ------ ----- Total distributions (0.16) (1.04) (1.06) (.23) (.25) -- ------ ------ ------ ------ ------ ----- Net asset value, end of period $18.77 $14.92 $12.97 $14.50 $14.09 $9.80 ------ ------ ------ ------ ------ ----- Total return 29.63%* 24.90% (3.06)% 4.62% 47.49% (22.81)%* - --------------------------------------------------------------------------------------------------------------------- Ratios/supplemental data: Net assets, end of period ($ million) $1,647.3 $1,172.8 $819.7 $1,286.0 $815.4 $23.5 - --------------------------------------------------------------------------------------------------------------------- Ratio of expenses 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%* - --------------------------------------------------------------------------------------------------------------------- Ratio of net income (loss) to average net assets 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%* - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 61% 42% 26% 55% 21% 0% - --------------------------------------------------------------------------------------------------------------------- Average brokerage commission paid per share $0.0052 $.0158 n/a n/a n/a n/a - --------------------------------------------------------------------------------------------------------------------- - -------------------------------------------
*Data has been annualized. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. 8 THE OAKMARK FAMILY OF FUNDS International Small Cap Fund
Eleven Months Ended Year Ended September 30, October 31, 1997 1996 - ----------------------------------------------------------------------------------- Net asset value, beginning of period $11.41 $10.00 Income from investment operations: Net investment income 0.13 .04 Net gains or losses on securities (both realized and unrealized) 1.10 1.37 Total from Investment operations 1.23 1.41 Less distributions: Dividends (from net investment income) (0.08) .00 Distributions (from capital gains) (0.36) .00 Total distributions (0.44) .00 Net asset value, end of period $12.20 $11.41 Total return 12.07%* 14.15% Ratios/supplemental data: Net assets, end of period ($ million) $65.97 $39.8 Ratio of expenses to average net assets 1.93%* 2.50%(a) Ratio of net income (loss) to average net assets 1.23%* .65%(a) Portfolio turnover rate 63% 27% Average brokerage commission paid per share $0.0025 $.0036
- -------------------------------- *Data has been annualized. (a) If the Fund had paid all of its expenses and there had been no reimbursement by the investment adviser, 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%. Prospectus 9 THE FUNDS The mutual funds offered by this prospectus are Oakmark Fund, Select Fund, Small Cap Fund, Equity and Income Fund, International Fund and International Small Cap Fund. Each of the Funds is a no-load "mutual fund" and, except for Select Fund, is a diversified Fund. No Fund imposes any commission or charge when shares are purchased, nor bears any 12b-1 charges. The Funds are series of Harris Associates Investment Trust (the "Trust"), which is authorized to issue shares in separate series. Each series is a separate portfolio of securities and other assets, with its own investment objective and policies. Harris Associates L.P. (the "Adviser") provides investment advisory and administrative services to the Funds. How the Funds Invest The chief consideration in the selection of equity securities for each Fund is the size of the discount of market price relative to the economic value, or underlying value, of the security as determined by the Adviser. The economic or underlying value of a security generally represents the per share net present value of the issuer's estimated long-term cash flows. The Funds may also employ the techniques described below under "Investment Techniques." Oakmark Fund seeks long-term capital appreciation by investing primarily in equity securities. Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. The Fund invests principally in securities of U.S. issuers. However, it may invest up to 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors-International Investing" below. Select Fund seeks long-term capital appreciation by investing primarily in a non-diversified portfolio of equity securities. The Fund invests principally in securities of U.S. issuers. However, it may invest up to 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors- International Investing" below. As a "non-diversified" fund, the Fund is not limited under the Investment Company Act of 1940 in the percentage of its assets that it may invest in any one issuer. See "Risk Factors-Non-diversification of Select Fund." 10 The Oakmark Family of Funds Small Cap Fund seeks long-term capital appreciation by investing primarily in equity securities. Under normal market conditions, the Fund invests at least 65% of its total assets, valued at the time of investment, in "small cap companies," as defined below under "How the Funds Invest--Small Cap Companies." Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. The Fund invests principally in securities of U.S. issuers. However, it may invest up to 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors-- International Investing" below. At December 31, 1997 the median market capitalization of the Fund's portfolio was $648.8 million. See "How the Funds Invest--Median Market Capitalization" below. Equity and Income Fund seeks high current income and preservation and growth of capital by investing in a diversified portfolio of equity and fixed-income securities. The Fund is intended to present a balanced investment program between growth and income. It generally invests approximately 50--65% of its total assets in equity securities, including securities convertible into equity securities, 25--50% of its assets in U.S. Government securities and debt securities rated at time of purchase within the two highest grades assigned by Moody's Investors Service, Inc. ("Moody's") (Aaa or Aa) or by Standard & Poor's Corporation ("S&P") (AAA or AA), and up to 20% in unrated or lower rated debt securities (measured at market value at the time of investment). The Fund invests principally in securities of U.S. issuers. However, it may invest up to 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. The Fund has no geographic limits on its foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors--International Investing" below. International Fund seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers. Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. The Adviser considers the relative political and economic stability of the issuer's home country, the ownership structure of the company, and the company's accounting practices in evaluating the potential rewards and risks of an investment opportunity. The Fund may invest Prospectus 11 in securities traded in mature markets (for example, Japan, Canada and the United Kingdom), in less developed markets (for example, Mexico and Thailand), and in selected emerging markets (such as Peru and India). Investments in securities of non-U.S. issuers, especially those traded in less developed or emerging markets, present additional risk. There are no limits on the Fund's geographic asset distribution, but, to provide adequate diversification, the Fund ordinarily invests in the securities markets of at least five countries outside the United States. See "Risk Factors--International Investing" below. Some foreign governments have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The Adviser believes that privatizations may offer opportunities for significant capital appreciation, and intends to invest assets of the Fund in privatizations in appropriate circumstances. In certain of those markets, the ability of foreign entities such as the Fund to participate in privatizations may be limited by local law and/or the terms on which the Fund may be permitted to participate may be less advantageous than those afforded local investors. There can be no assurance that governments will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. The equity securities in which the Fund may invest include common and preferred stocks and warrants or other similar rights and convertible securities. The Fund may purchase securities of non-U.S. issuers directly or in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), or other securities representing underlying shares of non-U.S. issuers. Under normal market conditions, the Fund invests at least 65% of its total assets, valued at the time of investment, in securities of non- U.S. issuers. International Small Cap Fund (formerly named The Oakmark International Emerging Value Fund) seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers with small market capitalizations. Under normal market conditions, the Fund invests at least 65% of its total assets, valued at the time of investment, in "small cap companies," as defined below under "Small Cap Companies." Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. The Adviser considers the relative political and economic stability of the issuer's home country, the ownership structure of the company, and the company's accounting practices in evaluating the potential rewards and risks of an investment opportunity. The Fund invests in securities traded in both developed and emerging markets. Investments in securities of non-U.S. issuers, especially those traded in less developed or emerging markets, present additional risks. There are no limits on the Fund's geographic asset distribution, but, to provide ade- 12 The Oakmark Family of Funds quate diversification, the Fund ordinarily invests in the securities markets of at least five countries outside the United States. See "Risk Factors- International Investing" below. Some foreign governments have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The Adviser believes that privatizations may offer opportunities for significant capital appreciation, and intends to invest assets of the Fund in privatizations in appropriate circumstances. In certain of those markets, the ability of foreign entities such as the Fund to participate in privatizations may be limited by local law and/or the terms on which the Fund may be permitted to participate may be less advantageous than those afforded local investors. There can be no assurance that governments will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. The equity securities in which the Fund may invest include common and preferred stocks and warrants or other similar rights and convertible securities. The Fund may purchase securities of non-U.S. issuers directly or in the form of ADRs, EDRs, GDRs, or other securities representing underlying shares of non-U.S. issuers. At December 31, 1997 the median market capitalization of the Fund's portfolio was $145.2 million. See "How the Funds Invest--Median Market Capitalization" below. Other Strategies. Under normal market conditions, each Fund expects to be substantially fully invested in the types of securities described in the preceding paragraphs. Within the limitations described in this prospectus, the percentages of Fund assets invested in various types of securities will vary in accordance with the judgment of the Adviser. To the extent that investments meeting a Fund's criteria for investment are not available, or when the Adviser considers a temporary defensive posture advisable, the Fund may invest without limitation in high-quality corporate debt obligations of U.S. companies or U.S. government obligations, or may hold cash in domestic or foreign currencies or invest in domestic or foreign money market securities. In seeking to achieve its investment objective, each Fund ordinarily invests on a long-term basis, but on occasion may also invest on a short-term basis (for example, where short-term perceptions have created a significant gap between price and value). Occasionally, securities purchased on a long-term basis may be sold within 12 months after purchase in light of a change in the circumstances of a particular company or industry or in general market or economic conditions. Small Cap Companies. As used in this prospectus a "small cap company" is one whose market capitalization is no larger than the largest market capitalization of the companies included in the S&P Small Cap 600 Index (the "S&P Index") as most recently reported. The market capitalization of a company is the total Prospectus 13 market value of its outstanding common stock. The S&P Index is a broad index of 600 small capitalization companies. As of December 31, 1997 the largest market capitalization of companies included in the S&P Index was $2.93 billion. Median Market Capitalization. The "median market capitalization" of the portfolio of Small Cap Fund or of International Small Cap Fund stated above is a measure of the size of the companies in which the Fund invests. One-half of the Fund's equity investments as of the stated date were in securities of companies with market capitalizations at or below the stated median market capitalization of the Fund's portfolio. Investment Techniques Equity Securities. The equity securities in which each Fund may invest include common and preferred stocks and warrants or other similar rights and convertible securities. The chief consideration in the selection of equity securities for each Fund is the size of the discount of market price relative to the economic value of the security as determined by the Adviser. The Adviser's investment philosophy for those investments is predicated on the belief that over time market price and value converge and that investment in securities priced significantly below long-term value presents the best opportunity to achieve long-term capital appreciation. The Adviser uses several qualitative and quantitative methods in analyzing economic value, but considers the primary determinant of value to be the enterprise's long-run ability to generate cash for its owners. Once the Adviser has determined that a security is undervalued, the Adviser will consider it for purchase by a Fund, taking into account the quality and motivation of the management, the firm's market position within its industry and its degree of pricing power. The Adviser believes that the risks of equity investing are often reduced if management's interests are strongly aligned with the interests of its stockholders. Debt Securities. Each Fund may invest in debt securities of both governmental and corporate issuers. Each of Oakmark Fund, Select Fund and Small Cap Fund may invest up to 25% of its assets, Equity and Income Fund may invest up to 20% of its assets, and International Fund and International Small Cap Fund may invest up to 10% of its assets (valued at the time of investment), in debt securities that are rated below investment grade, without a minimum rating requirement. Lower-grade debt securities (commonly called "junk bonds") are obligations of issuers rated BB or lower by S&P or Ba or lower by Moody's. Lower-grade debt securities are considered speculative and may be in poor standing or actually in default. Medium-grade debt securities are those rated BBB by S&P or Baa by Moody's. Securities so rated are considered to have speculative characteristics. See "Risk Factors." A description of the ratings used by S&P and Moody's is included as an appendix to the Statement of Additional Information. Short Sales Against the Box. Each Fund may sell short securities the Fund 14 The Oakmark Family of Funds owns or has the right to acquire without further consideration, a technique called selling short "against the box." Short sales against the box may protect the Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such securities should be wholly or partially offset by a corresponding loss in the short position. Short sales against the box may be used to lock in a profit on a security when, for tax reasons or otherwise, the Adviser does not want to sell the security. The Trust does not currently expect that more than 20% of any Fund's total assets would be involved in short sales against the box. For a more complete explanation, please refer to the Statement of Additional Information. Currency Exchange Transactions. Each Fund may engage in currency exchange transactions either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks and broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. The Funds' forward currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or actual or anticipated portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to a specific receivable or payable of a Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to an actual or anticipated portfolio security position denominated or quoted in a particular currency. Each Fund may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in such currency. When a Fund owns or anticipates owning securities in countries whose currencies are linked, the Adviser may aggregate such positions as to the currency hedged. Although forward contracts may be used to protect a Fund from adverse currency movements, the use of such hedges may reduce or eliminate the potentially positive effect of currency revaluations on the Fund's total return. Other Investment Companies. Certain markets are closed in whole or in part to equity investments by foreigners. A Fund may be able to invest in such markets solely or primarily through governmentally authorized investment vehicles or companies. Each Fund generally may invest up to 10% of its assets in the Prospectus 15 aggregate in shares of other investment companies and up to 5% of its assets in any one investment company, as long as no investment represents more than 3% of the outstanding voting stock of the acquired investment company at the time of investment. Investment in another investment company may involve the payment of a premium above the value of such issuers' portfolio securities, and is subject to market availability. The Trust does not intend to invest in such vehicles or funds unless, in the judgment of the Adviser, the potential benefits of the investment justify the payment of any applicable premium or sales charge. As a shareholder in an investment company, a Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time the Fund would continue to pay its own management fees and other expenses. When-Issued and Forward Commitment Securities. Each Fund may purchase securities on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis in order to hedge against anticipated changes in interest rates and prices. There is a risk that the securities may not be delivered or that they may decline in value before the settlement date. Private Placements. Each Fund may acquire securities in private placements. Because an active trading market may not exist for such securities, the sale of such securities may be subject to delay and additional costs. No Fund will purchase such a security if more than 15% of the value of such Fund's net assets would be invested in illiquid securities. Lending of Portfolio Securities. Each Fund except Oakmark Fund may lend its portfolio securities to broker-dealers and banks to the extent indicated in restriction 5 under "Restrictions on the Funds' Investment." Any such loan must be continuously secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to the market value of the securities loaned by a Fund. The Fund would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned, and would also receive an additional return that may be in the form of a fixed fee or a percentage of the collateral. The Fund would have the right to call the loan and obtain the securities loaned at any time on notice of not more than five business days. In the event of bankruptcy or other default of the borrower, the Fund could experience both delays in liquidating the loan collateral or recovering the loaned securities and losses including (a) possible decline in the value of the collateral or in the value of the securities loaned during the period while the Fund seeks to enforce its rights thereto, (b) possible subnormal levels of income and lack of access to income during this period, and (c) expenses of enforcing its rights. Options. Each Fund may purchase both call options and put options on securities. A call or put option is a contract that gives the Fund, in return for a premium paid on purchase of the option, 16 The Oakmark Family of Funds the right to buy from, or to sell to, the seller of the option the security underlying the option at a specified exercise price during the term of the option. Cash Reserves. To meet liquidity needs or for temporary defensive purposes, each Fund may hold cash in domestic and foreign currencies and may invest in domestic and foreign money market securities. Risk Factors General. All investments, including those in mutual funds, have risks, and no investment is suitable for all investors. Each Fund is intended for long-term investors. Only Equity and Income Fund is intended to present a balanced investment program between growth and income. Small Cap Companies. During some periods, the securities of small cap companies, as a class, have performed better than the securities of large companies, and in some periods they have performed worse. Stocks of small cap companies tend to be more volatile and less liquid than stocks of large companies. Small cap companies, as compared to larger companies, may have a shorter history of operations, may not have as great an ability to raise additional capital, may have a less diversified product line making them susceptible to market pressure, and may have a smaller public market for their shares. International Investing. International Fund and International Small Cap Fund provide long-term investors with an opportunity to invest a portion of their assets in a diversified portfolio of securities of non-U.S. issuers. Each of the other Funds may invest up to 25% (or 10% in the case of Equity and Income Fund) of its assets in securities of non-U.S. issuers. International investing allows you to achieve greater diversification and to take advantage of changes in foreign economies and market conditions. Many foreign economies have, from time to time, grown faster than the U.S. economy, and the returns on investments in these countries have exceeded those of similar U.S. investments, although there can be no assurance that these conditions will continue. You should understand and consider carefully the greater risks involved in investing internationally. Investing in securities of non-U.S. issuers, positions in which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve both opportunities and risks not typically associated with investing in U.S. securities. These include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers and issuers of securities; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; imposition of foreign taxes; and sometimes less Prospectus 17 advantageous legal, operational and financial protections applicable to foreign subcustodial arrangements. Although the Funds try to invest in companies and governments of countries having stable political environments, there is the possibility of restriction of foreign investment, expropriation of assets, or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social or diplomatic developments that could affect investment in these nations. Economies in individual emerging markets may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many emerging market countries have experienced high rates of inflation for many years, which has had and may continue to have very negative effects on the economies and securities markets of those countries. The securities markets of emerging countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of the United States and other more developed countries. Disclosure and regulatory standards in many respects are less stringent than in the U.S. and other major markets. There also may be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets, and enforcement of existing regulations has been extremely limited. Any Fund may invest in ADRs, EDRs or GDRs that are not sponsored by the issuer of the underlying security. To the extent it does so, the Fund would probably bear its proportionate share of the expenses of the depository and might have greater difficulty in receiving copies of the issuer's shareholder communications than would be the case with a sponsored ADR, EDR or GDR. The cost of investing in securities of non-U.S. issuers is higher than the cost of investing in U.S. securities. International Fund and International Small Cap Fund provide an efficient way for an individual to participate in foreign markets, but their expenses, including advisory and custody fees, are higher than for a typical domestic equity fund. Debt Securities. As noted above, each Fund may invest to a limited extent in debt securities that are rated below investment grade or, if unrated, are considered by the Fund's investment adviser to be of comparable quality. A decline in prevailing levels of interest rates generally increases the value of debt securities in a Fund's portfolio, while an increase in rates usually reduces the value of those securities. As a result, to the extent that a Fund invests in debt securities, interest rate fluctuations will affect its net asset value, but not the income it receives from its debt securities. In addition, if the debt securities contain call, prepayment or redemption provisions, during a period of declining interest rates, those securities are likely to be redeemed, and the Fund would probably be unable to replace them with securities having as great a yield. 18 The Oakmark Family of Funds Investment in medium- or lower-grade debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt this market and adversely affect the value of outstanding bonds and the ability of the issuers to repay principal and interest. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Furthermore, medium- and lower-grade debt securities tend to be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and the Fund may have greater difficulty selling its portfolio securities. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. Non-diversification of Select Fund. As a "non-diversified" fund, Select Fund is not limited under the Investment Company Act of 1940 in the percentage of its assets that it may invest in any one issuer. However, the Fund intends to comply with the diversification standards applicable to regulated investment companies under the Internal Revenue Code of 1986. In order to meet those standards, among other requirements, at the close of each quarter of its taxable year (a) at least 50% of the value of the Fund's total assets must be represented by one or more of the following: (i) cash and cash items, including receivables; (ii) U.S. Government securities; (iii) securities of other regulated investment companies; and (iv) securities (other than those in items (ii) and (iii) above) of any one or more issuers as to which the Fund's investment in an issuer does not exceed 5% of the value of the Fund's total assets (valued at the time of investment); and (b) not more than 25% of its total assets (valued at the time of investment) may be invested in the securities of any one issuer (other than U.S. Government securities or securities of other regulated investment companies). Since Select Fund may invest more than 5% of its assets in a single portfolio security, the appreciation or depreciation of such a security will have a greater impact on the net asset value of the Fund, and the net asset value per share of the Fund can be expected to fluctuate more than would the net asset value of a comparable "diversified" fund. See Investment Restriction number 1, below. Change in Objective. Each Fund's investment objective may be changed by the board of trustees without shareholder approval. Shareholders would receive at least 30 days' written notice of any change in a Fund's objective. If there is a change in investment objective, you should consider whether the Fund Prospectus 19 remains an appropriate investment in light of your then current financial position and needs. There can be no assurance that any Fund will achieve its investment objective. Restrictions on the Funds' Investments No Fund will: 1. [This restriction does not apply to Select Fund] In regard to 75% of its assets, invest more than 5% of its assets (valued at the time of investment) in securities of any one issuer, except in U.S. government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer, or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Borrow money except from banks for temporary or emergency purposes in amounts not exceeding 10% of the value of the Fund's assets at the time of borrowing [the Fund will not purchase additional securities when its borrowings, less receivables from portfolio securities sold, exceed 5% of total assets]; 4. Issue any senior security except in connection with permitted borrowings; or 5. Make loans, except that each Fund may invest in debt obligations and repurchase agreements*, and each Fund other than Oakmark Fund may lend its portfolio securities [a Fund will not lend securities having a value in excess of 33% of its assets, including collateral received for loaned securities (valued at the time of any loan)]. These restrictions, except the bracketed portions and the footnote, are "fundamental" and cannot be changed as to a Fund without the approval of a "majority of the outstanding voting securities" of that Fund as defined in the Investment Company Act of 1940. All of the Funds' investment restrictions, including additional fundamental restrictions, are set forth in the Statement of Additional Information. * A repurchase agreement involves a sale of securities to a Fund with the concurrent agreement of the seller (bank or securities dealer) to repurchase the securities at the same price plus an amount equal to an agreed-upon interest rate within a specified time. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses. No Fund may invest more than 15% of its net assets in repurchase agreements maturing in more than seven days and other illiquid securities. 20 The Oakmark Family of Funds PURCHASING AND REDEEMING SHARES How To Purchase Shares You may purchase shares of any of the Funds by check, by wire transfer, by electronic transfer or by exchange. There are no sales commissions or underwriting discounts. The minimum initial investment for each Fund is $1,000 (or $500 in the case of an Educational IRA). Minimum subsequent investments are $100, except for reinvestments of dividends and capital gain distributions. Small Cap Fund Accounts. Small Cap Fund is closed to purchases by new investors except for purchases by eligible investors as described below. Small Cap Fund has taken this step to facilitate management of the Fund's portfolio. You may purchase shares of the Fund if: . You are already a shareholder of the Fund in your own name or beneficially through an intermediary; . You purchase shares through an employee benefit plan whose records are maintained by a trust company or plan administrator and whose investment alternatives include shares of the Fund; or . You purchase shares for an annuity account offered by a company that includes shares of the Fund as an investment alternative for such account. In addition, you may exchange shares of another Fund of the Trust or Oakmark Units for shares of Small Cap Fund as described below under "By Exchange." The Trust reserves the right to re-open Small Cap Fund to new investors or to modify the extent to which the sale of shares is limited. By Check. To make an initial purchase of shares, complete and sign the New Account Registration Form and mail it to the Trust's transfer agent, State Street Bank and Trust Company, Attention: Oakmark Funds, P.O. Box 8510, Boston, Massachusetts 02266-8510, together with a check for the total purchase amount payable to State Street Bank and Trust Company. To make subsequent purchases of shares, submit a check along with the stub from your Fund account confirmation statement or just send a note indicating the amount of the purchase, your account number, and the name in which your account is registered, along with a check. The Trust will not accept cash, drafts, "starter" checks, third party checks, or checks drawn on money market accounts or banks outside of the United States. If your order to purchase shares of a Fund is canceled because your check does not clear, you will be responsible for any resulting loss incurred by the Fund. By Wire Transfer. You may also purchase shares by instructing your bank to wire transfer money to the Trust's custodian bank. Your bank may charge you a fee for sending the wire transfer. If you are opening a new account by wire transfer, you must first telephone the transfer agent at 1-800-OAKMARK (choose menu option 2) to request an account number and to furnish your social security or other tax identification number. Neither the Funds nor Prospectus 21 the Trust will be responsible for the consequences of delays, including delays in the banking or Federal Reserve wire transfer systems. By Telephone Call and Electronic Transfer. If you have an established Fund account with an established electronic transfer privilege, you may pay for subsequent purchases of shares by having the purchase price transferred electronically from your bank account by calling the Funds' Audio Response System at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800- OAKMARK and choosing menu option 2. You may not open a new account through electronic transfer. If your order to purchase shares of a Fund is canceled because your electronic transfer does not clear, you will be responsible for any resulting loss incurred by the Fund. By Automatic Investment. You may authorize the monthly or quarterly purchase of shares of a Fund for a specified dollar amount to be transferred electronically from your bank account each month or quarter by so electing on your New Account Registration Form. By Exchange. You may purchase shares of a Fund by exchange of shares from another Fund or by exchange of "Oakmark Units." (Oakmark Units are Service Units of GS Short Duration Tax-Free Fund, a portfolio of Goldman Sachs Trust, or ILA Service Units of Government Portfolio or Tax-Exempt Portfolio, each a portfolio of Goldman Sachs-Institutional Liquid Assets). You may initiate a purchase by exchange either by calling the Funds' Audio Response System at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800-OAKMARK and choosing menu option 2 (if the telephone exchange privilege has been established on the account from which the exchange is being made), or by mail, or you may authorize a monthly or quarterly redemption of a specified dollar amount of Oakmark Units to be used to purchase shares of a Fund. An exchange transaction is a sale and purchase of shares for federal income tax purposes and may result in capital gain or loss. Except for automatic exchanges from Oakmark Units, you may not make more than four exchanges from any Fund in any calendar year, and the Trust may refuse requests for more frequent exchanges. Restrictions apply; please review the information under "Purchasing and Redeeming Shares--How to Redeem Shares--By Exchange." Purchases through Intermediaries. You may purchase or redeem shares of the Funds through certain investment dealers, banks or other intermediaries ("Intermediaries"). These Intermediaries may charge for their services. Any such charges could constitute a substantial portion of a smaller account, and may not be in your best interest. You may purchase or redeem shares of the Funds directly from or with the Trust without any charges other than those described in this prospectus. 22 The Oakmark Family of Funds An Intermediary, who accepts orders that are processed at the net asset value next determined after receipt of the order by the Intermediary, accepts such orders as agent of the Trust. The Intermediary is required to segregate any orders received on a business day after the close of regular session trading on the New York Stock Exchange and transmit those orders separately for execution at the net asset value next determined after that business day. Purchase Price and Effective Date. Each purchase of a Fund's shares is made at that Fund's net asset value (see "Net Asset Value") next determined as follows: A purchase by check, wire transfer or electronic transfer is made at the net asset value next determined after receipt by the Trust's transfer agent of your check or wire transfer or your electronic transfer investment instruction. A purchase through an Intermediary that is not an authorized agent of the Trust for the receipt of orders is made at the net asset value next determined after receipt of your order by the Trust's transfer agent. A purchase of Fund shares through an Intermediary that is an authorized agent of the Trust for the receipt of orders is made at the net asset value next determined after the receipt of the order by the Intermediary. General Purchasing Policies. The Trust cannot accept a purchase order specifying a particular purchase date or price per share. Each purchase order for a Fund must be accepted by an authorized agent or officer of the Trust or its transfer agent and is not binding until accepted and entered on the books of that Fund. Once your purchase order has been accepted, you may not cancel or revoke it; however, you may redeem the shares. The Trust reserves the right not to accept any purchase order that it determines not to be in the best interest of the Trust or of a Fund's shareholders. The Trust will not be responsible for any loss resulting from an unauthorized transaction initiated by telephone if it or its transfer agent follows reasonable procedures designed to verify the identity of the caller. Those procedures may include recording the call, requesting additional information and sending written confirmation of telephone transactions. You should verify the accuracy of telephone transactions immediately upon receipt of your confirmation statement. How to Redeem Shares By Mail. You may redeem all or any part of your shares of a Fund upon your written request delivered to the Trust's transfer agent, State Street Bank and Trust Company, Attention: Oakmark Funds, P.O. Box 8510, Boston, Massachusetts 02266-8510. Your redemption request must: (1) identify the Fund and give your account number; (2) specify the number of shares or dollar amount to be redeemed; and (3) be signed in ink by all account owners exactly as their names appear on the account registration. Your request must also include a signature guarantee if any of the following situations applies: Prospectus 23 . your account registration has been changed within the last 30 days; . the redemption check is to be mailed to an address different from the one on your account (record address); . the redemption check is to be made payable to someone other than the registered account owner; or . you are instructing us to transmit the proceeds to a bank account that you have not previously designated as the recipient of such proceeds. You should be able to obtain a signature guarantee from a bank, securities broker-dealer, credit union (if authorized under state law), securities exchange or association, clearing agency or savings association, but not a notary public. The signature guarantee must include an ink-stamped guarantee for each signature on the redemption request and must include the name of the guarantor bank or firm and an authorized signature. Special rules apply to redemptions by corporations, trusts and partnerships. In the case of a corporation, the request must be signed in the name of the corporation by an officer whose title must be stated, and must be accompanied by a bylaw provision or resolution of the board of directors, certified within 60 days, authorizing the officer to so act. A redemption request from a partnership or a trust must be signed in the name of the partnership or trust by a general partner or a trustee and include a signature guarantee. If the trustee is not named in the account registration, a redemption request by a trust must also include evidence of the trustee's appointment as such (e.g., a certified copy of the relevant portions of the trust instrument). Under certain circumstances, before the shares can be redeemed, additional documents may be required in order to verify the authority of the person seeking to redeem. By Telephone. You may redeem shares from your account by calling the Funds' Audio Response System at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800-OAKMARK and choosing menu option 2. The proceeds may be sent by check to your registered address or you may request of the shareholder service representative that payment be made by wire transfer, or by electronic transfer, to a checking account previously designated by you at a bank that is a member of the Automated Clearing House. Redemption proceeds payable by wire transfer or by electronic transfer will normally be sent on the next business day after receipt of the redemption request. A redemption request received by telephone after 4 p.m. eastern time (or after the close of regular session trading on the New York Stock Exchange if the NYSE closes before 4 p.m.) is deemed received on the next business day. You may not redeem by telephone shares held in an IRA account or an account for which you have changed the address within the preceding 30 days. By Exchange. You may redeem all or any portion of your shares of a Fund or of Oakmark Units and use the proceeds 24 The Oakmark Family of Funds to purchase shares of any of the other Funds or Oakmark Units if your signed, properly completed Registration Form is on file. An exchange transaction is a sale and purchase of shares for federal income tax purposes and may result in capital gain or loss. Except for automatic exchanges from Oakmark Units, you may not make more than four exchanges from any Fund in any calendar year, and the Trust may refuse requests for more frequent exchanges. Before exchanging into Oakmark Units, you should obtain the prospectus relating to the Oakmark Units from the Adviser and read it carefully. The exchange privilege is not an offering or recommendation of Oakmark Units. The registration of the account to which you are making an exchange must be exactly the same as that of the account from which the exchange is made and the amount you exchange must meet any applicable minimum investment of the fund being purchased. An exchange may be made "By Mail" by following the redemption procedure described above under "By Mail" and indicating the fund to be purchased, except that a signature guarantee normally is not required. You may exchange among shares of the Funds and Oakmark Units "By Telephone" by calling the Funds' Audio Response System at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800-OAKMARK and choosing menu option 2. An exchange request received by telephone after 4 p.m. eastern time (or after the close of regular session trading on the New York Stock Exchange if the NYSE closes before 4 p.m.) is deemed received on the next business day. The Trust's general redemption policies apply to redemptions by Telephone Exchange. See "General Redemption Policies." The Trust reserves the right at any time without prior notice to suspend or terminate the use of the telephone exchange privilege by any person or class of persons. The Trust believes that use of the telephone exchange privilege by investors utilizing market-timing strategies adversely affects the Funds. Therefore, the Trust generally will not honor requests for telephone exchanges by shareholders identified by the Trust as "market-timers." Except for automatic exchanges from Oakmark Units, you may not make more than four exchanges from any Fund in any calendar year. Although the Trust will attempt to give prior notice of a suspension or termination of an exchange privilege when it is reasonably able to do so, the suspension or termination may be effective immediately, thereby preventing any uncompleted exchange. See "Purchasing and Redeeming Shares-How to Redeem Shares-By Exchange." During periods of volatile economic and market conditions, you may have difficulty placing your exchange by telephone call to a shareholder service representative; during such periods, you may wish to consider placing your exchange by mail or by telephone through the Funds' Audio Response System. Prospectus 25 By Automatic Redemption. You may automatically redeem a fixed dollar amount of shares each month or quarter and have the proceeds sent by check to you or deposited by electronic transfer into your bank account by so electing on your Registration Form. General Redemption Policies. You may not cancel or revoke your redemption order once your instructions have been received and accepted. The Trust cannot accept a redemption request that specifies a particular date or price for redemption or any special conditions. Please telephone a shareholder service representative at 1-800-OAKMARK and choose menu option 2 if you have any questions about requirements for a redemption before submitting your request. The Trust reserves the right to require a properly completed Registration Form before making payment for shares redeemed. The price at which your redemption order will be executed is the net asset value next determined after proper redemption instructions are received. See "Net Asset Value." Because the redemption price you receive depends upon that Fund's net asset value per share at the time of redemption, it may be more or less than the price you originally paid for the shares and may result in a realized capital gain or loss. The Trust will generally mail redemption proceeds that are payable by check within seven days after proper instructions are received. If you attempt to redeem shares within 15 days after they have been purchased by check or electronic transfer, the Trust may delay payment of the redemption proceeds to you until it can verify that payment for the purchase of those shares has been (or will be) collected. To reduce such delays, the Trust recommends that your purchase be made by wire transfer through your bank. If you so request, the proceeds of your redemption may be paid by wire transfer to your bank account, provided the redemption proceeds are at least $250, but the cost of the wire transfer (currently $5) will be deducted from the redemption proceeds. A wire transfer will normally result in your bank account receiving "good funds" on the business day following the date of redemption of your shares. If the proceeds of your redemption are sent by electronic transfer, your bank will be notified of the transfer, but your bank account will not receive "good funds" for at least one week. Neither the Trust, its transfer agent, nor their respective officers, trustees, directors, employees, or agents will be responsible for the authenticity of instructions provided by telephone, nor for any loss, liability, cost or expense for acting upon instructions furnished thereunder if they reasonably believe that such instructions are genuine. The Funds employ procedures reasonably designed to confirm that instructions communicated by telephone are genuine. Use of any telephone redemption or exchange privilege authorizes the Funds and their transfer agent to tape-record all instructions to redeem. In addition, callers are asked to identify the account number and registration, and 26 THE OAKMARK FAMILY OF FUNDS may be required to provide other forms of identification. Written confirmations of transactions are mailed promptly to the registered address; a legend on the confirmation requests the shareholder to review the transactions and inform the Fund immediately if there is a problem. If a Fund does not follow reasonable procedures for protecting shareholders against loss on telephone transactions, it may be liable for any loss due to unauthorized or fraudulent instructions. The Trust reserves the right at any time without prior notice to suspend, limit, modify or terminate any privilege or its use in any manner by any person or class. The Trust also reserves the right to redeem shares in any account and send the proceeds to the owner if the shares in the account do not have a value of at least $1,000. A shareholder would be notified that the account is below the minimum and allowed 30 days to bring the account value up to the minimum. Shares in any account you maintain with a Fund may be redeemed to the extent necessary to reimburse a Fund for any loss it sustains that is caused by you (such as losses from uncollected checks and electronic transfers or any Fund liability under the Internal Revenue Code provisions on backup withholding relating to your account). Shareholder Services Reporting to Shareholders. You will receive a confirmation statement reflecting each of your purchases and redemptions of shares of a Fund, as well as periodic statements detailing distributions made by that Fund. Shares purchased by reinvestment of dividends or pursuant to an automatic plan will be confirmed to you quarterly. In addition, the Trust will send you periodic reports showing Fund portfolio holdings and will provide you annually with tax information. IRA Plans. The Trust has a master individual retirement account (IRA) plan that allows you to invest in either a Regular IRA or a Roth IRA on a tax-sheltered basis in the Funds or Oakmark Units of the Government Portfolio of Goldman, Sachs Money Market Trust. The plan also permits you to "roll over" or transfer to your Regular IRA a lump sum distribution from a qualified pension or profit- sharing plan, thereby postponing federal income tax on the distribution. If your employer has a Simplified Employee Pension Plan (SEP), you may establish a Regular IRA with the Fund to which your employer may contribute, subject to special rules designed to avoid discrimination. The Trust also offers an Educational IRA. Information on IRAs may be obtained by calling the transfer agent at 1-800-OAKMARK (choose menu option 3). Establishing Privileges. You may establish any of the shareholder privileges when you complete an application to purchase shares of a Fund. If you have already established an account and want to add or change a privilege, please call a shareholder service representative at 1-800-OAKMARK (choose menu option 2) to request the appropriate form. Your call will be recorded. Audio Response System. To obtain information about your account, such as PROSPECTUS 27 account balance, last transaction and distribution information, to purchase, redeem or exchange shares of a Fund or Oakmark Units, or to order duplicate statements, call the Funds' Audio Response System at 1-800-OAKMARK (choose menu option 1). Please note: you must have a personal identification ("PIN") number to access the Audio Response System. Call 1-800-OAKMARK (choose menu option 2) and speak with a shareholder service representative to obtain your PIN number. Your call will be recorded. Account Address Change. You may change your address of record for a Fund account by sending written instructions to the transfer agent at its address shown on the inside back cover of this prospectus or by telephoning a shareholder service representative at 1-800-OAKMARK (choose menu option 2). Your call will be recorded. Account Registration Change. You may change your account registration only by sending your written instructions with a signature guarantee to the transfer agent at its address shown on the inside back cover of this prospectus. See "Purchasing and Redeeming Shares--How to Redeem Shares--By Mail" regarding signature guarantees. Questions about Your Account. If you have a question about your account, you may telephone a shareholder service representative at 1-800-OAKMARK (choose menu option 2). Net Asset Value The net asset value of a share of each Fund is determined by the Fund's custodian, State Street Bank and Trust Company, as of the close of regular session trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time) on any day on which that exchange is open for trading by dividing the market value of that Fund's assets, less its liabilities, by the number of shares outstanding. Trading in the portfolio securities of International Fund or International Small Cap Fund (and in any securities of non-U.S. issuers held by any other Fund) takes place in various markets on days and at times other than when the New York Stock Exchange is open for trading. Therefore, the calculation of net asset value does not take place at the same time as the prices of many of those portfolio securities are determined and the value of the Funds' portfolios may change on days when the Funds are not open for business and their shares may not be purchased or redeemed. Price information may be obtained by accessing the Funds' website at www.oakmark.com or by calling the 24-Hour Net Asset Value Hotline, 1-800-GROWOAK (1-800-476-9625). Distributions Each Fund distributes to shareholders at least annually substantially all net investment income and any net capital gains realized from sales of the Fund's portfolio securities. All of your income dividends and capital gain distributions will be reinvested in additional shares unless you elect to have distributions paid by check. If any check from a Fund mailed to you is returned as undeliverable or is 28 THE OAKMARK FAMILY OF FUNDS not presented for payment within six months, the Trust reserves the right to reinvest the check proceeds and future distributions in additional Fund shares. Taxes Dividends from investment income and net short-term capital gains are taxable as ordinary income. Distributions of long-term capital gains are taxable as long- term capital gains regardless of the length of time you have held your Fund shares. Distributions will be taxable to you whether received in cash or reinvested in Fund shares. You will be advised annually as to the source of your distributions for tax purposes. If you are not subject to income taxation, you will not be required to pay tax on amounts distributed to you. If you purchase shares shortly before a record date for a distribution you will, in effect, receive a return of a portion of your investment, but the distribution will be taxable to you even if the net asset value of your shares is reduced below your cost. However, for federal income tax purposes your original cost would continue as your tax basis. If you redeem shares within six months, any loss on the sale of those shares would be long-term capital loss to the extent of any distributions of long-term capital gain that you have received on those shares. Investment income received by a Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. If a Fund pays nonrefundable taxes to foreign governments during the year, the taxes will reduce that Fund's dividends but will still be included in your taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. If (a) you fail to (i) furnish your properly certified social security or other tax identification number or (ii) certify that your tax identification number is correct or that you are not subject to backup withholding due to the underreporting of certain income, or (b) the Internal Revenue Service informs the Trust that your tax identification number is incorrect, the Trust may be required to withhold Federal income tax at a rate of 31% ("backup withholding") from certain payments (including redemption proceeds) to you. These certifications are contained in the Registration Form that you should complete and return when you open an account. The Fund must promptly pay to the IRS all amounts withheld. Therefore, it is usually not possible for the Fund to reimburse you for amounts withheld. You may claim the amount withheld as a credit on your Federal income tax return. This discussion of U.S. and foreign taxation applies only to U.S. shareholders and is not intended to be a full discussion of income tax laws and their effect. You may wish to consult your own tax adviser. Management of the Funds The board of trustees of the Trust has overall responsibility for the conduct of the affairs of the Funds and the Trust. The trustees serve indefinite terms of unlimited duration. The trustees PROSPECTUS 29 appoint their own successors, provided that at least two-thirds of the trustees, after such appointment, have been elected by shareholders. Shareholders may remove a trustee, with or without cause, upon the declaration in writing or vote of two-thirds of the Trust's outstanding shares. A trustee may be removed with or without cause upon the written declaration of a majority of the trustees. The Funds' investments and business affairs are managed by the Adviser, Harris Associates L.P. The Adviser also serves as investment adviser to individuals, trusts, retirement plans, endowments and foundations, and manages numerous private partnerships. The Adviser was organized in 1995 to succeed to the business of a previous limited partnership, also named Harris Associates L.P. (the "Former Adviser"), that, together with its predecessor, had advised and managed mutual funds since 1970. The Adviser, a limited partnership, is managed by its general partner, Harris Associates, Inc. ("HAI"), a wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"). NEIC owns all of the limited partnership interests in the Adviser. NEIC is a publicly traded limited partnership that owns investment management firms and that is a subsidiary of Metropolitan Life Insurance Company. Subject to the overall authority of the board of trustees, the Adviser furnishes continuous investment supervision and management to the Funds and also furnishes office space, equipment and management personnel. For its services, the Adviser receives from each Fund the following advisory fee, stated as a percentage of average net assets: Equity and Income, .75%; Oakmark, 1% up to $2.5 billion, .95% on the next $1.25 billion, .90% on the next $1.25 billion, and .85% over $5 billion; International, 1% up to $2.5 billion, .95% on the next $2.5 billion, and .90% over $5 billion; Select, 1% up to $1 billion, .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million, and .80% over $2.5 billion; Small Cap, 1.25% up to $1 billion, 1.15% on the next $500 million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1% over $2.5 billion; International Small Cap, 1.25%. The Adviser has voluntarily agreed to reimburse each Fund to the extent that the Fund's annual ordinary operating expenses exceed the following percent of the Fund's average net assets through January 31, 1999, subject to earlier termination by the Adviser on 30 days' notice to the Fund: 1.5% in the case of Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund and 2% in the case of International Fund and International Small Cap Fund. The Trust uses "Harris Associates" in its name and "Oakmark" in the names of the Funds by license from the Adviser and would be required to stop using those names if Harris Associates ceased to be the Adviser. The Adviser has the right to use the 30 THE OAKMARK FAMILY OF FUNDS names for another enterprise, including another investment company. The investment objective and policies of Oakmark Fund were developed by the Adviser and by Robert J. Sanborn, C.F.A., the Fund's portfolio manager. Mr. Sanborn joined the Adviser as a portfolio manager and analyst in 1988. Prior thereto, he had been a portfolio manager/analyst with The State Teachers Retirement System of Ohio. Mr. Sanborn holds an M.B.A. in Finance from the University of Chicago (1983) and a B.A. in Economics from Dartmouth College (1980). The investment objective and policies of Select Fund were developed by the Adviser and by William C. Nygren, C.F.A., the Fund's portfolio manager. Mr. Nygren joined the Adviser as an analyst in 1983, and has been the Adviser's Director of Research since 1990. Prior thereto, he had been an analyst with Northwestern Mutual Life Insurance Company. Mr. Nygren holds an M.S. in Finance from the University of Wisconsin (1981) and a B.S. in Accounting from the University of Minnesota (1980). The investment objective and policies of Small Cap Fund were developed by the Adviser and by Steven J. Reid, C.F.A., the Fund's portfolio manager. Mr. Reid joined the Adviser as an accountant in 1980 and has been an investment analyst since 1985. He holds a B.A. in Business from Roosevelt University (1979). The investment objective and policies of Equity and Income Fund were developed by the Adviser and by Clyde S. McGregor, C.F.A., the Fund's portfolio manager. Mr. McGregor joined the Adviser as an analyst in 1981 and began managing portfolios in 1986. He holds an M.B.A. in Finance from the University of Wisconsin-Madison (1977) and a B.A. in Economics and Religion from Oberlin College (1974). The investment objective and policies of International Fund were developed by the Adviser and by David G. Herro, C.F.A., the Fund's portfolio manager. The Fund is co-managed by Michael J. Welsh, C.F.A. and C.P.A. Mr. Herro joined the Adviser in 1992 as a portfolio manager and analyst. Previously, he had been an international portfolio manager for the State of Wisconsin Investment Board and The Principal Financial Group. Mr. Herro holds an M.A. in Economics from the University of Wisconsin-Milwaukee (1985) and a B.S. in Business and Economics from the University of Wisconsin-Platteville (1983). Mr. Welsh joined the adviser as an international analyst in 1992. Previously he had been a senior associate, valuation services, with Coopers & Lybrand. Mr. Welsh holds an M.M. in Finance from Northwestern University (1993) and a B.S. in Accounting from the University of Kansas (1985). The investment objective and policies of International Small Cap Fund were developed by the Adviser and by David G. Herro, the Fund's portfolio manager. The Fund is co-managed by Michael J. Welsh. Brokerage transactions for the Funds may be executed through Harris Associates Securities L.P., a registered broker-dealer and an affiliate of the Adviser. PROSPECTUS 31 TRUSTEES AND OFFICERS The trustees and officers of the Trust and their principal business activities during the past five years are:
Name, Position(s) with Trust and Age at December 31, 1997 Principal Occupation(s) during Past Five Years - -------------------------------------------------------------------------------- Victor A. Morgenstern* Chairman of the Board, HAI, since 1996 and Trustee and Chairman, 55 President prior thereto; Chairman, Harris Partners, L.L.C., since September 1995 Michael J. Friduss Principal, MJ Friduss & Associates Trustee, 55 (telecommunications consultants) Thomas H. Hayden Executive Vice President and director, Trustee, 46 Bozell Worldwide, Inc. (advertising and public relations) Christine M. Maki Vice President--Tax, Hyatt Corporation Trustee, 37 (hotel management) since 1995; Tax Manager, Coopers & Lybrand (independent accountants), prior thereto Allan J. Reich Senior Partner and Chair of Corporate/Securities Trustee, 49 Practice Group, D'Ancona & Pflaum (attorneys) Marv R. Rotter General Manager, Rotter & Associates Trustee, 51 (financial services) Burton W. Ruder President, The Academy Group (venture capital Trustee, 54 investments and transaction financing) Peter S. Voss* Chairman and Chief Executive Officer, Trustee, 51 New England Investment Companies, Inc. and New England Investment Companies, L.P. Gary N. Wilner, M.D. Senior Attending Physician, Evanston Hospital, Trustee, 57 and Medical Director--CardioPulmonary Wellness Program, Evanston Hospital Corporation Robert Levy President and Chief Executive Officer, HAI, President, 47 since 1997, Portfolio Manager, HALP prior thereto Robert J. Sanborn Portfolio Manager and Analyst, HALP Executive Vice President and Portfolio Manager (Oakmark Fund), 39
32 THE OAKMARK FAMILY OF FUNDS Name, Position(s) with Trust and Age at December 31, 1997 Principal Occupation(s) during Past Five Years - ------------------------------------------------------------------------------ David G. Herro Portfolio Manager and Analyst, HALP Vice President and Portfolio Manager (International Fund and International Small Cap Fund), 37 Clyde S. McGregor Portfolio Manager and Analyst, HALP Vice President and Portfolio Manager (Equity and Income Fund), 45 William C. Nygren Portfolio Manager and Director of Research, Vice president and Portfolio HALP Manager (Select Fund), 39 Steven J. Reid Portfolio Manager and Analyst, HALP Vice President and Portfolio Manager (Small Cap Fund), 41 Michael J. Welsh Portfolio Manager and Analyst, HALP Vice President and Co-portfolio Manager (International Fund and International Small Cap Fund), 34 Ann W. Regan Director of Mutual Fund Operations, HALP, Vice President--Shareholder since 1996; Special Projects Assistant to the Operations and Assistant General Counsel, HALP, 1995--1996; Deputy Secretary, 49 Corporation Counsel, City of Chicago, prior thereto Donald Terao Secretary, Treasurer and Chief Financial Vice President-- Officer, HAI, since 1995; Controller, HALP, Finance, 48 prior thereto Anita M. Nagler Vice President, HAI, since 1994; General Secretary, 41 Counsel, HALP, since 1993; Associate Regional Administrator, Enforcement, Securities and Exchange Commission, Chicago, prior thereto Prospectus 33 Name, Position(s) with Trust and Age at December 31, 1997 Principal Occupation(s) during Past Five Years# - -------------------------------------------------------------------------------- Kristi L. Rowsell Assistant Treasurer, HALP, since 1996; Treasurer, 31 Tax and Accounting Manager, HALP, 1995- 1996; Vice President and Treasurer, Calamos Asset Management, Inc., prior thereto # As used in this table, from and after September 29, 1995 "HALP" and "HAI" refer to the Adviser and the general partner of the Adviser, respectively, and prior to that date those terms refer to the Former Adviser and the general partner of the Former Adviser, respectively. * Messrs. Morgenstern and Voss are trustees who are "interested persons" (as defined in the Investment Company Act) of the Trust by virtue of their relationships with HAI. Performance Information From time to time the Funds may quote total return figures in sales material. "Total Return" for a period is the percentage change in value during the period of an investment in Fund shares, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compound rate of change in value represented by the Total Return for the period. All of these calculations assume the reinvestment of dividends and distributions in additional shares of the Fund. Income taxes are not taken into account. In advertising and sales literature, a Fund's performance may be compared to market indexes and to the performance of other mutual funds. A Fund may also publicize its comparative performance as computed in rankings or ratings determined by independent services or publications including Lipper Analytical Services, Inc., Morningstar, Inc. and others. The performance of a Fund is a function of conditions in the securities markets, portfolio management and operating expenses, and past results are not necessarily indicative of future results. See "The Funds--How the Funds Invest" and "The Funds--Restrictions on the Funds' Investments." Performance information supplied by a Fund may not provide a basis for comparison with other investments using different reinvestment assumptions or time periods. 34 THE OAKMARK FAMILY OF FUNDS Other Information The Funds are series of Harris Associates Investment Trust (the "Trust"), an open-end management investment company, and each Fund other than Select Fund is diversified. Prior to July 15, 1997, the name of Equity and Income Fund was the Oakmark Balanced Fund. The Trust is a Massachusetts business trust organized under an Agreement and Declaration of Trust ("Declaration of Trust") dated February 1, 1991, which provides that each shareholder shall be deemed to have agreed to be bound by the terms thereof. The Declaration of Trust may be amended by a vote of either the Trust's shareholders or its trustees. The Trust may issue an unlimited number of shares, in one or more series, each with its own investment objective, policies and restrictions, as the board of trustees may authorize. Any such series of shares may be further divided, without shareholder approval, into two or more classes of shares having such preferences or special or relative rights or privileges as the trustees may determine. The Funds' shares are not currently divided into classes. The Funds are the only series of the Trust currently being offered. All shares issued will be fully paid and non- assessable and will have no preemptive or conversion rights. Each share of a series is entitled to participate pro rata in any dividends and other distributions declared by the board of trustees with respect to that series, and all shares of a series have equal rights in the event of liquidation of that series. Each share is entitled to one vote on each matter presented to shareholders. As a business trust, the Trust is not required to hold annual shareholder meetings. However, special meetings may be called for purposes such as electing or removing trustees, changing fundamental policies, or approving an investment advisory contract. On any matter submitted to a vote of shareholders, shares are voted in the aggregate and not by individual series except when required by the Investment Company Act of 1940 or other applicable law, or when the board of trustees determines that the matter affects only the interests of one or more series, in which case shareholders of the unaffected series are not entitled to vote on such matters. All shares of the Trust are voted together in the election of trustees. Inquiries regarding the Funds should be directed to the Adviser or Transfer Agent of the Trust at the address or telephone number shown on the inside back cover. PROSPECTUS 35 The Oakmark Family of Funds 1998 Prospectus -------------------------------------- Investment Adviser Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602-3790 Transfer Agent, Dividend Disbursing Agent & Custodian State Street Bank and Trust Company Attention: Oakmark Funds P.O. Box 8510 Boston, Massachusetts 02266-8510 Auditors Arthur Andersen LLP Chicago, Illinois Legal Counsel Bell, Boyd & Lloyd Chicago, Illinois [LOGO OF OAKMARK FAMILY OF FUNDS] FOR MORE INFORMATION Access our website at www.oakmark.com or call 1-800-OAKMARK (1-800-625-6275) WEBSITE AND 24-HOUR NET ASSET VALUE HOTLINE Access our website at www.oakmark.com to obtain the current net asset value per share of a Fund, or call 1-800-GROWOAK (1-800-476-9625) the Oakmark family of funds [LOGO OF OAKMARK FAMILY OF FUNDS] HARRIS ASSOCIATES L.P. 2 NORTH LASALLE STREET CHICAGO, IL 60602 1-800-OAKMARK STATEMENT OF ADDITIONAL INFORMATION ----------------------------------- January 25, 1998 THE OAKMARK FAMILY OF FUNDS No-Load Funds Two North La Salle Street Chicago, Illinois 60602-3790 Telephone 1-800-OAKMARK (1-800-625-6275) This Statement of Additional Information relates to The Oakmark Fund ("Oakmark Fund"), The Oakmark Select Fund ("Select Fund"), The Oakmark Small Cap Fund ("Small Cap Fund"), The Oakmark Equity and Income Fund, formerly named the Oakmark Balanced Fund ("Equity and Income Fund"), The Oakmark International Fund ("International Fund") and The Oakmark International Small Cap Fund ("International Small Cap Fund"), each a series of Harris Associates Investment Trust (the "Trust"). It is not a prospectus but provides information that should be read in conjunction with the Funds' prospectus dated the same date as this Statement of Additional Information and any supplement thereto. The prospectus may be obtained from the Funds at no charge by writing or telephoning the Funds at their address or telephone number shown above. Table of Contents The Funds................................................... 2 Investment Restrictions..................................... 2 How the Funds Invest........................................ 4 Performance Information..................................... 10 Investment Adviser.......................................... 12 Trustees and Officers....................................... 14 Principal Shareholders...................................... 15 Purchasing and Redeeming Shares............................. 16 Additional Tax Information.................................. 18 Taxation of Foreign Shareholders............................ 18 Portfolio Transactions...................................... 19 Declaration of Trust........................................ 21 Custodian................................................... 21 Independent Public Accountants.............................. 22 Financial Statements........................................ 22 Appendix -- Bond Ratings.................................... 23 THE FUNDS Oakmark Fund seeks long-term capital appreciation by investing primarily in U.S. equity securities. Select Fund seeks long-term capital appreciation by investing primarily in a non-diversified portfolio of U.S. equity securities. Small Cap Fund seeks long-term capital appreciation by investing primarily in U.S. equity securities of companies with small market capitalizations. Equity and Income Fund seeks high current income with regard for both preservation and growth of capital by investing primarily in a diversified portfolio of U.S. equity and fixed-income securities. International Fund seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers. International Small Cap Fund seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers with small market capitalizations. INVESTMENT RESTRICTIONS In pursuing their respective investment objectives no Fund will: 1. [This restriction does not apply to Select Fund] In regard to 75% of its assets, invest more than 5% of its assets (valued at the time of investment) in securities of any one issuer, except in U.S. government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at the time of investment) in securities of companies in any one industry, except that this restriction does not apply to investments in U.S. government obligations; 4. Borrow money except from banks for temporary or emergency purposes in amounts not exceeding 10% of the value of the Fund's assets at the time of borrowing [the Fund will not purchase additional securities when its borrowings, less receivables from portfolio securities sold, exceed 5% of the value of the Fund's total assets]; 5. Issue any senior security except in connection with permitted borrowings; 6. Underwrite the distribution of securities of other issuers; however the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 7. Make loans, but this restriction shall not prevent the Fund from (a) investing in debt obligations, (b) investing in repurchase agreements,/1/ or (c) [Funds other than Oakmark - ---------- /1/ A repurchase agreement involves a sale of securities to a Fund with the concurrent agreement of the seller (bank or securities dealer) to repurchase the securities at the same price plus an amount equal to an agreed-upon interest rate within a specified time. In the 2 Fund] lending its portfolio securities [the Fund will not lend securities having a value in excess of 33% of its assets, including collateral received for loaned securities (valued at the time of any loan)]; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into forward foreign currency contracts; 10. Acquire securities of other investment companies except (a) by purchase in the open market, where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission or (b) where the acquisition results from a dividend or a merger, consolidation or other reorganization;/2/ 11. Make margin purchases or participate in a joint or on a joint or several basis in any trading account in securities; 12. Invest in companies for the purpose of management or the exercise of control; 13. Invest more than 15% of its net assets (valued at the time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; 14. Invest in oil, gas or other mineral leases or exploration or development programs, although it may invest in marketable securities of enterprises engaged in oil, gas or mineral exploration; 15. [Oakmark Fund, Select Fund, Small Cap Fund and Equity and Income Fund only] Invest more than 2% of its net assets (valued at the time of investment) in warrants not listed on the New York or American stock exchanges, valued at cost, nor more than 5% of its net assets in all warrants, provided that warrants acquired in units or attached to other securities shall be deemed to be without value for purposes of this restriction; [International Fund and International Small Cap Fund only] Invest more than 10% of its net assets (valued at the time of investment) in warrants valued at the lower of cost or market, provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction; 16. [Oakmark Fund, Select Fund and Small Cap Fund only] Invest more than 25% of its total assets (valued at the time of investment) in securities of non- U.S. issuers (other than securities represented by American Depositary Receipts) [Equity and Income Fund only] Invest - ---------- event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses. No Fund may invest more than 15% of its net assets in repurchase agreements maturing in more than seven days and other illiquid securities. /2/ In addition to this investment restriction, the Investment Company Act of 1940 provides that a Fund may neither purchase more than 3% of the voting securities of any one investment company nor invest more than 10% of the Fund's assets (valued at the time of investment) in all investment company securities purchased by the Fund. Investment in the shares of another investment company would require the Fund to bear a portion of the management and advisory fees paid by that investment company, which might duplicate the fees paid by the Fund. 3 more than 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers (other than securities represented by American Depositary Receipts); /3/ 17. Make short sales of securities unless the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, without payment of further consideration, into at least an equal amount of such securities; 18. Purchase a call option or a put option if the aggregate premium paid for all call and put options then held exceed 20% of its net assets (less the amount by which any such positions are in-the-money); 19. Invest in futures or options on futures, except that it may invest in forward foreign currency contracts. The first 10 restrictions listed above, except the bracketed portions, are fundamental policies and may be changed only with the approval of the holders of a "majority of the outstanding voting securities" of the respective Fund, which is defined in the Investment Company Act of 1940 (the "1940 Act") as the lesser of (i) 67% of the shares of the Fund present at a meeting if more than 50% of the outstanding shares of the Fund are present in person or represented by proxy or (ii) more than 50% of the outstanding shares of the Fund. Those restrictions not designated as "fundamental," and a Fund's investment objective, may be changed by the board of trustees without shareholder approval. A Fund's investment objective will not be changed without at least 30 days' notice to shareholders. Notwithstanding the foregoing investment restrictions, a Fund may purchase securities pursuant to the exercise of subscription rights, provided, in the case of each Fund other than Select Fund, that such purchase will not result in the Fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in a Fund's interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, a Fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of a Fund's portfolio securities with the result that the Fund would be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising the rights. HOW THE FUNDS INVEST Securities of Non-U.S. Issuers International Fund and International Small Cap Fund invest primarily in securities of non-U.S. issuers, and the other Funds each may invest a minor portion of their assets (up to 25% for Oakmark Fund, Select Fund and Small Cap Fund and up to 10% for Equity and Income Fund) in securities of non-U.S. issuers. International investing permits an investor to take advantage of the growth in markets outside the United States. Investing in securities of non-U.S. issuers may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. The Funds may invest in securities of non-U.S. issuers directly or in the form of American Depositary Receipts - ------------ /3/ Although securities represented by American depositary Receipts ("ADRs") are not subject to restriction 16, none of these Funds has any present intention to invest more than the indicated percentage of its total assets in ADRs and securities of foreign issuers. 4 (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company and trading in U.S. markets evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. Generally ADRs, in registered form, are designed for use in the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. GDRs are receipts that may trade in U.S. or non-U.S. markets. The Funds may invest in both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a sponsored depositary receipt, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to depositary receipt holders. An unsponsored depositary receipt is created independently of the issuer of the underlying security. The depositary receipt holders generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. With respect to portfolio securities of non-U.S. issuers or denominated in foreign currencies, a Fund's investment performance is affected by the strength or weakness of the U.S. dollar against these currencies. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen- denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions." You should understand and consider carefully the risks involved in international investing. Investing in securities of non-U.S. issuers, positions in which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign subcustodial arrangements. Although the Funds try to invest in companies and governments of countries having stable political environments, there is the possibility of expropriation of assets, confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse, political, social or diplomatic developments that could affect investment in these nations. Privatizations. Some governments have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The adviser believes that privatizations may offer opportunities for significant capital appreciation, and intends to invest assets of International Fund and International Small Cap Fund in privatizations in appropriate circumstances. In certain of those markets, the ability of foreign entities such as International Fund and International Small Cap Fund to participate in privatizations may be limited by local law, and/or the terms on which such Funds may be permitted to participate may be less advantageous than those afforded local investors. There can be no assurance that governments will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. Currency Exchange Transactions. Each Fund may enter into currency exchange transactions either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency 5 prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. A Fund's currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or actual or anticipated portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to specific receivables or payables of a Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to an actual or anticipated portfolio security position denominated or quoted in a particular currency. When the Fund owns or anticipates owning securities in countries whose currencies are linked, the Adviser may aggregate such positions as to the currency hedged. If a Fund enters into a forward contract hedging an anticipated purchase of portfolio securities, liquid assets of the Fund, which may include equities, debt obligations, U.S. government securities or cash, having a value at least as great as the commitment under the forward contract will be segregated on the books of the Fund, marked to market daily, and held by the Fund's custodian while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may either sell the portfolio security related to such contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for a Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency the Fund is obligated to deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Fund of engaging in currency exchange 6 transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. Debt Securities Each Fund may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk bonds") and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by a Fund or the portion of a Fund's assets that may be invested in debt securities in a particular ratings category, except that International Fund and International Small Cap Fund will not invest more than 10% of their respective total assets in securities rated below investment grade, Equity and Income Fund will not invest more than 20% of its total assets in such securities, and each of the other Funds will not invest more than 25% of its total assets in such securities. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- or lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher- quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio securities. See "Net Asset Value." The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. A description of the characteristics of bonds in each ratings category is included in the appendix to this statement of additional information. When-Issued and Delayed-Delivery Securities Each Fund may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time a Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. A Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if the adviser deems it advisable for investment reasons. A Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed- delivered basis. At the time a Fund enters into a binding obligation to purchase securities on a when-issued basis, liquid assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a Fund, may increase net asset value fluctuation. 7 Illiquid Securities No Fund may invest in illiquid securities, if as a result such securities would comprise more than 15% of the value of the Fund's assets. If through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% of the value of its net assets are invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity. Illiquid securities may include restricted securities, which may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where a Fund holds restricted securities and registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by the board of trustees. Notwithstanding the above, each Fund may purchase securities that, although privately placed, are eligible for purchase and sale under Rule 144A under the 1933 Act. This rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities even though such securities are not registered under the 1933 Act. The adviser, under the supervision of the board of trustees, may consider whether securities purchased under Rule 144A are liquid and thus not subject to the Fund's restriction of investing no more than 15% of its assets in illiquid securities. (See restriction 13 under "Investment Restrictions.") A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination the adviser will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, the adviser could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, (4) and the nature of the security and of market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. Short Sales Each Fund may sell securities short against the box, that is: (1) enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns without additional consideration; and (2) enter into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. A Fund may make short sales of securities only if at all times when a short position is open the Fund owns at least an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short. In a short sale against the box, a Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such 8 securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. A Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time a Fund replaces the borrowed security, the Fund will incur a loss and if the price declines during this period, the Fund will realize a short-term capital gain. Any realized short-term capital gain will be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Fund may have to pay in connection with such short sale. Certain provisions of the Internal Revenue Code may limit the degree to which a Fund is able to enter into short sales. There is no limitation on the amount of each Fund's assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. No Fund currently expects that more than 20% of its total assets would be involved in short sales against the box. Options Each Fund may purchase both call options and put options on securities. A call or put option is a contract that gives the Fund, in return for a premium paid upon purchase of the option, the right during the term of the option to buy from, or to sell to, the seller of the option the security underlying the option at a specified exercise price. The option is valued initially at the premium paid for the option. Thereafter, the value of the option is marked-to-market daily. It is expected that a Fund will not purchase a call option or a put option if the aggregate value of all call and put options held by the Fund would exceed 5% of the Fund's net assets. Temporary Strategies Each Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the adviser may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers, and most or all of International Fund's investments and International Small Cap Fund's investments may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, each Fund temporarily may hold cash (U.S. dollars, foreign currencies 9 or multinational currency units) and may invest any portion of its assets in money market instruments. PERFORMANCE INFORMATION From time to time the Funds may quote total return figures in sales material. "Total Return" for a period is the percentage change in value during the period of an investment in Fund shares, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compounded rate of change in value represented by the Total Return for the period. Average Annual Total Return will be computed as follows: ERV = P(1+T)/n/ Where: P = the amount of an assumed initial investment in Fund shares T = average annual total return n = number of years from initial investment to the end of the period ERV = ending redeemable value of shares held at the end of the period For example, Total Return and Average Annual Total Return on a $1,000 investment in each Fund for the following periods ended September 30, 1997 were:
Total Average Annual Return Total Return ------ -------------- Oakmark Fund One year................... 37.1% 37.1% Five years................. 209.6 25.3 Life of Fund*.............. 420.1 30.7 Select Fund Life of Fund*.............. 63.4 69.2 Small Cap Fund One year................... 53.5 53.5 Life of Fund*.............. 103.4 44.8 Equity and Income Fund One year................... 34.0 34.0 Life of Fund*.............. 48.1 22.7 International Fund One year................... 29.6 29.6 Five years................. 132.8 18.4 Life of Fund*.............. 132.8 18.4 International Small Cap Fund One year................... 12.1 12.1 Life of Fund*.............. 26.7 13.1
--------------------- * Life of Fund commenced with the public offering of its shares as follows: Oakmark, 8/5/91; Select, 11/1/96; International, 9/30/92; Small Cap, Equity and Income and International Small Cap, 11/1/95. Performance figures quoted by the Funds will assume reinvestment of all dividends and distributions, but will not take into account income taxes payable by shareholders. The Funds impose no sales charge and pay no distribution ("12b-1") expenses. Each Fund's performance is a function of conditions in the securities markets, portfolio management, and operating expenses. 10 Although information such as yield and total return is useful in reviewing a Fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. In advertising and sales literature, the performance of a Fund may be compared with that of other mutual funds, indexes or averages of other mutual funds, indexes of related financial assets or data, and other competing investment and deposit products available from or through other financial institutions. The composition of these indexes or averages differs from that of the Funds. Comparison of a Fund to an alternative investment should consider differences in features and expected performance. All of the indexes and averages noted below will be obtained from the indicated sources or reporting services, which the Funds generally believe to be accurate. The Funds may also refer to publicity (including performance rankings) in newspapers, magazines, or other media from time to time. However, the Funds assume no responsibility for the accuracy of such data. Newspapers and magazines that might mention the Funds include, but are not limited to, the following: Barron's Business Week Changing Times Chicago Tribune Chicago Sun-Times Crain's Chicago Business Consumer Reports Consumer Digest Financial World Forbes Fortune Global Finance Investor's Business Daily Kiplinger's Personal Finance Los Angeles Times Money Mutual Fund Letter Mutual Funds Magazine Morningstar Newsweek The New York Times Pensions and Investments Personal Investor Smart Money Stanger Reports Time USA Today U.S. News and World Report The Wall Street Journal Worth A Fund may compare its performance to the Consumer Price Index (All Urban), a widely recognized measure of inflation. The performance of a Fund may also be compared to the Morgan Stanley EAFE (Europe, Australia and Far East) Index*, a generally accepted benchmark for performance of major overseas markets, and to the following indexes or averages: Dow-Jones Industrial Average* Standard & Poor's 500 Stock Index* Standard & Poor's 400 Industrials Standard & Poor's Small Cap 600* Standard & Poor's Mid Cap 400* Russell 2000 Wilshire 5000 New York Stock Exchange Composite Index American Stock Exchange Composite Index NASDAQ Composite NASDAQ Industrials In addition, each of Oakmark Fund, Select Fund, Small Cap Fund and Equity and Income Fund may compare its performance to the following indexes and averages: Value Line Index; Lipper Capital Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds Average; Lipper Small Company Growth Fund Index; and Lehman Brothers Government/Corporate Bond Index. Each of International Fund and International Small Cap Fund may compare its performance to the following indexes and averages: Lipper International & Global Funds Average; Lipper International Fund Index; Lipper International Equity Funds Average; Micropal International Small Company Fund Index; Morgan Stanley Capital International World ex the U.S. Index*; Morningstar International Stock Average. ___________________________ * with dividends reinvested 11 Lipper Indexes and Averages are calculated and published by Lipper Analytical Services, Inc. ("Lipper"), an independent service that monitors the performance of more than 1,000 funds. The Funds may also use comparative performance as computed in a ranking by Lipper or category averages and rankings provided by another independent service. Should Lipper or another service reclassify a Fund to a different category or develop (and place a Fund into) a new category, that Fund may compare its performance or ranking against other funds in the newly assigned category, as published by the service. Each Fund may also compare its performance or ranking against all funds tracked by Lipper or another independent service, including Morningstar, Inc. The Funds may cite their ratings, recognition, or other mention by Morningstar or any other entity. Morningstar's rating system is based on risk- adjusted total return performance and is expressed in a star-rating format. The risk-adjusted number is computed by subtracting a fund's risk score (which is a function of the fund's monthly returns less the 3-month T-bill return) from the fund's load-adjusted total return score. This numerical score is then translated into rating categories, with the top 10% labeled five star, the next 22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled two star, and the bottom 10% one star. A high rating reflects either above-average returns or below-average risk or both. To illustrate the historical returns on various types of financial assets, the Funds may use historical data provided by Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains) very long-term (since 1926) total return data (including, for example, total return indexes, total return percentages, average annual total returns and standard deviations of such returns) for the following asset types: common stocks; small company stocks; long-term corporate bonds; long-term government bonds; intermediate-term government bonds; U.S. Treasury bills; and Consumer Price Index. INVESTMENT ADVISER The Funds' investment adviser, Harris Associates L.P. (the "Adviser"), furnishes continuing investment supervision to the Funds and is responsible for overall management of the Funds' business affairs pursuant to investment advisory agreements relating to the respective Funds (the "Agreements"). The Adviser furnishes office space, equipment and personnel to the Funds, and assumes the expenses of printing and distributing the Funds' prospectus and reports to prospective investors. Each Fund pays the cost of its custodial, stock transfer, dividend disbursing, bookkeeping, audit and legal services. Each Fund also pays other expenses such as the cost of proxy solicitations, printing and distributing notices and copies of the prospectus and shareholder reports furnished to existing shareholders, taxes, insurance premiums, the expenses of maintaining the registration of that Fund's shares under federal and state securities laws and the fees of trustees not affiliated with the Adviser. The Adviser has voluntarily agreed to reimburse each Fund to the extent that its annual ordinary operating expenses exceed the following percent of the Fund's average net assets through January 31, 1999, subject to earlier termination by the Adviser on 30 days' notice to the Fund: 1.5% in the case of Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund and 2% in the case of International Fund and International Small Cap Fund. For the purpose of determining whether a Fund is entitled to any reduction in advisory fee or expense reimbursement, that Fund's expenses are calculated daily and any reduction in fee or reimbursement is made monthly. 12 For its services as investment adviser, the Adviser receives from each Fund a monthly fee based on that Fund's net assets at the end of the preceding month. Basing the fee on net assets at the end of the preceding month has the effect of (i) delaying the impact of changes in assets on the amount of the fee and (ii) in the first year of a fund's operation, reducing the amount of the aggregate fee by providing for no fee in the first month of operation. The annual rates of fees as a percentage of each Fund's net assets are as follows:
Fund Fee - ----------------- ---------------------------------------------------------------------- Equity and Income .75% Oakmark 1% up to $2.5 billion; .95% on the next $1.25 billion; .90% on the next $1.25 billion; and .85% on net assets in excess of $5 billion International 1% up to $2.5 billion; .95% on the next $2.5 billion; and .90% on net assets in excess of $5 billion Select 1% up to $1 billion; .95% on the next $500 million; .90% on the next $500 million; .85% on the next $500 million; .80% over $2.5 billion Small Cap 1.25% up to $1 billion; 1.15% on the next $500 million; 1.10% on the next $500 million; 1.05% on the next $500 million; 1% over $2.5 billion International Small Cap 1.25%
The table below shows gross advisory fees paid by the Funds and any expense reimbursements by the Adviser to them, which are described in the prospectus.
Eleven Months Year Ended October 31, Type of Ended September 30, ------------------------ Fund Payment 1997 1996 1995 - ------------------ ------------- ------------------- ----------- ----------- Oakmark Advisory fee $43,705,462 $36,082,925 $21,215,738 Select Advisory fee 1,731,599 -- -- Small Cap Advisory fee 7,705,828 956,809 -- Equity and Advisory fee 140,973 69,005 -- Income Reimbursement 39,450 14,245 -- International Advisory fee 13,040,702 10,113,272 9,916,904 International Advisory fee 648,148 258,427 -- Small Cap Reimbursement -- 35,441 --
The Agreement for each Fund was for an initial term expiring September 30, 1997. Each Agreement will continue from year to year thereafter so long as such continuation is approved at least annually by (1) the board of trustees or the vote of a majority of the outstanding voting securities of the Fund, and (2) a majority of the trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Agreement may be terminated at any time, without penalty, by either the Trust or the Adviser upon sixty days' written notice, and is automatically terminated in the event of its assignment as defined in the 1940 Act. The Adviser is a limited partnership managed by its general partner, Harris Associates, Inc., whose directors are David G. Herro, Robert M. Levy, Roxanne M. Martino, Victor A. 13 Morgenstern, Anita M. Nagler, William C. Nygren, Neal Ryland, Robert J. Sanborn and Peter S. Voss. Mr. Levy is the president and chief executive officer of Harris Associates, Inc. TRUSTEES AND OFFICERS Information on the trustees and officers of the Trust is included in the Funds' prospectus under "Trustees and Officers." All of that information is incorporated herein by reference. The addresses of the trustees are as follows: Michael J. Friduss c/o MJ Friduss & Associates 1555 Museum Drive Highland Park, Illinois 60035 Thomas H. Hayden c/o Bozell Worldwide, Inc. 625 North Michigan Avenue Chicago, Illinois 60611-3110 Christine M. Maki c/o Hyatt Corporation 200 West Madison Street Chicago, Illinois 60606 Victor A. Morgenstern c/o Harris Associates L.P. Two North La Salle Street, Suite 500 Chicago, Illinois 60602 Allan J. Reich c/o D'Ancona & Pflaum 30 North La Salle Street, Suite 2900 Chicago, Illinois 60602 Marv R. Rotter c/o Rotter & Associates 5 Revere Drive, Suite 400 Northbrook, Illinois 60062-1571 Burton W. Ruder c/o The Academy Group 707 Skokie Boulevard, Suite 410 Northbrook, Illinois 60062 Peter S. Voss c/o New England Investment Companies, L.P. 399 Boylston Street Boston, Massachusetts 02116 Gary N. Wilner, M.D. c/o Evanston Hospital 2650 Ridge Avenue Evanston, Illinois 60201 Messrs. Morgenstern and Voss are trustees who are "interested persons" of the Trust as defined in the 1940 Act. They and Dr. Wilner are members of the executive committee, which has authority during intervals between meetings of the board of trustees to exercise the powers of the board, with certain exceptions. 14 At December 31, 1997, the trustees and officers as a group owned beneficially the following percentages of the outstanding shares of the Funds: Select, 1.7%; Equity and Income, 12.5%; International Small Cap, 15.6%; and less than 1% in the case of each other Fund. The following table shows the compensation paid by the Trust for the eleven months ended September 30, 1997 to each trustee who was not an "interested person" of the Trust:
Aggregate Compensation Name of Trustee from the Trust* - -------------------------------------------------------------------------------- Christine M. Maki $28,500 Michael J. Friduss 32,000 Thomas H. Hayden 26,000 Allan J. Reich 30,000 Marv R. Rotter 24,000 Burton W. Ruder 26,000 Gary N. Wilner, M.D. 33,000 - --------------------------------------------------------------------------------
* The Trust is not part of a fund complex. Other trustees who are "interested persons" of The Trust, as well as the officers of the Trust, are compensated by the Adviser and not by The Trust. The Trust does not provide any pension or retirement benefits to its trustees. PRINCIPAL SHAREHOLDERS The only persons known by the Trust to own of record or "beneficially" (within the meaning of that term as defined in rule 13d-3 under the Securities Exchange Act of 1934) 5% or more of the outstanding shares of any Fund as of December 31, 1997 were:
Percentage of Outstanding Name and Address Fund Shares Held - ---------------- ---- ----------- Charles Schwab & Co. Inc. (1) Oakmark 31.9% 101 Montgomery Street Select 33.0 San Francisco, CA 94104-4122 Small Cap 41.3 Equity and Income 15.1 International 35.4 International Small Cap 31.1 Donaldson Lufkin & Jenrette Securities Select 5.2 Corporation (1) One Pershing Plaza Jersey City, NJ 07399-0001
15 David G. Herro (2) International Small Cap 9.8 Two North LaSalle Street, #500 Chicago, IL 60602 Clyde S. and Joan K. McGregor Equity and Income 9.5 Two North LaSalle Street, #500 Chicago, IL 60602 Morgan Stanley & Co., Inc. (1) Equity and Income 7.9 1 Pierrepont Plaza, 10th Floor Brooklyn, NY 11201-2776 National Financial Services Corp. (1) Oakmark 8.4 P.O. Box 3908 Select 23.6 Church Street Station Small Cap 10.4 New York, NY 10008-3908 Equity and Income 5.1
- ---------- (1) Shares are held for accounts of customers. (2) 605,063 of these shares are included in shares held by Morgan Stanley & Co., Inc. PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the Funds' prospectus under the headings "Purchasing and Redeeming Shares - How to Purchase Shares," "Purchasing and Redeeming Shares - How to Redeem Shares," and "Purchasing and Redeeming Shares - Shareholder Services." All of that information is incorporated herein by reference. The net asset value per share of each Fund is determined by the Trust's custodian, State Street Bank and Trust Company. Securities traded on securities exchanges, or in the over-the-counter market in which transaction prices are reported on the NASDAQ National Market System, are valued at the last sales prices at the time of valuation or, lacking any reported sales on that day, at the most recent bid quotations. Other securities traded over-the-counter are also valued at the most recent bid quotations. Money market instruments having a maturity of 60 days or less from the valuation date are valued on an amortized cost basis. The values of securities of foreign issuers are generally based upon market quotations which, depending upon local convention or regulation, may be last sale price, last bid or asked price, or the mean between last bid and asked prices as of, in each case, the close of the appropriate exchange or other designated time. Securities for which quotations are not available and any other assets are valued at a fair value as determined in good faith by or under the direction of the board of trustees. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by any major bank or dealer. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by the Board. The Funds' net asset values are determined only on days on which the New York Stock Exchange is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in January and February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving and Christmas. If one of these holidays falls 16 on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Trading in the portfolio securities of International Fund or International Small Cap Fund (and of any other Fund, to the extent it invests in securities of non-U.S. issuers) takes place in various foreign markets on certain days (such as Saturday) when the Fund is not open for business and does not calculate its net asset value. In addition, trading in the Fund's portfolio securities may not occur on days when the Fund is open. Therefore, the calculation of net asset value does not take place contemporaneously with the determinations of the prices of many of the Fund's portfolio securities and the value of the Fund's portfolio may be significantly affected on days when shares of the Fund may not be purchased or redeemed. Computation of net asset value (and the sale and redemption of a Fund's shares) may be suspended or postponed during any period when (a) trading on the New York Stock Exchange is restricted, as determined by the Securities and Exchange Commission, or that exchange is closed for other than customary weekend and holiday closings, (b) the Commission has by order permitted such suspension, or (c) an emergency, as determined by the Commission, exists making disposal of portfolio securities or valuation of the net assets of a Fund not reasonably practicable. Shares of any of the Funds may be purchased through certain financial service companies, without incurring any transaction fee. For services provided by such a company with respect to Fund shares held by that company for its customers, the company may charge a fee of up to 0.30% of the annual average value of those accounts. Each Fund may pay a portion of those fees, not to exceed the estimated fees that the Fund would pay to its own transfer agent if the shares of the Fund held by such customers of the company were registered directly in their names on the books of the Fund's transfer agent. The balance of those fees are paid by the Adviser. The Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day period for any one shareholder. Redemptions in excess of the above amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of marketable securities. Due to the relatively high cost of maintaining small accounts, the Trust reserves the right to redeem at net asset value the shares of any shareholder whose account in any Fund has a value of less than the minimum amount specified by the board of trustees, which currently is $1,000. Before such a redemption, the shareholder will be notified that the account value is less than the minimum and will be allowed at least 30 days to bring the value of the account up to the minimum. The agreement and declaration of trust also authorizes the Trust to redeem shares under certain other circumstances as may be specified by the board of trustees. In connection with the Exchange Plan, the Adviser acts as a Service Organization for the Government Portfolio and the Tax-Exempt Diversified Portfolio of Goldman Sachs Money Market Trust and the GS Short Duration Fund Portfolio of Goldman Sachs Trust. For its services it receives fees at rates of up to .50% of the average annual net assets of each account in those portfolios established through the Exchange Plan, pursuant to 12b-1 plans adopted by those investment companies. 17 ADDITIONAL TAX INFORMATION General. Each Fund intends to continue to qualify to be taxed as a regulated investment company under the Internal Revenue Code of 1986, as amended, so as to be relieved of federal income tax on its capital gains and net investment income currently distributed to its shareholders. At the time of your purchase, a Fund's net asset value may reflect undistributed income, capital gains or net unrealized appreciation of securities held by that Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as dividends or capital gain distributions. International Fund and International Small Cap Fund. Dividends and distributions paid by International Fund and International Small Cap Fund are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of such Funds' income consists of dividends paid by United States corporations. Capital gain distributions paid by the Funds are never eligible for this deduction. Certain foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations are taxable as ordinary income. If the net effect of these transactions is a gain, the dividend paid by either of these Funds will be increased; if the result is a loss, the income dividend paid by either of these Funds will be decreased. Income received by International Fund or International Small Cap Fund from sources within various foreign countries will be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of the Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations, the Fund may file an election with the Internal Revenue Service to "pass through" to the Fund's shareholders the amount of foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Both International Fund and International Small Cap Fund intend to meet the requirements of the Code to "pass through" to its shareholders foreign income taxes paid, but there can be no assurance that a Fund will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of a Fund, if the foreign taxes paid by the Fund will "pass through" for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. TAXATION OF FOREIGN SHAREHOLDERS The Code provides that dividends from net income (which are deemed to include for this purpose each shareholder's pro rata share of foreign taxes paid by International Fund and International Small Cap Fund (see discussion of "pass through" of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividend in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by these Funds are not subject to tax unless 18 the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. PORTFOLIO TRANSACTIONS Portfolio transactions for each Fund are placed with those securities brokers and dealers that the Adviser believes will provide the best value in transaction and research services for that Fund, either in a particular transaction or over a period of time. Subject to that standard, portfolio transactions for each Fund may be executed through Harris Associates Securities L.P. ("HASLP"), a registered broker-dealer and an affiliate of the Adviser. In valuing brokerage services, the Adviser makes a judgment as to which brokers are capable of providing the most favorable net price (not necessarily the lowest commission) and the best execution in a particular transaction. Best execution connotes not only general competence and reliability of a broker, but specific expertise and effort of a broker in overcoming the anticipated difficulties in fulfilling the requirements of particular transactions, because the problems of execution and the required skills and effort vary greatly among transactions. Although some transactions involve only brokerage services, many involve research services as well. In valuing research services, the Adviser makes a judgment of the usefulness of research and other information provided by a broker to the Adviser in managing a Fund's investment portfolio. In some cases, the information, e.g., data or recommendations concerning particular securities, relates to the specific transaction placed with the broker, but for the greater part the research consists of a wide variety of information concerning companies, industries, investment strategy and economic, financial and political conditions and prospects, useful to the Adviser in advising the Funds. The Adviser is the principal source of information and advice to the Funds, and is responsible for making and initiating the execution of the investment decisions for each Fund. However, the board of trustees recognizes that it is important for the Adviser, in performing its responsibilities to the Funds, to continue to receive and evaluate the broad spectrum of economic and financial information that many securities brokers have customarily furnished in connection with brokerage transactions, and that in compensating brokers for their services, it is in the interest of the Funds to take into account the value of the information received for use in advising the Funds. Consequently, the commission paid to brokers (other than HASLP) providing research services may be greater than the amount of commission another broker would charge for the same transaction. The extent, if any, to which the obtaining of such information may reduce the expenses of the Adviser in providing management services to the Funds is not determinable. In addition, it is understood by the board of trustees that other clients of the Adviser might also benefit from the information obtained for the Funds, in the same manner that the Funds might also benefit from information obtained by the Adviser in performing services to others. HASLP may act as broker for a Fund in connection with the purchase or sale of securities by or to the Fund if and to the extent permitted by procedures adopted from time to time by the board of trustees of the Trust. The board of trustees, including a majority of the trustees who are not "interested" trustees, has determined that portfolio transactions for a Fund may be executed through HASLP if, in the judgment of the Adviser, the use of HASLP is likely to result in prices and execution at least as favorable to the Fund as those available from other qualified brokers and if, in such transactions, HASLP charges the Fund commission rates at least as favorable to the Fund as those charged by HASLP to comparable unaffiliated customers in similar transactions. The board of trustees has also adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to HASLP are consistent with the foregoing standard. The Funds will not effect principal transactions with HASLP. In executing transactions 19 through HASLP, the Funds will be subject to, and intend to comply with, section 17(e) of the 1940 Act and rules thereunder. The reasonableness of brokerage commissions paid by the Funds in relation to transaction and research services received is evaluated by the staff of the Adviser on an ongoing basis. The general level of brokerage charges and other aspects of the Funds' portfolio transactions are reviewed periodically by the board of trustees. Transactions of the Funds in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. Although investment decisions for the Funds are made independently from those for other investment advisory clients of the Adviser, it may develop that the same investment decision is made for both a Fund and one or more other advisory clients. If both a Fund and other clients purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each. The Funds do not purchase securities with a view to rapid turnover. However, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons, including general conditions in the securities market, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. A high rate of portfolio turnover would result in increased transaction expense, which must be borne by the Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. The portfolio turnover rates for the Funds are set forth in the prospectus under "Financial Highlights." The following table shows the aggregate brokerage commissions (excluding the gross underwriting spread on securities purchased in initial public offerings) paid by each Fund during the periods indicated, as well as the aggregate commissions paid to affiliated persons of the Trust.
Eleven Months Ended Year Ended October 31, September 30, --------------------------------------- 1997 1996 1995 ---------- ---- ---- Oakmark Fund Aggregate commissions............ $3,094,186 (100%) $2,863,961 (100%) $2,100,849 (100%) Commissions paid to affiliates*.. 997,845 (32.2%) 1,192,641 (41.6%) 389,339 (18.5%) Select Fund Aggregate commissions............ 750,698 (100%) -- -- Commissions paid to affiliates*.. 341,805 (45.5%) -- -- Small Cap Fund Aggregate commissions............ 1,906,488 (100%) 404,602 (100%) -- Commissions paid to affiliates*.. 401,345 (21.0%) 132,729 (32.8%) -- Equity and Income Fund Aggregate commission............. 24,588 (100%) 19,797 (100%) -- Commissions paid to affiliates*.. 15,611 (63.5%) 14,487 (73.2%) -- International Fund Aggregate commissions............ 5,319,725 (100%) 2,804,611 (100%) 2,609,780 (100%) Commissions paid to affiliates*.. 9,732 (0.2%) 82,872 (3.0%) 71,600 (2.7%)
20
International Small Cap Fund Aggregate commissions............ 332,214 (100%) 198,847 (100%) -- Commissions paid to affiliates*.. 732 (0.2%) 6,128 (3.1%) --
- ------------------- * The percent of the dollar amount of each Fund's aggregate transactions involving the Fund's payment of brokerage commissions that were executed through affiliates for each of the periods is shown below.
Year Ended October 31, Eleven Months Ended ---------------------- Fund September 30, 1997 1996 1995 ---- ------------------- ---- ---- Oakmark 36.5% 47.0% 7.5% Select 48.0 - - Small Cap 23.2 40.0 - Equity and Income 67.0 78.0 - International 0.4 5.0 1.6 International Small Cap 0.5 0.4 -
Of the aggregate brokerage commissions paid during the eleven months ended September 30 1997, the Funds paid the following commissions to brokers who furnished research services: Oakmark, $506,571; Select, $109,737; Small Cap, $277,694; Equity and Income, $1,116; International, $5,122,190; International Small Cap, $315,422. DECLARATION OF TRUST The Agreement and Declaration of Trust under which the Trust has been organized ("Declaration of Trust") disclaims liability of the shareholders, trustees and officers of the Trust for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or contract entered into or executed by the Trust or the board of trustees. The Declaration of Trust provides for indemnification out of the Trust's assets for all losses and expenses of any shareholder held personally liable for obligations of the Trust. Thus, although shareholders of a business trust may, under certain circumstances, be held personally liable under Massachusetts law for the obligations of the Trust, the risk of a shareholder incurring financial loss on account of shareholder liability is believed to be remote because it is limited to circumstances in which the disclaimer is inoperative and the Trust itself is unable to meet its obligations. The risk to any one series of sustaining a loss on account of liabilities incurred by another series is also believed to be remote. CUSTODIAN State Street Bank and Trust Company, P.O. Box 8510, Boston Massachusetts 02266-8510 is the custodian for the Trust. It is responsible for holding all securities and cash of each Fund, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, making all payments covering expenses of the Funds, and performing other administrative duties, all as directed by authorized persons of the Trust. The custodian also performs certain portfolio accounting services for the Funds, for which each Fund pays the custodian a monthly fee. The fee paid by Oakmark Fund is $2,500 per month. The fee paid by Oakmark International is $3,000 per month. The fee paid by each of Select Fund, Small Cap Fund and Equity and Income Fund is $2,500 per month and the fee paid by International Small Cap Fund is $3,000 per month. The custodian does not exercise any supervisory function in such matters as the purchase and sale of portfolio securities, payment of dividends, or payment of expenses of a Fund. The Trust has authorized the custodian to deposit certain portfolio securities of each Fund in central depository systems as permitted under federal 21 law. The Funds may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603, audits and reports on each Fund's annual financial statements, reviews certain regulatory reports and the Funds' federal income tax returns, and performs other professional accounting, auditing, tax and advisory services when engaged to do so by the Trust. FINANCIAL STATEMENTS Copies of the annual reports for each Fund for the eleven months ended September 30, 1997 accompany this Statement of Additional Information. Those reports contain financial statements, notes thereto, supplementary information entitled "Condensed Financial Information" and reports of independent auditors, all of which (but no other part of the reports), and the notes thereto that also accompany this Statement of Additional Information, are incorporated herein by reference. A copy of the Funds' Prospectus and additional copies of the reports to shareholders may be obtained from the Trust at no charge by writing to the Trust at the address shown on the cover page of this statement of additional information, or by telephoning the number shown on the cover page. 22 APPENDIX -- BOND RATINGS A rating by a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the credit-worthiness of an issuer. Consequently, the Adviser believes that the quality of debt securities in which the Fund invests should be continuously reviewed and that individual analysts give different weightings to the various factors involved in credit analysis. A rating is not a recommendation to purchase, sell, or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the rating services from other sources which they consider reliable. Ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). Ratings by Moody's: Aaa. Bonds rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such bonds. Aa. Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in the Aaa bonds, fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa bonds. A. Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa. Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba. Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class. B. Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa. Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. 23 Ca. Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C. Bonds rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Ratings By Standard & Poor's: AAA. Debt rated AAA has the highest rating. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. A. Debt rated A has a very strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions, or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB-B-CCC-CC. Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C. This rating is reserved for income bonds on which no interest is being paid. D. Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears. NOTE: The ratings from AA to B may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. 24 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits --------------------------------- (a) Financial statements: -------------------- (1) Financial statements included in Part A of this amendment: Financial Highlights (2) Financial statements included in Part B of this amendment: Audited financial statements of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund#, The Oakmark International Fund and The Oakmark International Small Cap Fund# (schedules of investments at September 30, 1997, statements of assets and liabilities at September 30, 1997, statements of operations for the eleven months ended September 30, 1997, statements of changes in net assets for the eleven months ended September 30, 1997 and, for each of such Funds other than The Oakmark Select Fund for the year ended October 31, 1996 and notes to financial statements) incorporated by reference to those portions of Registrant's Annual Report - September 30, 1997. Schedule I for each Fund has been omitted as the required information is presented in the schedules of investments at September 30, 1997. Schedules II, III, IV, V, VI and VII for each Fund are omitted as the required information is not present. (b) Exhibits: -------- Note: As used herein, "Registration Statement" refers to this registration statement under the Securities Act of 1933, no. 33-38953. "Pre-effective Amendment" refers to a pre-effective amendment to the Registration Statement, and "Post-effective Amendment" refers to a post-effective amendment to the Registration Statement. 1 Agreement and declaration of trust (exhibit 1 to Post-effective Amendment no. 18*) 2 Bylaws as amended through September 9, 1997 (exhibit 2 to Post-effective Amendment no. 19*) 3 None 4 The registrant does not issue share certificates. 5.1 Investment advisory agreement for The Oakmark Fund dated August 30, 1996 (exhibit 5.1 to Post-effective Amendment no. 17*) 5.2 Investment advisory agreement for The Oakmark International Fund dated August 30, 1996 (exhibit 5.2 to Post-effective Amendment no. 17*) C-1 5.3 Investment advisory agreement for The Oakmark Small Cap Fund dated August 30, 1996 (exhibit 5.3 to Post-effective Amendment no. 17*) 5.4 Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Small Cap Fund 5.5 Investment advisory agreement for The Oakmark Equity and Income Fund# dated August 30, 1996 (exhibit 5.4 to Post-effective Amendment no. 17*) 5.6 Investment advisory agreement for The Oakmark International Small Cap Fund# dated August 30, 1996 (exhibit 5.5 to Post-effective Amendment no. 17*) 5.7 Investment advisory agreement for The Oakmark Select Fund dated October 22, 1996 (exhibit 5.6 to Post-effective Amendment no. 17*) 5.8 Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Select Fund 6 None 7 None 8.1 Custody agreement with State Street Bank and Trust Company dated July 10, 1991 (exhibit 8.1 to Post-effective Amendment no. 18*) 8.2 Special custody account agreement (short sales) dated September 24, 1991 (exhibit 8.2 to Post-effective Amendment no. 18*) 8.3 Form of letter agreement dated September 8, 1992 applying custody agreement (exhibit 8.1) to The Oakmark International Fund (exhibit 8.3 to Post-effective Amendment no. 18*) 8.4 Form of letter agreement dated September 15, 1995 applying custody agreement (exhibit 8.1) and transfer agency agreement to The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund# (exhibit 8.4 to Post-effective Amendment no. 18*) 8.5 Form of letter agreement dated September 30, 1996 applying custody agreement (exhibit 8.1) to The Oakmark Select Fund (exhibit 8.5 to Post- effective Amendment no. 17*) 8.6 Form of special custody account agreement (short sales) dated May 21, 1996 for each of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund 9 None 10.1 Opinion of Ropes & Gray dated July 11, 1991 - The Oakmark Fund (exhibit 10.1 to Post-effective Amendment no. 18*) C-2 10.2 Opinion of Bell, Boyd & Lloyd dated July 23, 1992 - The Oakmark International Fund (exhibit 10.2 to Post-effective Amendment no. 18*) 10.3 Opinion of Ropes & Gray dated September 20, 1995 - The Oakmark International Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund# (exhibit 10.3 to Post-effective Amendment no. 18*) 10.4 Opinion of Bell, Boyd & Lloyd dated September 20, 1995 - The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund# (exhibit 10.4 to Post-Effective Amendment no. 18*) 10.5 Opinion of Bell, Boyd & Lloyd dated October 22, 1996 - The Oakmark Select Fund (exhibit 10.5 to Post-effective Amendment no. 17*) 11 Consent of independent public accountants 12 None 13.1 Organizational expense agreement for The Oakmark Fund dated July 31, 1991 (exhibit 13.1 to Post-effective Amendment no. 18*) 13.2 Organizational expense agreement for The Oakmark International Fund dated September 15, 1992 (exhibit 13.2 to Post-effective Amendment no. 18*) 13.3 Organizational expense agreement for The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund# dated July 6, 1995 (exhibit 13.3 to Post-effective Amendment no. 18*) 13.4 Organizational expense agreement for The Oakmark Select Fund dated October 22, 1996 (exhibit 13.4 to Post-effective Amendment no. 17*) 13.5 Form of subscription agreement (exhibit 13.5 to Post-effective Amendment no. 18*) 14.1 The Oakmark Funds IRA Plan booklet and adoption agreement, effective January 1, 1998 14.2 Form of individual retirement custodial account application, revised January 1, 1998 14.3 Form of IRA transfer form, revised January 1, 1998 15 None 16 Schedule for computation of performance quotations 17 Financial data schedule 18 New account registration form, revised January 1998 - -------------------- * Incorporated by reference C-3 # The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund were formerly named The Oakmark Balanced Fund and The Oakmark International Emerging Value Fund, respectively. Item 25. Persons Controlled By or Under Common Control with Registrant ------------------------------------------------------------- The registrant does not consider that there are any persons directly or indirectly controlling, controlled by, or under common control with, the registrant within the meaning of this item. The information in the prospectus under the caption "Management of the Fund" and in the Statement of Additional Information under the caption "Investment Adviser" and "Trustees and Officers" is incorporated by reference. Item 26. Number of Holders of Securities ------------------------------- As of December 31, 1997, the respective series of the Trust had the following numbers of shareholders of record: The Oakmark Fund, 217,678; The Oakmark Select Fund, 26,454; The Oakmark Small Cap Fund, 40,308; The Oakmark Equity and Income Fund, 2,767; The Oakmark International Fund, 62,551; The Oakmark International Small Cap Fund, 5,868. Item 27. Indemnification ---------------- Article VIII of the agreement and declaration of trust of registrant (exhibit 1 to this registration statement, which is incorporated herein by reference) provides that registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, negligence or reckless disregard of the duties involved in the conduct of his office. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The registrant, its trustees and officers, Harris Associates L.P. ("HALP") (the investment adviser to registrant) and certain affiliated persons of HALP and affiliated persons of such persons are insured under a policy of insurance maintained by registrant and HALP, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such trustees, directors or officers. The policy expressly excludes coverage for any trustee or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently. C-4 Item 28. Business and Other Connections of Investment Adviser ---------------------------------------------------- The information in the prospectus under the caption "Management of the Funds" is incorporated by reference. Neither the Adviser nor its general partner has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its own account or in the capacity of director, officer, employee, partner or trustee, except that the Adviser is a registered commodity trading adviser and commodity pool operator and its general partner is also the general partner of a securities broker-dealer firm. Item 29. Principal Underwriters ---------------------- Not applicable Item 30. Location of Accounts and Records -------------------------------- Mr. Victor A. Morgenstern Harris Associates L.P. Two North La Salle Street, Suite 500 Chicago, Illinois 60602 Item 31. Management Services ------------------- None Item 32. Undertakings ------------ (a) Not applicable (b) Not applicable (c) Registrant undertakes to furnish to each person to whom a prospectus is delivered a copy of the latest annual report(s) to shareholders of Registrant upon request and without charge. (d) Registrant undertakes, if required to do so by the holders of at least 10% of the Registrant's outstanding shares, to call a meeting of shareholders for the purpose of voting upon the question of removal of a director or directors and to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the registrant certifies that it meets all of the requirements for effectiveness of this registration statement pursuant to rule 485(b) under the Securities Act of 1933 and has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois on January 21, 1998. HARRIS ASSOCIATES INVESTMENT TRUST By /s/ Victor A. Morgenstern -------------------------------- Victor A. Morgenstern, Chairman Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ Michael J. Friduss Trustee ) - --------------------------- ) Michael J. Friduss ) ) /s/ Thomas H. Hayden Trustee ) - --------------------------- ) Thomas H. Hayden ) ) /s/ Christine M. Maki Trustee ) - --------------------------- ) Christine M. Maki ) ) /s/ Victor A. Morgenstern Trustee and Chairman ) - --------------------------- ) Victor A. Morgenstern (chief executive officer) ) ) /s/ Allan J. Reich Trustee ) - --------------------------- ) Allan J. Reich ) ) January 21, 1998 /s/ Marv R. Rotter Trustee ) - --------------------------- ) Marv R. Rotter ) ) /s/ Burton W. Ruder Trustee ) - --------------------------- ) Burton W. Ruder ) ) - --------------------------- Trustee ) Peter S. Voss ) ) /s/ Gary N. Wilner Trustee ) - --------------------------- ) Gary N. Wilner ) ) /s/ Kristi L. Rowsell ) - --------------------------- Treasurer (principal ) Kristi L. Rowsell accounting officer) )
Exhibits Being Filed with This Amendment ----------------------------------------
Exhibit Number - ------- 5.4 Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Small Cap Fund 5.8 Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Select Fund 8.6 Form of special custody account agreement (short sales) dated May 21, 1996 for each of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund 11 Consent of independent public accountants 14.1 The Oakmark Funds IRA Plan booklet and adoption agreement, effective January 1, 1998 14.2 Form of individual retirement custodial account application, revised January 1, 1998 14.3 Form of IRA transfer form, revised January 1, 1998 16 Schedule for computation of performance quotations 17 Financial data schedule 18 New account registration form, revised January 1998
EX-99.5.4 2 AMENDMENT DATED SEPT. 9, 1997 TO SMALL CAP FUND Exhibit 5.4 AMENDMENT TO INVESTMENT ADVISORY AGREEMENT FOR THE OAKMARK SMALL CAP FUND HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act") as an open- end diversified management investment company (the "Trust"), and HARRIS ASSOCIATES L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser (the "Adviser"), agree that paragraph 6 of the investment advisory agreement between the parties for The Oakmark Small Cap Fund (the "Fund") dated August 30, 1996 is amended as of the date of this amendment to read as follows: 6. Compensation of Adviser. For the services to be rendered and the charges and expenses to be assumed and to be paid by the Adviser hereunder, the Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the Fund's net assets as of the last business day of the preceding month, at the annual rate of 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million of net assets, 1.10% on the next $500 million of net assets, 1.05% on the next $500 million of net assets and 1.00% on net assets in excess of $2.5 billion. The fee for a month shall be paid as soon as practicable after the last day of that month. The fee payable hereunder shall be reduced proportionately during any month in which this agreement is not in effect for the entire month. Dated: September 9, 1997 HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ Victor A. Morgenstern HARRIS ASSOCIATES L.P. by Harris Associates, Inc. its General Partner By: /s/ Robert Levy EX-99.5.8 3 AMENDMENT DATED SEPT. 9, 1997 TO SELECT FUND Exhibit 5.8 AMENDMENT TO INVESTMENT ADVISORY AGREEMENT FOR THE OAKMARK SELECT FUND HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act") as an open- end diversified management investment company (the "Trust"), and HARRIS ASSOCIATES L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser (the "Adviser"), agree that paragraph 6 of the investment advisory agreement between the parties for The Oakmark Select Fund (the "Fund") dated October 22, 1996 is amended as of the date of this amendment to read as follows: 6. Compensation of Adviser. For the services to be rendered and the charges and expenses to be assumed and to be paid by the Adviser hereunder, the Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the Fund's net assets as of the last business day of the preceding month, at the annual rate of 1.00% on the first $1 billion of net assets, .95% on the next $500 million of net assets, .90% on the next $500 million of net assets, .85% on the next $500 million of net assets and .80% on net assets in excess of $2.5 billion. The fee for a month shall be paid as soon as practicable after the last day of that month. The fee payable hereunder shall be reduced proportionately during any month in which this agreement is not in effect for the entire month. Dated: September 9, 1997 HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ Victor A. Morgenstern HARRIS ASSOCIATES L.P. by Harris Associates, Inc. its General Partner By: /s/ Robert Levy EX-99.8.6 4 FORM OF SPECIAL CUSTODY ACCOUNT AGREEMENT Exhibit 8.6 SPECIAL CUSTODY ACCOUNT AGREEMENT --------------------------------- (Short Sales) AGREEMENT, dated as of May 21, 1996, by and among State Street Bank and Trust Company, in its capacity as custodian hereunder ("Bank"), Harris Associates Investment Trust Series Designated The Oakmark Fund, (the "Customer"), and Morgan Stanley & Co. Incorporated ("Broker"). WHEREAS, Broker is a securities broker-dealer registered with the Securities and Exchange Commission and a clearing member of The Options Clearing Corporation("OCC") and is a member of several national securities exchanges; and WHEREAS, Customer desires from time to time to sell securities "short" through Broker, such short sales being permitted by Customer's investment policies, and for that purpose has opened one or more margin accounts with Broker (each an "Account") and executed Broker's "Margin Account Agreement" (the "Customer Agreement"); and WHEREAS, to facilitate Customer's transactions through Broker, Customer, Bank and Broker desire to establish procedures for the compliance by Broker with the provisions of Regulation T of the Board of Governors of the Federal Reserve System and with the provisions of Rule 431 of the New York Stock Exchange and other applicable requirements and for compliance by Customer with Regulation X of the Board of Governors of the Federal Reserve System and other requirements ("Margin Rules"); and WHEREAS, to assist Broker and Customer in complying with the Margin Rules, Bank is prepared to act as custodian to hold Collateral as defined below (in such capacity, Bank is herein called the "Custodian"). NOW, THEREFORE, be it agreed as follows: 1. As used herein, the following terms have the following meanings: "Adequate Margin" shall mean such Collateral as is adequate in Broker's judgment under the Margin Rules and the internal policies of Broker. For purposes hereunder, Collateral shall be valued by Broker at Broker's sole discretion. "Advice from Broker" or "Advice" means a written notice sent to Customer and/or Bank or transmitted by a facsimile sending device, except that for any of the following purposes it may mean notice by telephone to a person designated by Customer in writing as authorized to receive such advice or, in the event that no such person is available, to any officer of Customer and confirmed promptly in writing thereafter: (i) for initial or additional Collateral; (ii) that Customer has defaulted pursuant to paragraph 9(a) hereof; or (iii) to Advise Customer with respect to Broker's ability to effect a short sale. With respect to any short sale or covering purchase transaction, the Advice from Broker shall mean a standard confirmation in use by Broker and sent or transmitted to Customer and/or Bank. With respect to substitutions or releases of Collateral, Advice from Broker means a written notice signed by an authorized person of Broker and sent or transmitted to Customer and/or Bank. An officer of Broker will certify to Bank and Customer the names and signatures of those employees who are authorized to Advise by telephone and/or sign Advices from Broker, which certification may be amended from time to time. When used herein the term "Advise" means the act of sending an Advice from Broker. "Closing Transaction" is a transaction in which Customer purchases securities which have been sold short. "Collateral" shall mean cash or U.S. Government securities or other securities acceptable to Broker which are deposited by Customer from time to time in the Special Custody Account defined below. "Insolvency" means that (A) an order, judgment or decree has been entered under the bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law (herein called the "Bankruptcy Law") of any jurisdiction adjudicating the Customer insolvent; or (B) the Customer has petitioned or applied to any tribunal for, or consented to the appointment of, or taking possession by, a trustee, receiver, liquidator or similar official, of the Customer, or commenced a voluntary case under the Bankruptcy Law of the United States or any proceedings relating to the Customer under the Bankruptcy Law of any other jurisdiction, whether now or hereinafter in effect or (C) any such petition or application has been filed, or any such proceeding has commenced, against the Customer or the Customer by any act has indicated its approval thereof, consent thereto or acquiescence therein, or an order for relief has been entered in an involuntary case under the Bankruptcy Law of the United States, as now or hereinafter constituted, or an order, judgment or decree has been entered appointing any such trustee, receiver, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days. "Instructions from Customer" or "Instructions" means a request, direction or certification in writing signed by Customer and delivered to Bank and/or Broker or transmitted by a facsimile sending device and which is reasonably believed by Bank and/or Broker in good faith to be signed by a person authorized to give Instructions on behalf of Customer. An authorized agent of Customer will certify to Bank and Broker the names and signatures of those persons authorized to Instruct Bank and/or Broker, which certification may be amended from time to time. When used herein, the term "Instruct" shall mean the act of sending an Instruction from Customer. "Receipt of Payment" means receipt by Bank on behalf of Broker, of (1) a certified or official bank check, (2) a written or telegraphic advice from a registered clearing agency that 2 funds have been or will be credited to the account of Bank, or (3) a transfer of funds from any of Broker's accounts maintained at Bank. "Receipt of Securities" means receipt by Bank on behalf of Broker, of (1) securities in proper from for transfer or (2) a written or telegraphic advice from a registered clearing agency that securities have been credited to the account of Bank. 2. From time to time, Customer may place orders with Broker for the short sale of securities. Prior to the acceptance of such short sale orders Broker will Advise Customer of Broker's ability to borrow such securities or other properties and acceptance of short sale orders will be contingent upon same. 3. Bank shall open an account on its books entitled "Special Custody Account for margin and short sales for Morgan Stanley & Co. Incorporated as pledgee of Harris Associates Investment Trust Series Designated The Oakmark Fund," (referred to herein as "Special Custody Account"). Collateral shall be released only in accordance with this Agreement. Bank agrees to release Collateral to Customer from the pledge hereunder only upon receipt of Advice from Broker. Customer can substitute or exchange the cash, securities or similar property in the Special Custody Account only after Customer notifies Broker of the contemplated substitution or exchange and Broker Advises Bank that such substitution or exchange is acceptable. Customer hereby grants a continuing security interest to Broker in the Collateral and the proceeds thereof to secure its obligations to Broker under the Margin Agreement and this Agreement. 4. Customer agrees to instruct Bank in Instructions from Customer that cash and securities specified by Customer qualifying as Collateral and at least equal in value to what Broker shall initially and from time to time advise Customer in an Advice from Broker is necessary to constitute Adequate Margin are to be identified on Bank's books and records as pledged to Broker as Collateral. Such Collateral (i) will be held by Bank in the Special Custody Account for Broker as agent of Broker, subject to the terms and conditions of this Agreement; (ii) may be released only in accordance with the terms of this Agreement; and (iii) except as required to be released hereunder to Broker, shall not be made available to Broker or to any other person claiming through Broker, including creditors of Broker. Bank will hold the Collateral in the Special Custody Account separate and apart from any other property of Customer which may be held by Bank, subject to the interest therein of Broker as the pledgee thereof in accordance with the terms of this Agreement. Such security interest will terminate at such time as Collateral is released as provided herein. Any dividends or interest paid with respect to the Collateral held in the Special Custody Account shall be paid by Bank to Customer when collected unless Bank has received other instructions from Customer. Bank will confirm in writing to Broker and Customer all pledges, deliveries, releases or substitutions of Collateral. Bank will also advise Broker and Customer upon request, at any time, of the kind and amount of Collateral pledged to Broker and held in the Special Custody Account. A monthly statement will be provided to Broker and Customer listing all Collateral held in the Special Custody Account. Bank will also advise Broker daily by 3:00 p.m. E.S.T of the amount 3 of the Collateral pledged to Broker as of the close of business of the prior business day by facsimile to (718) 754-______ and once a month to the Broker's address. Upon the request of Customer, Broker shall Advise Bank and Customer of any excess of Collateral in the Special Custody Account. Upon Customer's request, broker shall Advise Bank to transfer such excess Collateral out of the Special Custody Account to an account designated by Customer. 5. Customer represents and warrants to Broker that securities included at any time in the Collateral shall be in good deliverable form (or Bank shall have the unrestricted power to put such securities into good deliverable form) in accordance with the requirements of such exchanges as may be the primary market or markets for such securities. Securities Collateral may be held at Depository Trust Company ("DTC") or other book-entry depository system in the account of Bank, except U.S. Treasury securities may also be held at the Federal Reserve Bank in the account of Bank. The Bank represents that Collateral will not be subject to any lien, charge, security interest or other right or claim of the Bank or any person claiming through the Bank. 6. Bank will maintain accounts and records for the Collateral in the Special Custody Account separate from the accounts and records for other property of Customer held by Bank and other property in which Broker has an interest. 7. Customer agrees to maintain Adequate Margin at all times. Broker shall initially, and from time to time, advise Customer (in an Advice from Broker) of the value of Collateral which is necessary to constitute Adequate Margin. Broker shall, from time to time and on the last business day of each week, compute the aggregate net credit or debit balance on Customer's open short sales and advise Customer by 11:00 a.m. New York time of the amount of the net debit or credit, as the case may be. If a net debit balance exists on such day, Customer will cause an amount equal to such net debit balance to be deposited as Collateral in the Special Custody Account by the close of business on such day. If a net credit balance exists on such day, Broker will pay interest on such credit balance at the rate listed in Appendix A hereto. Broker will pay interest on short credit balances at the rates listed in Appendix A hereto. Balances will be appropriately adjusted to reflect each Closing Transaction. Upon Customer's request, Broker shall promptly transfer excess Collateral out of Customer's Account with Broker into an account designated by Customer. 8. It is understood and agreed that Customer, when placing with Broker any order to sell short for Customer's account, will designate the order as such and hereby authorizes Broker to mark such order as being "short," and when placing with Broker any order to sell long for Customer's account, will designate the order as such and hereby authorizes Broker to mark such order as being "long." Any sell order which Customer shall designate as being for long account as above provided is for securities then owned by Customer. 9(a) In the event of default of Customer of any obligation hereunder or under the Margin Agreement, or in the event of Customer's Insolvency, Broker may, after transmittal of an Advice from Broker to Customer specifying such default of Insolvency and of its intention to do so, and only if Customer continues to be in default or Insolvent, sell and Advise Bank to deliver to Broker the proceeds of such of the Collateral as in Broker's judgment is reasonably necessary for 4 the protection of its interest under this Agreement. Bank will act immediately upon receipt of such Advice from Broker. Bank will also provide prompt telephone notice to Customer of any receipt by Bank of such Advice from Broker. (b) Any sale of Collateral made pursuant to this paragraph 9 must be made on the exchange or other market where such business is then usually transacted. Such shall be made in a manner commercially reasonable for such securities. Customer shall remain liable to Broker for the deficiency. Broker shall notify Customer of any sale of Collateral and any deficiency remaining in an Advice from Broker. If the proceeds of any such sale exceed the amount due to Broker under this paragraph 9, the excess of the amount due to Broker shall remain in the Special Custody Account as Collateral unless otherwise released or withdrawn as provided herein. 10. Bank shall be paid as compensation for its services pursuant to this Agreement such compensation as may from time to time be agreed upon in writing between Customer and Bank. 11. Bank's duties and responsibilities are as set forth in this Agreement. With respect to any losses or liabilities, Bank shall not be liable or responsible for acting or not acting pursuant to any Instructions, Advices or notices from Customer or Broker believed by Bank in good faith to be genuine and authorized, except in the case of Bank's bad faith or negligence. As between Customer and Bank, the terms of the Custodian Agreement shall apply with respect to any losses or liabilities of such parties arising out of matters covered by this Agreement. As between Bank and Broker, Broker shall indemnify and hold Bank harmless for any losses or liabilities incurred by Bank (including reasonable attorneys fees) arising out of any act or omission of Bank's in accordance with any Advice or notice from Broker, except to the extent of Bank's negligence or bad faith in carrying out such Advice, in the case of such bad faith or negligence, Bank shall indemnify and hold Broker harmless for any losses or liabilities incurred by Broker (including reasonable attorneys fees). 12. Neither Broker nor Bank shall be liable for any losses, costs, damages, liabilities or expenses suffered or incurred by Customer as a result of any transaction executed hereunder, or any other action taken or not taken by Broker or Bank hereunder for Customer's account at Customer's direction or otherwise, except to the extent that such loss, cost, damage, liability or expense is the result of Broker's own, or Bank's own, as the case may be, negligence or willful misconduct. 13. No amendment of this Agreement shall be effective unless in writing and signed by an authorized officer of each of the parties hereto. 14. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one and the same instrument. 5 15. It is agreed that, notwithstanding any language to the contrary in Bank's form of confirmation, Bank holds the Collateral as agent of Broker as pledgee and secured party hereunder, not as escrow agent. 16. Customer represents and warrants that the Collateral will not be subject to any other liens or encumbrances, other than to Broker in accordance with the Margin Agreement and this Agreement. 17. Any of the parties hereto may terminate this Agreement by notice in writing to the other parties hereto; provided, however, that the status of any short sales, and of Collateral held at the time of such notice to margin such short sales shall not be affected by such termination until the release of such Collateral pursuant to applicable rules of such national securities exchanges of which Broker may be a member, as applicable. 18. Written communications hereunder shall be sent by facsimile transmission or hand delivered as required herein, when another method of delivery is not specified, may be mailed first class postage prepaid, except that written notice of termination shall be sent by certified mail, addressed: (a) If to Bank, to: (b) If to Customer, to: Harris Associates Investment Trust Series Designated The Oakmark Fund Attention: Molly Head Phone: (312)621-0555 Fax: (312)621-0372 (c) If to Broker, to: Morgan Stanley & Co. Incorporated Correspondent Services One Pierrepont Plaza Brooklyn, New York 11202 Attention: Phone: (718) 754- Fax: (718) 754- 19. This Agreement will be governed by the laws of the State of New York applicable to transactions entered into and to be performed wholly within the State of New York. State Street Bank and Trust Company as Bank By: /s/ Jeff D. Conway -------------------------------- Name: Jeff D. Conway Title: Vice President HARRIS ASSOCIATES INVESTMENT TRUST as Customer By: /s/ Victor A. Morgenstern -------------------------------- Name: Victor A. Morgenstern Title: President Morgan Stanley & Co. Incorporated as Broker By: /s/ Frederick B. Krom -------------------------------- Frederick B. Krom III Managing Director 7 EX-99.11 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 11 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated October 24, 1997, and to all references to our Firm included in or made part of this Registration Statement on Form N-1A of the Harris Associates Investment Trust (comprising The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark International Fund, and The Oakmark International Small Cap Fund). /s/ Arthur Anderson LLP Chicago, Illinois January 19, 1998 EX-99.14.1 6 OAKMARK FUNDS IRA PLAN BOOKLET DATED JAN. 1, 1998 Exhibit 14.1 State Street Bank and Trust Company as Custodian for The Oakmark Family of Funds IRA Information Kit Effective January 1, 1998 Introduction What's New In The World Of IRAs? An Individual Retirement Account ("IRA") has always provided an attractive means to save money for the future on a tax-advantaged basis. Recent changes to Federal tax law have now made the IRA an even more flexible investment and savings vehicle. Among the new changes is the creation of the Roth Individual Retirement Account ("Roth IRA"), which will be available for use after January 1, 1998. Under a Roth IRA, the earnings and interest on an individual's nondeductible contributions grow without being taxed, and distributions may be tax-free under certain circumstances. Most taxpayers (except for those with very high income levels) will be eligible to contribute to a Roth IRA. A Roth IRA can be used instead of a Regular IRA, to replace an existing Regular IRA, or complement a Regular IRA you wish to continue maintaining. Taxpayers with adjusted gross income of up to $100,000 are eligible to convert existing IRAs into Roth IRAs. The details on conversion are found in the description of Roth IRAs in this booklet. Congress has also made significant changes to Regular IRAs. First, Congress increased the income levels at which IRA holders who participate in employer- sponsored retirement plans can make deductible Regular IRA contributions. Also the rules for deductible contributions by an IRA holder whose spouse is a participant in an employer-sponsored retirement plan have been liberalized. Second, the 10% penalty tax for premature withdrawals (before age 59 1/2) will no longer apply in the case of withdrawals to pay certain higher education expenses or certain first-time homebuyer expenses. What's in This Kit? In this Kit you will find detailed information about Roth IRAs and about the changes that have been made to Regular IRAs. You will also find everything you need to establish and maintain either a Regular or Roth IRA, or to convert all or part of an existing Regular IRA to a Roth IRA. The first section of this Kit contains the instructions and forms you will need to open a new Regular IRA or Roth IRA, to transfer from another IRA to a State Street Bank and Trust IRA, or to convert a Regular IRA to a Roth IRA. The second section of this Kit contains our IRA Disclosure Statement. The Disclosure Statement is divided into three parts: Part One describes the basic rules and benefits which are specifically applicable to your Regular IRA. Part Two describes the basic rules and benefits which are specifically applicable to your Roth IRA. Part Three describes important rules and information applicable to all IRAs. The third section of this Kit contains the IRA Custodial Agreement. The Custodial Agreement is also divided into three parts: Part One contains provisions specifically applicable to Regular IRAs. Part Two contains provisions specifically applicable to Roth IRAs. Part Three contains provisions applicable to IRAs (Regular and Roth). This Individual Retirement Custodial Account Kit contains information for both Regular IRAs and Roth IRAs. However, you may use the Adoption Agreement to establish only one Regular IRA or one Roth IRA; separate Adoption Agreements must be completed if you want to establish multiple (Roth or Regular) IRA accounts. What's the Difference Between a Regular IRA and a Roth IRA? With a Regular IRA, an individual may contribute up to $2,000 per year and may be able to deduct the contribution from taxable income, reducing income taxes. Taxes on investment growth and dividends are deferred until the money is withdrawn. Withdrawals are taxed as additional ordinary income when received. Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before age 59 1/2 are assessed a 10% penalty in addition to income tax, unless an exception applies. With a Roth IRA, the contribution limits are essentially the same as Regular IRAs, but there is no tax deduction for contributions. All dividends and investment growth in the account are tax-free. Most important with a Roth IRA: there is no income tax on qualified withdrawals from your Roth IRA. Additionally, unlike a Regular IRA, there is no prohibition on making contributions to Roth IRAs after turning age 70 1/2, and there's no requirement that you begin making minimum withdrawals at that age. The following chart highlights some of the major differences between a Regular IRA and a Roth IRA: Characteristics Regular IRA Roth IRA Eligibility Individuals (and their Individuals (and their spouses) who receive spouses) who receive compensation compensation Individuals age 70 1/2 Individuals age 70 1/2 and over may not and over may contribute contribute Tax Treatment of Subject to No deduction permitted Contributions limitations, for amounts contributed contributions are deductible Contribution Limits Individuals may Individuals may contribute up to generally contribute $2,000 annually (or up to $2,000 (or 100% 100% of compensation, of compensation, if if less) less) Deductibility depends Ability to contribute on income level for phases out at income individuals who are levels of $95,000 to active participants in $110,000 (individual an employer-sponsored taxpayer) and $150,000 retirement plan to $160,000 (married taxpayers) Overall limit for contributions to all IRAs (Regular and Roth combined) is $2,000 annually (or 100% of compensation, if less) Earnings Earnings and interest Earnings and interest are not taxed are not taxed Rollover/Conversions Individual may Rollovers from other rollover amounts held Roth IRAs or Regular in employer-sponsored IRAs only retirement Amounts rolled over arrangements (401(k), (or converted) from SEP IRA, etc.) tax another Regular IRA free to Regular IRA are subject to income tax in the year rolled over or converted Tax on amounts rolled over or converted in 1998 is spread over four year period (1998-2001) Withdrawals Total (principal + Not taxable as long as earnings) taxable as a qualified income in year distribution--generally, withdrawn (except for account open for 5 years, any prior and age 59 1/2 non-deductible Minimum withdrawals contributions) not required after age Minimum withdrawals 70 1/2 must begin after age 70 1/2 Is a Roth or a Regular IRA Right For Me? We cannot act as your legal or tax advisor and so we cannot tell you which kind of IRA is right for you. The information contained in this Kit is intended to provide you with the basic information and material you will need if you decide whether a Regular or Roth IRA is better for you, or if you want to convert an existing Regular IRA to a Roth IRA. We suggest that you consult with your accountant, lawyer or other tax advisor, or with a qualified financial planner, to determine whether you should open a Regular or Roth IRA or convert any or all of an existing Regular IRA to a Roth IRA. Your tax advisor can also advise you as to the state tax consequences that may affect whether a Regular or Roth IRA is right for you. Other Points to Note. The Disclosure Statement in this Kit provides you with the basic information that you should know about State Street Bank and Trust Company Regular IRAs and Roth IRAs. The Disclosure Statement provides general information about the governing rules for these IRAs and the benefits and features offered through each type of IRA. However, the State Street Bank and Trust Company Adoption Agreement and the Custodial Agreement, are the primary documents controlling the terms and conditions of your personal State Street Bank and Trust Company Regular or Roth IRA, and these shall govern in the case of any difference with the Disclosure Statement. The Oakmark Family of Funds State Street Bank and Trust Company Individual Retirement Custodial Account Instructions for Opening Your Regular IRA or Roth IRA _ 1. Read carefully the applicable sections of the IRA Disclosure Statement contained in this Kit, the Regular or Roth Individual Retirement Account Custodial Agreement provisions (as applicable), the Application and Adoption Agreement, and the prospectus. Consult your lawyer or other tax advisor if you have any questions about how opening a Regular IRA or Roth IRA will affect your financial and tax situation. This Individual Retirement Custodial Account Kit contains information and forms for both Regular IRAs and Roth IRAs. However, you may use the Application and Adoption Agreement to establish only one Regular IRA or one Roth IRA; separate Adoption Agreements must be completed if you want to establish multiple (Roth or Regular) IRA accounts. 2. Complete the Application and Adoption Agreement . Print the identifying information where requested in Part 1 of the Adoption Agreement. . For a Regular IRA, check the box for Part A. Check the other boxes in Part A to specify the type of Regular IRA you are opening and provide the requested information. If this is an IRA to which you expect to make contributions each year, check Box 1 and enclose a check in the amount of your first contribution. Be sure to indicate the tax year of this contribution. If this is a transfer directly from another IRA custodian or trustee, check Box 2. Check the appropriate box to indicate whether the funds transferred were originally from contributions to an employee qualified plan or a 403(b) arrangement, or whether any of the funds were originally from your annual contributions to the IRA. Complete and sign the IRA Transfer of Assets Form. If this is a rollover of amounts distributed to you from another IRA or an employer qualified plan or a 403(b) arrangement, check Box 3. Check the appropriate box to indicate whether the transfer is coming from a qualified plan or 403(b) arrangement, or an IRA that held only funds that were originally from contributions to a qualified plan or 403(b), or whether any of the funds were originally from your annual contributions to the IRA. Enclose a check for the rollover contribution amount. If this is a direct rollover from a qualified plan or 403(b) arrangement, check Box 4. Complete and sign the IRA Transfer of Assets Form. If this is an IRA that will be used to receive employer contributions under an employer's simplified employee pension ("SEP") plan or under a grandfathered salary reduction SEP plan ("SARSEP"), check Box 5. . For a Roth IRA, check the box for Part B. Check the other boxes in Part B to specify the type of Roth IRA you are opening and provide the requested information. If this is a Roth IRA to which you expect to make contributions each year, enclose a check in the amount of your first contribution. Be sure to indicate the tax year of this contribution. Only annual contributions may be accepted in an annual contribution Roth IRA account. NOTE: Roth IRAs are available starting January 1, 1998, so you cannot make a contribution for 1997. If you are converting an existing Regular IRA with State Street Bank and Trust as IRA custodian or trustee, check Box 2. Indicate your current IRA account number and how much you are converting. Conversion of an existing Regular IRA will result in inclusion of taxable amounts in the existing Regular IRA on your income tax return. Note: If a conversion, rollover or transfer from a Regular IRA to a Roth IRA is being made, only amounts converted, rolled over or transferred during the same tax year will be accepted in a single Roth IRA. A separate Roth IRA must be established to hold such amounts from a different tax year. Annual contributions may never be deposited in a Roth IRA holding such converted, rolled over or transferred amounts. If you are making a rollover or a transfer from an existing Regular IRA with a different custodian or trustee, check Box 3. A rollover or transfer from an existing Regular IRA means that the taxable amount in the existing Regular IRA will be treated as additional income on your income tax return. If you are making a rollover or a transfer from another Roth IRA with a different trustee or custodian, check Box 4. Put the requested information where indicated. . In Part 3, indicate your investment choices. . In Part 4, indicate your Primary and Alternate Beneficiaries. (Spousal waiver must be signed if beneficiary is other than your spouse.) * See Below . Sign and date the Adoption Agreement in Part 5. 3. If you are transferring assets from an existing IRA with another Custodian to this IRA, complete the Transfer of Assets Form. 4. The Custodian fees for maintaining your IRA are listed in the FEES AND EXPENSES section of Part Three of the Disclosure Statement or in the Adoption Agreement. If you are paying by check, enclose a check for the correct amount payable as specified below. If you do not pay by check, the correct amount will be taken from your account. 5. Check to be sure you have properly completed all necessary forms and enclosed a check for the Custodian's fees (unless being withdrawn from your account) and a check for the first contribution to your Regular or Roth IRA (if applicable). Your Regular IRA or Roth IRA cannot be accepted without the properly completed documents. All checks should be payable to "State Street Bank and Trust." Send the completed forms and checks to: The Oakmark Funds P.O. Box 8510 Boston, MA 02266-8510 * Spousal Waiver is only needed if: 1. Individual retirement account owner is married AND 2. Resides in a marital/community property state AND 3. Appoints someone other than a spouse as primary beneficiary. The Oakmark Family of Funds State Street Bank and Trust Company Individual Retirement Account Disclosure Statement Part One: Description of Regular IRAs SPECIAL NOTE Part One of the Disclosure Statement describes the rules applicable to Regular IRAs beginning January 1, 1998. IRAs described in these pages are called "Regular IRAs" to distinguish them from the new "Roth IRAs" first available starting in 1998. Roth IRAs are described in Part Two of this Disclosure Statement. For Regular IRA contributions for 1997 (including contributions made up to April 15, 1998 but designated as contributions for 1997), there are different rules for determining the deductibility of your contribution on your federal tax return. For contributions for 1997, the "active participant" limits on deductibility (described below) apply if either spouse is an active participant in an employer-sponsored plan. Also, the adjusted gross income ("AGI") levels for partially deductible or nondeductible Regular IRA contributions (described below) are lower for 1997 ($25,000 for single taxpayers, with no deduction if your AGI is above $35,000; and $40,000 for married taxpayers filing jointly, with no deduction if your AGI is above $50,000). Also, the exceptions to the 10% early withdrawal penalty for withdrawals to pay certain higher education or first-time homebuyer expenses do not apply to withdrawals in 1997. Regular IRAs described in this Disclosure Statement may be used as part of a simplified employee pension (SEP) plan maintained by your employer. Under a SEP your employer may make contributions to your Regular IRA, and these contributions may exceed the normal limits on Regular IRA contributions. YOUR REGULAR IRA Part One contains information about your Regular Individual Retirement Custodial Account with State Street Bank and Trust Company as Custodian. A Regular IRA gives you several tax benefits. Earnings on the assets held in your Regular IRA are not subject to federal income tax until withdrawn by you. You may be able to deduct all or part of your Regular IRA contribution on your federal income tax return. State income tax treatment of your Regular IRA may differ from federal treatment; ask your state tax department or your personal tax advisor for details. Be sure to read Part Three of this Disclosure Statement for important additional information, including information on how to revoke your Regular IRA, investments and prohibited transactions, fees and expenses, and certain tax requirements. ELIGIBILITY What are the eligibility requirements for a Regular IRA? You are eligible to establish and contribute to a Regular IRA if: . You received compensation (or earned income if you are self employed) during the year for personal services you rendered. If you received taxable alimony, this is treated like compensation for IRA purposes. . You did not reach age 70 1/2 during the tax filing year. Can I Contribute to a Regular IRA for my Spouse? For each year before the year when your spouse attains age 70 1/2, you may contribute to a separate Regular IRA for your spouse, regardless of whether your spouse had any compensation or earned income in that year. This is called a "spousal IRA." To make a contribution to a Regular IRA for your spouse, you must file a joint tax return for the year with your spouse. For a spousal IRA, your spouse must set up a different Regular IRA, separate from yours, to which you contribute. CONTRIBUTIONS When Can I Make Contributions to a Regular IRA? You may make a contribution to your existing Regular IRA or establish a new Regular IRA for a taxable year by the due date (not including any extensions) for your federal income tax return for the year. Usually this is April 15 of the following year. How Much Can I Contribute to my Regular IRA? For each year when you are eligible (see above), you can contribute up to the lesser of $2,000 or 100% of your compensation (or earned income, if you are self-employed). However, under the tax laws, all or a portion of your contribution may not be deductible. If you and your spouse have spousal Regular IRAs, each spouse may contribute up to $2,000 to his or her IRA for a year as long as the combined compensation of both spouses for the year (as shown on your joint income tax return) is at least $4,000. If the combined compensation of both spouses is less than $4,000, the spouse with the higher amount of compensation may contribute up to that spouse's compensation amount, or $2,000 if less. The spouse with the lower compensation amount may contribute any amount up to that spouse's compensation plus any excess of the other spouse's compensation over the other spouse's IRA contribution. However, the maximum contribution to either spouse's Regular IRA is $2,000 for the year. If you (or your spouse) establish a new Roth IRA and make contributions to both your Regular IRA and a Roth IRA, the combined limit on contributions to both your (or your spouse's) Regular IRA and Roth IRA for a single calendar year is $2,000. How Do I Know if my Contribution is Tax Deductible? The deductibility of your contribution depends upon whether you are an active participant in any employer-sponsored retirement plan. If you are not an active participant, the entire contribution to your Regular IRA is deductible. If you are an active participant in an employer-sponsored plan, your Regular IRA contribution may still be completely or partly deductible on your tax return. This depends on the amount of your income (see below). Similarly, the deductibility of a contribution to a Regular IRA for your spouse depends upon whether your spouse is an active participant in any employer-sponsored retirement plan. If your spouse is not an active participant, the contribution to your spouse's Regular IRA will be deductible. If your spouse is an active participant, the Regular IRA contribution will be completely, partly or not deductible depending upon your combined income. An exception to the preceding rules applies to high-income married taxpayers, where one spouse is an active participant in an employer-sponsored retirement plan and the other spouse is not. A contribution to the non-active participant spouse's Regular IRA will be only partly deductible at an adjusted gross income level on the joint tax return of $150,000, and the deductibility will be phased out as described below over the next $10,000 so that there will be no deduction at all with an adjusted gross income level of $160,000 or higher. How do I Determine My or My Spouse's "Active Participant" status? Your (or your spouse's) Form W-2 should indicate if you (or your spouse) were an active participant in an employer-sponsored retirement plan for a year. If you have a question, you should ask your employer or the plan administrator. In addition, regardless of income level, your spouse's "active participant" status will not affect the deductibility of your contributions to your Regular IRA if you and your spouse file separate tax returns for the taxable year and you lived apart at all times during the taxable year. What are the Deduction Restrictions for Active Participants? If you (or your spouse) are an active participant in an employer plan during a year, the contribution to your Regular IRA (or your spouse's Regular IRA) may be completely, partly or not deductible depending upon your filing status and your amount of adjusted gross income ("AGI"). If AGI is any amount up to the lower limit, the contribution is deductible. If your AGI falls between the lower limit and the upper limit, the contribution is partly deductible. If your AGI falls above the upper limit, the contribution is not deductible. FOR ACTIVE PARTICIPANTS 1998
If You Are If You Are Then Your Regular Single Married Filing IRA Contribution Is Jointly Up to Lower Limit Up to Lower Limit Fully Deductible ($30,000 for 1998) ($50,000 for 1998) Adjusted More than Lower More than Lower Partly Deductible Gross Limit Limit Income but less than Upper but less than Upper (AGI) Level Limit Limit ($40,000 for 1998) ($60,000 for 1998) Upper Limit or more Upper Limit or more Not Deductible
The Lower Limit and the Upper Limit will change for 1999 and later years. The Lower Limit and Upper Limit for these years are shown in the following table. Substitute the correct Lower Limit and Upper Limit in the table above to determine deductibility in any particular year. (Note: if you are married but filing separate returns, your Lower Limit is always zero and your Upper Limit is always $10,000). TABLE OF LOWER AND UPPER LIMITS
Year Single Married Filing Jointly Lower Limit Upper Limit Lower Limit Upper Limit 1999 $31,000 $41,000 $51,000 $61,000 2000 $32,000 $42,000 $52,000 $62,000 2001 $33,000 $43,000 $53,000 $63,000 2002 $34,000 $44,000 $54,000 $64,000 2003 $40,000 $50,000 $60,000 $70,000 2004 $45,000 $55,000 $65,000 $75,000 2005 $50,000 $60,000 $70,000 $80,000 2006 $50,000 $60,000 $75,000 $85,000 2007 and $50,000 $60,000 $80,000 $100,000 later
How do I Calculate my Deduction if I Fall in the "Partly Deductible" Range? If your AGI falls in the partly deductible range, you must calculate the portion of your contribution that is deductible. To do this, multiply your contribution by a fraction. The numerator is the amount by which your AGI exceeds the lower limit (for 1998: $30,000 if single, or $50,000 if married filing jointly). The denominator is $10,000 (note that the denominator for married joint filers is $20,000 starting in 2007). Subtract this from your contribution and then round down to the nearest $10. The deductible amount is the greater of the amount calculated or $200 (provided you contributed at least $200). If your contribution was less than $200, then the entire contribution is deductible. For example, assume that you make a $2,000 contribution to your Regular IRA in 1998, a year in which you are an active participant in your employer's retirement plan. Also assume that your AGI is $57,555 and you are married, filing jointly. You would calculate the deductible portion of your contribution this way: 1. The amount by which your AGI exceeds the lower limit of the partly- deductible range: ($57,555 - $50,000) = $7,555 2. Divide this by $10,000: $ 7,555 _ $10,000 3. Multiply this by your contribution limit: 0.7555 x $2,000 = $1,511 4. Subtract this from your contribution: ($2,000 - $1,551) = $489 5. Round this down to the nearest $10: = $480 6. Your deductible contribution is the greater of this amount or $200. Even though part or all of your contribution is not deductible, you may still contribute to your Regular IRA (and your spouse may contribute to your spouse's Regular IRA) up to the limit on contributions. When you file your tax return for the year, you must designate the amount of non-deductible contributions to your Regular IRA for the year. See IRS Form 8606. How Do I Determine My AGI? AGI is your gross income minus those deductions which are available to all taxpayers even if they don't itemize. Instructions to calculate your AGI are provided with your income tax Form 1040 or 1040A. What Happens if I Contribute more than Allowed to my Regular IRA? The maximum contribution you can make to a Regular IRA generally is $2,000 or 100% of compensation or earned income, whichever is less. Any amount contributed to the IRA above the maximum is considered an "excess contribution." The excess is calculated using your contribution limit, not the deductible limit. An excess contribution is subject to excise tax of 6% for each year it remains in the IRA. How can I Correct an Excess Contribution? Excess contributions may be corrected without paying a 6% penalty. To do so, you must withdraw the excess and any earnings on the excess before the due date (including extensions) for filing your federal income tax return for the year for which you made the excess contribution. A deduction should not be taken for any excess contribution. Earnings on the amount withdrawn must also be withdrawn. The earnings must be included in your income for the tax year for which the contribution was made and may be subject to a 10% premature withdrawal tax if you have not reached age 59 1/2. What Happens if I Don't Correct the Excess Contribution by the Tax Filing Due Date? Any excess contribution withdrawn after the tax filing due date (including any extensions) for the year for which the contribution was made will be subject to the 6% excise tax. There will be an additional 6% excise tax for each year the excess remains in your account. Under limited circumstances, you may correct an excess contribution after tax filing time by withdrawing the excess contribution (leaving the earnings in the account). This withdrawal will not be includable in income nor will it be subject to any premature withdrawal penalty if (1) your contributions to all Regular IRAs do not exceed $2,000 and (2) you did not take a deduction for the excess amount (or you file an amended return (Form 1040X) which removes the excess deduction). How are Excess Contributions Treated if None of the Preceding Rules Apply? Unless an excess contribution qualifies for the special treatment outlined above, the excess contribution and any earnings on it withdrawn after tax filing time will be includable in taxable income and may be subject to a 10% premature withdrawal penalty. No deduction will be allowed for the excess contribution for the year in which it is made. Excess contributions may be corrected in a subsequent year to the extent that you contribute less than your maximum amount. As the prior excess contribution is reduced or eliminated, the 6% excise tax will become correspondingly reduced or eliminated for subsequent tax years. Also, you may be able to take an income tax deduction for the amount of excess that was reduced or eliminated, depending on whether you would be able to take a deduction if you had instead contributed the same amount. Are the Earnings on My Regular IRA Funds Taxed? Any dividends on or growth of the investments held in your Regular IRA are generally exempt from federal income taxes and will not be taxed until withdrawn by you, unless the tax exempt status of your Regular IRA is revoked (this is described in Part Three of this Disclosure Statement). TRANSFERS/ROLLOVERS Can I Transfer or Roll Over a Distribution I Receive from my Employer's Retirement Plan into a Regular IRA? Almost all distributions from employer plans or 403(b) arrangements (for employees of tax-exempt employers) are eligible for rollover to a Regular IRA. The main exceptions are: . payments over the lifetime or life expectancy of the participant (or participant and a designated beneficiary), . installment payments for a period of 10 years or more, . required distributions (generally the rules require distributions starting at age 70 1/2 or for certain employees starting at retirement, if later), and . payments of employee after-tax contributions. If you are eligible to receive a distribution from a tax qualified retirement plan as a result of, for example, termination of employment, plan discontinuance, or retirement, all or part of the distribution may be transferred directly into your Regular IRA. This is a called a "Direct Rollover." Or, you may receive the distribution and make a regular rollover to your Regular IRA within 60 days. By making a direct rollover or a regular rollover, you can defer income taxes on the amount rolled over until you subsequently make withdrawals from your IRA. The maximum amount you may roll over is the amount of employer contributions and earnings distributed. You may not roll over any after-tax employee contributions you made to the employer retirement plan. If you are over age 70 1/2 and are required to take minimum distributions under the tax laws, you may not roll over any amount required to be distributed to you under the minimum distribution rules. Also, if you are receiving periodic payments over your or your and your designated beneficiary's life expectancy or for a period of at least 10 years, you may not roll over these payments. A rollover to a regular IRA must be completed within 60 days after the distribution from the employer retirement plan to be valid. NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF YOUR DISTRIBUTION for federal income taxes UNLESS you elect a direct rollover. Your plan or 403(b) sponsor is required to provide you with information about direct and traditional rollovers and withholding taxes before you receive your distribution and must comply with your directions to make a direct rollover. The rules governing rollovers are complicated. Be sure to consult your tax advisor or the IRS if you have a question about rollovers. Once I Have Rolled Over a Plan Distribution into a Regular IRA, Can I Subsequently Roll Over into another Employer's Qualified Retirement Plan? Yes. Part or all of an eligible distribution received from a qualified plan may be transferred from the Regular IRA holding it to another qualified plan. However, the IRA must have no assets other than those which were previously distributed to you from the qualified plan. Specifically, the IRA cannot contain any contributions by you (or your spouse). Also, the new qualified plan must accept rollovers. Similar rules apply to Regular IRAs established with rollovers from 403(b) arrangements. Can I Make a Traditional Rollover from my Regular IRA to another Regular IRA? You may make a rollover from one Regular IRA to another Regular IRA you have or you establish to receive the rollover. Such a rollover must be completed within 60 days after the withdrawal from your first Regular IRA. After making a traditional rollover from one Regular IRA to another, you must wait a full year (365 days) before you can make another such rollover. (However, you can instruct a Regular IRA custodian to transfer amounts directly to another Regular IRA custodian; such a direct transfer does not count as a rollover.) What Happens If I Combine Rollover Contributions With My Normal Contributions In One IRA? If you wish to make both a normal annual contribution and a rollover contribution, you may wish to open two separate Regular IRAs by completing two Adoption Agreements and two sets of forms. You should consult a tax advisor before making your annual contribution to the IRA you established with rollover contributions (or make a rollover contribution to the IRA to which you make your annual contributions). This is because combining your annual contributions and rollover contributions originating from an employer plan distribution would prohibit the future rollover out of the IRA into another qualified plan. If despite this, you still wish to combine a rollover contribution and the IRA holding your annual contributions, you should establish the account as a Regular IRA on the Adoption Agreement (not a Rollover IRA or Direct Rollover IRA) and make the contributions to that account. How Do Rollovers Affect my Contribution or Deduction Limits? Rollovers, if properly made, do not count toward the maximum contribution. Also, rollovers are not deductible and they do not affect your deduction limits as described above. What About Converting My Regular IRA to a Roth IRA? The rules for converting a Regular IRA to a new Roth IRA, or making a rollover from a Regular IRA to a new Roth IRA, are described in Part Two. WITHDRAWALS When can I make withdrawals from my Regular IRA? You may withdraw from your Regular IRA at any time. However, withdrawals before age 59 1/2 may be subject to a 10% penalty tax in addition to regular income taxes (see below). When must I start making withdrawals? If you have not withdrawn your entire IRA by the April 1 following the year in which you reach 70 1/2, you must make minimum withdrawals in order to avoid penalty taxes. The rule allowing certain employees to postpone distributions from an employer qualified plan until actual retirement (even if this is after age 70 1/2) does not apply to Regular IRAs. The minimum withdrawal amount is determined by dividing the balance in your Regular IRA (or IRAs) by your life expectancy or the combined life expectancy of you and your designated beneficiary. The minimum withdrawal rules are complex. Consult your tax advisor for assistance. The penalty tax is 50% of the difference between the minimum withdrawal amount and your actual withdrawals during a year. The IRS may waive or reduce the penalty tax if you can show that your failure to make the required minimum withdrawals was due to reasonable cause and you are taking reasonable steps to remedy the problem. How Are Withdrawals From My Regular IRA Taxed? Amounts withdrawn by you are includable in your gross income in the taxable year that you receive them, and are taxable as ordinary income. Lump sum withdrawals from a Regular IRA are not eligible for averaging treatment currently available to certain lump sum distributions from qualified employer retirement plans. Since the purpose of a Regular IRA is to accumulate funds for retirement, your receipt or use of any portion of your Regular IRA before you attain age 59 1/2 generally will be considered as an early withdrawal and subject to a 10% penalty tax. The 10% penalty tax for early withdrawal will not apply if: . The distribution was a result of your death or disability. . The purpose of the withdrawal is to pay certain higher education expenses for yourself or your spouse, child, or grandchild. Qualifying expenses include tuition, fees, books, supplies and equipment required for attendance at a post-secondary educational institution. Room and board expenses may qualify if the student is attending at least half- time. . The withdrawal is used to pay eligible first-time homebuyer expenses. These are the costs of purchasing, building or rebuilding a principal residence (including customary settlement, financing or closing costs). The purchaser may be you, your spouse, or a child, grandchild, parent or grandparent of you or your spouse. An individual is considered a "first-time homebuyer" if the individual (or the individual's spouse, if married) did not have an ownership interest in a principal residence during the two-year period immediately preceding the acquisition in question. The withdrawal must be used for eligible expenses within 120 days after the withdrawal. (If there is an unexpected delay, or cancellation of the home acquisition, a withdrawal may be redeposited as a rollover). There is a lifetime limit on eligible first-time homebuyer expenses of $10,000 per individual. . The distribution is one of a scheduled series of substantially equal periodic payments for your life or life expectancy (or the joint lives or life expectancies of you and your beneficiary). . If there is an adjustment to the scheduled series of payments, the 10% penalty tax may apply. The 10% penalty will not apply if you make no change in the series of payments until the end of five years or until you reach age 59 1/2, whichever is later. If you make a change before then, the penalty will apply. For example, if you begin receiving payments at age 50 under a withdrawal program providing for substantially equal payments over your life expectancy, and at age 58 you elect to receive the remaining amount in your Regular IRA in a lump-sum, the 10% penalty tax will apply to the lump sum and to the amounts previously paid to you before age 59 1/2. . The distribution does not exceed the amount of your deductible medical expenses for the year (generally speaking, medical expenses paid during a year are deductible if they are greater than 7 1/2% of your adjusted gross income for that year). . The distribution does not exceed the amount you paid for health insurance coverage for yourself, your spouse and dependents. This exception applies only if you have been unemployed and received federal or state unemployment compensation payments for at least 12 weeks; this exception applies to distributions during the year in which you received the unemployment compensation and during the following year, but not to any distributions received after you have been reemployed for at least 60 days. How are Nondeductible Contributions Taxed When They are Withdrawn? A withdrawal of nondeductible contributions (not including earnings) will be tax-free. However, if you made both deductible and nondeductible contributions to your Regular IRA, then each distribution will be treated as partly a return of your nondeductible contributions (not taxable) and partly a distribution of deductible contributions and earnings (taxable). The nontaxable amount is the portion of the amount withdrawn which bears the same ratio as your total nondeductible Regular IRA contributions bear to the total balance of all your Regular IRAs (including rollover IRAs and SEPs, but not including Roth IRAs). For example, assume that you made the following Regular IRA contributions: Year Deductible Nondeductible ---- ---------- ------------- 1995 $2,000 1996 $2,000 1997 $1,000 $1,000 1998 $1,000 ------ ------ $5,000 $2,000 In addition assume that your Regular IRA has total investment earnings through 1998 of $1,000. During 1998 you withdraw $500. Your total account balance as of 12-31-98 is $7,500 as shown below. Deductible Contributions $5,000 Nondeductible Contributions $2,000 Earnings On IRA $1,000 Less 1998 Withdrawal $ 500 ------ Total Account Balance as of 12/31/98 $7,500 To determine the nontaxable portion of your 1998 withdrawal, the total 1998 withdrawal ($500) must be multiplied by a fraction. The numerator of the fraction is the total of all nondeductible contributions remaining in the account before the 1998 withdrawal ($2,000). The denominator is the total account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or $8,000. The calculation is: Total Remaining X $500 = Nondeductible Contributions $2,000 $125 Total Account Balance $8,000 Thus, $125 of the $500 withdrawal in 1998 will not be included in your taxable income. The remaining $375 will be taxable for 1998. In addition, for future calculations the remaining nondeductible contribution total will be $2,000 minus $125, or $1,875. A loss in your Regular IRA investment may be deductible. You should consult your tax advisor for further details on the appropriate calculation for this deduction if applicable. Is there a penalty tax on certain large withdrawals or accumulations in my IRA? Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals from all retirement accounts (including IRAs, 401(k) or other employer retirement plans, 403(b) arrangements and others) in a year exceeding a specified amount (initially $150,000 per year). Also, there was a 15% estate tax penalty on excess accumulations remaining in IRAs and other tax-favored arrangements upon your death. These 15% penalty taxes have been repealed. Important: Please see Part Three which contains important information applicable to all State Street Bank and Trust Company IRAs. Part Two: Description of Roth IRAs _ SPECIAL NOTE Part Two of the Disclosure Statement describes the rules generally applicable to Roth IRAs beginning January 1, 1998. Roth IRAs are a new kind of IRA available for the first time in 1998. Contributions to a Roth IRA for 1997 are not permitted. Contributions to a Roth IRA are not tax-deductible, but withdrawals that meet certain requirements are not subject to federal income taxes. This makes the dividends on and growth of the investments held in your Roth IRA tax-free for federal income tax purposes if the requirements are met. Regular IRAs, which have existed since 1975, are still available. Contributions to a Regular IRA may be tax-deductible. Earnings and gains on amounts while held in a Regular IRA are tax-deferred. Withdrawals are subject to federal income tax (except for prior after-tax contributions which may be recovered without additional federal income tax). This Part Two does not describe Regular IRAs. If you wish to review information about Regular IRAs, please see Part One of this Disclosure Statement. This Disclosure Statement also does not describe IRAs established in connection with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan maintained by your employer. Roth IRAs may not be used in connection with a SIMPLE IRA program or a SEP plan. YOUR ROTH IRA Your Roth IRA gives you several tax benefits. While contributions to a Roth IRA are not deductible, dividends on and growth of the assets held in your Roth IRA are not subject to federal income tax. Withdrawals by you from your Roth IRA are excluded from your income for federal income tax purposes if certain requirements are met (see WITHDRAWALS on page 14). State income tax treatment of your Roth IRA may differ from federal treatment; ask your state tax department or your personal tax advisor for details. Be sure to read Part Three of this Disclosure Statement for important additional information, including information on how to revoke your Roth IRA, investments and prohibited transactions, fees and expenses and certain tax requirements. ELIGIBILITY What are the eligibility requirements for a Roth IRA? Starting with 1998, you are eligible to establish and contribute to a Roth IRA for a year if you received compensation (or earned income if you are self employed) during the year for personal services you rendered. If you received taxable alimony, this is treated like compensation for IRA purposes. In contrast to a Regular IRA, with a Roth IRA you may continue making contributions after you reach age 70 1/2. Can I Contribute to Roth IRA for my Spouse? Starting with 1998, if you meet the eligibility requirements you can not only contribute to your own Roth IRA, but also to a separate Roth IRA for your spouse out of your compensation or earned income, regardless of whether your spouse had any compensation or earned income in that year. This is called a "spousal Roth IRA." To make a contribution to a Roth IRA for your spouse, you must file a joint tax return for the year with your spouse. For a spousal Roth IRA, your spouse must set up a different Roth IRA, separate from yours, to which you contribute. Of course, if your spouse has compensation or earned income, your spouse can establish his or her own Roth IRA and make contributions to it in accordance with the rules and limits described in this Part Two of the Disclosure Statement. CONTRIBUTIONS When Can I Make Contributions to a Roth IRA? You may make a contribution to your Roth IRA or establish a new Roth IRA for a taxable year by the due date (not including any extensions) for your federal income tax return for the year. Usually this is April 15 of the following year. For example, you will have until April 15, 1999 to establish and make a contribution to a Roth IRA for 1998. Caution: Since Roth IRAs are available starting January 1, 1998, you may not make a contribution by April 15, 1998 to a Roth IRA for 1997. How Much Can I Contribute to my Roth IRA? For each year when you are eligible (see above), you can contribute up to the lesser of $2,000 or 100% of your compensation (or earned income, if you are self-employed). Annual contributions may be made only to a Roth IRA which does not contain converted or transferred funds from a Regular IRA. Your Roth IRA limit is reduced by any contributions for the same year to a Regular IRA. For example, assuming you have at least $2,000 in compensation or earned income, if you contribute $500 to your Regular IRA for 1998, your maximum Roth IRA contribution for 1998 will be $1,500. If you and your spouse have spousal Roth IRAs, each spouse may contribute up to $2,000 to his or her Roth IRA for a year as long as the combined compensation of both spouses for the year (as shown on your joint income tax return) is at least $4,000. If the combined compensation of both spouses is less than $4,000, the spouse with the higher amount of compensation may contribute up to that spouse's compensation amount, or $2,000 if less. The spouse with the lower compensation amount may contribute any amount up to that spouse's compensation plus any excess the other spouse's compensation over the other spouse's Roth IRA contribution. However, the maximum contribution to either spouse's Roth IRA is $2,000 for the year. As noted above, the spousal Roth IRA limits are reduced by any contributions for the same calendar year to a Regular IRA maintained by you or your spouse. For taxpayers with high income levels, the contribution limits may be reduced (see below). Are Contributions to a Roth IRA Tax Deductible? Contributions to a Roth IRA are not deductible. This is a major difference between Roth IRAs and Regular IRAs. Contributions to a Regular IRA may be deductible on your federal income tax return depending on whether or not you are an active participant in an employer-sponsored plan and on your income level. Are the Earnings on my Roth IRA Funds Taxed? Any dividends on or growth of investments held in your Roth IRA are generally exempt from federal income taxes and will not be taxed until withdrawn by you. If the withdrawal qualifies as a tax-free withdrawal (see below), amounts reflecting earnings or growth of assets in your Roth IRA will not be subject to federal income tax. Which is Better, a Roth IRA or a Regular IRA? This will depend upon your individual situation. A Roth IRA may be better if you are an active participant in an employer-sponsored plan and your adjusted gross income is too high to make a deductible IRA contribution (but not too high to make a Roth IRA contribution). Also, the benefits of a Roth IRA vs. a Regular IRA may depend upon a number of other factors including: your current income tax bracket vs. your expected income tax bracket when you make withdrawals from your IRA, whether you expect to be able to make nontaxable withdrawals from your Roth IRA (see below), how long you expect to leave your contributions in the IRA, how much you expect the IRA to earn in the meantime, and possible future tax law changes. Consult a qualified tax or financial advisor for assistance on this question. Are there Any Restrictions on Contributions to my Roth IRA? Taxpayers with very high income levels may not be able to contribute to a Roth IRA at all, or their contribution may be limited to an amount less than $2,000. This depends upon your filing status and the amount of your adjusted gross income (AGI). The following table shows how the contribution limits are restricted: ROTH IRA CONTRIBUTION LIMITS
If You Are If You Are Then You May Make Single Taxpayer Married Filing Jointly Up to $95,000 Up to $150,000 Full Contribution Adjusted Reduced Contribution Gross More than $95,000 More than $150,000 (see explanation Income but less than but less than below) (AGI) Level $110,000 $160,000 $110,000 and up $160,000 and up Zero (No Contribution)
Note: If you are a married taxpayer filing separately, your maximum Roth IRA contribution limit phases out over the first $150,000 of adjusted gross income. If your AGI is $150,000 or more you may not contribute to a Roth IRA for the year. (Note: Pending legislation in Congress may reduce this number from $150,000 to $100,000. Consult your tax advisor or the IRS for the latest developments.) How do I Calculate my Limit if I Fall in the "Reduced Contribution" Range? If your AGI falls in the reduced contribution range, you must calculate your contribution limit. To do this, multiply your normal contribution limit ($2,000 or your compensation if less) by a fraction. The numerator is the amount by which your AGI exceeds the lower limit of the reduced contribution range ($95,000 if single, or $150,000 if married filing jointly). The denominator is $15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this from your normal limit and then round down to the nearest $10. The contribution limit is the greater of the amount calculated or $200. For example, assume that your AGI for the year is $157,555 and you are married, filing jointly. You would calculate your Roth IRA contribution limit this way: 1. The amount by which your AGI exceeds the lower limit of the reduced contribution deductible range: ($157,555 - $150,000) = $7,555 2. Divide this by $10,000: $ 7,555 / $10,000 = 0.7555 3. Multiply this by $2,000 (or your compensation for the year, if less): 0.7555 x $2,000 = $1,511 4. Subtract this from your $2,000 limit: ($2,000 - $1,551) = $489 5. Round this down to the nearest $10 = $480 6. Your contribution limit is the greater of this amount or $200. Remember, your Roth IRA contribution limit of $2,000 is reduced by any contributions for the same year to a Regular IRA. If you fall in the reduced contribution range, the reduction formula applies to the Roth IRA contribution limit left after subtracting your contribution for the year to a Regular IRA. How Do I Determine My AGI? AGI is your gross income minus those deductions which are available to all taxpayers even if they don't itemize. Instructions to calculate your AGI are provided with your income tax Form 1040 or 1040A. There are two additional rules when calculating AGI for purposes of Roth IRA contribution limits. First, if you are making a deductible contribution for the year to a Regular IRA, your AGI is reduced by the amount of the deduction. Second, if you are converting a Regular IRA to a Roth IRA in a year (see below), the amount includable in your income as a result of the conversion is not considered AGI when computing your Roth IRA contribution limit for the year. (Note: a bill pending in Congress might affect the first rule--consult your tax advisor or the IRS for the latest developments.) What Happens if I Contribute more than Allowed to my Roth IRA? The maximum contribution you can make to a Roth IRA generally is $2,000 or 100% of compensation or earned income, whichever is less. As noted above, your maximum is reduced by the amount of any contribution to a Regular IRA for the same year and may be further reduced if you have high AGI. Any amount contributed to the Roth IRA above the maximum is considered an "excess contribution." An excess contribution is subject to excise tax of 6% for each year it remains in the Roth IRA. How can I Correct an Excess Contribution? Excess contributions may be corrected without paying a 6% penalty. To do so, you must withdraw the excess and any earnings on the excess before the due date (including extensions) for filing your federal income tax return for the year for which you made the excess contribution. Earnings on the amount withdrawn must also be withdrawn. The earnings must be included in your income for the tax year for which the contribution was made and may be subject to a 10% premature withdrawal tax if you have not reached age 59 1/2 (unless an exception to the 10% penalty tax applies). What Happens if I Don't Correct the Excess Contribution by the Tax Return Due Date? Any excess contribution withdrawn after the tax return due date (including any extensions) for the year for which the contribution was made will be subject to the 6% excise tax. There will be an additional 6% excise tax for each year the excess remains in your account. Unless an excess contribution qualifies for the special treatment outlined above, the excess contribution and any earnings on it withdrawn after tax filing time will be includable in taxable income and may be subject to a 10% premature withdrawal penalty. You may reduce the excess contributions by making a withdrawal equal to the excess. Earnings need not be withdrawn. To the extent that no earnings are withdrawn, the withdrawal will not be subject to income taxes or possible penalties for premature withdrawals before age 59 1/2. Excess contributions may also be corrected in a subsequent year to the extent that you contribute less than your Roth IRA contribution limit for the subsequent year. As the prior excess contribution is reduced or eliminated, the 6% excise tax will become correspondingly reduced or eliminated for subsequent tax years. CONVERSION OF EXISTING REGULAR IRA Can I convert an Existing Regular IRA into a Roth IRA? Yes, starting in 1998 you can convert an existing Regular IRA into a Roth IRA if you meet the adjusted gross income (AGI) limits described below. Conversion may be accomplished either by establishing a Roth IRA and then transferring the amount in your Regular IRA you wish to convert to the new Roth IRA. Or, if you want to convert an existing Regular IRA with State Street Bank and Trust Company as custodian to a Roth IRA, you may give us directions to convert. You are eligible to convert a Regular IRA to a Roth IRA if, for the year of the conversion, your AGI is $100,000 or less. The same limit applies to married and single taxpayers, and the limit is not indexed to cost-of-living increases. Married taxpayers are eligible to convert a Regular IRA to a Roth IRA only if they file a joint income tax return; married taxpayers filing separately are not eligible to convert. Note: No contributions other than Roth IRA conversion contributions made during the same tax year may be deposited in a single Roth IRA conversion account. Caution: You should be extremely cautious in converting an existing IRA into a Roth IRA early in a year if there is any possibility that your AGI for the year will exceed $100,000. Although a bill pending in Congress would permit you to transfer amounts back to your Regular IRA if your AGI exceeds $100,000, under the current rules, if you have already converted during a year and you turn out to have more than $100,000 of AGI, there may be adverse tax results for you. Consult your tax advisor or the IRS for the latest developments. What are the Tax Results from Converting? The taxable amount in your Regular IRA you convert to a Roth IRA will be considered taxable income on your federal income tax return for the year of the conversion. All amounts in a Regular IRA are taxable except for your prior non- deductible contributions to the Regular IRA. If you make the conversion during 1998, the taxable income is spread over four years. In other words, you would include one quarter of the taxable amount on your federal income tax return for 1998, 1999, 2000 and 2001. Should I convert my Regular IRA to a Roth IRA? Only you can answer this question, in consultation with your tax or financial advisors. A number of factors, including the following, may be relevant. Conversion may be advantageous if you expect to leave the converted funds on deposit in your Roth IRA for at least five years and to be able to withdraw the funds under circumstances that will not be taxable (see below). The benefits of converting will also depend on whether you expect to be in the same tax bracket when you withdraw from your Roth IRA as you are now. Also, conversion is based upon an assumption that Congress will not change the tax rules for withdrawals from Roth IRAs in the future, but this cannot be guaranteed. TRANSFERS/ROLLOVERS Can I Transfer or Roll Over a Distribution I Receive from my Employer's Retirement Plan into a Roth IRA? Distributions from qualified employer-sponsored retirement plans or 403(b) arrangements (for employees of tax-exempt employers) are not eligible for rollover or direct transfer to a Roth IRA. However, in certain circumstances it may be possible to make a direct rollover of an eligible distribution to a Regular IRA and then to convert the Regular IRA to Roth IRA (see above). Consult your tax or financial advisor for further information on this possibility. Can I Make a Rollover from my Roth IRA to another Roth IRA? You may make a rollover from one Roth IRA to another Roth IRA you have or you establish to receive the rollover. Such a rollover must be completed within 60 days after the withdrawal from your first Roth IRA. After making a rollover from one Roth IRA to another, you must wait a full year (365 days) before you can make another such rollover. (However, you can instruct a Roth IRA custodian to transfer amounts directly to another Roth IRA custodian; such a direct transfer does not count as a rollover.) How Do Rollovers Affect my Roth IRA Contribution Limits? Rollovers, if properly made, do not count toward the maximum contribution. Also, you may make a rollover from one Roth IRA to another even during a year when you are not eligible to contribute to a Roth IRA (for example, because your AGI for that year is too high). WITHDRAWALS When can I make withdrawals from my Roth IRA? You may withdraw from your Roth IRA at any time. If the withdrawal meets the requirements discussed below, it is tax-free. This means that you pay no federal income tax even though the withdrawal includes earnings or gains on your contributions while they were held in your Roth IRA. When must I start making withdrawals? There are no rules on when you must start making withdrawals from your Roth IRA or on minimum required withdrawal amounts for any particular year during your lifetime. Unlike Regular IRAs, you are not required to start making withdrawals from a Roth IRA by the April 1 following the year in which you reach age 70 1/2. After your death, there are IRS rules on the timing and amount of distributions. In general, the amount in your Roth IRA must be distributed by the end of the fifth year after your death. However, distributions to a designated beneficiary that begin by the end of the year following the year of your death and that are paid over the life expectancy of the beneficiary satisfy the rules. Also, if your surviving spouse is your designated beneficiary, the spouse may defer the start of distributions until you would have reached age 70 1/2 had you lived. What are the requirements for a tax-free withdrawal? To be tax-free, a withdrawal from your Roth IRA must meet two requirements. First, the Roth IRA must have been open for 5 or more years before the withdrawal. Second, at least one of the following conditions must be satisfied: . You are age 59 1/2 or older when you make the withdrawal. . The withdrawal is made by your beneficiary after you die. . You are disabled (as defined in IRS rules) when you make the withdrawal. . You are using the withdrawal to cover eligible first time homebuyer expenses. These are the costs of purchasing, building or rebuilding a principal residence (including customary settlement, financing or closing costs). The purchaser may be you, your spouse or a child, grandchild, parent or grandparent of you or your spouse. An individual is considered a "first-time homebuyer" if the individual (or the individual's spouse, if married) did not have an ownership interest in a principal residence during the two-year period immediately preceding the acquisition in question. The withdrawal must be used for eligible expenses within 120 days after the withdrawal (if there is an unexpected delay, or cancellation of the home acquisition, a withdrawal may be redeposited as a rollover). There is a lifetime limit on eligible first-time homebuyer expenses of $10,000 per individual. For a Roth IRA that you set up with amounts rolled over or converted from a Regular IRA, the 5 year period begins with the year in which the conversion or rollover was made. (Note: a bill pending in Congress might affect this rule_consult your tax advisor or the IRS for the latest developments.) For a Roth IRA that you started with a normal contribution, the 5 year period starts with the year for which you make the initial normal contribution. How Are Withdrawals From My Roth IRA Taxed if the Tax-Free Requirements are not Met? If the qualified withdrawal requirements are not met, a withdrawal consisting of your own prior contribution amounts to your Roth IRA will not be considered taxable income in the year you receive it, nor will the 10% penalty apply. To the extent that the nonqualified withdrawal consists of dividends or gains while your contributions were held in your Roth IRA, the withdrawal is includable in your gross income in the taxable year you receive it, and may be subject to the 10% withdrawal penalty. All amounts withdrawn from your Roth IRA are considered withdrawals of your contributions until you have withdrawn the entire amount you have contributed. After that, all amounts withdrawn are considered taxable withdrawals of dividends and gains. Note that, for purposes of determining what portion of any distribution is includable in income, all of your Roth IRA accounts are considered as one single account. Amounts withdrawn from any one Roth IRA account are deemed to be withdrawn from contributions first. Since all your Roth IRAs are considered to be one account for this purpose, withdrawals from Roth IRA accounts are not considered to be from earnings or interest until an amount equal to all contributions made to all of an individual's Roth IRA accounts is withdrawn. The following example illustrates this: A single individual contributes $1,000 a year to his State Street Bank and Trust Company Roth IRA account and $1,000 a year to the Brand X Roth IRA account over a period of ten years. At the end of 10 years his account balances are as follows: Principal Contributions Earnings ------------- -------- State Street Bank Roth IRA $10,000 $10,000 Brand X Roth IRA $10,000 $10,000 ------- ------- Total $20,000 $20,000 At the end of 10 years, this person has $40,000 in both Roth IRA accounts combined, of which $20,000 represents his contributions (aggregated) and $20,000 represents his earnings (aggregated). This individual, who is 40, withdraws $15,000 from his Brand X Roth IRA (not a qualified withdrawal). We look to the aggregate amount of all principal contributions--in this case $20,000--to determine if the withdrawal is from contributions, and thus non-taxable. In this example, there is no ($0) taxable income as a result of this withdrawal because the $15,000 withdrawal is less than the total amount of aggregated contributions ($20,000). If this individual then withdrew $15,000 from his State Street Bank Roth IRA, $5,000 would not be taxable (the remaining aggregate contributions) and $10,000 would be treated as taxable income for the year of the withdrawal, subject to regular income taxes and the 10% premature withdrawal penalty (unless an exception applies). Note: If passed, a bill currently pending in Congress will change the rules and the results discussed above. Under the proposed legislation, in general, separate Roth IRAs established for annual contributions and conversions for separate years are not aggregated as explained above to determine the tax on withdrawals. See your tax advisor for more information and the latest developments. Taxable withdrawals of dividends and gains from a Roth IRA are treated as ordinary income. Withdrawals of taxable amounts from a Roth IRA are not eligible for averaging treatment currently available to certain lump sum distributions from qualified employer-sponsored retirement plans, nor are such withdrawals eligible for taxable gains tax treatment. Your receipt of any taxable withdrawal from your Roth IRA before you attain age 59 1/2 generally will be considered as an early withdrawal and subject to a 10% penalty tax. The 10% penalty tax for early withdrawal will not apply if any of the following exceptions applies: . The withdrawal was a result of your death or disability. . The withdrawal is one of a scheduled series of substantially equal periodic payments for your life or life expectancy (or the joint lives or life expectancies of you and your beneficiary). If there is an adjustment to the scheduled series of payments, the 10% penalty tax will apply. For example, if you begin receiving payments at age 50 under a withdrawal program providing for substantially equal payments over your life expectancy, and at age 58 you elect to withdraw the remaining amount in your Roth IRA in a lump-sum, the 10% penalty tax will apply to the lump sum and to the amounts previously paid to you before age 59 1/2 to the extent they were includable in your taxable income. . The withdrawal is used to pay eligible higher education expenses. These are expenses for tuition, fees, books, and supplies required to attend an institution for post-secondary education. Room and board expenses are also eligible for a student attending at least half-time. The student may be you, your spouse, or your child or grandchild. However, expenses that are paid for with a scholarship or other educational assistance payment are not eligible expenses. . The withdrawal is used to cover eligible first time homebuyer expenses (as described above in the discussion of tax-free withdrawals). . The withdrawal does not exceed the amount of your deductible medical expenses for the year (generally speaking, medical expenses paid during a year are deductible if they are greater than 7 1/2 of your adjusted gross income for that year). . The withdrawal does not exceed the amount you paid for health insurance coverage for yourself, your spouse and dependents. This exception applies only if you have been unemployed and received federal or state unemployment compensation payments for at least 12 weeks; this exception applies to distributions during the year in which you received the unemployment compensation and during the following year, but not to any distributions received after you have been reemployed for at least 60 days. What About the 15 percent Penalty Tax? The rule imposing a 15% penalty tax on very large withdrawals from tax- favored arrangements (including IRAs, 403(b) arrangements and qualified employer-sponsored plans), or on excess amounts remaining in such tax-favored arrangements at your death, has been repealed. This 15% tax no longer applies. Important: The discussion of the tax rules for Roth IRAs in this Disclosure Statement is based upon the best available information. However, Roth IRAs are new under the tax laws, and the IRS has not issued regulations or rulings on the operation and tax treatment of Roth IRA accounts. Also, if enacted, legislation now pending in Congress will change some of the rules. Therefore, you should consult your tax advisor for the latest developments or for advice about how maintaining a Roth IRA will affect your personal tax or financial situation. Also, please see Part Three which contains important information applicable to all State Street Bank and Trust Company IRAs. Part Three: Rules for All IRAs (Regular and Roth) _ GENERAL INFORMATION IRA Requirements All IRAs must meet certain requirements. Contributions generally must be made in cash. The IRA trustee or custodian must be a bank or other person who has been approved by the Secretary of the Treasury. Your contributions may not be invested in life insurance or collectibles or be commingled with other property except in a common trust or investment fund. Your interest in the account must be nonforfeitable at all times. You may obtain further information on IRAs from any district office of the Internal Revenue Service. May I Revoke My IRA? You may revoke a newly established Regular or Roth IRA at any time within seven days after the date on which you receive this Disclosure Statement. A Regular or Roth IRA established more than seven days after the date of your receipt of this Disclosure Statement may not be revoked. To revoke your Regular or Roth IRA, mail or deliver a written notice of revocation to the Custodian at the address which appears at the end of this Disclosure Statement. Mailed notice will be deemed given on the date that it is postmarked (or, if sent by certified or registered mail, on the date of certification or registration). If you revoke your Regular or Roth IRA within the seven-day period, you are entitled to a return of the entire amount you originally contributed into your Regular or Roth IRA, without adjustment for such items as sales charges, administrative expenses or fluctuations in market value. INVESTMENTS How Are My IRA Contributions Invested? You control the investment and reinvestment of contributions to your Regular or Roth IRA. Investments must be in one or more of the Fund(s) available from time to time as listed in the Adoption Agreement for your Regular or Roth IRA or in an investment selection form provided with your Adoption Agreement or from the Fund Distributor or Service Company. You direct the investment of your IRA by giving your investment instructions to the Distributor or Service Company for the Fund(s). Since you control the investment of your Regular or Roth IRA, you are responsible for any losses; neither the Custodian, the Distributor nor the Service Company has any responsibility for any loss or diminution in value occasioned by your exercise of investment control. Transactions for your Regular or Roth IRA will generally be at the applicable public offering price or net asset value for shares of the Fund(s) involved next established after the Distributor or the Service Company (whichever may apply) receives proper investment instructions from you; consult the current prospectus for the Fund(s) involved for additional information. Before making any investment, read carefully the current prospectus for any Fund you are considering as an investment for your Regular IRA or Roth IRA. The prospectus will contain information about the Fund's investment objectives and policies, as well as any minimum initial investment or minimum balance requirements and any sales, redemption or other charges. Because you control the selection of investments for your Regular or Roth IRA and because mutual fund shares fluctuate in value, the growth in value of your Regular or Roth IRA cannot be guaranteed or projected. Are There Any Restrictions on the Use of my IRA Assets? The tax-exempt status of your Regular or Roth IRA will be revoked if you engage in any of the prohibited transactions listed in Section 4975 of the tax code. Upon such revocation, your Regular or Roth IRA is treated as distributing its assets to you. The taxable portion of the amount in your IRA will be subject to income tax (unless, in the case of a Roth IRA, the requirements for a tax- free withdrawal are satisfied). Also, you may be subject to a 10% penalty tax on the taxable amount as a premature withdrawal if you have not yet reached the age of 59-1/2. Any investment in a collectible (for example, rare stamps) by your Regular or Roth IRA is treated as a withdrawal; the only exception involves certain types of government-sponsored coins or certain types of precious metal bullion. What Is A Prohibited Transaction? Generally, a prohibited transaction is any improper use of the assets in your Regular or Roth IRA. Some examples of prohibited transactions are: . Direct or indirect sale or exchange of property between you and your Regular or Roth IRA. . Transfer of any property from your Regular or Roth IRA to yourself or from yourself to your Regular or Roth IRA. Your Regular or Roth IRA could lose its tax exempt status if you use all or part of your interest in your Regular or Roth IRA as security for a loan or borrow any money from your Regular or Roth IRA. Any portion of your Regular or Roth IRA used as security for a loan will be treated as a distribution in the year in which the money is borrowed. This amount may be taxable and you may also be subject to the 10% premature withdrawal penalty on the taxable amount. FEES AND EXPENSES Custodian's Fees The following is a list of the fees charged by the Custodian for maintaining either a Regular IRA or a Roth IRA. Account Installation Fee $ 5.00 Annual Maintenance Fee per mutual fund (up to a maximum of $20.00) $10.00 Termination, Rollover, or Transfer of Account to Successor Custodian $10.00 General Fee Policies Fees may be paid by you directly, or the Custodian may deduct them from your Regular or Roth IRA. Fees may be changed upon 30 days written notice to you. The full annual maintenance fee will be charged for any calendar year during which you have a Regular or Roth IRA with us. This fee is not prorated for periods of less than one full year. If provided for in this Disclosure Statement or the Adoption Agreement, termination fees are charged when your account is closed whether the funds are distributed to you or transferred to a successor custodian or trustee. The Custodian may charge you for its reasonable expenses for services not covered by its fee schedule. Other Charges There may be sales or other charges associated with the purchase or redemption of shares of a Fund in which your Regular IRA or Roth IRA is invested. Before investing, be sure to read carefully the current prospectus of any Fund you are considering as an investment for your Regular IRA or Roth IRA for a description of applicable charges. TAX MATTERS What IRA Reports does the Custodian Issue? The Custodian will report all withdrawals to the IRS and the recipient on the appropriate form. For reporting purposes, a direct transfer of assets to a successor custodian or trustee is not considered a withdrawal. The Custodian will report to the IRS the year-end value of your account and the amount of any rollover (including conversions of a Regular IRA to a Roth IRA) or regular contribution made during a calendar year, as well as the tax year for which a contribution is made. Unless the Custodian receives an indication from you to the contrary, it will treat any amount as a contribution for the tax year in which it is received. It is most important that a contribution between January 1st and April 15th for the prior year be clearly designated as such. What Tax Information Must I Report to the IRS? You must file Form 5329 with the IRS for each taxable year for which you made an excess contribution or you take a premature withdrawal that is subject to the 10% penalty tax, or you withdraw less than the minimum amount required from your Regular IRA. If your beneficiary fails to make required minimum withdrawals from your Regular or Roth IRA after your death, your beneficiary may be subject to an excise tax and be required to file Form 5329. For Regular IRAs, you must also report each nondeductible contribution to the IRS by designating it a nondeductible contribution on your tax return. Use Form 8606. In addition, for any year in which you make a nondeductible contribution or take a withdrawal, you must include additional information on your tax return. The information required includes: (1) the amount of your nondeductible contributions for that year; (2) the amount of withdrawals from Regular IRAs in that year; (3) the amount by which your total nondeductible contributions for all the years exceed the total amount of your distributions previously excluded from gross income; and (4) the total value of all your Regular IRAs as of the end of the year. If you fail to report any of this information, the IRS will assume that all your contributions were deductible. This will result in the taxation of the portion of your withdrawals that should be treated as a nontaxable return of your nondeductible contributions. Which Withdrawals Are Subject to Withholding? Roth IRA Federal income tax will be withheld at a flat rate of 10% of any taxable withdrawal from your Roth IRA, unless you elect not to have tax withheld. Withdrawals from a Roth IRA are not subject to the mandatory 20% income tax withholding that applies to most distributions from qualified plans or 403(b) accounts that are not directly rolled over to another plan or IRA. Regular IRA Federal income tax will be withheld at a flat rate of 10% from any withdrawal from your Regular IRA, unless you elect not to have tax withheld. Withdrawals from a Regular IRA are not subject to the mandatory 20% income tax withholding that applies to most distributions from qualified plans or 403(b) accounts that are not directly rolled over to another plan or IRA. ACCOUNT TERMINATION You may terminate your Regular IRA or Roth IRA at any time after its establishment by sending a completed withdrawal form (or other withdrawal instructions in a form acceptable to the Custodian), or a transfer authorization form, to: STATE STREET BANK AND TRUST COMPANY P.O. Box 8510 Boston, MA 02266-8510 Your Regular IRA or Roth IRA with State Street Bank and Trust Company will terminate upon the first to occur of the following: . The date your properly executed withdrawal form or instructions (as described above) withdrawing your total Regular IRA or Roth IRA balance is received and accepted by the Custodian or, if later, the termination date specified in the withdrawal form. . The date the Regular IRA or Roth IRA ceases to qualify under the tax code. This will be deemed a termination. . The transfer of the Regular IRA or Roth IRA to another custodian/trustee. . The rollover of the amounts in the Regular IRA or Roth IRA to another custodian/trustee. Any outstanding fees must be received prior to such a termination of your account. The amount you receive from your IRA upon termination of the account will be treated as a withdrawal, and thus the rules relating to Regular IRA or Roth IRA withdrawals will apply. For example, if the IRA is terminated before you reach age 59 1/2, the 10% early withdrawal penalty may apply to the taxable amount you receive. IRA DOCUMENTS Regular IRA The terms contained in Articles I to VII of Part One of the State Street Bank and Trust Company Individual Retirement Custodial Account document have been promulgated by the IRS in Form 5305-A for use in establishing a Regular IRA Custodial Account that meets the requirements of Code Section 408(a) for a valid Regular IRA. This IRS approval relates only to the form of Articles I to VII and is not an approval of the merits of the Regular IRA or of any investment permitted by the Regular IRA. Roth IRA The terms contained in Articles I to VII of Part Two of the State Street Bank and Trust Company Individual Retirement Account Custodial Agreement have been promulgated by the IRS in Form 5305-RA for use in establishing a Roth IRA Custodial Account that meets the requirements of Code Section 408A for a valid Roth IRA. This IRS approval relates only to the form of Articles I to VII and is not an approval of the merits of the Roth IRA or of any investment permitted by the Roth IRA. Based on our legal advice relating to current tax laws and IRS meetings, State Street Bank and Trust Company believes that the use of an Individual Retirement Account Information Kit such as this, containing information and documents for both a Regular IRA or a Roth IRA, will be acceptable to the IRS. However, if the IRS makes a ruling, or if Congress enacts legislation, regarding the use of different documentation, State Street Bank and Trust Company will forward to you new documentation for your Regular IRA or a Roth IRA (as appropriate) for you to read and, if necessary, an appropriate new Adoption Agreement to sign. By adopting a Regular IRA or a Roth IRA using these materials, you acknowledge this possibility and agree to this procedure if necessary. In all cases, to the extent permitted State Street Bank and Trust Company will treat your IRA as being opened on the date your account was opened using the Adoption Agreement in this Kit. ADDITIONAL INFORMATION For additional information you may call the following telephone number: 1-800-OAKMARK (1-800-625-6275). State Street Bank and Trust Company Individual Retirement Account Custodial Agreement Part One: Provisions Applicable to Regular IRAs _ The following provisions of Articles I to VII are in the form promulgated by the Internal Revenue Service in Form 5305-A for use in establishing an individual retirement custodial account. Article I. The Custodian may accept additional cash contributions on behalf of the Depositor for a tax year of the Depositor. The total cash contributions are limited to $2,000 for the tax year unless the contribution is a rollover contribution described in section 402(c) (but only after December 31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified employee pension plan as described in section 408(k). Rollover contributions before January 1, 1993 include rollovers described in section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code or an employer contribution to a simplified employee pension plan as described in section 408(k). Article II. The Depositor's interest in the balance in the custodial account is nonforfeitable. Article III. 1. No part of the custodial funds may be invested in life insurance contracts, nor may the assets of the custodial account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5) of the Code). 2. No part of the custodial funds may be invested in collectibles (within the meaning of section 408(m) except as otherwise permitted by section 408(m)(3) which provides an exception for certain gold and silver coins and coins issued under the laws of any state. Article IV. 1. Notwithstanding any provisions of this agreement to the contrary, the distribution of the Depositor's interest in the custodial account shall be made in accordance with the following requirements and shall otherwise comply with section 408(a)(6) and Proposed Regulations section 1.408-8, including the incidental death benefit provisions of Proposed Regulations section 1.401(a)(9)-2, the provisions of which are incorporated by reference. 2. Unless otherwise elected by the time distributions are required to begin to the Depositor under paragraph 3, or to the surviving spouse under paragraph 4, other than in the case of a life annuity, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Depositor and the surviving spouse and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary may not be recalculated. 3. The Depositor's entire interest in the custodial account must be, or begin to be, distributed by the Depositor's required beginning date, the April 1 following the calendar year end in which the Depositor reaches age 70 1/2. By that date, the Depositor may elect, in a manner acceptable to the Custodian, to have the balance in the custodial account distributed in: (a) A single-sum payment. (b) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the life of the Depositor. (c) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the joint and last survivor lives of the Depositor and his or her designated beneficiary. (d) Equal or substantially equal annual payments over a specified period that may not be longer than the Depositor's life expectancy. (e) Equal or substantially equal annual payments over a specified period that may not be longer than the joint life and last survivor expectancy of the Depositor and his or her designated beneficiary. 4. If the Depositor dies before his or her entire interest is distributed to him or her, the entire remaining interest will be distributed as follows: (a) If the Depositor dies on or after distribution of his or her interest has begun, distribution must continue to be made in accordance with paragraph 3. (b) If the Depositor dies before distribution of his or her interest has begun, the entire remaining interest will, at the election of the Depositor or, if the Depositor has not so elected, at the election of the beneficiary or beneficiaries, either (i) Be distributed by the December 31 of the year containing the fifth anniversary of the Depositor's death, or (ii) Be distributed in equal or substantially equal payments over the life or life expectancy of the designated beneficiary or beneficiaries starting by December 31 of the year following the year of the Depositor's death. If, however, the beneficiary is the Depositor's surviving spouse, then this distribution is not required to begin before December 31 of the year in which the Depositor would have turned age 70 1/2. (c) Except where distribution in the form of an annuity meeting the requirements of section 408(b)(3) and its related regulations has irrevocably commenced, distributions are treated as having begun on the Depositor's required beginning date, even though payments may actually have been made before that date. (d) If the Depositor dies before his or her entire interest has been distributed and if the beneficiary is other than the surviving spouse, no additional cash contributions or rollover contributions may be accepted in the account. 5. In the case of distribution over life expectancy in equal or substantially equal annual payments, to determine the minimum annual payment for each year, divide the Depositor's entire interest in the custodial account as of the close of business on December 31 of the preceding year by the life expectancy of the Depositor (or the joint life and last survivor expectancy of the Depositor and the Depositor's designated beneficiary, or the life expectancy of the designated beneficiary, whichever applies). In the case of distributions under paragraph 3, determine the initial life expectancy (or joint life and last survivor expectancy) using the attained ages of the Depositor and designated beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2. In the case of a distribution in accordance with paragraph 4(b)(ii), determine life expectancy using the attained age of the designated beneficiary as of the beneficiary's birthday in the year distributions are required to commence. 6. The owner of two or more individual retirement accounts may use the "alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements described above. This method permits an individual to satisfy these requirements by taking from one individual retirement account the amount required to satisfy the requirement for another. Article V. 1. The Depositor agrees to provide the Custodian with information necessary for the Custodian to prepare any reports required under section 408(i) and Regulations sections 1.408-5 and 1.408-6. 2. The Custodian agrees to submit reports to the Internal Revenue Service and the Depositor as prescribed by the Internal Revenue Service. Article VI. Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through III and this sentence will be controlling. Any additional articles that are not consistent with section 408(a) and the related regulations will be invalid. Article VII. This agreement will be amended from time to time to comply with the provisions of the Code and related regulations. Other amendments may be made with the consent of the persons whose signatures appear on the Adoption Agreement. Part Two: Provisions Applicable to Roth IRAs _ The following provisions of Articles I to VII are in the form promulgated by the Internal Revenue Service in Form 5305-RA for use in establishing a Roth Individual Retirement Custodial Account. Article I. 1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except in the case of a rollover contribution described in section 408A(e), the Custodian will accept only cash contributions and only up to a maximum amount of $2,000 for any tax year of the Depositor. 2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions other than IRA Conversion Contributions made during the same tax year will be accepted. Article IA. The $2,000 limit described in Article I is gradually reduced to $0 between certain levels of adjusted gross income (AGI). For a single Depositor, the $2,000 annual contribution is phased out between AGI of $95,000 and $110,000; for a married Depositor who files jointly, between AGI of $150,000 and $160,000; and for a married Depositor who files separately, between $0 and $10,000. In case of a conversion, the Custodian will not accept IRA Conversion Contributions in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if the Depositor is married and files a separate return. Adjusted gross income is defined in section 408A(c)(3) and does not include IRA Conversion Contributions. Article II. The Depositor's interest in the balance in the custodial account is nonforfeitable. Article III. 1. No part of the custodial funds may be invested in life insurance contracts, nor may the assets of the custodial account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5)). 2. No part of the custodial funds may be invested in collectibles (within the meaning of section 408(m)) except as otherwise permitted by section 408(m)(3), which provides an exception for certain gold, silver, and platinum coins, coins issued under the laws of any state, and certain bullion. Article IV. 1. If the Depositor dies before his or her entire interest is distributed to him or her and the Depositor's surviving spouse is not the sole beneficiary, the entire remaining interest will, at the election of the Depositor or, if the Depositor has not so elected, at the election of the beneficiary or beneficiaries, either: . Be distributed by December 31 of the year containing the fifth anniversary of the Depositor's death, or . Be distributed over the life expectancy of the designated beneficiary starting no later than December 31 of the year following the year of the Depositor's death. If distributions do not begin by the date described in (b), distribution method (a) will apply. 2. In the case of distribution method 1(b) above, to determine the minimum annual payment for each year, divide the Depositor's entire interest in the trust as of the close of business on December 31 of the preceding year by the life expectancy of the designated beneficiary using the attained age of the designated beneficiary as of the beneficiary's birthday in the year distributions are required to commence and subtract 1 for each subsequent year. 3. If the Depositor's spouse is the sole beneficiary on the Depositor's date of death, such spouse will then be treated as the Depositor. Article V. 1. The Depositor agrees to provide the Custodian with information necessary for the Custodian to prepare any reports required under sections 408(i) and 408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and under guidance published by the Internal Revenue Service. 2. The Custodian agrees to submit reports to the Internal Revenue Service and the Depositor as prescribed by the Internal Revenue Service. Article VI. Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through IV and this sentence will be controlling. Any additional articles that are not consistent with section 408A, the related regulations, and other published guidance will be invalid. Article VII. This agreement will be amended from time to time to comply with the provisions of the Code, related regulations, and other published guidance. Other amendments may be made with the consent of the persons whose signatures appear below. Part Three: Provisions Applicable to Both Regular IRAs and Roth IRAs Article VIII. 1. As used in this Article VIII the following terms have the following meanings: "Account" or "Custodial Account" means the individual retirement account established using the terms of either Part One or Part Two and, in either event, Part Three of this State Street Bank and Trust Company Individual Retirement Account Custodial Agreement and the Adoption Agreement signed by the Depositor. The Account may be a Regular Individual Retirement Account or a Roth Individual Retirement Account, as specified by the Depositor. See Section 24 below. "Custodian" means State Street Bank and Trust Company. "Fund" means any registered investment company which is advised, sponsored or distributed by Sponsor; provided, however, that such a mutual fund or registered investment company must be legally offered for sale in the state of the Depositor's residence. "Distributor" means the entity which has a contract with the Fund(s) to serve as distributor of the shares of such Fund(s). In any case where there is no Distributor, the duties assigned hereunder to the Distributor may be performed by the Fund(s) or by an entity that has a contract to perform management or investment advisory services for the Fund(s). "Service Company" means any entity employed by the Custodian or the Distributor, including the transfer agent for the Fund(s), to perform various administrative duties of either the Custodian or the Distributor. In any case where there is no Service Company, the duties assigned hereunder to the Service Company will be performed by the Distributor (if any) or by an entity specified in the second preceding paragraph. "Sponsor" means Harris Associates Investment Trust. 2. The Depositor may revoke the Custodial Account established hereunder by mailing or delivering a written notice of revocation to the Custodian within seven days after the Depositor receives the Disclosure Statement related to the Custodial Account. Mailed notice is treated as given to the Custodian on date of the postmark (or on the date of Post Office certification or registration in the case of notice sent by certified or registered mail). Upon timely revocation, the Depositor's initial contribution will be returned, without adjustment for administrative expenses, commissions or sales charges, fluctuations in market value or other changes. The Depositor may certify in the Adoption Agreement that the Depositor received the Disclosure Statement related to the Custodial Account at least seven days before the Depositor signed the Adoption Agreement to establish the Custodial Account, and the Custodian may rely upon such certification. 3. All contributions to the Custodial Account shall be invested and reinvested in full and fractional shares of one or more Funds. Such investments shall be made in such proportions and/or in such amounts as Depositor from time to time in the Adoption Agreement or by other written notice to the Service Company (in such form as may be acceptable to the Service Company) may direct. The Service Company shall be responsible for promptly transmitting all investment directions by the Depositor for the purchase or sale of shares of one or more Funds hereunder to the Funds' transfer agent for execution. However, if investment directions with respect to the investment of any contribution hereunder are not received from the Depositor as required or, if received, are unclear or incomplete in the opinion of the Service Company, the contribution will be returned to the Depositor, or will be held uninvested (or invested in a money market fund if available) pending clarification or completion by the Depositor, in either case without liability for interest or for loss of income or appreciation. If any other directions or other orders by the Depositor with respect to the sale or purchase of shares of one or more Funds for the Custodial Account are unclear or incomplete in the opinion of the Service Company, the Service Company will refrain from carrying out such investment directions or from executing any such sale or purchase, without liability for loss of income or for appreciation or depreciation of any asset, pending receipt of clarification or completion from the Depositor. All investment directions by Depositor will be subject to any minimum initial or additional investment or minimum balance rules applicable to a Fund as described in its prospectus. All dividends and capital gains or other distributions received on the shares of any Fund held in the Depositor's Account shall be (unless received in additional shares) reinvested in full and fractional shares of such Fund (or of any other Fund offered by the Sponsor, if so directed). 4. "Subject to the minimum initial or additional investment, minimum balance and other exchange rules applicable to a Fund, the Depositor may at any time direct the Service Company to exchange all or a specified portion of the shares of a Fund in the Depositor's Account for shares and fractional shares of one or more other Funds. The Depositor shall give such directions by written notice acceptable to the Service Company, and the Service Company will process such directions as soon as practicable after receipt thereof (subject to the second paragraph of Section 3 of this Article VIII). 5. Any purchase or redemption of shares of a Fund for or from the Depositor's Account will be effected at the public offering price or net asset value of such Fund (as described in the then effective prospectus for such Fund) next established after the Service Company has transmitted the Depositor's investment directions to the transfer agent for the Fund(s). Any purchase, exchange, transfer or redemption of shares of a Fund for or from the Depositor's Account will be subject to any applicable sales, redemption or other charge as described in the then effective prospectus for such Fund. 6. The Service Company shall maintain adequate records of all purchases or sales of shares of one or more Funds for the Depositor's Custodial Account. Any account maintained in connection herewith shall be in the name of the Custodian for the benefit of the Depositor. All assets of the Custodial Account shall be registered in the name of the Custodian or of a suitable nominee. The books and records of the Custodian shall show that all such investments are part of the Custodial Account. The Custodian shall maintain or cause to be maintained adequate records reflecting transactions of the Custodial Account. In the discretion of the Custodian, records maintained by the Service Company with respect to the Account hereunder will be deemed to satisfy the Custodian's recordkeeping responsibilities therefor. The Service Company agrees to furnish the Custodian with any information the Custodian requires to carry out the Custodian's recordkeeping responsibilities. 7. Neither the Custodian nor any other party providing services to the Custodial Account will have any responsibility for rendering advice with respect to the investment and reinvestment of Depositor's Custodial Account, nor shall such parties be liable for any loss or diminution in value which results from Depositor's exercise of investment control over his Custodial Account. Depositor shall have and exercise exclusive responsibility for and control over the investment of the assets of his Custodial Account, and neither Custodian nor any other such party shall have any duty to question his directions in that regard or to advise him regarding the purchase, retention or sale of shares of one or more Funds for the Custodial Account. 8. The Depositor may in writing appoint an investment advisor with respect to the Custodial Account on a form acceptable to the Custodian and the Service Company. The investment advisor's appointment will be in effect until written notice to the contrary is received by the Custodian and the Service Company. While an investment advisor's appointment is in effect, the investment advisor may issue investment directions or may issue orders for the sale or purchase of shares of one or more Funds to the Service Company, and the Service Company will be fully protected in carrying out such investment directions or orders to the same extent as if they had been given by the Depositor. The Depositor's appointment of any investment advisor will also be deemed to be instructions to the Custodian and the Service Company to pay such investment advisor's fees to the investment advisor from the Custodial Account hereunder without additional authorization by the Depositor or the Custodian. 9. Distribution of the assets of the Custodial Account shall be made at such time and in such form as Depositor (or the Beneficiary if Depositor is deceased) shall elect by written order to the Custodian. Depositor acknowledges that any distribution of a taxable amount from the Custodial Account (except for distribution on account of Depositor's disability or death, return of an "excess contribution" referred to in Code Section 4973, or a "rollover" from this Custodial Account) made earlier than age 59 1/2 may subject Depositor to an "additional tax on early distributions" under Code Section 72(t) unless an exception to such additional tax is applicable. For that purpose, Depositor will be considered disabled if Depositor can prove, as provided in Code Section 72(m)(7), that Depositor is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or be of long-continued and indefinite duration. It is the responsibility of the Depositor (or the Beneficiary) by appropriate distribution instructions to the Custodian to insure that any applicable distribution requirements of Code Section 401(a)(9) and Article IV above are met. If the Depositor (or Beneficiary) does not direct the Custodian to make distributions from the Custodial Account by the time that such distributions are required to commence in accordance with such distribution requirements, the Custodian (and Service Company) shall assume that the Depositor (or Beneficiary) is meeting the minimum distribution requirements from another individual retirement arrangement maintained by the Depositor (or Beneficiary) and the Custodian and Service Company shall be fully protected in so doing. The Depositor (or the Depositor's surviving spouse) may elect to comply with the distribution requirements in Article IV using the recalculation of life expectancy method, or may elect that the life expectancy of the Depositor and/or the Depositor's surviving spouse, as applicable, will not be recalculated; any such election may be in such form as the Depositor (or surviving spouse) provides (including the calculation of minimum distribution amounts in accordance with a method that does not provide for recalculation of the life expectancy of one or both of the Depositor and surviving spouse and instructions for withdrawals to the Custodian in accordance with such method). Notwithstanding paragraph 2 of Article IV, unless an election to have life expectancies recalculated annually is made by the time distributions are required to begin, life expectancies shall not be recalculated. Neither the Custodian nor any other party providing services to the Custodial Account assumes any responsibility for the tax treatment of any distribution from the Custodial Account; such responsibility rests solely with the person ordering the distribution. 10. The Custodian assumes (and shall have) no responsibility to make any distribution except upon the written order of Depositor (or Beneficiary if Depositor is deceased) containing such information as the Custodian may reasonably request. Also, before making any distribution or honoring any assignment of the Custodial Account, Custodian shall be furnished with any and all applications, certificates, tax waivers, signature guarantees and other documents (including proof of any legal representative's authority) deemed necessary or advisable by Custodian, but Custodian shall not be responsible for complying with any order or instruction which appears on its face to be genuine, or for refusing to comply if not satisfied it is genuine, and Custodian has no duty of further inquiry. Any distributions from the Account may be mailed, first-class postage prepaid, to the last known address of the person who is to receive such distribution, as shown on the Custodian's records, and such distribution shall to the extent thereof completely discharge the Custodian's liability for such payment. 11.(a) The term "Beneficiary" means the person or persons designated as such by the "designating person" (as defined below) on a form acceptable to the Custodian for use in connection with the Custodial Account, signed by the designating person, and filed with the Custodian. The form may name individuals, trusts, estates, or other entities as either primary or contingent beneficiaries. However, if the designation does not effectively dispose of the entire Custodial Account as of the time distribution is to commence, the term "Beneficiary" shall then mean the designating person's estate with respect to the assets of the Custodial Account not disposed of by the designation form. The form last accepted by the Custodian before such distribution is to commence, provided it was received by the Custodian (or deposited in the U.S. Mail or with a reputable delivery service) during the designating person's lifetime, shall be controlling and, whether or not fully dispositive of the Custodial Account, thereupon shall revoke all such forms previously filed by that person. The term "designating person" means Depositor during his/her lifetime; after Depositor's death, it also means Depositor's spouse, but only if the spouse elects to treat the Custodial Account as the spouse's own Custodial Account in accordance with applicable provisions of the Code. (b) When and after distributions from the Custodial Account to Depositor's Beneficiary commence, all rights and obligations assigned to Depositor hereunder shall inure to, and be enjoyed and exercised by, Beneficiary instead of Depositor. 12.(a) The Depositor agrees to provide information to the Custodian at such time and in such manner as may be necessary for the Custodian to prepare any reports required under Section 408(i) or Section 408A(d)(3)(E) of the Code and the regulations thereunder or otherwise. (b) The Custodian or the Service Company will submit reports to the Internal Revenue Service and the Depositor at such time and manner and containing such information as is prescribed by the Internal Revenue Service. (c) The Depositor, Custodian and Service Company shall furnish to each other such information relevant to the Custodial Account as may be required under the Code and any regulations issued or forms adopted by the Treasury Department thereunder or as may otherwise be necessary for the administration of the Custodial Account. (d) The Depositor shall file any reports to the Internal Revenue Service which are required of him by law (including Form 5329), and neither the Custodian nor Service Company shall have any duty to advise Depositor concerning or monitor Depositor's compliance with such requirement. 13.(a) Depositor retains the right to amend this Custodial Account document in any respect at any time, effective on a stated date which shall be at least 60 days after giving written notice of the amendment (including its exact terms) to Custodian by registered or certified mail, unless Custodian waives notice as to such amendment. If the Custodian does not wish to continue serving as such under this Custodial Account document as so amended, it may resign in accordance with Section 17 below. (b) Depositor delegates to the Custodian the Depositor's right so to amend, provided (i) the Custodian does not change the investments available under this Custodial Agreement and (ii) the Custodian amends in the same manner all agreements comparable to this one, having the same Custodian, permitting comparable investments, and under which such power has been delegated to it; this includes the power to amend retroactively if necessary or appropriate in the opinion of the Custodian in order to conform this Custodial Account to pertinent provisions of the Code and other laws or successor provisions of law, or to obtain a governmental ruling that such requirements are met, to adopt a prototype or master form of agreement in substitution for this Agreement, or as otherwise may be advisable in the opinion of the Custodian. Such an amendment by the Custodian shall be communicated in writing to Depositor, and Depositor shall be deemed to have consented thereto unless, within 30 days after such communication to Depositor is mailed, Depositor either (i) gives Custodian a written order for a complete distribution or transfer of the Custodial Account, or (ii) removes the Custodian and appoints a successor under Section 17 below. Pending the adoption of any amendment necessary or desirable to conform this Custodial Account document to the requirements of any amendment to any applicable provision of the Internal Revenue Code or regulations or rulings thereunder, the Custodian and the Service Company may operate the Depositor's Custodial Account in accordance with such requirements to the extent that the Custodian and/or the Service Company deem necessary to preserve the tax benefits of the Account. (c) Notwithstanding the provisions of subsections (a) and (b) above, no amendment shall increase the responsibilities or duties of Custodian without its prior written consent. (d) This Section 13 shall not be construed to restrict the Custodian's right to substitute fee schedules in the manner provided by Section 16 below, and no such substitution shall be deemed to be an amendment of this Agreement. 14.(a) Custodian shall terminate the Custodial Account if this Agreement is terminated or if, within 30 days (or such longer time as Custodian may agree) after resignation or removal of Custodian under Section 17, Depositor or Sponsor, as the case may be, has not appointed a successor which has accepted such appointment. Termination of the Custodial Account shall be effected by distributing all assets thereof in a single payment in cash or in kind to Depositor, subject to Custodian's right to reserve funds as provided in Section 17. (b) Upon termination of the Custodial Account, this custodial account document shall have no further force and effect (except for Sections 15(f), 17(b) and (c) hereof which shall survive the termination of the Custodial Account and this document), and Custodian shall be relieved from all further liability hereunder or with respect to the Custodial Account and all assets thereof so distributed. 15.(a) In its discretion, the Custodian may appoint one or more contractors or service providers to carry out any of its functions and may compensate them from the Custodial Account for expenses attendant to those functions. In the event of such appointment, all rights and privileges of the Custodian under this Agreement shall pass through to such contractors or service providers who shall be entitled to enforce them as if a named party. (b) The Service Company shall be responsible for receiving all instructions, notices, forms and remittances from Depositor and for dealing with or forwarding the same to the transfer agent for the Fund(s). (c) The parties do not intend to confer any fiduciary duties on Custodian or Service Company (or any other party providing services to the Custodial Account), and none shall be implied. Neither shall be liable (or assumes any responsibility) for the collection of contributions, the proper amount, time or tax treatment of any contribution to the Custodial Account or the propriety of any contributions under this Agreement, or the purpose, time, amount (including any minimum distribution amounts), tax treatment or propriety of any distribution hereunder, which matters are the sole responsibility of Depositor and Depositor's Beneficiary. (d) Not later than 60 days after the close of each calendar year (or after the Custodian's resignation or removal), the Custodian or Service Company shall file with Depositor a written report or reports reflecting the transactions effected by it during such period and the assets of the Custodial Account at its close. Upon the expiration of 60 days after such a report is sent to Depositor (or Beneficiary), the Custodian or Service Company shall be forever released and discharged from all liability and accountability to anyone with respect to transactions shown in or reflected by such report except with respect to any such acts or transactions as to which Depositor shall have filed written objections with the Custodian or Service Company within such 60 day period. (e) The Service Company shall deliver, or cause to be delivered, to Depositor all notices, prospectuses, financial statements and other reports to shareholders, proxies and proxy soliciting materials relating to the shares of the Funds(s) credited to the Custodial Account. No shares shall be voted, and no other action shall be taken pursuant to such documents, except upon receipt of adequate written instructions from Depositor. (f) Depositor shall always fully indemnify Service Company, Distributor, the Fund(s), Sponsor and Custodian and save them harmless from any and all liability whatsoever which may arise either (i) in connection with this Agreement and the matters which it contemplates, except that which arises directly out of the Service Company's, Distributor's, Fund's, Sponsor's or Custodian's bad faith, gross negligence or willful misconduct, (ii) with respect to making or failing to make any distribution, other than for failure to make distribution in accordance with an order therefor which is in full compliance with Section 10, or (iii) actions taken or omitted in good faith by such parties. Neither Service Company nor Custodian shall be obligated or expected to commence or defend any legal action or proceeding in connection with this Agreement or such matters unless agreed upon by that party and Depositor, and unless fully indemnified for so doing to that party's satisfaction. (g) The Custodian and Service Company shall each be responsible solely for performance of those duties expressly assigned to it in this Agreement, and neither assumes any responsibility as to duties assigned to anyone else hereunder or by operation of law. (h) The Custodian and Service Company may each conclusively rely upon and shall be protected in acting upon any written order from Depositor or Beneficiary, or any investment advisor appointed under Section 8, or any other notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed, and so long as it acts in good faith, in taking or omitting to take any other action in reliance thereon. In addition, Custodian will carry out the requirements of any apparently valid court order relating to the Custodial Account and will incur no liability or responsibility for so doing. 16.(a) The Custodian, in consideration of its services under this Agreement, shall receive the fees specified on the applicable fee schedule. The fee schedule originally applicable shall be the one specified in the Adoption Agreement or Disclosure Statement, as applicable. The Custodian may substitute a different fee schedule at any time upon 30 days' written notice to Depositor. The Custodian shall also receive reasonable fees for any services not contemplated by any applicable fee schedule and either deemed by it to be necessary or desirable or requested by Depositor. (b) Any income, gift, estate and inheritance taxes and other taxes of any kind whatsoever, including transfer taxes incurred in connection with the investment or reinvestment of the assets of the Custodial Account, that may be levied or assessed in respect to such assets, and all other administrative expenses incurred by the Custodian in the performance of its duties (including fees for legal services rendered to it in connection with the Custodial Account) shall be charged to the Custodial Account. If the Custodian is required to pay any such amount, the Depositor (or Beneficiary) shall promptly upon notice thereof reimburse the Custodian. (c) All such fees and taxes and other administrative expenses charged to the Custodial Account shall be collected either from the amount of any contribution or distribution to or from the Account, or (at the option of the person entitled to collect such amounts) to the extent possible under the circumstances by the conversion into cash of sufficient shares of one or more Funds held in the Custodial Account (without liability for any loss incurred thereby). Notwithstanding the foregoing, the Custodian or Service Company may make demand upon the Depositor for payment of the amount of such fees, taxes and other administrative expenses. Fees which remain outstanding after 60 days may be subject to a collection charge. 17.(a) Upon 30 days' prior written notice to the Custodian, Depositor or Sponsor, as the case may be, may remove it from its office hereunder. Such notice, to be effective, shall designate a successor custodian and shall be accompanied by the successor's written acceptance. The Custodian also may at any time resign upon 30 days' prior written notice to Sponsor, whereupon the Sponsor shall notify the Depositor (or Beneficiary) and shall appoint a successor to the Custodian. In connection with its resignation hereunder, the Custodian may, but is not required to, designate a successor custodian by written notice to the Sponsor or Depositor (or Beneficiary), and the Sponsor or Depositor (or Beneficiary) will be deemed to have consented to such successor unless the Sponsor or Depositor (or Beneficiary) designates a different successor custodian and provides written notice thereof together with such a different successor's written acceptance by such date as the Custodian specifies in its original notice to the Sponsor or Depositor (or Beneficiary) (provided that the Sponsor or Depositor (or Beneficiary) will have a minimum of 30 days to designate a different successor). (b) The successor custodian shall be a bank, insured credit union, or other person satisfactory to the Secretary of the Treasury under Code Section 408(a)(2). Upon receipt by Custodian of written acceptance by its successor of such successor's appointment, Custodian shall transfer and pay over to such successor the assets of the Custodial Account and all records (or copies thereof) of Custodian pertaining thereto, provided that the successor custodian agrees not to dispose of any such records without the Custodian's consent. Custodian is authorized, however, to reserve such sum of money or property as it may deem advisable for payment of all its fees, compensation, costs, and expenses, or for payment of any other liabilities constituting a charge on or against the assets of the Custodial Account or on or against the Custodian, with any balance of such reserve remaining after the payment of all such items to be paid over to the successor custodian. (c) Any Custodian shall not be liable for the acts or omissions of its predecessor or its successor. 18. References herein to the "Internal Revenue Code" or "Code" and sections thereof shall mean the same as amended from time to time, including successors to such sections. 19. Except where otherwise specifically required in this Agreement, any notice from Custodian to any person provided for in this Agreement shall be effective if sent by first-class mail to such person at that person's last address on the Custodian's records. 20. Depositor or Depositor's Beneficiary shall not have the right or power to anticipate any part of the Custodial Account or to sell, assign, transfer, pledge or hypothecate any part thereof. The Custodial Account shall not be liable for the debts of Depositor or Depositor's Beneficiary or subject to any seizure, attachment, execution or other legal process in respect thereof except to the extent required by law. At no time shall it be possible for any part of the assets of the Custodial Account to be used for or diverted to purposes other than for the exclusive benefit of the Depositor or his/her Beneficiary except to the extent required by law. 21. When accepted by the Custodian, this Agreement is accepted in and shall be construed and administered in accordance with the laws of the state where the principal offices of the Custodian are located. Any action involving the Custodian brought by any other party must be brought in a state or federal court in such state. If in the Adoption Agreement, Depositor designates that the Custodial Account is a Regular IRA, this Agreement is intended to qualify under Code Section 408(a) as an individual retirement Custodial Account and to entitle Depositor to the retirement savings deduction under Code Section 219 if available. If in the Adoption Agreement Depositor designates that the Custodial Account is a Roth IRA, this Agreement is intended to qualify under Code Section 408A as a Roth individual retirement Custodial Account and to entitle Depositor to the tax-free withdrawal of amounts from the Custodial Account to the extent permitted in such Code section. If any provision hereof is subject to more than one interpretation or any term used herein is subject to more than one construction, such ambiguity shall be resolved in favor of that interpretation or construction which is consistent with the intent expressed in whichever of the two preceding sentences is applicable. However, the Custodian shall not be responsible for whether or not such intentions are achieved through use of this Agreement, and Depositor is referred to Depositor's attorney for any such assurances. 22. Depositor should seek advice from Depositor's attorney regarding the legal consequences (including but not limited to federal and state tax matters) of entering into this Agreement, contributing to the Custodial Account, and ordering Custodian to make distributions from the Account. Depositor acknowledges that Custodian and Service Company (and any company associated therewith) are prohibited by law from rendering such advice. 23. If any provision of any document governing the Custodial Account provides for notice, instructions or other communications from one party to another in writing, to the extent provided for in the procedures of the Custodian, Service Company or another party, any such notice, instructions or other communications may be given by telephonic, computer, other electronic or other means, and the requirement for written notice will be deemed satisfied. 24. The legal documents governing the Custodial Account are as follows: (a) If in the Adoption Agreement the Depositor designated the Custodial Account as a Regular IRA under Code Section 408(a), the provisions of Part One and Part Three of this Agreement and the provisions of the Adoption Agreement are the legal documents governing the Depositor's Custodial Account. (b) If in the Adoption Agreement the Depositor designated the Custodial Account as a Roth IRA under Code Section 408A, the provisions of Part Two and Part Three of this Agreement and the provisions of the Adoption Agreement are the legal documents governing the Depositor's Custodial Account. (c) In the Adoption Agreement the Depositor must designate the Custodian Account as either a Roth IRA or a Regular IRA, and a separate account will be established for such IRA. One Custodial Account may not serve as a Roth IRA and a Regular IRA (through the use of subaccounts or otherwise). 25. Articles I through VII of Part One of this Agreement are in the form promulgated by the Internal Revenue Service as Form 5305-A. It is anticipated that, if and when the Internal Revenue Service promulgates changes to Form 5305- A, the Custodian will amend this Agreement correspondingly. Articles I through VII of Part Two of this Agreement are in the form promulgated by the Internal Revenue Service as Form 5305-RA. It is anticipated that, if and when the Internal Revenue Service promulgates changes to Form 5305-RA, the Custodian will amend this Agreement correspondingly. The Internal Revenue Service has endorsed the use of documentation permitting a Depositor to establish either a Regular IRA or Roth IRA (but not both using a single Adoption Agreement), and this Kit complies with the requirements of the IRS guidance for such use. If the Internal Revenue Service subsequently determines that such an approach is not permissible, or that the use of a "combined" Adoption Agreement does not establish a valid Regular IRA or a Roth IRA (as the case may be), the Custodian will furnish the Depositor with replacement documents and the Depositor will if necessary sign such replacement documents. Depositor acknowledge and agrees to such procedures and to cooperate with Custodian to preserve the intended tax treatment of the Account. 26. If the Depositor maintains an Individual Retirement Account under Code section 408(a), Depositor may convert or transfer such other IRA to a Roth IRA under Code section 408A using the terms of this Agreement and the Adoption Agreement by completing and executing the Adoption Agreement and giving suitable directions to the Custodian and the custodian or trustee of such other IRA. Alternatively, the Depositor may convert or transfer such other IRA to a Roth IRA by use of a reply card or by telephonic, computer or electronic means in accordance with procedures adopted by the Custodian or Service Company intended to meet the requirements of Code section 408A, and the Depositor will be deemed to have executed the Adoption Agreement and adopted the provisions of this Agreement and the Adoption Agreement in accordance with such procedures. 27. The Depositor acknowledges that he or she has received and read the current prospectus for each Fund in which his or her Account is invested and the Individual Retirement Account Disclosure Statement related to the Account. The Depositor represents under penalties of perjury that his or her Social Security number (or other Taxpayer Identification Number) as stated in the Adoption Agreement is correct. EX-99.14.2 7 FORM OF INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT Exhibit 14.2 Application THE OAKMARK FAMILY OF FUNDS STATE STREET BANK AND TRUST COMPANY INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT APPLICATION AND ADOPTION AGREEMENT ("ADOPTION AGREEMENT") I, the person signing this Adoption Agreement (hereinafter called the "Depositor"), establish an Individual Retirement Account (IRA), which is either a Regular IRA or a Roth IRA, as indicated below, (the "Account") with State Street Bank and Trust Company as Custodian ("Bank"). A Regular IRA operates under Internal Revenue Code Section 408(a). A Roth IRA operates under Internal Revenue Code Section 408A. I agree to the terms of my Account, which are contained in the applicable provisions of the document entitled "State Street Bank and Trust Company Individual Retirement Custodial Account" and this Adoption Agreement. I certify the accuracy of the information in this Adoption Agreement. My Account will be effective upon acceptance by Bank. PART 1. DEPOSITOR INFORMATION ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------- Print Full Name Social Security Number - ------------------------------------------------------ ------------------------- Address Date of Birth ( ) - ------------------------------------------------------ ------------------------- City State Zip Daytime Telephone No. PART 2. IRA ELECTION INSTRUCTIONS: To establish a Regular IRA, check Box A and complete Part A. To establish a Roth IRA, check Box B and complete Part B. (In either case, complete Part 3 to select your investment choices, and sign at the end of Part 5.) [ ] A. REGULAR IRA By checking this box, I designate my Account as a Regular IRA under Code Section 408(a). (Complete 1, 2, 3 or 4 below to indicate the type of Regular IRA you are opening. Check box 5, if applicable.) 1. [ ] ANNUAL CONTRIBUTIONS Current Contribution for the tax year. Check enclosed for $. This contribution does not exceed the maximum permitted amount as described in the Regular IRA Disclosure Statement. 2. [ ] TRANSFER [ ] Transfer of existing Regular IRA directly from current Custodian or Trustee. Complete the IRA Transfer of Assets Form. [ ] The transferring IRA held annual contributions by me (or amounts transferred or rolled over from another IRA holding annual contributions). [ ] The transferring IRA held only amounts that were originally contributions to an employer qualified plan or 403(b) plan. 3. [ ] ROLLOVER The requirements for a valid rollover are complex. See the Regular IRA Disclosure Statement for additional information and consult your tax advisor for help if needed. Check enclosed for $. [ ] Rollover of a qualifying rollover distribution to Depositor from an employer plan or 403(b) arrangement, or rollover from another Regular IRA which held only assets distributed to Depositor from an employer plan or 403(b) arrangement and to which Depositor made no direct contributions. [ ] Rollover of distribution to Depositor from another Regular IRA that held amounts that originated from annual contributions by the Depositor. 4. [ ] DIRECT ROLLOVER [ ] Direct rollover of an eligible distribution from a qualified plan. [ ] Direct rollover of an eligible distribution from a 403(b) account or annuity. Direct rollovers are described in the Regular IRA Disclosure Statement. 5. [ ] SEP PROVISION_ check here if the Depositor intends to use this Account in connection with a SEP Plan or grandfathered SARSEP Plan established by the Depositor's employer. [ ] B. ROTH IRA_ By checking this box, I designate my Account as a Roth IRA under Code Section 408A. (Complete 1, 2, 3 or 4 below to indicate the type of Roth IRA you are opening.) 1. [ ] ANNUAL CONTRIBUTIONS Current Contribution for the tax year . Check enclosed for $. This contribution does not exceed the maximum permitted amount as described in the Roth IRA Disclosure Statement. 2. [ ] CONVERSION OF AN EXISTING OAKMARK FUNDS REGULAR IRA TO A ROTH IRA. Current Regular IRA Account No.: Amount Converted [ ] All [ ] Part (specify how much): $ 3. [ ] ROLLOVER OR TRANSFER FROM EXISTING REGULAR IRA TO A ROTH IRA* 4. [ ] ROLLOVER OR TRANSFER FROM EXISTING ROTH IRA TO A ROTH IRA* Date existing Roth IRA was originally opened: Indicate whether any amount in the existing Roth IRA represents amounts converted or transferred from a Regular IRA into such other Roth IRA: [ ] Yes [ ] No If yes, date of the most recent conversion or transfer into such other Roth: * Complete the IRA Transfer of Assets Form if either 3 or 4 is checked and the transaction is a transfer (as opposed to a rollover). Note: If a conversion, rollover or transfer from a Regular IRA to a Roth IRA is being made, only amounts converted, rolled over or transferred during the same tax year will be accepted in a single Roth IRA. A separate Roth IRA must be established to hold such amounts from a different tax year. Annual contributions may not be deposited in a Roth IRA holding such converted, rolled over or transferred amounts. PART 3. INVESTMENTS Invest contributions to my Account as follows: Minimum investment per fund $1,000. Oakmark % or $ Oakmark Select % Oakmark Equity & Income % Oakmark International % Oakmark International % Small Cap Must Total 100% $5 Setup fee [ ] enclosed or [ ] deduct $10 Annual fee [ ] enclosed or [ ] deduct I acknowledge that I have sole responsibility for my investment choices and that I have received a current prospectus. Please read the prospectus before investing. PART 4. DESIGNATION OF BENEFICIARY As Depositor, I hereby make the following designation of beneficiary in accordance with the State Street Bank and Trust Company Regular Individual Retirement Custodial Account, or Roth Individual Retirement Custodial Account: In the event of my death, pay any interest I may have under my Account to the following Primary Beneficiary or Beneficiaries who survive me. Make payment in the proportions specified below (or in equal proportions if no different proportions are specified). If any Primary Beneficiary predeceases me, his share is to be divided among the Primary Beneficiaries who survive me in the relative proportions assigned to each such surviving Primary Beneficiary. PRIMARY BENEFICIARY OR BENEFICIARIES:
Name Relationship Date of Social Security Proportion Birth Number =============== ================ ========= ================ ============ - --------------- ---------------- --------- ---------------- ------------ - --------------- ---------------- --------- ---------------- ------------
If none of the Primary Beneficiaries survives me, pay any interest I may have under my Account to the following Alternate Beneficiary or Beneficiaries who survive me. Make payment in the proportions specified below (or in equal proportions if no different proportions are specified). If any Alternate Beneficiary predeceases me, his share is to be divided among the Alternate Beneficiaries who survive me in the relative proportions assigned to each such surviving Alternate Beneficiary. ALTERNATE BENEFICIARY OR BENEFICIARIES:
Name Relationship Date of Social Security Proportion Birth Number =============== ================ ========= ================ ============ - --------------- ---------------- --------- ---------------- ------------ - --------------- ---------------- --------- ---------------- ------------
IMPORTANT: This Designation of Beneficiary may have important tax or estate planning effects. Also, if you are married and reside in a community property or marital property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin), you may need to obtain your spouse's consent if you have not designated your spouse as primary beneficiary for at least half of your Account. See your lawyer or other tax professional for additional information and advice. SPOUSAL This section should be reviewed if the accountholder is married CONSENT and designates a beneficiary other than the spouse. It is the accountholder's responsibility to determine if this section applies. The accountholder may need to consult with legal counsel. Neither the Custodian nor the Sponsor are liable for any consequences resulting from a failure of the accountholder to provide proper spousal consent. I am the spouse of the above-named accountholder. I acknowledge that I have received a full and reasonable disclosure of my spouse's property and financial obligations. Due to any possible consequences of giving up my community property interest in this IRA, I have been advised to see a tax professional or legal advisor. I hereby consent to the beneficiary designation(s) indicated above. I assume full responsibility for any adverse consequence that may result. No tax or legal advice was given to me by the Custodian or Sponsor. -------------------------------------------- --------------- Signature of Spouse Date -------------------------------------------- --------------- Signature of Witness for Spouse Date PART 5. CERTIFICATIONS AND SIGNATURES If the Depositor has indicated a Regular IRA Rollover or Direct Rollover above, Depositor certifies that the contribution does not include any employee contributions to any qualified plan (other than accumulated deductible employee contributions) or 403(b) arrangement; that any assets transferred in kind by Depositor are the same assets received by the Depositor in the distribution being rolled over; if the distribution is from another Regular IRA, that Depositor has not made another rollover within the one-year period immediately preceding this rollover; that such distribution was received within 60 days of making the rollover to this Account; and that no portion of the amount rolled over is a required minimum distribution under the required distribution rules. If Depositor has indicated a Conversion, Transfer or a Rollover of an existing Regular IRA to a Roth IRA, Depositor acknowledges that the amount converted will be treated as taxable income (except for prior nondeductible contributions) for federal income tax purposes. If Depositor has indicated a Rollover from another Roth IRA (Item 4 of Part B above), Depositor certifies that the information given in Item 4 is correct and acknowledges that adverse tax consequences or penalties could result from giving incorrect information. Depositor has received and read the applicable sections of the "State Street Bank and Trust Company Universal Individual Retirement Account Disclosure Statement" relating to this Account (including the Custodian's fee schedule), the Custodial Account document, and the "Instructions" pertaining to this Agreement. Depositor acknowledges receipt of the Universal Individual Retirement Custodial Account document and Universal IRA Disclosure Statement at least 7 days before the date inscribed below and acknowledges that Depositor has no further right of revocation. Depositor acknowledges and understands that the beneficiaries named herein may be changed or revoked at any time by filing a new designation in writing with the Custodian. All forms must be acceptable to the Custodian and dated and signed by the Depositor. Under penalty of perjury, I hereby certify that I am NOT currently subject to IRS backup withholding. (Cross out "NOT" if you are currently subject to withholding.) Under penalty of perjury, I hereby certify that the Taxpayer Identification Number given is correct. The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. - -------------------------------------------------------------------------------- Signature of Depositor Date Custodian Acceptance. State Street Bank and Trust Company will accept appointment as Custodian of the Depositor's Account. However, this Agreement is not binding upon the Custodian until the Depositor has received a statement of the transaction. Receipt by the Depositor of a confirmation of the purchase of the Fund shares indicated above will serve as notification of State Street Bank and Trust Company's acceptance of appointment as Custodian of the Depositor's Account. STATE STREET BANK AND TRUST COMPANY, CUSTODIAN By Date If the Depositor is a minor under the laws of the Depositor's state of residence, a parent or guardian must also sign the Agreement here. Until the Depositor reaches the age of majority, the parent or guardian will exercise the powers and duties of the Depositor. ================================================================================ Signature of Parent or Guardian RETAIN A PHOTOCOPY OF THE COMPLETED AGREEMENT FOR YOUR RECORDS EX-99.14.3 8 FORM OF IRA TRANSFER FORM Exhibit 14.3 Transfer Form The Oakmark Family of Funds State Street Bank and Trust Company Individual Retirement Custodial Account IRA Transfer of Assets Form ================================================================================ 1. NAME AND ADDRESS OF DEPOSITOR --------------------------------------------------------------------------- Name --------------------------------------------------------------------------- Address --------------------------------------------------------------------------- Street City State Zip -------------------------------------------------------------------------- Daytime Telephone No. ( ) --------------------------------------------------------------------------- Social Security No. ================================================================================ 1. IDENTIFICATION OF RECEIVING ACCOUNT This is a transfer to State Street Bank and Trust Company [ ] Regular IRA* [ ] SEP IRA* [ ] Roth IRA** * You may not transfer from a Roth IRA to a Regular IRA or a simplified employee pension (SEP) IRA. Transfer to a Regular IRA or SEP IRA may be made from another Regular IRA or SEP IRA, qualified employer plan, 403(b) arrangement, or a Simple IRA (but not until at least 2 years after the first contribution to your Simple IRA). ** Transfers to a Roth IRA are possible only from another Roth IRA or from a Regular IRA, not from other types of tax-deferred accounts. A transfer from a Regular IRA will trigger federal income tax on the taxable amount transferred from the Regular IRA. Note: If a conversion, rollover or transfer from a Regular IRA to a Roth IRA is being made, only amounts converted, rolled over or transferred during the same tax year will be accepted in a single Roth IRA. A separate Roth IRA must be established to hold such amounts from a different tax year. Annual contributions may not be deposited in a Roth IRA holding such converted, rolled over or transferred amounts. If you already have a Regular IRA, SEP IRA or Roth IRA, indicate the account No._____________________. 3. INSTRUCTION TO PRESENT IRA CUSTODIAN OR TRUSTEE (Completed by Depositor) --------------------------------------------------------------------------- Name of Custodian/Trustee --------------------------------------------------------------------------- Attn: Mr./Mrs. --------------------------------------------------------------------------- Address --------------------------------------------------------------------------- Street City State Zip Account number at Present IRA Custodian or Trustee: _____________________ Please transfer assets from the above account to State Street Bank and Trust Company. Transfer should be in cash according to the following instructions: [ ] Transfer the total amount in my Account, or [ ] Transfer % and retain the balance, or [ ] Transfer $ and retain the balance Make check payable to: State Street Bank and Trust Company Mail to: The Oakmark Funds P. O. Box 8510 Boston, MA 02266-8510 4. INVESTMENT INSTRUCTIONS TO STATE STREET BANK AND TRUST COMPANY (Depositor_check one box and complete if necessary) [_] Invest the transferred amount in accordance with the investment instructions in the Adoption Agreement for my State Street Bank and Trust Company Individual Retirement Custodial Account. [_] Invest the transferred amount as follows: Oakmark % Oakmark Select % Oakmark Equity and % Income Oakmark International % Oakmark International % Small Cap Fund Account number (if existing): I acknowledge that I have sole responsibility for my investment choices and that I have received a current prospectus. Please read the prospectus before investing. I understand that the requirements for a valid transfer to a Regular IRA, SEP IRA, or Roth IRA are complex and that I have the responsibility for complying with all requirements and for the tax results of any such transfer. - -------------------------------------------------------------------------------- SIGNATURE OF DEPOSITOR The undersigned certifies to the present IRA custodian or trustee that the undersigned has established a successor Individual Retirement Custodial Account meeting the requirements of Internal Revenue Code Section 408(a), 408(p) or 408A (as the case may be) to which assets will be transferred, and certifies to State Street Bank and Trust Company that the IRA from which assets are being transferred meets the requirements of Internal Revenue Code Section 408(a), 408(p) or 408A (as the case may be). Date Signature of Depositor SIGNATURE GUARANTEE (only if required by current Custodian or Trustee) Signature guaranteed by: Name of Bank or Dealer Firm Signature of Officer and Title - -------------------------------------------------------------------------------- 5. ACCEPTANCE BY NEW CUSTODIAN (Completed by State Street Bank and Trust Company) State Street Bank and Trust Company agrees to accept transfer of the above amount for deposit to the Depositor's State Street Bank and Trust Company Individual Retirement Custodial Account, and requests the liquidation and transfer of assets as indicated above. By: EX-99.16 9 SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS EXHIBIT 16 The Oakmark Fund Total Return Calculation Initial Investment: $1,000 Period: From November 1, 1996 to September 30, 1997 Number of Days in Period: 334 Total Return: 39.24%
Dividend Dividend Dividend Total Account Date NAV Shares Rate Dollars Shares Shares Value ---- --- ------ ---- ------- ------ ------ ----- 10/31/96 $28.47 35.1247 0.0000 $0.00 0.0000 35.1247 $1,000.00 12/13/95 $29.73 35.1247 1.1200 $39.51 1.3289 36.4536 $1,083.77 10/31/96 $32.39 36.4536 0.0000 $0.00 0.0000 36.4536 $1,180.73 10/31/96 $32.39 30.8737 0.0000 $0.00 0.0000 30.8737 $1,000.00 12/11/96 $32.20 30.8737 2.2107 $68.25 2.1200 32.9937 $1,062.39 9/30/97 $41.21 32.9937 0.0000 $0.00 0.0000 32.9937 $1,359.67
Annualization - ------------- $1,359.67 (divided by) 1000 = 35.967% X 12/11 = 39.24% The Oakmark Select Fund Total Return Calculation Initial Investment: $1,000 Period: From November 1, 1996 to September 30, 1997 Number of Days in Period: 334 Total Return: 69.16%
Dividend Dividend Dividend Total Account Date NAV Shares Rate Dollars Shares Shares Value ---- --- ------ ---- ------- ------ ------ ----- 11/ 1/96 $10.00 100 0.0000 $0.00 0.0000 100 $1,000.00 9/30/97 $16.34 100 0.0000 $0.00 0.0000 100 $1,634.00
Annualization - ------------- $1,634.00 (divided by) 1000 = 63.4% X 12/11 = 69.16% The Oakmark Equity and Income Fund Total Return Calculation Initial Investment: $1,000 Period: From November 1, 1996 to 9-30-97 Number of Days in Period: 334 Total Return: 34.01%
Dividend Dividend Dividend Total Account Date NAV Shares Rate Dollars Shares Shares Value ---- --- ------- -------- --------- -------- ------- ------- 11/01/95 $10.00 100.0000 0.00 $0.00 0.0000 100.0000 $1,000.00 10/31/96 $11.29 100.0000 0.00 $0.00 0.0000 100.0000 $1,129.00 10/31/96 $11.29 88.574 0 0 0 88.574 $1,000.00 12/11/96 11.37 88.574 .2513 22.26 1.958 90.532 1,029.00 9/30/97 14.49 90.532 0 0 0 90.532 1,311.81
Annualization - ------------- $1,311.81 (divided by) 1000 = 31.18% X 12/11 = 34.01% The Oakmark Small Cap Fund Total Return Calculation Initial Investment: $1,000 Period: From November 1, 1996 to 9-30-97 Number of Days in Period: 334 Total Return: 59.14%
Dividend Dividend Dividend Total Account Date Nav Shares Rate Dollars Shares Shares Value ---- --- ------ -------- -------- -------- ------ --------- 10-31-96 $13.19 75.815 0.00 $0.00 0.0000 75.815 $1,000.00 9/30/97 20.34 100 0 0 0 100 1,542.08
Annualization - ------------- 1542 (divided by) 1000 = 54.21% x 12/11 = 59.14% The Oakmark International Fund Total Return Calculation Initial Investment: $1,000 Period: From October 31, 1996 to October 31, 1996 Number of Days in Period: 334 Total Return: 29.63%
Dividend Dividend Dividend Total Account Date NAV Shares Rate Dollars Shares Shares Value ---- --- ------ ---- ------- ------ ------ ----- 10/31/96 $14.92 67.024 0 0 0 67.024 $ 1,000 12/11/96 15.00 67.024 .1617 10.84 .723 67.747 1,016.205 9/30/97 18.77 67.747 0 0 0 67.747 1,271.61
Annualization - ------------- $1,271.61 (divided by) 1000 = 27.16% X 12 (divided by) 11 = 29.63% The Oakmark International Small Cap Fund Total Return Calculation Initial Investment: $1,000 Period: From November 1, 1996 to September 30, 1997 Number of Days in Period: 334 Total Return: 12.07%
Dividend Dividend Dividend Total Account Date NAV Shares Rate Dollars Shares Shares Value ---- --- ------ ---- ------- ------ ------ ----- 10/31/96 $11.41 87.642 0 0 0 87.64 $1,000 12/11/96 11.27 87.642 .4358 38.19 3.389 91.031 1,025.92 9/30/97 12.20 91.031 0 0 0 91.031 1,110.58
Annualization - ------------- $1,110.58 (divided by) 1000 = 11.06% X 12 (divided by) 11 = 12.07% EX-99.18 10 NEW ACCOUNT REGISTRATION FORM REVISED JAN. 1998 Exhibit 18 THE OAKMARK FAMILY OF FUNDS New Account Registration Form Please do not use this application to open an IRA THE FUNDS WILL NOT ACCEPT THIRD PARTY CHECKS Make checks payable to: State Street Bank & Trust Company Mail to: The Oakmark Funds P.O. Box 8510 Boston, MA 02266-8510 1-800-OAKMARK (1-800-625-6275) [LOGO OF OAKMARK]
1. Account Registration Choose one account type: A, B or C. PRINT CLEARLY. A. Individual or Joint First Name MI Last Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- -- ----------------------------------------------------------------------------- Social Security Number Birthdate Citizenship: [ ] U.S. or Resident Alien [ ] Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- ------------------------- ----------------------------------------------------- Joint Owner's Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- ---- --------------------------------------------------------------------------- Social Security Number Birthdate Citizenship: [ ] U.S. or Resident Alien [ ] Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- -------------------------- ----------------------------------------------------- *If second name is on account, registration will be joint tenancy with rights of survivorship unless otherwise specified. B. Corporations, Trusts or Other Entities Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ----------------------------------------------------------------------------------------------------------------------- Tax ID Number Trustee(s) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- --------------------------------------------------------------------------------------- Beneficiary's Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- -- ----------------------------------------------------------------------------- Date of Agreement | | | | | | | | | | | | | | --------------------------- C. Gift/Transfer to Minor Custodian's Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- -- ----------------------------------------------------------------------------- Minor's Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- -- ----------------------------------------------------------------------------- Minor's Social Security Number Minor's Birthdate Minor's State of Residence | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- ------------------------------------- ----- Citizenship: [ ] U.S. or Resident Alien [ ] Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | -------------------------------------------------------- 2. Mailing Address Street, Apt. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ----------------------------------------------------------------------------------------------------------------------- City State Zip | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -- | | | | | | ----------------------------------------------- ----- -------------------------------------------------------- Daytime Phone Evening Phone | | | | | -- | | | -- | | | | | | | | | | | | | | | | -- | | | -- | | | | | | | | | ---------------------------------------- --------------------------------------------- Send Duplicate Statements to: Name | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --------------------------- -- ----------------------------------------------------------------------------- Company | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ----------------------------------------------------------------------------------------------------------------------- Street | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ----------------------------------------------------------------------------------------------------------------------- City State Zip | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -- | | | | | | ----------------------------------------------- ----- -------------------------------------------------------- 3. Investment . Initial minimum: $1,000 per Fund account . Minimum Subsequent purchases: $100 per Fund Account OAKMARK FUNDS INITIAL INVESTMENT DISTRIBUTION OPTIONS* [ ] Oakmark Fund (110) $ [__________] [ ] [ ] Oakmark Select Fund (808) $ [__________] [ ] [ ] Oakmark Equity and Income Fund (810) $ [__________] [ ] [ ] Oakmark International Fund (109) $ [__________] [ ] [ ] Oakmark International Small Cap Fund (110) $ [__________] [ ] OAKMARK UNITS OF [ ] Government Portfolio (111) $ [__________] [ ] [ ] Tax-Exempt Diversified Portfolio (60) $ [__________] [ ] [ ] Short Duration Tax-Free Fund (61) $ [__________] [ ] Total Investment $ [__________] *Distributions will automatically be reinvested in additional shares of your fund(s) unless you check the box(es) above.
4. Automatic Investment Plan [_] This allows you to purchase shares automatically by electronic transfer from your checking account. Transactions will occur on the 15th of the month or the next business day, unless otherwise specified below. Beginning |_|_|_|_|_|_| invest $ |_|_|_|_|_| [_] Monthly [_] Quarterly Transactions should occur on the |_|_| of the month. Fund Name: |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| Check the box and complete section 7. -------- 5. Telephone Investments [_] This allows you to purchase shares by telephone by calling our Audio Response System anytime at 1-800-OAKMARK (1-800-625-6275), press 1, or press 2 for a customer service representative between 8:00 AM and 4:00 PM EST. You pay for the purchases by electronic transfer from your checking account. Check the box and complete section 7. -------- 6. Redemption and Exchange Options A. Telephone Redemptions and Exchanges. This allows you to use the telephone to redeem or exchange shares, unless you check the box below. Redemptions will be made payable to the registered owner(s) and to the address of record. Persons having your account information may be able to act upon your behalf. [_] I DO NOT WANT TELEPHONE REDEMPTION. [_] I DO NOT WANT TELEPHONE EXCHANGE. B. Special Redemption Option. [_] This allows you to redeem shares automatically and have the proceeds sent to your checking account. Check the box and complete section 7. -------- C. Systematic Withdrawal Plan. [_] This allows you to redeem shares automatically and have the proceeds sent to your address of record. Transactions will occur on the 24th of the month or the next business day, unless otherwise specified below. Beginning |_|_|_|_|_|_| invest $ |_|_|_|_|_| [_] Monthly [_] Quarterly Transactions should occur on the |_|_| of the month. Fund Name: |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| 7. Bank Information Complete this section if you have selected the Automatic Investment Plan from section 4, Telephone Investments from section 5 or the Special Redemption Option from section 6B. You must use the same checking account for these sections. Any co-signer of your checking account who is not a joint owner of the funds must authorize this service by signing below. A VOIDED CHECK FROM YOUR CHECKING ACCOUNT MUST BE ATTACHED TO THIS FORM. ---- WE DO NOT ACCEPT STARTER CHECKS OR MUTUAL FUND MONEY MARKET CHECKS. This allows you to use the telephone to redeem or exchange shares, unless you check the box below. Redemptions will be made payable to the registered owner(s) and to the address of record. Persons having your account information may be able to act upon your behalf. Name of Bank |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| Street Address |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| City State Zip |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_| |_|_|_|_|_| Name(s) on Checking Account |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| Checking Account Number |_|_|_|_|_|_|_|_|_|_|_|_|_| Bank ABA Number |_|_|_|_|_|_|_|_|_|_|_|_|_| Co-Signer Signature Date _______________________________________ |_|_|_|_|_|_| 8. Signature By signing this form I certify that: . I have received the current Fund prospectus and agree to be bound by its terms as governed by Illinois law. I have full authority and legal capacity to purchase F shares and establish and use any related privileges. TELEPHONE PRIVILEGES . I understand that the Telephone Redemption and Telephone Exchange Privileges will apply to my account unless I have specifically declined those privileges in Section 6A of this application. . I understand that by signing the application, unless the privileges are declined, I agree that neither the Funds nor their Transfer Agent, their agents, offices, trustees, directors or employees will be liable for any loss, liability or expense for acting on instructions given under the privileges, placing the risk of loss on me. See the discussion of the Telephone Redemption and Telephone Exchange Privileges in the prospectus. TAXPAYER IDENTIFICATION NUMBER CERTIFICATION I certify under penalties of perjury: . All information and certifications on this application are true and correct, including the Social Security or other Tax Identification Number (TIN) in Section 1. . Check one of the following only if applicable: [_] If I have not provided a TIN, I have not been issued a number but have applied (or will apply) for one. I understand that if I do not provide the Fund(s) a TIN within 60 days, the Fund(s) will withhold 31% from all my dividend, capital gain and redemption payments until I provide one. [_] The IRS has informed me I am subject to backup withholding as a result of a failure to report all interest dividend income. [_] I am a trust or organization that qualifies for the IRS backup withholding exemption. . The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. Sign below exactly as your name(s) appear in section 1. Signature Date __________________________________ |_|_|_|_|_|_| Title (if owner is an organization) |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| Signature Date __________________________________ |_|_|_|_|_|_| Title (if owner is an organization) |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| EX-27.1 11 FINANCIAL DATA SCHEDULE -- THE OAKMARK FUND
6 This schedule contains summary financial information extracted from The Oakmark Fund 09/30/97 Annual Report and is qualified in its entirety by reference to such financial statements. 01 The Oakmark Fund 1,000 OTHER SEP-30-1997 NOV-01-1996 SEP-30-1997 4,613,300 6,632,986 53,178 25 0 6,686,189 60,337 0 10,903 71,240 0 4,305,753 160,525 0 49,695 0 239,815 0 2,019,686 6,614,949 76,669 29,568 0 50,379 55,858 239,440 1,231,139 1,526,437 0 41,660 225,987 0 57,226 26,115 7,962 1,422,222 35,496 226,362 0 0 43,706 0 50,393 5,105,372 32.39 0.36 10.67 0.34 1.87 0.00 41.21 1.08 0 0
EX-27.2 12 FINANCIAL DATA SCHEDULE -- OAKMARK SELECT FUND
6 This schedule contains summary financial information extracted from The Oakmark International Select 9/30/97 Annual Report and is qualified in its entirety by reference to such financial statements. 6 Oakmark Select Fund 1,000 OTHER SEP-30-1997 NOV-01-1996 SEP-30-1997 436,241 523,916 9,018 4 0 532,938 17,905 0 858 18,763 0 421,676 31,466 0 (247) 0 5,070 0 87,676 514,175 1,340 807 25 2,419 (247) 5,070 87,675 92,498 0 0 0 0 45,529 11,063 0 421,676 0 0 0 0 1,732 0 2,421 235,462 10.00 (0.01) 6.35 0.00 0.00 0 16.34 1.12 126 0.00
EX-27.3 13 FINANCIAL DATA SCHEDULE -- OAKMARK SMALL CAP FUND
6 This schedule contains summary financial information extracted from The 9-30-97 Annual Report and is qualified in its entirety by reference to such financial statements. 03 Oakmark Small Cap Fund 1,000 OTHER SEP-30-1997 NOV-01-1996 SEP-30-1997 1,203,839 1,511,801 15,247 9 125,327 1,652,384 15,112 0 123,876 138,988 0 1,161,136 74,418 0 (1,961) 0 46,259 0 307,962 1,513,396 4,339 3,155 129 9,307 (1,684) 46,502 287,859 332,677 0 0 0 0 78,065 20,201 0 962,299 (276) (246) 0 0 7,706 0 9,326 733,290 13.19 (0.01) 7.16 0.00 0.00 0 20.34 1.37 198 0.00
EX-27.4 14 FINANCIAL DATA SCHEDULE -- THE OAKMARK EQUITY AND INCOME FUND
6 This schedule contains summary financial information extracted from the 9/30/97 Annual Report and is qualified in its entirety by reference to such financial statements. 04 The Oakmark Equity and Income Fund 1,000 OTHER Sep-30-1997 Nov-01-1996 Sep-30-1997 28,399 33,857 449 5 2,836 37,147 783 0 2,902 3,685 0 26,651 2,309 0 449 0 905 0 5,458 33,463 274 488 6 296 472 905 4,555 5,932 0 148 162 0 1,941 880 25 14,043 125 162 0 0 141 0 336 21,590 11.29 0.21 3.24 0.12 0.13 0 14.49 1.50 6 0
EX-27.5 15 FINANCIAL DATA SCHEDULE -- OAKMARK INTERNATIONAL FUND
6 This schedule contains summary financial information extracted from The Oakmark International Fund 9/30/97 Annual Report and is qualified in its entirety by reference to such financial statements. 02 Oakmark International Fund 1,000 OTHER SEP-30-1997 NOV-01-1996 SEP-30-1997 1,480,884 1,634,931 20,160 212,539 0 1,867,630 5,920 0 214,362 220,282 0 1,230,461 87,742 0 61,390 0 200,913 0 154,584 1,647,348 38,947 3,977 1,301 16,559 27,666 234,815 74,342 336,823 0 12,478 0 0 41,288 32,946 793 150,236 46,201 (33,902) 0 0 13,041 0 16,559 140,822 14.92 0.27 3.74 0.16 0.00 0 18.77 1.26 0 0
EX-27.6 16 FINANCIAL DATA SCHEDULE -- OAKMARK INT'L SMALL CAP FUND
6 This schedule contains summary financial information extracted from the Oakmark International Small Cap 9/30/97 Annual Report and is qualified in its entirety by reference to such financial statements. 05 Oakmark International Small Cap Fund 1,000 OTHER SEP-30-1997 NOV-01-1996 SEP-30-1997 67,461 66,295 1,618 2,606 0 70,519 741 0 3,805 4,546 0 60,623 5,409 0 522 0 5,992 0 (1,164) 65,973 1,474 162 25 1,015 646 6,018 (1,459) 5,205 0 279 1,285 0 5,229 3,438 135 22,580 155 1,260 0 0 648,148 0 1,016,070 57,374 11.41 0.13 1.10 0.08 0.36 0 12.20 1.93 0 0
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