-----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, WbSsNMG/NeLOGSJuU+o23BdXSF4kYk6MIk2OOn2FhY275wo2x9GU0hNNcICwFD1n MfZCEtSj2EnLkEDytGrysw== 0001047469-03-003144.txt : 20030129 0001047469-03-003144.hdr.sgml : 20030129 20030129171735 ACCESSION NUMBER: 0001047469-03-003144 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20030129 EFFECTIVENESS DATE: 20030129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-38953 FILM NUMBER: 03530474 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06279 FILM NUMBER: 03530475 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 a2101864z485bpos.txt 485BPOS As filed with the Securities and Exchange Commission on January 29, 2003 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. 28 /X/ and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 30 /X/ - -------------------------------------------------------------------------------- HARRIS ASSOCIATES INVESTMENT TRUST (Registrant) Two North La Salle Street, Suite 500 Chicago, Illinois 60602-3790 Telephone number 312/621-0600 - -------------------------------------------------------------------------------- Robert M. Levy Cameron S. Avery Harris Associates L.P. Bell, Boyd & Lloyd LLC 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: /X/ immediately upon filing pursuant to rule 485(b) / / on ____________,______ pursuant to rule 485(b) / / 60 days after filing pursuant to rule 485(a)(1) / / on _____________ pursuant to rule 485(a)(1) / / 75 days after filing pursuant to rule 485(a)(2) / / on _____________ pursuant to rule 485(a)(2) - -------------------------------------------------------------------------------- [GRAPHIC] THE OAKMARK FUND THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK GLOBAL FUND THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND PROSPECTUS JANUARY 29, 2003 THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ADVISED BY HARRIS ASSOCIATES L.P. TABLE OF CONTENTS OVERVIEW OF THE OAKMARK FAMILY OF FUNDS 1 Investment Objectives 1 Principal Investment Strategies 1 THE OAKMARK FUND (OAKMX) 3 Investment Objective 3 Principal Investment Strategy 3 Principal Investment Risks 3 Is The Fund Right For Me? 3 Performance Information 4 Fees and Expenses 6 THE OAKMARK SELECT FUND (OAKLX) 7 Investment Objective 7 Principal Investment Strategy 7 Principal Investment Risks 7 Is The Fund Right For Me? 8 Performance Information 8 Fees and Expenses 10 THE OAKMARK SMALL CAP FUND (OAKSX) 11 Investment Objective 11 Principal Investment Strategy 11 Principal Investment Risks 11 Is The Fund Right For Me? 12 Performance Information 12 Fees and Expenses 14
THE OAKMARK EQUITY AND INCOME FUND (OAKBX) 15 Investment Objective 15 Principal Investment Strategy 15 Principal Investment Risks 15 Is The Fund Right For Me? 16 Performance Information 17 Fees and Expenses 19 THE OAKMARK GLOBAL FUND (OAKGX) 20 Investment Objective 20 Principal Investment Strategy 20 Principal Investment Risks 20 Is The Fund Right For Me? 21 Performance Information 21 Fees and Expenses 23 THE OAKMARK INTERNATIONAL FUND (OAKIX) 24 Investment Objective 24 Principal Investment Strategy 24 Principal Investment Risks 24 Is The Fund Right For Me? 25 Performance Information 25 Fees and Expenses 27 THE OAKMARK INTERNATIONAL SMALL CAP FUND (OAKEX) 28 Investment Objective 28 Principal Investment Strategy 28 Principal Investment Risks 28 Is The Fund Right For Me? 29 Performance Information 30 Fees and Expenses 32 HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES 33 Investment Techniques 33 Risk Factors 34 Change in Objective 37
MANAGEMENT OF THE FUNDS 38 INVESTING WITH THE OAKMARK FAMILY OF FUNDS 40 Eligibility To Buy Shares 40 Types of Accounts - Class I Shares 41 Types of Accounts - Class II Shares 41 Investment Minimums 42 Share Price 42 General Purchasing Policies 43 General Redemption Policies 43 HOW TO BUY CLASS I SHARES 45 By Check 45 By Wire Transfer 45 By Electronic Transfer 46 By Automatic Investment 46 By Payroll Deduction 47 By Exchange 48 By Internet 49 HOW TO SELL CLASS I SHARES 50 In Writing 50 By Telephone 50 By Electronic Transfer 51 By Exchange 51 By Wire Transfer 52 By Automatic Redemption 52 By Internet 52 Signature Guarantee 53 Small Account Redemption 53 SHAREHOLDER SERVICES 54 Class I Shareholders 54 Class II Shareholders 55 DISTRIBUTIONS AND TAXES 56 Distributions 56 Taxes 56 FINANCIAL HIGHLIGHTS 58 Oakmark Fund 59 Select Fund 60 Small Cap Fund 61 Equity and Income Fund 62 Global Fund 63 International Fund 65 International Small Cap Fund 66
OVERVIEW OF THE OAKMARK FAMILY OF FUNDS INVESTMENT OBJECTIVES THE OAKMARK FUND ("Oakmark Fund"), THE OAKMARK SELECT FUND ("Select Fund"), THE OAKMARK SMALL CAP FUND ("Small Cap Fund"), THE OAKMARK GLOBAL FUND ("Global Fund"), THE OAKMARK INTERNATIONAL FUND ("International Fund") and THE OAKMARK INTERNATIONAL SMALL CAP FUND ("International Small Cap Fund") seek long-term capital appreciation. THE OAKMARK EQUITY AND INCOME FUND ("Equity and Income Fund") seeks high current income and preservation and growth of capital. PRINCIPAL INVESTMENT STRATEGIES PHILOSOPHY The Oakmark Family of Funds uses a value investment philosophy in selecting equity securities. This investment philosophy is based upon the belief that, over time, a company's stock price converges with the company's true business value. By "true business value" the Funds mean an estimate of the price a knowledgeable buyer would pay to acquire the entire business. The Funds believe that investing in securities priced significantly below their true business value presents the best opportunity to achieve a Fund's investment objective. PROCESS The Funds' adviser, Harris Associates L.P. (called the "Adviser" in this prospectus), uses this value philosophy to identify companies that it believes have discounted stock prices compared to the companies' true business values. In assessing such companies, the Adviser looks for the following characteristics, although not all of the companies selected will have these attributes: - - free cash flows and intelligent investment of excess cash; - - earnings that are growing and are reasonably predictable; and - - high level of manager ownership. PROSPECTUS 1 The Adviser focuses on individual companies in making its investment decisions rather than on specific economic factors or specific industries. In order to select those that meet the criteria described above, the Adviser uses independent, in-house research to analyze each company. As part of this selection process, its analysts typically visit companies and talk to various industry sources. The chief consideration in the selection of stocks for the Funds is the size of the discount of a company's stock price compared to the company's true business value. Once the Adviser determines that a stock is selling at a significant discount (typically 60% of its estimated worth) and the company has the additional qualities mentioned above, the Adviser generally will consider buying that stock for a Fund. The Adviser usually sells a stock when the price approaches 90% of its estimated worth. This means the Adviser sets specific "buy" and "sell" targets for each stock held by a Fund. The Adviser also monitors each holding and adjusts those price targets as warranted to reflect changes in a company's fundamentals. MANAGING RISK Each Fund tries to manage some of the risks of investing in common stock by purchasing stocks whose prices the Adviser considers low relative to the companies' true business values. Each Fund seeks companies with solid finances and proven records and the Fund continuously monitors each portfolio holding. Equity and Income Fund attempts to manage the risks of investing in bonds by conducting independent evaluations of the creditworthiness of the bonds and the companies and by actively managing the average duration of the bonds in anticipation of interest rate changes. Furthermore, Global Fund, International Fund, and International Small Cap Fund attempt to manage some of the risks of investing in foreign securities by considering the relative political and economic stability of a company's home country, the ownership structure of the company, and the company's accounting practices. PORTFOLIO STRUCTURE The Adviser believes that holding a small number of stocks allows its "best ideas" to have a meaningful impact on fund performance; therefore, the portfolio of each Fund, except Select Fund, typically holds 30 to 60 stocks rather than hundreds. Select Fund generally holds 15 to 20 stocks in its portfolio. The Funds' value strategy also emphasizes investing for the long-term. The Adviser believes that the market will ultimately discover these undervalued companies, so it gives them the time such recognition requires. The Adviser has found that generally it takes two to three years for the gap between stock price and true business value to close. Therefore, successful implementation of this value investment philosophy requires that the Funds and their shareholders have a long-term investment horizon. 2 THE OAKMARK FAMILY OF FUNDS THE OAKMARK FUND INVESTMENT OBJECTIVE Oakmark Fund seeks long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGY Oakmark Fund invests primarily in common stocks of U.S. companies. PRINCIPAL INVESTMENT RISKS Although Oakmark Fund makes every effort to achieve its objective of long-term capital appreciation, it cannot guarantee it will attain that objective. Following are the principal risks of investing in the Fund: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund. COMMON STOCKS. The Fund invests mostly in common stocks, which are a type of equity security that represents an ownership interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called market risk and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. VALUE STYLE. Investing in "value" stocks presents the risk that the stocks may never reach what the Adviser believes are their full market values, either because the market fails to recognize what the Adviser considers to be the companies' true business values or because the Adviser misjudged those values. In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods. FOR MORE INFORMATION ON RISKS, SEE "HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES--RISK FACTORS." IS THE FUND RIGHT FOR ME? You should consider an investment in Oakmark Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, three years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. PROSPECTUS 3 PERFORMANCE INFORMATION The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE THAT FOLLOWS IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. The bar chart can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [CHART] CLASS I SHARES Total Returns for Years Ended December 31 (%) 1993 30.50 1994 3.31 1995 34.42 1996 16.21 1997 32.59 1998 3.74 1999 -10.47 2000 11.78 2001 18.29 2002 -14.41
Since 1993, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 15.2%, during the quarter ended June 30, 1997 - - Lowest quarterly return: -16.6%, during the quarter ended September 30, 2002 4 THE OAKMARK FUND The following table shows how the Fund's average annual total returns (before and, for Class I Shares, after taxes) for one, five and ten years and, for Class II Shares, since inception compare with the S&P 500 Index, a widely quoted, unmanaged, market-weighted stock market index that includes 500 of the largest companies publicly traded in the United States. All returns reflect reinvested dividends. The returns shown for the S&P 500 do not reflect the deduction of fees, expenses or taxes. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002
SINCE CLASS II 1 YEAR 5 YEARS 10 YEARS INCEPTION* - -------------------------------------------------------------------------------- Oakmark Fund - Class I RETURN BEFORE TAXES -14.41% 1.00% 11.36% N/A RETURN AFTER TAXES ON DISTRIBUTIONS -14.53% -0.64% 9.50% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -8.84% 0.44% 9.01% N/A Oakmark Fund - Class II RETURN BEFORE TAXES -14.55% N/A N/A -3.29% S&P 500 -22.10% -0.59% 9.34% -13.02%
* Inception date for Class II Shares of the Fund is April 5, 2001. After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund. The Fund's "Return after taxes on distributions" shows the effect of taxable distributions, but assumes that you still hold the Fund shares at the end of the period and so do not have any taxable gain or loss on your investment in shares of the Fund. The Fund's "Return after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if you purchased Fund shares at the beginning and sold at the end of the specified period. After-tax returns are calculated using the highest individual federal income tax rate in effect at the time of each distribution and assumed sale, but do not include the impact of state and local taxes. After-tax returns reflect past tax effects and are not predictive of future tax effects. The "Return after taxes on distributions and sale of Fund shares" for the one year period is greater than the "Return before taxes" because you are assumed to be able to use the capital loss on the sale of Fund shares to offset other taxable capital gains. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account), or to investors that are tax-exempt. PROSPECTUS 5 FEES AND EXPENSES Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
EXPENSE CLASS I CLASS II - ----------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None None Maximum deferred sales charge (load) None None Redemption fee (as a percentage of amount redeemed) None None Exchange fee None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS I CLASS II - ----------------------------------------------------------------------------- Management fees .93% .93% Distribution (12b-1) fees None None Other expenses (including service fees) .24 .51 - ----------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.17% 1.44%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
CLASS I CLASS II - ----------------------------------------------------------------------------- 1 Year $ 119 $ 147 3 Years 372 456 5 Years 644 787 10 Years 1,420 1,724
6 THE OAKMARK FUND THE OAKMARK SELECT FUND (Closed to New Investors)* INVESTMENT OBJECTIVE Select Fund seeks long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGY Select Fund invests primarily in common stocks of U.S. companies. The Fund is non-diversified, which means that it is not limited under the Investment Company Act of 1940 to a percentage of assets that it may invest in any one issuer. The Fund could own as few as 12 securities, but generally will have 15 to 20 securities in its portfolio. PRINCIPAL INVESTMENT RISKS Although Select Fund makes every effort to achieve its objective of long-term capital appreciation, it cannot guarantee it will attain that objective. Following are the principal risks of investing in the Fund: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund. COMMON STOCKS. The Fund invests mostly in common stocks, which are a type of equity security that represents an ownership interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called market risk and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. NON-DIVERSIFICATION. Although the Fund's strategy of investing in a limited number of stocks has the potential to generate attractive returns over time, it may increase the volatility of the Fund's investment performance as compared to funds that invest in a larger number of stocks. If the stocks in which the Fund invests perform poorly, the Fund could incur greater losses than if it had invested in a larger number of stocks. VALUE STYLE. Investing in "value" stocks presents the risk that the stocks may never reach what the Adviser believes are their full market values, either because the market fails to recognize what the Adviser considers to be the companies' true business values or because the Adviser misjudged those values. In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods. FOR MORE INFORMATION ON RISKS, SEE "HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES--RISK FACTORS." * PLEASE NOTE: Select Fund closed to most new investors on May 4, 2001. Please refer to "Investing with The Oakmark Family of Funds -- Eligibility to Buy Shares" for new account eligibility criteria. PROSPECTUS 7 IS THE FUND RIGHT FOR ME? You should consider an investment in Select Fund if you are looking for long-term capital appreciation by investing in a non-diversified fund and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, three years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. PERFORMANCE INFORMATION The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE THAT FOLLOWS IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. The bar chart can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [CHART] CLASS I SHARES Total Returns for Years Ended December 31 (%) 1997 55.02 1998 16.22 1999 14.49 2000 25.81 2001 26.06 2002 -12.47
Since 1997, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 21.5%, during the quarter ended December 31, 1998 - - Lowest quarterly return: -17.2%, during the quarter ended September 30, 1998 8 THE OAKMARK SELECT FUND The following table shows how the Fund's average annual total returns (before and, for Class I Shares, after taxes) for one and five years and since inception compare with the S&P 500 Index, a widely quoted, unmanaged, market-weighted stock market index that includes 500 of the largest companies publicly traded in the United States. All returns reflect reinvested dividends. The returns shown for the S&P 500 do not reflect the deduction of fees, expenses or taxes. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002
SINCE CLASS I SINCE CLASS II 1 YEAR 5 YEARS INCEPTION* INCEPTION* - ------------------------------------------------------------------------------------ Select Fund - Class I RETURN BEFORE TAXES -12.47% 13.05% 21.17% N/A RETURN AFTER TAXES ON DISTRIBUTIONS -12.50% 11.59% 19.83% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -7.66% 10.44% 17.80% N/A Select Fund - Class II RETURN BEFORE TAXES -12.73% N/A N/A 11.18% S&P 500 -22.10% -0.59% 5.18% -14.54%
* Inception dates for Class I and Class II Shares of the Fund are November 1, 1996 and December 31, 1999, respectively. After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund. The Fund's "Return after taxes on distributions" shows the effect of taxable distributions, but assumes that you still hold the Fund shares at the end of the period and so do not have any taxable gain or loss on your investment in shares of the Fund. The Fund's "Return after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if you purchased Fund shares at the beginning and sold at the end of the specified period. After-tax returns are calculated using the highest individual federal income tax rate in effect at the time of each distribution and assumed sale, but do not include the impact of state and local taxes. After-tax returns reflect past tax effects and are not predictive of future tax effects. The "Return after taxes on distributions and sale of Fund shares" for the one year period is greater than the "Return before taxes" because you are assumed to be able to use the capital loss on the sale of Fund shares to offset other taxable capital gains. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account), or to investors that are tax-exempt. PROSPECTUS 9 FEES AND EXPENSES Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
EXPENSE CLASS I CLASS II - -------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None None Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on of amount redeemed) shares held for 90 days or less None Exchange fee None* None
* An exchange transaction is a redemption of shares and a purchase of shares and may result in a 2% redemption fee on shares held for 90 days or less. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS I CLASS II - -------------------------------------------------------------------------------- Management fees .88% .88% Distribution (12b-1) fees None None Other expenses (including service fees) .19 .48 - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.07% 1.36%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
CLASS I CLASS II - ----------------------------------------------------------------------------- 1 Year $ 109 $ 138 3 Years 340 431 5 Years 590 745 10 Years 1,306 1,635
10 THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND INVESTMENT OBJECTIVE Small Cap Fund seeks long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGY Small Cap Fund invests primarily in common stocks of U.S. companies. Under normal market conditions, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in the stocks of "small cap companies." 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 ($2.686 billion as of December 31, 2002). The mean market capitalization of companies included in the S&P Small Cap 600 Index was $542 million as of December 31, 2002. Over time, the largest market capitalization of the companies included in the S&P Small Cap 600 Index will change. As it does, the size of the companies in which the Fund invests may change. PRINCIPAL INVESTMENT RISKS Although Small Cap Fund makes every effort to achieve its objective of long-term capital appreciation, it cannot guarantee it will attain that objective. Following are the principal risks of investing in the Fund: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund. COMMON STOCKS. The Fund invests mostly in common stocks, which are a type of equity security that represents an ownership interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called market risk and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. SMALL CAP STOCKS. Small cap stocks typically are more volatile and may be less liquid than large cap stocks. Small cap companies may have a shorter history of operations and a smaller market for their shares. VALUE STYLE. Investing in "value" stocks presents the risk that the stocks may never reach what the Adviser believes are their full market values, either because the market fails to recognize what the Adviser considers to be the companies' true business values or because the Adviser misjudged those values. In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods. FOR MORE INFORMATION ON RISKS, SEE "HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES--RISK FACTORS." PROSPECTUS 11 IS THE FUND RIGHT FOR ME? You should consider an investment in Small Cap Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, three years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. PERFORMANCE INFORMATION The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE THAT FOLLOWS IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. The bar chart can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [CHART] CLASS I SHARES Total Returns for Years Ended December 31 (%) 1996 39.79 1997 40.51 1998 -13.16 1999 -7.92 2000 4.39 2001 26.30 2002 -13.07
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 18.7%, during the quarter ended December 31, 2001 - - Lowest quarterly return: -26.8%, during the quarter ended September 30, 1998 12 THE OAKMARK SMALL CAP FUND The following table shows how the Fund's average annual total returns (before and after taxes) for one and five years and since inception compare with the Russell 2000 Index, an unmanaged, market-weighted index of small companies that represents approximately 10% of the total value of publicly traded companies in the U.S. All returns reflect reinvested dividends. The returns shown for the Russell 2000 Index do not reflect the deduction of fees, expenses or taxes. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002
SINCE INCEPTION 1 YEAR 5 YEARS NOVEMBER 1, 1995 - -------------------------------------------------------------------------- Small Cap Fund - Class I RETURN BEFORE TAXES -13.07% -1.73% 9.03% RETURN AFTER TAXES ON DISTRIBUTIONS -13.07% -2.37% 8.33% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -8.03% -1.40% 7.46% Russell 2000 Index -20.48% -1.36% 5.05%
After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund. The Fund's "Return after taxes on distributions" shows the effect of taxable distributions, but assumes that you still hold the Fund shares at the end of the period and so do not have any taxable gain or loss on your investment in shares of the Fund. The Fund's "Return after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if you purchased Fund shares at the beginning and sold at the end of the specified period. After-tax returns are calculated using the highest individual federal income tax rate in effect at the time of each distribution and assumed sale, but do not include the impact of state and local taxes. After-tax returns reflect past tax effects and are not predictive of future tax effects. The "Return after taxes on distributions and sale of Fund shares" for the one and five year periods are greater than the "Return before taxes" because you are assumed to be able to use the capital loss on the sale of Fund shares to offset other taxable capital gains. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account), or to investors that are tax-exempt. Information is not available for Class II Shares because Class II Shares have not been sold to investors for a full calendar year. PROSPECTUS 13 FEES AND EXPENSES Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
EXPENSE CLASS I CLASS II - -------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None None Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on of amount redeemed) shares held for 90 days or less None Exchange fee None* None
* An exchange transaction is a redemption of shares and a purchase of shares and may result in a 2% redemption fee on shares held for 90 days or less. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS I CLASS II - ----------------------------------------------------------------------------- Management fees .99% .99% Distribution (12b-1) fees None None Other expenses (including service fees) .34 .49 - ----------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.33% 1.48%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
CLASS I CLASS II - ----------------------------------------------------------------------------- 1 Year $ 135 $ 151 3 Years 421 468 5 Years 729 808 10 Years 1,601 1,768
14 THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND INVESTMENT OBJECTIVE Equity and Income Fund seeks high current income and preservation and growth of capital. PRINCIPAL INVESTMENT STRATEGY Equity and Income Fund invests primarily in a diversified portfolio of U.S. equity and fixed-income securities (although the Fund may invest up to 25% of its total assets in securities of non-U.S. companies). The Fund is intended to present a balanced investment program between growth and income by investing approximately 50-75% of its total assets in common stock, including securities convertible into common stock, and 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") or by Standard & Poor's, a division of The McGraw-Hill Companies ("S&P"). The Fund may also invest up to 20% of its assets in unrated or lower rated debt securities, sometimes called junk bonds. PRINCIPAL INVESTMENT RISKS Although Equity and Income Fund makes every effort to achieve its objectives of high current income and preservation and growth of capital, it cannot guarantee it will attain those objectives. Following are the principal risks of investing in the Fund: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund. COMMON STOCKS. The Fund invests in common stocks, which are a type of equity security that represents an ownership interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called market risk and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. DEBT SECURITIES. The debt securities in which the Fund invests are subject to credit risk, interest rate risk and liquidity risk. Credit risk is the risk that the company that issued a debt security or bond may become unable to make payments of principal and interest when due and includes the risk of default. Interest rate risk is the risk that the Fund's investments in debt securities will decline in value as a result of changes in interest rates. Generally, the value of fixed income securities rises when prevailing interest rates fall and falls when interest rates rise. Liquidity risk is the risk that the Fund may not be able to sell the medium- and lower-grade debt securities because there are too few buyers for them. PROSPECTUS 15 Investment in medium- and lower-grade debt securities involves greater risk, including the possibility of issuer default or bankruptcy. Lower-grade debt securities (commonly called "junk bonds") are considered speculative and may be in poor standing or actually in default. Medium-grade debt securities also are considered to have speculative characteristics. An economic downturn could severely disrupt the market in medium- and lower-grade debt securities 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 meeting principal and interest payment obligations. VALUE STYLE. Investing in "value" stocks presents the risk that the stocks may never reach what the Adviser believes are their full market values, either because the market fails to recognize what the Adviser considers to be the companies' true business values or because the Adviser misjudged those values. In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods. FOR MORE INFORMATION ON RISKS, SEE "HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES--RISK FACTORS." IS THE FUND RIGHT FOR ME? You should consider an investment in Equity and Income Fund if you are seeking current income and preservation and growth of capital and are willing to accept the associated risks. The Fund is intended to present a balanced investment program between growth and income. If you invest in the Fund, you should be willing to accept short-term price fluctuations which will occur from time to time. You should not consider investing in the Fund if you cannot tolerate moderate short-term declines in share value or if you are seeking the higher returns historically achieved by funds that invest primarily in stocks. 16 THE OAKMARK EQUITY AND INCOME FUND PERFORMANCE INFORMATION The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE THAT FOLLOWS IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. The bar chart can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [CHART] CLASS I SHARES Total Returns for Years Ended December 31 (%) 1996 15.29 1997 26.56 1998 12.39 1999 7.90 2000 19.89 2001 18.01 2002 -2.14
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 10.5%, during the quarter ended December 31, 1998 - - Lowest quarterly return: -8.6%, during the quarter ended September 30, 2002 PROSPECTUS 17 The following table shows how the Fund's average annual total returns (before and, for Class I Shares, after taxes) for one and five years and since inception compare with the Lipper Balanced Fund Index, an index of 30 balanced funds. All returns reflect reinvested dividends. The returns shown for the Lipper Balanced Fund Index do not reflect the deduction of fees, expenses or taxes. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002
SINCE CLASS I SINCE CLASS II 1 YEAR 5 YEARS INCEPTION* INCEPTION* - --------------------------------------------------------------------------------- Equity and Income Fund - Class I RETURN BEFORE TAXES -2.14% 10.91% 13.68% N/A RETURN AFTER TAXES ON DISTRIBUTIONS -2.64% 9.51% 12.23% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -1.31% 8.52% 10.96% N/A Equity and Income Fund - Class II RETURN BEFORE TAXES -2.31% N/A N/A 10.47% Lipper Balanced Fund Index -10.69% 2.10% 6.59% -6.32%
* Inception dates for Class I and Class II Shares of the Fund are November 1, 1995 and July 13, 2000, respectively. After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund. The Fund's "Return after taxes on distributions" shows the effect of taxable distributions, but assumes that you still hold the Fund shares at the end of the period and so do not have any taxable gain or loss on your investment in shares of the Fund. The Fund's "Return after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if you purchased Fund shares at the beginning and sold at the end of the specified period. After-tax returns are calculated using the highest individual federal income tax rate in effect at the time of each distribution and assumed sale, but do not include the impact of state and local taxes. After-tax returns reflect past tax effects and are not predictive of future tax effects. The "Return after taxes on distributions and sale of Fund shares" for the one year period is greater than the "Return before taxes" because you are assumed to be able to use the capital loss on the sale of Fund shares to offset other taxable capital gains. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account), or to investors that are tax-exempt. 18 THE OAKMARK EQUITY AND INCOME FUND FEES AND EXPENSES Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
EXPENSE CLASS I CLASS II - --------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None None Maximum deferred sales charge (load) None None Redemption fee (as a percentage of amount redeemed) None None Exchange fee None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS I CLASS II - --------------------------------------------------------------------------- Management fees .71% .71% Distribution (12b-1) fees None None Other expenses (including service fees) .25 .49 - --------------------------------------------------------------------------- Total Annual Fund Operating Expenses .96% 1.20%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
CLASS I CLASS II - --------------------------------------------------------------------------- 1 Year $ 98 $ 122 3 Years 306 381 5 Years 531 660 10 Years 1,178 1,455
PROSPECTUS 19 THE OAKMARK GLOBAL FUND INVESTMENT OBJECTIVE Global Fund seeks long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGY Global Fund invests primarily in common stocks of U.S. and non-U.S. companies. The Fund invests in the securities of companies located in at least three countries. Typically, the Fund invests between 20-60% of its total assets in securities of U.S. companies and between 40-80% of its total assets in securities of non-U.S. companies. The Fund's foreign investments include foreign government obligations and foreign common stock. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 15% of its assets in securities of companies based in emerging markets. PRINCIPAL INVESTMENT RISKS Although Global Fund makes every effort to achieve its objective of long-term capital appreciation, it cannot guarantee it will attain that objective. Following are the principal risks of investing in the Fund: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund. COMMON STOCKS. The Fund invests mostly in common stocks, which are a type of equity security that represents an ownership interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called market risk and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. FOREIGN SECURITIES. Investing in foreign securities presents risks that in some ways may be greater than the risks of investing in U.S. securities. These additional risks include currency exchange rate fluctuation, less available public information about companies, less stringent regulatory standards, lack of uniform accounting, auditing and financial reporting standards, and country risks including less market liquidity, high inflation rates, unfavorable market practices, and political instability. The risks of foreign investments are typically increased in emerging markets. For example, political and economic structures in less developed countries may be new and changing rapidly, which may cause instability; their securities markets may be underdeveloped; and emerging market countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. VALUE STYLE. Investing in "value" stocks presents the risk that the stocks may never reach what the Adviser believes are their full market values, either because the market 20 THE OAKMARK GLOBAL FUND fails to recognize what the Adviser considers to be the companies' true business values or because the Adviser misjudged those values. In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods. FOR MORE INFORMATION ON RISKS, SEE "HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES--RISK FACTORS." IS THE FUND RIGHT FOR ME? You should consider an investment in Global Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, three years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. PERFORMANCE INFORMATION The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE THAT FOLLOWS IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. The bar chart can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [CHART] CLASS I SHARES Total Returns for Years Ended December 31 (%) 2000 15.84 2001 20.05 2002 -2.11
Since 2000, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 25.4%, during the quarter ended December 31, 2001 - - Lowest quarterly return: -17.7%, during the quarter ended September 30, 2002 PROSPECTUS 21 The following table shows how the Fund's average annual total returns (before and, for Class I Shares, after taxes) for one year and since inception compare with the Morgan Stanley Capital International World Index, an unmanaged index which includes countries throughout the world, in proportion to world stock market capitalization. All returns reflect reinvested dividends. The returns shown for the Morgan Stanley Capital International World Index do not reflect the deduction of fees, expenses or taxes. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002
SINCE CLASS I SINCE CLASS II 1 YEAR INCEPTION* INCEPTION* - ------------------------------------------------------------------------------ Global Fund - Class I RETURN BEFORE TAXES -2.11% 9.40%** N/A RETURN AFTER TAXES ON DISTRIBUTIONS -2.11% 9.01% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -1.30% 7.54% N/A Global Fund - Class II RETURN BEFORE TAXES -2.49% N/A 14.15% MSCI World Index -19.89% -11.13% -13.16%
* Inception dates for Class I and Class II Shares of the Fund are August 4, 1999 and October 10, 2001, respectively. ** Since the Fund's inception on August 4, 1999 through the year ended December 31, 2002, initial public offerings (IPOs) contributed an annualized 2.51% to the Fund's return before taxes. As the IPO environment changes and the total assets of the Fund grow, the impact of IPOs on the Fund's performance is expected to diminish. After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund. The Fund's "Return after taxes on distributions" shows the effect of taxable distributions, but assumes that you still hold the Fund shares at the end of the period and so do not have any taxable gain or loss on your investment in shares of the Fund. The Fund's "Return after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if you purchased Fund shares at the beginning and sold at the end of the specified period. After-tax returns are calculated using the highest individual federal income tax rate in effect at the time of each distribution and assumed sale, but do not include the impact of state and local taxes. After-tax returns reflect past tax effects and are not predictive of future tax effects. The "Return after taxes on distributions and sale of Fund shares" for the one year period is greater than the "Return before taxes" because you are assumed to be able to use the capital loss on the sale of Fund shares to offset other taxable capital gains. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account), or to investors that are tax-exempt. 22 THE OAKMARK GLOBAL FUND FEES AND EXPENSES Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
EXPENSE CLASS I CLASS II - ------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None None Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on of amount redeemed) shares held for 90 days or less None Exchange fee None* None
* An exchange transaction is a redemption of shares and a purchase of shares and may result in a 2% redemption fee on shares held for 90 days or less. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS I CLASS II - ------------------------------------------------------------------------------- Management fees .95% .95% Distribution (12b-1) fees None None Other expenses (including service fees) .60 .91 - ------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.55% 1.86%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
CLASS I CLASS II - -------------------------------------------------------------------------- 1 Year $ 158 $ 189 3 Years 490 585 5 Years 845 1,006 10 Years 1,845 2,180
PROSPECTUS 23 THE OAKMARK INTERNATIONAL FUND INVESTMENT OBJECTIVE International Fund seeks long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGY International Fund invests primarily in common stocks of non-U.S. companies. The Funds may invest in mature markets (examples are Japan, Canada, and the United Kingdom) and in less developed markets (examples are Mexico, Brazil, and Korea). Ordinarily, the Funds will invest in the securities of at least five countries outside the U.S. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 35% of its assets in securities of companies based in emerging markets. PRINCIPAL INVESTMENT RISKS Although International Fund makes every effort to achieve its objective of long-term capital appreciation, it cannot guarantee it will attain that objective. Following are the principal risks of investing in the Fund: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund. COMMON STOCKS. The Fund invests mostly in common stocks, which are a type of equity security that represents an ownership interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called market risk and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. FOREIGN SECURITIES. Investing in foreign securities presents risks that in some ways may be greater than the risks of investing in U.S. securities. These additional risks include currency exchange rate fluctuation, less available public information about companies, less stringent regulatory standards, lack of uniform accounting, auditing and financial reporting standards, and country risks including less market liquidity, high inflation rates, unfavorable market practices, and political instability. The risks of foreign investments are typically increased in emerging markets. For example, political and economic structures in less developed countries may be new and changing rapidly, which may cause instability; their securities markets may be underdeveloped; and emerging market countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. 24 THE OAKMARK INTERNATIONAL FUND VALUE STYLE. Investing in "value" stocks presents the risk that the stocks may never reach what the Adviser believes are their full market values, either because the market fails to recognize what the Adviser considers to be the companies' true business values or because the Adviser misjudged those values. In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods. FOR MORE INFORMATION ON RISKS, SEE "HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES--RISK FACTORS." IS THE FUND RIGHT FOR ME? You should consider an investment in International Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, three years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. PERFORMANCE INFORMATION The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE THAT FOLLOWS IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. The bar chart can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [CHART] CLASS I SHARES Total Returns for Years Ended December 31 (%) 1993 53.58 1994 -9.06 1995 8.32 1996 28.02 1997 3.33 1998 -7.01 1999 39.47 2000 12.50 2001 -5.13 2002 -8.46
Since 1993, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 21.0%, during the quarter ended June 30, 1999 - - Lowest quarterly return: -22.9%, during the quarter ended September 30, 2002 PROSPECTUS 25 The following table shows how the Fund's average annual total returns (before and, for Class I Shares, after taxes) for one, five and ten years and, for Class II Shares, since inception compare with the Morgan Stanley Capital International World ex U.S. Index, an unmanaged index which includes countries throughout the world, excluding the U.S. and Canada, in proportion to world stock market capitalization. All returns reflect reinvested dividends. The returns shown for the Morgan Stanley Capital International World ex U.S. Index do not reflect the deduction of fees, expenses or taxes. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002
SINCE CLASS II 1 YEAR 5 YEARS 10 YEARS INCEPTION* - ------------------------------------------------------------------------------ International Fund - Class I RETURN BEFORE TAXES -8.46% 4.85% 9.75% N/A RETURN AFTER TAXES ON DISTRIBUTIONS -8.69% 3.49% 7.73% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -5.09% 3.39% 7.36% N/A International Fund - Class II RETURN BEFORE TAXES -8.77% N/A N/A 0.81% MSCI World ex U.S. Index -15.80% -2.72% 4.17% -13.14%
* Inception date for Class II Shares of the Fund is November 4, 1999. After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund. The Fund's "Return after taxes on distributions" shows the effect of taxable distributions, but assumes that you still hold the Fund shares at the end of the period and so do not have any taxable gain or loss on your investment in shares of the Fund. The Fund's "Return after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if you purchased Fund shares at the beginning and sold at the end of the specified period. After-tax returns are calculated using the highest individual federal income tax rate in effect at the time of each distribution and assumed sale, but do not include the impact of state and local taxes. After-tax returns reflect past tax effects and are not predictive of future tax effects. The "Return after taxes on distributions and sale of Fund shares" for the one year period is greater than the "Return before taxes" because you are assumed to be able to use the capital loss on the sale of Fund shares to offset other taxable capital gains. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account), or to investors that are tax-exempt. 26 THE OAKMARK INTERNATIONAL FUND FEES AND EXPENSES Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
EXPENSE CLASS I CLASS II - -------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None None Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on of amount redeemed) shares held for 90 days or less None Exchange fee None* None
* An exchange transaction is a redemption of shares and a purchase of shares and may result in a 2% redemption fee on shares held for 90 days or less. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS I CLASS II - --------------------------------------------------------------------------- Management fees .97% .97% Distribution (12b-1) fees None None Other expenses (including service fees) .34 .61 - --------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.31% 1.58%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
CLASS I CLASS II - --------------------------------------------------------------------------- 1 Year $ 133 $ 161 3 Years 415 499 5 Years 718 860 10 Years 1,579 1,878
PROSPECTUS 27 THE OAKMARK INTERNATIONAL SMALL CAP FUND (Closed to New Investors)* INVESTMENT OBJECTIVE International Small Cap Fund seeks long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGY International Small Cap Fund invests primarily in common stocks of non-U.S. companies. Under normal market conditions, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in the stocks of "small cap companies." 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 ($2.686 billion as of December 31, 2002). The mean market capitalization of companies included in the S&P Small Cap 600 Index was $542 million as of December 31, 2002. Over time, the largest market capitalization of the companies included in the S&P Small Cap 600 Index will change. As it does, the size of the companies in which the Fund invests may change. The Fund may invest in mature markets (examples are Japan, Canada, and the United Kingdom) and in less developed markets (examples are Mexico, Brazil, and Korea). Ordinarily, the Fund will invest in the securities of at least five countries outside the U.S. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 35% of its assets in securities of companies based in emerging markets. PRINCIPAL INVESTMENT RISKS Although International Small Cap Fund makes every effort to achieve its objective of long-term capital appreciation, it cannot guarantee it will attain that objective. Following are the principal risks of investing in the Fund: NOT A BANK DEPOSIT. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You may lose money by investing in the Fund. COMMON STOCKS. The Fund invests mostly in common stocks, which are a type of equity security that represents an ownership interest in a corporation. One of the risks of investing in common stock is that a company's stock value may go up or down depending on the company's business success or other economic or market factors. This potential for fluctuation is called market risk and can affect the value of your shares of the Fund. When you sell your shares of the Fund, they may be worth more or less than you paid for them. * PLEASE NOTE: International Small Cap Fund closed to most new investors on May 10, 2002. Please refer to "Investing with The Oakmark Family of Funds--Eligibility to Buy Shares" for new account eligibility criteria. 28 THE OAKMARK INTERNATIONAL SMALL CAP FUND FOREIGN SECURITIES. Investing in foreign securities presents risks that in some ways may be greater than the risks of investing in U.S. securities. These additional risks include currency exchange rate fluctuation, less available public information about companies, less stringent regulatory standards, lack of uniform accounting, auditing and financial reporting standards, and country risks including less market liquidity, high inflation rates, unfavorable market practices, and political instability. The risks of foreign investments are typically increased in emerging markets. For example, political and economic structures in less developed countries may be new and changing rapidly, which may cause instability; their securities markets may be underdeveloped; and emerging market countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. SMALL CAP STOCKS. Small cap stocks typically are more volatile and may be less liquid than large cap stocks. Small cap companies may have a shorter history of operations and a smaller market for their shares. VALUE STYLE. Investing in "value" stocks presents the risk that the stocks may never reach what the Adviser believes are their full market values, either because the market fails to recognize what the Adviser considers to be the companies' true business values or because the Adviser misjudged those values. In addition, value stocks may fall out of favor with investors and underperform growth stocks during given periods. FOR MORE INFORMATION ON RISKS, SEE "HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES--RISK FACTORS." IS THE FUND RIGHT FOR ME? You should consider an investment in International Small Cap Fund if you are looking for long-term capital appreciation and are willing to accept the associated risks. Although past performance of the Fund cannot predict future results, stock investments historically have outperformed most bond and money-market investments over the long term. This higher return comes at the expense of greater short-term price fluctuations, down, as well as up. Therefore, the Fund is intended for investors with a long-term investment horizon and is not managed for short-term results. Thus, you should not consider investing in this Fund if you anticipate a near-term need (typically, three years or less) for either the principal of or gains from your investment. The Fund is not designed for investors whose primary objective is income. PROSPECTUS 29 PERFORMANCE INFORMATION The Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares of the Fund are offered to the general public. Class II Shares of the Fund are offered to certain retirement and profit sharing plans. NEITHER THE BAR CHART NOR THE PERFORMANCE TABLE THAT FOLLOWS IS INTENDED TO INDICATE HOW THE FUND WILL PERFORM IN THE FUTURE. The bar chart can help you evaluate the potential risk and reward of investing in the Fund by showing changes in the performance of the Fund's Class I Shares from year to year. The chart indicates the volatility of the Fund's historical returns. [CHART] CLASS I SHARES Total Returns for Years Ended December 31 (%) 1996 25.01 1997 -19.91 1998 9.20 1999 53.77 2000 -8.85 2001 12.98 2002 -5.12
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 28.2%, during the quarter ended December 31, 1998 - - Lowest quarterly return: -23.9%, during the quarter ended December 31, 1997 30 THE OAKMARK INTERNATIONAL SMALL CAP FUND The following table shows how the Fund's average annual total returns (before and for Class I Shares, after taxes) for one and five years and since inception compare with the Morgan Stanley Capital International World ex U.S. Index, an unmanaged index which includes countries throughout the world, excluding the U.S. and Canada, in proportion to world stock market capitalization. All returns reflect reinvested dividends. The returns shown for the Morgan Stanley Capital International World ex U.S. Index do not reflect the deduction of fees, expenses or taxes. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002
SINCE CLASS I SINCE CLASS II 1 YEAR 5 YEARS INCEPTION* INCEPTION* - --------------------------------------------------------------------------------------- International Small Cap Fund - Class I RETURN BEFORE TAXES -5.12% 10.40% 6.60% N/A RETURN AFTER TAXES ON DISTRIBUTIONS -5.74% 9.20% 5.01% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -2.55% 8.30% 4.85% N/A International Small Cap Fund - Class II RETURN BEFORE TAXES -5.50% N/A N/A 2.27% MSCI World ex U.S. Index -15.80% -2.72% 0.24% -18.65%
* Inception dates for Class I and Class II Shares of the Fund are November 1, 1995 and January 8, 2001, respectively. After-tax returns are intended to show the impact of assumed federal income taxes on an investment in the Fund. The Fund's "Return after taxes on distributions" shows the effect of taxable distributions, but assumes that you still hold the Fund shares at the end of the period and so do not have any taxable gain or loss on your investment in shares of the Fund. The Fund's "Return after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if you purchased Fund shares at the beginning and sold at the end of the specified period. After-tax returns are calculated using the highest individual federal income tax rate in effect at the time of each distribution and assumed sale, but do not include the impact of state and local taxes. After-tax returns reflect past tax effects and are not predictive of future tax effects. The "Return after taxes on distributions and sale of Fund shares" for the one year period is greater than the "Return before taxes" because you are assumed to be able to use the capital loss on the sale of Fund shares to offset other taxable capital gains. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account), or to investors that are tax-exempt. PROSPECTUS 31 FEES AND EXPENSES Below are the fees and expenses that you would pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment)
EXPENSE CLASS I CLASS II - -------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases None None Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on of amount redeemed) shares held for 90 days or less None Exchange fee None* None
* An exchange transaction is a redemption of shares and a purchase of shares and may result in a 2% redemption fee on shares held for 90 days or less. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS I CLASS II - --------------------------------------------------------------------------- Management fees 1.20% 1.20% Distribution (12b-1) fees None None Other expenses (including service fees) .44 .67 - --------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.64% 1.87%
EXAMPLE. The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 for the time periods indicated, reinvest all dividends and distributions, earn a 5% return each year, and operating expenses remain constant. Your actual returns and costs may be higher or lower than those shown, but based on these assumptions, your expenses would be:
CLASS I CLASS II - --------------------------------------------------------------------------- 1 Year $ 167 $ 190 3 Years 517 588 5 Years 892 1,011 10 Years 1,944 2,190
32 THE OAKMARK INTERNATIONAL SMALL CAP FUND HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES INVESTMENT TECHNIQUES In addition to the principal investment strategies described earlier in this prospectus, each of the Funds may employ the following techniques in pursuing their investment objectives. EQUITY SECURITIES. The types of 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 selecting an equity security for a Fund is the size of the discount of the market price relative to the Adviser's determination of the true business value of the security. DEBT SECURITIES. Each Fund may invest in debt securities of both governmental and corporate issuers. Each of Oakmark Fund, Select Fund, Small Cap Fund and Global Fund may invest up to 25% of its assets, Equity and Income Fund may invest up to 20% of its assets, and each of 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 (commonly called junk bonds), without a minimum rating requirement. Descriptions of the ratings used by S&P and Moody's are included in Appendix A 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. The Funds 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 Fund may aggregate such positions as PROSPECTUS 33 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. SHORT-TERM INVESTMENTS. In seeking to achieve its investment objective, a 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 twelve months after purchase in light of a change in the circumstances of a particular company or industry or in light of general market or economic conditions or if a security achieves its price target in an unexpected shorter period. To the extent that investments meeting a Fund's criteria for investment are not available, or when a Fund considers a temporary defensive posture advisable in response to adverse market, economic, political, or other conditions, 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. During those periods, a Fund's assets may not be invested in accordance with its regular strategy, and the Fund may not achieve its investment objective. CASH RESERVES. Under ordinary circumstances, the Funds are substantially fully invested. At times, however, 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. During those periods, a Fund's assets may not be invested in accordance with its regular strategy and the Fund may not achieve its investment objective. RISK FACTORS In addition to the principal risks described earlier in this prospectus, you may be subject to the following risks if you invest in the Funds: GENERAL RISKS. All investments, including those in mutual funds, have risks, and no one 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. MARKET RISK. Each Fund is subject to the market risk that always comes with investments in common stock. Stock prices may fluctuate widely over short or extended periods in response to company, market, or economic news. Stock markets also tend to move in cycles, with periods of rising stock prices and periods of falling stock prices. Although each Fund (other than Select Fund) is diversified, each Fund, except Select Fund, generally intends to limit its holdings to approximately 30 to 60 stocks. Select Fund is a non-diversified fund and usually holds between 15 to 20 stocks in its portfolio. The appreciation or depreciation of any one stock held by a Fund will have a greater impact on the Fund's net asset value than it would if the Fund invested in a larger number of stocks. Although that strategy has the potential to generate attractive returns over time, it also increases a Fund's volatility. 34 THE OAKMARK FAMILY OF FUNDS To the extent that a Fund invests in the following types of securities, you also may be subject to other risks: SMALL AND MID CAP SECURITIES. During some periods, the securities of small and mid 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 and mid cap companies tend to be more volatile and less liquid than stocks of large companies. Small and mid 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 SECURITIES. 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 those countries have exceeded those of similar U.S. investments, although there can be no assurance that those conditions will continue. You should understand and consider carefully the greater risks involved in investing internationally. Investing in securities of non-U.S. companies, 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 companies; less governmental supervision of stock exchanges, securities brokers and companies; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets; 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 located in 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 political, social or diplomatic developments that could adversely affect investment in these countries. 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 PROSPECTUS 35 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. The Funds may invest in ADRs, EDRs or GDRs that are not sponsored by the issuer of the underlying security. To the extent it does so, a 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 typically is higher than the cost of investing in U.S. securities. International Fund, International Small Cap Fund and Global 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. Each Fund may invest in debt securities of both governmental and corporate issuers. 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 debt securities it owns. 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. Neither International Fund nor International Small Cap Fund will invest more than 10% of its respective total assets in securities rated below investment grade or, if unrated, that are considered by the Adviser to be of comparable quality, 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. Investment in medium- and lower-grade debt securities involves greater risk, including the possibility of issuer default or bankruptcy. Lower-grade debt securities (commonly called "junk bonds") are obligations of companies 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. An economic downturn could severely disrupt the market in medium and lower grade debt securities 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. The market for medium- and lower-grade debt securities tends to be less broad than the market for higher-quality debt securities. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread 36 THE OAKMARK FAMILY OF FUNDS between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio of these debt securities. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. If you invest in Select Fund, you will be subject to the following risk: NON-DIVERSIFICATION. 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 company. 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 than would a smaller investment in that security, 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. 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 and not more than 10% of the outstanding voting securities of such issuer; and (b) not more than 25% of its total assets may be invested in the securities of any one issuer (other than U.S. government securities or securities of other regulated investment companies). CHANGE IN OBJECTIVE Each Fund's investment objective may be changed by the board of trustees without shareholder approval. Shareholders will receive at least 30 days' written notice of any change in a Fund's objective. If the board of trustees approves a change in a Fund's investment objective, you should consider whether that Fund remains an appropriate investment in light of your then current financial position and needs. There can be no assurance that a Fund will achieve its investment objective. PROSPECTUS 37 MANAGEMENT OF THE FUNDS The Oakmark Family of Funds' investments and business affairs are managed by Harris Associates L.P. The Adviser also serves as investment adviser to individuals, trusts, retirement plans, endowments and foundations, and manages numerous private partnerships. Together with a predecessor, the Adviser has advised and managed mutual funds since 1970. The Adviser's address is Two North LaSalle Street, Suite 500, Chicago, Illinois 60602-3790. 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. Each Fund pays a management fee to the Adviser for serving as investment adviser and for providing administrative services. The fee is determined as a percentage of average daily net assets. For the fiscal year ended September 30, 2002, the management fees paid by the Funds for each class of Shares outstanding, as a percentage of average net assets, were:
FUND CLASS I CLASS II - -------------------------------------------------------------------------------- Oakmark Fund .93% .93% Select Fund .88 .88 Small Cap Fund .99 1.00* Equity and Income Fund .71 .71 Global Fund .95 .95 International Fund .97 .97 International Small Cap Fund 1.20 1.20
* With respect to Class II Shares of the Small Cap Fund, which commenced operations on April 10, 2002, the amount shown is the actual annual management fee as a percentage of average net assets. For the period of April 10, 2002 through September 30, 2002, Small Cap Fund paid the Adviser fees at the annual rate of .99% of average net assets. The Adviser has contractually agreed to reimburse each Fund to the extent that its annual ordinary operating expenses of a class exceed the following percentages of the average net assets of that class:
FUND CLASS I CLASS II - ------------------------------------------------------------------ Oakmark Fund 1.50% 1.75% Select Fund 1.50 1.75 Small Cap Fund 1.50 1.75 Equity and Income Fund 1.00 1.25 Global Fund 1.75 2.00 International Fund 2.00 2.25 International Small Cap Fund 2.00 2.25
38 THE OAKMARK FAMILY OF FUNDS Each such agreement is effective through January 31, 2004. Oakmark Fund is managed by William C. Nygren, C.F.A., and Kevin G. Grant, C.F.A. Mr. Nygren joined the Adviser as an analyst in 1983, and was the Adviser's Director of Research from September 1990 to March 1998. Previously he had been an analyst with Northwestern Mutual Life Insurance Company. He holds an M.S. in Finance from the University of Wisconsin-Madison (1981) and a B.S. in Accounting from the University of Minnesota (1980). Mr. Grant joined the Adviser as an analyst in 1988, and has been a senior investment analyst since 1994. He holds an M.B.A. in Finance from Loyola University (1991) and a B.S. in Computer Science from the University of Wisconsin-Madison (1987). Select Fund is managed by Mr. Nygren and Henry R. Berghoef, C.F.A. Mr. Berghoef joined the Adviser as an analyst in 1994 and has been a senior investment analyst since 1994. He holds an M.B.A. from George Washington University (1985), an M.A. in International Studies from Johns Hopkins University (1974), and a B.A. in History from Calvin College (1971). Small Cap Fund is managed by James P. Benson, C.F.A. and Clyde S. McGregor, C.F.A. Mr. Benson joined the Adviser as an investment analyst in 1997. Previously he had been an Executive Vice-President and Director of Equity Research for Ryan Beck & Co. Mr. Benson holds a M.B.A. in Finance from Northwestern University (1981) and a B.A. in Economics and Computer Science from Westminster College (1979). 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). Equity and Income Fund is managed by Mr. McGregor and Edward A. Studzinski, C.F.A. Mr. Studzinski joined the Adviser as an analyst in 1995. Previously Mr. Studzinski was Vice President and Investment Officer at Mercantile National Bank of Indiana. He holds an M.B.A. in Marketing and Finance from Northwestern University (1985), a J.D. from Duke University (1974), and an A.B. in History from Boston College (1971). Global Fund is managed by Gregory L. Jackson and Michael J. Welsh, C.F.A. and C.P.A. Mr. Jackson is responsible for the day-to-day management of the Fund's domestic portfolio, and Mr. Welsh manages the day-to-day affairs of the Fund's foreign portfolio. Mr. Jackson joined the adviser in July of 1998. He holds a B.S. in Finance from the University of Utah, and an M.B.A. in Finance from the University of Chicago. Previously he had been a portfolio manager/analyst with Yacktman Asset Management. Mr. Welsh joined the adviser as an international analyst in 1992. Previously he had been a senior associate, valuation services, with Coopers & Lybrand. He holds an M.B.A. in Finance from Northwestern University (1993) and a B.S. in Accounting from the University of Kansas (1985). International Fund is managed by David G. Herro, C.F.A. and Mr. Welsh. 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. He 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). International Small Cap Fund is managed by Mr. Herro and Mr. Welsh. PROSPECTUS 39 INVESTING WITH THE OAKMARK FAMILY OF FUNDS The Funds are "no-load" mutual funds, which means that they do not impose any commission or sales charge when shares are purchased or sold. However, each Fund except Oakmark Fund and Equity and Income Fund does impose a 2% redemption fee on redemptions of Class I Shares held for 90 days or less. See "Investing with The Oakmark Family of Funds--General Redemption Policies--90-Day Redemption Fee on Class I Shares." ELIGIBILITY TO BUY SHARES ALL FUNDS. Each Fund is available for purchase only by residents of the United States, Puerto Rico, Guam, and the U.S. Virgin Islands. SELECT FUND AND INTERNATIONAL SMALL CAP FUND. Select Fund and International Small Cap Fund closed to most new purchases on May 4, 2001 and May 10, 2002, respectively. If you were a shareholder (in your own name or as a beneficial owner of shares held in someone else's name) of the Select Fund as of May 4, 2001, or the International Small Cap Fund as of May 10, 2002, you may continue to make additional investments in the respective Fund and reinvest your dividends and capital gains distributions. You may open a new account in either of those Funds, even though the Fund is closed, if: - - You purchase through an employee retirement plan whose records are maintained by a trust company or plan administrator and whose investment alternatives include shares of the Fund; - - You are transferring or "rolling over" into an IRA account of the Fund from an employee benefit plan through which you held shares of the Fund (if your plan doesn't qualify for rollovers, you may still open a new account with all or part of the proceeds of a distribution from the plan); - - You purchase into an annuity account offered by a company that includes shares of the Fund as an investment alternative for such account; or - - You are a client of the Adviser or you have an existing business relationship with the Adviser, and your investment in the Fund, in the judgment of the Adviser, would not adversely affect the Adviser's ability to manage the Fund effectively. The Trust reserves the right to re-open either Fund to new investors or to modify the extent to which future sales of shares are limited. If you have any questions about your eligibility to purchase shares of Select Fund or International Small Cap Fund, please call 1-800-OAKMARK or visit The Oakmark Family of Funds' website at www.oakmark.com. 40 THE OAKMARK FAMILY OF FUNDS TYPES OF ACCOUNTS - CLASS I SHARES Class I Shares of a Fund are offered to members of the general public. You may set up your account in any of the following ways: INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are owned by one person. Joint accounts can have two or more owners, and provide for rights of survivorship. GIFT OR TRANSFER TO A MINOR (UGMA, UTMA). These gift or transfer accounts let you give money to a minor for any purpose. The gift is irrevocable and the minor gains control of the account once he/she reaches the age of majority. Your application should include the minor's social security number. TRUST FOR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN. The trust or plan must be established before you can open an account and you must include the date of establishment of the trust or plan on your application. BUSINESS OR ORGANIZATION. You may invest money on behalf of a corporation, association, partnership or similar institution. You should include a certified resolution with your application that indicates which officers are authorized to act on behalf of the entity. RETIREMENT. A retirement account enables you to defer taxes on investment income and capital gains. Your contributions may be tax-deductible. For detailed information on the tax advantages and consequences of investing in individual retirement accounts (IRAs) and retirement plan accounts, please consult your tax advisor. The types of IRAs available to you are: Traditional IRA, Roth IRA, Rollover IRA, SIMPLE IRA, and Coverdell Education Savings Account (formerly called an Education IRA). For detailed information on these accounts, see the Oakmark IRA disclosure booklets. The Fund may be used as an investment in other kinds of retirement plans, including, but not limited to, Keogh plans maintained by self-employed individuals or owner-employees, traditional pension plans, corporate profit-sharing and money purchase pension plans, section 403(b)(7) custodial tax-deferred annuity plans, other plans maintained by tax-exempt organizations, cash balance plans and any and all other types of retirement plans. All of these accounts need to be established by the trustee of the plan and the trustee of the plan should contact the Fund regarding the establishment of an investment relationship. TYPES OF ACCOUNTS - CLASS II SHARES Class II Shares of a Fund are offered to certain retirement plans, such as a 401(k), and profit sharing plans. The purchase of Class II Shares is contingent upon an agreement with the Fund(s). Class II Shares of a Fund pay a service fee at the annual rate of .25% of the average net assets of Class II Shares of the Fund. This service fee is paid to an administrator for performing the services associated with the administration of such retirement plans. If you invest in Class II Shares, the procedures by which you can buy and sell shares are governed by the terms of your retirement plan. Please contact your plan sponsor or service provider for information on how to buy and sell your Class II Shares, or contact an Oakmark investor services representative at 1-800-OAKMARK. PROSPECTUS 41 INVESTMENT MINIMUMS (Applies to Class I Shares Only)
TYPE OF ACCOUNT INITIAL INVESTMENT SUBSEQUENT INVESTMENT - ------------------------------------------------------------------------------ Regular investing account $ 1,000 $ 100 Traditional or Roth IRA 1,000 100 SIMPLE IRA Determined on a Determined on a case by case basis case by case basis Coverdell Education Savings 500 100 Account (formerly called the Education IRA) Automatic Investment Plan 500 100 or Payroll Deduction Plan
SHARE PRICE NET ASSET VALUE. The share price is also called the net asset value ("NAV") of a share. The NAV of a Class I or Class II share is determined by the Fund's custodian as of the close of regular session trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange ("NYSE") on any day on which the NYSE is open for trading. A Fund's NAV will not be calculated on days when the NYSE is closed, such as on Saturdays and Sundays and on certain holidays, as more fully discussed in the Statement of Additional Information under "Purchasing and Redeeming Shares." The NAV of Class I Shares of each Fund is determined by dividing the value of the assets attributable to Class I Shares of the Fund, less liabilities attributable to that class, by the number of Class I Shares outstanding. Similarly, the NAV of Class II Shares of each Fund is determined by dividing the value of the assets attributable to Class II Shares of the Fund, less liabilities attributable to that class, by the number of Class II Shares outstanding. Trading in the securities of non-U.S. issuers held in each Fund's portfolio takes place in various markets on some days and at times when the NYSE is not open for trading. In addition, securities of non-U.S. issuers may not trade on some days when the NYSE is open for trading. The value of the Funds' portfolios may change on days when the Funds are not open for business and you cannot purchase or redeem Fund shares. PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of Class I Shares of a Fund is made at the NAV of Class I Shares next determined as follows: - - A purchase BY CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER is made at the NAV next determined after receipt and acceptance by the Funds' transfer agent of your check or wire transfer or your electronic transfer investment instruction. An order is not accepted until the Funds' transfer agent has received an application or appropriate instruction along with the intended investment, if applicable, and any other required documentation. - - A purchase THROUGH AN INTERMEDIARY, such as a broker-dealer, bank, retirement plan service provider, or retirement plan sponsor (called an "Intermediary") that 42 THE OAKMARK FAMILY OF FUNDS IS the Fund's authorized agent for the receipt of orders is made at the NAV next determined after receipt and acceptance of the order by the Intermediary. - - A purchase THROUGH AN INTERMEDIARY that IS NOT the Fund's authorized agent for the receipt of orders is made at the NAV next determined after receipt and acceptance of your order by the Fund's transfer agent. Each purchase of Class II Shares of a Fund through an Intermediary is made at the NAV of Class II Shares next determined after receipt and acceptance of the order by the Intermediary. Price information may be obtained by accessing the Oakmark Funds' website at www.oakmark.com or by calling 1-800-OAKMARK and accessing our voice recognition system. GENERAL PURCHASING POLICIES You may OPEN AN ACCOUNT and ADD TO AN ACCOUNT by purchasing directly from a Fund(s) or through an Intermediary. - - If you buy shares of the Fund through an Intermediary, the Intermediary may charge a fee for its services. Any such charge could constitute a substantial portion of a smaller account and may not be in your best interest. You may purchase shares of a Fund directly from the Fund without the imposition of any charges other than those described in this prospectus. See "How to Buy Class I Shares." - - Once your purchase order has been accepted, you may not cancel or revoke it; however, you may redeem the shares. The Fund may withhold redemption proceeds until it is reasonably satisfied it has received your payment. This confirmation process may take up to fifteen days. - - The Funds reserve the right to reject any purchase order that they determine not to be in the best interest of the Funds or their shareholders. The Funds will not honor requests for purchases or exchanges by shareholders they have reason to believe are "market-timers." Although the Funds will attempt to give prior notice of a suspension or termination of an exchange privilege when they are reasonably able to do so, the suspension or termination may be effective immediately, thereby preventing any uncompleted exchange. - - The Funds reserve the right at any time without prior notice to suspend, limit, modify or terminate any privilege, including the telephone exchange privilege, or its use in any manner by any person or class. GENERAL REDEMPTION POLICIES You may SELL YOUR SHARES by contacting the Fund(s) directly or through an Intermediary. - - The price at which your redemption order will be processed is the NAV next determined after proper redemption instructions are received. See "Investing with The Oakmark Family of Funds--Share Price--Net Asset Value." - - The Funds cannot accept a redemption request that specifies a particular redemption date or price. PROSPECTUS 43 - - Once your redemption order has been accepted, you may not cancel or revoke it. - - The Funds generally will mail redemption proceeds within seven days after receipt of your redemption request. If you recently made a purchase, the Funds may withhold redemption proceeds until they are reasonably satisfied that they have received your payment. This confirmation process may take up to fifteen days. - - The Funds reserve the right at any time without prior notice to suspend, limit, modify or terminate any privilege, including the telephone exchange privilege, or its use in any manner by any person or class. REDEMPTION IN KIND. The Funds generally intend to pay all redemptions in cash. Each Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any one shareholder. Redemptions in excess of those amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of marketable securities. Brokerage costs may be incurred by a shareholder who receives securities and desires to convert them to cash. 90-DAY REDEMPTION FEE ON CLASS I SHARES. Each Fund except Oakmark Fund and Equity and Income Fund imposes a short-term trading fee on redemptions of Class I Shares held for 90 days or less to offset two types of costs to the Fund caused by short-term trading: portfolio transaction and market impact costs associated with erratic redemption activity and administrative costs associated with processing redemptions. The fee is paid to each Fund and is 2% of the redemption value and is deducted from the redemption proceeds. The "first-in, first-out" (FIFO) method is used to determine the holding period, which means that if you bought shares on different days, the shares purchased first will be redeemed first for purposes of determining whether the short-term trading fee applies. Each Fund does NOT impose a redemption fee on a redemption of: - - shares acquired by reinvestment of dividends or distributions of a Fund; or - - shares held in an account of certain retirement plans or profit sharing plans or purchased through certain Intermediaries. 44 THE OAKMARK FAMILY OF FUNDS HOW TO BUY CLASS I SHARES FOR INVESTORS WHO PURCHASE DIRECTLY FROM THE FUND(S) AND NOT THROUGH AN INTERMEDIARY BY CHECK OPENING AN ACCOUNT - - Complete and sign the New Account Registration Form, enclose a check made payable to The Oakmark Funds and mail the Form and your check to the address indicated to the right. - - Your initial investment must be at least $1,000. - - PLEASE NOTE: The Funds do not accept cash, drafts, starter checks, checks made payable to a party other than the Oakmark Funds, checks drawn on banks outside of the United States or purchase orders specifying a particular purchase date or price per share. - - The Funds will withhold redemption proceeds for up to 15 days after purchase of shares by check. ADDING TO AN ACCOUNT - - Mail your check made payable to The Oakmark Funds with either the additional investment form attached to your confirmation statement or a note with the amount of the purchase, your account number, and the name in which your account is registered to: THE OAKMARK FUNDS P.O. Box 8510 Boston, MA 02266-8510 - - Your subsequent investments must be at least $100. BY WIRE TRANSFER OPENING AN ACCOUNT - - Call an investor services representative at 1-800-OAKMARK to request an account number and wire transfer instructions. - - Your initial investment must be at least $1,000. ADDING TO AN ACCOUNT - - Instruct your bank to transfer funds to ABA#011000028, DDA# 9904-632-8. Specify the Fund name, your account number and the registered account name(s) in the instructions. - - Your subsequent investments must be at least $100. PROSPECTUS 45 BY ELECTRONIC TRANSFER OPENING AN ACCOUNT - - You may NOT open a new account by electronic transfer except by accessing www.oakmark.com. Choose the "My Account" tab and then follow the instructions. - - The Funds will withhold redemption proceeds for up to 15 days after purchase of shares by electronic transfer. ADDING TO AN ACCOUNT - - If you established the electronic transfer privilege on your New Account Registration Form, call the Funds' Voice Recognition System, OAKLINK, at 1-800-OAKMARK and choose menu option 1, and follow the instructions, or call an investor service representative at 1-800-OAKMARK. - - Your subsequent investments must be at least $100. - - If you did not establish the electronic transfer privilege on your New Account Registration Form, you may add the privilege by obtaining a Shareholder Services Form by visiting the Oakmark Funds' website at www.oakmark.com or by calling an investor service representative at 1-800-OAKMARK. Confirm with your bank or credit union that it is a member of the Automated Clearing House (ACH) system. BY AUTOMATIC INVESTMENT OPENING AN ACCOUNT - - Choose the Automatic Investment Plan on your New Account Registration Form. - - Your initial investment must be at least $500 and be made by check payable to The Oakmark Funds. - - In addition to your investment check, send a check marked "Void" or a deposit slip from your bank account along with your New Account Registration Form. ADDING TO AN ACCOUNT - - If you chose the Automatic Investment Plan when you opened your account, subsequent purchases of shares will be made automatically, either monthly or quarterly, by electronic transfer from your bank account in the dollar amount you specified. - - Your subsequent investments must be at least $100. - - If you did not establish the electronic transfer privilege on your New Account Registration Form, you may add the privilege by obtaining a Shareholder Services Form by visiting the Oakmark Funds' website at www.oakmark.com or by calling an investor service representative at 1-800-OAKMARK. 46 THE OAKMARK FAMILY OF FUNDS BY PAYROLL DEDUCTION OPENING AN ACCOUNT - - Complete and sign the New Account Registration Form and the Payroll Deduction Plan Application, enclose a check made payable to The Oakmark Funds and return both forms and the check for at least $500 to: THE OAKMARK FUNDS P.O. Box 8510 Boston, MA 02266-8510 - - Your initial investment must be at least $500 and be made by check. - - The Payroll Deduction Plan Application allows you to purchase shares of the Fund on a monthly, bi-monthly, or quarterly basis by instructing your employer to deduct from your paycheck a specified dollar amount. ADDING TO AN ACCOUNT - - If you completed the Payroll Deduction Plan Application, subsequent purchases of shares will be made automatically, either monthly, bi-monthly or quarterly, by deducting the dollar amount you specified from your pay. - - Your subsequent investments must be at least $100. - - If you want to establish the Payroll Deduction Plan, obtain a Payroll Deduction Plan Application by visiting the Oakmark Funds' website at www.oakmark.com or by calling an investor service representative at 1-800-OAKMARK. PROSPECTUS 47 BY EXCHANGE You may purchase shares of a Fund by exchange of shares of another Fund or by exchange of Oakmark Units. Oakmark Units are ILA Service Units of Government Portfolio (a money market fund that is a portfolio of Goldman Sachs Institutional Liquid Assets Portfolios of Goldman Sachs Trust). OPENING AN ACCOUNT - - Call an investor service representative at 1-800-OAKMARK. The new account into which you are making the exchange will have exactly the same registration as the account from which you are exchanging shares. - - Your initial investment into your new account must be at least $1,000. - - Obtain a current prospectus for the Fund into which you are exchanging by visiting the Oakmark Funds' website at www.oakmark.com or calling an investor service representative at 1-800-OAKMARK. ADDING TO AN ACCOUNT - - Call the Funds' Voice Recognition System, OAKLINK, at 1-800-OAKMARK and choose menu option 1, and follow the instructions, or call an investor service representative at 1-800-OAKMARK. - - Send a letter of instruction, indicating your name, the name of the Fund, and the Fund account number from which you wish to redeem shares, and the name of the Fund and the Fund account number into which you wish to buy shares, to: THE OAKMARK FUNDS P.O. Box 8510 Boston, MA 02266-8510 - - Your subsequent investments must be at least $100. - - The Trust may refuse at any time any exchange request it considers detrimental to a Fund. - - AN EXCHANGE TRANSACTION IS A REDEMPTION OF SHARES AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN A CAPITAL GAIN OR LOSS. AN EXCHANGE MAY RESULT IN A 2% REDEMPTION FEE ON SHARES HELD FOR 90 DAYS OR LESS. 48 THE OAKMARK FAMILY OF FUNDS BY INTERNET OPENING AN ACCOUNT - - Login to the Oakmark Funds' website at www.oakmark.com, choose the "My Account" tab and then follow the instructions. - - Your initial investment into your new account must be at least $1000. ADDING TO AN ACCOUNT - - Login to the Oakmark Funds' website at www.oakmark.com, choose the "My Account" tab and then follow the instructions. - - Your subsequent investments must be at least $100. PROSPECTUS 49 HOW TO SELL CLASS I SHARES FOR INVESTORS WHO REDEEM DIRECTLY FROM THE FUND(S) AND NOT THROUGH AN INTERMEDIARY IN WRITING BY MAIL: THE OAKMARK FUNDS P.O. Box 8510 Boston, MA 02266-8510 EXPRESS DELIVERY OR COURIER: THE OAKMARK FUNDS 66 Brooks Drive Braintree, MA 02184 YOUR REDEMPTION REQUEST MUST: - - identify the Fund and give your account number; - - specify the number of shares or dollar amount to be redeemed; and - - be signed in ink by ALL account ownersexactly as their names appear on the account registration. BY TELEPHONE - - You may redeem shares from your account by calling the Funds' Voice Recognition System, OAKLINK, at 1-800-OAKMARK and choosing menu option 1, and following the instructions, or by calling an investor service representative at 1-800-OAKMARK. - - A check for the proceeds will be sent to your address of record, generally within 7 days of receiving your proper request, or within 15 days of your purchase if you purchased the shares by check. See "Investing with The Oakmark Family of Funds--General Redemption Policies." - - A redemption request received by telephone after the close of regular session trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) is deemed received on the next business day. - - You may not redeem by telephone shares held in an account for which you have changed the address within the preceding 30 days. 50 THE OAKMARK FAMILY OF FUNDS BY ELECTRONIC TRANSFERO - - To redeem shares from your account by electronic transfer, call the Funds' Voice Recognition System, OAKLINK, at 1-800-OAKMARK and choose menu option 1 and follow the instructions, or call an investor service representative at 1-800-OAKMARK. - - Payment of the proceeds will be made by electronic transfer only to a checking account previously designated by you at a bank that is a member of the Automated Clearing House (ACH) system. Confirm with your bank or credit union that it is a member of ACH. - - Payment of the proceeds will normally be sent on the next business day after receipt of your request or within 15 days of your purchase if you purchased the shares by electronic transfer. - - A redemption request received by telephone after the close of regular session trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) is deemed received on the next business day. - - If the proceeds of your redemption are sent by electronic transfer, your bank will be notified of the transfer on the day the proceeds are sent, but your bank account may not receive "good funds" for at least one week thereafter. BY EXCHANGE - - You may sell some or all of your shares of a Fund and use the proceeds to buy shares of another Oakmark fund or Oakmark Units either in writing or by calling the Funds' Voice Recognition System, OAKLINK, at 1-800-OAKMARK and choosing menu option 1 and following the instructions, or by calling an investor service representative at 1-800-OAKMARK. - - Obtain a current prospectus for a Fund into which you are exchanging by visiting the Oakmark Funds' website at www.oakmark.com or by calling an investor service representative at 1-800-OAKMARK. - - An exchange request received by telephone after the close of regular session trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) is deemed received on the next business day. - - The Trust may refuse at any time any exchange request it considers detrimental to a Fund. - - AN EXCHANGE TRANSACTION IS A REDEMPTION OF SHARES AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN A CAPITAL GAIN OR LOSS. AN EXCHANGE MAY RESULT IN A 2% REDEMPTION FEE ON SHARES HELD FOR 90 DAYS OR LESS. See also the section entitled "How to Buy Class I Shares--By Exchange." PROSPECTUS 51 BY WIRE TRANSFER - - To redeem shares from your account by wire transfer, call an investor service representative at 1-800-OAKMARK. - - The proceeds will be paid by wire transfer to your bank account. - - The cost of the wire transfer (currently $5) will be deducted from your account, or from the redemption proceeds if you redeem your entire account. - - Some transactions require a signature guarantee. See "How to Sell Class I Shares--Signature Guarantee." - - Payment of the proceeds will normally be wired on the next business day after receipt of your request. - - A redemption request received by telephone after the close of regular session trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time) is deemed received on the next business day. - - A wire transfer will normally result in your bank receiving "good funds" on the business day following the date of redemption of your shares. 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 New Account Registration Form. - - Because withdrawal payments may have tax consequences, you should consult your tax advisor before establishing such a plan. BY INTERNET - - Login to the Oakmark Funds' web site at www.oakmark.com, choose the "My Account" tab and then follow the instructions. 52 THE OAKMARK FAMILY OF FUNDS SIGNATURE GUARANTEE. Your request to sell your Fund shares must include a signature guarantee if: - - 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; - - the redemption check is to be made payable to someone other than the registered account owner; or - - you are instructing a Fund 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. YOU CANNOT OBTAIN A SIGNATURE GUARANTEE FROM A NOTARY PUBLIC. SMALL ACCOUNT REDEMPTION. The Trust and the Funds also reserve the right to redeem shares in any account and send the proceeds to the owner if the account value has been reduced below $1,000 as a result of redemptions. A Fund or its agent will notify you if your account falls below the minimum and give you 30 days to bring the account value up to the minimum. PROSPECTUS 53 SHAREHOLDER SERVICES CLASS I SHAREHOLDERS If you are a holder of Class I Shares of a Fund, the following services are available to you. REPORTING TO SHAREHOLDERS. You will receive a confirmation statement reflecting each of your purchases and sales of shares of the Funds, as well as periodic statements detailing distributions made by the Funds. Shares purchased by reinvestment of dividends or pursuant to an automatic investment plan will be confirmed to you quarterly. In addition, the Funds will send you periodic reports showing Fund portfolio holdings and will provide you annually with tax information. We suggest that you keep your account statements with your other important financial papers. You may need them for tax purposes. The Funds reduce the number of duplicate prospectuses, annual and semi-annual reports your household receives by sending only one copy of each to those addresses shared by two or more accounts. Call the Oakmark Funds at 1-800-OAKMARK to request individual copies of these documents. The Funds will begin sending individual copies thirty days after receiving your request. IRA PLANS. The Trust has a master IRA plan that allows you to invest in a Traditional IRA, Roth IRA, Coverdell Education Savings Account or SIMPLE 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 Traditional 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 Traditional IRA with a Fund to which your employer may contribute, subject to special rules designed to avoid discrimination. There is a $5 set-up fee and a $10 annual maintenance fee for each IRA established. (The maintenance fee is capped at $20 per year). Information on IRAs may be obtained by visiting the Oakmark Funds' website at www.oakmark.com or calling an investor service representative at 1-800-OAKMARK. 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, visit the Oakmark Funds' website at www.oakmark.com to obtain a Shareholder Services Form and return the completed form to the Oakmark Funds, or call an investor service representative at 1-800-OAKMARK to request the appropriate form. VOICE RECOGNITION SYSTEM ("OAKLINK"). To obtain information about your account, such as 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' Voice Recognition System, OAKLINK, at 1-800-OAKMARK (choose menu option 1). Please note: you must have a personal 54 THE OAKMARK FAMILY OF FUNDS identification number ("PIN") to access account information through OAKLINK. Call 1-800-OAKMARK and speak with an investor service representative to obtain your PIN. WEBSITE. To learn more about The Oakmark Family of Funds, or to obtain prospectuses, account applications, shareholder reports, or each Fund's daily NAV, or to read portfolio manager commentaries access the Oakmark Funds' website at www.oakmark.com. To perform transactions, change your address, order duplicate statements or obtain information about your account, such as your account balance, your last transaction and account history, click on "My Account" and follow the instructions. TELEPHONE AND INTERNET TRANSACTIONS. You may perform many transactions--including exchanges, purchases and redemptions--by telephone and over the Internet. To prevent unauthorized transactions in your account, the Funds will take precautions designed to confirm that instructions communicated through the telephone or Internet are genuine. For example, the Funds or their agents may record a telephone call, request a personal identification number or password, request more information and send written confirmations of telephone and Internet transactions. The Funds request that shareholders review these written confirmations and notify the Funds immediately if there is a problem. A Fund will not be responsible for any loss, liability, cost or expense resulting from an unauthorized transaction initiated by telephone or the Internet if it or its transfer agent follows reasonable procedures designed to verify the identity of the caller or Internet user. ACCOUNT ADDRESS CHANGE. You may change the address of record for your Fund account by sending written instructions to the Funds at The Oakmark Funds, P.O. Box 8510, Boston, MA 02266-8510 or by telephoning an investor service representative at 1-800-OAKMARK. You may also change your address by accessing the Oakmark Funds' website at www.oakmark.com and clicking on "My Account" and following the instructions. If you change your address of record without a signature guarantee, unless you request that the redemption proceeds be sent to your bank account of record with the Funds, the Funds will not honor the redemption request for the following 30 days. During that period, the Funds will require written redemption requests with signature guarantees. 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 back cover of this prospectus. See "How to Sell Class I Shares--Signature Guarantee." CLASS II SHAREHOLDERS If you are a holder of Class II Shares of a Fund, your 401(k) or other retirement plan will provide shareholder services to you as required in accordance with your plan agreement. You should contact your plan sponsor or service provider for information about the services available to you under the terms of your plan. PROSPECTUS 55 DISTRIBUTIONS AND TAXES DISTRIBUTIONS Each Fund distributes to its shareholders substantially all net investment income as dividends and any net capital gains realized from sales of the Fund's portfolio securities. Equity and Income Fund may declare and pay dividends from net investment income semi-annually, while each of the other Funds expects to declare and pay dividends annually. Net realized long-term capital gains, if any, are paid to shareholders at least annually. 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 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 The following 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 advisor. TAXES ON TRANSACTIONS. When you redeem shares, you will experience a capital gain or loss if there is a difference between the cost of your shares and the price you receive when you sell them. The federal tax treatment will depend on how long you owned the shares and your individual tax position. You may be subject to state and local taxes on your investment in a Fund, depending on the laws of your home state or locality. EXCHANGES. If you perform an exchange transaction, it is considered a sale and purchase of shares for federal income tax purposes and may result in a capital gain or loss. DISTRIBUTIONS. Distributions from investment income (dividends) 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. The Trust will send you an annual statement to advise you 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. BUYING INTO A DISTRIBUTION. Purchasing a Fund's shares in a taxable account shortly before a distribution by the Fund is sometimes called "buying into a distribution." You pay income taxes on a distribution whether you reinvest the distribution in shares of the Fund or receive it in cash. In addition, you pay taxes on the distribution whether the value of your investment decreased, increased or remained the same after you bought shares of the Fund. 56 THE OAKMARK FAMILY OF FUNDS A Fund may build up capital gains during the period covered by a distribution (over the course of the year, for example) when securities in the Fund's portfolio are sold at a profit. After subtracting any capital losses, the Fund distributes those gains to you and other shareholders, even if you did not own the shares when the gains occurred (if you did not hold the Fund earlier in the year, for example), and you incur the full tax liability on the distribution. FOREIGN INCOME TAXES. 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 the Fund's dividends but will still be included in your taxable income. However, if a Fund qualifies for, and makes, a special election you may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by a Fund. BACKUP WITHHOLDING. You must furnish to the Funds your properly certified social security or other tax identification number to avoid the Federal income tax backup withholding on dividends, distributions and redemption proceeds. If you do not do so or the Internal Revenue Service informs the Fund that your tax identification number is incorrect, the Fund may be required to withhold a percentage of your taxable distributions and redemption proceeds. Because each Fund must promptly pay to the IRS all amounts withheld, it is usually not possible for a Fund to reimburse you for amounts withheld. You may claim the amount withheld as a credit on your federal income tax return. PROSPECTUS 57 FINANCIAL HIGHLIGHTS The following tables are intended to help you understand each Fund's financial performance during the last five years (or since it began operations, if less than five years). Certain information reflects financial results for a single Fund share. Total returns represent the rate you would have earned (or lost) on an investment, assuming reinvestment of all dividends and distributions. The information for the fiscal year ended September 30, 2002 has been audited by Deloitte & Touche LLP, independent auditors, whose report, along with each Fund's financial statements, is included in the annual report and the Statement of Additional Information, which are available on request. The financial highlights for the fiscal periods ended prior to September 30, 2002, were audited by other auditors who have ceased operations. For each year shown, all information is for the fiscal year ended September 30, unless otherwise noted. 58 THE OAKMARK FAMILY OF FUNDS OAKMARK FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 32.01 $ 26.95 $ 34.37 Income from investment operations: Net investment income 0.12 0.07 0.49 Net gains or losses on securities (both realized and unrealized) (3.85) 5.38 (2.91) ------------------------------------------------- Total From investment operations: (3.73) 5.45 (2.42) Less distributions: Dividends (from net investment income) (0.20) (0.39) (0.26) Distributions (from capital gains) 0.00 0.00 (4.74) ------------------------------------------------- Total distributions (0.20) (0.39) (5.00) ------------------------------------------------- Net asset value, end of period $ 28.08 $ 32.01 $ 26.95 ================================================= Total return (11.77)% 20.42% (7.55)% Ratios/supplemental data: Net assets, end of period ($million) $ 3,300.9 $ 3,109.1 $ 2,038.7 Ratio of expenses to average net assets 1.17% 1.15% 1.21% Ratio of net investment income to average net assets 0.38% 0.73% 1.42% Portfolio turnover rate 44% 57% 50% CLASS I ------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 33.54 $ 41.21 Income from investment operations: Net investment income 0.36 0.47 Net gains or losses on securities (both realized and unrealized) 2.51 (1.73) ------------------------------- Total From investment operations: 2.87 (1.26) Less distributions: Dividends (from net investment income) (0.44) (0.40) Distributions (from capital gains) (1.60) (6.01) ------------------------------- Total distributions (2.04) (6.41) ------------------------------- Net asset value, end of period $ 34.37 $ 33.54 =============================== Total return 7.98% (4.06)% Ratios/supplemental data: Net assets, end of period ($million) $ 4,772.8 $ 6,924.0 Ratio of expenses to average net assets 1.11% 1.08% Ratio of net investment income to average net assets 1.02% 1.22% Portfolio turnover rate 13% 43%
CLASS II ------------------------------- APRIL 5, 2001 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2002 2001(a) - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 31.97 $ 32.09 Net investment income 0.16 0.05 Net gains or losses on securities (both realized and unrealized) (3.92) (0.17) ------------------------------- Total from investment operations: (3.76) (0.12) Less distributions: Dividends (from net investment income) (0.17) 0.00 Distributions (from capital gains) 0.00 0.00 Total distributions (0.17) 0.00 ------------------------------- Net asset value, end of period $ 28.04 $ 31.97 =============================== Total return (11.85)% (0.37)% Ratios/supplemental data: Net assets, end of period ($million) $ 7.7 $ 0.1 Ratio of expenses to average net assets 1.44% 1.32%* Ratio of net investment income to average net assets 0.35% 0.46%* Portfolio turnover rate 44% 57%
* DATA HAS BEEN ANNUALIZED. (a) THE DATE WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS APRIL 5, 2001. PROSPECTUS 59 SELECT FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 25.20 $ 21.45 $ 20.92 Income from investment operations: Net investment income 0.02 0.03 0.13 Net gains or losses on securities (both realized and unrealized) (3.50) 5.17 4.32 ------------------------------------------------- Total from investment operations: (3.48) 5.20 4.45 Less distributions: Dividends (from net investment income) (0.05) (0.09) (0.20) Distributions (from capital gains) 0.00 (1.36) (3.72) ------------------------------------------------- Total distributions (0.05) (1.45) (3.92) ------------------------------------------------- Net asset value, end of period $ 21.67 $ 25.20 $ 21.45 ================================================= Total return (13.85)% 25.75% 24.53% Ratios/supplemental data: Net assets, end of period ($million) $ 3,717.6 $ 4,161.4 $ 1,772.0 Ratio of expenses to average net assets 1.07% 1.08% 1.17% Ratio of net investment income to average net assets 0.09% 0.26% 0.76% Portfolio turnover rate 32% 21% 69% CLASS I ------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 16.76 $ 16.34 Income from investment operations: Net investment income 0.19 0.03 Net gains or losses on securities (both realized and unrealized) 4.73 0.56 -------------------------------- Total from investment operations: 4.92 0.59 Less distributions: Dividends (from net investment income) (0.05) 0.00 Distributions (from capital gains) (0.71) (0.17) -------------------------------- Total distributions (0.76) (0.17) -------------------------------- Net asset value, end of period $ 20.92 $ 16.76 ================================ Total return 30.07% 3.64% Ratios/supplemental data: Net assets, end of period ($million) $ 1,638.9 $ 1,227.9 Ratio of expenses to average net assets 1.16% 1.22% Ratio of net investment income to average net assets 0.98% 0.17% Portfolio turnover rate 67% 56%
CLASS II ------------------------------------------------- DECEMBER 31, 1999 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000(a) - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 25.10 $ 21.40 $ 18.42 Net investment income (Loss) (0.04) 0.00 0.10 Net gains or losses on securities (both realized and unrealized) (3.50) 5.10 2.88 ------------------------------------------------- Total from investment operations: (3.54) 5.10 2.98 Less distributions: Dividends (from net investment income) 0.00 (0.06) 0.00 Distributions (from capital gains) 0.00 (1.34) 0.00 ------------------------------------------------- Total distributions 0.00 (1.40) 0.00 ------------------------------------------------- Net asset value, end of period $ 21.56 $ 25.10 $ 21.40 ================================================= Total return (14.10)% 25.28% 16.18% Ratios/supplemental data: Net assets, end of period ($million) $ 64.4 $ 35.4 $ 6.8 Ratio of expenses to average net assets 1.36% 1.40% 1.41%* Ratio of net investment income (loss) to average net assets (0.19)% (0.08)% 0.59%* Portfolio turnover rate 32% 21% 69%
* DATA HAS BEEN ANNUALIZED. (a) THE DATE WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS DECEMBER 31, 1999. 60 THE OAKMARK FAMILY OF FUNDS SMALL CAP FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.57 $ 15.10 $ 13.88 Income from investment operations: Net investment income (loss) (0.11) 0.00 0.00 Net gains or losses on securities (both realized and unrealized) (0.36) (0.02) 1.22 ------------------------------------------------- Total from investment operations: (0.47) (0.02) 1.22 Less distributions: Dividends (from net investment income) 0.00 0.00 0.00 Distributions (from capital gains) 0.00 (0.51) 0.00 ------------------------------------------------- Total distributions 0.00 (0.51) 0.00 ------------------------------------------------- Net asset value, end of period $ 14.10 $ 14.57 $ 15.10 ================================================= Total return (3.23)% 0.07% 8.79% Ratios/supplemental data: Net assets, end of period ($million) $ 356.9 $ 264.6 $ 248.7 Ratio of expenses to average net assets 1.33% 1.27% 1.50%(a) Ratio of net investment income (loss) to average net assets (0.67)% (0.28)% (0.41)%(a) Portfolio turnover rate 22% 47% 28% CLASS I ------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.63 $ 20.34 Income from investment operations: Net investment income (loss) 0.14 (0.12) Net gains or losses on securities (both realized and unrealized) 1.20 (4.73) Total from investment operations: 1.34 (4.85) ------------------------------- Less distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) (0.09) (2.86) ------------------------------- Total distributions (0.09) (2.86) ------------------------------- Net asset value, end of period $ 13.88 $ 12.63 =============================== Total return 10.56% (26.37)% Ratios/supplemental data: Net assets, end of period ($million) $ 437.1 $ 618.0 Ratio of expenses to average net assets 1.48% 1.45% Ratio of net investment income (loss) to average net assets (0.44)% (0.40)% Portfolio turnover rate 68% 34%
(a) IF THE FUND HAD PAID ALL OF ITS EXPENSES AND THERE HAD BEEN NO EXPENSE REIMBURSEMENT BY THE ADVISER, RATIOS WOULD HAVE BEEN AS FOLLOWS:
SEPTEMBER 30, 2000 ------------------ Ratio of expenses to average net assets 1.59% Ratio of net income (loss) to average net assets (0.50)%
CLASS II ------------- APRIL 10, 2002 THROUGH SEPTEMBER 30, 2002 (b) - ---------------------------------------------------------------------------- Net asset value, beginning of period $ 19.71 Net investment income (loss) (0.20)(c) Net gains or losses on securities (both realized and unrealized) (5.42) ------------- Total from investment operations: (5.62) ------------- Net asset value, end of period $ 14.09 ============= Total return (28.51)% Ratios/supplemental data: Net assets, end of period ($million) $ 0.5 Ratio of expenses to average net assets 1.48%* Ratio of net investment income (loss) to average net assets (0.85)%* Portfolio turnover rate 22%
* DATA HAS BEEN ANNUALIZED. (b) THE DATE WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS APRIL 10, 2002. (c) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. PROSPECTUS 61 EQUITY AND INCOME FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 17.45 $ 16.50 $ 15.68 Income from investment operations: Net investment income 0.33(a) 0.08 0.35 Net gains or losses on securities (both realized and unrealized) (0.40) 2.11 2.28 ------------------------------------------------- Total from investment operations: (0.07) 2.19 2.63 Less distributions: Dividends (from net investment income) (0.16) (0.24) (0.45) Distributions (from capital gains) (0.04) (1.00) (1.36) ------------------------------------------------- Total distributions (0.20) (1.24) (1.81) ------------------------------------------------- Net asset value, end of period $ 17.18 $ 17.45 $ 16.50 ================================================= Total return (0.47)% 14.40% 18.51% Ratios/supplemental data: Net assets, end of period ($million) $ 2,241.9 $ 620.1 $ 54.5 Ratio of expenses to average net assets 0.96% 0.98% 1.24% Ratio of net investment income to average net assets 1.71% 2.07% 3.04% Portfolio turnover rate 73% 124% 87% CLASS I ------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.99 $ 14.49 Income from investment operations: Net investment income 0.39 0.29 Net gains or losses on securities (both realized and unrealized) 1.72 0.04 ------------------------------- Total from investment operations: 2.11 0.33 Less distributions: Dividends (from net investment income) (0.21) (0.24) Distributions (from capital gains) (0.21) (0.59) ------------------------------- Total distributions (0.42) (0.83) ------------------------------- Net asset value, end of period $ 15.68 $ 13.99 =============================== Total return 15.32% 2.57% Ratios/supplemental data: Net assets, end of period ($million) $ 60.3 $ 57.7 Ratio of expenses to average net assets 1.18% 1.31% Ratio of net investment income to average net assets 2.65% 2.39% Portfolio turnover rate 81% 46%
(a) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD.
CLASS II --------------------------------------------------- JULY 13, 2000 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000(b) - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 17.40 $ 16.49 $ 15.51 Net Investment income 0.30(c) 0.07 0.30 Net gains or losses on securities (both realized and unrealized) (0.40) 2.08 0.68 --------------------------------------------------- Total from investment operations: (0.10) 2.15 0.98 Less distributions: Dividends (from net investment income) (0.11) (0.24) 0.00 Distributions (from capital gains) (0.04) (1.00) 0.00 --------------------------------------------------- Total distributions (0.15) (1.24) 0.00 --------------------------------------------------- Net asset value, end of period $ 17.15 $ 17.40 $ 16.49 =================================================== Total return (0.60)% 14.07% 6.32% Ratios/supplemental data: Net assets, end of period ($million) $ 118.7 $ 3.3 $ 0.4 Ratio of expenses to average net assets 1.20% 1.23% 1.32%* Ratio of net investment income to average net assets 1.50% 1.95% 2.59%* Portfolio turnover rate 73% 124% 87%
* DATA HAS BEEN ANNUALIZED (b) THE DATE WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS JULY 13, 2000. (c) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. 62 THE OAKMARK FAMILY OF FUNDS GLOBAL FUND For a share outstanding throughout each period
CLASS I --------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 - ------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.83 $ 10.91 Income from investment operations: Net investment income (Loss) 0.00(b)(c) 0.03 Net gains or losses on securities (both realized and unrealized) 0.76(d) 0.12 --------------------------------- Total from investment operations: 0.76 0.15 Less distributions: Dividends (from net investment income) (0.00) (0.17) Distributions (from capital gains) (0.29) (0.06) --------------------------------- Total distributions (0.29) (0.23) --------------------------------- Net asset value, end of period $ 11.30 $ 10.83 ================================= Total return 6.84% 1.37% Ratios/supplemental data: Net assets, end of period ($million) $ 175.6 $ 48.2 Ratio of expenses to average net assets 1.55% 1.75%(e) Ratio of net investment income (loss) to average net assets (0.01)% 0.00(e) Portfolio turnover rate 86% 114% CLASS I ---------------------------------- AUGUST 4, 1999 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2000 1999 (a) - ------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.18 $ 10.00 Income from investment operations: Net investment income (Loss) 0.11 0.01 Net gains or losses on securities (both realized and unrealized) 1.63 (0.83) ---------------------------------- Total from investment operations: 1.74 (0.82) Less distributions: Dividends (from net investment income) (0.01) 0.00 Distributions (from capital gains) 0.00 0.00 ---------------------------------- Total distributions (0.01) 0.00 ---------------------------------- Net asset value, end of period $ 10.91 $ 9.18 ================================== Total return 18.97% (8.20)% Ratios/supplemental data: Net assets, end of period ($million) $ 27.2 $ 24.0 Ratio of expenses to average net assets 1.75%(e) 1.75%*(e) Ratio of net investment income (loss) to average net assets 0.54%(e) 0.98%*(e) Portfolio turnover rate 147% 7%
* DATA HAS BEEN ANNUALIZED. (a) THE DATE WHICH FUND SHARES WERE FIRST OFFERED FOR SALE TO THE PUBLIC WAS AUGUST 4, 1999. (b) AMOUNT ROUNDS TO LESS THAN $(0.01) PER SHARE. (c) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. (d) THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET REALIZED AND UNREALIZED GAIN/LOSS FOR THE PERIOD DUE TO THE TIMING OF PURCHASES AND REDEMPTION OF FUND SHARES IN RELATION TO THE FLUCTUATING MARKET VALUES OF THE FUND. (e) IF THE FUND HAD PAID ALL OF ITS EXPENSES AND THERE HAD BEEN NO EXPENSE REIMBURSEMENT BY THE ADVISER, RATIOS WOULD HAVE BEEN AS FOLLOWS:
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 --------------------------------------------------- Ratio of expenses to average net assets 1.80% 1.96% 2.22%* Ratio of net income (loss) to average net assets (0.05)% 0.34% 0.51%*
PROSPECTUS 63 GLOBAL FUND For a share outstanding throughout each period
CLASS II ---------------- OCTOBER 10, 2001 THROUGH SEPTEMBER 30, 2002 (a) - ------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.25 Net investment income (loss) (0.03) Net gains or losses on securities (both realized and unrealized) 0.31(b) ---------------- Total from investment operations: 0.28 Less distributions: Dividends (from net investment income) (0.00) Distributions (from capital gains) (0.29) ---------------- Total distributions (0.29) ---------------- Net asset value, end of period $ 11.24 ================ Total return 2.31% Ratios/supplemental data: Net assets, end of period ($million) $ 0.6 Ratio of expenses to average net assets 1.86%* Ratio of net investment income (loss) to average net assets (0.26)%* Portfolio turnover rate 86%
* DATA HAS BEEN ANNUALIZED. (a) THE DATE WHICH CLASS II SHARES WERE FIRST OFFERED FOR SALE TO THE PUBLIC WAS OCTOBER 10, 2001. (b) THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET REALIZED AND UNREALIZED GAIN/LOSS FOR THE PERIOD DUE TO THE TIMING OF PURCHASES AND REDEMPTION OF FUND SHARES IN RELATION TO THE FLUCTUATING MARKET VALUES OF THE FUND. 64 THE OAKMARK FAMILY OF FUNDS INTERNATIONAL FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.51 $ 15.40 $ 13.95 Income from investment operations: Net investment income (loss) 0.14 0.20 1.02 Net gains or losses on securities (both realized and unrealized) (0.31) (2.07) 0.92 ------------------------------------------------- Total from investment operations: (0.17) (1.87) 1.94 Less distributions: Dividends (from net investment income) (0.17) (0.51) (0.49) Distributions (from capital gains) 0.00 (0.51) 0.00 ------------------------------------------------- Total distributions (0.17) (1.02) (0.49) ------------------------------------------------- Net asset value, end of period $ 12.17 $ 12.51 $ 15.40 ================================================= Total return (1.53)% (13.10)% 14.27% Ratios/supplemental data: Net assets, end of period ($million) $ 1,393.8 $ 738.5 $ 782.4 Ratio of expenses to average net assets 1.31% 1.30% 1.30% Ratio of net investment income (loss) to average net assets 1.34% 1.40% 1.87% Portfolio turnover rate 24% 58% 64% CLASS I ------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.42 $ 18.77 Income from investment operations: Net investment income (loss) (0.34) 0.41 Net gains or losses on securities (both realized and unrealized) 4.89 (5.32) ------------------------------- Total from investment operations: 4.55 (4.91) Less distributions: Dividends (from net investment income) (0.24) (0.58) Distributions (from capital gains) (0.78) (2.86) ------------------------------- Total distributions (1.02) (3.44) ------------------------------- Net asset value, end of period $ 13.95 $ 10.42 =============================== Total return 46.41% (29.90)% Ratios/supplemental data: Net assets, end of period ($million) $ 811.1 $ 756.1 Ratio of expenses to average net assets 1.29% 1.32% Ratio of net investment income (loss) to average net assets 1.94% 1.95% Portfolio turnover rate 54% 43%
CLASS II ------------------------------------------------- NOVEMBER 4, 1999 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000(a) - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.47 $ 15.37 $ 14.36 Net investment income 0.15 0.17 0.96 Net gains or losses on securities (both realized and unrealized) (0.37) (2.10) 0.54 ------------------------------------------------- Total from investment operations: (0.22) (1.93) 1.50 Less distributions: Dividends (from net investment income) (0.12) (0.49) (0.49) Distributions (from capital gains) 0.00 (0.48) 0.00 ------------------------------------------------- Total distributions (0.12) (0.97) (0.49) ------------------------------------------------- Net asset value, end of period $ 12.13 $ 12.47 $ 15.37 ================================================= Total return (1.76)% (13.44)% 10.79% Ratios/supplemental data: Net assets, end of period ($million) $ 48.5 $ 1.9 $ 0.1 Ratio of expenses to average net assets 1.58% 1.64% 1.50%* Ratio of net investment income to average net assets 1.33% 0.62% 1.98%* Portfolio turnover rate 24% 58% 64%
* DATA HAS BEEN ANNUALIZED (a) THE DATE WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS NOVEMBER 4, 1999. PROSPECTUS 65 INTERNATIONAL SMALL CAP FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.00 $ 11.51 $ 12.64 Income from investment operations: Net investment income 0.11 0.13 0.23 Net gains or losses on securities (both realized and unrealized) 0.36(a) (0.81) (0.66) ------------------------------------------------- Total from investment operations: 0.47 (0.68) (0.43) Less distributions: Dividends (from net investment income) (0.16) (0.34) (0.11) Distributions (from capital gains) (0.14) (0.49) (0.59) ------------------------------------------------- Total distributions (0.30) (0.83) (0.70) ------------------------------------------------- Net asset value, end of period $ 10.17 $ 10.00 $ 11.51 ================================================= Total return 4.68% (6.18)% (3.44)% Ratios/supplemental data: Net assets, end of period ($million) $ 357.7 $ 118.9 $ 90.3 Ratio of expenses to average net assets 1.64% 1.74% 1.77% Ratio of net investment income to average net assets 1.28% 1.83% 1.99% Portfolio turnover rate 42% 49% 40% CLASS I ------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 6.89 $ 12.20 Income from investment operations: Net investment income 0.24 0.18 Net gains or losses on securities (both realized and unrealized) 5.71 (4.09) ------------------------------- Total from investment operations: 5.95 (3.91) Less distributions: Dividends (from net investment income) (0.20) (0.06) Distributions (from capital gains) 0.00 (1.34) ------------------------------- Total distributions (0.20) (1.40) ------------------------------- Net asset value, end of period $ 12.64 $ 6.89 =============================== Total return 88.02% (35.20)% Ratios/supplemental data: Net assets, end of period ($million) $ 155.4 $ 51.8 Ratio of expenses to average net assets 1.79% 1.96% Ratio of net investment income to average net assets 2.31% 2.17% Portfolio turnover rate 126% 69%
CLASS II ---------------------------------- JANUARY 8, 2001 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2002 2001 (b) - ------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.97 $ 10.73 Net investment income 0.13(c) 0.15 Net gains or losses on securities (both realized and unrealized) 0.30(c)(d) (0.91) ---------------------------------- Total from investment operations: 0.43 (0.76) Less distributions: Dividends (from net investment income) (0.12) 0.00 Distributions (from capital gains) (0.14) 0.00 ---------------------------------- Total distributions (0.26) 0.00 ---------------------------------- Net asset value, end of period $ 10.14 $ 9.97 ================================== Total return 4.25% (7.08)% Ratios/supplemental data: Net assets, end of period ($million) $ 0.3 $ 0.0 Ratio of expenses to average net assets 1.87% 1.97%* Ratio of net investment income to average net assets 1.06% 1.76%* Portfolio turnover rate 42% 49%
* DATA HAS BEEN ANNUALIZED. (a) THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET REALIZED AND UNREALIZED GAIN/LOSS FOR THE PERIOD DUE TO THE TIMING OF PURCHASES AND REDEMPTION OF FUND SHARES IN RELATION TO THE FLUCTUATING MARKET VALUES OF THE FUND. (b) THE DATE WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS JANUARY 8, 2001. (c) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. (d) THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET REALIZED AND UNREALIZED GAIN/LOSS FOR THE PERIOD DUE TO THE TIMING OF PURCHASES AND REDEMPTION OF FUND SHARES IN RELATION TO THE FLUCTUATING MARKET VALUES OF THE FUND 66 THE OAKMARK FAMILY OF FUNDS NOTES: You can obtain more information about The Oakmark Family of Funds' investments in its semiannual and annual reports to shareowners. These reports contain information on the market conditions and investment strategies that significantly affected The Oakmark Family of Funds' performance during the last fiscal year. You may wish to read the Statement of Additional Information (SAI) for more information about The Oakmark Family of Funds. The SAI is incorporated by reference into this prospectus, which means that it is considered to be part of this prospectus. You can obtain free copies of The Oakmark Family of Funds' semiannual and annual reports and the SAI, request other information, and discuss your questions about The Oakmark Family of Funds by writing or calling: THE OAKMARK FUNDS P.O. BOX 8510 BOSTON, MA 02266-8510 1-800-OAKMARK (1-800-625-6275) The requested documents will be sent within three business days of your request. Other information about each Fund may also be obtained by accessing The Oakmark Family of Funds' website at www.oakmark.com. Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR Database on the SEC's internet web site at www.sec.gov. You may also review and copy those documents by visiting the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-942-8090. In addition, copies of the Fund documents may be obtained, after mailing the appropriate duplicating fee, by writing to the SEC's Public Reference Section, 450 5th Street, N.W., Washington, DC 20549-0102 or by e-mail request at publicinfo@sec.gov. HARRIS ASSOCIATES INVESTMENT TRUST 811-06279 STATEMENT OF ADDITIONAL INFORMATION JANUARY 29, 2003 THE OAKMARK FAMILY OF FUNDS No-Load Funds Two North LaSalle Street Chicago, Illinois 60602-3790 Telephone 1-800-OAKMARK (1-800-625-6275) www.oakmark.com 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, ("Equity and Income Fund"), The Oakmark Global Fund ("Global 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"). This Statement of Additional Information 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. You may obtain a prospectus or semi-annual or annual report from the Funds at no charge by writing, telephoning or accessing the Funds at their address, telephone number or website shown above. TABLE OF CONTENTS THE FUNDS 3 INVESTMENT RESTRICTIONS 3 HOW THE FUNDS INVEST 5 PERFORMANCE INFORMATION 13 INVESTMENT ADVISER 19 CODE OF ETHICS 21 TRUSTEES AND OFFICERS 22 PRINCIPAL SHAREHOLDERS 28 PURCHASING AND REDEEMING SHARES 30 ADDITIONAL TAX INFORMATION 31 DISTRIBUTOR 32 PORTFOLIO TRANSACTIONS 32 DECLARATION OF TRUST 35 CUSTODIAN AND TRANSFER AGENT 35 INDEPENDENT AUDITORS 36 APPENDIX A -- BOND RATINGS A-1 APPENDIX B -- FINANCIAL STATEMENTS B-1
THE FUNDS Oakmark Fund, Select Fund, Small Cap Fund, Global Fund, International Fund and International Small Cap Fund seek long-term capital appreciation. Equity and Income Fund seeks high current income and preservation and growth of capital. The Funds are series of the Trust, an open-end management investment company, and each Fund other than Select Fund is diversified. The Trust is a Massachusetts business trust organized under an Agreement and Declaration of Trust dated February 1, 1991 (the "Declaration of Trust"). All shares issued will be fully paid and non-assessable and will have no preemptive or conversion rights. Each Fund's shares are divided into two share classes: Class I Shares and Class II Shares. Class I Shares of each Fund are offered to members of the general public. As described more fully in the prospectus, Class II Shares of each Fund are offered to certain retirement and profit sharing plans. Class II Shares of a Fund pay a service fee at the annual rate of .25% of the average net assets of Class II Shares of the Fund. This service fee is paid to an administrator for performing the services associated with the administration of such retirement plans. The shares of each class of a Fund represent an interest in the same portfolio of investments of the Fund. All shares of a Fund have equal voting rights (except as to matters affecting the interests of only one class) and the shares of each class are entitled to participate pro rata in any dividends and other distributions declared by the Trust's board of trustees. All shares of a Fund of a given class have equal rights in the event of liquidation of that class. 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 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)]; - ---------- (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 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. 3 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. [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; 15. [OAKMARK FUND, SELECT FUND, SMALL CAP FUND AND EQUITY AND INCOME 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);(3) 16. Make short sales of securities unless (i) the Fund owns at least an equal amount of such securities, or of securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into at least an equal amount of such securities with no restriction other than the payment of additional consideration or (ii) immediately after such a short sale, the aggregate value of all securities that the Fund is short (excluding short sales against-the-box(4)) does not exceed 5% of the value of the Fund's net assets, and the Fund covers such a short sale as required by the current rules and positions of the Securities and Exchange Commission or its staff; - ---------- (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) Although securities represented by American Depositary Receipts ("ADRs") are not subject to restriction 15, 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) A short sale "against the box" involves the sale of a security with respect to which the Fund already owns or has the right to acquire an equivalent amount of such security in kind amount, or securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into at least an equal amount of such securities with no restriction other than the payment of additional consideration. 4 17. Purchase a call option or a put option if, immediately thereafter, the aggregate market value of all call and put options then held would exceed 10% of its net assets; 18. Write any call option or put option unless the option is covered* and immediately thereafter the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund would not exceed 15% of its net assets; 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 and the footnotes related to the restrictions, 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 BOTTOM-UP INVESTMENT PROCESS All portfolio managers at Harris Associates L.P., investment adviser to The Oakmark Family of Funds (the "Adviser"), strive to abide by a consistent philosophy and process. This process involves a collective, unified effort at identifying what the managers believe are the best values in the marketplace. - ---------- * In the case of a call option, the option is covered if the Fund owns (a) the securities underlying the option, (b) other securities with respect to which the Fund anticipates receiving the underlying securities as a dividend or distribution or upon a conversion or exchange and liquid assets held by the Fund having a value at least equal to the value of such underlying securities are segregated on the books of the Fund's custodian or (c) an absolute and immediate right to acquire the underlying security without additional consideration (or, if additional consideration is required, liquid assets held by the Fund having a value at least equal to that amount are segregated on the books of the Fund's custodian) upon conversion or exchange of other securities held in its portfolio. In the case of a put option, the option is covered if assets having a value at least equal to the exercise price of the option are segregated on the books of the Fund's custodian on a daily basis. For purposes of this restriction, the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund is the aggregate value of all securities held to cover call options written plus the value of all liquid assets required to be so segregated in connection with call and put options written. 5 Each manager typically constructs a focused portfolio from a list of approved stocks, built on a stock by stock basis from the bottom up. The following chart illustrates this bottom-up investment process: BOTTOM-UP INVESTMENT PROCESS UNIVERSE OF THOUSANDS OF EQUITY SECURITIES (ALL STOCKS AVAILABLE FOR INVESTMENT.) CRITERIA SCREENS (MANAGERS AND RESEARCH TEAM SCREEN FOR STOCKS THAT THEY BELIEVE ARE WORTH FURTHER CONSIDERATION.) QUANTITATIVE AND QUALITATIVE RESEARCH (RIGOROUS ANALYSIS IS PERFORMED TO ENSURE THAT THE STOCK MEETS CERTAIN "VALUE" STANDARDS.) APPROVED LIST (APPROXIMATELY 125-150 SECURITIES.) INVEST (MANAGERS SELECT STOCKS FROM THE APPROVED LIST FOR THEIR SPECIFIC FUNDS.) SMALL CAP SECURITIES Under normal market conditions, the Small Cap Fund and International Small Cap Fund each invests at least 80% of its net assets (plus any borrowings for investment purposes) in the stocks of "small cap companies." 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 ($2.686 billion as of December 31, 2002). The mean market capitalization of companies included in the S&P Small Cap 600 Index was $542 million as of December 31, 2002. Over time, the largest market capitalization of the companies included in the S&P Small Cap 600 Index will change. As it does, the size of the companies in which each Fund invests may change. Each Fund will notify shareholders at least 60 days prior to any change in its 80% policy. SECURITIES OF NON-U.S. ISSUERS International Fund and International Small Cap Fund invest primarily in securities of non-U.S. issuers, Global Fund typically invests between 40-80% of its total assets in securities of non-U.S. issuers and the other Funds each may invest up to 25% of their assets 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 (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." 6 You should understand and consider carefully the risks involved in international investing. Investing in securities of non-U.S. issuers, 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; 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 located in 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 political, social or diplomatic developments that could adversely affect investment in these countries. 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, International Small Cap Fund and Global Fund in privatizations in appropriate circumstances. In certain of those markets, the ability of foreign entities such as International Fund, International Small Cap Fund and Global 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. EMERGING MARKETS. Investments in emerging markets securities include special risks in addition to those generally associated with foreign investing. Many investments in emerging markets can be considered speculative, and the value of those investments can be more volatile than in more developed foreign markets. This difference reflects the greater uncertainties of investing in less established markets and economies. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have not kept pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets is uninvested and no return is earned thereon. The inability to make intended security purchases due to settlement problems could cause a Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund due to subsequent declines in the value of those securities or, if a Fund has entered into a contract to sell a security, in possible liability to the purchaser. Costs associated with transactions in emerging markets securities are typically higher than costs associated with transactions in U.S. securities. Such transactions also involve additional costs for the purchase or sale of foreign currency. Certain foreign markets (including emerging markets) may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. A Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. The risk also exists that an emergency situation may arise in one or more emerging markets. As a result, trading of securities may cease or may be substantially curtailed and prices for a Fund's securities in such markets may not be readily available. A Fund may suspend redemption of its shares for any period during which an emergency exists, as determined by the Securities and Exchange Commission (the "SEC"). Accordingly, if a Fund believes that appropriate circumstances exist, it will promptly apply to the SEC for a determination that such an emergency is present. During the period commencing from a Fund's identification of such condition until the date of the SEC action, that Fund's securities in the affected markets will be valued at fair value determined in good faith by or under the direction of the Trust's board of trustees. Income from securities held by a Fund could be reduced by taxes withheld from that income, or other taxes that may be imposed by the emerging market countries in which the Fund invests. Net asset value of a Fund may also be affected by changes in the rates or methods of taxation applicable to the Fund or to entities in which the Fund has invested. Many emerging markets have experienced substantial rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain emerging market countries. In an attempt to control inflation, certain 7 emerging market countries have imposed wage and price controls. Of these countries, some, in recent years, have begun to control inflation through prudent economic policies. Emerging market governmental issuers are among the largest debtors to commercial banks, foreign governments, international financial organizations and other financial institutions. Certain emerging market governmental issuers have not been able to make payments of interest or principal on debt obligations as those payments have come due. Obligations arising from past restructuring agreements may affect the economic performance and political and social stability of those issuers. Governments of many emerging market countries have exercised and continue to exercise substantial influence over many aspects of the private sector through ownership or control of many companies. The future actions of those governments could have a significant effect on economic conditions in emerging markets, which in turn, may adversely affect companies in the private sector, general market conditions and prices and yields of certain of the securities in a Fund's portfolio. Expropriation, confiscatory taxation, nationalization, political, economic and social instability have occurred throughout the history of certain emerging market countries and could adversely affect Fund assets should any of those conditions recur. 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 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 a Fund owns or anticipates owning securities in countries whose currencies are linked, the Fund may aggregate such positions as to the currency hedged. If a Fund enters into a forward contract hedging an anticipated or actual holding of portfolio securities, liquid assets of the Fund, having a value at least as great as the amount of the excess, if any, of the Fund's commitment under the forward contract over the value of the portfolio position being hedged, will be segregated on the books of the Fund and held by the Fund's custodian and marked to market daily, while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may sell the portfolio security related to such contract and make delivery of the currency received from the sale, or it may retain the security and either purchase the currency on the spot market or terminate its contractual obligation to deliver the currency by entering into an offsetting contract with the same currency trader for the purchase on the same maturity date of the same amount of the currency. It is impossible to forecast precisely the market value of a portfolio security being hedged with a forward currency contract. Accordingly, at the maturity of a contract 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 under the forward contract 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 the sale proceeds exceed 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 8 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 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, a division of the McGraw-Hill Companies ("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 each of International Fund and International Small Cap Fund will not invest more than 10% of its 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- and 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 making their principal and interest payments. 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 "Investing with The Oakmark Family of Funds - Share Price" in the prospectus. The market value of those 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 Appendix A to this statement of additional information. WHEN-ISSUED, DELAYED-DELIVERY AND OTHER 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-delivery 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. A Fund may also enter into a contract with a third party that provides for the sale of securities held by the Fund at a set price, with a contingent right for the Fund to receive additional proceeds from the purchaser upon the occurrence of designated future events, such as a tender offer for the securities of the subject company by the 9 purchaser, and satisfaction of any applicable conditions. Under such an arrangement, the amount of contingent proceeds that the Fund will receive from the purchaser, if any, will generally not be determinable at the time such securities are sold. The Fund's rights under such an arrangement will not be secured and the Fund may not receive the contingent payment if the purchaser does not have the resources to make the payment. The Fund's rights under such an arrangement also generally will be illiquid and subject to the limitations on ownership of illiquid securities. 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 or under the direction of 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. 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. SHORT SALES Each Fund may make short sales of securities if (a) the Fund owns at least an equal amount of such securities, or of securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into at least an equal amount of such securities with no restriction other than the payment of additional consideration or (b) immediately after such a short sale, the aggregate value of all securities that the Fund is short (excluding the value of securities sold short against-the-box, as defined below) does not exceed 5% of the value of the Fund's net assets, and the Fund covers such short sales as described in the following paragraph. A short sale against-the-box involves the sale of a security with respect to which the Fund already owns or has the right to acquire an equivalent security in kind and amount, or securities that are convertible or 10 exchangeable, or anticipated to be convertible or exchangeable, into such securities with no restriction other than the payment of additional consideration. In a short sale, 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 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, in order to cover its short positions, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian either (1) an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration or (2) cash, U.S. government securities or other liquid securities having a value equal to the excess of (a) the market value of the securities sold short over (b) the value of any cash, U.S. government securities or other liquid securities deposited as collateral with the broker in connection with the short sale. 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. 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 7 under "Investment Restrictions." 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 earnings on 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 delays in liquidating the loan collateral or recovering the loaned securities and incur expenses related to enforcing its rights. In addition, there could be a decline in the value of the collateral or in the value of the securities loaned while the Fund seeks to enforce its rights thereto and the Fund could experience subnormal levels of income and lack of access to income during this period. FOREIGN INVESTMENT COMPANIES Certain markets are closed in whole or in part to direct equity investments by foreigners. A Fund may be able to invest in such markets solely or primarily through foreign government-approved or authorized investment vehicles, which may include other investment companies. A Fund may also invest in other investment companies that invest in foreign securities. 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. In addition, investing through such vehicles may be subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may invest up to 10% of its assets in shares of investment companies and up to 5% of its assets in any one investment company, as long as the Fund does not own more than 3% of the voting stock of any one investment company. The Funds do not intend to invest 11 in such vehicles or funds unless, in the judgment of the Adviser, the potential benefits of the investment justify the payment of any applicable fee, premium or sales charge. OPTIONS Each Fund may purchase and sell both call options and put options on securities. An option on a security is a contract that gives the purchaser (holder) of the option, in return for a premium, the right to buy from (call) or sell to (put) the seller (writer) of the option the security underlying the option at a specified exercise price at any time during the term of the option. The writer of an option on an individual security has the obligation upon exercise of a call option to deliver the underlying security upon payment of the exercise price or upon exercise of a put option to pay the exercise price upon delivery of the underlying security. A Fund will not write any call option or put option unless the option is covered and immediately thereafter the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund would not exceed 15% of its net assets. In the case of a call option, the option is covered if the Fund owns (a) the securities underlying the option, (b) other securities with respect to which the Fund anticipates receiving the underlying securities as a dividend or distribution or upon a conversion or exchange and liquid assets held by the Fund having a value at least equal to the value of such underlying securities are segregated on the books of the Fund's custodian or (c) an absolute and immediate right to acquire the underlying security without additional consideration (or, if additional consideration is required, liquid assets held by the Fund having a value at least equal to that amount are segregated on the books of the Fund's custodian) upon conversion or exchange of other securities held in its portfolio. In the case of a put option, the option is covered if assets having a value at least equal to the exercise price of the option are segregated on the books of the Fund's custodian on a daily basis. For purposes of this restriction, the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund is the aggregate value of all securities held to cover call options written plus the value of all liquid assets required to be so segregated in connection with call and put options written. If an option written by a Fund expires, the Fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by a Fund expires, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, the writer may close out the option by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when a Fund desires. If a Fund closes out an option it has written, it will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date. A put or call option purchased by a Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received for an option written by a Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded, or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. There are several risks associated with transactions in options. For example, there are significant differences between the securities markets and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. If a Fund was unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a Fund was unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, a Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium 12 and the exercise price of the call. If trading were suspended in an option purchased or written by a Fund, that Fund would not able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it has purchased. 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 the investments of International Fund, International Small Cap Fund and Global Fund 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 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. Total return figures quoted by the Funds will assume reinvestment of all dividends and distributions, but will not take into account income taxes payable by shareholders. Total return is not intended to indicate future performance. "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) (POWER OF 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 The Funds may also quote after-tax total returns to show the impact of assumed federal income taxes on an investment in a Fund. A Fund's total return "after taxes on distributions" shows the effect of taxable distributions, but not any taxable gain or loss, on an investment in shares of the Fund for a specified period of time. A Fund's total return "after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss realized by the shareholder upon the sale of fund shares at the end of a specified period. To determine these figures, all income, short-term capital gain distributions, and long-term capital gains distributions are assumed to have been taxed at the highest marginal individualized federal tax rate then in effect. Those maximum tax rates are applied to distributions prior to reinvestment and the after-tax portion is assumed to have been reinvested in the Fund. State and local taxes are ignored. Actual after-tax returns depend on a shareholder's tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. Average Annual Total Return (After Taxes on Distributions) will be computed as follows: ATV (BASE OF D) = P(1+T) (POWER OF n) Where: P = a hypothetical initial investment of $1,000 T = average annual total return (after taxes on distributions) n = number of years ATV (BASE OF D) = ending value of a hypothetical $1,000 investment made at the beginning of the period, at the end of the period (or fractional portion thereof), after taxes on fund distributions but not after taxes on redemptions. 13 Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) will be computed as follows: ATV (BASE OF DR) = P(1+T) (POWER OF n) Where: P = a hypothetical initial investment of $1,000 T = average annual total return (after taxes on distributions) n = number of years ATV (BASE OF DR) = ending value of a hypothetical $1,000 investment made at the beginning of the period, at the end of the period (or fractional portion thereof), after taxes on fund distributions but not after taxes on redemptions. Each Fund's Average Annual Total Return before and, for Class I Shares, after taxes for various periods ended December 31, 2002 are shown in the tables below. No information is provided for Class II Shares of Small Cap Fund because Class II Shares have not been sold to investors for a full calendar year. The Funds' returns may vary greatly over short periods of time and may be materially different by the time you receive this statement of additional information. FOR MORE CURRENT PERFORMANCE INFORMATION, VISIT www.oakmark.com. OAKMARK FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -14.41% 1.00% 11.36% AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -14.53% -0.64% 9.50% AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -8.84% 0.44% 9.01%
OAKMARK FUND - CLASS II SHARES
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -14.55% -3.29%
* From the date Class II shares were first offered for sale (April 5, 2001). SELECT FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -12.47% 13.05% 21.17% AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -12.50% 11.59% 19.83% AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -7.66% 10.44% 17.80%
* From the date the Class I Shares were first offered for sale (November 1, 1996). SELECT FUND - CLASS II SHARES 14
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -12.73% 11.18% --------------------------------------------------------------------
* From the date Class II Shares were first offered for sale (December 31, 1999). SMALL CAP FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -13.07% -1.73% 9.03% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -13.07% -2.73% 8.33% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -8.03% -1.40% 7.46% --------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). EQUITY AND INCOME FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.14% 10.91% 13.68% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.64% 9.51% 12.23% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -1.31% 8.52% 10.96% --------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). EQUITY AND INCOME FUND - CLASS II SHARES
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.31% 10.47% --------------------------------------------------------------------
* From the date Class II Shares were first offered for sale (July 13, 2000). GLOBAL FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.11% 9.40% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.11% 9.01% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -1.30% 7.54% -------------------------------------------------------------------- * From the date Class I Shares were first offered for sale (August 4, 1999).
GLOBAL FUND - CLASS II SHARES
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.49% 14.15% --------------------------------------------------------------------
* From the date Class II Shares were first offered for sale (October 10, 2001). 15 INTERNATIONAL FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -8.46% 4.85% 9.75% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -8.69% 3.49% 7.73% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -5.09% 3.39% 7.36% --------------------------------------------------------------------
INTERNATIONAL FUND - CLASS II SHARES
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -8.77% 0.81% --------------------------------------------------------------------
* From the date Class II Shares were first offered for sale (November 4, 1999). INTERNATIONAL SMALL CAP FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -5.12% 10.40% 6.60% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -5.74% 9.20% 5.01% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.55% 8.30% 4.85% --------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). INTERNATIONAL SMALL CAP FUND - CLASS II SHARES
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -5.50% 2.27% --------------------------------------------------------------------
* From the date Class II Shares were first offered for sale (January 8, 2001). The Funds also may, from time to time, quote their yield. Yield is based on historical earnings and is not intended to indicate future performance. The yield of a Fund refers to the income generated by an investment in that Fund over a one-month period (which period will be stated in the sales material). This income is then "annualized." That is, the amount of income generated by the investment during the month is assumed to be generated each month over a 12 month period and is shown as a percentage of the investment. Yield quotations are based on a 30-day (or one month) period, and are computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: a-b Yield = 2 [( ----- +1) (POWER OF 6) - 1] cd 16 Where: a = dividends and interest earned during the period b = expenses accrued for the period (net of reimbursements) c = the average daily number of shares outstanding during the period that were entitled to receive dividends d = the maximum offering price per share on the last day of the period Although they may do so in the future, each Fund typically does not calculate or advertise its yield. The Funds impose no sales charge and pay no distribution ("12b-1") expenses. Performance figures quoted by the Funds are not necessarily indicative of future results. Each Fund's performance is a function of conditions in the securities markets, portfolio management, and operating expenses. 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. The Funds may invest in initial public offerings (IPOs). IPOs and other investment techniques may have a magnified performance impact on a Fund with a small asset base and similar performance may not continue as assets grow. 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. Various newspapers and publications including those listed below may also make mention of a Fund's portfolio managers. Portfolio managers and other members of the Adviser's staff may make presentations at conferences or trade shows, appear on television or radio programs, or conduct or participate in telephone conference calls, and the Funds may announce those presentations, appearances or calls to some or all shareholders, or to potential investors in the Funds. Biographical and other information about a Fund's portfolio managers, including information about awards received by those portfolio managers or mentions of the managers in the media, may also be described or quoted in Fund advertisements or sales literature. William C. Nygren, one of the portfolio managers of Oakmark Select Fund, was named "Morningstar Domestic Stock Manager of the Year for 2001" by Morningstar, Inc. ("Morningstar"). According to Morningstar, the award is presented to a portfolio manager based on, the manager's (i) "ability to generate exceptional returns;" (ii) "willingness to align [his] interests with shareholders;" and (iii) "courage to stay with [his] strategies in order to produce superior risk-adjusted returns in the end." 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 17 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 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 - ---------- * With dividends reinvested. 18 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 Balanced Fund 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-Cap Growth Index; Lipper Small-Cap Value Index; Lipper Small-Cap Core Index; Lipper Small Cap Fund Index; and Lehman Brothers Government/Corporate Bond Index. Each of International Fund, International Small Cap Fund and Global Fund may compare its performance to the following indexes and averages: Lipper International & Global Funds Average; Lipper Global Fund Index; Lipper International Fund Index; Lipper International Equity Funds Average; Micropal International Small Company Fund Index; Morgan Stanley Capital International World ex U.S. Index; Morgan Stanley Capital International EAFE (Europe, Australia and Far East Index); Morningstar Growth Average; Morningstar Small-Cap Funds Average; Morningstar U.S. Diversified Average; Morningstar Equity Fund Average; Morningstar Hybrid Fund Average; Morningstar All Equity Funds Average; Morningstar General Equity Average; and Morningstar International Stock Average. Lipper Indexes and Averages are calculated and published by Lipper, 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. For each Fund with at least a three-year history, Morningstar calculates a Morningstar Rating(TM) metric each month by subtracting the return on a 90-day U.S. Treasury Bill from the Fund's load-adjusted return for the same period, and then adjusting this excess return for risk. The top 10% of funds in each broad asset class receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating is derived from a weighted average of the performance figures associated with the Fund's three-, five- and ten-year (if applicable) Morningstar Rating metrics. 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 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, profiles 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. 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: 19
FUND FEE ---- -------------------------------------------------- Oakmark 1.00% up to $2.0 billion; .90% on the next $1.0 billion; .80% on the next $2.0 billion; and .75% on net assets in excess of $5.0 billion Select 1.00% up to $1.0 billion; .95% on the next $500 million; .90% on the next $500 million; .85% on the next $500 million; .80% on the next $2.5 billion; and .75% on net assets in excess of $5.0 billion Small Cap 1.00% Equity and Income .75% Global 1.00% International 1.00% up to $2.0 billion; .95% on the next $1.0 billion; and .85% on net assets in excess of $3 billion International Small 1.25% up to $500 million; and 1.10% on net Cap assets in excess of $500 million
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.
TYPE OF YEAR ENDED YEAR ENDED YEAR ENDED FUND PAYMENT SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------------------------- Oakmark Advisory fee $ 34,848,853 $ 25,662,135 $ 28,116,035 Select Advisory fee 40,838,462 27,774,016 15,325,113 Small Cap Advisory fee 4,121,533 2,490,470 3,683,621 Reimbursement -- -- 252,000 Equity and Income Advisory fee 12,099,581 1,591,905 410,864 Global Advisory fee 1,333,497 387,377 267,710 Reimbursement -- 20,815 55,500 International Advisory fee 12,048,977 8,269,717 7,849,938 International Small Cap Advisory fee 3,860,436 1,238,024 1,451,394
The Agreement for each Fund was for an initial term that expired on October 31, 2001. Each Agreement continues 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 60 days' written notice, and automatically terminates in the event of its assignment as defined in the 1940 Act. At a meeting of the board of trustees of the Trust held on October 16, 2002, called in part for the purpose of voting on the renewal of the Agreements, the Agreements were renewed through October 31, 2003 by the unanimous vote of the trustees present at the meeting, and the unanimous vote of the "non-interested" trustees of the Trust voting separately. The trustees considered information about, among other things: - the Adviser and its personnel (including particularly those personnel with responsibilities for providing services to the Funds), resources and investment processes; - the terms of each Agreement; - the scope and quality of services that the Adviser has been providing to the Funds; 20 - the investment performance of each Fund and of comparable funds managed by other advisers over various periods; - the advisory fee rates payable by each Fund to the Adviser and by comparable funds managed by other advisers; - the total expense ratio of each Fund and of comparable funds managed by other advisers; - the compensation payable by the Funds to affiliates of the Adviser for other services; - the profitability of the Adviser and its affiliates from their relationships with the Funds; and - the Adviser's use of the Funds' portfolio brokerage transactions to obtain research benefiting the Funds or other clients of the Adviser at a cost that may be in excess of the amount other brokers would charge. The Adviser is a limited partnership managed by its general partner, Harris Associates, Inc. ("HAI"), whose directors are Robert M. Levy, Anita M. Nagler, John R. Raitt, Kristi L. Rowsell, G. Neal Ryland and Peter S. Voss. Mr.Raitt is the president and chief executive officer of HAI. HAI is a wholly-owned subsidiary of CDC IXIS Asset Management North America, L.P. ("CDC IXIS AMNA"). CDC IXIS AMNA owns 99.67% of the limited partnership interests in the Adviser and, through its wholly-owned subsidiary, CDC IXIS Asset Management Holdings, Inc. ("CDC IXIS Holdings"), all of the outstanding shares of HAI. CDC IXIS AMNA is a limited partnership that owns investment management and related firms, including CDC IXIS Asset Management Services, Inc., the Funds' transfer agent. CDC IXIS AMNA is an indirect wholly owned subsidiary of CDC IXIS Asset Management ("CDC AM"), which in turn is owned by CDC IXIS, a direct and indirect subsidiary of France's Caisse de Depots et Consignations ("CDC"). Founded in 1816, CDC is a major diversified financial institution with a strong global presence in the banking, insurance, investment banking, asset management and global custody industries. CDC owns approximately 44% of CDC IXIS directly and 53% of CDC IXIS indirectly through its subsidiaries Eulia and Caisse Nationale des Caisses D'Epargne. CDC owns 50% of Eulia and 35% of Caisse Nationale des Caisses D'Epargne, which itself owns 50% of Eulia. Eulia owns 53% of CDC IXIS, which owns 80% of CDC IXIS AM. In addition to its ownership of CDC IXIS AM through CDC IXIS, CDC owns approximately 40% of CNP Assurances, a leading French insurance company, which itself owns 20% of CDC IXIS AM. The main place of business of CDC AM is 7, place des Cinq Martyrs du Lycee Buffon, 75015 Paris, France. The registered address of CDC IXIS is 56, rue de Lille, 75007 Paris, France. The registered address of CNP Assurances is 4, place Raoul Dautry, 75015 Paris, France. The registered address of Caisse National des Caisses d'Epargne is 5, rue Masseran, 75007 Paris, France. The Adviser has contractually agreed to reimburse Class I Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class I Shares: 1.50% in the case of Oakmark Fund, Select Fund or Small Cap Fund; 1.00% in the case of Equity and Income Fund; 1.75% in the case of Global Fund; and 2.00% in the case of International Fund and International Small Cap Fund. The Adviser has also contractually agreed to reimburse Class II Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class II Shares: Oakmark Fund, Select Fund or Small Cap Fund, 1.75% (1.50% + .25%); Equity and Income Fund, 1.25% (1.00% + .25%); Global Fund, 2.00% (1.75% + .25%); and International Fund and International Small Cap Fund, 2.25% (2.00% + .25%). Each such agreement is effective through January 31, 2004. For the purpose of determining whether a share class of a Fund is entitled to any reduction in advisory fee or expense reimbursement, the pro rata portion of the Fund's expenses attributable to a share class of that Fund is calculated daily and any reduction in fee or reimbursement is made monthly. CODE OF ETHICS The 1940 Act and rules thereunder require that the Trust, the Adviser and the Funds' distributor, Harris Associates Securities L.P. ("HASLP"), establish standards and procedures for the detection and prevention of certain conflicts of interest, including activities by which persons having knowledge of the investments and investment intentions of the Trust might take advantage of that knowledge for their own benefit. The Trust, the Adviser and HASLP have adopted codes of ethics to meet those concerns and legal requirements. Although the codes do not prohibit employees who have knowledge of the investments and investment intentions of any of the 21 Funds from engaging in personal securities investing, it does regulate such personal securities investing by these employees as a part of the effort by the Trust, the Adviser and HASLP to detect and prevent conflicts of interest. TRUSTEES AND OFFICERS The board of trustees has overall responsibility for the Funds' operations. Each of the trustees and officers serves until the election and qualification of his or her successor, or until he or she sooner dies, resigns, or is removed or disqualified. The retirement age for trustees is 72. Information regarding the trustees and officers of the Trust including their principal business activities during the past five years is set forth below: 22 TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE TRUST
NUMBER OF DATE FIRST PRINCIPAL PORTFOLIOS OTHER ELECTED OR OCCUPATION(S) IN FUND DIRECTORSHIPS NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING OVERSEEN HELD BY DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE - ---------------------------- ------------------ -------------- ----------------------- ---------- ------------- VICTOR A. MORGENSTERN, 60 Trustee and 1991 Chairman of the 7 None Chairman of the Board, HAI, 1996 - Board of Trustees 2000 and President and Chief Executive Officer prior thereto; Chairman, Harris Partners, L.L.C., 1995 - 2000 MICHAEL J. FRIDUSS, 60 Trustee 1995 Principal, MJ Friduss & 7 None Associates, Inc. (telecommunications consultants) THOMAS H. HAYDEN, 51 Trustee 1995 Executive Vice 7 None President, Campbell Mithun (advertising) CHRISTINE M. MAKI, 42 Trustee 1996 Vice President--Tax, 7 None Hyatt Corporation (hotel management) ALLAN J. REICH, 54 Trustee 1993 Vice Chairman, 7 None D'Ancona & Pflaum LLC (attorneys) MARV R. ROTTER, 56 Trustee 1996 President - Central 7 None Region, AXA Advisors, LLC (formerly named Rotter & Associates), since 1999, and General Manager prior thereto (financial services) BURTON W. RUDER, 58 Trustee 1995 President, The 7 None Academy Group (venture capital investments and transaction financing; Manager, Cedar Green Associates (owns and manages real estate) GARY N. WILNER, M.D., 62 Trustee 1993 Senior Attending 7 None Physician, Evanston Hospital, and Medical Director - CardioPulmonary Wellness Program, Evanston Hospital Corporation
23 TRUSTEE WHO IS AN INTERESTED PERSON OF THE TRUST
NUMBER OF DATE FIRST PRINCIPAL PORTFOLIOS OTHER ELECTED OR OCCUPATION(S) IN FUND DIRECTORSHIPS NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING OVERSEEN HELD BY DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE - ---------------------------- ------------------ --------------- ----------------------- ---------- ------------- PETER S. VOSS*, 56 Trustee 1995 President and Chief 7 None Executive Officer, CDC IXIS Asset Management North America, L.P., formerly known as Nvest Companies, L.P. and its predecessor firms
OFFICERS OF THE TRUST ROBERT LEVY, 52 President 2001 Chairman, HAI, Chief Investment Officer, HALP, since 2001; President and Chief Executive Officer, HAI, HALP and HASLP, 1997 - 2002; Portfolio Manager, HALP JOHN R. RAITT, 48 Executive Vice 2003 President and Chief President Executive Officer, HAI, HASLP and HALP, since 2003; Chief Operating Officer, HALP 2001- 2002; Director of Research, HALP 1998 - 2002; and Associate Director of Research, HALP, prior thereto JAMES P. BENSON, 45 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Small Cap Fund) HENRY R. BERGHOEF, 53 Vice President and 2000 Director of Domestic Portfolio Manager Research, HALP, (The Oakmark since 2003; Select Fund), Associate Director of Research, 2001 - 2002; Portfolio Manager and Analyst, HALP KEVIN G. GRANT, 38 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Fund)
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DATE FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# - ---------------------------- ------------------ --------------- --------------------- DAVID G. HERRO, 42 Vice President and 1992 Director of Portfolio Manager International (The Oakmark Equities; Portfolio International Fund Manager and Analyst, and The Oakmark HALP International Small Cap Fund) GREGORY L. JACKSON, 36 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP, (The Oakmark since July 1998; Global Fund) Portfolio Manager and Analyst, Yacktman Asset Management Inc., prior thereto JOHN J. KANE, 31 Assistant 1999 Manager - Fund Treasurer Accounting, HALP CLYDE S. MCGREGOR, 50 Vice President and 1995 Portfolio Manager, Portfolio Manager HALP (The Oakmark Small Cap Fund and The Oakmark Equity and Income Fund) ANITA M. NAGLER, 46 Vice President 2001 Managing Director of Alternative & International Investing Group, HAI since 2001; prior thereto, Vice President and General Counsel, HALP; Chief Operating Officer, HALP 1999 - 2001 WILLIAM C. NYGREN, 44 Vice President and 1996 Portfolio Manager Portfolio Manager and Analyst, HALP; (The Oakmark Fund former Director of and The Oakmark Research, HALP Select Fund) JANET L. REALI, 51 Vice President and 2001 Vice President, Secretary General Counsel and Secretary, HAI, HALP and HASLP since 2001; Senior Executive Vice President, General Counsel and Secretary, Everen Capital Corp. and Everen Securities, Inc. 1995-1999 (broker/dealer) ANN W. REGAN, 54 Vice President- 1996 Director of Mutual Shareholder Fund Operations, HALP Operations and Assistant Secretary
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DATE FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# - ---------------------------- ------------------ --------------- --------------------- KRISTI L. ROWSELL, 36 Treasurer 1997 Chief Financial Officer and Treasurer, HAI and HALP, and Chief Financial Officer, HASLP since 1999; Assistant Treasurer, HALP, prior thereto EDWARD A. STUDZINSKI, 53 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Equity and Income Fund) MICHAEL J. WELSH, 39 Vice President and 1997 Director of Portfolio Manager International (The Oakmark Equities; Portfolio Global Fund, The Manager and Analyst, Oakmark HALP International Fund and The Oakmark International Small Cap Fund)
- ---------- + Unless otherwise noted, the business address of each officer and trustee listed in the table is Two North LaSalle Street, Suite 500, Chicago, Illinois 60602-3790. # As used in this table, "HALP," "HAI" and "HASLP" refer to the Adviser, the general partner of the Adviser, and the Fund's distributor, respectively. * Mr. Voss is a trustee who is an "interested person" of the Trust as defined in the 1940 Act because he is an officer of the Adviser's parent company. There are several committees of the board of trustees including an executive committee, audit committee, governance committee and management contracts committee. The following table identifies the members of these committees, the function of each committee, and the number of meetings of each committee held during the fiscal year ended September 30, 2002.
NUMBER OF MEETINGS MEMBERS OF DURING FISCAL YEAR ENDED COMMITTEE COMMITTEE SEPTEMBER 30, 2002 PRINCIPAL FUNCTIONS OF COMMITTEE - --------- ---------- ------------------------ -------------------------------- EXECUTIVE Victor A. Morgenstern* 12** The executive committee generally has the COMMITTEE Peter S. Voss authority to exercise the powers of the board Gary N. Wilner, M.D. during intervals between meetings. AUDIT Michael J. Friduss 6 The principal responsibilities of the audit COMMITTEE Thomas H. Hayden committee include the following: Christine M. Maki* - to oversee the accounting and financial Allan J. Reich reporting policies and practices of the Trust, its internal controls and, as appropriate, the internal controls of certain service providers; - to oversee the quality and objectivity of the financial statements of the Funds and the independent audits thereof; - to act as liaison between the independent auditors of the Funds and the full board of trustees; and - to oversee the portfolio transaction policies and practices of the Funds.
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NUMBER OF MEETINGS MEMBERS OF DURING FISCAL YEAR ENDED COMMITTEE COMMITTEE SEPTEMBER 30, 2002 PRINCIPAL FUNCTIONS OF COMMITTEE - --------- ---------- ------------------------ -------------------------------- GOVERNANCE Christine M. Maki 4 The governance committee makes recommendations COMMITTEE Victor A. Morgenstern to the board regarding board committees and Allan J. Reich committee assignments, the composition of the Burton W. Ruder* board, candidates for election as Gary N. Wilner, M.D. non-interested trustees and compensation of non-interested trustees, and oversees the process for evaluating the functioning of the board. MANAGEMENT Michael J. Friduss* 6 The committee on management contracts is CONTRACTS Thomas H. Hayden responsible for reviewing in the first COMMITTEE Victor A. Morgenstern instance, and making recommendations to the Marv R. Rotter board regarding, investment advisory agreements Burton W. Ruder and any other agreements relating to the management or administration of any Fund of the Trust.
* Chairperson of the committee. ** The executive committee held one meeting and took action by unanimous written consent of the committee members eleven times. The following table shows the compensation paid by the Trust for the fiscal year ended September 30, 2002 to each trustee who was not an "interested person" of the Trust:
AGGREGATE AVERAGE COMPENSATION COMPENSATION NAME OF TRUSTEE FROM THE TRUST* PER FUND --------------- --------------- ------------ Victor A. Morgenstern $ 133,800 $ 19,114 Michael J. Friduss 92,000 13,143 Thomas H. Hayden 90,200 12,886 Christine M. Maki 89,800 12,829 Allan J. Reich 87,800 12,543 Marv R. Rotter 69,300 9,900 Burton W. Ruder 89,800 12,829 Gary N. Wilner, M.D. 80,000 11,429
- ---------- * The Trust is not part of a fund complex. ** Includes compensation that was deferred pursuant to a deferred compensation plan. As of September 30, 2002, the total amounts accrued under the plan were $241,480 for Mr. Friduss, $185,744 for Mr. Hayden, $175,395 for Ms. Maki, $183,558 for Mr. Rotter, $233,735 for Mr. Ruder and $228,047 for Dr. Wilner. 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. The Trust has a deferred compensation plan (the "Plan") that permits any trustee who is not an "interested person" of the Trust to elect to defer receipt of all or a portion of his or her compensation as a trustee for two or more years. The deferred compensation of a participating trustee is credited to a book reserve account of the Trust when the compensation would otherwise have been paid to the trustee. The value of the trustee's deferral account at any time is equal to the value that the account would have had if contributions to the account had been invested and reinvested in shares of one or more of the Oakmark Funds or the Goldman Sachs Institutional Liquid Assets Government Portfolio as designated by the trustee. At the time for commencing distributions from a trustee's deferral account, which is no later than when the trustee ceases to be a member of the board of trustees, the trustee may elect to receive distributions in a lump sum or over a period of five years. Each Fund's obligation to 27 make distributions under the Plan is a general obligation of that Fund. No Fund will be liable for any other Fund's obligations to make distributions under the Plan. The following table illustrates the dollar range of any equity securities "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the Securities Exchange Act of 1934) by the trustees of the Trust in any of the Funds of the Trust. The dollar range for the securities represented in the table was determined using the net asset value of a share of each Fund as of December 31, 2002.
SMALL EQUITY AND INTERNATIONAL OAKMARK SELECT CAP INCOME GLOBAL INTERNATIONAL SMALL CAP TRUSTEE FUND FUND FUND FUND FUND FUND FUND - ------------------- ---------- ---------- ---------- ---------- ---------- ------------- ------------- VICTOR A. over over over $1 - over over over MORGENSTERN $100,000 $100,000 $100,000 $10,000 $100,000 $100,000 $100,000 MICHAEL J. FRIDUSS over over $10,001 - $50,001 - $50,001 - $1 - $10,001 - $100,000 $100,000 $50,000 $100,000 $100,000 $10,000 $50,000 THOMAS H. HAYDEN $10,001 - $50,001 - none $10,001 - $10,001 - none none $50,000 $100,000 $50,000 $50,000 CHRISTINE M. MAKI $10,001 - $50,001 - $10,001 - $10,001 - $1 - $10,001 - $10,001 - $50,000 $100,000 $50,000 $50,000 $10,000 $50,000 $50,000 ALLAN J. REICH $50,001 - over $1 - $50,001 - $10,001 - $10,001 - $1 - $100,000 $100,000 $10,000 $100,000 $50,000 $50,000 $10,000 MARVIN R. ROTTER none over none none none none none $100,000 BURTON W. RUDER none none none none over over over $100,000 $100,000 $100,000 PETER S. VOSS over over $50,001 - none none over $50,001 - $100,000 $100,000 $100,000 $100,000 $100,000 GARY N. WILNER, over $50,001 - $50,001 - $1 - $10,001 - $50,001 - $10,001 - M.D. $100,000 $100,000 $100,000 $10,000 $50,000 $100,000 $50,000
At December 31, 2002 the trustees and officers as a group owned beneficially less than 1% of the outstanding Class II shares of each Fund and Class I shares of Oakmark Fund, Small Cap Fund, Equity and Income Fund and International Fund and the following percentages of the outstanding Class I shares of each of the other Funds: Select, 1.10%; Global, 4.11%; and International Small Cap, 2.13%. 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, 2002 were:
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ------------------------- Charles Schwab & Co. Inc.(1) Oakmark, Class I 26.69% 101 Montgomery Street Select, Class I 28.52 San Francisco, CA 94104-4122 Small Cap, Class I 27.12 Equity and Income, Class I 41.62 International, Class I 41.66 International Small Cap, Class I 43.24 Global, Class I 29.54
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PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ------------------------- Connecticut General Life Insurance Co.(1) Select, Class II 11.62% 280 Trumbull Street Hartford, CT 06103-3509 Fidelity Investments Inst. Operations(1) Select, Class 1 7.11% 100 Magellan Way #KW1C Covington, KY 41015-1999 Great West Life Annuity Insurance Co.(1) Select, Class II 6.73% 8515 East orchard Road International, Class II 26.65 Greenwood Village, CO 80111-5037 Merrill Lynch Pierce Fenner & Smith Inc.(1) Oakmark, Class II 79.66% 4800 Deer Lake Drive E., 3rd Floor Select, Class II 47.66 Jacksonville, FL 32246-6484 Small Cap, Class II 100.00 Equity and Income, Class II 78.94 International, Class II 65.74 International Small Cap, Class II 44.55 Global, Class II 48.74 Metlife Trust Company NA(1) Select, Class II 7.23% 2 Montgomery Street, 3rd Floor Equity and Income, Class II 9.11 Jersey City, NJ 07302-3802 National Financial Services Corp.(1) Oakmark, Class I 21.08% P.O. Box 3908 Select, Class I 16.64 Church Street Station Small Cap, Class I 16.23 New York, NY 10008-3908 Equity and Income, Class I 19.61 International, Class I 11.71 International Small Cap, Class I 17.48 National Financial Services Corp.(1) Select, Class II 10.87% 200 Liberty Street International Small Cap, Class II 54.86 One World Financial Center New York, NY 10281-1003 National Investor Services Corp.(1) Global, Class I 5.98% 55 Water Street, Floor 32 New York, NY 10041-0026 Nationwide Trust Company, FSB(1) Oakmark, Class II 18.46% PO Box 182029 Global, Class II 50.42 Columbus, OH 43218-2029 Northern Trust C/F(1) Global, Class I 5.23% Muriel M. Kauffman Foundation 26-13343 PO Box 92956 Chicago, IL 60675-2956 Reliance Trust Co.(1) Select, Class II 12.35% FBO MetLife Defined Contribution Group 2 Montgomery Street, 3rd Floor Jersey City, NJ 07302-3803
(1) Shares are held for accounts of customers. 29 PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the Funds' prospectus under the headings "Investing with The Oakmark Family of Funds," "How to Buy Class I Shares," "How to Sell Class I Shares" and "Shareholder Services." NET ASSET VALUE The net asset value per Class I Share or per Class II Share of each Fund is determined by the Trust's custodian. The net asset value of Class I Shares of a Fund is determined by dividing the value of the assets attributable to Class I Shares of the Fund, less liabilities attributable to that class, by the number of Class I Shares outstanding. Similarly, the net asset value of Class II Shares of a Fund is determined by dividing the value of the assets attributable to Class II Shares of the Fund, less liabilities attributable to that class, by the number of Class II Shares outstanding. 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 or under the direction of the board of trustees. The Funds' net asset values are determined only on days on which the New York Stock Exchange (the "NYSE") 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 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, International Small Cap Fund or Global 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 NYSE is restricted, as determined by the SEC, or that exchange is closed for other than customary weekend and holiday closings, (b) the SEC has by order permitted such suspension, or (c) an emergency, as determined by the SEC, exists making disposal of portfolio securities or valuation of the net assets of a Fund not reasonably practicable. SHARES PURCHASED THROUGH INTERMEDIARIES Class I Shares of any of the Funds may be purchased through certain financial service companies, who are agents of the Funds for the limited purpose of completing purchases and sales. 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 0.35% 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. To buy and sell Class II Shares, you must do so through an intermediary, such as a broker-dealer, bank, retirement plan service provider or retirement plan sponsor ("Intermediary"). The Intermediary accepts purchase and sale orders for Class II Shares as an authorized agent of the Trust pursuant to a written agreement. The Intermediary is required to segregate any orders received on a business day after the close of regular session 30 trading on the NYSE and transmit those orders separately for execution at the net asset value next determined after that business day. Purchases through Intermediaries that are authorized agents of the Trust are made at the net asset value next determined after receipt and acceptance of the orders by such Intermediaries. 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 and acceptance of your order by the Trust's transfer agent. The Trust reserves the right to waive minimum balance requirements for purchases made through Intermediaries. REDEMPTION IN KIND Each Fund 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 those amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of marketable securities. Brokerage costs may be incurred by a shareholder who receives securities and desires to convert them to cash. REDEMPTION OF SMALL ACCOUNTS Due to the relatively high cost of maintaining small accounts, each Fund reserves the right to redeem at net asset value the shares of any shareholder whose account in the Fund has a value as a result of redemptions 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. 90-DAY REDEMPTION FEE - CLASS I SHARES Each Fund except Oakmark Fund and Equity and Income Fund imposes a short-term trading fee on redemptions of Class I Shares held for 90 days or less to offset two types of costs to the Fund caused by short-term trading: portfolio transaction and market impact costs associated with erratic redemption activity and administrative costs associated with processing redemptions. The fee is 2% of the redemption value and is deducted from the redemption proceeds. The "first-in, first-out" (FIFO) method is used to determine the holding period, which means that if you bought shares on different days, the shares purchased first will be redeemed first for purposes of determining whether the short-term trading fee applies. No Fund imposes a redemption fee on a redemption of: - shares acquired by reinvestment of dividends or distributions of a Fund; or - shares held in an account of certain retirement plans or profit sharing plans or purchased through certain Intermediaries. MONEY MARKET EXCHANGE FUND The Adviser acts as a Service Organization for the Institutional Liquid Assets Service Units ("Units") of the Government Portfolio of Goldman Sachs Trust, which Units may be purchased directly or by exchanging shares of a Fund. For its services, the Adviser receives fees at a rate of .50% of the average annual net assets of the portfolio, pursuant to a 12b-1 plan adopted by the Goldman Sachs Trust. MUTUAL FUND ANTI-MONEY LAUNDERING DISCLOSURE The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, a Fund may be required to "freeze" the account of a shareholder if the shareholder appears to be involved in suspicious activity or if certain account information matches information on government lists of known terrorists or other suspicious persons, or the Fund may be required to transfer the account or proceeds of the account to a government agency. 31 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 any of these Funds will be increased; if the result is a loss, the income dividend paid by any of these Funds will be decreased. Income received by a 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. International Fund, International Small Cap Fund and Global Fund intend to meet the requirements of the Code to "pass through" to their shareholders foreign income taxes paid, but there can be no assurance that they 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. DISTRIBUTOR Shares of the Funds are offered for sale by Harris Associates Securities L.P. without any sales commissions, 12b-1 fees, or other charges to the Funds or their shareholders. HASLP is an affiliate of the Adviser. All distribution expenses relating to the Funds are paid by the Adviser, including the payment or reimbursement of any expenses incurred by HASLP. The Distribution Agreement was for an initial term that expired January 1, 2002 and continues in effect from year to year thereafter provided such continuance is approved annually (i) by a majority of the trustees or by a majority of the outstanding voting securities of the Funds and (ii) by a majority of the trustees who are not parties to the Distribution Agreement or interested persons of any such party. The Trust has agreed to pay all expenses in connection with registration of its shares with the SEC and any auditing and filing fees required in compliance with various state securities laws. The Adviser bears all sales and promotional expenses, including the cost of prospectuses and other materials used for sales and promotional purposes by HASLP. HASLP offers the Funds' shares only on a best efforts basis. HASLP is located at Two North LaSalle Street, Chicago, Illinois 60602-3790. 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 32 transaction or over a period of time. Subject to that standard, portfolio transactions for each Fund may be executed through 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 also has adopted procedures that are reasonably designed to provide that any commission, fee or other remuneration paid to HASLP is consistent with the foregoing standard. The Funds will not effect principal transactions with HASLP. In executing transactions 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. 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.
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ------------------ ------------------ ------------------ Oakmark Fund Aggregate commissions $ 6,781,317 $ 6,311,185 $ 7,645,100 Commissions paid to affiliate 1,944,752 2,113,214 2,765,022 Percentage of aggregate commissions paid to affiliate* 28.7% 33.5% 36.2%
33 Select Fund Aggregate commissions 7,103,618 4,322,185 4,102,031 Commissions paid to affiliate 1,010,255 1,343,463 1,112,365 Percentage of aggregate commissions paid to affiliate* 14.2% 31.0% 27.1% Small Cap Fund Aggregate commissions 653,272 461,236 646,845 Commissions paid to affiliate 72,603 133,319 233,479 Percentage of aggregate commissions paid to affiliate* 11.1% 28.9% 36.1% Equity and Income Fund Aggregate commission 4,727,984 988,715 173,265 Commissions paid to affiliate 789,756 447,443 100,258 Percentage of aggregate commissions paid to affiliate* 16.7% 45.3% 57.9% Global Fund Aggregate commissions 896,555 228,526 211,245 Commissions paid to affiliate 197,233 51,708 87,377 Percentage of aggregate commissions paid to affiliate* 22.0% 22.6% 41.4% International Fund Aggregate commissions 3,824,992 2,608,018 2,853,134 Commissions paid to affiliate -- -- -- Percentage of aggregate commissions paid to affiliate* -- -- -- International Small Cap Fund Aggregate commissions 1,687,897 408,886 404,559 Commissions paid to affiliate -- -- -- Percentage of aggregate commissions paid to affiliate* -- -- --
- ---------- * The percent of the dollar amount of each Fund's aggregate transactions involving the payment of brokerage commissions that were executed through the affiliate for each of the periods is shown below.
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED FUND SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ---- ------------------ ------------------ ------------------- Oakmark 31.4% 40.6% 67.4% Select 18.2 33.6 56.3 Small Cap 4.6 24.3 36.9 Equity and Income 9.8 26.7 51.4 Global 20.3 24.2 56.3 International - - - International Small Cap - - -
Most options transactions are executed by non-affiliated brokers but are processed through the affiliate. The affiliate remits the commission on those transactions to the executing broker and does not retain any portion thereof. Such commissions are not included in commissions paid to affiliates. For the fiscal year ended September 30, 2002, those commission amounts were: Oakmark Fund, $422,165; Select Fund, $228,979; Small Cap Fund, $17,040; Equity and Income Fund, $186,516; and Global Fund, $74,035; and the aggregate dollar amounts involved in those transactions for the respective Funds were: $20,073,951; $10,960,499; $941,486; $6,730,964; and $3,310,379, respectively. For the fiscal year ended September 30, 2001, those commission amounts were: Oakmark Fund, $51,750; Select Fund, $3,000; Small Cap Fund, $40,609; and Global Fund, $750; and the aggregate dollar amounts involved in those transactions for the respective Funds were: $1,704,540; 34 $155,121; $1,595,761; and $107,500, respectively. For the fiscal year ending September 30, 2000, there were no such transactions. Of the aggregate brokerage transactions during the year ended September 30, 2002, the Funds paid the following commissions on transactions directed to brokers because of research services they provided: Oakmark Fund, $875,102; Select Fund, $1,104,925; Small Cap Fund, $62,512; Equity and Income Fund, $656,153; Global Fund, $113,355; International Fund, $757,989; and International Small Cap Fund, $372,599; and the aggregate dollar amounts involved in those transactions for the respective Funds were $422,830,659, $424,340,551, $19,541,142, $303,692,792, $41,473,612, $276,760,905 and $110,118,237, respectively. There were substantial increases in the aggregate commissions paid by all of the Funds except Oakmark Fund for the fiscal year ended September 30, 2002 as compared to the fiscal year ended September 30, 2001. In the case of Small Cap Fund, Equity and Income Fund, Global Fund, International Fund and International Small Cap Fund, those increases in aggregate commissions resulted primarily from substantial increases in net assets from Fund share transactions. In the case of Select Fund, the increase in aggregate commissions resulted primarily from an increase in the portfolio turnover rate. For Select Fund, Small Cap Fund, and Equity and Income Fund, the percentage of aggregate commissions paid to the affiliate decreased substantially for the fiscal year ended September 30, 2002 as compared to the fiscal year ending September 30, 2001. Those decreases resulted primarily from increased market volatility during the fiscal year ended September 30, 2002, which necessitated more frequent use of large, non-affiliated brokers with specific expertise and abilities to facilitate best execution of particular transactions. 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 the Adviser makes investment decisions for the Funds independently from those for other investment advisory clients of the Adviser, it may occur that the same investment decision is made for both a Fund and one or more other advisory clients. If both a Fund and another client 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 over time. 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." DECLARATION OF TRUST The 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 Trust and the Adviser believe that the risk to any one series of sustaining a loss on account of liabilities incurred by another series is remote. CUSTODIAN AND TRANSFER AGENT Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, P.O. Box 9130, Boston, Massachusetts 02117-9130, is the custodian for the Trust and, as such, performs certain services for the Funds as directed by authorized persons of the Trust. For example, as custodian, IBT is responsible for holding all securities and cash of each Fund, receiving and paying for securities purchased, delivering against payment securities sold, receiving and 35 collecting income from investments and making all payments covering expenses of the Funds. IBT also performs certain portfolio accounting and administrative services for the Funds, such as monitoring each Fund's compliance with its investment guidelines, testing each Fund's compliance with Subchapter M of the Internal Revenue Code, calculating each Fund's periodic dividend rates and total returns, preparing certain tax forms, preparing financial information for presentation to the Adviser, the Trust's board of trustees and each Fund's shareholders and for filing with the Securities and Exchange Commission, and calculating each Fund's excise tax distributions. Each Fund pays the custodian a monthly fee for the provision of such services. 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 law. The Funds may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. CDC IXIS Asset Management Services, Inc. ("CIS"), an affiliate of the Adviser, 399 Boylston Street, 5th Floor, Boston, Massachusetts 02116, performs transfer agency services for the Funds. CIS maintains shareholder accounts and prepares and mails shareholder account statements, processes shareholder transactions, mails shareholders reports, prepares and mails distribution payments, maintains records of Fund transactions and provides blue sky reporting services. The Trust pays CIS for its services based on the number of open shareholder accounts. INDEPENDENT AUDITORS Deloitte & Touche LLP, 180 N. Stetson Avenue, Chicago, IL 60601-6779, audits and reports on the Funds' 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. 36 APPENDIX A -- 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, a division of The McGraw-Hill Companies ("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. 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. A-1 RATINGS BY S&P: 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. A-2 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.5% FOOD & BEVERAGE--6.4% General Mills, Inc. 1,755,000 $ 77,957,100 Kraft Foods Inc. 1,895,000 69,091,700 H.J. Heinz Company 1,910,000 63,736,700 ------------------- 210,785,500 HOUSEHOLD PRODUCTS--2.4% The Clorox Company 1,390,200 $ 55,858,236 Newell Rubbermaid, Inc. 775,000 23,924,250 ------------------- 79,782,486 OTHER CONSUMER GOODS & SERVICES--7.8% H&R Block, Inc. 2,453,300 $ 103,063,133 Fortune Brands, Inc. 1,645,600 77,820,424 Mattel, Inc. 3,216,300 57,925,563 Cendant Corporation (a) 1,895,100 20,391,276 ------------------- 259,200,396 BROADCASTING & PROGRAMMING--2.5% Liberty Media Corporation, Class A (a) 8,201,400 $ 58,886,052 The Walt Disney Company 1,500,000 22,710,000 ------------------- 81,596,052 BUILDING MATERIALS & CONSTRUCTION--1.9% Masco Corporation 3,133,000 $ 61,250,150 CABLE SYSTEMS & SATELLITE TV--6.2% AOL Time Warner Inc. (a) 6,766,600 $ 79,169,219 General Motors Corporation, Class H (Hughes Electronics Corporation) (a) 5,100,000 46,665,000 EchoStar Communications Corporation (a) 2,475,000 42,817,500 Comcast Corporation (a) 1,800,000 37,548,000 ------------------- 206,199,719 HARDWARE--2.1% The Black & Decker Corporation 1,622,200 $ 68,018,846 MARKETING SERVICES--1.5% The Interpublic Group of Companies, Inc. 3,165,000 $ 50,165,250 PUBLISHING--3.5% Gannett Co., Inc. 884,500 $ 63,843,210 Knight-Ridder, Inc. 916,000 51,671,560 ------------------- 115,514,770 RECREATION & ENTERTAINMENT--1.1% Carnival Corporation 1,500,000 $ 37,650,000
B-1
NAME SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.5% (CONT.) RETAIL--14.3% Yum! Brands, Inc (a) 2,439,000 $ 67,584,690 J.C. Penney Company, Inc. 3,902,900 62,134,168 The Kroger Co. (a) 4,390,000 61,899,000 McDonald's Corporation 3,300,000 58,278,000 Safeway Inc. (a) 2,527,000 56,352,100 The Home Depot, Inc. 2,100,000 54,810,000 CVS Corporation 1,605,000 40,686,750 The Gap, Inc. 3,599,000 39,049,150 Toys `R' Us, Inc. (a) 3,125,000 31,812,500 ------------------- 472,606,358 BANK & THRIFTS--5.8% Washington Mutual, Inc. 3,937,300 $ 123,906,831 U.S. Bancorp 3,700,000 68,746,000 ------------------- 192,652,831 INSURANCE--1.8% MGIC Investment Corporation 1,437,900 $ 58,709,457 OTHER FINANCIAL--2.1% Fannie Mae 1,170,000 $ 69,661,800 MEDICAL PRODUCTS--2.4% Guidant Corporation (a) 2,396,100 $ 77,417,991 PHARMACEUTICALS--10.6% Bristol-Myers Squibb Company 3,250,000 $ 77,350,000 Abbott Laboratories 1,850,000 74,740,000 Merck & Co., Inc. 1,600,000 73,136,000 Schering-Plough Corporation 3,225,000 68,757,000 Chiron Corporation (a) 1,622,000 56,672,680 ------------------- 350,655,680 TELECOMMUNICATIONS--1.2% Sprint Corporation 4,421,000 $ 40,319,520 TELECOMMUNICATIONS EQUIPMENT--0.9% Motorola, Inc. 2,975,000 $ 30,285,500 COMPUTER SERVICES--4.3% First Data Corporation 2,400,000 $ 67,080,000 SunGard Data Systems, Inc. (a) 2,801,600 54,491,120 Electronic Data Systems Corporation 1,501,000 20,983,980 ------------------- 142,555,100
B-2
SHARES HELD/ NAME PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.5% (CONT.) COMPUTER SYSTEMS--0.9% Sun Microsystems, Inc. (a) 12,000,000 $ 31,080,000 OFFICE EQUIPMENT--1.1% Xerox Corporation (a) 7,427,400 $ 36,765,630 AEROSPACE & DEFENSE--2.3% Honeywell International, Inc. 1,950,000 $ 42,237,000 The Boeing Company 1,000,000 34,130,000 ------------------- 76,367,000 OTHER INDUSTRIAL GOODS & SERVICES--1.1% Illinois Tool Works Inc. 604,200 $ 35,242,986 WASTE DISPOSAL--1.8% Waste Management, Inc. 2,574,300 $ 60,032,676 OIL & NATURAL GAS--4.2% ConocoPhillips 1,635,335 $ 75,617,890 Burlington Resources Inc. 1,671,100 64,103,396 ------------------- 139,721,286 ELECTRIC UTILITIES--3.3% TXU Corp. 1,565,000 $ 65,276,150 Duke Energy Corporation 2,220,000 43,401,000 ------------------- 108,677,150 TOTAL COMMON STOCKS (COST: $3,433,430,323) 3,092,914,134 SHORT TERM INVESTMENTS--6.4% U.S. GOVERNMENT BILLS--4.8% United States Treasury Bills, 1.58% - 1.665% due 10/3/2002 - 11/29/2002 $160,000,000 $ 159,873,818 TOTAL U.S. GOVERNMENT BILLS (COST: $159,870,861) 159,873,818
B-3
NAME PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--6.4% (CONT.) REPURCHASE AGREEMENTS--1.6% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $50,002,431 collateralized by U.S. Government Agency Securities $50,000,000 $ 50,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,886,022 collateralized by a U.S. Government Agency Security 1,885,964 1,885,964 -------------- TOTAL REPURCHASE AGREEMENT (COST: $51,885,964) 51,885,964 TOTAL SHORT TERM INVESTMENTS (COST: $211,756,825) 211,759,782 Total Investments (Cost $3,645,187,148)--99.9% $3,304,673,916 Other Assets In Excess Of Other Liabilities--0.1% 4,007,917 -------------- TOTAL NET ASSETS--100% $3,308,681,833 ==============
(a) Non-income producing security. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-4 THE OAKMARK SELECT FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - --------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% OTHER CONSUMER GOODS & SERVICES--13.1% H&R Block, Inc. 7,738,800 $ 325,106,988 Mattel, Inc. 9,554,000 172,067,540 ------------------- 497,174,528 CABLE SYSTEMS & SATELLITE TV--4.0% AOL Time Warner Inc. (a) 13,000,000 $ 152,100,000 INFORMATION SERVICES--9.8% Moody's Corporation 3,984,000 $ 193,224,000 The Dun & Bradstreet Corporation (a)(b) 5,321,300 178,848,893 ------------------- 372,072,893 PUBLISHING--3.9% Knight-Ridder, Inc. 2,606,500 $ 147,032,665 RETAIL--16.5% Yum! Brands, Inc (a) 7,422,000 $ 205,663,620 The Kroger Co. (a) 10,362,500 146,111,250 Office Depot, Inc. (a) 11,434,900 141,106,666 Toys `R' Us, Inc. (a)(b) 12,698,500 129,270,730 ------------------- 622,152,266 BANK & THRIFTS--17.8% Washington Mutual, Inc. 21,351,400 $ 671,928,558 INVESTMENT MANAGEMENT--2.9% Stilwell Financial Inc 9,030,400 $ 108,996,928 HEALTH CARE SERVICES--4.1% IMS Health Incorporated 10,392,000 $ 155,568,240 PHARMACEUTICALS--4.4% Chiron Corporation (a) 4,811,400 $ 168,110,316 TELECOMMUNICATIONS--3.3% Sprint Corporation 13,727,500 $ 125,194,800 COMPUTER SERVICES--5.3% First Data Corporation 5,430,400 $ 151,779,680 Electronic Data Systems Corporation 3,451,500 48,251,970 ------------------- 200,031,650 OFFICE EQUIPMENT--2.8% Xerox Corporation (a) 21,547,700 $ 106,661,115
B-5
SHARES HELD/ NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% (CONT.) OIL & NATURAL GAS--4.3% Burlington Resources Inc. 4,201,800 $ 161,181,048 TOTAL COMMON STOCKS (COST: $3,372,614,639) 3,488,205,007 SHORT TERM INVESTMENTS--7.4% U.S. GOVERNMENT BILLS--4.1% United States Treasury Bills, 1.58% - 1.975% due 10/3/2002 - 12/12/2002 $155,000,000 $ 154,792,889 TOTAL U.S. GOVERNMENT BILLS (COST: $154,782,375) 154,792,889 REPURCHASE AGREEMENTS--3.3% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $121,005,882 collateralized by U.S. Government Agency Securities $121,000,000 $ 121,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $2,118,317 collateralized by a U.S. Government Agency Security 2,118,252 2,118,252 ------------------- TOTAL REPURCHASE AGREEMENT (COST: $123,118,252) 123,118,252 TOTAL SHORT TERM INVESTMENTS (COST: $277,900,627) 277,911,141 Total Investments (Cost $3,650,515,266)--99.6% $ 3,766,116,148 Other Assets In Excess Of Other Liabilities--0.4% 15,936,183 ------------------- TOTAL NET ASSETS--100% $ 3,782,052,331 ===================
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-6 THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.7% FOOD & BEVERAGE--6.3% Ralcorp Holdings, Inc. (a) 579,000 $ 12,315,330 Del Monte Foods Company (a) 1,230,000 10,049,100 ---------------- 22,364,430 HOUSEHOLD PRODUCTS--3.9% Tupperware Corporation 850,000 $ 14,127,000 OTHER CONSUMER GOODS & SERVICES--5.1% Department 56, Inc. (a)(b) 760,000 $ 7,942,000 Callaway Golf Company 500,000 5,200,000 Central Parking Corporation 250,000 5,035,000 ---------------- 18,177,000 SECURITY SYSTEMS--3.4% Checkpoint Systems, Inc. (a) 1,000,000 $ 12,350,000 APPAREL--3.2% Oakley, Inc. (a) 750,000 $ 7,537,500 R.G. Barry Corporation (a)(b) 900,000 3,744,000 ---------------- 11,281,500 AUTOMOBILE RENTALS--1.5% Dollar Thrifty Automotive Group, Inc. (a) 325,000 $ 5,216,250 BUILDING MATERIALS & CONSTRUCTION--3.0% Insituform Technologies, Inc., Class A (a) 750,000 $ 10,762,500 EDUCATIONAL SERVICES--2.7% ITT Educational Services, Inc. (a) 509,500 $ 9,563,315 HOTELS & MOTELS--1.9% Prime Hospitality Corp. (a) 810,000 $ 6,642,000 INFORMATION SERVICES--3.5% eFunds Corporation (a) 1,327,600 $ 12,454,216 MARKETING SERVICES--0.2% Grey Global Group Inc. 1,000 $ 590,000 RETAIL--3.9% ShopKo Stores, Inc. (a) 740,000 $ 9,664,400 Pathmark Stores Inc (a) 471,500 4,314,225 ---------------- 13,978,625
B-7
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.7% (CONT.) BANK & THRIFTS--5.9% BankAtlantic Bancorp, Inc., Class A 1,000,000 $ 8,980,000 People's Bank of Bridgeport, Connecticut 360,000 8,074,800 PennFed Financial Services, Inc. 150,000 4,123,500 ---------------- 21,178,300 INSURANCE--3.0% The PMI Group, Inc. 400,000 $ 10,884,000 OTHER FINANCIAL--1.9% NCO Group, Inc. (a) 600,000 $ 6,882,000 REAL ESTATE--4.7% Catellus Development Corporation (a) 650,000 $ 11,992,500 Trammell Crow Company (a) 495,000 4,880,700 ---------------- 16,873,200 MEDICAL PRODUCTS--7.4% Hanger Orthopedic Group, Inc. (a) 960,000 $ 15,264,000 CONMED Corporation (a) 350,000 7,052,500 Sybron Dental Specialties, Inc. (a) 300,000 4,197,000 ---------------- 26,513,500 PHARMACEUTICALS--3.4% Pharmaceutical Resources Inc (a) 424,300 $ 11,871,914 Elan Corporation plc (a)(c) 115,000 221,950 ---------------- 12,093,864 COMPUTER SERVICES--3.3% CIBER, Inc. (a) 1,805,000 $ 10,487,050 Interland, Inc. (a) 600,000 1,230,000 ---------------- 11,717,050 COMPUTER SOFTWARE--6.7% Sybase Inc (a) 1,000,000 $ 11,620,000 MSC.Software Corp. (a) 1,100,000 9,372,000 Mentor Graphics Corporation (a) 587,000 2,864,560 ---------------- 23,856,560 COMPUTER SYSTEMS--1.6% Optimal Robotics Corp., Class A (a)(b)(d) 763,500 $ 5,833,140 DATA STORAGE--2.0% Imation Corp. (a) 250,000 $ 7,082,500
B-8
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.7% (CONT.) OFFICE EQUIPMENT--3.7% InFocus Corporation (a) 1,000,000 $ 7,620,000 MCSi, Inc. (a) 1,125,000 5,568,750 ---------------- 13,188,750 INSTRUMENTS--2.3% IDEXX Laboratories, Inc. (a) 255,000 $ 7,891,740 Measurement Specialties, Inc. (a)(e) 550,000 412,500 ---------------- 8,304,240 MACHINERY & INDUSTRIAL PROCESSING--2.1% SureBeam Corporation, Class A (a) 3,100,000 $ 5,580,000 Columbus McKinnon Corporation (a) 365,000 1,919,900 ---------------- 7,499,900 OTHER INDUSTRIAL GOODS & SERVICES--0.7% Integrated Electrical Services, Inc. (a) 650,000 $ 2,431,000 TRANSPORTATION SERVICES--1.6% Teekay Shipping Corporation (d) 203,400 $ 5,796,900 CHEMICALS--2.8% Sensient Technologies Corporation 292,800 $ 6,186,864 H.B. Fuller Company 140,000 3,724,000 ---------------- 9,910,864 OIL & NATURAL GAS--5.0% St. Mary Land & Exploration Company 350,000 $ 8,365,000 Cabot Oil & Gas Corporation 250,000 5,375,000 Berry Petroleum Company 250,000 4,247,500 ---------------- 17,987,500 TOTAL COMMON STOCKS (COST: $404,024,443) 345,540,104
B-9
NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--3.3% REPURCHASE AGREEMENTS--3.3% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $10,000,486 collateralized by U.S. Government Agency Securities $10,000,000 $ 10,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,896,864 collateralized by a U.S. Government Agency Security 1,896,806 1,896,806 ---------------- TOTAL REPURCHASE AGREEMENT (COST: $11,896,806) 11,896,806 TOTAL SHORT TERM INVESTMENTS (COST: $11,896,806) 11,896,806 Total Investments (Cost $415,921,249)--100.0% $ 357,436,910 Other Liabilities In Excess Of Other Assets--0.0% (42,821) ---------------- TOTAL NET ASSETS--100% $ 357,394,089 ================
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) Represents an American Depository Receipt. (d) Represents a foreign domiciled corporation. (e) Security valued at a fair value as determined by the Pricing Committee appointed by the Board of Trustees. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-10 THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.2% COMMON STOCKS--52.5% FOOD & BEVERAGE--0.5% UST Inc. 400,000 $ 11,284,000 BROADCASTING & PUBLISHING--0.7% Gemstar-TV Guide International Inc. (b) 7,000,000 $ 17,640,000 CABLE SYSTEMS & SATELLITE TV--0.8% General Motors Corporation, Class H (Hughes Electronics Corporation) (a) 2,000,000 $ 18,300,000 INFORMATION SERVICES--2.4% Ceridian Corporation (a) 3,900,000 $ 55,575,000 MARKETING SERVICES--0.5% The Interpublic Group of Companies, Inc. 800,000 $ 12,680,000 PRINTING--0.2% Valassis Communications, Inc. (a) 150,000 $ 5,260,500 RECREATION & ENTERTAINMENT--1.0% International Game Technology (a) 345,000 $ 23,853,300 RETAIL--4.1% J.C. Penney Company, Inc. 2,200,000 $ 35,024,000 Albertson's, Inc. 1,200,000 28,992,000 BJ's Wholesale Club, Inc. (a) 1,100,000 20,911,000 Office Depot, Inc. (a) 980,000 12,093,200 ------------------- 97,020,200 INSURANCE--3.6% SAFECO Corporation 2,200,000 $ 69,916,000 PartnerRe, Ltd. (c) 200,000 9,636,000 RenaissanceRe Holdings Ltd. 174,700 6,601,913 ------------------- 86,153,913 OTHER FINANCIAL--0.5% GATX Corporation 600,000 $ 11,880,000 REAL ESTATE--2.0% Catellus Development Corporation (a) 1,881,500 $ 34,713,675 Hospitality Properties Trust 200,000 6,624,000 Legacy Hotels Real Estate Investment Trust (c) 1,125,000 5,909,851 ------------------- 47,247,526
B-11
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.2% (CONT.) HEALTH CARE SERVICES--2.0% IMS Health Incorporated 2,300,000 $ 34,431,000 Caremark Rx, Inc. (a) 750,000 12,750,000 ------------------- 47,181,000 MANAGED CARE SERVICES--2.3% First Health Group Corp. (a) 2,000,000 $ 54,240,000 MEDICAL PRODUCTS--4.9% Guidant Corporation (a) 1,855,000 $ 59,935,050 Apogent Technologies Inc. (a) 1,750,000 32,655,000 Techne Corporation (a) 525,000 17,214,750 Edwards Lifesciences Corporation (a) 275,000 7,037,250 ------------------- 116,842,050 PHARMACEUTICALS--4.3% Watson Pharmaceuticals, Inc. (a) 2,100,000 $ 51,471,000 Bristol-Myers Squibb Company 2,000,000 47,600,000 Chiron Corporation (a) 41,800 1,460,492 ------------------- 100,531,492 TELECOMMUNICATIONS--0.1% CenturyTel, Inc. 159,800 $ 3,584,314 COMPUTER SOFTWARE--3.6% Synopsys, Inc. (a) 1,485,000 $ 56,652,750 Novell, Inc. (a) 8,000,000 16,800,000 Mentor Graphics Corporation (a) 2,300,000 11,224,000 ------------------- 84,676,750 COMPUTER SYSTEMS--1.1% The Reynolds and Reynolds Company, Class A 1,164,000 $ 26,120,160 AEROSPACE & DEFENSE--3.5% Rockwell Collins, Inc. 1,863,800 $ 40,891,772 Honeywell International, Inc. 1,875,000 40,612,500 ------------------- 81,504,272 AGRICULTURAL EQUIPMENT--0.1% Alamo Group Inc. 141,900 $ 1,753,884 INSTRUMENTS--1.9% Varian Inc. (a) 1,599,400 $ 44,159,434 MACHINERY & INDUSTRIAL PROCESSING--2.5% Rockwell Automation International Corporation 1,964,500 $ 31,962,415 Cooper Industries, Ltd. 880,700 26,729,245 ------------------- 58,691,660
B-12
SHARES HELD/ NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.2% (CONT.) TRANSPORTATION SERVICES--0.1% Nordic American Tanker Shipping Limited (c) 154,900 $ 1,645,038 AGRICULTURAL OPERATIONS--1.8% Monsanto Company 2,800,000 $ 42,812,000 FORESTRY PRODUCTS--1.7% Plum Creek Timber Company, Inc. 1,809,644 $ 40,916,051 OIL & NATURAL GAS--6.3% Burlington Resources Inc. 2,000,000 $ 76,720,000 XTO Energy, Inc. 1,528,000 31,492,080 St. Mary Land & Exploration Company 1,030,000 24,617,000 Cabot Oil & Gas Corporation 750,000 16,125,000 ------------------- 148,954,080 TOTAL COMMON STOCKS (COST: $1,385,836,462) 1,240,506,624 CONVERTIBLE BONDS--0.7% CABLE SYSTEMS & SATELLITE TV--0.5% EchoStar Communications Corporation, 4.875% due 1/1/2007 $ 15,000,000 $ 11,343,750 PHARMACEUTICALS--0.2% Sepracor Inc., 7.00% due 12/15/2005 $ 7,285,000 $ 4,498,487 TOTAL CONVERTIBLE BONDS (COST: $17,579,387) 15,842,237 TOTAL EQUITY AND EQUIVALENTS (COST: $1,403,415,849) 1,256,348,861 FIXED INCOME--40.2% PREFERRED STOCKS--0.1% BANK & THRIFTS --0.1% BBC Capital Trust I, Preferred, 9.50% 48,000 $ 1,200,480 Pennfed Capital Trust, Preferred, 8.90% 27,500 694,375 Fidelity Capital Trust I, Preferred, 8.375% 43,500 437,175 ------------------- 2,332,030 TELECOMMUNICATIONS--0.0% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 470,000 TOTAL PREFERRED STOCKS (COST: $2,715,763) 2,802,030
B-13
NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- FIXED INCOME--40.2% (CONT.) CORPORATE BONDS--1.8% BROADCASTING & PROGRAMMING--0.5% Liberty Media Corporation, 8.25% due 2/1/2030, Debenture $ 12,900,000 $ 12,740,453 BUILDING MATERIALS & CONSTRUCTION--0.0% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note $ 750,000 $ 768,750 CABLE SYSTEMS & SATELLITE TV--0.1% CSC Holdings Inc., 7.875% due 12/15/2007 $ 3,000,000 $ 2,475,000 HOTELS & MOTELS--0.3% HMH Properties, 7.875% due 8/1/2005, Senior Note Series A $ 3,450,000 $ 3,329,250 Park Place Entertainment, 7.00% due 7/15/2004, Senior Notes 2,750,000 2,778,212 ------------------- 6,107,462 RETAIL--0.5% The Gap, Inc., 6.90% due 9/15/2007 $ 9,187,000 $ 8,084,560 Rite Aid Corporation, 7.625% due 4/15/2005, Senior Notes 4,900,000 3,626,000 Ugly Duckling Corporation, 12.00% due 10/23/2003, Subordinated Debenture 650,000 585,000 ------------------- 12,295,560 MEDICAL PRODUCTS--0.3% CONMED Corporation, 9.00% due 3/15/2008 $ 5,610,000 $ 5,666,100 MACHINERY & INDUSTRIAL PROCESSING--0.1% Columbus McKinnon Corporation New York, 8.50% due 4/1/2008 $ 3,000,000 $ 2,490,000 ELECTRIC UTILITIES--0.0% Midland Funding Corporation, 11.75% due 7/23/2005 $ 500,000 $ 506,250 TOTAL CORPORATE BONDS (COST: $43,397,142) 43,049,575
B-14
NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- GOVERNMENT AND AGENCY SECURITIES--38.3% U.S. GOVERNMENT NOTES--37.9% United States Treasury Notes, 3.375% due 1/15/2007, Inflation Indexed $156,864,600 $ 170,859,903 United States Treasury Notes, 3.375% due 1/15/2012, Inflation Indexed 141,993,600 157,058,269 United States Treasury Notes, 5.75% due 11/15/2005 100,000,000 111,070,300 United States Treasury Notes, 4.75% due 11/15/2008 100,000,000 109,824,200 United States Treasury Notes, 3.50% due 11/15/2006 100,000,000 104,250,000 United States Treasury Notes, 3.00% due 11/30/2003 75,000,000 76,315,425 United States Treasury Notes, 7.875% due 11/15/2004 25,000,000 28,171,875 United States Treasury Notes, 5.00% due 8/15/2011 25,000,000 27,764,650 United States Treasury Notes, 5.25% due 5/15/2004 25,000,000 26,454,100 United States Treasury Notes, 2.875% due 6/30/2004 25,000,000 25,522,450 United States Treasury Notes, 3.00% due 2/29/2004 25,000,000 25,500,000 United States Treasury Notes, 3.00% due 1/31/2004 25,000,000 25,475,575 United States Treasury Notes, 7.25% due 8/15/2004 5,000,000 5,514,060 ------------------- 893,780,807 U.S. GOVERNMENT AGENCIES--0.4% Fannie Mae, 3.875% due 9/7/2004 $ 5,000,000 $ 5,045,315 Federal Home Loan Bank, 5.10% due 12/26/2006 2,035,000 2,108,769 Fannie Mae, Principal Only, Zero Coupon, due 10/3/2011 1,065,000 1,066,354 Federal Home Loan Bank, 3.875% due 12/15/2004 1,000,000 1,038,045 ------------------- 9,258,483 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $861,911,517) 903,039,290 TOTAL FIXED INCOME (COST: $908,024,422) 948,890,895 SHORT TERM INVESTMENTS--5.7% U.S. GOVERNMENT BILLS--3.2% United States Treasury Bills, 1.55% - 1.62% $ 75,000,000 $ 74,944,321 due 10/10/2002 - 10/31/2002 TOTAL U.S. GOVERNMENT BILLS (COST: $74,944,321) 74,944,321
B-15
PAR VALUE/ NAME SHARES SUBJECT TO CALL MARKET VALUE SHORT TERM INVESTMENTS--5.7% (CONT.) REPURCHASE AGREEMENTS--2.5% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $58,002,819 collateralized by U.S. Government Agency Securities $ 58,000,000 $ 58,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,636,138 collateralized by a U.S. Government Agency Security 1,636,088 1,636,088 ------------------- TOTAL REPURCHASE AGREEMENT (COST: $59,636,088) 59,636,088 TOTAL SHORT TERM INVESTMENTS (COST: $134,580,409) 134,580,409 Total Investments (Cost $2,446,020,680)--99.1% $ 2,339,820,165 CALL OPTIONS WRITTEN--0.0% BROADCASTING & PUBLISHING--0.0% Gemstar-TV Guide International Inc., November 7.50 Calls (1,019,000) $ (50,950) TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED: $(638,100))--0.0% (50,950) Other Assets In Excess Of Other Liabilities--0.9% $ 20,817,788 ------------------- TOTAL NET ASSETS--100% $ 2,360,587,003 ===================
(a) Non-income producing security. (b) A portion of this security has been segregated to cover written option contracts. See footnote number one in the Notes to Financial Statements regarding accounting for options. (c) Represents a foreign domiciled corporation. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-16 THE OAKMARK GLOBAL FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% FOOD & BEVERAGE--1.6% Lotte Chilsung Beverage Co., Ltd. (Korea) Soft Drinks, Juices & Sports Drinks Manufacturer 4,800 $ 2,826,532 HOUSEHOLD PRODUCTS--3.7% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 118,000 $ 6,584,329 AUTOMOBILES--1.7% Ducati Motor Holding S.p.A. (Italy)(a) Motorcycle Manufacturer 1,933,500 $ 3,055,239 BROADCASTING & PROGRAMMING--6.6% Liberty Media Corporation, Class A (United States) (a) Broadcast Services & Programming 1,000,000 $ 7,180,000 Grupo Televisa S.A. (Mexico) (a)(b) Television Production & Broadcasting 173,700 4,427,613 ----------- 11,607,613 BROADCASTING & PUBLISHING--1.4% Gemstar-TV Guide International Inc. (United States) (a) Electronic Program Guide Services 1,000,000 $ 2,520,000 EDUCATIONAL SERVICES--1.7% ITT Educational Services, Inc. (United States) (a) Postsecondary Degree Programs 161,600 $ 3,033,232 HOME FURNISHINGS--4.3% Hunter Douglas N.V. (Netherlands) Window Coverings Manufacturer 285,600 $ 7,615,581 HUMAN RESOURCES--4.0% Michael Page International plc (Great Britain) Recruitment Consultancy Services 3,740,000 $ 6,985,884 INFORMATION SERVICES--9.9% eFunds Corporation (United States) (a) Electronic Debit Payment Services 1,225,000 $11,491,725 Ceridian Corporation (United States) (a) Data Management Services 425,000 6,056,250 ----------- 17,547,975
B-17
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) MARKETING SERVICES--3.8% The Interpublic Group of Companies, Inc. (United States) Advertising & Marketing Services 344,000 $ 5,452,400 Cordiant Communications Group plc (Great Britain) (a) Advertising & Media Services 2,097,000 1,267,249 ----------- 6,719,649 RETAIL--3.1% Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 897,700 $ 2,978,870 Somerfield plc (Great Britain) (a) Food Retailer 1,403,000 2,361,880 ----------- 5,340,750 BANK & THRIFTS--7.6% U.S. Bancorp (United States) Commercial Bank 275,000 $ 5,109,500 Washington Mutual, Inc. (United States) Thrift 135,000 4,248,450 Banco Popolare di Verona e Novara Scrl (Italy) Commercial Bank 351,100 4,004,920 ----------- 13,362,870 OTHER FINANCIAL--2.5% Daiwa Securities Group Inc. (Japan) Stock Broker 807,000 $ 4,451,866 MANAGED CARE SERVICES--3.7% First Health Group Corp. (United States) (a) Health Benefits Company 240,000 $ 6,508,800 MEDICAL PRODUCTS--6.2% Cytyc Corporation (United States) (a) Diagnostic Equipment 400,000 $ 4,288,000 Ansell Limited (Australia) (a) Protective Rubber & Plastics Products 934,000 3,499,418 Guidant Corporation (United States) (a) Medical Instruments 100,000 3,231,000 ----------- 11,018,418 PHARMACEUTICALS--6.2% GlaxoSmithKline plc (Great Britain) Pharmaceuticals 362,400 $ 6,911,420 Abbott Laboratories (United States) Pharmaceuticals 100,000 4,040,000 ----------- 10,951,420
B-18
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) TELECOMMUNICATIONS EQUIPMENT--3.1% Telefonaktiebolaget LM Ericsson, Class B (Sweden) (a) Mobile & Wired Telecommunications Products 14,923,000 $ 5,419,470 COMPUTER SERVICES--5.2% First Data Corporation (United States) Data Processing & Management 175,000 $ 4,891,250 Meitec Corporation (Japan) Software Engineering Services 181,900 4,263,223 ----------- 9,154,473 COMPUTER SOFTWARE--7.2% Synopsys, Inc. (United States) (a) Electronic Design Automation 220,000 $ 8,393,000 Novell, Inc. (United States) (a) Network & Internet Integration Software 2,000,000 4,200,000 ----------- 12,593,000 AIRPORT MAINTENANCE--2.2% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b) Airport Operator 355,000 $ 3,905,000 DIVERSIFIED CONGLOMERATES--6.3% Vivendi Universal SA (France) Multimedia 983,400 $11,023,186 INSTRUMENTS--1.9% Orbotech, Ltd. (Israel) (a) Optical Inspection Systems 225,000 $ 3,318,750 CHEMICALS--2.3% Givaudan (Switzerland) Fragrance & Flavor Compound Manufacturer 8,970 $ 4,010,161 TOTAL COMMON STOCKS (COST: $202,352,125) 169,554,198
B-19
NAME DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--3.0% REPURCHASE AGREEMENTS--3.0% IBT Repurchase Agreement, 1.75% Due 10/1/2002, repurchase price $4,000,194 collateralized by a U.S. Government Agency Security $4,000,000 $ 4,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,187,300 collateralized by U.S. Government Agency Securities 1,187,263 1,187,263 ------------ TOTAL REPURCHASE AGREEMENT (COST: $5,187,263) 5,187,263 TOTAL SHORT TERM INVESTMENTS (COST: $5,187,263) 5,187,263 Total Investments (Cost $207,539,388)--99.2% $174,741,461 Other Assets In Excess Of Other Liabilities--0.8% 1,472,340 ------------ Total Net Assets--100% $176,213,801 ============
(a) Non-income producing security. (b) Represents an American Depository Receipt. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-20 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% FOOD & BEVERAGE--8.4% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 3,150,200 $ 38,865,432 Pernod-Ricard SA (France) Manufactures Wines, Spirits, & Fruit Juices 363,300 32,650,352 Lotte Chilsung Beverage Co., Ltd. (Korea) Soft Drinks, Juices & Sports Drinks Manufacturer 49,700 29,266,378 Fomento Economico Mexicano S.A. de C.V. (Mexico) (b) Soft Drink & Beer Manufacturer 600,400 20,293,520 ------------ 121,075,682 HOUSEHOLD PRODUCTS--2.9% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 755,000 $ 42,128,547 APPAREL--0.2% Fila Holdings S.p.A. (Italy) (a)(b)(c) Athletic Footwear & Apparel 5,894,760 $ 3,006,328 AUTOMOBILES--0.7% Bayerische Motoren Werke (BMW) AG (Germany) Luxury Automobile Manufacturer 313,100 $ 10,052,663 AUTOMOTIVE--3.1% Autoliv Inc (Sweden) (d) Automotive Safety Systems Manufacturer 1,248,000 $ 26,225,268 Compagnie Generale des Etablissements Michelin (France) Tire Manufacturer 664,500 18,650,915 ------------ 44,876,183 BROADCASTING & PROGRAMMING--3.3% Grupo Televisa S.A. (Mexico) (a)(b) Television Production & Broadcasting 1,003,100 $ 25,569,019 Tokyo Broadcasting System, Inc. (Japan) Television & Radio Broadcasting 1,511,000 22,017,198 ------------ 47,586,217 BUILDING MATERIALS & CONSTRUCTION--1.1% Kumkang Korea Chemical Co., Ltd. (Korea) Building Materials 162,140 $ 15,515,155
B-21
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) HOME FURNISHINGS--3.0% Hunter Douglas N.V. (Netherlands) Window Coverings Manufacturer 1,638,584 $43,693,170 HUMAN RESOURCES--2.8% Michael Page International plc (Great Britain) (c) Recruitment Consultancy Services 21,562,900 $40,276,985 MARKETING SERVICES--5.3% Aegis Group plc (Great Britain) Media Services 31,735,500 $34,122,335 Publicis Groupe (France) Advertising & Media Services 1,461,700 27,572,281 Cordiant Communications Group plc (Great Britain) (a)(c) Advertising & Media Services 24,209,270 14,630,031 ----------- 76,324,647 PUBLISHING--6.7% Wolters Kluwer NV (Netherlands) Reference Material Publisher 2,430,200 $43,921,199 John Fairfax Holdings Limited (Australia) Newspaper Publisher 23,642,600 36,459,726 Independent News & Media PLC (Ireland) Newspaper Publisher 14,132,000 18,143,792 ----------- 98,524,717 RETAIL--4.0% Somerfield plc (Great Britain) (a) Food Retailer 15,128,500 $25,468,068 Giordano International Limited (Hong Kong) Pacific Rim Clothing Retailer & Manufacturer 63,102,300 24,676,515 Signet Group plc (Great Britain) Jewelry Retailer 6,245,100 7,891,110 ----------- 58,035,693 BANK & THRIFTS--7.5% Banco Popolare di Verona e Novara Scrl (Italy) Commercial Banking 2,742,200 $31,279,672 BNP Paribas SA (France) Commercial Banking 758,300 24,698,626 Sanpaolo IMI S.p.A. (Italy) Banking Services 3,732,800 20,976,261 United Overseas Bank Limited, Foreign Shares (Singapore) Commercial Banking 1,426,968 9,552,991 Kookmin Bank (Korea) Commercial Banking 231,168 8,460,594 Svenska Handelsbanken AB (Sweden) Commercial Banking 508,000 6,322,902
B-22
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) BANK & THRIFTS--7.5% (CONT.) Uniao de Bancos Brasileiros S.A. (Brazil) (e) Commercial Banking 784,000 $ 5,566,400 Banco Latinoamericano de Exportaciones, S.A., Class E (Panama) (b) Latin American Trade Bank 515,400 $ 1,061,724 ------------ 107,919,170 OTHER FINANCIAL--5.6% Daiwa Securities Group Inc. (Japan) Stock Broker 7,285,000 $ 40,188,154 Euronext (Netherlands) Stock Exchange 2,125,200 40,087,988 ------------ 80,276,142 MEDICAL PRODUCTS--1.7% Gambro AB, Class A (Sweden) Manufacturer of Dialysis Products 6,144,000 $ 24,431,398 PHARMACEUTICALS--9.6% GlaxoSmithKline plc (Great Britain) Pharmaceuticals 3,418,800 $ 65,200,781 Aventis S.A. (France) Pharmaceuticals 613,300 32,101,839 Takeda Chemical Industries, Ltd. (Japan) Pharmaceuticals & Food Supplements 739,000 29,786,890 Novartis AG (Switzerland) Pharmaceuticals 298,500 11,777,840 ------------ 138,867,350 TELECOMMUNICATIONS--3.1% Panafon Hellenic Telecom S.A. (Greece) Mobile Telecommunications 6,717,900 $ 29,722,999 SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 64,860 12,572,029 Telemig Celular Participacoes S.A. (Brazil) Mobile Telecommunications 1,806,000,000 1,949,866 ------------ 44,244,894 TELECOMMUNICATIONS EQUIPMENT--2.8% Telefonaktiebolaget LM Ericsson, Class B (Sweden) (a) Mobile & Wired Telecommunications Products 109,949,200 $ 39,929,394 COMPUTER SERVICES--2.3% Meitec Corporation (Japan) Software Engineering Services 1,402,000 $ 32,858,925
B-23
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) AEROSPACE--1.4% Rolls-Royce plc (Great Britain) Aviation & Marine Power 12,558,195 $ 19,711,971 AIRPORT MAINTENANCE--0.2% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b) Airport Operator 242,000 $ 2,662,000 DIVERSIFIED CONGLOMERATES--3.5% Vivendi Universal SA (France) Multimedia 4,551,100 $ 51,014,463 INSTRUMENTS--1.9% Orbotech, Ltd. (Israel) (a)(c) Optical Inspection Systems 1,841,200 $ 27,157,700 MACHINERY & INDUSTRIAL PROCESSING--2.1% Metso Corporation (Finland) Paper & Pulp Machinery 3,490,700 $ 30,337,255 OTHER INDUSTRIAL GOODS & SERVICES--4.2% Enodis plc (Great Britain) (c) Food Processing Equipment 33,585,320 $ 26,095,013 Chargeurs SA (France) (c) Wool, Textile Production & Trading 1,050,201 24,632,990 FKI plc (Great Britain) Industrial Manufacturing 8,299,300 10,519,299 -------------- 61,247,302 TRANSPORTATION SERVICES--2.5% Associated British Ports Holdings Plc (Great Britain) Port Operator 5,533,899 $ 35,744,061 CHEMICALS--5.6% Givaudan (Switzerland) Fragrance & Flavor Compound Manufacturer 95,600 $ 42,739,281 Akzo Nobel N.V. (Netherlands) Chemical Producer 1,152,800 37,115,272 -------------- 79,854,553 TOTAL COMMON STOCKS (COST: $1,739,391,715) 1,377,352,565
B-24
NAME DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--5.5% U.S. GOVERNMENT BILLS--2.1% United States Treasury Bills, 1.615% - 1.67% due 10/3/2002 - 10/17/2002 $30,000,000 $ 29,987,835 TOTAL U.S. GOVERNMENT BILLS (COST: $29,987,835) 29,987,835 REPURCHASE AGREEMENTS--3.4% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $47,002,285 collateralized by U.S. Government Agency Securities $47,000,000 $ 47,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $2,554,729 collateralized by a U.S. Government Agency Security 2,554,650 2,554,650 -------------- TOTAL REPURCHASE AGREEMENT (COST: $49,554,650) 49,554,650 TOTAL SHORT TERM INVESTMENTS (COST: $79,542,485) 79,542,485 Total Investments (Cost $1,818,934,200)--101.0% $1,456,895,050 Foreign Currencies (Cost $2,256,583)--0.2% $ 2,275,134 Other liabilities In Excess Of Other Assets--(1.2%) (16,906,490) -------------- TOTAL NET ASSETS--100% $1,442,263,694 ==============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) Represents a Swedish Depository Receipt. (e) Represents a Global Depository Receipt. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-25 THE OAKMARK INTERNATIONAL SMALL CAP FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% FOOD & BEVERAGE--6.4% Campari Group (Italy) (a) Soft Drinks, Wines, & Spirits Producer 235,200 $ 7,642,128 Grupo Continental, S.A. (Mexico) Soft Drink Manufacturer 2,760,000 4,596,845 Baron De Ley, S.A. (Spain) (a) Wines & Spirits Manufacturer 150,985 3,917,193 Hite Brewery Co., Ltd. (Korea) Brewer 57,700 2,784,248 Alaska Milk Corporation (Philippines) (b) Milk Producer 49,394,000 1,997,430 Mikuni Coca-Cola Bottling Co., Ltd. (Japan) Soft Drink Manufacturer 310,000 1,822,107 ----------- 22,759,951 OTHER CONSUMER GOODS & SERVICES--0.5% Royal Doulton plc (Great Britain) (a)(b) Tableware & Giftware 22,373,000 $ 1,755,889 APPAREL--0.3% Kingmaker Footwear Holdings Limited (Hong Kong) Athletic Footwear Manufacturer 4,395,000 $ 1,127,010 AUTOMOBILES--2.3% Ducati Motor Holding S.p.A. (Italy) (a) Motorcycle Manufacturer 5,177,200 $ 8,180,804 BROADCASTING & PROGRAMMING--1.4% ABS-CBN Broadcasting Corporation (Philippines) (a) Television & Broadcasting Operator 11,920,000 $ 5,002,194 BROADCASTING & PUBLISHING--1.8% Tamedia AG (Switzerland) (a) TV Broadcasting & Publishing 146,880 $ 6,466,978 BUILDING MATERIALS & CONSTRUCTION--3.2% Fletcher Building Limited (New Zealand) Building Materials Manufacturer 8,129,200 $11,420,319 HOME FURNISHINGS--3.3% Natuzzi S.p.A. (Italy) (c) Home Furnishings 1,078,300 $11,775,036
B-26
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) HOTELS & MOTELS--1.8% Jarvis Hotels plc (Great Britain) Hotel Operator 3,845,700 $ 6,338,223 HUMAN RESOURCES--1.2% Solvus S.A. (Belgium) Temporary Staffing Services 623,254 $ 4,308,680 INFORMATION SERVICES--2.0% Baycorp Advantage Limited (Australia) Credit Reference Services 4,213,500 $ 7,275,619 MARKETING SERVICES--2.3% Asatsu-DK, Inc. (Japan) Advertising Services Provider 445,100 $ 8,349,165 PUBLISHING--3.6% Edipresse S.A. (Switzerland) Newspaper & Magazine Publisher 18,274 $ 5,019,377 Recoletos Grupo de Comunicacion, S.A. (Spain) Publisher 880,000 3,563,261 Matichon Public Company Limited, Foreign Shares (Thailand) (b) Newspaper Publisher 2,039,500 2,733,156 VLT AB, Class B (Sweden) Newspaper Publisher 178,450 1,480,737 ----------- 12,796,531 RETAIL--10.4% Carpetright plc (Great Britain) Carpet Retailer 1,589,200 $15,715,273 D.F.S. Furniture Company plc (Great Britain) Furniture Retailer & Manufacturer 1,972,100 11,933,179 Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 2,904,600 9,638,439 ----------- 37,286,891 BANK & THRIFTS--5.9% Jyske Bank A/S (Denmark) (a) Commercial Banking 441,900 $10,898,925 Vontobel Holding AG (Switzerland) Commercial Banking 662,536 8,078,065 Banco Latinoamericano de Exportaciones, S.A., Class E (Panama) (b)(c) Multinational Bank 1,153,100 2,375,386 ----------- 21,352,376 FINANCIAL SERVICES--4.6% Van der Moolen Holding N.V. (Netherlands) International Trading Firm 528,400 $ 8,740,951
B-27
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) FINANCIAL SERVICES--4.6% (CONT.) Julius Baer Holding Ltd., Zurich (Switzerland) Asset Management 41,100 $ 7,934,363 ----------- 16,675,314 OTHER FINANCIAL--3.5% Ichiyoshi Securities Co., Ltd. (Japan) Stock Broker 2,480,000 $ 6,738,743 JCG Holdings Limited (Hong Kong) Consumer Finance 12,851,000 5,684,533 ----------- 12,423,276 MEDICAL PRODUCTS--3.1% Ansell Limited (Australia) (a) Protective Rubber & Plastics Products 2,949,425 $11,050,611 COMPUTER SERVICES--2.5% Morse Plc (Great Britain) Business & Technology Solutions 4,369,800 $ 9,088,250 COMPUTER SYSTEMS--1.5% Lectra (France) (a) Manufacturing Process Systems 1,668,500 $ 5,536,644 OFFICE EQUIPMENT--3.8% Neopost SA (France) (a) Mailroom Equipment Supplier 401,200 $13,511,277 AIRPORT MAINTENANCE--8.1% Kobenhavns Lufthavne A/S (Copenhagen Airports A/S) (Denmark) Airport Management & Operations 274,895 $16,447,319 Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (c) Airport Operator 1,129,000 12,419,000 ----------- 28,866,319 DIVERSIFIED CONGLOMERATES--2.0% Pargesa Holding AG (Switzerland) Diversified Operations 4,784 $ 7,129,174 INSTRUMENTS--1.2% Vaisala Oyj, Class A (Finland) Atmospheric Observation Equipment 206,800 $ 4,268,526 MACHINERY & INDUSTRIAL PROCESSING--5.4% Pfeiffer Vacuum Technology AG (Germany) (b) Vacuum Pump Manufacturer 545,100 $ 9,178,710 Alfa Laval (Sweden) (a) Filtration & Separation Equipment 959,700 7,963,371 Carbone Lorraine SA (France) Electrical Systems Manufacturer 92,964 2,065,753 ----------- 19,207,834
B-28
SHARES HELD/ NAME DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--4.3% Schindler Holding AG (Switzerland) Elevator & Escalator Manufacturer 67,800 $ 11,940,662 GFI Industries SA (France) Industrial Fastener Manufacturer 241,813 3,510,573 ------------ 15,451,235 PRODUCTION EQUIPMENT--3.1% Interpump Group S.p.A. (Italy) Pump & Piston Manufacturer 2,588,800 $ 10,150,095 NSC Groupe (France) Textile Equipment Manufacturer 12,316 1,155,512 ------------ 11,305,607 TRANSPORTATION SERVICES--2.0% Mainfreight Limited (New Zealand) (b) Logistics Services 7,765,726 $ 4,013,599 DelGro Corporation Limited (Singapore) Bus, Taxi, & Car Leasing 3,502,700 3,093,718 ------------ 7,107,317 CHEMICALS--4.0% Gurit-Heberlein AG (Switzerland) Chemical Producer 32,734 $ 14,190,720 TOTAL COMMON STOCKS (COST: $432,335,590) 342,007,770 SHORT TERM INVESTMENTS--3.6% REPURCHASE AGREEMENTS--3.6% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $10,500,510 collateralized by a U.S. Government Agency Security $10,500,000 $ 10,500,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $2,163,944 collateralized by a U.S. Government Agency Security 2,163,878 2,163,878 ------------ TOTAL REPURCHASE AGREEMENT (COST: $12,663,878) 12,663,878 TOTAL SHORT TERM INVESTMENTS (COST: $12,663,878) 12,663,878 Total Investments (Cost $444,999,468)--99.1% $354,671,648 Foreign Currencies (Cost $756,494)--0.2% $ 762,021 Other Assets In Excess Of Other Liabilities--0.7% 2,572,499 ------------ TOTAL NET ASSETS--100% $358,006,168 ============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) Represents an American Depository Receipt. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-29 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF ASSETS AND LIABILITIES--SEPTEMBER 30, 2002
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value (a) $3,304,673,916 $3,457,996,525 $339,917,770 Investments in affiliated securities, at value (b) 0 308,119,623 17,519,140 Cash 0 12,552 374 Foreign currency, at value (c) 0 0 0 Receivable for: Securities sold 2,091,437 19,387,520 291,727 Fund shares sold 6,671,135 3,459,905 564,785 Dividends and interest 5,210,296 3,927,925 201,295 Tax reclaim 0 0 0 -------------- -------------- ------------ Total receivables 13,972,868 26,775,350 1,057,807 Other Assets 5,663 1,986 494 -------------- -------------- ------------ Total assets $3,318,652,447 $3,792,906,036 $358,495,585 LIABILITIES AND NET ASSETS Options written, at value (d) $ 0 $ 0 $ 0 Foreign currency, at value (c) 0 0 0 Payable for: Securities purchased 117,600 689,030 0 Fund shares redeemed 8,337,246 8,651,604 750,211 Due to transfer agent 221,381 142,745 40,356 Trustees fees 467,207 323,179 155,954 Other 827,180 1,047,147 154,975 -------------- -------------- ------------ Total liabilities 9,970,614 10,853,705 1,101,496 -------------- -------------- ------------ Net assets applicable to fund shares outstanding $3,308,681,833 $3,782,052,331 $357,394,089 ============== ============== ============ ANALYSIS OF NET ASSETS Paid in capital $3,831,067,422 $3,739,480,524 $416,525,955 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (195,307,126) (76,625,527) (497,018) Net unrealized appreciation (depreciation) of investments (340,513,232) 115,600,882 (58,484,339) Net unrealized appreciation (depreciation)--other 0 0 0 Accumulated undistributed net investment income (loss) 13,434,769 3,596,452 (150,509) -------------- -------------- ------------ Net assets applicable to Fund shares outstanding $3,308,681,833 $3,782,052,331 $357,394,089 ============== ============== ============ PRICE OF SHARES Net asset value per share: Class I $ 28.08 $ 21.67 $ 14.10 ============== ============== ============ Class I--Net assets 3,300,948,792 3,717,632,174 356,858,991 Class I--Shares outstanding (Unlimited shares authorized) 117,549,041 171,568,297 25,302,542 Net asset value per share: Class II $ 28.04 $ 21.56 $ 14.09 ============== ============== ============ Class II--Net assets 7,733,041 64,420,157 535,098 Class II--Shares outstanding (Unlimited shares authorized) 275,825 2,987,328 37,974 (a) Identified cost of investments in unaffiliated securities $3,645,187,148 $3,348,274,428 $383,383,526 (b) Identified cost of investments in affiliated securities 0 302,240,838 32,537,723 (c) Identified cost of foreign currency 0 0 0 (d) Premiums received on options written 0 0 0
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-30
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments in unaffiliated securities, at value (a) $2,339,820,165 $174,741,461 $1,321,096,003 $332,617,478 Investments in affiliated securities, at value (b) 0 0 135,799,047 22,054,170 Cash 4,800 1,078 2,005 832 Foreign currency, at value (c) 0 0 2,275,134 762,021 Receivable for: Securities sold 19,784,672 2,031,764 8,204,243 4,046,830 Fund shares sold 14,669,900 433,791 9,298,317 314,503 Dividends and interest 12,571,292 254,357 4,823,089 39,002 Tax reclaim 13,125 0 1,086,895 295,964 -------------- ------------ -------------- ------------ Total receivables 47,038,989 2,719,912 23,412,544 4,696,299 Other Assets 205 10,691 732 88 -------------- ------------ -------------- ------------ Total assets $2,386,864,159 $177,473,142 $1,482,585,465 $360,130,888 LIABILITIES AND NET ASSETS Options written, at value (d) $ 50,950 $ 0 $ 0 $ 0 Foreign currency, at value (c) 0 447,726 0 0 Payable for: Securities purchased 18,798,772 0 36,536,159 609,257 Fund shares redeemed 6,485,636 546,829 2,779,240 1,082,406 Due to transfer agent 80,824 22,865 73,718 20,905 Trustees fees 133,381 107,802 198,794 124,396 Other 727,593 134,119 733,860 287,756 -------------- ------------ -------------- ------------ Total liabilities 26,277,156 1,259,341 40,321,771 2,124,720 -------------- ------------ -------------- ------------ Net assets applicable to fund shares outstanding $2,360,587,003 $176,213,801 $1,442,263,694 $358,006,168 ============== ============ ============== ============ ANALYSIS OF NET ASSETS Paid in capital $2,521,771,393 $210,400,457 $1,805,715,911 $436,575,200 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (81,534,657) (1,261,095) (16,938,571) 8,805,460 Net unrealized appreciation (depreciation) of investments (105,613,365) (32,812,022) (361,765,517) (90,334,969) Net unrealized appreciation (depreciation)--other (601) 18,294 (166,407) 23,896 Accumulated undistributed net investment income (loss) 25,964,233 (131,833) 15,418,278 2,936,581 -------------- ------------ -------------- ------------ Net assets applicable to Fund shares outstanding $2,360,587,003 $176,213,801 $1,442,263,694 $358,006,168 ============== ============ ============== ============ PRICE OF SHARES Net asset value per share: Class I $ 17.18 $ 11.30 $ 12.17 $ 10.17 ============== ============ ============== ============ Class I--Net assets 2,241,862,902 175,601,074 1,393,787,394 357,719,432 Class I--Shares outstanding (Unlimited shares authorized) 130,507,859 15,544,703 114,538,219 35,173,301 Net asset value per share: Class II $ 17.15 $ 11.24 $ 12.13 $ 10.14 ============== ============ ============== ============ Class II--Net assets 118,724,101 612,727 48,476,300 286,736 Class II--Shares outstanding (Unlimited shares authorized) 6,924,284 54,492 3,995,110 28,276 (a) Identified cost of investments in unaffiliated securities $2,446,020,680 $207,539,388 $1,539,684,625 $389,851,090 (b) Identified cost of investments in affiliated securities 0 0 279,249,575 55,148,378 (c) Identified cost of foreign currency 0 (444,039) 2,256,583 756,494 (d) Premiums received on options written 638,100 0 0 0
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-31 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF OPERATIONS--SEPTEMBER 30, 2002
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 50,671,538 $ 46,220,759 $ 1,845,226 Dividends from affiliated securities 0 0 0 Interest Income 6,099,174 7,268,233 727,044 Other Income 520,924 0 95,842 Foreign taxes withheld 0 0 0 ------------- ------------- ------------ Total investment income 57,291,636 53,488,992 2,668,112 EXPENSES: Investment advisory fee 34,848,853 40,838,462 4,121,533 Transfer and dividend disbursing agent fees 2,598,857 1,837,559 400,097 Other shareholder servicing fees 2,939,882 4,219,660 332,079 Service Fee--Class II 6,000 170,778 263 Reports to shareholders 1,746,488 1,238,788 270,048 Custody and accounting fees 433,423 527,332 74,622 Registration and blue sky expenses 57,237 139,966 66,288 Trustee fees 173,043 153,218 64,484 Legal fees 73,921 87,233 27,682 Audit fees 23,843 22,590 18,593 Other 325,365 242,519 42,475 ------------- ------------- ------------ Total expenses 43,226,912 49,478,105 5,418,164 Expense offset arrangements (11,599) (7,529) (1,102) ------------- ------------- ------------ Net expenses 43,215,313 49,470,576 5,417,062 NET INVESTMENT INCOME (LOSS): 14,076,323 4,018,416 (2,748,950) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities (42,175,347) (30,963,843) 99,039 Net realized gain (loss) on affiliated securities 0 (4,535,664) (1,065,702) Net realized gain on options 9,979,097 6,335,456 1,292,518 Net realized loss on short sales (197,816) (510,036) 0 Net realized loss on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (498,006,779) (635,685,201) (51,515,515) Net change in unrealized appreciation (depreciation)--other 0 0 0 Net realized and unrealized (loss) on investments and foreign currency transactions: (530,400,845) (665,359,288) (51,189,660) ------------- ------------- ------------ Net decrease in net assets resulting from operations $(516,324,522) $(661,340,872) $(53,938,610) ============= ============= ============
B-32
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 15,494,152 $ 2,020,348 $ 26,661,445 $ 9,093,523 Dividends from affiliated securities 0 0 7,733,163 760,375 Interest Income 29,202,243 174,049 1,080,852 342,349 Other Income 963 2,897 31,522 32,574 Foreign taxes withheld (62,100) (90,947) (3,066,633) (1,079,330) ------------- ------------ ------------- ------------ Total investment income 44,635,258 2,106,347 32,440,349 9,149,491 EXPENSES: Investment advisory fee 12,099,581 1,333,497 12,048,977 3,860,436 Transfer and dividend disbursing agent fees 704,717 188,437 753,702 178,248 Other shareholder servicing fees 1,945,936 128,955 1,027,483 339,434 Service Fee--Class II 136,109 1,348 64,867 525 Reports to shareholders 561,536 137,992 533,719 133,178 Custody and accounting fees 232,947 136,665 1,274,568 422,731 Registration and blue sky expenses 309,540 85,882 144,392 73,317 Trustee fees 75,585 54,012 77,128 53,714 Legal fees 42,499 22,774 37,180 25,599 Audit fees 18,593 23,843 22,844 25,992 Other 72,407 11,986 76,172 19,967 ------------- ------------ ------------- ------------ Total expenses 16,199,450 2,125,391 16,061,032 5,133,141 Expense offset arrangements (3,761) (497) (1,248) (216) ------------- ------------ ------------- ------------ Net expenses 16,195,689 2,124,894 16,059,784 5,132,925 NET INVESTMENT INCOME (LOSS): 28,439,569 (18,547) 16,380,565 4,016,566 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities (85,663,134) (2,849,841) 6,020,949 11,352,308 Net realized gain (loss) on affiliated securities 0 0 (8,131,968) 731,075 Net realized gain on options 3,680,523 1,588,746 0 0 Net realized loss on short sales 0 0 0 0 Net realized loss on foreign currency transactions (2,938) (37,184) (744,096) (31,834) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (107,419,745) (30,244,164) (199,327,235) (70,664,400) Net change in unrealized appreciation (depreciation)--other (601) 18,109 (155,750) 21,128 Net realized and unrealized (loss) on investments and foreign currency transactions: (189,405,895) (31,524,334) (202,338,100) (58,591,723) ------------- ------------ ------------- ------------ Net decrease in net assets resulting from operations $(160,966,326) $(31,542,881) $(185,957,535) $(54,575,157) ============= ============ ============= ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-33 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF CHANGES IN NET ASSETS--SEPTEMBER 30, 2002
THE OAKMARK FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 14,076,323 $ 19,416,042 Net realized gain (loss) on investments (32,394,066) 195,984,944 Net change in unrealized appreciation (depreciation) of investments (498,006,779) 126,130,060 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (516,324,522) 341,531,046 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (19,630,178) (28,565,025) Net investment income--Class II (447) 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (19,630,625) (28,565,025) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,648,934,264 1,499,450,622 Proceeds from shares sold--Class II 10,646,454 122,635 Reinvestment of distributions--Class I 19,105,784 27,842,716 Reinvestment of distributions--Class II 347 0 Payments for shares redeemed, net of fees--Class I (942,439,538) (769,874,783) Payments for shares redeemed, net of fees--Class II (838,834) (7,515) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 735,408,477 757,533,675 -------------- -------------- TOTAL INCREASE IN NET ASSETS 199,453,330 1,070,499,696 NET ASSETS: Beginning of period 3,109,228,503 2,038,728,807 -------------- -------------- End of period $3,308,681,833 $3,109,228,503 ============== ============== Undistributed net investment income $ 13,434,769 $ 18,989,069 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 48,113,112 44,681,731 Shares issued in reinvestment of dividends 562,595 994,363 Less shares redeemed (28,259,864) (24,202,141) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 20,415,843 21,473,953 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 298,334 3,601 Shares issued in reinvestment of dividends 10 0 Less shares redeemed (25,887) (233) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 272,457 3,368 ============== ==============
B-34
THE OAKMARK SELECT FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 4,018,416 $ 8,224,650 Net realized loss on investments (29,674,087) (46,951,440) Net change in unrealized appreciation (depreciation) of investments (635,685,201) 564,071,103 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (661,340,872) 525,344,313 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (8,379,997) (7,393,194) Net investment income--Class II 0 (21,608) Net realized gain--Class I 0 (117,459,365) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (8,379,997) (124,874,167) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,260,687,129 2,438,122,791 Proceeds from shares sold--Class II 74,250,948 33,209,296 Reinvestment of distributions--Class I 7,956,922 121,465,993 Payments for shares redeemed, net of fees--Class I (1,056,777,332) (569,095,434) Payments for shares redeemed, net of fees--Class II (31,085,298) (6,168,435) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 255,032,369 2,017,534,211 -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (414,688,500) 2,418,004,357 NET ASSETS: Beginning of period 4,196,740,831 1,778,736,474 -------------- -------------- End of period $3,782,052,331 $4,196,740,831 ============== ============== Undistributed net investment income $ 3,596,452 $ 7,958,033 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 47,211,312 99,937,364 Shares issued in reinvestment of dividends 299,856 5,902,071 Less shares redeemed (41,080,996) (23,316,445) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 6,430,172 82,522,990 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 2,801,878 1,337,637 Shares issued in reinvestment of dividends 0 5,804 Less shares redeemed (1,223,864) (250,564) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 1,578,014 1,092,877 ============== ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-35
THE OAKMARK SMALL CAP FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment loss $ (2,748,950) $ (710,637) Net realized gain on investments 325,855 1,334,090 Net change in unrealized appreciation (depreciation) of investments (51,515,515) (10,475,705) -------------- -------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (53,938,610) (9,852,252) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain--Class I 0 (8,165,109) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 (8,165,109) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 326,865,529 133,704,823 Proceeds from shares sold--Class II 777,070 0 Reinvestment of distributions--Class I 0 8,045,937 Payments for shares redeemed, net of fees--Class I (180,818,640) (107,824,806) Payments for shares redeemed, net of fees--Class II (103,465) 0 -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 146,720,494 33,925,954 -------------- -------------- TOTAL INCREASE IN NET ASSETS 92,781,884 15,908,593 NET ASSETS: Beginning of period 264,612,205 248,703,612 -------------- -------------- End of period $ 357,394,089 $ 264,612,205 ============== ============== Undistributed net investment income (loss) $ (150,509) $ 0 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 17,912,470 8,459,269 Shares issued in reinvestment of dividends 0 585,160 Less shares redeemed (10,773,500) (7,348,265) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 7,138,970 1,696,164 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 44,265 0 Shares issued in reinvestment of dividends 0 0 Less shares redeemed (6,291) 0 -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 37,974 0 ============== ==============
B-36
THE OAKMARK EQUITY AND INCOME FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 28,439,569 $ 5,055,874 Net realized gain (loss) on investments (81,982,611) 1,909,621 Net realized loss on foreign currency transactions (2,938) (518) Net change in unrealized appreciation (depreciation) of investments (107,419,745) (5,101,055) Net change in unrealized appreciation (depreciation)--other (601) 0 -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (160,966,326) 1,863,922 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (6,931,173) (897,529) Net investment income--Class II (90,128) (7,433) Net realized gain--Class I (1,870,660) (3,733,470) Net realized gain--Class II (33,869) 0 -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (8,925,830) (4,638,432) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 2,457,322,254 682,515,057 Proceeds from shares sold--Class II 146,887,453 2,887,484 Reinvestment of distributions--Class I 8,525,720 4,457,698 Reinvestment of distributions--Class II 85,801 0 Payments for shares redeemed, net of fees--Class I (683,906,125) (118,553,466) Payments for shares redeemed, net of fees--Class II (21,792,340) (111,704) -------------- ------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,907,122,763 571,195,069 -------------- ------------- TOTAL INCREASE IN NET ASSETS 1,737,230,607 568,420,559 NET ASSETS: Beginning of period 623,356,396 54,935,837 -------------- ------------- End of period $2,360,587,003 $ 623,356,396 ============== ============= Undistributed net investment income $ 25,964,233 $ 5,004,490 ============== ============= FUND SHARE TRANSACTIONS--CLASS I: Shares sold 132,277,123 38,856,265 Shares issued in reinvestment of dividends 477,891 290,529 Less shares redeemed (37,783,411) (6,913,372) -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 94,971,603 32,233,422 ============== ============= FUND SHARE TRANSACTIONS--CLASS II: Shares sold 7,935,953 167,044 Shares issued in reinvestment of dividends 4,809 2,544 Less shares redeemed (1,205,519) (7,320) -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 6,735,243 162,268 ============== =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-37
THE OAKMARK GLOBAL FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment loss $ (18,547) $ (55) Net realized gain (loss) on investments (1,261,095) 1,479,943 Net realized gain (loss) on foreign currency transactions (37,184) 71,444 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (30,244,164) (4,901,265) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (76,462) Net change in unrealized appreciation (depreciation)--other 18,109 1,700 -------------- ------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (31,542,881) (3,424,695) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (11,774) (435,138) Net investment income--Class II (61) 0 Net realized gain--Class I (1,361,493) (129,934) Net realized gain--Class II (7,099) 0 -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,380,427) (565,072) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 228,014,650 42,948,303 Proceeds from shares sold--Class II 754,996 0 Reinvestment of distributions--Class I 1,321,517 560,498 Payments for shares redeemed, net of fees--Class I (69,082,440) (18,542,262) Payments for shares redeemed, net of fees--Class II (75,625) 0 -------------- ------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 160,933,098 24,966,539 -------------- ------------- TOTAL INCREASE IN NET ASSETS 128,009,790 20,976,772 NET ASSETS: Beginning of period 48,204,011 27,227,239 -------------- ------------- End of period $ 176,213,801 $ 48,204,011 ============== ============= Undistributed net investment loss $ (131,833) $ (159,043) ============== ============= FUND SHARE TRANSACTIONS--CLASS I: Shares sold 16,329,528 3,516,235 Shares issued in reinvestment of dividends 108,677 52,629 Less shares redeemed (5,343,294) (1,614,181) -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 11,094,911 1,954,683 ============== ============= FUND SHARE TRANSACTIONS--CLASS II: Shares sold 61,020 0 Less shares redeemed (6,528) 0 -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 54,492 0 ============== =============
B-38
THE OAKMARK INTERNATIONAL FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 16,380,565 $ 11,508,911 Net realized loss on investments (2,111,019) (13,334,222) Net realized gain (loss) on foreign currency transactions (744,096) 2,323,657 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (199,327,235) (118,037,625) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (2,048,003) Net change in unrealized appreciation (depreciation)--other (155,750) 169,583 -------------- -------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (185,957,535) (119,417,699) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (10,170,790) (24,851,611) Net investment income--Class II (76,332) (3,245) Net realized gain--Class I 0 (24,703,666) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (10,247,122) (49,558,522) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,172,930,611 282,295,504 Proceeds from shares sold--Class II 71,056,423 2,588,328 Reinvestment of distributions--Class I 9,816,822 47,893,421 Reinvestment of distributions--Class II 1,669 0 Payments for shares redeemed, net of fees--Class I (339,595,271) (205,510,100) Payments for shares redeemed, net of fees--Class II (16,218,827) (327,974) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 897,991,427 126,939,179 -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 701,786,770 (42,037,042) NET ASSETS: Beginning of period 740,476,924 782,513,966 -------------- -------------- End of period $1,442,263,694 $ 740,476,924 ============== ============== Undistributed net investment income $ 15,418,278 $ 9,923,928 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 78,310,031 18,753,874 Shares issued in reinvestment of dividends 726,633 3,302,548 Less shares redeemed (23,511,785) (13,850,522) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 55,524,879 8,205,900 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 4,928,274 172,064 Shares issued in reinvestment of dividends 124 446 Less shares redeemed (1,088,826) (23,339) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 3,839,572 149,171 ============== ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-39
THE OAKMARK INTERNATIONAL SMALL CAP FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 4,016,566 $ 1,844,218 Net realized gain on investments 12,083,383 1,136,757 Net realized gain (loss) on foreign currency transactions (31,834) 591,541 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (70,664,400) (12,360,111) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (289,441) Net change in unrealized appreciation (depreciation)--other 21,128 28,453 ------------ ------------ NET DECREASE IN NET ASSETS FROM OPERATIONS (54,575,157) (9,048,583) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (2,120,585) (2,566,080) Net investment income--Class II (921) 0 Net realized gain--Class I (1,891,258) (3,663,064) Net realized gain--Class II (1,136) 0 ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,013,900) (6,229,144) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 428,499,905 72,931,617 Proceeds from shares sold--Class II 333,324 39,964 Reinvestment of distributions--Class I 3,875,545 6,071,794 Payments for shares redeemed, net of fees--Class I (134,986,731) (35,203,678) Payments for shares redeemed, net of fees--Class II (34,570) 0 ------------ ------------ NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 297,687,473 43,839,697 ------------ ------------ TOTAL INCREASE IN NET ASSETS 239,098,416 28,561,970 NET ASSETS: Beginning of period 118,907,752 90,345,782 ------------ ------------ End of period $358,006,168 $118,907,752 ============ ============ Undistributed net investment income $ 2,936,581 $ 1,922,975 ============ ============ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 34,412,757 6,676,464 Shares issued in reinvestment of dividends 375,172 588,352 Less shares redeemed (11,505,764) (3,225,816) ------------ ------------ NET INCREASE IN SHARES OUTSTANDING 23,282,165 4,039,000 ============ ============ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 27,354 3,688 Less shares redeemed (2,766) 0 ------------ ------------ NET INCREASE IN SHARES OUTSTANDING 24,588 3,688 ============ ============
B-40 THE OAKMARK FAMILY OF FUNDS NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Oakmark Global Fund ("Global"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap"), collectively referred to as "the Funds", each a series of Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with accounting principles generally accepted in the United States ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. CLASS DISCLOSURE -- Each Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares are offered to the general public. Class II Shares are offered to certain retirement plans such as 401(k) and profit sharing plans. Class II Shares pay a service fee at the annual rate of .25% of average net assets of Class II Shares of the Funds. This service fee is paid to an administrator for performing the services associated with the administration of such retirement plans. Expenses of the Funds that are not directly attributable to a specific class of shares are prorated among the classes based on the relative net assets of each class. Expenses directly attributable to a class of shares are recorded to the specific class. SECURITY VALUATION -- Investments are stated at value. Securities traded on securities exchanges, securities traded on the NASDAQ National Market, and over-the-counter securities are valued at the last sales price on the day of valuation, or if there are no reported sales that day, at the most recent bid quotation. Debt obligations and money market instruments maturing in more than 60 days from the date of purchase shall be valued at the latest bid quotation. Debt obligations and money market instruments maturing in less than 61 days from the date of purchase are valued on an amortized cost basis, which approximates market value. Options are valued at the last reported sale price on the day of valuation, or if there are no reported sales that day, at the mean of the most recent bid and ask quotations. Securities for which quotations are not readily available, or securities which may have been affected by a significant event after the price was determined, are valued at a fair value as determined by the Pricing Committee appointed by the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS -- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations for securities sold are included with the net realized gain or loss from securities. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. At September 30, 2002, the Equity and Income, Global, International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation) - other includes the following components:
EQUITY AND INT'L INCOME GLOBAL INTERNATIONAL SMALL CAP - -------------------------------------------------------------------------------- Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $(601) $ 4,181 $ 110,055 $18,659 Unrealized appreciation (depreciation) on open securities purchases and sales 0 14,113 (276,462) 5,237 ----- ------- --------- ------- Net Unrealized appreciation (depreciation) - Other $(601) $18,294 $(166,407) $23,896 ===== ======= ========= =======
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on an accrual basis. Bond discount is accreted and premium is amortized over the expected life of each applicable security. B-41 FORWARD FOREIGN CURRENCY CONTRACTS -- The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movements in currency values. At September 30, 2002, the Funds had no forward foreign currency contracts outstanding. DISTRIBUTIONS TO SHAREHOLDERS -- Income dividends and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these tax and book differences are permanent in nature, such amounts are reclassified among paid in capital, undistributed net investment income and accumulated undistributed net realized gain (loss). These differences are primarily related to foreign currency transactions, deferral of losses on wash sales, and character of capital loss carryforwards. The Funds also utilize tax basis earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. BANK LOANS -- The Funds have an unsecured line of credit with Investors Bank & Trust. It is a committed line of $250 million. Borrowings under this arrangement bear interest at .45% above the Federal Funds Effective Rate. For the year ended September 30, 2002, there were no outstanding borrowings. ACCOUNTING FOR OPTIONS -- When a Fund writes an option, the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from writing options that expire are recorded by the Fund on the expiration date as realized gains from option transactions. The difference between the premium and the amount paid on effecting a closing purchase transaction including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or a loss. If a put option is exercised, the premium reduces the cost basis of the security or currency purchased by the Fund. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Fund could result in the Fund selling or buying a security or currency at a price different from the current market value. During the year ended September 30, 2002, Oakmark, Select, Small Cap, Equity and Income, and Global wrote option contracts. At September 30, 2002, Equity and Income had outstanding option contracts. Portfolio securities valued at $2,567,880 were being held in escrow by the custodian as cover for options written by Equity and Income. 2. TRANSACTIONS WITH AFFILIATES Each Fund has an investment advisory agreement with Harris Associates L.P. ("Adviser"). For management services and facilities furnished, the Funds pay the Adviser monthly fees. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. Annual fee rates are as follows:
FUND ADVISORY FEES FUND ADVISORY FEES - ---------------------------------------------------------------------------------------------------------------- Oakmark Fund 1.00% up to $2 billion; Equity and Income Fund 0.75% 0.90% on the next $1 billion; 0.80% on the next $2 billion; and 0.75% over $5 billion Select Fund 1.00% up to $1 billion; Global Fund 1.00% 0.95% on the next $500 million; 0.90% on the next $500 million; International Fund 1.00% up to $2 billion; 0.85% on the next $500 million; 0.95% on the next 0.80% on the next $2.5 billion; and $1 billion; and 0.75% over $5 billion 0.85% over $3 billion Small Cap Fund 1.00% International Small 1.25% up to $500 Cap Fund million; and 1.10% over $500 million
B-42 The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses are greater than 1.0% for Class I shares of the Equity and Income Fund, and greater than 1.5% for Class I shares of all other domestic funds; are greater than 1.75% for Class I shares of the Global Fund, and greater than 2.0% for Class I shares of all other international funds; are greater than 1.25% for Class II shares of the Equity and Income Fund, and greater than 1.75% for Class II shares of all other domestic funds; are greater than 2.0% for Class II shares of the Global Fund, and greater than 2.25% for Class II shares of all other international funds. During the year ended September 30, 2002, the Funds incurred brokerage commissions, including commissions paid to affiliates of the Adviser, as follows:
FUND TOTAL COMMISSIONS COMMISSIONS PAID TO AFFILIATES --------------------------------------------------------------------------- Oakmark $6,780,742 $1,944,252 Select 7,103,318 1,010,280 Small Cap 653,247 68,113 Equity and Income 4,727,959 787,956 Global 896,230 194,583 International 3,824,992 0 Int'l Small Cap 1,711,855 0
CDC IXIS Asset Management Services Co., an affiliate of the adviser, provides transfer agent services to the Funds. During the year ended September 30, 2002, the Funds incurred the following transfer agent expenses:
FUND TRANSFER AGENT FEES --------------------------------------------------------------------------- Oakmark $2,598,857 Select 1,837,559 Small Cap 400,097 Equity and Income 704,717 Global 188,437 International 753,702 Int'l Small Cap 178,248
The Funds' independent Trustees may participate in a Deferred Compensation Plan which may be terminated at any time. The obligations of the Plan are paid solely out of the assets of the Funds. 3. FEDERAL INCOME TAXES It is the policy of each Fund to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net taxable income, including any net realized gains on investments, to its shareholders. Therefore, no federal income tax provision is required.
COST OF INVESTMENTS NET UNREALIZED FOR FEDERAL INCOME GROSS UNREALIZED GROSS UNREALIZED APPRECIATION FUND TAX PURPOSES APPRECIATION (DEPRECIATION) (DEPRECIATION) ----------------------------------------------------------------------------------------------------- Oakmark $3,652,370,429 $247,594,858 $(595,291,371) $(347,696,513) Select 3,653,927,245 692,943,112 (580,754,209) 112,188,903 Small Cap 415,921,249 50,149,302 (108,633,643) (58,484,339) Equity and Income 2,446,194,767 92,373,384 (198,160,836) (105,787,452) Global 207,674,350 8,586,205 (41,519,093) (32,932,888) International 1,820,971,241 107,877,031 (471,953,223) (364,076,192) Int'l Small Cap 445,238,103 12,236,363 (102,802,819) (90,566,456)
B-43 As of September 30, 2002, the net capital loss carryovers noted below are available to offset future realized capital gains and thereby reduce future taxable gains distributions.
NET CAPITAL LOSS YEARS OF FUND CARRYOVER EXPIRATION --------------------------------------------------------------------------- Oakmark $165,547,384 2008-2010 Select 49,038,583 2009-2010 Equity and Income 3,347,886 2010 Global 463,447 2010 International 14,901,531 2010
For the year ended September 30, 2002, the Funds have elected to defer to October 1, 2002 Post October capital losses of:
FUND AMOUNT --------------------------------------------------------------------------- Oakmark $22,576,461 Select 24,174,966 Small Cap 497,018 Equity and Income 78,012,684 Global 662,686
For the year ended September 30, 2002, Global has elected to defer to October 1, 2002 Post October currency losses of $28,715. At September 30, 2002, the components of distributable earnings (excluding unrealized (depreciation) disclosed below) on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG- TOTAL DISTRIBUTABLE FUND ORDINARY INCOME TERM GAIN EARNINGS ---------------------------------------------------------------------------------------- Oakmark $13,888,257 $ 0 $13,888,257 Select 3,909,462 0 3,909,462 Equity and Income 25,952,231 0 25,952,231 International 15,610,363 0 15,610,363 Int'l Small Cap 3,056,360 9,044,095 12,100,455
Pursuant to Section 852 of the Internal Revenue Code, Int'l Small Cap designates $11,433,302 as capital gain dividends for the year ended September 30, 2002. For corporate shareholders, a portion of the ordinary dividends paid during the Funds' year ended September 30, 2002 qualified for the dividends received deduction, as follows:
FUND --------------------------------------------------------------------------- Oakmark 100.00% Select 100.00% Equity and Income 48.23% Global 49.97%
International and Int'l Small Cap paid qualifying foreign taxes of $2,971,519 and $1,023,528 and earned $34,394,608 and $9,853,898 foreign source income during the year ended September 30, 2002, respectively. Pursuant to Section 853 of the Internal revenue Code, International and Int'l Small Cap designated $0.02507 and $0.02908 per share as foreign taxes paid and $0.29017 and $0.27993 per share as income earned from foreign sources for the year ended September 30, 2002, respectively. During the year ended September 30, 2002, the tax character of distributions paid was as follows:
DISTRIBUTIONS PAID DISTRIBUTIONS PAID FROM ORDINARY FROM LONG-TERM FUND INCOME CAPITAL GAIN --------------------------------------------------------------------------- Oakmark $19,630,625 $ 0 Select 8,379,997 0 Equity and Income 7,028,935 1,896,895 Global 11,596 1,361,554 International 10,247,122 0 Int'l Small Cap 4,821,309 2,389,207
B-44 4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
EQUITY & INT'L OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL CAP ------------------------------------------------------------------------------------------------------------------------------- Purchases at cost $2,294,297 $1,691,592 $231,562 $2,583,815 $269,893 $1,156,420 $413,133 Proceeds from sales 1,471,091 1,364,181 81,723 1,007,679 110,669 278,168 123,782
Purchases at cost and proceeds from sales of long-term U.S. Government securities during the year ended September 30, 2002 were $386,583 and $107,684, respectively for Equity and Income. Transactions in options written during the year ended September 30, 2002 were as follows:
OAKMARK SELECT SMALL CAP ------------------------------------------------------------------------------- NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED CONTRACTS RECEIVED -------------------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 0 $ 0 0 $ 0 Options written 172,645 16,125,038 104,615 10,534,128 9,325 1,683,351 Options terminated in closing purchase transactions (97,910) (9,243,078) (67,380) (6,668,372) (5,800) (1,167,798) Options expired (50,745) (5,804,083) (25,389) (3,500,703) (3,325) (413,956) Options exercised (23,990) (1,077,877) (11,846) (365,053) (200) (101,597) ------- ---------- ------- ----------- ------ ---------- Options outstanding at September 30, 2002 0 $ 0 0 $ 0 0 $ 0 EQUITY & INCOME GLOBAL --------------------------------------------------- NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED -------------------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 450 $ 141,020 Options written 49,964 5,314,503 26,135 3,011,740 Options terminated in closing purchase transactions (30,549) (3,674,211) (24,925) (2,852,310) Options expired (9,194) (999,677) (1,610) (291,350) Options exercised (31) (2,515) (50) (9,100) ------- ----------- ------- ---------- Options outstanding at September 30, 2002 10,190 $ 638,100 0 $ 0
5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the year ended September 30, 2002, is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 -------------------------------------------------------------------------------------------- Dun & Bradstreet Corporation $109,946,411 $ 3,432,695 $0 $178,848,893 Toys 'R' Us, Inc. 210,755,208 10,492,421 0 129,270,730 ------------ ----------- -- ------------ TOTALS $320,701,619 $13,925,116 $0 $308,119,623
B-45 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 ------------------------------------------------------------------------------------------------------------------------------- Department 56, Inc. $10,772,852 $510,789 $0 $ 7,942,000 Optimal Robotics Corp., Class A 6,384,338 200,906 0 5,833,140 R.G. Barry Corporation 10,857,418 31,219 0 3,744,000 ----------- -------- -- ----------- TOTALS $28,014,608 $742,914 $0 $17,519,140 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 ------------------------------------------------------------------------------------------------------------------------------- Chargeurs SA $ 19,034,755 $ 0 $1,216,916 $ 24,632,990 Cordiant Communications Group plc 50,280,582 8,718,722 0 14,630,031 Enodis plc 53,457,790 8,846,818 5,650,112 26,095,013 Fila Holding S.p.A 83,867,401 205,149 0 3,006,328 Michael Page International plc 17,905,974 0 866,135 40,276,985 Orbotech, Ltd. 17,949,095 0 0 27,157,700 ------------ ----------- ---------- ------------ TOTALS $242,495,597 $17,770,689 $7,733,163 $135,799,047 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INT'L SMALL CAP FUND MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 ------------------------------------------------------------------------------------------------------------------------------- Alaska Milk Corporation $ 3,024,829 $ 0 $216,616 $ 1,997,430 Banco Latinoamericano 10,642,049 86,525 0 2,375,386 Mainfreight Limited 6,734,113 0 141,073 4,013,599 Matichon Public Company Limited, Foreign Shares 3,448,354 0 163,123 2,733,15 Pfeiffer Vacuum Technology AG 10,695,295 0 239,563 9,178,710 Royal Daulton plc 8,302,272 0 0 1,755,889 ----------- ------- -------- ----------- TOTALS $42,846,912 $86,525 $760,375 $22,054,170
B-46 THE OAKMARK FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 32.01 $ 26.95 $ 34.37 $ 33.54 $ 41.21 Income From Investment Operations: Net Investment Income 0.12 0.07 0.49 0.36 0.47 Net Gains or Losses on Securities (both realized and unrealized) (3.85) 5.38 (2.91) 2.51 (1.73) --------- -------- --------- --------- --------- Total From Investment Operations: (3.73) 5.45 (2.42) 2.87 (1.26) Less Distributions: Dividends (from net investment income) (0.20) (0.39) (0.26) (0.44) (0.40) Distributions (from capital gains) 0.00 0.00 (4.74) (1.60) (6.01) --------- -------- --------- --------- --------- Total Distributions (0.20) (0.39) (5.00) (2.04) (6.41) --------- -------- --------- --------- --------- Net Asset Value, End of Period $ 28.08 $ 32.01 $ 26.95 $ 34.37 $ 33.54 ========= ======== ========= ========= ========= Total Return (11.77)% 20.42% (7.55)% 7.98% (4.06)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $3,300.9 $3,109.1 $2,038.7 $4,772.8 $6,924.0 Ratio of Expenses to Average Net Assets 1.17% 1.15% 1.21% 1.11% 1.08% Ratio of Net Investment Income to Average Net Assets 0.38% 0.73% 1.42% 1.02% 1.22% Portfolio Turnover Rate 44% 57% 50% 13% 43%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
APRIL 5, 2001 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2002 2001 (a) - --------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 31.97 $32.09 Net Investment Income 0.16 0.05 Net Gains or Losses on Securities (both realized and unrealized) (3.92) (0.17) ------- ------ Total From Investment Operations: (3.76) (0.12) Less Distributions: Dividends (from net investment income) (0.17) 0.00 Distributions (from capital gains) 0.00 0.00 ------- ------ Total Distributions (0.17) 0.00 ------- ------ Net Asset Value, End of Period $ 28.04 $31.97 ======= ====== Total Return (11.85)% (0.37)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 7.7 $ 0.1 Ratio of Expenses to Average Net Assets 1.44% 1.32%* Ratio of Net Investment Income to Average Net Assets 0.35% 0.46%* Portfolio Turnover Rate 44% 57%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was April 5, 2001. B-47 THE OAKMARK SELECT FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 25.20 $ 21.45 $ 20.92 $ 16.76 $ 16.34 Income From Investment Operations: Net Investment Income 0.02 0.03 0.13 0.19 0.03 Net Gains or Losses on Securities (both realized and unrealized) (3.50) 5.17 4.32 4.73 0.56 --------- --------- --------- --------- --------- Total From Investment Operations: (3.48) 5.20 4.45 4.92 0.59 Less Distributions: Dividends (from net investment income) (0.05) (0.09) (0.20) (0.05) 0.00 Distributions (from capital gains) 0.00 (1.36) (3.72) (0.71) (0.17) --------- --------- --------- --------- --------- Total Distributions (0.05) (1.45) (3.92) (0.76) (0.17) --------- --------- --------- --------- --------- Net Asset Value, End of Period $ 21.67 $ 25.20 $ 21.45 $ 20.92 $ 16.76 ========= ========= ========= ========= ========= Total Return (13.85)% 25.75% 24.53% 30.07% 3.64% Ratios/Supplemental Data: Net Assets, End of Period ($million) $3,717.6 $4,161.4 $1,772.0 $1,638.9 $1,227.9 Ratio of Expenses to Average Net Assets 1.07% 1.08% 1.17% 1.16% 1.22% Ratio of Net Investment Income to Average Net Assets 0.09% 0.26% 0.76% 0.98% 0.17% Portfolio Turnover Rate 32% 21% 69% 67% 56%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
DECEMBER 31, 1999 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 (a) - -------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 25.10 $21.40 $18.42 Net Investment Income (Loss) (0.04) 0.00 0.10 Net Gains or Losses on Securities (both realized and unrealized) (3.50) 5.10 2.88 ------- ------ ------ Total From Investment Operations: (3.54) 5.10 2.98 Less Distributions: Dividends (from net investment income) 0.00 (0.06) 0.00 Distributions (from capital gains) 0.00 (1.34) 0.00 ------- ------ ------ Total Distributions 0.00 (1.40) 0.00 ------- ------ ------ Net Asset Value, End of Period $ 21.56 $25.10 $21.40 ======= ====== ====== Total Return (14.10)% 25.28% 16.18% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 64.4 $35.4 $ 6.8 Ratio of Expenses to Average Net Assets 1.36% 1.40% 1.41%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.19)% (0.08)% 0.59%* Portfolio Turnover Rate 32% 21% 69%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was December 31, 1999. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-48 THE OAKMARK SMALL CAP FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 14.57 $ 15.10 $ 13.88 $ 12.63 $ 20.34 Income From Investment Operations: Net Investment Income (Loss) (0.11) 0.00 0.00 0.14 (0.12) Net Gains or Losses on Securities (both realized and unrealized) (0.36) (0.02) 1.22 1.20 (4.73) ------- ------- ------- ------- ------- Total From Investment Operations: (0.47) (0.02) 1.22 1.34 (4.85) Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 0.00 0.00 Distributions (from capital gains) 0.00 (0.51) 0.00 (0.09) (2.86) ------- ------- ------- ------- ------- Total Distributions 0.00 (0.51) 0.00 (0.09) (2.86) ------- ------- ------- ------- ------- Net Asset Value, End of Period $ 14.10 $ 14.57 $ 15.10 $ 13.88 $ 12.63 ======= ======= ======= ======= ======= Total Return (3.23)% 0.07% 8.79% 10.56% (26.37)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $356.9 $264.6 $248.7 $437.1 $618.0 Ratio of Expenses to Average Net Assets 1.33% 1.27% 1.50%(a) 1.48% 1.45% Ratio of Net Investment Income (Loss) to Average Net Assets (0.67)% (0.28)% (0.41)%(a) (0.44)% (0.40)% Portfolio Turnover Rate 22% 47% 28% 68% 34%
(a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Advisers, ratios would have been as follows:
SEPTEMBER 30, 2000 - -------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.59% Ratio of Net Income (Loss) to Average Net Assets (0.50)%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
APRIL 10, 2002 THROUGH SEPTEMBER 30, 2002 (b) - ----------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 19.71 Net Investment Income (Loss) (0.20)(c) Net Gains or Losses on Securities (both realized and unrealized) (5.42) ------- Total From Investment Operations: (5.62) ------- Net Asset Value, End of Period $ 14.09 ======= Total Return (28.51)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.5 Ratio of Expenses to Average Net Assets 1.48%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.85)%* Portfolio Turnover Rate 22%
* Data has been annualized. (b) The date which Class II shares were first sold to the public was April 10, 2002. (c) Computed using average shares outstanding throughout the period. B-49 THE OAKMARK EQUITY AND INCOME FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 17.45 $ 16.50 $ 15.68 $ 13.99 $ 14.49 Income From Investment Operations: Net Investment Income 0.33(a) 0.08 0.35 0.39 0.29 Net Gains or Losses on Securities (both realized and unrealized) (0.40) 2.11 2.28 1.72 0.04 --------- ------- ------- ------- ------- Total From Investment Operations: (0.07) 2.19 2.63 2.11 0.33 Less Distributions: Dividends (from net investment income) (0.16) (0.24) (0.45) (0.21) (0.24) Distributions (from capital gains) (0.04) (1.00) (1.36) (0.21) (0.59) --------- ------- ------- ------- ------- Total Distributions (0.20) (1.24) (1.81) (0.42) (0.83) --------- ------- ------- ------- ------- Net Asset Value, End of Period $ 17.18 $ 17.45 $ 16.50 $ 15.68 $ 13.99 ========= ======= ======= ======= ======= Total Return (0.47)% 14.40% 18.51% 15.32% 2.57% Ratios/Supplemental Data: Net Assets, End of Period ($million) $2,241.9 $620.1 $ 54.5 $ 60.3 $ 57.7 Ratio of Expenses to Average Net Assets 0.96% 0.98% 1.24% 1.18% 1.31% Ratio of Net Investment Income to Average Net Assets 1.71% 2.07% 3.04% 2.65% 2.39% Portfolio Turnover Rate 73% 124% 87% 81% 46%
(a) Computed using average shares outstanding throughout the period. FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
JULY 13, 2000 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 (b) - --------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 17.40 $16.49 $15.51 Net Investment Income 0.30(c) 0.07 0.30 Net Gains or Losses on Securities (both realized and unrealized) (0.40) 2.08 0.68 ------- ------ ------ Total From Investment Operations: (0.10) 2.15 0.98 Less Distributions: Dividends (from net investment income) (0.11) (0.24) 0.00 Distributions (from capital gains) (0.04) (1.00) 0.00 ------- ------ ------ Total Distributions (0.15) (1.24) 0.00 ------- ------ ------ Net Asset Value, End of Period $ 17.15 $17.40 $16.49 ======= ====== ====== Total Return (0.60)% 14.07% 6.32% Ratios/Supplemental Data: Net Assets, End of Period ($million) $118.7 $ 3.3 $ 0.4 Ratio of Expenses to Average Net Assets 1.20% 1.23% 1.32%* Ratio of Net Investment Income to Average Net Assets 1.50% 1.95% 2.59%* Portfolio Turnover Rate 73% 124% 87%
* Data has been annualized. (b) The date which Class II shares were first sold to the public was July 13, 2000. (c) Computed using average shares outstanding throughout the period. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-50 THE OAKMARK GLOBAL FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
AUGUST 4, 1999 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 (a) - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.83 $ 10.91 $ 9.18 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.00(b)(c) 0.03 0.11 0.01 Net Gains or Losses on Securities (both realized and unrealized) 0.76(d) 0.12 1.63 (0.83) ------- ------- ------- ------- Total From Investment Operations: 0.76 0.15 1.74 (0.82) Less Distributions: Dividends (from net investment income) (0.00) (0.17) (0.01) 0.00 Distributions (from capital gains) (0.29) (0.06) 0.00 0.00 ------- ------- ------- ------- Total Distributions (0.29) (0.23) (0.01) 0.00 ------- ------- ------- ------- Net Asset Value, End of Period $ 11.30 $ 10.83 $ 10.91 $ 9.18 ======= ======= ======= ======= Total Return 6.84% 1.37% 18.97% (8.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $175.6 $ 48.2 $ 27.2 $ 24.0 Ratio of Expenses to Average Net Assets 1.55% 1.75%(e) 1.75%(e) 1.75%*(e) Ratio of Net Investment Income (Loss) to Average Net Assets (0.01)% 0.00(e) 0.54%(e) 0.98%*(e) Portfolio Turnover Rate 86% 114% 147% 7%
* Data has been annualized. (a) The date which Fund shares were first offered for sale to the public was August 4, 1999. (b) Amount rounds to less than $(0.01) per share. (c) Computed using average shares outstanding throughout the period. (d) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. (e) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Advisers, ratios would have been as follows:
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - --------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.80% 1.96% 2.22%* Ratio of Net Income (Loss) to Average Net Assets (0.05)% 0.34% 0.51%*
B-51 THE OAKMARK GLOBAL FUND FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
OCTOBER 10, 2001 THROUGH SEPTEMBER 30, 2002 (a) - -------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.25 Net Investment Income (Loss) (0.03) Net Gains or Losses on Securities (both realized and unrealized) 0.31(b) ------ Total From Investment Operations: 0.28 Less Distributions: Dividends (from net investment income) (0.00) Distributions (from capital gains) (0.29) ------ Total Distributions (0.29) ------ Net Asset Value, End of Period $11.24 ====== Total Return 2.31% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.6 Ratio of Expenses to Average Net Assets 1.86%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.26)%* Portfolio Turnover Rate 86%
* Data has been annualized. (a) The date which Class II shares were first offered for sale to the public was October 10, 2001. (b) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-52 THE OAKMARK INTERNATIONAL FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 12.51 $ 15.40 $ 13.95 $ 10.42 $ 18.77 Income From Investment Operations: Net Investment Income (Loss) 0.14 0.20 1.02 (0.34) 0.41 Net Gains or Losses on Securities (both realized and unrealized) (0.31) (2.07) 0.92 4.89 (5.32) --------- -------- -------- -------- -------- Total From Investment Operations: (0.17) (1.87) 1.94 4.55 (4.91) Less Distributions: Dividends (from net investment income) (0.17) (0.51) (0.49) (0.24) (0.58) Distributions (from capital gains) 0.00 (0.51) 0.00 (0.78) (2.86) --------- -------- -------- -------- -------- Total Distributions (0.17) (1.02) (0.49) (1.02) (3.44) --------- -------- -------- -------- -------- Net Asset Value, End of Period $ 12.17 $ 12.51 $ 15.40 $ 13.95 $ 10.42 ========= ======== ======== ======== ======== Total Return (1.53)% (13.10)% 14.27% 46.41% (29.90)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,393.8 $ 738.5 $ 782.4 $ 811.1 $ 756.1 Ratio of Expenses to Average Net Assets 1.31% 1.30% 1.30% 1.29% 1.32% Ratio of Net Investment Income (Loss) to Average Net Assets 1.34% 1.40% 1.87% 1.94% 1.95% Portfolio Turnover Rate 24% 58% 64% 54% 43%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NOVEMBER 4, 1999 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 (a) - ----------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.47 $ 15.37 $ 14.36 Net Investment Income 0.15 0.17 0.96 Net Gains or Losses on Securities (both realized and unrealized) (0.37) (2.10) 0.54 ------- ------- ------- Total From Investment Operations: (0.22) (1.93) 1.50 Less Distributions: Dividends (from net investment income) (0.12) (0.49) (0.49) Distributions (from capital gains) 0.00 (0.48) 0.00 ------- ------- ------- Total Distributions (0.12) (0.97) (0.49) ------- ------- ------- Net Asset Value, End of Period $ 12.13 $ 12.47 $ 15.37 ======= ======= ======= Total Return (1.76)% (13.44)% 10.79% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 48.5 $ 1.9 $ 0.1 Ratio of Expenses to Average Net Assets 1.58% 1.64% 1.50%* Ratio of Net Investment Income to Average Net Assets 1.33% 0.62% 1.98%* Portfolio Turnover Rate 24% 58% 64%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was November 4, 1999. B-53 THE OAKMARK INTERNATIONAL SMALL CAP FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 10.00 $ 11.51 $ 12.64 $ 6.89 $ 12.20 Income From Investment Operations: Net Investment Income 0.11 0.13 0.23 0.24 0.18 Net Gains or Losses on Securities (both realized and unrealized) 0.36(a) (0.81) (0.66) 5.71 (4.09) ------- ------- ------- ------- ------- Total From Investment Operations: 0.47 (0.68) (0.43) 5.95 (3.91) Less Distributions: Dividends (from net investment income) (0.16) (0.34) (0.11) (0.20) (0.06) Distributions (from capital gains) (0.14) (0.49) (0.59) 0.00 (1.34) ------- ------- ------- ------- ------- Total Distributions (0.30) (0.83) (0.70) (0.20) (1.40) ------- ------- ------- ------- ------- Net Asset Value, End of Period $ 10.17 $ 10.00 $ 11.51 $ 12.64 $ 6.89 ======= ======= ======= ======= ======= Total Return 4.68% (6.18)% (3.44)% 88.02% (35.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $357.7 $118.9 $ 90.3 $155.4 $ 51.8 Ratio of Expenses to Average Net Assets 1.64% 1.74% 1.77% 1.79% 1.96% Ratio of Net Investment Income to Average Net Assets 1.28% 1.83% 1.99% 2.31% 2.17% Portfolio Turnover Rate 42% 49% 40% 126% 69%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
JANUARY 8, 2001 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2002 2001 (b) - ---------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 9.97 $10.73 Net Investment Income 0.13(c) 0.15 Net Gains or Losses on Securities (both realized and unrealized) 0.30(c)(d) (0.91) ------ ------ Total From Investment Operations: 0.43 (0.76) Less Distributions: Dividends (from net investment income) (0.12) 0.00 Distributions (from capital gains) (0.14) 0.00 ------ ------ Total Distributions (0.26) 0.00 ------ ------ Net Asset Value, End of Period $10.14 $ 9.97 ====== ====== Total Return 4.25% (7.08)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.3 $ 0.0 Ratio of Expenses to Average Net Assets 1.87% 1.97%* Ratio of Net Investment Income to Average Net Assets 1.06% 1.76%* Portfolio Turnover Rate 42% 49%
* Data has been annualized. (a) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. (b) The date which Class II shares were first sold to the public was January 8, 2001. (c) Computed using average shares outstanding throughout the period. (d) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-54 THE OAKMARK FAMILY OF FUNDS INDEPENDENT AUDITORS' REPORT TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF HARRIS ASSOCIATES INVESTMENT TRUST: WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES, INCLUDING THE SCHEDULES OF INVESTMENTS, OF 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 GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (COLLECTIVELY, THE "FUNDS") AS OF SEPTEMBER 30, 2002, AND THE RELATED STATEMENTS OF OPERATIONS, CHANGES IN NET ASSETS AND FINANCIAL HIGHLIGHTS FOR THE YEAR THEN ENDED. THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE THE RESPONSIBILITY OF THE FUNDS' MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS. THE FUNDS' FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FOR THE PERIODS ENDED PRIOR TO SEPTEMBER 30, 2002, WERE AUDITED BY OTHER AUDITORS WHO HAVE CEASED OPERATIONS. THOSE AUDITORS EXPRESSED AN UNQUALIFIED OPINION ON THOSE STATEMENTS AND FINANCIAL HIGHLIGHTS IN THEIR REPORT DATED OCTOBER 26, 2001. WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES INCLUDED CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 2002, BY CORRESPONDENCE WITH THE FUNDS' CUSTODIAN AND BROKERS. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION. IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF EACH OF THE FUNDS AS OF SEPTEMBER 30, 2002, THE RESULTS OF THEIR OPERATIONS, THE CHANGES IN THEIR NET ASSETS, AND THEIR FINANCIAL HIGHLIGHTS FOR THE YEAR THEN ENDED, IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. DELOITTE & TOUCHE LLP Chicago, Illinois October 25, 2002 B-55 PART C OTHER INFORMATION ITEM 23. 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. (a) Agreement and declaration of trust (exhibit 1 to Post-effective Amendment no. 18*) (b) Bylaws as amended and restated through January 15, 2003 (c) The registrant does not issue share certificates (d)(1) Investment advisory agreement for The Oakmark Fund dated October 30, 2000 (exhibit (d)(1) to Post-effective Amendment no. 25*) (d)(2) First amendment to investment advisory agreement for The Oakmark Fund dated April 18, 2001 (exhibit (d)(2) to Post-effective Amendment no. 26*) (d)(3) Investment advisory agreement for The Oakmark Select Fund dated October 30, 2000 (exhibit (d)(2) to Post-effective Amendment no. 25*) (d)(4) First amendment to investment advisory agreement for The Oakmark Select Fund dated April 18, 2001 (exhibit (d)(4) to Post-effective Amendment no. 26*) (d)(5) Investment advisory agreement for The Oakmark Small Cap Fund dated October 30, 2000 (exhibit (d)(3) to Post-effective Amendment no. 25*) (d)(6) First amendment to investment advisory agreement for The Oakmark Small Cap Fund dated April 18, 2001 (exhibit (d)(6) to Post-effective Amendment no. 26*) (d)(7) Investment advisory agreement for The Oakmark Equity and Income Fund dated October 30, 2000 (exhibit (d)(4) to Post-effective Amendment no. 25*) (d)(8) First amendment to investment advisory agreement for The Oakmark Equity and Income Fund dated April 18, 2001 (exhibit (d)(8) to Post-effective Amendment no. 26*) (d)(9) Investment advisory agreement for The Oakmark Global Fund dated October 30, 2000 (exhibit (d)(5) to Post-effective Amendment no. 25*) (d)(10) First amendment to investment advisory agreement for The Oakmark Global Fund dated April 18, 2001 (exhibit (d)(10) to Post-effective Amendment no. 26*) C-1 (d)(11) Investment advisory agreement for The Oakmark International Fund dated October 30, 2000 (exhibit (d)(6) to Post-effective Amendment no. 25*) (d)(12) First amendment to investment advisory agreement for The Oakmark International Fund dated April 18, 2001 (exhibit (d)(12) to Post-effective Amendment no. 26*) (d)(13) Investment advisory agreement for The Oakmark International Small Cap Fund dated October 30, 2000 (exhibit (d)(7) to Post-effective Amendment no. 25*) (d)(14) First amendment to investment advisory agreement for The Oakmark International Small Cap Fund dated April 18, 2001 (exhibit (d)(14) to Post-effective Amendment no. 26*) (e)(1) Distribution agreement dated January 26, 2001 (exhibit (e) to Post-effective Amendment no. 25*) (e)(2) First amendment to Distribution Agreement dated April 18, 2001 (exhibit (e)(2) to Post-effective Amendment no. 26*) (f) None (g)(1) Custodian agreement with Investors Bank & Trust Company dated as of April 1, 2002 (g)(2) Foreign custody delegation agreement with Investors Bank & Trust Company dated as of April 1, 2002 (g)(3) Special custody and pledge agreement among Harris Associates Investment Trust, Banc of America Securities LLC and Investors Bank & Trust Company dated as of March 28, 2002 (h)(1) Transfer agent agreement with Nvest Services Company, Inc. dated September 1, 1999 (exhibit (h) to Post-effective Amendment no. 23*) (h)(2) Amendment to transfer agency and service agreement dated June 12, 2001 (exhibit (h)(2) to Post-effective Amendment no. 26*) (h)(3) Administration agreement with Investors Bank & Trust Company dated as of April 1, 2002 (i)(1) Opinion of Bell, Boyd & Lloyd dated November 1, 1998 - The Oakmark Fund (exhibit 10.1 to Post-effective Amendment no. 21*) (i)(2) Opinion of Bell, Boyd & Lloyd dated July 23, 1992 - The Oakmark International Fund (exhibit 10.2 to Post-effective Amendment no. 18*) (i)(3) 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*) (i)(4) Opinion of Bell, Boyd & Lloyd dated October 22, 1996 - The Oakmark Select Fund (exhibit 10.5 to Post-effective Amendment no. 17*) C-2 (i)(5) Opinion of Bell, Boyd & Lloyd dated May 21, 1999 - The Oakmark Global Fund (exhibit (i)(6) to Post-effective Amendment no. 22*) (i)(6) Consent of Bell, Boyd & Lloyd LLC dated January 28, 2003 (j) Consent of independent auditors dated January 27, 2003 (k) None (l)(1) Organizational expense agreement for The Oakmark Fund dated July 31, 1991 (exhibit 13.1 to Post-effective Amendment no. 18*) (l)(2) Organizational expense agreement for The Oakmark International Fund dated September 15, 1992 (exhibit 13.2 to Post-effective Amendment no. 18*) (l)(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*) (l)(4) Organizational expense agreement for The Oakmark Select Fund dated October 22, 1996 (exhibit 13.4 to Post-effective Amendment no. 17*) (l)(5) Form of subscription agreement (exhibit 13.5 to Post-effective Amendment no. 18*) (m) None (n) Rule 18f-3 plan (exhibit 18 to Post-effective Amendment no. 21*) (p)(1) Code of ethics of Harris Associates L.P., Harris Associates Securities L.P. and Harris Associates Investment Trust dated January 15, 2002 (exhibit (p)(1) to Post-effective Amendment no. 27*) (p)(2) Code of ethics for non-interested trustees of Harris Associates Investment Trust dated January 15, 2002 (exhibit (p)(2) to Post-effective Amendment no. 27*) - ---------- * Incorporated by reference ITEM 24. 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 Funds" and in the Statement of Additional Information under the caption "Investment Adviser" and "Trustees and Officers" is incorporated by reference. ITEM 25. 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 C-3 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 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. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER The information in the prospectus under the caption "Management of the Funds" is incorporated by reference. Neither HALP 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 HALP 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 27. PRINCIPAL UNDERWRITERS (a) Harris Associates Securities L.P. acts as principal underwriter for the registrant. (b) Set forth below is information with respect to each officer of Harris Associates Securities L.P.:
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH NAME UNDERWRITER REGISTRANT ---- -------------------------- -------------------------- Robert Levy None President John R. Raitt Chief Executive Officer Executive Vice President Kristi L. Rowsell Chief Financial Officer Treasurer Margaret M. Head Chief Compliance Officer None
The principal business address of each officer of Harris Associates Securities L.P. is Two North LaSalle Street, Suite 500, Chicago, Illinois 60602. C-4 (c) There are no commissions or other compensation received from the registrant directly or indirectly, by any principal underwriter who is not an affiliated person of the registrant or an affiliated person of an affiliated person. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS (1) Investors Bank & Trust Company 200 Clarendon Street P.O. Box 9130 Boston, MA 02117-9130 Rule 31a-1(a); Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8) (2) Harris Associates L.P. Two North LaSalle Street, Suite 500 Chicago, IL 60602 Rule 31a-1(a); Rule 31a-1(b)(4), (9), (10), (11); Rule 31a-1(d); Rule 31a-1(f); Rule 31a-2(a); Rule 31a-2(c); Rule 31a-2(e) (3) CDC IXIS Asset Management Services, Inc. 399 Boylston Street Boston, Massachusetts 02116 Rule 31a-1(a); Rule 31a-1(b)(1) ITEM 29. MANAGEMENT SERVICES None ITEM 30. UNDERTAKINGS Not applicable 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 post-effective amendment pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois on January 29, 2003. HARRIS ASSOCIATES INVESTMENT TRUST By /s/ Robert M. Levy ---------------------------------- Robert M. Levy, President 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 ) - ---------------------------------- ) Victor A. Morgenstern ) ) /s/ Allan J. Reich Trustee ) - ---------------------------------- ) Allan J. Reich ) ) January 29, 2003 /s/ Marv R. Rotter Trustee ) - ---------------------------------- ) Marv R. Rotter ) ) /s/ Burton W. Ruder Trustee ) - ---------------------------------- ) Burton W. Ruder ) ) /s/ Peter S. Voss Trustee ) - ---------------------------------- ) Peter S. Voss ) ) /s/ Gary N. Wilner Trustee ) - ---------------------------------- ) Gary N. Wilner ) ) /s/ Robert M. Levy President (chief ) - ---------------------------------- executive officer) ) Robert M. Levy ) ) /s/ Kristi L. Rowsell Treasurer (Principal ) - ---------------------------------- financial and ) Kristi L. Rowsell accounting officer) ) ) Exhibits Being Filed with This Amendment EXHIBIT (b) Bylaws as amended and restated through January 15, 2003 (g)(1) Custodian agreement with Investors Bank & Trust Company dated as of April 1, 2002 (g)(2) Foreign custody delegation agreement with Investors Bank & Trust Company dated as of April 1, 2002 (g)(3) Special custody and pledge agreement among Harris Associates Investment Trust, Banc of America Securities LLC and Investors Bank & Trust Company dated as of March 28, 2002 (h)(3) Administration agreement with Investors Bank & Trust Company dated as of April 1, 2002 (i)(6) Consent of Bell, Boyd & Lloyd LLC (j) Consent of independent auditors EX-99.(B) 3 a2101864zex-99_b.txt EXHIBIT 99.(B) EXHIBIT (b) HARRIS ASSOCIATES INVESTMENT TRUST BYLAWS [as amended through January 15, 2003] SECTION 1 AGREEMENT AND DECLARATION OF TRUST AND PRINCIPAL OFFICE 1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of Harris Associates Investment Trust, a Massachusetts business trust established by the Declaration of Trust (the "Trust"). 1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust shall be located in Chicago, Illinois. SECTION 2 SHAREHOLDERS 2.1 SHAREHOLDER MEETINGS. A meeting of the shareholders of the Trust or of any one or more series or classes of shares may be called at any time by the Trustees, by the chairman of the board, by the president or, if the Trustees, the chairman of the board and the president shall fail to call any meeting of shareholders for a period of 30 days after written application of one or more shareholders who hold at least 10% of all outstanding shares of the Trust, if shareholders of all series are required under the Declaration of Trust to vote in the aggregate and not by individual series at such meeting, or of any series or class, if shareholders of such series or class are entitled under the Declaration of Trust to vote by individual series or class at such meeting, then such shareholders may call such meeting. If the meeting is a meeting of the shareholders of one or more series or classes of shares, but not a meeting of all shareholders of the Trust, then only the shareholders of such one or more series or classes shall be entitled to notice of and to vote at the meeting. Each call of a meeting shall state the place, date, hour and purposes of the meeting. [amended 9/9/97 and 1/17/01] 2.2 PLACE OF MEETINGS. All meetings of the shareholders shall be held at the principal office of the Trust, or, to the extent permitted by the Declaration of Trust, at such other place within the United States as shall be designated by the Trustees or the president of the Trust. [amended 9/9/97 and 1/17/01] 2.3 NOTICE OF MEETINGS. A written notice of each meeting of shareholders, stating the place, date and hour and the purposes of the meeting, shall be given at least seven days before the meeting to each shareholder entitled to vote thereat by leaving such notice with him or her or at his or her residence or usual place of business or by mailing it, postage prepaid, and addressed to such shareholder at his or her address as it appears in the records of the Trust. Such notice shall be given by the secretary or an assistant secretary or by an officer designated by the Trustees. No notice of any meeting of shareholders need be given to a shareholder if a written waiver of notice, executed before or after the meeting by such shareholder or his or her attorney thereunto duly authorized, is filed with the records of the meeting. 2.4 BALLOTS. No ballot shall be required for any election unless requested by a shareholder present or represented at the meeting and entitled to vote in the election. 2.5 PROXIES. Shareholders entitled to vote may vote either in person or by proxy in writing dated not more than six months before the meeting named therein, which proxies shall be filed with the secretary or other person responsible to record the proceedings of the meeting before being voted. The placing of a shareholder's name on a proxy pursuant to telephone or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such shareholder shall constitute execution of such proxy by or on behalf of such shareholder. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. [amended 7/18/00] SECTION 3 TRUSTEES 3.1 COMMITTEES. The Trustees may appoint from their number an executive committee and other committees. Except as the Trustees may otherwise determine, any such committee may make rules for conduct of its business. [amended 1/15/03] 3.2 REGULAR MEETINGS. Regular meetings of the Trustees may be held without call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. 3.3 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any time and at any place designated in the call of the meeting, when called by the chairman of the board or the president or by two or more Trustees, sufficient notice thereof being given to each Trustee by the secretary or an assistant secretary or by the officer or one of the Trustees calling the meeting. [amended 9/9/97 and 1/17/01] 3.4 NOTICE. It shall be sufficient notice to a Trustee to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to the Trustee at his or her usual or last known business or residence address or to give notice to him or her in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.5 QUORUM. At any meeting of the Trustees a majority of the Trustees then in office shall constitute a quorum; provided, however, a quorum shall not be less than two. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. [amended 9/21/93] 2 3.6 ELIGIBILITY TO SERVE. No person shall be appointed or elected to serve as a Trustee after attaining the age of 65 years. Any Trustee shall retire as a Trustee as of the end of the calendar year in which the Trustee attains the age of 72 years. [adopted 6/15/93; amended 1/16/02] 3.7 NOMINATION OF NON-INTERESTED TRUSTEES. No Trustee who is an "interested person" of the Trust within the meaning of the Investment Company Act of 1940 shall vote for the nomination of any person for election as a non-interested Trustee. [adopted 1/17/01] SECTION 4 OFFICERS AND AGENTS 4.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a president, an executive vice president, one or more vice presidents, a treasurer, a secretary and such other officers, if any, as the Trustees from time to time may in their discretion elect or appoint. The Trust may also have such agents, if any, as the Trustees from time to time may in their discretion appoint. Any officer may be but none need be a Trustee or shareholder. Any two or more offices may be held by the same person. [amended 9/21/93, 9/9/97, 1/17/01, 4/18/01 and 1/15/03] 4.2 POWERS. Subject to the other provisions of these Bylaws, each officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as are commonly incident to his or her office as if the Trust were organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate, including without limitation the power to make purchases and sales of portfolio securities of the Trust pursuant to recommendations of the Trust's investment adviser in accordance with the policies and objectives of the Trust set forth in its prospectus and with such general or specific instructions as the Trustees may from time to time have issued. 4.3 ELECTION. The president, the executive vice president, one or more vice presidents, the treasurer and the secretary shall be elected annually by the Trustees. Other officers, if any, may be elected or appointed by the Trustees at any time. [amended 9/21/93, 9/9/97, 1/17/01 and 1/15/03] 4.4 TENURE. The president, the executive vice president, any vice president, the treasurer and the secretary shall hold office until their respective successors are chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. Each other officer shall hold office at the pleasure of the Trustee. Each agent shall retain his or her authority at the pleasure of the Trustees. [amended 9/21/93, 9/9/97, 1/17/01 and 1/15/03] 4.5 PRESIDENT. The president (a) shall be the chief executive and chief operating officer of the Trust; (b) except as may otherwise be provided by the Board of Trustees, in the absence of the chairman of the board, shall preside at all meetings of the Board of Trustees and shareholders; and (c) shall have general and active management of the business of the Trust and shall see that all orders and resolutions of the Board of Trustees are carried into effect. The president shall also have such other duties and powers as shall be designated from time to time by the Trustees. [amended 9/9/97 and 1/17/01] 3 4.6 EXECUTIVE VICE PRESIDENT. In the absence of the president, or in the event of the president's inability or refusal to act, the executive vice president shall perform the duties of the president and when so acting shall have all the powers of the president. The executive vice president shall also have such other duties and powers as shall be designated from time to time by the Trustees or the president. [amended 1/15/03] 4.7 VICE PRESIDENTS. In the absence of the president and the executive vice president, or in the event of the president's and the executive vice president's inability or refusal to act, the vice president (or if there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president or the executive vice president (as the case may be) and when so acting shall have all the powers of the president or the executive vice president (as the case may be). Any vice president shall also have such other duties and powers as shall be designated from time to time by the Trustees, the president or the executive vice president. [amended 9/21/93, 9/9/97, 1/17/01, 4/18/01 and 1/15/03] 4.8 TREASURER AND ASSISTANT TREASURER. The treasurer shall be the chief financial and accounting officer of the Trust, shall be responsible for preparation of financial statements of the Trust and, subject to any arrangement made by the Trustees with a bank or trust company or other organization as custodian or transfer or shareholder services agent, shall be in charge of its valuable papers and its books of account and accounting records. The treasurer shall also have such other duties and powers as shall be designated from time to time by the Trustees, the president or the executive vice president. In the absence of the treasurer, if there is an assistant treasurer the assistant treasurer shall perform the duties of the treasurer and when so acting shall have the powers of the treasurer. The assistant treasurer shall also have such other duties and powers as shall be designated from time to time by the Trustees, the president, the executive vice president or the treasurer. [amended 9/21/93, 9/9/97, 1/17/01 and 1/15/03] 4.9 SECRETARY AND ASSISTANT SECRETARY. The secretary shall record all proceedings of the shareholders and the Trustees in books to be kept therefor, which books shall be kept at the principal office of the Trust. In the absence of the secretary from any meeting of shareholders or Trustees, an assistant secretary, or if there be none or he or she is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof in the aforesaid books. [amended 9/9/97] SECTION 5 RESIGNATIONS AND REMOVALS Any Trustee or officer may resign at any time by delivering his or her resignation in writing to the chairman of the board, the president, the executive vice president, the treasurer or the secretary or to a meeting of the Trustees. The Trustees may remove any officer elected by them with or without cause by the vote of a majority of the Trustees then in office. Except to the extent expressly provided in a written agreement with the Trust, no Trustee or officer resigning, and no officer removed, shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. [amended 9/9/97, 1/17/01 and 1/15/03] 4 SECTION 6 VACANCIES A vacancy in any office may be filled at any time. Each successor shall hold office for the unexpired term, and in the case of the president, the executive vice president, the treasurer and the secretary, until his or her successor is chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. [amended 9/9/97, 1/17/01 and 1/15/03] SECTION 7 SHARES OF BENEFICIAL INTEREST 7.1 SHARE CERTIFICATES. No certificates certifying the ownership of shares shall be issued except as the Trustees may otherwise authorize. In the event that the Trustees authorize the issuance of share certificates, subject to the provisions of Section 7.3, each shareholder shall be entitled to a certificate stating the number of shares owned by him or her, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the president, the executive vice president or a vice president and by the secretary, treasurer or an assistant secretary or treasurer. Such signatures may be facsimiles if the certificate is signed by a transfer agent or by a registrar, other than a Trustee, officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he or she were such officer at the time of its issue. [amended 9/21/93, 9/9/97, 1/17/01 and 1/15/03] In lieu of issuing certificates for shares, the Trustees or the transfer agent may either issue receipts therefor or keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case be deemed, for all purposes hereunder, to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms hereof. 7.2 LOSS OF CERTIFICATES. In the case of the alleged loss or destruction or the mutilation of a share certificate, a duplicate certificate may be issued in place thereof, upon such terms as the Trustees may prescribe. 7.3 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any time discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership or shares in the Trust. SECTION 8 RECORD DATE AND CLOSING TRANSFER BOOKS The Trustees may fix in advance a time, which shall not be more than 60 days before the date of any meeting of shareholders or the date for the payment of any dividend or making of any other distribution to shareholders, as the record date for determining the shareholders having the right to notice and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such 5 record date shall have such right, notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any of such purposes close the transfer books for all or any part of such period. SECTION 9 SEAL The seal of the Trust shall, subject to alteration by the Trustees, consist of a flat-faced circular die with the word "Massachusetts," together with the name of the Trust and the year of its organization, cut or engraved thereon; but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. SECTION 10 EXECUTION OF PAPERS Except as the Trustees may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the Trust shall be signed, and all transfer of securities standing in the name of the Trust shall be executed, by the president, the executive vice president, one of the vice presidents or the treasurer or by whomsoever else shall be designated for that purpose by the vote of the Trustees and need not bear the seal of the Trust. [amended 9/9/97, 1/17/01 and 1/15/03] SECTION 11 FISCAL YEAR Except as from time to time otherwise provided by the Trustees, the fiscal year of the Trust shall end on September 30. [amended 6/10/97] SECTION 12 AMENDMENTS These Bylaws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees, or by one or more writings signed by such a majority. 6 EX-99.(G)(1) 4 a2101864zex-99_g1.txt EXHIBIT 99.(G)(1) EXHIBIT (g)(1) CUSTODIAN AGREEMENT AGREEMENT made as of this 1st day of April, 2002, between HARRIS ASSOCIATES INVESTMENT TRUST, a business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank"). The Fund, an open-end management investment company on behalf of the portfolios/series listed on APPENDIX A hereto (as such APPENDIX A may be amended from time to time) (each a "Portfolio" and collectively, the "Portfolios"), desires to place and maintain all of its portfolio securities and cash in the custody of the Bank. The Bank has at least the minimum qualifications required by Section 17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as custodian of the portfolio securities and cash of the Fund, and has indicated its willingness to so act, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows: 1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as custodian of its Portfolio Securities (as defined below) and cash delivered to the Bank as hereinafter described and the Bank hereby accepts appointment as such custodian and agrees to act as such upon the terms and conditions hereinafter set forth. For the services rendered pursuant to this Agreement the Fund agrees to pay to the Bank fees as may be agreed to from time to time in writing between the parties. 2. DEFINITIONS. Whenever used herein, the terms listed below will have the following meaning: 2.1 AUTHORIZED PERSON. Authorized Person will mean any of the persons duly authorized to give Proper Instructions or otherwise act on behalf of the Fund by appropriate resolution of its Board, and set forth in a certificate as required by Section 4 hereof. 2.2 BOARD. Board will mean the Board of Directors or the Board of Trustees of the Fund, as the case may be. 2.3 SECURITY. The term security as used herein will have the same meaning assigned to such term in the Securities Act of 1933, as amended, including, without limitation, any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to, or option contract to purchase or sell any of the foregoing, and futures, forward contracts and options thereon. 2.4 PORTFOLIO SECURITY. Portfolio Security will mean any security owned by a Portfolio. 2.5 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless otherwise indicated, any request, direction, instruction, or certification in writing signed by any two Authorized Persons of the Fund. 2.6 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal Reserve-Treasury Department Book Entry System for United States government, instrumentality and agency securities operated by the Federal Reserve Bank, its successor or successors and its nominee or nominees. 2.7 DEPOSITORY. Depository shall mean The Depository Trust Company ("DTC"), a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange Act"), its successor or successors and its nominee or nominees. The term "Depository" shall further mean and include any other person authorized to act as a depository under the 1940 Act, its successor or successors and its nominee or nominees, specifically identified in a certified copy of a resolution of the Board. 2.8 PROPER INSTRUCTIONS. Proper Instructions shall mean (i) instructions regarding the purchase or sale of Portfolio Securities, and payments and deliveries in connection therewith, given by an Authorized Person, such instructions to be given in such form and manner as the Bank and the Fund shall agree upon from time to time, and (ii) instructions (which may be continuing instructions) regarding other matters signed or initialed by an Authorized Person. Oral instructions will be considered Proper Instructions if the Bank reasonably believes them to have been given by an Authorized Person. The Fund shall cause all oral instructions to be promptly confirmed in writing. If such subsequent written confirmation of an oral instruction is not received by the Bank prior to a transaction, it shall in no way affect the validity of a transaction or the authorization thereof by the Fund. The Bank shall act upon and comply with any subsequent Proper Instruction which modifies a prior instruction and the sole obligation of the Bank with respect to any follow-up or confirming instruction shall be to make reasonable efforts to detect any discrepancy between the original instruction and such confirmation and to report such discrepancy to the Fund. The Fund shall be responsible, at the Fund's expense, for taking any action, including any reprocessing, necessary to correct any such discrepancy or error, and to the extent such action requires the Bank to act, the Fund shall give the Bank specific Proper Instructions as to the action required. Upon receipt by the Bank of an Officers' Certificate as to the authorization by the Board accompanied by a detailed description of procedures approved by the Fund, Proper Instructions may include communication effected directly between electro-mechanical or electronic devices provided that the Board and the Bank agree in writing that such procedures afford adequate safeguards for the Fund's assets. 3. SEPARATE ACCOUNTS. If the Fund has more than one series or portfolio, the Bank will segregate the assets of each series or portfolio to which this Agreement relates into a separate account for each such series or portfolio containing the assets of such series or portfolio (and all investment earnings thereon). Unless the context otherwise requires, any reference in this Agreement to any actions to be taken by the Fund shall be deemed to refer to the Fund acting on behalf of one or more of its series, any reference in this Agreement to any assets of the Fund, including, without limitation, any portfolio securities and cash and earnings thereon, shall be deemed to refer only to assets of the applicable series, any duty or obligation of the Bank hereunder to the Fund shall be deemed to refer to duties and obligations with respect to such individual series and any obligation or liability of the Fund hereunder shall be binding only with respect to such individual series, and shall be discharged only out of the assets of such series. 4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant Secretary of the Fund will at all times maintain on file with the Bank his or her certification to the Bank, in such form as may be acceptable to the Bank, of (i) the names and signatures of the Authorized Persons and (ii) the names of the members of the Board, it being understood that as soon as is reasonably practicable after the occurrence of any change in the information set forth in the most recent certification on file (including without limitation any person named in the most recent certification who is no longer an Authorized Person as designated therein), the Secretary or Assistant Secretary of the Fund will sign a new or amended certification setting forth the change and the new, additional or omitted names or signatures. The Bank will be entitled to rely and act upon any Officers' Certificate given to it by the Fund which has been signed by Authorized Persons named in the most recent certification received by the Bank. 2 5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and maintain a separate account or accounts in the name of the Fund, on behalf of each of its Portfolios, or in the name of the Bank, as Custodian of the Fund, on behalf of each of its Portfolios, and will deposit to the account of the Fund all of the cash of the Fund, except for cash held by a subcustodian appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds, delivered to the Bank, subject only to draft or order by the Bank acting pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which may be continuing instructions) or in the case of payments for redemptions and repurchases of outstanding shares of beneficial interest of the Fund, notification from the Fund's transfer agent as provided in Section 7, requesting such payment, designating the payee or the account or accounts to which the Bank will release funds for deposit, and stating that it is for a purpose permitted under the terms of this Section 5, specifying the applicable subsection, the Bank will make payments of cash held for the accounts of the Fund, insofar as funds are available for that purpose, only as permitted in subsections 5.1-5.9 below. 5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the Fund, against contemporaneous receipt of such securities by the Bank or against delivery of such securities to the Bank in accordance with generally accepted settlement practices and customs in the jurisdiction or market in which the transaction occurs registered in the name of the Fund or in the name of, or properly endorsed and in form for transfer to, the Bank, or a nominee of the Bank, or receipt for the account of the Bank pursuant to the provisions of Section 6 below, each such payment to be made at the purchase price shown on a broker's confirmation (or transaction report in the case of Book Entry Paper (as that term is defined in Section 6.6 hereof)) of purchase of the securities received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made. 5.2 REDEMPTIONS. In such amount as may be necessary for the repurchase or redemption of shares of beneficial interest of the Fund offered for repurchase or redemption in accordance with Section 7 of this Agreement. 5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the account of the Fund of dividends or other distributions to shareholders as may from time to time be declared by the Board, interest, taxes, management or supervisory fees, distribution fees, fees of the Bank for its services hereunder and reimbursement of the expenses and liabilities of the Bank as provided herein, fees of any transfer agent or trustee of the Fund, fees for legal, accounting, and auditing services, or other operating expenses of the Fund. 5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in connection with the conversion, exchange or surrender of Portfolio Securities or securities subscribed to by the Fund held by or to be delivered to the Bank. 5.5 REPAYMENT OF LOANS. To repay loans of money made to the Fund, but, in the case of final payment, only upon redelivery to the Bank of any Portfolio Securities pledged or hypothecated therefor and upon surrender of documents evidencing the loan; 5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund for the purpose of collateralizing the obligation to return to the Fund certificates borrowed from the Fund representing Portfolio Securities, but only upon redelivery to the Bank of such borrowed certificates. 5.7 FOREIGN EXCHANGE TRANSACTIONS. (a) For payments in connection with foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery (collectively, "Foreign Exchange Agreements") which may be entered into by the Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper Instructions to specify the currency broker or banking institution (which may be the Bank, or any other subcustodian or agent hereunder, acting as principal) with which the contract or option is made, and the Bank 3 shall have no duty with respect to the selection of such currency brokers or banking institutions with which the Fund deals or for their failure to comply with the terms of any contract or option. (b) In order to secure any payments in connection with Foreign Exchange Agreements which may be entered into by the Bank pursuant to Proper Instructions, the Fund agrees that the Bank shall have a continuing lien and security interest, to the extent of any payment due under any Foreign Exchange Agreement, in and to any property at any time held by the Bank for the Fund's benefit or in which the Fund has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole discretion, at any time to charge any such payment due under any Foreign Exchange Agreement against any balance of account standing to the credit of the Fund on the Bank's books. 5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of the Fund, or other obligations of the Fund incurred for proper Fund purposes; provided that before making any such payment the Bank will also receive a certified copy of a resolution of the Board signed by an Authorized Person (other than the Person certifying such resolution) and certified by its Secretary or Assistant Secretary, naming the person or persons to whom such payment is to be made, and either describing the transaction for which payment is to be made and declaring it to be an authorized transaction of the Fund, or specifying the amount of the obligation for which payment is to be made, setting forth the purpose for which such obligation was incurred and declaring such purpose to be a proper corporate purpose. 5.9 TERMINATION: Upon the termination of this Agreement as hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement. 6. SECURITIES. 6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided herein, and except for securities to be delivered to any subcustodian appointed pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold pursuant to the provisions hereof, in a separate account or accounts and physically segregated at all times from those of other persons, any and all Portfolio Securities which may now or hereafter be delivered to it by or for the account of the Fund, on behalf of each of its Portfolios. All such Portfolio Securities will be held or disposed of by the Bank for, and subject at all times to, the instructions of the Fund pursuant to the terms of this Agreement. Subject to the specific provisions herein relating to Portfolio Securities that are not physically held by the Bank, the Bank will register all Portfolio Securities (unless otherwise directed by Proper Instructions or an Officers' Certificate), in the name of a registered nominee of the Bank as defined in the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, and will execute and deliver all such certificates in connection therewith as may be required by such laws or regulations or under the laws of any state. The Fund will from time to time furnish to the Bank appropriate instruments to enable it to hold or deliver in proper form for transfer, or to register in the name of its registered nominee, any Portfolio Securities which may from time to time be registered in the name of the Fund. 6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank will vote any of the Portfolio Securities held hereunder, except in accordance with Proper Instructions or an Officers' Certificate. The Bank will execute and deliver, or cause to be executed and delivered, to the Fund all notices, proxies and proxy soliciting materials delivered to the Bank with respect to such Securities, such proxies to be executed by the registered holder of such Securities (if registered otherwise than in the name of the Fund), but without indicating the manner in which such proxies are to be voted. 6.3 CORPORATE ACTION. If at any time the Bank is notified that an issuer of any Portfolio Security has taken or intends to take a corporate action (a "Corporate Action") that affects the rights, privileges, powers, 4 preferences, qualifications or ownership of a Portfolio Security, including without limitation, liquidation, consolidation, merger, recapitalization, reorganization, reclassification, subdivision, combination, stock split or stock dividend, which Corporate Action requires an affirmative response or action on the part of the holder of such Portfolio Security (a "Response"), the Bank shall notify the Fund promptly of the Corporate Action, the Response required in connection with the Corporate Action and the Bank's deadline for receipt from the Fund of Proper Instructions regarding the Response (the "Response Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight courier all notices, information statements or other materials relating to the Corporate Action promptly after receipt of such materials by the Bank. (a) The Bank shall act upon a required Response only after receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the date specified as the Response Deadline and only if the Bank (or its agent or subcustodian hereunder) has actual possession of all necessary Securities, consents and other materials no later than 5:00 p.m. on the date specified as the Response Deadline. (b) The Bank shall have no duty to act upon a required Response if Proper Instructions relating to such Response and all necessary Securities, consents and other materials are not received by and in the possession of the Bank no later than 5:00 p.m. on the date specified as the Response Deadline. Notwithstanding, the Bank may, in its sole discretion, use its best efforts to act upon a Response for which Proper Instructions and/or necessary Securities, consents or other materials are received by the Bank after 5:00 p.m. on the date specified as the Response Deadline, it being acknowledged and agreed by the parties that any undertaking by the Bank to use its best efforts in such circumstances shall in no way create any duty upon the Bank to complete such Response prior to its expiration, unless the Fund was unable to provide such Proper Instructions and/or necessary securities, consents or other materials due to the Bank's negligent actions or omissions, in which case the Bank shall use its best efforts to complete such Response prior to its expiration. (c) In the event that the Fund notifies the Bank of a Corporate Action requiring a Response and the Bank has received no other notice of such Corporate Action, the Response Deadline shall be 48 hours prior to the Response expiration time set by the depository processing such Corporate Action. (d) Section 14.3(e) of this Agreement shall govern any Corporate Action involving Foreign Portfolio Securities held by a Selected Foreign Sub-Custodian. 6.4 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving deposits of Fund assets in the Book-Entry System, and (ii) for any subsequent changes to such arrangements following such approval, the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval: (a) The Bank may keep Portfolio Securities in the Book-Entry System provided that such Portfolio Securities are represented in an account ("Account") of the Bank (or its agent) in such System which shall not include any assets of the Bank (or such agent) other than assets held as a fiduciary, custodian, or otherwise for customers; (b) The records of the Bank (and any such agent) with respect to the Fund's participation in the Book-Entry System through the Bank (or any such agent) will identify by book entry the Portfolio Securities which are included with other securities deposited in the Account and shall at all times during the regular business hours of the Bank (or such agent) be open for inspection by duly authorized officers, employees or agents of the Fund. Where securities are transferred to the Fund's account, the Bank shall also, by book entry or otherwise, identify as belonging to the Fund a quantity of securities in a fungible bulk of securities (i) registered in the name of the Bank or its nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve Bank; 5 (c) The Bank (or its agent) shall pay for securities purchased for the account of the Fund or shall pay cash collateral against the return of Portfolio Securities loaned by the Fund upon (i) receipt of advice from the Book-Entry System that such Securities have been transferred to the Account, and (ii) the making of an entry on the records of the Bank (or its agent) to reflect such payment and transfer for the account of the Fund. The Bank (or its agent) shall transfer securities sold or loaned for the account of the Fund upon (i) receipt of advice from the Book-Entry System that payment for securities sold or payment of the initial cash collateral against the delivery of securities loaned by the Fund has been transferred to the Account; and (ii) the making of an entry on the records of the Bank (or its agent) to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Book-Entry System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Bank and shall be provided to the Fund at its request. The Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers to or from the account of the Fund; (d) The Bank will promptly provide the Fund with any report obtained by the Bank or its agent on the Book-Entry System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Book-Entry System; 6.5 USE OF A DEPOSITORY. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving deposits in DTC or other such Depository and (ii) for any subsequent changes to such arrangements following such approval, the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval: (a) The Bank may use a Depository to hold, receive, exchange, release, lend, deliver and otherwise deal with Portfolio Securities including stock dividends, rights and other items of like nature, and to receive and remit to the Bank on behalf of the Fund all income and other payments thereon and to take all steps necessary and proper in connection with the collection thereof; (b) Registration of Portfolio Securities may be made in the name of any nominee or nominees used by such Depository; (c) Payment for securities purchased and sold may be made through the clearing medium employed by such Depository for transactions of participants acting through it. Upon any purchase of Portfolio Securities, payment will be made only upon delivery of the securities to or for the account of the Fund and the Fund shall pay cash collateral against the return of Portfolio Securities loaned by the Fund only upon delivery of the Securities to or for the account of the Fund; and upon any sale of Portfolio Securities, delivery of the Securities will be made only against payment therefor or, in the event Portfolio Securities are loaned, delivery of Securities will be made only against receipt of the initial cash collateral to or for the account of the Fund; and (d) The Bank shall use its best efforts to provide that: (i) The Depository obtains replacement of any certificated Portfolio Security deposited with it in the event such Security is lost, destroyed, wrongfully taken or otherwise not available to be returned to the Bank upon its request; (ii) Proxy materials received by a Depository with respect to Portfolio Securities deposited with such Depository are forwarded immediately to the Bank for prompt transmittal to the Fund; 6 (iii) Such Depository promptly forwards to the Bank confirmation of any purchase or sale of Portfolio Securities and of the appropriate book entry made by such Depository to the Fund's account; (iv) Such Depository prepares and delivers to the Bank such records with respect to the performance of the Bank's obligations and duties hereunder as may be necessary for the Fund to comply with the recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and (v) Such Depository delivers to the Bank all internal accounting control reports, whether or not audited by an independent public accountant, as well as such other reports as the Fund may reasonably request in order to verify the Portfolio Securities held by such Depository. 6.6 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving participation in a system maintained by the Bank for the holding of commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year following such approval the Board has received and approved the arrangements, upon receipt of Proper Instructions and upon receipt of confirmation from an Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund, commercial paper issued by issuers with whom the Bank has entered into a book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry Paper, the Bank agrees that: (a) The Bank will maintain all Book-Entry Paper held by the Fund in an account of the Bank that includes only assets held by it for customers; (b) The records of the Bank with respect to the Fund's purchase of Book-Entry Paper through the Bank will identify, by book-entry, commercial paper belonging to the Fund which is included in the Book-Entry System and shall at all times during the regular business hours of the Bank be open for inspection by duly authorized officers, employees or agents of the Fund; (c) The Bank shall pay for Book-Entry Paper purchased for the account of the Fund upon contemporaneous (i) receipt of advice from the Issuer that such sale of Book-Entry Paper has been effected, and (ii) the making of an entry on the records of the Bank to reflect such payment and transfer for the account of the Fund; (d) The Bank shall cancel such Book-Entry Paper obligation upon the maturity thereof upon contemporaneous (i) receipt of advice that payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the making of an entry on the records of the Bank to reflect such payment for the account of the Fund; and (e) The Bank will send to the Fund such reports on its system of internal accounting control with respect to the Book-Entry Paper as the Fund may reasonably request from time to time. 6.7 USE OF IMMOBILIZATION PROGRAMS. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving the maintenance of Portfolio Securities in an immobilization program operated by a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii) for each year following such approval the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that the Board has withdrawn its approval, the Bank shall enter into such immobilization program with such bank acting as a subcustodian hereunder. 6.8 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar CDs may be physically held by the European branch of the U.S. banking institution that is the issuer of such Eurodollar CD (a "European Branch"), provided that such Portfolio Securities are identified on the books of the Bank as belonging to the 7 Fund and that the books of the Bank identify the European Branch holding such Portfolio Securities. Notwithstanding any other provision of this Agreement to the contrary, except as stated in the first sentence of this subsection 6.8, the Bank shall be under no other duty with respect to such Eurodollar CDs belonging to the Fund. 6.9 OPTIONS AND FUTURES TRANSACTIONS. (a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-the-Counter. (i) The Bank shall take action as to put options ("puts") and call options ("calls") purchased or sold (written) by the Fund regarding escrow or other arrangements (i) in accordance with the provisions of any agreement entered into upon receipt of Proper Instructions among the Bank, any broker-dealer registered with the National Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations. (ii) Unless another agreement requires it to do so, the Bank shall be under no duty or obligation to see that the Fund has deposited or is maintaining adequate margin, if required, with any broker in connection with any option, nor shall the Bank be under duty or obligation to present such option to the broker for exercise unless it receives Proper Instructions from the Fund. The Bank shall have no responsibility for the legality of any put or call purchased or sold on behalf of the Fund, the propriety of any such purchase or sale, or the adequacy of any collateral delivered to a broker in connection with an option or deposited to or withdrawn from a Segregated Account (as defined in subsection 6.10 below). The Bank specifically, but not by way of limitation, shall not be under any duty or obligation to: (i) periodically check or notify the Fund that the amount of such collateral held by a broker or held in a Segregated Account is sufficient to protect such broker or the Fund against any loss; (ii) effect the return of any collateral delivered to a broker; or (iii) advise the Fund that any option it holds, has or is about to expire. Such duties or obligations shall be the sole responsibility of the Fund. (b) Puts, Calls and Futures Traded on Commodities Exchanges (i) The Bank shall take action as to puts, calls and futures contracts ("Futures") purchased or sold by the Fund in accordance with the provisions of any agreement entered into upon the receipt of Proper Instructions among the Fund, the Bank and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund. (ii) The responsibilities of the Bank as to Futures, puts and calls traded on commodities exchanges, any Futures Commission Merchant account and the Segregated Account shall be limited as set forth in subparagraph (a)(ii) of this Section 6.9 as if such subparagraph referred to Futures Commission Merchants rather than brokers, and Futures and puts and calls thereon instead of options. 6.10 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper Instructions establish and maintain a Segregated Account or Accounts for and on behalf of the Fund. (a) Cash and/or Portfolio Securities may be transferred into a Segregated Account upon receipt of Proper Instructions in the following circumstances: (i) in accordance with the provisions of any agreement among the Fund, the Bank and a broker-dealer registered under the Exchange Act and a member of the NASD or any Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Options 8 Clearing Corporation and of any registered national securities exchange or the Commodity Futures Trading Commission or any registered Contract Market, or of any similar organizations regarding escrow or other arrangements in connection with transactions by the Fund; (ii) for the purpose of segregating cash or securities in connection with options purchased or written by the Fund or commodity Futures purchased or written by the Fund; (iii) for the deposit of liquid assets, such as cash, U.S. Government securities or other high grade debt obligations, having a market value (marked to market on a daily basis) at all times equal to not less than the aggregate purchase price due on the settlement dates of all the Fund's then outstanding forward commitment or "when-issued" agreements relating to the purchase of Portfolio Securities and all the Fund's then outstanding commitments under reverse repurchase agreements entered into with broker-dealer firms; (iv) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of Segregated Accounts by registered investment companies; (v) for other proper corporate purposes, but only, in the case of this clause (v), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board, or of the executive committee of the Board signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such Segregated Account and declaring such purposes to be proper corporate purposes. (b) Cash and/or Portfolio Securities may be withdrawn from a Segregated Account pursuant to Proper Instructions in the following circumstances: (i) with respect to assets deposited in accordance with the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in accordance with the provisions of such agreements; (ii) with respect to assets deposited pursuant to (a)(iii) or (a)(iv) above, for sale or delivery to meet the Fund's obligations under outstanding forward commitment or when-issued agreements for the purchase of Portfolio Securities and under reverse repurchase agreements; (iii) for exchange for other liquid assets of equal or greater value deposited in the Segregated Account; (iv) to the extent that the Fund's outstanding forward commitment or when-issued agreements for the purchase of portfolio securities or reverse repurchase agreements are sold to other parties or the Fund's obligations thereunder are met from assets of the Fund other than those in the Segregated Account; (v) for delivery upon settlement of a forward commitment or when-issued agreement for the sale of Portfolio Securities; or (vi) with respect to assets deposited pursuant to (a)(v) above, in accordance with the purposes of such account as set forth in Proper Instructions. 6.11 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon receipt of Proper Instructions relating to the purchase by the Fund of interest-bearing fixed-term and call deposits, transfer cash, by wire or otherwise, in such amounts and to such bank or banks as shall be indicated in such Proper Instructions. The Bank shall include in its records with respect to the assets of the Fund appropriate notation as to the amount of 9 each such deposit, the banking institution with which such deposit is made (the "Deposit Bank"), and shall retain such forms of advice or receipt evidencing the deposit, if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed Portfolio Securities of the Fund and the responsibility of the Bank therefore shall be the same as and no greater than the Bank's responsibility in respect of other Portfolio Securities of the Fund. 6.12 TRANSFER OF SECURITIES. The Bank will transfer, exchange, deliver or release Portfolio Securities held by it hereunder, insofar as such Securities are available for such purpose, provided that the Bank will allow any transfer, exchange, delivery or release under this Section only upon receipt of Proper Instructions. The Proper Instructions shall state that such transfer, exchange or delivery is for a purpose permitted under the terms of this Section 6.12, and shall specify the applicable subsection, or describe the purpose of the transaction with sufficient particularity to permit the Bank to ascertain the applicable subsection. After receipt of such Proper Instructions, the Bank will transfer, exchange, deliver or release Portfolio Securities only in the following circumstances: (a) Upon sales of Portfolio Securities for the account of the Fund, against contemporaneous receipt by the Bank of payment therefor in full, or against payment to the Bank in accordance with generally accepted settlement practices and customs in the jurisdiction or market in which the transaction occurs, each such payment to be in the amount of the sale price shown in a broker's confirmation of sale received by the Bank before such payment is made, as confirmed in the Proper Instructions received by the Bank before such payment is made; (b) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan of merger, consolidation, reorganization, share split-up, change in par value, recapitalization or readjustment or otherwise, upon exercise of subscription, purchase or sale or other similar rights represented by such Portfolio Securities, or for the purpose of tendering shares in the event of a tender offer therefor, provided, however, that in the event of an offer of exchange, tender offer, or other exercise of rights requiring the physical tender or delivery of Portfolio Securities, the Bank shall have no liability for failure to so tender in a timely manner unless such Proper Instructions are received by the Bank at least two business days prior to the date required for tender, and unless the Bank (or its agent or subcustodian hereunder) has actual possession of such Security at least two business days prior to the date of tender; (c) Upon conversion of Portfolio Securities pursuant to their terms into other securities; (d) For the purpose of redeeming in-kind shares of the Fund upon authorization from the Fund; (e) In the case of option contracts owned by the Fund, for presentation to the endorsing broker; (f) When such Portfolio Securities are called, redeemed or retired or otherwise become payable; (g) For the purpose of effectuating the pledge of Portfolio Securities held by the Bank in order to collateralize loans made to the Fund by any bank, including the Bank; provided, however, that such Portfolio Securities will be released only upon payment to the Bank for the account of the Fund of the moneys borrowed, provided further, however, that in cases where additional collateral is required to secure a borrowing already made, and such fact is made to appear in the Proper Instructions, Portfolio Securities may be released for that purpose without any such payment. In the event that any pledged Portfolio Securities are held by the Bank, they will be so held for the account of the lender, and after notice to the Fund from the lender in accordance with the normal procedures of the lender and any loan agreement between the fund and the lender 10 that an event of deficiency or default on the loan has occurred, the Bank may deliver such pledged Portfolio Securities to or for the account of the lender; (h) for the purpose of releasing certificates representing Portfolio Securities, against contemporaneous receipt by the Bank of the fair market value of such security, as set forth in the Proper Instructions received by the Bank before such payment is made; (i) for the purpose of delivering securities lent by the Fund to a bank or broker dealer, but only against receipt in accordance with street delivery custom except as otherwise provided herein, of adequate collateral as agreed upon from time to time by the Fund and the Bank, and upon receipt of payment in connection with any repurchase agreement relating to such securities entered into by the Fund; (j) for other authorized transactions of the Fund or for other proper corporate purposes; provided that before making such transfer, the Bank will also receive a certified copy of resolutions of the Board, signed by an authorized officer of the Fund (other than the officer certifying such resolution) and certified by its Secretary or Assistant Secretary, specifying the Portfolio Securities to be delivered, setting forth the transaction in or purpose for which such delivery is to be made, declaring such transaction to be an authorized transaction of the Fund or such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made; and (k) upon termination of this Agreement as hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement. As to any deliveries made by the Bank pursuant to this Section 6.12, securities or cash receivable in exchange therefor shall be delivered to the Bank. 7. REDEMPTIONS. In the case of payment of assets of the Fund held by the Bank in connection with redemptions and repurchases by the Fund of outstanding shares of beneficial interest, the Bank will rely on notification by the Fund's transfer agent of receipt of a request for redemption and certificates, if issued, in proper form for redemption before such payment is made. Payment shall be made in accordance with the Articles of Incorporation or Declaration of Trust and By-laws of the Fund (collectively the "Articles"), from assets available for said purpose. 8. MERGER, DISSOLUTION, etc. OF FUND. In the case of the following transactions, not in the ordinary course of business, namely, the merger of the Fund into or the consolidation of the Fund with another investment company, the sale by the Fund of all, or substantially all, of its assets to another investment company, or the liquidation or dissolution of the Fund and distribution of its assets, upon the payment of the fees, disbursements and expenses of the Bank through the end of the then current term of this Agreement, the Bank will deliver the Portfolio Securities held by it under this Agreement and disburse cash only upon the order of the Fund set forth in an Officers' Certificate, accompanied by a certified copy of a resolution of the Board authorizing any of the foregoing transactions. Upon completion of such delivery and disbursement and the payment of all such fees, disbursements and expenses of the Bank, this Agreement will terminate and the Bank shall be released from any and all obligations hereunder. 9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding anything herein to the contrary, unless and until the Bank receives an Officers' Certificate to the contrary, the Bank will take the following actions without prior authorization or instruction of the Fund or the transfer agent: 9.1 Endorse for collection and collect on behalf of and in the name of the Fund all checks, drafts, or other negotiable or transferable instruments or other orders for the payment of money received by it for the account of the Fund and hold for the account of the Fund all income, dividends, interest and other payments or distributions of cash with respect to the Portfolio Securities held thereunder; 11 9.2 Present for payment all coupons and other income items held by it for the account of the Fund which call for payment upon presentation and hold the cash received by it upon such payment for the account of the Fund; 9.3 Receive and hold for the account of the Fund all securities received as a distribution on Portfolio Securities as a result of a stock dividend, share split-up, reorganization, recapitalization, merger, consolidation, readjustment, distribution of rights and similar securities issued with respect to any Portfolio Securities held by it hereunder. 9.4 Execute as agent on behalf of the Fund all necessary ownership and other certificates and affidavits required by the Internal Revenue Code or the regulations of the Treasury Department issued thereunder, or by the laws of any state, now or hereafter in effect, inserting the Fund's name on such certificates as the owner of the securities covered thereby, to the extent it may lawfully do so and as may be required to obtain payment in respect thereof. The Bank will execute and deliver such certificates in connection with Portfolio Securities delivered to it or by it under this Agreement as may be required under the provisions of the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, or under the laws of any State; 9.5 Present for payment all Portfolio Securities which are called, redeemed, retired or otherwise become payable, and hold cash received by it upon payment for the account of the Fund; and 9.6 Exchange interim receipts or temporary securities for definitive securities. 10. COLLECTIONS AND DEFAULTS. The Bank will use reasonable efforts to collect any funds which may to its knowledge become collectible arising from Portfolio Securities, including dividends, interest and other income, and to transmit to the Fund notice actually received by it of any call for redemption, offer of exchange, right of subscription, reorganization or other proceedings affecting such Securities. If Portfolio Securities upon which such income is payable are in default or payment is refused after due demand or presentation, the Bank will notify the Fund in writing of any default or refusal to pay within two business days from the day on which it receives knowledge of such default or refusal. 11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will maintain records with respect to transactions for which the Bank is responsible pursuant to the terms and conditions of this Agreement, and in compliance with the applicable rules and regulations of the 1940 Act. Such records shall be considered the property of the Funds. The books and records of the Bank pertaining to its actions under this Agreement and reports by the Bank or its independent accountants concerning its accounting system, procedures for safeguarding duly authorized securities and internal accounting controls will be open to inspection and audit at reasonable times by officers, employees or agents of or auditors employed by the Fund and will be maintained and preserved by the Bank in the manner and in accordance with the applicable rules and regulations under the 1940 Act. The Bank shall perform fund accounting and shall keep the books of account as set forth in this Agreement and render statements or copies of such records daily or monthly as reasonably requested by the Treasurer or any duly authorized officer of the Fund. The Bank shall provide the Funds, at such times as the Funds may reasonably request, but not less than annually, with reports by independent public accountants on the accounting system, internal controls and procedures for safeguarding duly authorized securities; such reports shall be of sufficient scope and in sufficient detail as may reasonable be required by the Funds to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 12 The Bank shall assist generally in the preparation of the Fund's registration statement on Form N-1A; reports to shareholders, the SEC and others; audits of accounts, including audits by the independent auditors of the Funds with respect to the Bank's activities hereunder in connection with the preparation of the Funds' Form N-1A, Form N-SAR or annual reports; the fulfillment by a Fund of any other requirements of applicable federal or state law or regulation, or any regulatory body; and other ministerial matters of like nature. 12. FUND EVALUATION AND YIELD CALCULATION 12.1 FUND ACCOUNTING. The Bank shall keep the books of account of each Fund and shall compute and, unless otherwise directed by the Board, determine the net asset value and the public offering price of a share of beneficial interest of the Fund, such determination to be made in accordance with the provisions of the Articles and By-laws of the Fund and the Prospectus and Statement of Additional Information relating to the Fund, as they may from time to time be amended, and any applicable resolutions of the Board at the time in force and applicable; and promptly to notify the Fund, the proper exchange and the NASD or such other persons as the Fund may request of the results of such computation and determination. In computing the net asset value hereunder, the Bank may rely in good faith upon information furnished to it by any Authorized Person in respect of (i) the manner of accrual of the liabilities of the Fund and in respect of liabilities of the Fund not appearing on its books of account kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such reserves have been authorized, (iii) the source of the quotations to be used in computing the net asset value, (iv) the value to be assigned to any security for which no price quotations are available, and (v) the method of computation of the public offering price on the basis of the net asset value of the shares, and the Bank shall not be responsible for any loss occasioned by such reliance or for any good faith reliance on any quotations received from a source pursuant to (iii) or (iv) above. 12.2. YIELD CALCULATION. The Bank will compute the performance results of the Fund (the "Yield Calculation") in accordance with the provisions of Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases") promulgated by the Securities and Exchange Commission, and any subsequent amendments to, published interpretations of or general conventions accepted by the staff of the Securities and Exchange Commission with respect to such releases or the subject matter thereof ("Subsequent Staff Positions"), subject to the terms set forth below: (a) The Bank shall compute the Yield Calculation for the Fund for the stated periods of time as shall be mutually agreed upon, and communicate in a timely manner the result of such computation to the Fund. (b) In performing the Yield Calculation, the Bank will derive the items of data necessary for the computation from the records it generates and maintains for the Fund pursuant Section 11 hereof. The Bank shall have no responsibility to review, confirm, or otherwise assume any duty or liability with respect to the accuracy or correctness of any such data supplied to it by the Fund, any of the Fund's designated agents or any of the Fund's designated third party providers. (c) At the request of the Bank, the Fund shall provide, and the Bank shall be entitled to rely on, written standards and guidelines to be followed by the Bank in interpreting and applying the computation methods set forth in the Releases or any Subsequent Staff Positions as they specifically apply to the Fund. In the event that the computation methods in the Releases or the Subsequent Staff Positions or the application to the Fund of a standard or guideline is not free from doubt or in the event there is any question of interpretation as to the characterization of a particular security or any aspect of a security or a payment with respect thereto (e.g., original issue discount, participating debt security, income or return of capital, etc.) or otherwise or as to any other element of the computation which is pertinent to the Fund, the Fund or its designated agent shall have the full responsibility for making the determination of how the security or payment is to be treated for purposes of the computation and how the computation is to be made and shall inform the Bank thereof on a timely basis. The Bank shall have no responsibility to make independent determinations with 13 respect to any item which is covered by this Section, and shall not be responsible for its computations made in accordance with such determinations so long as such computations are mathematically correct. (d) The Fund shall keep the Bank informed of all publicly available information and of any non-public advice, or information obtained by the Fund from its independent auditors or by its personnel or the personnel of its investment adviser, or Subsequent Staff Positions related to the computations to be undertaken by the Bank pursuant to this Agreement and the Bank shall not be deemed to have knowledge of such information (except as contained in the Releases) unless it has been furnished to the Bank in writing or the Bank otherwise has actual knowledge of such information. 13. ADDITIONAL SERVICES. The Bank shall perform the additional services for the Fund as are set forth on APPENDIX B hereto. APPENDIX B may be amended from time to time upon agreement of the parties to include further additional services to be provided by the Bank to the Fund. 14. DUTIES OF THE BANK. 14.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE. The Bank shall be held to the standard of good faith and reasonable care in carrying out its obligations under this Agreement; however, the Bank will be under no duty or obligation to inquire into and will not be liable for: (a) the validity of the issue of any Portfolio Securities purchased by or for the Fund, the legality of the purchases thereof or the propriety of the price incurred therefor; (b) the legality of any sale of any Portfolio Securities by or for the Fund or the propriety of the amount for which the same are sold; (c) the legality of an issue or sale of any shares of beneficial interest of the Fund or the sufficiency of the amount to be received therefor; (d) the legality of the repurchase of any shares of beneficial interest of the Fund or the propriety of the amount to be paid therefor; (e) the legality of the declaration of any dividend by the Fund or the legality of the distribution of any Portfolio Securities as payment in kind of such dividend; and (f) any property or moneys of the Fund unless and until received by it, and any such property or moneys delivered or paid by it pursuant to the terms hereof. Moreover, the Bank will not be under any duty or obligation to ascertain whether any Portfolio Securities at any time delivered to or held by it for the account of the Fund are such as may properly be held by the Fund under the provisions of its Articles, By-laws, any federal or state statutes or any rule or regulation of any governmental agency. 14.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE FUND HELD IN THE UNITED STATES. The Bank may employ agents of its own selection in the performance of its duties hereunder and shall be responsible for the acts and omissions of such agents as if performed by the Bank hereunder. Without limiting the foregoing, certain duties of the Bank hereunder may be performed by one or more affiliates of the Bank. Upon receipt of Proper Instructions, the Bank may employ subcustodians selected by or at the direction of the Fund, provided that any such subcustodian meets at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with respect to property of the Fund held in the United States. The Bank shall have no liability to the Fund or any other person by reason of any act or 14 omission of any such subcustodian selected by or at the direction of the Fund and the Fund shall indemnify the Bank and hold it harmless from and against any and all actions, suits and claims, arising directly or indirectly out of the performance of any subcustodian selected by or at the direction of the Fund. Upon request of the Bank, the Fund shall assume the entire defense of any action, suit, or claim subject to the foregoing indemnity. The Fund shall pay all fees and expenses of any subcustodian. 14.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE OF THE UNITED STATES. (a) APPOINTMENT OF FOREIGN CUSTODY MANAGER. (i) If the Fund has appointed the Bank Foreign Custody Manager (as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's duties and obligations with respect to the Fund's Portfolio Securities and other assets maintained outside the United States shall be, to the extent not set forth herein, as set forth in the Delegation Agreement between the Fund and the Bank (the "Delegation Agreement"). (ii) If the Fund has appointed any other person or entity Foreign Custody Manager, the Bank shall act only upon Proper Instructions from the Fund with regard to any of the Fund's Portfolio Securities or other assets held or to be held outside of the United States, and the Bank shall be without liability for any Claim (as that term is defined in Section 15 hereof) arising out of maintenance of the Fund's Portfolio Securities or other assets outside of the United States. The Fund also agrees that it shall enter into a written agreement with such Foreign Custody Manager that shall obligate such Foreign Custody Manager to provide to the Bank in a timely manner all information required by the Bank in order to complete its obligations hereunder. The Bank shall not be liable for any Claim arising out of the failure of such Foreign Custody Manager to provide such information to the Bank. (b) SEGREGATION OF SECURITIES. The Bank shall identify on its books as belonging to the Fund the Foreign Portfolio Securities held by each foreign sub-custodian (each an "Eligible Foreign Custodian") selected by the Foreign Custody Manager, subject to receipt by the Bank of the necessary information from such Eligible Foreign Custodian if the Foreign Custody Manager is not the Bank. (c) ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. If the Bank is the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will use its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as an Eligible Foreign Custodian insofar as such books and records relate to the performance of such foreign banking institution with regard to the Fund's Portfolio Securities and other assets. (d) REPORTS BY BANK. If the Bank is the Fund's Foreign Custody Manager, the Bank will supply to the Fund the reports required under the Delegation Agreement. (e) TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. Transactions with respect to the assets of the Fund held by an Eligible Foreign Custodian shall be effected pursuant to Proper Instructions from the Fund to the Bank and shall be effected in accordance with the applicable agreement between the Foreign Custody Manager and such Eligible Foreign Custodian. If at any time any Foreign Portfolio Securities shall be registered in the name of the nominee of the Eligible Foreign Custodian, the Fund agrees to hold any such nominee harmless from any liability by reason of the registration of such securities in the name of such nominee. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Portfolio Securities received for the account of the Fund and delivery of Foreign Portfolio Securities maintained for the account of the Fund may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an 15 agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. In connection with any action to be taken with respect to the Foreign Portfolio Securities held hereunder, including, without limitation, the exercise of any voting rights, subscription rights, redemption rights, exchange rights, conversion rights or tender rights, or any other action in connection with any other right, interest or privilege with respect to such Securities (collectively, the "Rights"), the Bank shall promptly transmit to the Fund such information in connection therewith as is made available to the Bank by the Eligible Foreign Custodian, and shall promptly forward to the applicable Eligible Foreign Custodian any instructions, forms or certifications with respect to such Rights, and any instructions relating to the actions to be taken in connection therewith, as the Bank shall receive from the Fund pursuant to Proper Instructions. Notwithstanding the foregoing, the Bank shall have no further duty or obligation with respect to such Rights, including, without limitation, the determination of whether the Fund is entitled to participate in such Rights under applicable U.S. and foreign laws, or the determination of whether any action proposed to be taken with respect to such Rights by the Fund or by the applicable Eligible Foreign Custodian will comply with all applicable terms and conditions of any such Rights or any applicable laws or regulations, or market practices within the market in which such action is to be taken or omitted. (f) TAX LAW. The Bank shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Bank as custodian of the Fund by the tax laws of any jurisdiction, and it shall be the responsibility of the Fund to notify the Bank of the obligations imposed on the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Eligible Foreign Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of jurisdictions for which the Fund has provided such information. 14.4 INSURANCE. The Bank shall use the same care with respect to the safekeeping of Portfolio Securities and cash of the Fund held by it as it uses in respect of its own similar property but it need not maintain any special insurance for the benefit of the Fund. 14.5 ADVANCES BY THE BANK. The Bank may, in its sole discretion, advance funds on behalf of the Fund to make any payment permitted by this Agreement upon receipt of any proper authorization required by this Agreement for such payments by the Fund. Should such a payment or payments, with advanced funds, result in an overdraft (due to insufficiencies of the Fund's account with the Bank, or for any other reason) this Agreement deems any such overdraft or related indebtedness a loan made by the Bank to the Fund payable on demand. Such overdraft shall bear interest at the current rate charged by the Bank for such loans unless the Fund shall provide the Bank with agreed upon compensating balances. The Fund agrees that the Bank shall have a continuing lien and security interest to the extent of any overdraft or indebtedness and to the extent required by law, in and to any property at any time held by it for the Fund's benefit or in which the Fund has an interest and which is then in the Bank's possession or control (or in the possession or control of any third party acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole discretion, at any time to charge any overdraft or indebtedness, together with interest due thereon, against any balance of account standing to the credit of the Fund on the Bank's books. 14.6. FEES AND EXPENSES OF THE BANK. For the services rendered by the Bank hereunder, the Fund will pay to the Bank such fees at such rate as shall be agreed upon in writing by the parties from time to time. The Fund will also pay or reimburse the Bank from time to time for any transfer taxes payable upon any transfers of Portfolio Securities made hereunder, and for all necessary, proper and reasonable disbursements, expenses and charges made or incurred by the Bank in the performance of this Agreement (including any duties listed on any Schedule hereto, if any) including any indemnities for any loss, liabilities or expense to the Bank as provided herein. The Bank will also be entitled to reimbursement by the Fund for all reasonable expenses incurred in 16 conjunction with termination of this Agreement and any conversion or transfer work done in connection therewith unless the Fund terminates the Agreement pursuant to its right under Sections 16.1(i) or 16.1(ii), in which case the Bank shall not be entitled to reimbursement for expenses incurred in conjunction with termination of this Agreement and any conversion or transfer work done in connection therewith. Fees and expenses will be calculated monthly. Fees and expenses owed to the Bank for any month may be charged against any cash balance held by the Fund beginning on the first (1st) business day after the end of such month based on information then available. Fees charged to an account may result in an overdraft that will be subject to normal interest charges. The Fund will have thirty (30) days after the receipt of an invoice to dispute any charge that appears on such invoice. After such thirty (30) day period, the invoice will be deemed to be complete and accurate and may no longer be disputed. 15. LIMITATION OF LIABILITY. 15.1 Notwithstanding anything in this Agreement to the contrary, in no event shall the Bank or any of its officers, directors, employees or agents (each, a "Bank Indemnified Party" and collectively, the "Bank Indemnified Parties") be liable to the Fund or any third party for, and the Fund shall indemnify and hold the Bank and the Bank Indemnified Parties harmless from and against, any and all loss, damage, liability, actions, suits, claims, costs and expenses, including legal fees, (a "Claim") arising as a result of any act or omission of the Bank or any Bank Indemnified Party under this Agreement, except for any Claim resulting from the negligence, willful misfeasance or bad faith of the Bank or any Bank Indemnified Party. Without limiting the foregoing, neither the Bank nor any Bank Indemnified Parties shall be liable for, and the Bank and the Bank Indemnified Parties shall be indemnified against, any Claim (other than Claims arising from the negligence, willful misfeasance or bad faith of the Bank or any Bank Indemnified Parties) arising as a result of: (a) Any act or omission by the Bank or any Indemnified Party in good faith reliance upon the terms of this Agreement, any Officer's Certificate, Proper Instructions, resolution of the Board, telegram, telecopier, notice, request, certificate or other instrument reasonably believed by the Bank to genuine; (b) Any act or omission of any subcustodian selected by or at the direction of the Fund; (c) Any act or omission of any Foreign Custody Manager other than the Bank or any act or omission of any Eligible Foreign Custodian if the Bank is not the Foreign Custody Manager; (d) Any Corporate Action, distribution or other event related to Portfolio Securities which, at the direction of the Fund, have not been registered in the name of the Bank or its nominee; (e) Any Corporate Action requiring a Response for which the Bank has not received Proper Instructions or obtained actual possession of all necessary Securities, consents or other materials by 5:00 p.m. on the date specified as the Response Deadline, unless the Fund was unable to provide such Proper Instructions and/or necessary securities, consents or other materials due to the Bank's negligent actions, or omissions; (f) Any act or omission of any European Branch of a U.S. banking institution that is the issuer of Eurodollar CDs in connection with any Eurodollar CDs held by such European Branch; (g) Information relied on in good faith by the Bank and supplied by any Authorized Person in connection with the calculation of (i) the net asset value and public offering price of the shares of beneficial interest of the Fund or (ii) the Yield Calculation; or 15.2 Notwithstanding anything in this Agreement to the contrary, in no event shall the Fund or any of its officers, trustees, employees or agents (each, a "Fund Indemnified Party" and collectively, the "Fund 17 Indemnified Parties") be liable to the Bank or any third party for, and the Bank shall indemnify and hold the Fund and the Fund Indemnified Parties harmless from and against any Claim to the extent arising from the negligence, willful misfeasance or bad faith of the Bank or any Bank Indemnified Party provided that the Bank's indemnification obligation with respect to the acts or omissions of its subcustodians shall not exceed the indemnification provided by the applicable subcustodian to the Bank. The Bank shall provide the Fund copies of the applicable subcustody agreements, and any amendments to such agreements, that will in reasonable detail describe such subcustodians' obligation(s) to indemnify the Bank, if any. 15.3 Notwithstanding anything to the contrary in this Agreement, in no event shall the Bank, the Fund, the Fund Indemnified Parties or the Bank Indemnified Parties be liable to the Fund or the Bank, as the case may be, or any third party for lost profits or lost revenues or any special, consequential, punitive or incidental damages of any kind whatsoever in connection with this Agreement or any activities hereunder. 15.4 Neither the Bank nor the Fund shall be liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused by any acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities, transportation or computers (hardware or software) and computer facilities, the unavailability of energy sources and other similar happenings or events that are beyond such party's reasonable control; provided, however, that in the event of such failure or delay each party shall use its best efforts to ameliorate the effects of any such failure or delay and each shall use its commercially reasonable efforts to not discriminate against the other in favor of any other customer or client in performing the services contemplated by this Agreement. 16. TERMINATION. 16.1 The term of this Agreement shall be three years commencing upon the date hereof (the "Initial Term"), unless earlier terminated as provided herein. After the expiration of the Initial Term, the term of this Agreement shall automatically renew for successive one-year terms (each a "Renewal Term") unless notice of non-renewal is delivered by the non-renewing party to the other party no later than ninety days prior to the expiration of the Initial Term or any Renewal Term, as the case may be. If a majority of the Board of Trustees reasonably determines that the performance of the Bank under this Agreement or the Delegation Agreement, dated as of the date hereof, by and between the Bank and the Fund does not meet industry standards, written notice of such determination setting forth the reasons for such determination shall be provided to the Bank. In the event the Bank shall not, within sixty (60) days thereafter, cure identified deficiencies to the reasonable satisfaction of the Board of Trustees, the Fund, with the authorization of the Board, may terminate this Agreement. This Agreement may also be terminated (i) by either party prior to the expiration of the Initial Term or any Renewal Term in the event the other party violates any material provision of this Agreement, provided that the non-violating party gives written notice of such violation to the violating party and the violating party does not cure such violation within 60 days of receipt of such notice; or (ii) at any time without notice by the Fund in the event of an appointment of a conservator or receiver for the Bank by regulatory authorities or the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. 16.2 In the event of the termination of this Agreement, the Bank will immediately upon receipt or transmittal, as the case may be, of notice of termination, commence and prosecute diligently to completion the transfer of all cash and the delivery of all Portfolio Securities duly endorsed and all records maintained under Section 11 to the successor custodian when appointed by the Fund. The obligation of the Bank to deliver and transfer over the assets of the Fund held by it directly to such successor custodian will commence as soon as such successor is appointed and will continue until completed as aforesaid. If the Fund does not select a 18 successor custodian within sixty (60) days from the date of delivery of notice of termination the Bank may, subject to the provisions of subsection 16.3, deliver the Portfolio Securities and cash of the Fund held by the Bank to a bank or trust company of the Bank's own selection which meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported capital, surplus and undivided profits aggregating not less than $2,000,000, to be held as the property of the Fund under terms similar to those on which they were held by the Bank, whereupon such bank or trust company so selected by the Bank will become the successor custodian of such assets of the Fund with the same effect as though selected by the Board. Thereafter, the Bank shall be released from any and all obligations under this Agreement. 16.3 Prior to the expiration of sixty (60) days after notice of termination has been given, the Fund may furnish the Bank with an order of the Fund advising that a successor custodian cannot be found willing and able to act upon reasonable and customary terms and that there has been submitted to the shareholders of the Fund the question of whether the Fund will be liquidated or will function without a custodian for the assets of the Fund held by the Bank. In that event the Bank will deliver the Portfolio Securities and cash of the Fund held by it, subject as aforesaid, in accordance with one of such alternatives which may be approved by the requisite vote of shareholders, upon receipt by the Bank of a copy of the minutes of the meeting of shareholders at which action was taken, certified by the Fund's Secretary and an opinion of counsel to the Fund in form and content satisfactory to the Bank. Thereafter, the Bank shall be released from any and all obligations under this Agreement. 16.4 The Fund shall reimburse the Bank for any reasonable expenses incurred by the Bank in connection with the termination of this Agreement, unless the Fund terminates the Agreement pursuant to Sections 16.1(i) or 16.1(ii). 16.5 At any time after the termination of this Agreement, the Fund may, upon written request, have reasonable access to the records of the Bank relating to its performance of its duties as custodian. 17. CONFIDENTIALITY. Both parties hereto agree than any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision. 18. NOTICES. Any notice or other instrument in writing authorized or required by this Agreement to be given to either party hereto will be sufficiently given if addressed to such party and delivered via (I) United States Postal Service registered mail, (ii) telecopier with written confirmation, (iii) hand delivery with signature to such party at its office at the address set forth below, namely: (a) In the case of notices sent to the Fund to: Harris Associates Investment Trust Two North LaSalle Street Chicago, IL 60602-3790 Attention: Kristi Rowsell, Treasurer With a copy to: Bell, Boyd & Lloyd LLC 70 West Madison Street, Suite 3300 Chicago, IL 60602 Attention: Cameron S. Avery 19 (b) In the case of notices sent to the Bank to: Investors Bank & Trust Company 200 Clarendon Street, P.O. Box 9130 Boston, Massachusetts 02117-9130 Attention: Geoffrey M. O'Connell, Senior Director - Client Management With a copy to: John E. Henry, General Counsel or at such other place as such party may from time to time designate in writing. 19. AMENDMENTS. This Agreement may not be altered or amended, except by an instrument in writing, executed by both parties. 20. PARTIES. This Agreement will be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement will not be assignable by the Fund without the written consent of the Bank or by the Bank without the written consent of the Fund, authorized and approved by its Board; and provided further that termination proceedings pursuant to Section 16 hereof will not be deemed to be an assignment within the meaning of this provision. 21. GOVERNING LAW. This Agreement and all performance hereunder will be governed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. 22. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 23. ENTIRE AGREEMENT. This Agreement, together with its Appendices, constitutes the sole and entire agreement between the parties relating to the subject matter herein and does not operate as an acceptance of any conflicting terms or provisions of any other instrument and terminates and supersedes any and all prior agreements and undertakings between the parties relating to the subject matter herein. 24. LIMITATION OF LIABILITY. The Bank agrees that the obligations assumed by the Fund hereunder shall be limited in all cases to the assets of the Fund and that the Bank shall not seek satisfaction of any such obligation from the officers, agents, employees, trustees, or shareholders of the Fund. A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of State of the Commonwealth of Massachusetts. Notice is hereby given that the execution and delivery of this Agreement have been authorized by the trustees of the Fund, and this Agreement has been signed and delivered by an authorized officer of the Fund, acting as such, and neither such authorization by the trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Fund. 25. SEVERAL OBLIGATIONS OF THE PORTFOLIOS. This Agreement is an agreement entered into between the Bank and the Fund with respect to each Portfolio. With respect to any obligation of the Fund on behalf of any Portfolio arising out of this Agreement, the Bank shall look for payment or satisfaction of such obligation solely to the assets of the Portfolio to which such obligation relates as though the Bank had separately contracted with the Fund by separate written instrument with respect to each Portfolio. 20 [Remainder of Page Intentionally Left Blank] 21 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first written above. HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ Kristi L. Rowsell Name: Kristi L. Rowsell Title: Treasurer INVESTORS BANK & TRUST COMPANY By: /s/ Michael F. Rodgers Name: Michael F. Rodgers Title: President 22 APPENDICES Appendix A Portfolios Appendix B Additional Services 23 APPENDIX A THE OAKMARK FAMILY OF FUNDS The Oakmark Fund The Oakmark Select Fund The Oakmark Small Cap Fund The Oakmark Equity and Income Fund The Oakmark Global Fund The Oakmark International Fund The Oakmark International Small Cap Fund APPENDIX B INVESTORS BANK & TRUST SUMMARY OF ADMINISTRATION FUNCTIONS OAKMARK FAMILY OF FUNDS
SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- MANAGEMENT REPORTING & TREASURY ADMINISTRATION - ------------------------------------- Monitor portfolio compliance in Perform tests of certain specific Continuously monitor A/C - Provide accordance with the current portfolio activity designed from portfolio activity and Fund consultation as needed on Prospectus and SAI. provisions of the Fund's operations in conjunction compliance issues. Prospectus and SAI. Follow-up on with 1940 Act, Prospectus, potential violations. SAI and any other applicable laws and regulations. Monitor testing results and approve resolution of compliance FREQUENCY: MONTHLY issues. Provide compliance summary package. Provide a report of compliance Review report. A/C - Provide testing results. consultation as needed. FREQUENCY: MONTHLY Perform asset diversification testing Perform asset diversification Continuously monitor A - Provide consultation to establish qualification as a RIC. tests at each tax quarter end. portfolio activity in as needed in establishing Follow-up on issues. conjunction with IRS positions to be taken in requirements. Review test tax treatment of results and take any particular issues. Review necessary action. Approve quarter end tests on a tax positions taken. current basis. FREQUENCY: QUARTERLY Perform qualifying income testing to Perform qualifying income testing Continuously monitor A- Consult as needed on establish qualification as a RIC. (on book basis income, unless portfolio activity in tax accounting positions material differences are conjunction with IRS to be taken. Review in anticipated) on quarterly basis requirements. Review test conjunction with year-end and as may otherwise be results and take any audit. necessary. Follow-up on necessary action. Approve FREQUENCY: QUARTERLY issues. tax positions taken. MANAGEMENT REPORTING & TREASURY ADMINISTRATION (CONT.) - ------------------------------------- Prepare the Fund's annual expense Prepare preliminary expense Provide asset level budget. Establish daily accruals. budget. Notify fund accounting projections. Approve of new accrual rates. expense budget. FREQUENCY: ANNUALLY
1
SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Monitor the Fund's expense budget. Monitor actual expenses, updating Provide asset level Review the Fund's net expense ratios, budgets/ expense accruals. projections. Provide vendor including multi-class expense Review expense differentials information as necessary. differentials. among classes. Review expense analysis and approve budget revisions. FREQUENCY: MONTHLY Receive and coordinate payment of Propose allocations of invoices Approve invoices and fund expenses. among Funds and obtain authorized allocations of payments. approval to process payment. Send invoices to IBT in a FREQUENCY: AS OFTEN AS NECESSARY timely manner. Calculate periodic dividend rates to Calculate amounts available for Review and approve dividend C/A - Review and approve be declared in accordance with distribution. Calculate rates calculation methodologies dividend calculation management guidelines. Review the for each class in accordance with for each class. Approve methodology for each Fund's multi-class dividend approved methodology. Coordinate dividend rate per share and class of shares. Provide calculation procedures. review by management and aggregate amounts. Obtain consultation as auditors. Notify custody and Board approval when required. requested. transfer agent of authorized dividend rates. Report dividends to Board as required. FREQUENCY: ACCORDING TO DIVIDEND POLICY MANAGEMENT REPORTING & TREASURY ADMINISTRATION (CONT.) - ------------------------------------- Prepare responses to major industry Prepare, coordinate as necessary, Identify the services to questionnaires. and submit responses to the which the Funds report. appropriate agency. Provide information as FREQUENCY: AS OFTEN AS NECESSARY requested. Prepare disinterested Summarize amounts paid to Provide social security director/trustee Form 1099-Misc. directors/trustees during the numbers and current mailing calendar year. Prepare and mail address for trustees. Form 1099-Misc. Review and approve FREQUENCY: ANNUALLY information provided for Form 1099-Misc.
2
SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Preparation and filing of 24f-2 Accumulate capital stock Review and approve filing. C - Approve 24f-2 Notice. Notice. information and draft Form 24f-2 Notice. File approved Form with FREQUENCY: ANNUALLY SEC via Edgar. - ------------------------------------- FINANCIAL REPORTING - ------------------------------------- Prepare financial information for Prepare selected financial Review financial presentation to Fund Management, information for client internal information. Board of Directors and shareholders. use, inclusion in board material and distribution to shareholders. Financial information limited to Schedule of Investments and other related tables. FREQUENCY: MONTHLY/QUARTERLY - ------------------------------------- FINANCIAL REPORTING (CONT.) - ------------------------------------- Coordinate the annual audit and Coordinate the creation of Provide past financial A - Perform audit and semi-annual preparation and printing templates reflecting statements and other issue opinion on annual of financial statements and notes client-selected standardized information required to financial statements. with management, fund accounting and appearance and text of financial create templates, including the fund auditors. statements and footnotes. Draft report style and graphics. A/C - Review reports. and manage production cycle. Approve format and text as Coordinate with IBT fund standard. Approve accounting the electronic production cycle and assist receipt of portfolio and general in managing to the cycle. ledgar information. Assist in Coordinate review and resolution of accounting issues. approval by portfolio Using templates, draft financial managers of portfolio statements, coordinate auditor listings to be included in and management review, and clear financial statements. comments. Coordinate transmission Prepare appropriate of draft files to Merrill to management letter and typeset. Coordinate printing of coordinate production of reports and EDGAR conversion with Management Discussion and outside printer and filing with Analysis. Review and the SEC via EDGAR. approve entire report. Make appropriate representations in conjunction with audit. FREQUENCY: ANNUALLY/SEMI-ANNUALLY
3
SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Prepare and file Form N-SAR. Prepare form for filing. Obtain Provide appropriate C - Provide consultation any necessary supporting responses. Review and as needed. documents. File with SEC via authorize filing. A - Provide annual audit EDGAR. internal control letter TO BE PERFORMED BY R&C. to accompany the annual FREQUENCY: SEMI-ANNUALLY filing. - ------------------------------------- TAX - ------------------------------------- Prepare income tax provisions. Calculate investment company Provide transaction A - Provide consultation taxable income, net tax exempt information as requested. as needed in establishing interest, net capital gain and Identify Passive Foreign positions to be taken in spillback dividend requirements. Investment Companies tax treatment of Identify book-tax accounting (PFICs). Approve tax particular issues. differences. Track required accounting positions to be Perform review in information relating to taken. Approve provisions. conjunction with the FREQUENCY: ANNUALLY accounting differences. year-end audit. TAX (CONT.) - ------------------------------------- Calculate excise tax distributions Calculate required distributions Provide transaction A - Provide consultation to avoid imposition of excise tax. information as requested. as needed in establishing - Calculate capital gain net Identify Passive Foreign positions to be taken in income and foreign currency Investment Companies tax treatment of gain/loss through October 31. (PFICs). Approve tax particular issues. - Calculate ordinary income accounting positions to be Review and concur with and distributions through a taken. Review and approve proposed distributions specified cut off date . all income and distribution per share. - Project ordinary income calculations, including from cut off date to projected income and December 31. TO BE PERFORMED dividend shares. Approve BY R&C. distribution rates per share - Ascertain dividend shares. and aggregate amounts. TO BE PERFORMED BY R&C. Obtain Board approval when Identify book-tax accounting required. differences. Track required information relating to accounting differences. Coordinate review by management FREQUENCY: ANNUALLY and fund auditors. Prepare Form 1099 Obtain yearly distribution Review and approve information. Calculate 1099 information provided for reclasses and coordinate with Form 1099. FREQUENCY: ANNUALLY transfer agent.
4
SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Prepare other year-end tax-related Obtain yearly income Review and approve disclosures distribution information. information provided. Calculate disclosures (i.e., dividend received deductions, foreign tax credits, tax-exempt income, income by jurisdiction) and coordinate with transfer agent. FREQUENCY: ANNUALLY
5 EX-99.(G)(2) 5 a2101864zex-99_g2.txt EXHIBIT 99.(G)(2) EXHIBIT (g)(2) DELEGATION AGREEMENT AGREEMENT, dated as of April 1, 2002 by and between INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Delegate"), and HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust (the "Fund"). WHEREAS, pursuant to the provisions of Rule 17f-5 under the Investment Company Act of 1940, as amended (the "1940 Act"), and subject to the terms and conditions set forth herein, the Board of Trustees of the Fund desires to delegate to the Delegate certain responsibilities concerning Foreign Assets (as defined below), and the Delegate hereby agrees to accept such delegation, as described herein; and WHEREAS, pursuant to the provisions of Rule 17f-7 under the 1940 Act, and subject to the terms and conditions set forth herein, the Board of Trustees of the Fund desires to retain the Delegate to provide certain services concerning Foreign Assets, and the Delegate hereby agrees to provide such services, as described herein; NOW THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows: 1. DEFINITIONS Capitalized terms in this Agreement have the following meanings: a. AUTHORIZED REPRESENTATIVE Authorized Representative means any one of the persons who are empowered, on behalf of the parties to this Agreement, to receive notices from the other party and to send notices to the other party, to add or delete jurisdictions pursuant to Article 3, and to otherwise bind the respective parties with respect to the subject matter of this Agreement. b. BOARD Board means the Board of Trustees (or the body authorized to exercise authority similar to that of the board of directors of a corporation) of Fund. c. COUNTRY RISK Country Risk means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's financial infrastructure (including any Securities Depositories operating in such country); prevailing custody and settlement practices; and laws applicable to the safekeeping and recovery of Foreign Assets held in custody. d. ELIGIBLE FOREIGN CUSTODIAN Eligible Foreign Custodian has the meaning set forth in Rule 17f-5(a)(1) and it is understood that such term includes foreign branches of U.S. Banks (as the term "U.S. Bank" is defined in Rule 17f-5(a)(7)). e. FOREIGN ASSETS Foreign Assets has the meaning set forth in Rule 17f-5(a)(2) f. FOREIGN CUSTODY MANAGER Foreign Custody Manager has the meaning set forth in Rule 17f-5(a)(3). g. SECURITIES DEPOSITORY Securities Depository has the meaning set forth in Rule 17f-4(a). h. MONITOR Monitor means to re-assess or re-evaluate, at reasonable intervals, a decision, determination or analysis previously made. 2. REPRESENTATIONS a. DELEGATE'S REPRESENTATIONS Delegate represents that it is a trust company chartered under the laws of the Commonwealth of Massachusetts. Delegate further represents that the persons executing this Agreement and any amendment or appendix hereto on its behalf are duly authorized to so bind the Delegate with respect to the subject matter of this Agreement. b. FUND'S REPRESENTATIONS Fund represents that the Board has determined that it is reasonable to rely on Delegate to perform the responsibilities described in this Agreement. Fund further represents that the persons executing this Agreement and any amendment or appendix hereto on its behalf are duly authorized to so bind the Fund with respect to the subject matter of this Agreement. 3. JURISDICTIONS AND DEPOSITORIES COVERED a. INITIAL JURISDICTIONS AND DEPOSITORIES The authority delegated by this Agreement in connection with Rule 17f-5 applies only with respect to Foreign Assets held in the jurisdictions listed in APPENDIX A1. Delegate's responsibilities under this Agreement in connection with Rule 17f-7 apply only with respect to the Securities Depositories listed in APPENDIX A2. Upon the creation of a new Securities Depository in any of the jurisdictions listed in APPENDIX A1 at the time of such creation, such Securities Depository will automatically be deemed to be listed in APPENDIX A2 and will be covered by the terms of this Agreement. 2 b. ADDED JURISDICTIONS AND DEPOSITORIES Jurisdictions and related Securities Depositories may be added to APPENDIX A1 and APPENDIX A2, respectively, by written agreement in the form of APPENDIX B. Delegate's responsibility and authority with respect to any jurisdiction or Securities Depository, respectively, so added will commence at the later of (i) the time that Delegate's Authorized Representative and Board's Authorized Representative have both executed a copy of APPENDIX B listing such jurisdiction and/or Securities Depository, or (ii) the time that Delegate's Authorized Representative receives a copy of such fully executed APPENDIX B. c. WITHDRAWN JURISDICTIONS Board may withdraw its (i) delegation to Delegate with respect to any jurisdiction or (ii) retention of Delegate with respect to any Securities Depository, upon written notice to Delegate. Delegate may withdraw its (i) acceptance of delegated authority with respect to any jurisdiction or (ii) retention with respect to any Securities Depository, upon written notice to Board. Ten days (or such longer period as to which the parties agree in such event) after receipt of any such notice by the Authorized Representative of the party other than the party giving notice, Delegate shall have no further responsibility or authority under this Agreement with respect to the jurisdiction(s) or Securities Depository as to which delegation is withdrawn. 4. DELEGATION OF AUTHORITY TO ACT AS FOREIGN CUSTODY MANAGER a. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS Subject to the provisions of this Agreement and the requirements of Rule 17f-5 (and any other applicable law), Delegate is authorized and directed to place and maintain Foreign Assets in the care of any Eligible Foreign Custodian(s) selected by Delegate in each jurisdiction to which this Agreement applies, except that Delegate does not accept such authorization and direction with regard to Securities Depositories. b. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS Subject to the provisions of this Agreement and the requirements of Rule 17f-5 (and any other applicable law), Delegate is authorized to enter into, on behalf of Fund, such written contracts governing Fund's foreign custody arrangements with such Eligible Foreign Custodians as Delegate deems appropriate. 5. MONITORING OF ELIGIBLE FOREIGN CUSTODIANS AND CONTRACTS In each case in which Delegate has exercised the authority delegated under this Agreement to place Foreign Assets with an Eligible Foreign Custodian, Delegate is authorized to, and shall, on behalf of Fund, establish a system to Monitor the appropriateness of maintaining Foreign Assets with such Eligible Foreign Custodian. In each case in which Delegate has exercised the authority delegated under this Agreement to enter into a written contract governing Fund's foreign custody arrangements, Delegate is authorized to, and shall, on behalf of Fund, establish a system to Monitor the appropriateness of such contract. 3 6. SECURITIES DEPOSITORIES a. In accordance with the requirements of Rule 17f-7, Delegate shall, at the time of entering into this Agreement, provide the Fund or its investment adviser with an analysis of the custody risks associated with maintaining assets with each Securities Depository listed on APPENDIX A2 hereto. b. In accordance with the requirements of Rule 17f-7, Delegate shall Monitor the custody risks associated with maintaining assets with each Securities Depository listed on APPENDIX A2 hereto on a continuing basis, and shall promptly notify the Fund or its investment adviser in writing of any material change in such risks. 7. GUIDELINES AND PROCEDURES FOR THE EXERCISE OF DELEGATED AUTHORITY a. BOARD'S CONCLUSIVE DETERMINATION REGARDING COUNTRY RISK In exercising its delegated authority under this Agreement, Delegate may assume, for all purposes, that Board (or Fund's investment adviser, pursuant to authority delegated by Board) has considered, and pursuant to its fiduciary duties to Fund and Fund's shareholders, determined to accept, such Country Risk as is incurred by placing and maintaining Foreign Assets in the jurisdictions to which this Agreement applies. In exercising its delegated authority under this Agreement, Delegate may also assume that Board (or Fund's investment adviser, pursuant to authority delegated by Board) has, and will continue to, Monitor such Country Risk to the extent Board deems necessary or appropriate. Except as specifically described herein, nothing in this Agreement shall require Delegate to make any selection or to engage in any Monitoring on behalf of Fund that would entail consideration of Country Risk. b. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS In exercising the authority delegated under this Agreement to place Foreign Assets with an Eligible Foreign Custodian, Delegate shall determine that Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the market in which the Foreign Assets will be held, after considering all factors relevant to the safekeeping of such Foreign Assets, including, without limitation; i. The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the method of keeping custodial records, and the security and data protection practices; ii. Whether the Eligible Foreign Custodian has the financial strength to provide reasonable care for Foreign Assets; iii. The Eligible Foreign Custodian's general reputation and standing; iv. Whether Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of 4 the existence of any offices of the Eligible Foreign Custodian in the United States or the Eligible Foreign Custodian's consent to service of process in the United States; and v. In the case of an Eligible Foreign Custodian that is a banking institution or trust company, any additional factors and criteria set forth in APPENDIX C to this Agreement. c. EVALUATION OF WRITTEN CONTRACTS In exercising the authority delegated under this Agreement to enter into written contracts governing Fund's foreign custody arrangements with an Eligible Foreign Custodian, Delegate shall determine that such contracts provide reasonable care for Foreign Assets based on the standards applicable to Eligible Foreign Custodians in the relevant market. In making this determination, Delegate shall ensure that the terms of such contracts comply with the provisions of Rule 17f-5(c)(2). d. MONITORING OF ELIGIBLE FOREIGN CUSTODIANS In exercising the authority delegated under this Agreement to establish a system to Monitor the appropriateness of maintaining Foreign Assets with an Eligible Foreign Custodian or the appropriateness of a written contract governing Fund's foreign custody arrangements, Delegate shall consider any factors and criteria set forth in APPENDIX D to this Agreement. If, as a result of its Monitoring of Eligible Foreign Custodian relationships hereunder or otherwise, the Delegate determines in its sole discretion that it is in the best interest of the safekeeping of the Foreign Assets to move such Foreign Assets to a different Eligible Foreign Custodian, the Fund shall bear any expense related to such relocation of Foreign Assets. 8. STANDARD OF CARE a. In exercising the authority delegated under this Agreement with regard to its duties under Rule 17f-5, Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of Foreign Assets of an investment company registered under the 1940 Act would exercise. b. In carrying out its responsibilities under this Agreement with regard to Rule 17f-7, Delegate agrees to exercise reasonable care, prudence and diligence. 9. REPORTING REQUIREMENTS Delegate agrees to provide written reports notifying Board of the placement of Foreign Assets with a particular Eligible Foreign Custodian and of any material change in Fund's arrangements with such Eligible Foreign Custodians. Such reports shall be provided to Board quarterly for consideration at the next regularly scheduled meeting of the Board or earlier if deemed necessary or advisable by the Delegate in its sole discretion. 5 10. PROVISION OF INFORMATION REGARDING COUNTRY RISK With respect to the jurisdictions listed in APPENDIX A1, or added thereto pursuant to Article 3, Delegate agrees to provide the Board and the Fund's investment adviser with access to Eyes to the WorldTM, a service available through the Delegate's Web Site at www.ibtco.com, containing information relating to Country Risk, if available, as is specified in APPENDIX E to this Agreement. Such information relating to Country Risk shall be updated from time to time as the Delegate deems necessary. 11. LIMITATION OF LIABILITY. a. Notwithstanding anything in this Agreement to the contrary, in no event shall the Delegate or any of its officers, directors, employees or agents (each, a "Delegate Indemnified Party" and collectively, the "Delegate Indemnified Parties") be liable to the Fund or any third party for, and the Fund shall indemnify and hold the Delegate and the Delegate Indemnified Parties harmless from and against, any and all loss, damage, liability, actions, suits, claims, costs and expenses, including legal fees, (a "Claim") arising as a result of any act or omission of the Delegate or any Delegate Indemnified Party under this Agreement, except for any Claim resulting from the negligence, willful misfeasance or bad faith of the Delegate or any Delegate Indemnified Party. Without limiting the foregoing, neither the Delegate nor the Delegate Indemnified Parties shall be liable for, and the Delegate and the Delegate Indemnified Parties shall be indemnified against, any Claim arising as a result of: i. Any act or omission by the Delegate or any Indemnified Party in reasonable good faith reliance upon the terms of this Agreement, any resolution of the Board, telegram, telecopy, notice, request, certificate or other instrument reasonably believed by the Delegate to be genuine (other than Claims arising from the negligence, willful misfeasance or bad faith of the Bank or any Bank Indemnified Parties). ii. Any information which the Delegate provides or does not provide under Section 10 hereof (other than Claims arising from the gross negligence, willful misfeasance or bad faith of the Bank or any Bank Indemnified Parties). b. Notwithstanding anything in this Agreement to the contrary, in no event shall the Fund or any of its officers, trustees, employees or agents (each, a "Fund Indemnified Party" and collectively, the "Fund Indemnified Parties") be liable to the Delegate or any third party for, and the Delegate shall indemnify and hold the Fund and the Fund Indemnified Parties harmless from and against, any Claim to the extent arising from the negligence, willful misfeasance or bad faith of the Delegate or any Delegate Indemnified Party provided that the Delegates's indemnification obligation with respect to the acts or omissions of its subcustodians shall not exceed the indemnification provided by the applicable subcustodian to the Delegate. The Bank shall provide the Fund copies of the applicable subcustody agreements, and any amendments to such agreements, that will in reasonable detail describe such subcustodians' obligation(s) to indemnify the Bank, if any. c. Notwithstanding anything to the contrary in this Agreement, in no event shall any party hereto liable to the other party or any third party for lost profits or lost revenues or any 6 special, consequential, punitive or incidental damages of any kind whatsoever in connection with this Agreement or any activities hereunder. d. Neither party shall be liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused by any acts of God, earthquakes, fires, floods, storms or other disturbances of nature, epidemics, strikes, riots, nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation, the interruption, loss or malfunction of utilities, transportation or computers (hardware or software) and computer facilities, the unavailability of energy sources and other similar happenings or events that are beyond such party's reasonable control; provided, however, that in the event of such failure or delay each party shall use its best efforts to ameliorate the effects of any such failure or delay and each party shall use its commercially reasonable efforts to not discriminate against the other in favor of any other customer or client in performing the services contemplated by this Agreement. 12. EFFECTIVENESS AND TERMINATION OF AGREEMENT This Agreement shall be effective as of the later of the date of execution on behalf of Board or Delegate and shall remain in effect until terminated as provided herein. This Agreement may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective 30 days after receipt by the non-terminating party of such notice. 13. AUTHORIZED REPRESENTATIVES AND NOTICES The respective Authorized Representatives of Fund and Board, and the addresses to which notices and other documents under this Agreement are to be sent to each, are as set forth in APPENDIX F. Any Authorized Representative of a party may add or delete persons from that party's list of Authorized Representatives by written notice to an Authorized Representative of the other party. 14. GOVERNING LAW This Agreement shall be constructed in accordance with the laws of the Commonwealth of Massachusetts without regard to principles of choice of law. 15. CONFIDENTIALITY Neither the Delegate nor the Fund shall disclose or use any nonpublic personal information (as defined by Rule 3(t) of Regulation S-P under the federal securities laws) provided by the other party, except as necessary to carry out the purposes for which such information is provided, including information that is used in accordance with Rules 14 and 15 of Regulation S-P in the ordinary course of business. 16. BINDING ON TRUST PROPERTY ONLY A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of State of the Commonwealth of Massachusetts. Notice is hereby given that the 7 execution and delivery of this Agreement have been authorized by the trustees of the Fund, and this Agreement has been signed and delivered by an officer of the Fund, acting as such, and neither such authorization by the trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Fund. [Remainder of Page Intentionally Left Blank] 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first written above. INVESTORS BANK & TRUST COMPANY By: /s/ Michael F. Rodgers Name: Michael F. Rodgers Title: President HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ Kristi L. Rowsell Name: Kristi L. Rowsell Title: Treasurer 9 LIST OF APPENDICES A1 -- Jurisdictions Covered A2 - Securities Depositories Covered B -- Additional Jurisdictions/Securities Depositories Covered C -- Additional Factors and Criteria To Be Applied in the Selection of Eligible Foreign Custodians That Are Banking Institutions or Trust Companies D -- Factors and Criteria To Be Applied in Establishing Systems For the Monitoring of Foreign Custody Arrangements and Contracts E -- Information Regarding Country Risk F -- Authorized Representatives 10 APPENDIX A1 JURISDICTIONS COVERED [HAIT/IBT will delete those countries which are not delegated] Argentina Kenya Austria Korea Australia Latvia Bahrain Lebanon Bangladesh Lithuania Belgium Luxembourg Bermuda Malaysia Bolivia Mauritius Botswana Mexico Brazil Morocco Bulgaria Namibia Canada Netherlands Chile New Zealand China Norway Clearstream (Cedel) Oman Colombia Pakistan Costa Rica Panama Croatia Papau New Guinea Cyprus Peru Czech Republic Philippines Denmark Poland Ecuador Portugal Egypt Romania Estonia Russia Euroclear Singapore Finland Slovak Republic France Slovenia Germany South Africa Ghana Spain Greece Sri Lanka Hong Kong Swaziland Hungary Sweden Iceland Switzerland India Taiwan Indonesia Thailand Ireland Turkey Israel Ukraine Italy United Kingdom Ivory Coast Uruguay Japan Venezuela Jordan Zambia Kazakhstan Zimbabwe 11 APPENDIX A2 SECURITIES DEPOSITORIES COVERED Argentina CDV Philippines PCD CRYL RoSS Australia Austraclear Ltd. Poland CRBS CHESS NDS RITS Austria OeKB AG Portugal Central de Valores Mobiliarios Bahrain None Romania NBR SNCDD Stock Exchange Registry, Clearing & Settlement Bangladesh None Russia DCC NDC VTB Belgium BKB Singapore CDP CIK MAS Bermuda None Slovak Republic NBS SCP Botswana None Slovenia KDD Brazil CBLC South Africa STRATE CETIP The Central Depository SELIC (Pty) Ltd. Bulgaria The Bulgarian National Spain Banco de Espana Bank SCLV The Central Depository Canada Bank of Canada Sri Lanka CDS CDS Chile DCV Sweden VPC AB China SSCC Switzerland SIS SegaIntersettle AG SSCCRC
Clearstream Taiwan TSCD Colombia DCV Thailand TSD DECEVAL Costa Rica CEVAL Turkey CBT Takasbank Croatia CNB Ukraine Depository of the Ministry of Finance National Bank of SDA Ukraine MFS Depository Czech Republic SCP Uruguay None TKD Denmark VP United Kingdom CMO CREST Ecuador DECEVALE, S.A. Venezuela BCV CVV Egypt Misr for Clearing, Zambia Bank of Zambia Settlement & Dep. LuSE CSD Estonia ECDSL Zimbabwe None Euroclear Finland APK France Sicovam SA Germany Clearstream Ghana None Greece Bank of Greece CSD Hong Kong CCASS CMU Hungary Keler Ltd. India CDSL NSDL
Indonesia Bank Indonesia PT.KSEI Ireland CREST Gilt Settlement Office Israel TASE Clearing House Ltd. Italy Banca d Italia Monte Titoli Ivory Coast* Depositaire Central/ Banque de Reglement Japan Bank of Japan JASDEC Jordan SDC Kazakhstan Kazakhstan Central Securities Depository Kenya Central Bank of Kenya Central Depository Korea KSD Latvia Bank of Latvia LCD Lebanon Banque de Liban MIDCLEAR Lithuania CSDL Luxembourg Clearstream Malaysia BNM (SSTS) MCD Mauritius CDS Mexico S.D. Indeval Morocco Maroclear S.A. Netherlands NECIGEF
New Zealand New Zealand Central Securities Depository Norway VPS Oman MDSRC Pakistan Central Depository Co. of Pakistan Limited State Bank of Pakistan Peru CAVALI
* BENIN, BURKINA-FASO, GUINEA BISSAU, MALI, NIGERIA, SENEGAL, AND TOGO ARE AVAILABLE THROUGH THE IVORY COAST APPENDIX B ADDITIONAL JURISDICTIONS COVERED Pursuant to Article 3 of this Agreement, Delegate and Board agree that the following jurisdictions shall be added to Appendix A1: [insert additional countries/depositories] INVESTORS BANK & TRUST COMPANY By: ------------------------------------- Name: Title: HARRIS ASSOCIATES INVESTMENT TRUST By: ------------------------------------- Name: Title: DATE: ___________________________________ APPENDIX C ADDITIONAL FACTORS AND CRITERIA TO BE APPLIED IN THE SELECTION OF ELIGIBLE FOREIGN CUSTODIANS THAT ARE BANKING INSTITUTIONS OR TRUST COMPANIES In addition to the factors set forth in Rule 17f-5(c)(1), in selecting Eligible Foreign Custodians that are banking institutions or trust companies, Delegate shall consider the following factors, if such information is available (check all that apply): _________ None _________ Other (list below): APPENDIX D FACTORS AND CRITERIA TO BE APPLIED IN THE ESTABLISHING SYSTEMS FOR THE MONITORING OF FOREIGN CUSTODY ARRANGEMENTS AND CONTRACTS In establishing systems for the Monitoring of foreign custody arrangements and contracts with Eligible Foreign Custodians, Delegate shall consider the following factors, if such information is available: 1. Operating performance 2. Established practices and procedures 3. Relationship with market regulators 4. Contingency planning APPENDIX E INFORMATION REGARDING COUNTRY RISK To aid the Board in its determinations regarding Country Risk, Delegate will furnish Board at least annually with respect to the jurisdictions specified in Article 3, the following information: 1. Copy of Addenda or Side Letters to Subcustodian Agreements 2. Legal Opinion, if available, with regard to: a) Access to books and records by the Fund's accountants b) Ability to recover assets in the event of bankruptcy of a custodian c) Ability to recover assets in the event of a loss d) Likelihood of expropriation or nationalization, if available e) Ability to repatriate or convert cash or cash equivalents 3. Audit Report 4. Copy of Balance Sheet from Annual Report 5. Country Profile Matrix containing market practice for: a) Delivery versus payment b) Settlement method c) Currency restrictions d) Buy-in practice e) Foreign ownership limits f) Unique market arrangements APPENDIX F AUTHORIZED REPRESENTATIVES The names and addresses of each party's authorized representatives are set forth below: A. BOARD Harris Associates Invesmtment Trust Two North LaSalle Street Chicago, IL 60602-3790 Attention: Kristi Rowsell, Treasurer With a copy to: Bell, Boyd & Lloyd LLC 70 West Madison Street, Suite 3300 Chicago, IL 60602 Attention: Cameron S. Avery B. DELEGATE Investors Bank & Trust Company 200 Clarendon Street P.O. Box 9130 Boston, MA 02117-9130 Attention: Director, Client Management Fax: (617) 330-6033 With a copy to: Investors Bank & Trust Company 200 Clarendon Street P.O. Box 9130 Boston, MA 02117-9130 Attention: Andrew S. Josef, Assistant General Counsel Fax: (617) 946-1929 EX-99.(G)(3) 6 a2101864zex-99_g3.txt EXHIBIT 99.(G)(3) EXHIBIT (g)(3) SPECIAL CUSTODY AND PLEDGE AGREEMENT (Short Sales and Exchange-Listed Options) AGREEMENT, (hereinafter "Agreement") dated as of March 28, 2002, among HARRIS ASSOCIATES INVESTMENT TRUST, ON BEHALF OF ITS SERIES LISTED ON SCHEDULE A ATTACHED HERETO ("Customer"). BANC OF AMERICA SECURITIES LLC ("Broker"), and INVESTORS BANK & TRUST COMPANY as Custodian hereunder ("Custodian"). WHEREAS, Broker is a member of several national securities exchanges and is a clearing member of The Options Clearing Corporation ("OCC); and WHEREAS, Customer has opened a margin account (the "Margin Account") with Broker in which Customer may effect Short Sales. (as such term is hereinafter defined) and transactions in exchange-listed options ("Options Transactions"), and for that purpose has signed a Client Agreement with Broker (the Margin Agreement") and has entered into or may hereafter enter into one or more of Brokers master agreements for exchange-listed options (such agreements, collectively, the Options Agreements"); and WHEREAS, Customer intends to effect Short Sales and Options Transactions and to pledge assets to Broker to secure performance of Customers obligations with respect to Short Sales and Options Transactions effected for Customer's account with Broker; and WHEREAS, Broker is required to comply with applicable laws and regulations requiring the margining of Short Sales and Options Transactions, including the margin regulations of the Board of Governors of the Federal Reserve System, the OCC, any relevant securities exchanges, other self-regulatory associations (the "Margin Rules") and Broker's internal policies; and WHEREAS, to facilitate Short Sales and Options Transactions hereunder. Customer and Broker desire to establish procedures for their compliance with the Margin Rules; and WHEREAS, Custodian acts as custodian of certain assets of Customer pursuant to a contract with Customer (the "Custodian Contract") and holds such assets in an account (the "Custodial Account") and is further prepared to act as custodian for Collateral (as hereinafter defined) pursuant to the terms and conditions of this Agreement; NOW, THEREFORE, be it agreed as follows: (1) As used herein, capitalized terms have the following meanings unless otherwise defined herein: "Adequate Performance Assurance" shall mean such Collateral placed in the Special Custody Account (as defined below) as is adequate to cover both short sales and options transactions under the Margin Rules and Brokers internal policies in effect from time to time, prior written notice of which shall be given to Customer. 1 "Advice from Broker" means a notice in writing delivered to Customer or Custodian, as applicable hereunder, or transmitted to them by a facsimile-sending device, except that for any of the following purposes it shall mean notice by telephone to a person designated by Customer or Custodian, as applicable, in writing as authorized to receive such advice or, in the event that no such person is available, to any officer of the Customer or Custodian and confirmed in writing promptly thereafter; (i) for initial or additional Collateral; (ii) notice that an exercise notice filed with OCC has been assigned to Customer; (iii) notice that Customer has failed to give notice of intent to make payment due upon exercise of a Put Option (as hereinafter defined); (iv) notice that Customer has failed to make delivery of securities or currency required to be delivered upon exercise of a Call Option (as hereinafter defined); (v) notice that Customer has failed to pay an Exercise Settlement Amount (as hereinafter defined); or (vi) any notice referred to in paragraph 9 hereof. "Business Day" means a day on which Custodian and Broker are open for business. "Call Option" means a call option that is issued by the OCC and is cleared by Broker through the OCC. "Closing Transaction" means a transaction in which Customer (i) purchases securities that have been sold short or (ii) purchases an Option of the same series as an Option previously written by it and still unexpired or unexercised, or in which Customer sells an Option of the same series as an Option previously purchased by it and still outstanding. "Collateral" means U.S. cash, U.S. Government securities, U.S. securities underlying a Call Option (as defined below) or other U.S. margin-eligible securities acceptable to Broker which are pledged to Broker as provided herein. "Exercise Settlement Amount" means: (i) in the case of a Call Option on a market index, the amount by which the 'aggregate exercise price' of the Call Option contract is less than the 'aggregate current index value' of the underlying index (as those quoted terms are defined in Article XVII of the By-Laws of the OCC), plus all applicable commissions and other charges, or (ii) in the case of a Put Option on a market index, the amount by which the 'aggregate exercise price' of the Put Option contract Is greater than the 'aggregate current index value' of the underlying index (as those quoted terms are defined in Article XVII of the By-Laws of the OCC), plus all applicable commissions and other charges. "Insolvency" means that (i) 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 (ii) 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 (iii) any such petition or application has been filed, or any such proceedings commenced, against the Customer and 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 2 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 in the name of the Customer by a person authorized by Customer and delivered to Custodian or transmitted to it by a facsimile-sending device except that instructions to pledge initial or additional Collateral may be given by telephone and thereafter confirmed in writing signed in the name of Customer by a person authorized in writing by Customer. "Option" means either a Put Option or a Call Option or both as the context requires. "Put Option" means a put option that is issued by the OCC and is cleared by Broker through the OCC. "Same Day" shall mean no later than 2:00 p.m. on the same Business Day that the Broker notifies Customer that an exercise notice has been assigned to Customer but only if such notification has been given by Broker by 10:00 a.m. If such notification is given by Broker to Customer after 10:00 a.m., Same Day shall mean by 2:00 p.m. the following Business Day. "Short Sales" shall mean the sale by Customer of securities which Customer does not own, and which is consummated by the delivery of securities borrowed from or through the facilities of Broker. (2) Customer agrees to provide and at all times to maintain Adequate Performance Assurance in the Special Custody Account pursuant to the terms and conditions of this Agreement. (3) (a) Custodian shall segregate Collateral on its books and records, as a subaccount of Customers Custodial Account, under the name of "Banc of America Securities LLC as Pledgee of The Oakmark applicable series" (such segregated assets referred to herein as "Special Custody Account), end shall hold all Collateral therein for Broker as pledgee upon the terms of this Agreement. Customer will instruct Custodian in Instructions from Customer as to the cash and specific securities which Custodian is to identify on its books and records as pledged to Broker as Collateral in the Special Custody Account. Customer agrees that the value of such cash and securities shall be 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 Performance Assurance. Broker agrees to monitor Collateral in the Special Custody Account to ensure that such Collateral is adequate for both short sales and options transactions. Customer may substitute Collateral in the Special Custody Account only after Customer notifies Broker of the contemplated substitution and Broker Advises Custodian that such substitution is acceptable. Custodian shall have no responsibility for determining the valuation or adequacy of margin required under this Agreement. Custodian may, in its discretion, choose not to act upon Instructions from Customer if any advances under the Custodian Contract are outstanding at such time. If Custodian chooses not to act upon Instructions from Customer, Custodian shall promptly notify Customer and Broker of Custodian's intention not to act on such instructions. Broker shall have all rights and remedies provided hereunder and under the Margin Agreement and the Options Agreements. 3 (b) Customer grants to Custodian the authority to segregate in the Special Custody Account any Collateral specified by Customer. Customer, Broker and Custodian agree that Collateral will be held for Broker in the Special Custody Account by Custodian under the terms and conditions of this Agreement, that the Custodian will take such actions with respect to any Collateral (including without limitation the delivery thereof) as Broker shall direct in an Advice from Broker and that in no event shall any consent of the Customer be required for the taking of any such action by Custodian. (c) Customer hereby grants a continuing security interest to Broker (i) in the Collateral and any proceeds thereof in the Special Custody Account and (ii) in its accounts (including the Margin Account) with Broker, to secure Customer's obligations to Broker hereunder and under the Margin Agreement and the Options Agreements. Such security interest will terminate at such time as Collateral is released as provided herein. Custodian shall have no responsibility for the creation, validity, priority, or enforceability of such security interest. (4) Custodian shall confirm in writing to Broker and Customer, within one Business Day, all pledges, releases or substitutions of Collateral and will supply Broker with a monthly statement of Collateral for combined short sales and options transactions in the account during the preceding month. Customer agrees that Customer will be responsible for maintaining adequate Collateral to cover both Short Sales and Options Transactions. Broker shall advise Customer, in an Advice from Broker, of the value of Collateral which is necessary to constitute Adequate Margin. Custodian will also advise Broker or Customer, upon reasonable request, of the kind and amount of Collateral pledged to Broker. (5) Custodian agrees to release Collateral to Customer from the pledge hereunder only upon receipt of an Advice from Broker. Broker agrees, upon request of Customer, to provide such Advice with respect to Collateral selected by Customer (i) if said Collateral represents an excess in value of the Collateral necessary to constitute Adequate Performance Assurance at that time or (ii) against receipt in the Special Custody Account of substitute Collateral having a value at least equal (with any remaining Collateral) to Adequate Performance Assurance or (iii) upon termination of the Customer's accounts including the Margin Accounts (if any) and settlement in full of all transactions therein and any amounts owed to Broker with respect thereto. It is understood that Broker will be responsible for valuing Collateral; Custodian at no time has any responsibility for determining whether the value of Collateral is equal in value to Adequate Performance Assurance. (6) Customer represents and warrants to Broker that securities pledged to Broker shall be in good deliverable form (or Custodian shall have the unrestricted power to put such securities into good deliverable form), and that the Collateral will not be subject to any liens or encumbrances other than the lien in favor of Broker contemplated hereby, except as required in paragraph 7. 4 (7) The Collateral shall at all times remain the property of the Customer subject only to the extent of the security interest and rights therein of Broker as the pledgee and secured party thereof. Any cash interest or cash dividends paid with respect to Collateral shall be credited by Custodian to the Custodial Account. Custodian represents that Collateral is not subject to any other lien, charge, security interest or other right or claim of the Custodian or any person claiming through Custodian, except for a lien for Custodian's fees, expenses, and advances in connection herewith or under the Custodian Contract between Customer and Custodian, which lien shall be expressly subordinated in right of payment to the security interest of Broker granted herein. Custodian shall use its best efforts to notify Broker and Customer as soon as possible if Custodian receives any notice of levy, lien, court order or other process purporting to affect the Collateral. (8) Broker shall, on each Business Day, compute the aggregate net credit or debit balance on Customer's open Short Sales and open Options Transactions and advise Customer by 11:00A.M. of the amount of the net debit or credit in an Advice from Broker, 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 into the Special Custody Account by the close of business on such day. If a net credit balance exists on such day, Broker will pay such credit balance to Customer by the close of business on such day. As Customer's open short positions and options positions are marked-to-market each week, payments will be made by or to Customer to reflect changes (if any) in the credit or debit balances. Broker will charge Customer interest on debit balances in accordance with Broker's policies, as stated in Broker's Margin Agreement with Customer, and Broker will pay interest on credit balances as agreed to by the parties. Balances will be appropriately adjusted when Short Sales are closed out and upon the occurrence of Closing Transactions. (9) The occurrence of any of the following constitutes a Customer Default hereunder: (a) failure by Customer to perform any obligation hereunder or under the Margin Agreement or Options Agreements including, without limitation, its obligation to maintain Adequate Performance Assurance as herein provided or, upon receiving notice from Broker that it can no longer protect Customers Short Sale, to make timely delivery to Broker in accordance with applicable laws, rules and regulations, of securities identical to the securities (b) upon an Advice from Broker that an exercise notice filed with OCC in respect of one or more Call Options sold by Customer has been assigned to Customer through Broker and either: (i) Customer does not notify Broker by telephone on the Same Day of Customer's intention to comply with the exercise notice by delivery of the underlying securities, currency or the Exercise Settlement Amount (as applicable); or (ii) Customer, having given such notice, fails to make delivery of such security or currency or cause such delivery to be made against receipt of payment against the gross exercise price for such securities or currency, less applicable commissions or other charges, or of the Exercise Settlement Amount on behalf of Customer to Broker; or 5 (c) upon an Advice from Broker that an exercise notice filed with OCC in respect of one or more Put Options sold by Customer has been assigned to Customer through Broker and either: (i) Customer does not notify Broker by telephone on the Same Day of Customer's intention to comply with the exercise notice by making payment of the gross exercise price plus applicable commissions or other charges against Custodian's receipt of securities underlying the put, or to pay the Exercise Settlement Amount (as applicable); or (ii) Customer, having given such notice, fails to make payment or cause such payment to be made against receipt of securities underlying the Put Options, or payment of Exercise Settlement Amount; or (d) Customer's Insolvency. Broker will immediately notify Customer in an Advice from Broker (which may be given by electronic facsimile, telegraph or hand delivery) of such Customer Default, whereupon Broker may take any action permitted pursuant to the Margin Agreement or Options Agreements, including without limitation, the conversion of any convertible securities or exercise of Customer's rights in warrants (if any) held in the Special Custody Account, the buy-in of any securities of which Customer's account may be short, and the sale of any or all property or securities in the Margin Account(s) and the Special Custody Account to the extent necessary to satisfy Customer's obligations to Broker (in which event such Collateral shall be delivered to Broker as directed in an Advice from Broker. Any sale of Collateral made pursuant to this paragraph 9 shall be made in accordance with the provisions of the New York Uniform Commercial Code in the principal market for the securities or, if such principal market is closed, such sale shall be made in a manner commercially reasonable for such Collateral. Customer shall be liable to Broker for any deficiency that may exist after the exercise by Broker of its rights and remedies as aforesaid. Any surplus resulting from the sale of Collateral shall be transmitted to Custodian for deposit to the Custodial Account, Broker shall notify Customer of any sale of Collateral and any deficiency remaining thereafter in an Advice from Broker. (10) Broker hereby covenants, for the benefit of Customer, that Broker will not instruct Custodian to deliver Collateral free of payment with respect to any sale of Collateral pursuant to paragraph 9 until after the occurrence of the events and the expiration of the time periods set forth in paragraph 9. The foregoing covenant is for the benefit of Customer only and shall in no way be deemed to constitute a limitation on Broker's right at any time to instruct Custodian pursuant to an Advice of Broker and Custodian's obligation to act upon such instructions. Custodian shall not be required to make any determination as to whether such delivery is made in accordance with any provisions of any agreement between Broker and Customer. Custodian will, however, provide prompt telephone notice to an officer of Customer of receipt by Custodian of Advice from Broker to deliver Collateral. 6 (11) Custodian's duties and responsibilities are set forth in this Agreement. Custodian shall act only upon receipt of Advice from Broker regarding release of Collateral, except as required by applicable law. Custodian shall not be liable or responsible for anything done, or omitted to be done by it in good faith and in the absence of negligence and may rely and shall be protected in acting upon any Advice from Broker or any other notice, instruction or other communication from Customer or Broker which it reasonably believes to be genuine and authorized. As between Customer and Custodian, the terms of the Custodian Contract shall apply with respect to any losses or liabilities of such parties arising out of mailers covered by this Agreement. As between Custodian and Broker, Broker shall indemnify and hold Custodian harmless with regard to any losses or liabilities of Custodian (including counsel fees) imposed on or incurred by Custodian arising out of any action or omission of Custodian in accordance with any Advice, notice or instruction of Broker under this Agreement except to the extent such losses or liabilities are the result of Custodian's own negligence or willful misconduct in the carrying out of such Advice, notice, or instruction. In matters concerning or relating to this Agreement Custodian shall not be responsible for compliance with any statute or regulation regarding the establishment or maintenance of margin credit, including but not limited to Regulations T or X of the Board of Governors of the Federal Reserve System, the OCC, or the Securities and Exchange Commission. Custodian shall not be liable to any party for any such acts or omissions of the other parties to this Agreement. Custodian shall have no duty to require any cash or securities to be delivered to it or to determine that the amount and form of assets deposited in the Special Custody Account comply with any applicable requirements. Custodian may hold the securities in the Special Custody Account in bearer, nominee, book-entry or other form and in any depository or clearing corporation (including omnibus accounts), with or without indicating that the securities are held hereunder; provided, however, that all securities held in the Special Custody Account shall be identified on Custodian's records as subject to this Agreement and shall be in a form that permits transfer at the direction of the Broker without additional authorization or consent of the Customer. (12) The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, to be paid by Customer, as agreed to from time to time between Customer and Custodian. (13) Except as otherwise specifically set forth in this Agreement, the terms of Broker's Clearing Agreement with Harris Associates Securities L.P. and any Account or Customer Agreement between Customer and Harris Associates Securities L.P. and/or Broker shall apply with respect to any losses or liabilities of such parties arising out of matters covered by this Agreement. (14) No modification or amendment of this Agreement shall be effective unless in writing and signed by an authorized officer of each of Customer, Broker and Custodian. 7 (15) Written communications hereunder shall be sent by facsimile transmission, overnight delivery, or hand delivered as required herein; or, 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, in any such case addressed: (a) if to Custodian, to: Investors Bank & Trust Company 200 Clarendon Street, 16th Floor Boston, Massachusetts 02116 Attention: John Henry Fax No.: 617-937-6033 Phone No: 617-937-6700 (b) if to Customer, to: Harris Associates L.P. Two North LaSalle Street, Suite 500 Chicago, IL 60602 Attention: John Kane Fax No.: 312-621-3823 Phone No.: 312-621-0561 (c) if to Broker, to: Banc of America Securities LLC 655 Montgomer St CA5-522-19-01 San Francisco, CA 94111 Attention: Seth Gersch Fax No.: 415-627-3030 Phone No.: 415-627-2550 (16) Customer, Broker or Custodian may terminate this Agreement by thirty days prior notice in writing to the other parties hereto; provided, however, that the status of any Collateral pledged to Broker at the time of such notice shall not be affected by such termination until the release of such pledge pursuant to the terms of the Margin Agreement, the Options Agreements and any applicable rules, laws and regulations, including Margin Rules. Upon termination of this Agreement or the Custodian Contract, all assets of the Customer held in the Special Custody Account shall be transferred out of the Special Custody Account to a successor custodian specified by Customer. (17) Nothing in the Agreement will prohibit Broker, Customer or Custodian from entering into similar agreements with others in order to facilitate option contract transactions. (18) If any provision or condition of this Agreement shall be held to be invalid or unenforceable by any court, or regulatory or self-regulatory agency or body, such invalidity or unenforceability shall attach only to such provision or condition. The validity of the remaining provisions and conditions shall not be affected thereby and this Agreement shah be carried out as if any such valid or unenforceable provision or condition were not contained herein. (19) All references herein to times of day shall mean the time in New York, New York, U.S.A. 8 (20) This Agreement and its enforcement (including, without limitation, the establishment and maintenance of the Special Custody Account and all interests, duties and obligations related thereto) shall be governed by the laws of the State of New York. This Agreement shall be binding on the parties and any successor organizations thereof irrespective of any change or changes in personnel thereof. (21) This Agreement may be executed in one or more counterparts, all of which shall constitute but one and the same instrument. 9 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized officers as of the day and year first above written. HARRIS ASSOCIATES INVESTMENT TRUST On behalf of its series listed on Schedule A: By: Janet Reali Signature: /s/ Janet Reali Title: V.P. and Secretary BANC OF AMERICA SECURITIES LLC By: Seth J. Gersch Signature: /s/ Seth J. Gersch Title: Managing Director INVESTORS BANK & TRUST COMPANY By: Andrew M. Nesvet Signature: /s/ Andrew M. Nesvet Title: Managing Director 10 SCHEDULE A Dated March 28, 2002 To Special Custody and Pledge Agreement Among Harris Associates Investment Trust, on behalf of its series listed on Schedule A, Banc of America Securities LLC, and Investors Bank & Trust Company PORTFOLIOS OF HARRIS ASSOCIATES INVESTMENT TRUST The Oakmark Fund The Oakmark Select Fund The Oakmark Equity and Income Fund The Oakmark International Fund The Oakmark Global Fund The Oakmark International Small Cap Fund The Oakmark Small Cap Fund 11 EX-99.(H)(3) 7 a2101864zex-99_h3.txt EXHIBIT 99.(H)(3) EXHIBIT (h)(3) +ADMINISTRATION AGREEMENT AGREEMENT made as of April 1, 2002 by and between HARRIS ASSOCIATES INVESTMENT TRUST, a business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the "Bank"). WHEREAS, the Fund, a registered investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), consisting of the separate portfolios listed on APPENDIX A hereto; and WHEREAS, the Fund desires to retain the Bank to render certain administrative services to the Fund and the Bank is willing to render such services. NOW, THEREFORE, in consideration of the mutual covenants herein set forth, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Fund hereby appoints the Bank to act as Administrator of the Fund on the terms set forth in this Agreement. The Bank accepts such appointment and agrees to render the services herein set forth for fees that may be agreed to from time to time in writing between the parties. 2. DELIVERY OF DOCUMENTS. The Fund has furnished the Bank with copies properly certified or authenticated of each of the following: (a) Resolutions of the Fund's Board of Trustees authorizing the appointment of the Bank to provide certain administrative services to the Fund and approving the form of this Agreement; (b) The Fund's Agreement and Declaration of Trust dated February 1, 1991, filed with the Commonwealth of Massachusetts on February 1, 1991 and all amendments thereto (the "Declaration"); (c) The Fund's by-laws and all amendments thereto (the "By-Laws"); (d) The Fund's agreements with all service providers which include any investment advisory agreements, sub-investment advisory agreements, custody agreements, distribution agreements and transfer agency agreements (collectively, the "Agreements"); (e) The Fund's most recent post-effective amendment to its Registration Statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933 and under the 1940 Act; and (f) The Fund's most recent prospectus and statement of additional information and all supplements thereto (the "Prospectus"); and (g) Such other certificates, documents or opinions as may mutually be deemed necessary or appropriate for the Bank in the proper performance of its duties hereunder. The Fund will promptly furnish the Bank with copies of all amendments of or supplements to the foregoing. Furthermore, the Fund will notify the Bank as soon as practicable of any matter which may materially affect the performance by the Bank of its services under this Agreement. 3. DUTIES OF ADMINISTRATOR. Subject to the supervision and direction of the Board of Trustees of the Fund, the Bank, as Administrator, will assist in conducting various aspects of the Fund's administrative operations and undertakes to perform the services described in APPENDIX B hereto. The Bank may, from time to time, perform additional duties and functions which shall be set forth in an amendment to such APPENDIX B executed by both parties. In performing all services under this Agreement, the Bank shall act in conformity with the Fund's Declaration and By-Laws and the 1940 Act, as the same may be amended from time to time, and the investment objectives, investment policies and other practices and policies set forth in the Fund's Registration Statement, as the same may be amended from time to time. Notwithstanding any item discussed herein, the Bank has no discretion over the Fund's assets or choice of investments and cannot be held liable for any problem relating to such investments. 4. DUTIES OF THE FUND. (a) The Fund is solely responsible (through its transfer agent or otherwise) for (i) providing timely and accurate reports ("Daily Sales Reports") which will enable the Bank as Administrator to monitor the total number of shares sold in each state on a daily basis and (ii) identifying any exempt transactions ("Exempt Transactions") which are to be excluded from the Daily Sales Reports. (b) The Fund agrees to make its legal counsel available to the Bank for instruction with respect to any matter of law arising in connection with the Bank's duties hereunder, and the Fund further agrees that the Bank shall be entitled to rely on such instruction without further investigation on the part of the Bank. 5. FEES AND EXPENSES. (a) For the services rendered by the Bank hereunder, the Fund will pay to the Bank such fees at such rate as shall be agreed upon in writing by the parties from time to time. The Fund will also pay or reimburse the Bank from time to time for any transfer taxes payable upon any transfers made hereunder, and for all necessary proper disbursements, expenses and charges reasonably made or reasonably incurred by the Bank in the performance of this Agreement (including any duties listed on any Schedule hereto, if any) including any indemnities for any loss, liabilities or expense to the Bank as provided herein. The Bank will also be entitled to reimbursement by the Fund for all reasonable expenses incurred in conjunction with termination of this Agreement and any conversion or transfer work done in connection therewith unless the Fund terminates this Agreement pursuant to Sections 7(c) or 7(d). (b) Fees and expenses will be calculated monthly. Fees and expenses owed to the Bank for any month may be charged against any cash balance held by the Fund beginning on the first (1st) business day after the end of such month based on information then available. Fees charged to an account may result in an overdraft that will be subject to normal interest charges. The Fund will have thirty (30) days after the receipt of an invoice to dispute any charge that appears on such invoice. After such thirty (30) day period, the invoice will be deemed to be complete and accurate and may no longer be disputed. (c) The Bank shall not be required to pay any expenses incurred by the Fund. (d) In the case of the following transactions, not in the ordinary course of business, namely, the merger of a series of the Fund into or the consolidation of a series of the Fund with another investment company or series thereof, the sale by a series of the Fund of all, or substantially all, of its assets to another investment company or series thereof, or the liquidation or dissolution of a series of the Fund and distribution of its assets, upon the payment of the fees, disbursements and expenses of the Bank through the then remaining term of this Agreement, the Bank will complete all actions reasonably necessary to implement such merger, consolidation, or sale upon the order of the Fund set forth in an Officers' Certificate, accompanied by a certified copy of a resolution of the Board authorizing any of the foregoing transactions. Upon completion of such actions and the payment of all such fees, disbursements and expenses of the Bank, this Agreement will terminate and the Bank shall be released from any and all obligations hereunder. 6. LIMITATION OF LIABILITY. 2 (a) The Bank, its directors, officers, employees and agents shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the performance of its obligations and duties under this Agreement, except if such error of judgment, mistake of law or loss results from the willful misfeasance, bad faith or negligence of the Bank or its directors, officers, employees or agents in the performance of its or their obligations and duties, or by reason of its or their reckless disregard thereof. The Fund will indemnify the Bank, its directors, officers, employees and agents against and hold it and them harmless from any and all losses, claims, damages, liabilities or expenses (including legal fees and expenses) resulting from any claim, demand, action or suit (a "Claim") (i) arising out of the willful misfeasance, bad faith or negligence of the Fund, including, but not limited to, inaccurate Daily Sales Reports and misidentification of Exempt Transactions; (ii) arising out of the offer or sale of any securities of the Fund in violation of (x) any requirement under the federal securities laws or regulations, (y) any requirement under the securities laws or regulations of any state, or (z) any stop order or other determination or ruling by any federal or state agency with respect to the offer or sale of such securities or (iii) not resulting from the willful misfeasance, bad faith or negligence of the Bank or its directors, officers, employees or agents in the performance of its or their obligations and duties, or by reason of its or their reckless disregard thereof. (b) The Bank may apply to the Fund at any time for instructions and may consult counsel for the Fund, or its own counsel, and with accountants and other experts with respect to any matter arising in connection with its duties hereunder. The Bank shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with any written instruction from counsel for the Fund, or with the written opinion of such counsel. The Bank shall not be liable for any act or omission taken or not taken in reliance upon any document, certificate or instrument provided in writing by the Fund or its authorized agent which it reasonably believes to be genuine and to be signed or presented by the proper person or persons. The Bank shall not be held to have notice of any change of authority of any officers, employees, or agents of the Fund until receipt of written notice thereof has been received by the Bank from the Fund. (c) Notwithstanding anything in this Agreement to the contrary, in no event shall the Fund or any of its officers, trustees, employees or agents be liable to the Bank or any third party for, and the Bank shall indemnify and hold the Fund and any of its officers, trustees, employees or agents harmless from and against any Claim to the extent arising from the willful misfeasance, bad faith or negligence of the Bank or its directors, officers, employees or agents in the performance of its or their obligations and duties, or by reason of its or their reckless disregard thereof provided that the Bank's indemnification obligation with respect to the acts or omissions of its subcustodians shall not exceed the indemnification provided by the applicable subcustodian to the Bank. The Bank shall provide the Fund copies of the applicable subcustody agreements, and any amendments to such agreements, that will in reasonable detail describe such subcustodians' obligation(s) to indemnify the Bank, if any. (d) In the event either party is unable to perform, or is delayed in performing, its obligations under the terms of this Agreement because of acts of God, strikes, legal constraint, government actions, war, emergency conditions, interruption of electrical power or other utilities, equipment or transmission failure or damage reasonably beyond its control or other causes reasonably beyond its control, such party shall not be liable to the other party for any damages resulting from such failure to perform, delay in performance, or otherwise from such causes; provided, however, that each party shall use its best efforts to ameliorate the effects of such failure or delay and each party shall use its commercially reasonable efforts to not discriminate against the other in favor of any other customer or client in performing the services contemplated by this Agreement. (e) Notwithstanding anything to the contrary in this Agreement, in no event shall either party be liable for special, incidental or consequential damages, even if advised of the possibility of such damages. 3 7. TERMINATION OF AGREEMENT. (a) The term of this Agreement shall be three years commencing upon the date hereof (the "Initial Term"), unless earlier terminated as provided herein. After the expiration of the Initial Term, the term of this Agreement shall automatically renew for successive one-year terms (each a "Renewal Term") unless notice of non-renewal is delivered by the non-renewing party to the other party no later than ninety days prior to the expiration of the Initial Term or any Renewal Term, as the case may be. If a majority of the Board of Trustees reasonably determines that the performance of the Bank under this Agreement by and between the Bank and the Fund does not meet industry standards, written notice of such determination setting forth the reasons for such determination shall be provided to the Bank. In the event the Bank shall not, within sixty (60) days thereafter, cure identified deficiencies to the reasonable satisfaction of the Board of Trustees, the Fund, with the authorization of the Board, may terminate this Agreement. (b) Either party hereto may terminate this Agreement prior to the expiration of the Initial Term or any Renewal Term in the event the other party violates any material provision of this Agreement, provided that the violating party does not cure such violation within ninety days of receipt of written notice from the non-violating party of such violation. (c) The Fund may terminate this Agreement at any time without notice in the event of an appointment of a conservator or receiver for the Administrator by regulatory authorities or the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. (d) At any time after the termination of this Agreement, the Fund may, upon written request, have reasonable access to the records of the Bank relating to its performance of its duties as Administrator. 8. MISCELLANEOUS. (a) Any notice or other instrument authorized or required by this Agreement to be given in writing to the Fund or the Bank shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To the Fund: Harris Associates Investment Trust Two North LaSalle Street Chicago, IL 60602 Attention: Kristi Rowsell With a copy to: Bell, Boyd & Lloyd LLC 70 West Madison Street, Suite 3300 Chicago, IL 60602 Attention: Cameron S. Avery To the Bank: Investors Bank & Trust Company 200 Clarendon Street, P.O. Box 9130 Boston, MA 02117-9130 Attention: Geoffrey M. O'Connell, Senior Director, Client Management With a copy to: John E. Henry, General Counsel 4 (b) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party. (c) This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to its conflict of laws provisions. (d) This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original and which collectively shall be deemed to constitute only one instrument. (e) The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. 9. CONFIDENTIALITY. All books, records, information and data, including all nonpublic personal information (as defined by Rule 3(t) of Regulation S-P under the federal securities laws), pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required in the performance of duties hereunder or as otherwise required by law. 10. USE OF NAME. Neither party shall use the name of the other party or any of its affiliates in any prospectus, sales literature or other material in a manner not approved by the other party prior thereto in writing; provided however, that the approval of the Bank shall not be required for any use of its name which merely refers in accurate and factual terms to its appointment hereunder or which is required by the Securities and Exchange Commission or any state securities authority or any other appropriate regulatory, governmental or judicial authority; PROVIDED FURTHER, that in no event shall such approval be unreasonably withheld or delayed. 11. BINDING OF TRUST PROPERTY ONLY. A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of State of the Commonwealth of Massachusetts. Notice is hereby given that the execution and delivery of this Agreement have been authorized by the trustees of the Fund, and this Agreement has been signed and delivered by an officer of the Fund, acting as such, and neither such authorization by the trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Fund. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered by their duly authorized officers as of the date first written above. HARRIS ASSOCIATES INVESTMENT TRUST By:/s/ Kristi L. Rowsell Name: Kristi L. Rowsell Title: Treasurer INVESTORS BANK & TRUST COMPANY By:/s/ Michael F. Rodgers Name: Michael F. Rodgers Title: President 6 APPENDICES Appendix A Portfolios Appendix B Services APPENDIX A THE OAKMARK FAMILY OF FUNDS The Oakmark Fund The Oakmark Select Fund The Oakmark Small Cap Fund The Oakmark Equity and Income Fund The Oakmark Global Fund The Oakmark International Fund The Oakmark International Small Cap Fund APPENDIX B INVESTORS BANK & TRUST SUMMARY OF ADMINISTRATION FUNCTIONS OAKMARK FAMILY OF FUNDS
SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- MANAGEMENT REPORTING & TREASURY ADMINISTRATION - ------------------------------------- Monitor portfolio compliance in Perform tests of certain specific Continuously monitor A/C - Provide accordance with the current portfolio activity designed from portfolio activity and Fund consultation as needed on Prospectus and SAI. provisions of the Fund's operations in conjunction compliance issues. Prospectus and SAI. Follow-up on with 1940 Act, Prospectus, potential violations. SAI and any other applicable laws and regulations. Monitor testing results and approve resolution of compliance FREQUENCY: MONTHLY issues. Provide compliance summary package. Provide a report of compliance Review report. A/C - Provide testing results. consultation as needed. FREQUENCY: MONTHLY Perform asset diversification testing Perform asset diversification Continuously monitor A - Provide consultation to establish qualification as a RIC. tests at each tax quarter end. portfolio activity in as needed in establishing Follow-up on issues. conjunction with IRS positions to be taken in requirements. Review test tax treatment of results and take any particular issues. Review necessary action. Approve quarter end tests on a tax positions taken. current basis. FREQUENCY: QUARTERLY Perform qualifying income testing to Perform qualifying income testing Continuously monitor A- Consult as needed on establish qualification as a RIC. (on book basis income, unless portfolio activity in tax accounting positions material differences are conjunction with IRS to be taken. Review in anticipated) on quarterly basis requirements. Review test conjunction with year-end and as may otherwise be results and take any audit. necessary. Follow-up on necessary action. Approve FREQUENCY: QUARTERLY issues. tax positions taken. MANAGEMENT REPORTING & TREASURY ADMINISTRATION (CONT.) - ------------------------------------- Prepare the Fund's annual expense Prepare preliminary expense Provide asset level budget. Establish daily accruals. budget. Notify fund accounting projections. Approve of new accrual rates. expense budget. FREQUENCY: ANNUALLY
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SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Monitor the Fund's expense budget. Monitor actual expenses, updating Provide asset level Review the Fund's net expense ratios, budgets/ expense accruals. projections. Provide vendor including multi-class expense Review expense differentials information as necessary. differentials. among classes. Review expense analysis and approve budget revisions. FREQUENCY: MONTHLY Receive and coordinate payment of Propose allocations of invoices Approve invoices and fund expenses. among Funds and obtain authorized allocations of payments. approval to process payment. Send invoices to IBT in a FREQUENCY: AS OFTEN AS NECESSARY timely manner. Calculate periodic dividend rates to Calculate amounts available for Review and approve dividend C/A - Review and approve be declared in accordance with distribution. Calculate rates calculation methodologies dividend calculation management guidelines. Review the for each class in accordance with for each class. Approve methodology for each Fund's multi-class dividend approved methodology. Coordinate dividend rate per share and class of shares. Provide calculation procedures. review by management and aggregate amounts. Obtain consultation as auditors. Notify custody and Board approval when required. requested. transfer agent of authorized dividend rates. Report dividends to Board as required. FREQUENCY: ACCORDING TO DIVIDEND POLICY MANAGEMENT REPORTING & TREASURY ADMINISTRATION (CONT.) - ------------------------------------- Prepare responses to major industry Prepare, coordinate as necessary, Identify the services to questionnaires. and submit responses to the which the Funds report. appropriate agency. Provide information as FREQUENCY: AS OFTEN AS NECESSARY requested. Prepare disinterested Summarize amounts paid to Provide social security director/trustee Form 1099-Misc. directors/trustees during the numbers and current mailing calendar year. Prepare and mail address for trustees. Form 1099-Misc. Review and approve FREQUENCY: ANNUALLY information provided for Form 1099-Misc.
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SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Preparation and filing of 24f-2 Accumulate capital stock Review and approve filing. C - Approve 24f-2 Notice. Notice. information and draft Form 24f-2 Notice. File approved Form with FREQUENCY: ANNUALLY SEC via Edgar. - ------------------------------------- FINANCIAL REPORTING - ------------------------------------- Prepare financial information for Prepare selected financial Review financial presentation to Fund Management, information for client internal information. Board of Directors and shareholders. use, inclusion in board material and distribution to shareholders. Financial information limited to Schedule of Investments and other related tables. FREQUENCY: MONTHLY/QUARTERLY - ------------------------------------- FINANCIAL REPORTING (CONT.) - ------------------------------------- Coordinate the annual audit and Coordinate the creation of Provide past financial A - Perform audit and semi-annual preparation and printing templates reflecting statements and other issue opinion on annual of financial statements and notes client-selected standardized information required to financial statements. with management, fund accounting and appearance and text of financial create templates, including the fund auditors. statements and footnotes. Draft report style and graphics. A/C - Review reports. and manage production cycle. Approve format and text as Coordinate with IBT fund standard. Approve accounting the electronic production cycle and assist receipt of portfolio and general in managing to the cycle. ledgar information. Assist in Coordinate review and resolution of accounting issues. approval by portfolio Using templates, draft financial managers of portfolio statements, coordinate auditor listings to be included in and management review, and clear financial statements. comments. Coordinate transmission Prepare appropriate of draft files to Merrill to management letter and typeset. Coordinate printing of coordinate production of reports and EDGAR conversion with Management Discussion and outside printer and filing with Analysis. Review and the SEC via EDGAR. approve entire report. Make appropriate representations in conjunction with audit. FREQUENCY: ANNUALLY/SEMI-ANNUALLY
3
SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Prepare and file Form N-SAR. Prepare form for filing. Obtain Provide appropriate C - Provide consultation any necessary supporting responses. Review and as needed. documents. File with SEC via authorize filing. A - Provide annual audit EDGAR. internal control letter TO BE PERFORMED BY R&C. to accompany the annual FREQUENCY: SEMI-ANNUALLY filing. - ------------------------------------- TAX - ------------------------------------- Prepare income tax provisions. Calculate investment company Provide transaction A - Provide consultation taxable income, net tax exempt information as requested. as needed in establishing interest, net capital gain and Identify Passive Foreign positions to be taken in spillback dividend requirements. Investment Companies tax treatment of Identify book-tax accounting (PFICs). Approve tax particular issues. differences. Track required accounting positions to be Perform review in information relating to taken. Approve provisions. conjunction with the FREQUENCY: ANNUALLY accounting differences. year-end audit. TAX (CONT.) - ------------------------------------- Calculate excise tax distributions Calculate required distributions Provide transaction A - Provide consultation to avoid imposition of excise tax. information as requested. as needed in establishing - Calculate capital gain net Identify Passive Foreign positions to be taken in income and foreign currency Investment Companies tax treatment of gain/loss through October 31. (PFICs). Approve tax particular issues. - Calculate ordinary income accounting positions to be Review and concur with and distributions through a taken. Review and approve proposed distributions specified cut off date . all income and distribution per share. - Project ordinary income calculations, including from cut off date to projected income and December 31. TO BE PERFORMED dividend shares. Approve BY R&C. distribution rates per share - Ascertain dividend shares. and aggregate amounts. TO BE PERFORMED BY R&C. Obtain Board approval when Identify book-tax accounting required. differences. Track required information relating to accounting differences. Coordinate review by management FREQUENCY: ANNUALLY and fund auditors. Prepare Form 1099 Obtain yearly distribution Review and approve information. Calculate 1099 information provided for reclasses and coordinate with Form 1099. FREQUENCY: ANNUALLY transfer agent.
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SUGGESTED FUND AUDITOR FUNCTION INVESTORS BANK & TRUST HARRIS ASSOCIATES AND/OR COUNSEL - ------------------------------------- --------------------------------- ----------------------------- ------------------------- Prepare other year-end tax-related Obtain yearly income Review and approve disclosures distribution information. information provided. Calculate disclosures (i.e., dividend received deductions, foreign tax credits, tax-exempt income, income by jurisdiction) and coordinate with transfer agent. FREQUENCY: ANNUALLY
5 EX-99.(I)(6) 8 a2101864zex-99_i6.txt EXHIBIT 99.(I)(6) Exhibit (i)(6) Bell, Boyd & Lloyd LLC THREE FIRST NATIONAL PLAZA 70 WEST MADISON STREET, SUITE 3300 CHICAGO, ILLINOIS 60602-4207 312.372.1121 FAX 312.372.2098 OFFICES IN CHICAGO AND WASHINGTON, D.C. January 28, 2003 As counsel for Harris Associates Investment Trust (the "Registrant"), we consent to the incorporation by reference of our opinion for each of the Registrant's series, filed with the Registrant's registration statement on Form N-1A, Securities Act File No. 33-38953 on each of the dates listed below:
SERIES DATE OF OPINION DATE OF FILING - ------ --------------- -------------- The Oakmark International Fund July 23, 1992 February 28, 1997 The Oakmark Small Cap Fund September 20, 1995 February 28, 1997 The Oakmark Equity and Income Fund September 20, 1995 February 28, 1997 The Oakmark International Small Cap Fund September 20, 1995 February 28, 1997 The Oakmark Select Fund October 22, 1996 October 23, 1996 The Oakmark Fund November 1, 1998 November 5, 1998 The Oakmark Global Fund May 21, 1999 May 21, 1999
In giving this consent we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. /s/ Bell, Boyd & Lloyd LLC EX-99.(J) 9 a2101864zex-99_j.txt EXHIBIT 99.(J) EXHIBIT (j) INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 28 to Registration Statement No. 33-38953 of Harris Associates Investment Trust on Form N-1A of our report dated October 25, 2002, appearing in the Annual Report to Shareholders for the year ended September 30, 2002, for Oakmark Fund, Oakmark Select Fund, Oakmark Small Cap Fund, Oakmark Equity and Income Fund, Oakmark Global Fund, Oakmark International Fund and Oakmark International Small Cap Fund and to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Auditors" in the Statement of Additional Information, which are part of such Registration Statement. DELOITTE & TOUCHE LLP Chicago, Illinois January 27, 2003 -----END PRIVACY-ENHANCED MESSAGE-----