-----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, EHuW4Gr31zyGNbq1uYUc7lCtMBEppfwY7YmmNllBu+BZcnwKxuJfk9UFZvgGGvhC Bx0kBnMT+U8MB9UQ/sqrXA== 0001047469-06-000978.txt : 20060127 0001047469-06-000978.hdr.sgml : 20060127 20060127170946 ACCESSION NUMBER: 0001047469-06-000978 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20060127 DATE AS OF CHANGE: 20060127 EFFECTIVENESS DATE: 20060127 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-38953 FILM NUMBER: 06558863 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 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06279 FILM NUMBER: 06558864 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 a2166852z485bpos.txt 485BPOS As filed with the Securities and Exchange Commission on January 27, 2006 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. 32 /X/ and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 34 /X/ - -------------------------------------------------------------------------------- HARRIS ASSOCIATES INVESTMENT TRUST (Registrant) Two North La Salle Street, Suite 500 Chicago, Illinois 60602-3790 Telephone number 312/621-0600 - -------------------------------------------------------------------------------- John R. Raitt Cameron S. Avery Harris Associates L.P. Bell, Boyd & Lloyd LLC Two North La Salle Street, #500 70 West Madison Street, #3100 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 EQUITY AND INCOME FUND THE OAKMARK GLOBAL FUND THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND PROSPECTUS JANUARY 27, 2006 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 FUNDS 1 Investment Objectives 1 Principal Investment Strategies 1 THE OAKMARK FUND (OAKMX) 4 Investment Objective 4 Principal Investment Strategy 4 Principal Investment Risks 4 Is The Fund Right For Me? 4 Performance Information 5 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 EQUITY AND INCOME FUND (OAKBX) 11 Investment Objective 11 Principal Investment Strategy 11 Principal Investment Risks 11 Is The Fund Right For Me? 12 Performance Information 13 Fees and Expenses 14
THE OAKMARK GLOBAL FUND (OAKGX) 16 Investment Objective 16 Principal Investment Strategy 16 Principal Investment Risks 16 Is The Fund Right For Me? 17 Performance Information 17 Fees and Expenses 19 THE OAKMARK INTERNATIONAL FUND (OAKIX) 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 SMALL CAP FUND (OAKEX) 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 HOW THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES 29 Investment Techniques 29 Risk Factors 30 Change in Objective 33 MANAGEMENT OF THE FUNDS 34 INVESTING WITH THE OAKMARK FUNDS 36 Eligibility To Buy Shares 36 Types of Accounts - Class I Shares 37 Types of Accounts - Class II Shares 38 Investment Minimums 38 Share Price 38 General Purchasing Policies 39 General Redemption Policies 40 HOW TO BUY CLASS I SHARES 42 By Check 42 By Wire Transfer 42 By Electronic Transfer 43 By Automatic Investment 43 By Payroll Deduction 44 By Exchange 45 By Internet 46
HOW TO REDEEM CLASS I SHARES 47 In Writing 47 By Telephone 47 By Electronic Transfer 48 By Exchange 48 By Wire Transfer 49 By Automatic Redemption 49 By Internet 49 Signature Guarantee 50 Small Account Fee Policy 50 Small Account Redemption 50 SHAREHOLDER SERVICES 51 Class I Shareholders 51 Class II Shareholders 54 DISTRIBUTIONS AND TAXES 55 Distributions 55 Taxes 55 FINANCIAL HIGHLIGHTS 57 Oakmark Fund 58 Select Fund 59 Equity and Income Fund 61 Global Fund 63 International Fund 65 International Small Cap Fund 67
(This page left blank intentionally.) OVERVIEW OF THE OAKMARK FUNDS INVESTMENT OBJECTIVES THE OAKMARK FUND ("Oakmark Fund"), THE OAKMARK SELECT FUND ("Select 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 income and preservation and growth of capital. PRINCIPAL INVESTMENT STRATEGIES PHILOSOPHY The Oakmark Funds ("Funds") use 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. The Funds' investment adviser, Harris Associates L.P. ("Adviser"), 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. 1 KEY TENETS OF THE OAKMARK FUNDS INVESTMENT PHILOSOPHY: 1. BUY BUSINESSES THAT ARE TRADING AT A SIGNIFICANT DISCOUNT TO THE ADVISER'S ESTIMATE OF THE COMPANY'S INTRINSIC VALUE. At the time the Adviser buys a company, the Adviser wants the company's stock to be inexpensive relative to what it believes the entire business is worth. 2. INVEST WITH COMPANIES EXPECTED TO GROW SHAREHOLDER VALUE OVER TIME. Value investors can sometimes fall into the trap of buying a stock that is inexpensive for a reason--because the company just doesn't grow. The Adviser looks for good quality, growing businesses with positive free cash flow and intelligent investment of cash. 3. INVEST WITH MANAGEMENT TEAMS THAT THINK AND ACT AS OWNERS. The Adviser seeks out company managements that understand the dynamics of per share value growth and are focused on achieving such growth. Stock ownership and incentives that align managements' interests with those of shareholders are key components of this analysis. PROCESS The Adviser uses a "bottom-up" approach focused on individual companies in making its investment decisions, rather than focusing on specific economic factors or specific industries. In order to select investments that meet the criteria described above, the Adviser uses independent, in-house research to analyze each company. The Adviser does not rely on recommendations generated by "Wall Street." As part of this selection process, the Adviser's 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 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 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. BOTTOM-UP INVESTMENT PROCESS All portfolio managers at the Adviser strive to abide by a consistent philosophy and process. This process involves a collective effort to identify what the managers believe are the best values in the marketplace. Each Fund manager typically constructs a focused portfolio from a list of approved stocks, built on a stock by 2 stock basis from the bottom up. The following chart illustrates this bottom-up process: INVEST Managers select stock from the approved list for their specific funds. APPROVED LIST A list of approved stocks is created. QUANTITATIVE AND Rigorous analysis is performed to ensure that QUALITATIVE RESEARCH that stock meets the Adviser's strict value standards. CRITERIA SCREENS Managers and research team screen for stocks that are worth further consideration. UNIVERSE OF THOUSANDS All stocks available for investment. OF EQUITY SECURITIES
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' intrinsic value. Each Fund seeks companies with solid finances and proven records and 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 relatively 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 approximately 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. 3 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 redeem 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. 4 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 16.21 1997 32.59 1998 3.74 1999 -10.47 2000 11.78 2001 18.29 2002 -14.41 2003 25.30 2004 11.73 2005 -1.31
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 16.95%, during the quarter ended June 30, 2003 - - Lowest quarterly return: -16.6%, during the quarter ended September 30, 2002 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, 2005
SINCE CLASS II 1 YEAR 5 YEARS 10 YEARS INCEPTION* - ------------------------------------------------------------------------------------- Oakmark Fund - Class I RETURN BEFORE TAXES -1.31% 6.94% 8.39% N/A RETURN AFTER TAXES ON DISTRIBUTIONS -1.60% 6.75% 7.06% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -0.85% 5.90% 6.65% N/A Oakmark Fund - Class II RETURN BEFORE TAXES -1.55% N/A N/A 5.54% S&P 500 4.91% 0.54% 9.07% 3.45%
* 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 5 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 whose accounts are tax-exempt. 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)
CLASS I CLASS II - ---------------------------------------------------------------------------------------- Maximum sales charge (load) None None imposed on purchases 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 .86% .86% Distribution (12b-1) fees None None Other expenses (including service fees) .17% .40% - ------------------------------------------------------------------------------ Total Annual Fund Operating Expenses 1.03% 1.26%
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 $ 105 $ 128 3 Years 328 400 5 Years 569 692 10 Years 1,259 1,523
6 THE OAKMARK SELECT FUND 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 approximately 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 redeem 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." 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 2003 29.00 2004 9.73 2005 4.84
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 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, 2004
SINCE CLASS I SINCE CLASS II 1 YEAR 5 YEARS INCEPTION* INCEPTION* - ------------------------------------------------------------------------------------------ Select Fund - Class I RETURN BEFORE TAXES 4.84% 10.37% 18.81% N/A RETURN AFTER TAXES ON DISTRIBUTIONS 3.74% 10.04% 17.73% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 4.22% 8.95% 16.52% N/A Select Fund - Class II RETURN BEFORE TAXES 4.58% 10.06% N/A 12.48% S&P 500 4.91% 0.54% 8.13% -1.13%
* 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. 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. 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 whose accounts are tax-exempt. 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)
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 None of amount redeemed) shares held for 90 days or less 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 .85% .85% Distribution (12b-1) fees None None Other expenses (including service fees) .15% .40% - ------------------------------------------------------------------------------ Total Annual Fund Operating Expenses 1.00% 1.25%
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 $ 102 $ 127 3 Years 318 397 5 Years 552 686 10 Years 1,225 1,511
10 THE OAKMARK EQUITY AND INCOME FUND* INVESTMENT OBJECTIVE Equity and Income Fund seeks 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 up to 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 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 redeem 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. * NOTE: Equity and Income Fund is open to new investors who purchase shares directly from the Funds. Please refer to "Investing with The Oakmark Funds -- Eligibility to Buy Shares" for new account eligibility criteria. 11 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. GOVERNMENT-SPONSORED ENTITY SECURITIES. The Fund invests in government-sponsored entity securities, which are securities issued by entities such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Federal Home Loan Banks, among others. Although such an issuer may be chartered or sponsored by an Act of Congress, its securities are neither issued nor guaranteed by the United States Treasury. 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. 12 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 2003 23.21 2004 10.36 2005 8.60
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 13.20%, during the quarter ended June 30, 2003 - - Lowest quarterly return: -8.6%, during the quarter ended September 30, 2002 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 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, 2005
SINCE CLASS II 1 YEAR 5 YEARS 10 YEARS INCEPTION* - ------------------------------------------------------------------------------------- Equity and Income Fund - Class I RETURN BEFORE TAXES 8.60% 11.27% 13.72% N/A RETURN AFTER TAXES ON DISTRIBUTIONS 7.97% 10.76% 12.51% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 5.77% 9.59% 11.58% N/A Equity and Income Fund - Class II RETURN BEFORE TAXES 8.36% 11.00% N/A 12.17% Lipper Balanced Fund Index 5.20% 3.51% 7.57% 2.92%
* Inception date for Class II Shares of the Fund is July 13, 2000. 13 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. 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 whose accounts are tax-exempt. 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)
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 2% of redemption proceeds on 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 .72% .72% Distribution (12b-1) fees None None Other expenses (including service fees) .17% .42% - ------------------------------------------------------------------------------ Total Annual Fund Operating Expenses .89% 1.14%
14 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 $ 91 $ 116 3 Years 284 362 5 Years 493 628 10 Years 1,096 1,386
15 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 25-75% of its total assets in securities of U.S. companies and between 25-75% 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 redeem 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 * NOTE: Global Fund is open to new investors who purchase shares directly from the Funds. Please refer to "Investing with The Oakmark Funds -- Eligibility to Buy Shares" for new account eligibility criteria. 16 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 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 2003 48.98 2004 15.63 2005 13.23
Since 2000, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 33.5%, during the quarter ended June 30, 2003 - - Lowest quarterly return: -17.7%, during the quarter ended September 30, 2002 17 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, 2005
SINCE CLASS I SINCE CLASS II 1 YEAR 5 YEAR INCEPTION* INCEPTION* - ------------------------------------------------------------------------------------------- Global Fund - Class I RETURN BEFORE TAXES 13.23% 18.05% 16.43% N/A RETURN AFTER TAXES ON DISTRIBUTIONS 12.16% 17.65% 15.96% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 9.50% 15.87% 14.44% N/A Global Fund - Class II RETURN BEFORE TAXES 12.88% N/A N/A 21.44% MSCI World Index 9.48% 2.18% 1.91% 8.41%
* Inception dates for Class I and Class II Shares of the Fund are August 4, 1999 and October 10, 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. 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 whose accounts are tax-exempt. 18 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)
CLASS I CLASS II - ------------------------------------------------------------------------------------------------ Maximum sales charge (load) None None imposed on purchases Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on None of amount redeemed) shares held for 90 days or less 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 .98% .98% Distribution (12b-1) fees None None Other expenses (including service fees) .22% .47% Total Annual Fund Operating Expenses 1.20% 1.45%
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 $ 122 $ 148 3 Years 381 459 5 Years 660 792 10 Years 1,455 1,735
19 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 South 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 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 redeem 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 * NOTE: International Fund is open to new investors who purchase shares directly from the Funds. Please refer to "Investing with The Oakmark Funds -- Eligibility to Buy Shares" for new account eligibility criteria. 20 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 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 (%) 1996 28.02 1997 3.33 1998 -7.01 1999 39.47 2000 12.50 2001 -5.13 2002 -8.46 2003 38.04 2004 19.09 2005 14.12
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 25.4%, during the quarter ended June 30, 2003 - - Lowest quarterly return: -22.9%, during the quarter ended September 30, 2002 21 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, 2005
SINCE CLASS II 1 YEAR 5 YEARS 10 YEARS INCEPTION* - ------------------------------------------------------------------------------------- International Fund - Class I RETURN BEFORE TAXES 14.12% 10.25% 12.14% N/A RETURN AFTER TAXES ON DISTRIBUTIONS 12.51% 9.76% 10.50% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 10.21% 8.76% 9.79% N/A International Fund - Class II RETURN BEFORE TAXES 13.80% 9.89% N/A 11.04% MSCI World ex U.S. Index 14.47% 4.92% 6.22% 3.44%
* 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. 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 whose accounts are tax-exempt. 22 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)
CLASS I CLASS II - ------------------------------------------------------------------------------------------- Maximum sales charge (load) None None imposed on purchases Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on None of amount redeemed) shares held for 90 days or less 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 .91% .91% Distribution (12b-1) fees None None Other expenses (including service fees) .20% .47% - ------------------------------------------------------------------------------ Total Annual Fund Operating Expenses 1.11% 1.38%
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 $ 113 $ 141 3 Years 353 437 5 Years 612 755 10 Years 1,352 1,657
23 THE OAKMARK INTERNATIONAL SMALL CAP FUND* 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 ($3.7 billion as of December 30, 2005). The mean market capitalization of companies included in the S&P Small Cap 600 Index was $883 million as of December 30, 2005. 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 South 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 redeem your shares of the Fund, they may be worth more or less than you paid for them. * NOTE: International Small Cap Fund closed to most new investors on May 10, 2002. Please refer to "Investing with The Oakmark Funds -- Eligibility to Buy Shares" for new account eligibility criteria. 24 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. 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 25 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 2003 52.41 2004 28.95 2005 21.26
Since 1996, the highest and lowest quarterly returns for the Fund's Class I Shares were: - - Highest quarterly return: 29.2%, during the quarter ended June 30, 2003 - - Lowest quarterly return: -23.9%, during the quarter ended December 31, 1997 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, 2005
SINCE CLASS II 1 YEAR 5 YEARS 10 YEARS INCEPTION* - ------------------------------------------------------------------------------------- International Small Cap Fund - Class I RETURN BEFORE TAXES 21.26% 20.63% 14.62% N/A RETURN AFTER TAXES ON DISTRIBUTIONS 17.21% 19.31% 12.94% N/A RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 17.21% 17.86% 12.19% N/A International Small Cap Fund - Class II RETURN BEFORE TAXES 21.22% N/A N/A 20.09% MSCI World ex U.S. Index 14.47% 4.92% 6.22% 5.04%
* Inception date for Class II Shares of the Fund is January 8, 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 26 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. 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 whose accounts are tax-exempt. 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)
CLASS I CLASS II - --------------------------------------------------------------------------------------------- Maximum sales charge (load) None None imposed on purchases Maximum deferred sales charge (load) None None Redemption fee (as a percentage 2% of redemption proceeds on None of amount redeemed) shares held for 90 days or less 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 1.17% 1.17% Distribution (12b-1) fees None None Other expenses (including service fees) .24% .32% - ------------------------------------------------------------------------------ Total Annual Fund Operating Expenses 1.41% 1.49%
27 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 $ 144 $ 152 3 Years 446 471 5 Years 771 813 10 Years 1,691 1,779
28 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 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 to the currency hedged. Although forward contracts may be used to protect a Fund 29 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. TEMPORARY DEFENSIVE INVESTMENTS. In response to adverse market, economic, political, or other unusual conditions, a Fund may utilize a temporary defensive investment strategy by holding cash (U.S. dollars, foreign currencies, or multinational currency units) or investing without limitation in high-quality debt obligations, money market investments or repurchase agreements. Under normal market conditions, the potential for income or capital growth on these securities will tend to be lower than the potential for income or capital growth on other securities that may be owned by the Fund. During periods when the Fund has assumed a temporary defensive position, it may miss certain other investment opportunities and it 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 generally holds approximately 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. 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. 30 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 have had and may continue to have very negative effects on the economies and securities markets of those countries. The securities markets of emerging countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of the United States and other more developed countries. Disclosure and regulatory standards in many respects are less stringent than in the U.S. and other major markets. There also may be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets, and enforcement of existing regulations has been extremely limited. 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. 31 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 generally 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 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. GOVERNMENT-SPONSORED ENTITY SECURITIES. Each Fund may invest in government-sponsored entity securities, which are securities issued by entities such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Federal Home Loan Banks, among others. Although such an issuer may be chartered or sponsored by an Act of Congress, its securities are neither issued nor guaranteed by the United States Treasury. 32 INFLATION-INDEXED SECURITIES. Each Fund may invest in inflation-indexed debt securities issued by governments, their agencies or instrumentalities or corporations. The principal amount of such a security is periodically adjusted according to changes in the rate of inflation as measured by the consumer price index ("CPI"). The interest rate is fixed at issuance as a percentage of the principal amount as so adjusted from time to time. If the CPI declines, the principal amount of the security will be reduced and, consequently, the amount of interest payable on the security will also be reduced. Conversely, the principal amount and the amount of interest will increase if the CPI adjustment is positive. Any increase in the principal amount of an inflation-indexed debt security is taxable currently as ordinary income, even though the investor does not receive the principal until maturity. If you invest in Select Fund, you will be subject to the following additional 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 (valued at the time of investment) must be represented by one or more of the following: (i) cash and cash items, including receivables; (ii) U.S. government securities; (iii) securities of other regulated investment companies; and (iv) securities (other than those in items (ii) and (iii) above) of any one or more issuers as to which the Fund's investment in an issuer does not exceed 5% of the value of the Fund's total assets (valued at the time of investment) and not more than 10% of the outstanding voting securities of such issuer; and (b) not more than 25% of its total assets (valued at the time of investment) may be invested in the securities of any one issuer (other than U.S. government securities or securities of other regulated investment companies) or in the securities of "qualified publicly traded partnerships," as defined under the Internal Revenue Code. PORTFOLIO HOLDINGS DISCLOSURE Information on the Funds' portfolio holdings disclosure policies and procedures is available in the Statement of Additional Information. 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. 33 MANAGEMENT OF THE FUNDS The Oakmark 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 as sub-adviser to other mutual funds and as manager to 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, 2005, the management fees paid by the Funds, as a percentage of average net assets, were:
FUND - ------------------------------------------------------------------------------ Oakmark Fund .86% Select Fund .85 Equity and Income Fund .72 Global Fund .98 International Fund .91 International Small Cap Fund 1.17
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 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
Each such agreement is effective through January 31, 2007. A discussion regarding the basis for the approval of the Funds' investment advisory agreements with the Adviser by the board of trustees is available in the Funds' semi-annual report to shareholders dated March 31, 2005. 34 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 has been the Director of Research since 2003 and was Associate Director of Research from 2000 - 2002. 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). Equity and Income Fund is managed by Clyde S. McGregor, C.F.A., and Edward A. Studzinski, C.F.A. 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). 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 Robert A. Taylor, C.F.A., and Mr. McGregor. Mr. McGregor is responsible for the day-to-day management of the Fund's domestic portfolio, and Mr. Taylor manages the day-to-day affairs of the Fund's foreign portfolio. Mr. Taylor joined the adviser as an international analyst in 1994. He has been the Director of International Research since 2004. He holds a B.B.A. from the University of Wisconsin (1994). International Fund is managed by David G. Herro, C.F.A. Mr. Herro joined the Adviser in 1992 as a portfolio manager and analyst. Previously he had been an international portfolio manager for the State of Wisconsin Investment Board and The Principal Financial Group. 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 Chad M. Clark, C.F.A. Mr. Clark joined the Adviser in 1995 as an international analyst. Previously he had been a financial analyst in the corporate finance department at William Blair & Company. He holds a B.S. in industrial management from Carnegie Mellon University (1994). The Statement of Additional Information provides additional information regarding portfolio manager compensation, other accounts managed by each portfolio manager, and each portfolio manager's ownership of shares of the Fund each such portfolio manager manages. 35 INVESTING WITH THE OAKMARK 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 does impose a 2% redemption fee on redemptions of Class I Shares held for 90 days or less. See "Investing with The Oakmark 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. If you cease to reside in the United States you may be ineligible to purchase shares. EQUITY AND INCOME FUND, GLOBAL FUND, INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND. Equity and Income Fund, Global Fund, International Fund and International Small Cap Fund closed to new purchases through most financial services companies ("Intermediaries") on May 7, 2004, December 15, 2003, December 15, 2003 and May 10, 2002, respectively. If you are a shareholder (in your own name or as a beneficial owner of shares held in someone else's name) of one of those Funds, you may continue to make additional investments in that Fund and reinvest your dividends and capital gains distributions. You may open a new account in any of those Funds, even though that Fund is closed, if: - - You purchase shares directly from The Oakmark Funds, except for shares of International Small Cap Fund; - - You purchase through an employee retirement plan that currently includes shares of the Fund as an investment alternative and whose records are maintained by a trust company or plan administrator; - - 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 currently includes shares of the Fund as an investment alternative for such account; or - - The Adviser determines that your investment in the Fund would not adversely affect the Adviser's ability to manage the Fund effectively. The Trust reserves the right to re-open any 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 Equity and Income Fund, Global Fund, International Fund or International Small Cap Fund, please call an investor services representative at 1-800-OAKMARK. 36 OAKMARK UNITS. Oakmark Units are ILA Service Units of beneficial interest of the Government Portfolio, a cash management vehicle for existing and prospective Fund investors ("Oakmark Units"). The Government Portfolio is a portfolio of Goldman Sachs Trust, which includes the Goldman Sachs - Institutional Liquid Assets Portfolios. For a prospectus and more complete information on the Oakmark Units, including management fees and expenses, please call 1-800-OAKMARK (1-800-625-6275) or visit www. oakmark.com. Please read the prospectus carefully before you invest or send money. 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 qualified 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. 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 for individuals with more than two IRA accounts. 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. 37 TYPES OF ACCOUNTS - CLASS II SHARES Class II Shares of a Fund are offered only for purchase through certain retirement plans, such as 401(k) and profit sharing plans. To purchase Class II Shares you must do so through an Intermediary. The purchase of Class II Shares is contingent upon an agreement between the Intermediary and the Fund(s). Class II Shares of a Fund pay a service fee at the annual rate of up to .25% of the average annual value of Class II Shares of the Fund. This service fee is paid to the Intermediary for performing services associated with the administration of a retirement plan. If you invest in Class II Shares, the procedures by which you can purchase or redeem 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. 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 a class of shares of a Fund is determined by dividing the value of the assets attributable to that class, less liabilities attributable to that class, by the number of shares of the class outstanding. Trading in the securities of non-U.S. issuers held in a 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. 38 Securities held by the Funds are generally valued at market value. The Funds value debt securities maturing less than 61 days from the date of purchase at amortized cost. If a market quotation is not readily available or is deemed unreliable, or if an event that is expected to affect the value of a portfolio security occurs after the close of the primary market or exchange on which that security is traded and before the close of the NYSE, the security will be valued at a fair value determined in good faith in accordance with Fund policies and procedures. The Funds may use a systematic fair valuation model provided by an independent pricing service to value foreign securities in order to adjust for changes in value that may occur between the close of certain foreign exchanges and the NYSE. Although fair valuation may be more commonly used with foreign equity securities, it may also be used in a range of other circumstances, including thinly-traded domestic securities or fixed-income securities. When fair value pricing is employed, the value of a portfolio security used by a Fund to calculate its NAV may differ from quoted or published prices for the same security. 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 that 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 an authorized agent of the Fund for the receipt of orders, is made at the NAV next determined after receipt and acceptance of the 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. Each Fund reserves the right to REJECT ANY PURCHASE ORDER ACCEPTED BY AN INTERMEDIARY if it determines that the order is not in the best interests of the Fund or its shareholders. Price information may be obtained by visiting the Oakmark Funds' website at www.oakmark.com or by calling 1-800-OAKMARK and choosing menu option 1 to access 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 39 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 by the Funds, 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. - - Each Fund reserves the right, under limited circumstances, to cancel any purchase or exchange order received by the Fund. SHORT-TERM TRADING RESTRICTIONS. The Funds do not permit market timing or other short-term trading arrangements. Purchases and exchanges should be made with a view to long-term investment objectives only. Short-term or market timing trading practices may disrupt portfolio management strategies, increase brokerage and administrative costs, harm fund performance and result in dilution in the value of shares held by long-term shareholders. Such trading may also require a fund to sell securities to meet redemptions which could cause taxable events that impact shareholders. The Funds attempt to deter and prevent market timing and other short-term trading practices. - - Each Fund has adopted a redemption fee, described below, to deter excessive trading. - - The Funds also use a third party fair valuation service provider to limit circumstances that could lead to time zone arbitrage. - - Each Fund reserves the right to reject or restrict, without prior notice, any purchase or exchange order received by the Fund, including orders from retirement plan participants and orders that have been accepted by a shareholder's or retirement plan participant's Intermediary, that the Fund determines, in its sole discretion, not to be in the best interest of the Fund. The Funds believe that short-term trading in any account, including a retirement plan account, is not in the best interest of the Funds or their shareholders. Intermediary accounts often include shares held for multiple investors and such accounts typically provide the Funds with a net purchase or redemption request on any given day where purchasers of Fund shares and redeemers of Fund shares are netted against one another. The identity of individual purchasers and redeemers whose orders are aggregated are not known by the Funds. The netting effect makes it more difficult to identify, locate and eliminate short-term trading. In addition, those investors who engage in short-term trading may employ a variety of techniques to avoid detection. Despite the Funds' best efforts to prevent short-term trading in the Funds, there can be no assurance that the Funds will be able to identify all of those who engage in short-term trading and curtail their trading in every instance. - - Because the Funds believe that short-term trading is not in the best interest of the Funds or their shareholders, Intermediaries have a duty to take an active role in identifying and restricting shareholders who may be engaged in short-term trading of Fund shares. 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. 40 - - The Funds reserve the right at any time without prior notice to suspend, limit, modify or terminate any privilege, including but not limited to the purchase of shares and the use of the telephone exchange privilege. If you are a participant in a retirement plan, such as a 401(k) plan, and you purchase shares in the Fund through an administrator or trustee ("Administrator") that maintains a master or "omnibus" account with the Funds for trading on behalf of retirement plans and their participants, the Administrator may apply purchase and exchange limitations which are different from the limitations discussed above. These limitations may be more or less restrictive than the limitations imposed by the Funds, but in any event are designed to detect and prevent excessive trading. Consult with your Administrator to determine what purchase and exchange limitations may be applicable to your transactions in the Funds through your retirement plan. GENERAL REDEMPTION POLICIES You may REDEEM 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 Funds--Share Price--Net Asset Value." - - The Funds cannot accept a redemption request that specifies a particular redemption date or price. - - 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 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. For example, if you purchase shares on March 1, you must hold the shares for at least 91 days or until May 30; otherwise, you will be assessed the redemption fee. The fee is paid to the Fund and is 2% of the redemption value and is deducted from either the redemption proceeds or from the balance in the account. 41 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. The Funds do 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. 42 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 219558 Kansas City, MO 64121-9558 - - Your subsequent investments must be at least $100. BY WIRE TRANSFER OPENING AN ACCOUNT - - Generally, you may NOT open an account by wire transfer. ADDING TO AN ACCOUNT - - Instruct your bank to transfer funds to State Street Bank and Trust Co., 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. 43 BY ELECTRONIC TRANSFER OPENING AN ACCOUNT - - You may open a new account by electronic transfer only by visiting www.oakmark.com. Choose "Open an Account" in the drop-down menu under the "Investing with Us" tab and then follow the instructions. - - The maximum initial investment via www.oakmark.com is $100,000. - - 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. 44 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 219558 Kansas City, MO 64121-9558 - - 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. 45 BY EXCHANGE You may purchase shares of a Fund by exchange of shares of another Fund or by exchange of Oakmark Units (see "Investing with The Oakmark Funds--Eligibility to Buy Shares--Oakmark Units" above). 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 219558 Kansas City, MO 64121-9558 - - 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. 46 BY INTERNET OPENING AN ACCOUNT - - Visit the Oakmark Funds' website at www.oakmark.com, choose "Open an Account" in the drop-down menu under the "Investing with Us" tab and then follow the instructions. - - Your initial investment into your new account must be at least $1000. ADDING TO AN ACCOUNT - - Visit the Oakmark Funds' website at www.oakmark.com, log in to your account and then follow the instructions. - - Your subsequent investments must be at least $100. 47 HOW TO REDEEM 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 219558 Kansas City, MO 64121-9558 EXPRESS DELIVERY OR COURIER: THE OAKMARK FUNDS 330 West 9th Street Kansas City, MO 64105-1514 Ph: 617-449-6274 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 owners exactly 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, saying Redeem and then following the instructions, or by calling an investor service representative at 1-800-OAKMARK Monday through Friday between the hours of 8:00 a.m. and 6:00 p.m. Eastern Time (ET). Proceeds of an IRA redemption over the phone may only be sent to the address, not to a bank account. You may NOT redeem a Roth IRA, Simplified Employee Pension Plan (SEP) or Coverdell Education Savings Account by phone. - - 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. You may select the overnight delivery option for your check for a $17.50 fee. Overnight delivery is not available to a P.O. Box. See "Investing with The Oakmark 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. ET) 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. 48 BY ELECTRONIC TRANSFER - - 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 redeem 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." 49 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 Redeem 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 - - Visit the Oakmark Funds' web site at www.oakmark.com, log in to your account and then follow the instructions. 50 SIGNATURE GUARANTEE. A Stamp 2000 Medallion Signature Guarantee must be included in your request to redeem your Fund shares, and your request must be in writing, 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. The signature guarantee must be a Stamp 2000 Medallion Signature Guarantee. You may be able to obtain such 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 FEE POLICY. Each Fund reserves the right to assess an annual fee of $25 on any account that, due to redemptions, falls below the minimum amount required to establish the account, as described above. The fee is assessed by the automatic redemption of shares in the account in an amount sufficient to pay the fee. The fee does not apply to an account with an active investment builder or payroll deduction programs or to a retirement account. SMALL ACCOUNT REDEMPTION. Each Fund reserves the right to redeem shares in any account, including any account held in the name of an Intermediary, and send the proceeds to the registered owner of the account if the account value has been reduced below $1,000 as a result of redemptions. A Fund or its agent will make a reasonable effort to notify the registered owner if the account falls below the minimum in order to give the owner 30 days to increase the account value to $1,000 or more. 51 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 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. CUSTOMER IDENTIFICATION PROGRAM. Federal law requires all financial institutions, including mutual funds, to obtain, verify and record information that identifies each person who opens an account. In order to open an account, the Funds will ask you to provide certain identifying information on the account application, including your full name, address, date of birth and social security number or taxpayer identification number. If you fail to provide the appropriate information, we may reject your application and all monies received to establish your account will be returned to you. As a result, it is very important that the application be filled out completely in order to establish an account. After your account is established, the Funds are required to take steps to verify your identity. These actions may include checking your identifying information against various databases. IF THE FUNDS ARE UNABLE TO VERIFY YOUR IDENTITY FROM THE INFORMATION YOU PROVIDE, YOU MAY BE RESTRICTED FROM MAKING FUTURE PURCHASES FOR OR TRANSFERS OF SHARES FROM YOUR ACCOUNT; OR, YOUR ACCOUNT MAY BE CLOSED AND THE REDEMPTION PROCEEDS WILL BE PAID TO YOU. You will receive the share price next calculated after the Funds determine that they are unable to verify your identity; so, your redemption proceeds may be more or less than the amount you paid for your shares and the redemption may be a taxable transaction. 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 52 profit-sharing plan, thereby postponing federal income tax on the distribution. If your employer has a 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 identification number ("PIN") to access account information through OAKLINK. To establish a PIN, call 1-800-OAKMARK and choose menu options 1, **, 1, then 6 and you will be prompted for your social security number and account number information for PIN establishment for system access. If you have problems, please contact an Investor Service Representative at 1-800-OAKMARK Monday through Friday between the hours of 8:00 a.m. and 6:00 p.m. ET. WEBSITE. To learn more about The Oakmark Funds, or to obtain a prospectus, account application, shareholder report, account servicing form, average cost information or each Fund's daily NAV, to establish systematic investing privileges or to read portfolio manager commentaries visit 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, log into your account and follow the instructions. FORMS FOR SERVICING ACCOUNTS. To facilitate investing, the Funds make the following forms available: - - New Account Registration Form - - IRA Application - - IRA Transfer of Assets Form - - IRA Distribution Form - - Add-A-Fund Form - - Education Savings Account Application (formerly Education IRA) - - Education Savings Account Transfer of Assets Form 53 - - Shareholder Services Form (which includes forms to add or change your: address, social security or tax ID number, electronic transactions, bank information, distribution options, systematic withdrawal plan, automatic investment plan) - - Name Change Request - - Change of Beneficiary Form - - Check Writing Signature Form - - Transfer on Death Form - - Payroll Deduction Application - - Power of Attorney 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 219558, Kansas City, MO 64121-9558 or by telephoning an investor service representative at 1-800-OAKMARK. You may change your address by visiting the Oakmark Funds' website at www.oakmark.com and logging in to your account and following the instructions. You may also change your address by noting the change on the investment slip included as part of your quarterly account statement. Please be sure to sign the slip as authorization. P.O. Box addresses will only be accepted with accompanying street address information. 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 the name on your account registration only by sending your written instructions with a Stamp 2000 Medallion Signature Guarantee, as described above, to the transfer agent at The Oakmark Funds, P.O. Box 219558, Kansas City, MO 64121-9558. See "How to Redeem Class I Shares--Signature Guarantee." Please note that a new account application or other documentation may be required depending on the type of account registration. ACCOUNT TRANSCRIPTS. You may order a transcript of activity in your account(s) by calling an investor service representative at 1-800-OAKMARK. The Funds may assess a processing charge for a transcript order. 54 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. 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 redeem 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 except as noted below. 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. TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax, and may be subject to state or local taxes. If you are a U.S. citizen residing outside the United States, your distributions also may be taxed by the country in which you reside. Your distributions are taxable whether you take them in cash or reinvest them in additional shares. 56 For federal tax purposes, the Fund's income and short-term capital gain distributions are taxed as ordinary income and long-term capital gain distributions are taxed as long-term capital gains, except that "qualified dividend income" of noncorporate investors who satisfy certain holding period requirements is taxed at long-term capital gain rates, which currently reach a maximum of 15%. The character of a capital gain depends on the length of time that the Fund held the asset it sold. Every January, each of your Funds will send you and the Internal Revenue Serivice ("IRS") a statement called Form 1099 showing the amount of taxable distributions you received (including those reinvested in additional shares) in the previous calendar year. AVERAGE COST CALCULATION. Each shareholder is responsible for tax reporting and Fund share cost calculation. To facilitate your tax reporting, each Fund provides you with an average cost statement with your 1099 tax form. This average cost statement is based on transaction activity in an account for the period during which you held the account directly with the Fund. 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. 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 IRS 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. 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, 2005 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, whose report, along with each Fund's financial statements, is included in the annual report and is incorporated by reference in the Statement of Additional Information, which are available on request. Deloitte & Touche LLP has also audited the information for the fiscal years ended September 30, 2004, 2003 and 2002. 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 FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 38.68 $ 33.85 $ 28.08 $ 32.01 $ 26.95 beginning of period Income from investment operations: Net investment income 0.34 0.16 0.13 0.12 0.07 Net gains or losses on investments (both realized and unrealized) 1.90 4.81 5.75 (3.85) 5.38 ------------------------------------------------------------------------------------- Total from investment operations: 2.24 4.97 5.88 (3.73) 5.45 Less distributions: Dividends (from net investment income) (0.17) (0.14) (0.11) (0.20) (0.39) Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00 ------------------------------------------------------------------------------------- Total distributions (0.17) (0.14) (0.11) (0.20) (0.39) ------------------------------------------------------------------------------------- Redemption fee per share 0.00(a) 0.00(a) -- -- -- Net asset value, end of period $ 40.75 $ 38.68 $ 33.85 $ 28.08 $ 32.01 ===================================================================================== Total return 5.79% 14.73% 20.99% (11.77)% 20.42% Ratios/supplemental data: Net assets, end of period ($million) $ 6,340.4 $ 6,474.0 $ 4,769.4 $ 3,300.9 $ 3,109.1 Ratio of expenses to average net assets 1.03%* 1.05% 1.14% 1.17% 1.15% Ratio of net investment income to average net assets 0.79% 0.47% 0.48% 0.38% 0.73% Portfolio turnover rate 16% 19% 21% 44% 57% CLASS II ------------------------------------------------------------------------------------- APRIL 5, 2001 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 (b) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 38.45 $ 33.68 $ 28.04 $ 31.97 $ 32.09 beginning of period Income from investment operations: Net investment income 0.26 0.04(c) 0.05 0.16 0.05 Net gains or losses on investments (both realized and unrealized) 1.87 4.78 5.69 (3.92) (0.17) ------------------------------------------------------------------------------------- Total from investment operations: 2.13 4.82 5.74 (3.76) (0.12) Less distributions: Dividends (from net investment income) (0.07) (0.05) (0.10) (0.17) 0.00 Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00 ------------------------------------------------------------------------------------- Total distributions (0.07) (0.05) (0.10) (0.17) 0.00 ------------------------------------------------------------------------------------- Net asset value, end of period $ 40.51 $ 38.45 $ 33.68 $ 28.04 $ 31.97 ===================================================================================== Total return 5.55% 14.32% 20.52% (11.85)% (0.37)% Ratios/supplemental data: Net assets, end of period ($million) $ 43.7 $ 51.9 $ 21.1 $ 7.7 $ 0.1 Ratio of expenses to average net assets 1.26%* 1.40% 1.53% 1.44% 1.32%** Ratio of net investment income to average net assets 0.58% 0.11% 0.06% 0.35% 0.46%** Portfolio turnover rate 16% 19% 21% 44% 57%
* THE RATIO EXCLUDES EXPENSE OFFSET ARRANGEMENT. ** DATA HAS BEEN ANNUALIZED. (a) AMOUNTS ROUND TO LESS THAN $0.01 PER SHARE. (b) THE DATE ON WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS APRIL 5, 2001. (c) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. 59 THE OAKMARK SELECT FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 31.20 $ 27.55 $ 21.67 $ 25.20 $ 21.45 beginning of period Income from investment operations: Net investment income 0.29 0.15(a) 0.05 0.02 0.03 Net gains or losses on investments (both realized and unrealized) 2.19 3.60 5.85 (3.50) 5.17 ------------------------------------------------------------------------------------- Total from investment operations: 2.48 3.75 5.90 (3.48) 5.20 Less distributions: Dividends (from net investment income) (0.24) (0.10) (0.02) (0.05) (0.09) Distributions (from capital gains) 0.00 0.00 0.00 0.00 (1.36) ------------------------------------------------------------------------------------- Total distributions (0.24) (0.10) (0.02) (0.05) (1.45) ------------------------------------------------------------------------------------- Redemption fee per share 0.00(b) 0.00(b) -- -- -- Net asset value, end of period $ 33.44 $ 31.20 $ 27.55 $ 21.67 $ 25.20 ===================================================================================== Total return 7.98% 13.64% 27.25% (13.85)% 25.75% Ratios/supplemental data: Net assets, end of period ($million) $ 5,908.0 $ 5,463.0 $ 4,993.0 $ 3,717.6 $ 4,161.4 Ratio of expenses to average net assets 1.00% 1.00% 1.02% 1.07% 1.08% Ratio of net investment income to average net assets 0.87% 0.50% 0.23% 0.09% 0.26% Portfolio turnover rate 21% 14% 20% 32% 21% CLASS II ------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 31.00 $ 27.37 $ 21.56 $ 25.10 $ 21.40 beginning of period Income from investment operations: Net investment income (loss) 0.21 0.09(a) 0.00(b) (0.04) 0.00(b) Net gains or losses on investments (both realized and unrealized) 2.18 3.58 5.81 (3.50) 5.10 ------------------------------------------------------------------------------------- Total from investment operations: 2.39 3.67 5.81 (3.54) 5.10 Less distributions: Dividends (from net investment income) (0.15) (0.04) 0.00 0.00 (0.06) Distributions (from capital gains) 0.00 0.00 0.00 0.00 (1.34) ------------------------------------------------------------------------------------- Total distributions (0.15) (0.04) 0.00 0.00 (1.40) ------------------------------------------------------------------------------------- Net asset value, end of period $ 33.24 $ 31.00 $ 27.37 $ 21.56 $ 25.10 ===================================================================================== Total return 7.72% 13.40% 26.95% (14.10)% 25.28% Ratios/supplemental data: Net assets, end of period ($million) $ 85.2 $ 98.0 $ 93.1 $ 64.4 $ 35.4 Ratio of expenses to average net assets 1.25% 1.21% 1.29% 1.36% 1.40% Ratio of net investment income (loss) to average net assets 0.65% 0.29% (0.04)% (0.19)% (0.08)% Portfolio turnover rate 21% 14% 20% 32% 21%
(a) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. (b) AMOUNTS ROUND TO LESS THAN $0.01 PER SHARE. 60 THE OAKMARK EQUITY AND INCOME FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 23.12 $ 20.30 $ 17.18 $ 17.45 $ 16.50 beginning of period Income from investment operations: Net investment income 0.31 0.15 0.17 0.33(a) 0.08 Net gains or losses on investments (both realized and unrealized) 2.77 2.81 3.19 (0.40) 2.11 ------------------------------------------------------------------------------------- Total from investment operations: 3.08 2.96 3.36 (0.07) 2.19 Less distributions: Dividends (from net investment income) (0.20) (0.14) (0.24) (0.16) (0.24) Distributions (from capital gains) (0.59) 0.00 0.00 (0.04) (1.00) ------------------------------------------------------------------------------------- Total distributions (0.79) (0.14) (0.24) (0.20) (1.24) ------------------------------------------------------------------------------------- Redemption fee per share 0.00(b) 0.00(b) -- -- -- Net asset value, end of period $ 25.41 $ 23.12 $ 20.30 $ 17.18 $ 17.45 ===================================================================================== Total return 13.65% 14.64% 19.75% (0.47)% 14.40% Ratios/supplemental data: Net assets, end of period ($million) $ 9,223.2 $ 7,577.9 $ 4,138.0 $ 2,241.9 $ 620.1 Ratio of expenses to average net assets 0.89%* 0.92% 0.93% 0.96% 0.98% Ratio of net investment income to average net assets 1.36% 0.78% 1.07% 1.71% 2.07% Portfolio turnover rate 112% 72% 48% 73% 124% CLASS II ------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 23.03 $ 20.24 $ 17.15 $ 17.40 $ 16.49 beginning of period Income from investment operations: Net investment income 0.28 0.11 0.16 0.30(a) 0.07 Net gains or losses on investments (both realized and unrealized) 2.72 2.79 3.15 (0.40) 2.08 ------------------------------------------------------------------------------------- Total from investment operations: 3.00 2.90 3.31 (0.10) 2.15 Less distributions: Dividends (from net investment income) (0.15) (0.11) (0.22) (0.11) (0.24) Distributions (from capital gains) (0.59) 0.00 0.00 (0.04) (1.00) ------------------------------------------------------------------------------------- Total distributions (0.74) (0.11) (0.22) (0.15) (1.24) ------------------------------------------------------------------------------------- Net asset value, end of period $ 25.29 $ 23.03 $ 20.24 $ 17.15 $ 17.40 ===================================================================================== Total return 13.34% 14.36% 19.46% (0.60)% 14.07% Ratios/supplemental data: Net assets, end of period ($million) $ 582.0 $ 478.7 $ 246.6 $ 118.7 $ 3.3 Ratio of expenses to average net assets 1.14%* 1.17% 1.17% 1.20% 1.23% Ratio of net investment income to average net assets 1.11% 0.53% 0.84% 1.50% 1.95% Portfolio turnover rate 112% 72% 48% 73% 124%
* THE RATIO EXCLUDES EXPENSE OFFSET ARRANGEMENT. (a) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. (b) AMOUNTS ROUND TO LESS THAN $0.01 PER SHARE. 61 THE OAKMARK GLOBAL FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 19.73 $ 16.98 $ 11.30 $ 10.83 $ 10.91 beginning of period Income from investment operations: Net investment income 0.17 0.09 0.01 0.00(a)(b) 0.03 Net gains or losses on investments (both realized and unrealized) 4.48 2.71 5.67 0.76(c) 0.12 ------------------------------------------------------------------------------------------- Total from investment operations: 4.65 2.80 5.68 0.76 0.15 Less distributions: Dividends (from net investment income) (0.10) 0.00(a) 0.00 0.00 (0.17) Distributions (from capital gains) (0.37) (0.05) 0.00 (0.29) (0.06) ------------------------------------------------------------------------------------------- Total distributions (0.47) (0.05) 0.00 (0.29) (0.23) ------------------------------------------------------------------------------------------- Redemption fee per share 0.00(a) 0.00(a) -- -- -- Net asset value, end of period $ 23.91 $ 19.73 $ 16.98 $ 11.30 $ 10.83 =========================================================================================== Total return 23.88% 16.54% 50.27% 6.84% 1.37% Ratios/supplemental data: Net assets, end of period ($million) $ 1,842.9 $ 1,336.3 $ 704.8 $ 175.6 $ 48.2 Ratio of expenses to average net assets 1.20%* 1.26% 1.28% 1.55% 1.75%(e) Ratio of net investment income (loss) to average net assets 0.81% 0.47% 0.00%(d) (0.01)% 0.00%(d) Portfolio turnover rate 17% 16% 42% 86% 114%
* THE RATIO EXCLUDES EXPENSE OFFSET ARRANGEMENT. (a) AMOUNTS ROUND TO LESS THAN $0.01 PER SHARE. (b) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. (c) 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 REDEMPTIONS OF FUND SHARES IN RELATION TO THE FLUCTUATING NET ASSET VALUE PER SHARE OF THE CLASS. (d) AMOUNT ROUNDS TO LESS THAN 0.01%. (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, 2001 - --------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.80% Ratio of Net Income (Loss) to Average Net Assets (0.05)%
62 For a share outstanding throughout each period
CLASS II --------------------------------------------------------------- OCTOBER 10, 2001 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 (a) --------------------------------------------------------------- Net asset value, beginning of period $ 19.53 $ 16.84 $ 11.24 $ 11.25 Income from investment operations: Net investment income (loss) 0.11 0.05 0.02 (0.03) Net gains or losses on investments (both realized and unrealized) 4.43 2.69 5.58 0.31(b) --------------------------------------------------------------- Total from investment operations: 4.54 2.74 5.60 0.28 Less distributions: Dividends (from net investment income) (0.07) 0.00 0.00 0.00 Distributions (from capital gains) (0.37) (0.05) 0.00 (0.29) --------------------------------------------------------------- Total distributions (0.44) (0.05) 0.00 (0.29) --------------------------------------------------------------- Net asset value, end of period $ 23.63 $ 19.53 $ 16.84 $ 11.24 =============================================================== Total return 23.53% 16.32% 49.82% 2.31% Ratios/supplemental data: Net assets, end of period ($million) $ 58.6 $ 24.7 $ 5.8 $ 0.6 Ratio of expenses to average net assets 1.45%* 1.50% 1.46% 1.86%** Ratio of net investment income (loss) to average net assets 0.63% 0.37% (0.01)% (0.26)%** Portfolio turnover rate 17% 16% 42% 86%
* THE RATIO EXCLUDES EXPENSE OFFSET ARRANGEMENT. ** DATA HAS BEEN ANNUALIZED. (a) THE DATE ON 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 REDEMPTIONS OF FUND SHARES IN RELATION TO THE FLUCTUATING NET ASSET VALUE PER SHARE OF THE CLASS. 63 THE OAKMARK INTERNATIONAL FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 18.98 $ 15.67 $ 12.17 $ 12.51 $ 15.40 beginning of period Income from investment operations: Net investment income 0.27 0.24 0.11 0.14 0.20 Net gains or losses on investments (both realized and unrealized) 4.59 3.18 3.52 (0.31) (2.07) --------------------------------------------------------------------------------------------- Total from investment operations: 4.86 3.42 3.63 (0.17) (1.87) Less distributions: Dividends (from net investment income) (0.27) (0.11) (0.13) (0.17) (0.51) Distributions (from capital gains) (0.05) 0.00 0.00 0.00 (0.51) --------------------------------------------------------------------------------------------- Total distributions (0.32) (0.11) (0.13) (0.17) (1.02) --------------------------------------------------------------------------------------------- Redemption fee per share 0.00(a) 0.00(a) -- -- -- Net asset value, end of period $ 23.52 $ 18.98 $ 15.67 $ 12.17 $ 12.51 ============================================================================================= Total return 25.85% 21.92% 29.97% (1.53)% (13.10)% Ratios/supplemental data: Net assets, end of period ($million) $ 5,627.4 $ 4,036.9 $ 2,676.6 $ 1,393.8 $ 738.5 Ratio of expenses to average net assets 1.11%* 1.20% 1.25% 1.31% 1.30% Ratio of net investment income to average net assets 1.32% 1.40% 1.03% 1.34% 1.40% Portfolio turnover rate 14% 21% 34% 24% 58% CLASS II ------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 18.86 $ 15.58 $ 12.13 $ 12.47 $ 15.37 beginning of period Income from investment operations: Net investment income 0.22 0.18 0.08 0.15 0.17 Net gains or losses on investments (both realized and unrealized) 4.55 3.16 3.48 (0.37) (2.10) --------------------------------------------------------------------------------------------- Total from investment operations: 4.77 3.34 3.56 (0.22) (1.93) Less distributions: Dividends (from net investment income) (0.22) (0.06) (0.11) (0.12) (0.49) Distributions (from capital gains) (0.05) 0.00 0.00 0.00 (0.48) --------------------------------------------------------------------------------------------- Total distributions (0.27) (0.06) (0.11) (0.12) (0.97) --------------------------------------------------------------------------------------------- Net asset value, end of period $ 23.36 $ 18.86 $ 15.58 $ 12.13 $ 12.47 ============================================================================================= Total return 25.50% 21.52% 29.52% (1.76)% (13.44)% Ratios/supplemental data: Net assets, end of period ($million) $ 362.9 $ 259.2 $ 123.2 $ 48.5 $ 1.9 Ratio of expenses to average net assets 1.38%* 1.53% 1.67% 1.58% 1.64% Ratio of net investment income to average net assets 1.08% 1.18% 0.69% 1.33% 0.62% Portfolio turnover rate 14% 21% 34% 24% 58%
* THE RATIO EXCLUDES EXPENSE OFFSET ARRANGEMENT. (a) AMOUNTS ROUND TO LESS THAN $0.01 PER SHARE. 64 THE OAKMARK INTERNATIONAL SMALL CAP FUND For a share outstanding throughout each period
CLASS I ------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 18.26 $ 13.74 $ 10.17 $ 10.00 $ 11.51 beginning of period Income from investment operations: Net investment income 0.20 0.11 0.11 0.11 0.13 Net gains or losses on investments (both realized and unrealized) 4.98 4.52 3.82 0.36(a) (0.81) ------------------------------------------------------------------------------------------- Total from investment operations: 5.18 4.63 3.93 0.47 (0.68) Less distributions: Dividends (from net investment income) (0.27) (0.12) (0.09) (0.16) (0.34) Distributions (from capital gains) (0.38) 0.00 (0.27) (0.14) (0.49) ------------------------------------------------------------------------------------------- Total distributions (0.65) (0.12) (0.36) (0.30) (0.83) ------------------------------------------------------------------------------------------- Redemption fee per share 0.00(d) 0.01 -- -- -- Net asset value, end of period $ 22.79 $ 18.26 $ 13.74 $ 10.17 $ 10.00 =========================================================================================== Total return 29.04% 33.94% 39.78% 4.68% (6.18)% Ratios/supplemental data: Net assets, end of period ($million) $ 1,007.2 $ 734.1 $ 477.8 $ 357.7 $ 118.9 Ratio of expenses to average net assets 1.41%* 1.49% 1.57% 1.64% 1.74% Ratio of net investment income to average net assets 0.96% 0.72% 0.99% 1.28% 1.83% Portfolio turnover rate 47% 29% 30% 42% 49% CLASS II ------------------------------------------------------------------------------------------- JANUARY 8, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 2001 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2003 2002 2001(b) - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, $ 18.25 $ 13.69 $ 10.14 $ 9.97 $ 10.73 beginning of period Income from investment operations: Net investment income 0.18 0.13 0.08 0.13(c) 0.15 Net gains or losses on investments (both realized and unrealized) 4.98 4.52 3.81 0.30(a) (0.91) ------------------------------------------------------------------------------------------- Total from investment operations: 5.16 4.65 3.89 0.43 (0.76) Less distributions: Dividends (from net investment income) (0.26) (0.09) (0.07) (0.12) 0.00 Distributions (from capital gains) (0.38) 0.00 (0.27) (0.14) 0.00 ------------------------------------------------------------------------------------------- Total distributions (0.64) (0.09) (0.34) (0.26) 0.00 ------------------------------------------------------------------------------------------- Net asset value, end of period $ 22.77 $ 18.25 $ 13.69 $ 10.14 $ 9.97 =========================================================================================== Total return 28.94% 34.11% 39.39% 4.25% (7.08)% Ratios/supplemental data: Net assets, end of period ($million) $ 0.6 $ 0.5 $ 0.4 $ 0.3 $ 0.0 Ratio of expenses to average net assets 1.49%* 1.39% 1.81% 1.87% 1.97%** Ratio of net investment income to average net assets 0.87% 0.75% 0.72% 1.06% 1.76%** Portfolio turnover rate 47% 29% 30% 42% 49%
* THE RATIO EXCLUDES EXPENSE OFFSET ARRANGEMENT. ** 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 REDEMPTIONS OF FUND SHARES IN RELATION TO THE FLUCTUATING NET ASSET VALUE PER SHARE OF THE CLASS. (b) THE DATE ON WHICH CLASS II SHARES WERE FIRST SOLD TO THE PUBLIC WAS JANUARY 8, 2001. (c) COMPUTED USING AVERAGE SHARES OUTSTANDING THROUGHOUT THE PERIOD. (d) AMOUNT ROUNDS TO LESS THAN $0.01 PER SHARE. 65 NOTES: NOTES: NOTES: NOTES: You may obtain more information about The Oakmark Funds' investments in the Funds' semi-annual and annual reports to shareowners. These reports contain information on the market conditions and investment strategies that significantly affected The Oakmark Funds' performance during the last fiscal year. You may wish to read the Statement of Additional Information for more information about The Oakmark Funds. The Statement of Additional Information is incorporated by reference into this prospectus, which means that it is considered to be part of this prospectus. You may obtain free copies of The Oakmark Funds' semi-annual and annual reports and the Statement of Additional Information, request other information, and discuss your questions about The Oakmark Funds by writing or calling: THE OAKMARK FUNDS P.O. BOX 219558 KANSAS CITY, MO 64121-9558 1-800-OAKMARK (1-800-625-6275) The requested documents will be sent within three business days of your request. You may also obtain the Funds' Statement of Additional Information and the annual, semi-annual and quarterly reports to shareholders, along with other information, free of charge, by visiting The Oakmark 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, Washington, DC 20549-0102 or by e-mail request at publicinfo@sec.gov. HARRIS ASSOCIATES INVESTMENT TRUST 811-06279 HASPROS06 STATEMENT OF ADDITIONAL INFORMATION January 27, 2006 THE OAKMARK 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 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. The financial statements for each of the Funds for the most recent fiscal year may be found in the Funds' annual report to shareholders and are incorporated herein by reference. TABLE OF CONTENTS THE FUNDS 2 INVESTMENT RESTRICTIONS 2 HOW THE FUNDS INVEST 4 PERFORMANCE INFORMATION 13 INVESTMENT ADVISER 17 PORTFOLIO MANAGERS 19 CODE OF ETHICS 21 PROXY VOTING POLICIES AND PROCEDURES 21 TRUSTEES AND OFFICERS 23 PRINCIPAL SHAREHOLDERS 29 PURCHASING AND REDEEMING SHARES 30 ADDITIONAL TAX INFORMATION 33 DISTRIBUTOR 35 PORTFOLIO TRANSACTIONS 36 DECLARATION OF TRUST 39 CUSTODIAN AND TRANSFER AGENT 39 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 39 APPENDIX A -- BOND RATINGS A-1 APPENDIX B -- FINANCIAL STATEMENTS B-1
1 THE FUNDS Oakmark Fund, Select Fund, Global Fund, International Fund and International Small Cap Fund seek long-term capital appreciation. Equity and Income Fund seeks 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"). 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. All shares issued will be fully paid and non-assessable and will have no preemptive or conversion rights. 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 - ---------- (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. 2 [the Fund will not lend securities having a value in excess of 33% of its assets, including collateral received for loaned securities (valued at the time of any loan)]; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into forward foreign currency contracts; 10. Acquire securities of other investment companies except (a) by purchase in the open market, where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission or (b) where the acquisition results from a dividend or a merger, consolidation or other reorganization;(2) 11. Make margin purchases or participate in a joint or on a joint or several basis in any trading account in securities; 12. Invest in companies for the purpose of management or the exercise of control; 13. Invest more than 15% of its net assets (valued at the time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; 14. [OAKMARK FUND, SELECT 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; [GLOBAL FUND, 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 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 or 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. 3 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 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. 4 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 Certain of the Funds may invest in "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 ($ 3.7 billion as of December 30, 2005). The mean market capitalization of companies included in the S&P Small Cap 600 Index was $883 million as of December 30, 2005. 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. Under normal market conditions, International Small Cap Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in the stocks of small cap companies. The 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 25-75% 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 5 example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions." You should understand and consider carefully the risks involved in international investing. Investing in securities of non-U.S. issuers, 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 6 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 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 7 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 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 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. 8 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 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. GOVERNMENT-SPONSORED ENTITY SECURITIES Each Fund may invest in government-sponsored entity securities, which are securities issued by entities such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Federal Home Loan Banks, among others. Although such an issuer may be chartered or sponsored by an Act of Congress, its securities are neither issued nor guaranteed by the United States Treasury. INFLATION-INDEXED SECURITIES. Each Fund may invest in inflation-indexed debt securities issued by governments, their agencies or instrumentalities or corporations. The principal amount of such a security is periodically adjusted according to changes in the rate of inflation as measured by the consumer price index ("CPI"). The interest rate is fixed at issuance as a percentage of the principal amount as so adjusted from time to time. If the CPI declines, the principal amount of the security will be reduced and, consequently, the amount of interest payable on the security will also be reduced. Conversely, the principal amount and the amount of interest will increase if the CPI adjustment is positive. Any increase in the principal amount of an inflation-indexed debt security is taxable currently as ordinary income, even though the investor does not receive the principal until maturity. In the case of U.S. Treasury inflation-indexed debt securities, repayment of the principal upon maturity (as adjusted for inflation) is guaranteed. However, the current market value of this type of security is not guaranteed and will fluctuate. 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 9 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 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. 10 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. There could also 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. In addition, the Fund may not exercise proxy voting rights for a secuity that is on loan. 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 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 11 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 last reported sale price, or, if no sale price is available, at the mean between the last bid and asked prices, or if the mean is not available, at the most recent bid quotation. 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 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 DEFENSIVE INVESTMENT STRATEGIES Each Fund has the flexibility to respond promptly to changes in market, economic, political, or other unusual 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 obligations, money market instruments or repurchase agreements. Most or all of the defensive investments of International Fund, International Small Cap Fund 12 and Global Fund will be securities of U.S. issuers denominated in dollars. It is impossible to predict whether, when or for how long a Fund will employ a defensive strategy. 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 and may invest any portion of its assets in money market instruments. 13 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:
FUND FEE - ------------------------ --------------------------------------------------------------------- Oakmark 1.00% up to $2 billion; 0.90% from $2-3 billion; 0.80% from $3-5 billion; 0.75% from $5-7.5 billion; 0.70% from $7.5-10 billion; and 0.65% over $10 billion Select 1.00% up to $1 billion; 0.95% from $1-1.5 billion; 0.90% from $1.5-2 billion; 0.85% from $2-2.5 billion; 0.80% from $2.5-5 billion; 0.75% from $5-10 billion; and 0.725% over $10 billion Equity and Income 0.75% up to $5 billion; 0.70% from $5-7.5 billion; 0.675% from $7.5-10 billion; 0.65% from $10-12.5 billion; and 0.60% over $12.5 billion Global 1.00% up to $2 billion; 0.95% from $2-4 billion; and 0.90% over $4 billion International 1.00% up to $2 billion; 0.95% from $2-3 billion; 0.85% from $3-5 billion; 0.825% from $5-7.5 billion; and 0.815% over $7.5 billion International Small Cap 1.25% up to $500 million; 1.10% from $500 million to $1.5 billion; and 1.05% over $1.5 billion
14 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, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 --------------------------------------------------------------------------------------------------- Oakmark Advisory fee $ 59,184,688 $ 50,652,178 $ 37,074,474 Select Advisory fee 49,906,327 48,070,958 38,938,068 Equity and Income Advisory fee 63,670,347 46,997,810 23,468,519 Global Advisory fee 16,115,537 12,245,761 2,982,092 International Advisory fee 47,254,405 36,337,644 19,015,386 International Small Cap Advisory fee 10,432,050 7,616,526 4,626,713
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. The Adviser is a limited partnership managed by its general partner, Harris Associates, Inc. ("HAI"), whose directors are David G. Herro, Robert M. Levy, 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 IXIS Asset Management North America, L.P. ("IXIS AMNA"). IXIS AMNA owns 99.67% of the limited partnership interests in the Adviser and, through its wholly-owned subsidiary, IXIS Asset Management Holdings, LLC ("IXIS Holdings"), all of the outstanding shares of HAI. IXIS AMNA is a limited partnership that owns investment management and distribution and service entities. IXIS AMNA is part of IXIS Asset Management Group, an international asset management group based in Paris, France. IXIS Asset Management Group is ultimately owned principally, directly or indirectly, by three large affiliated French financial services entities: the Caisse des Depots et Consignations ("CDC"), a public sector financial institution created by the French government in 1816; the Caisse Nationale des Caisses d'Epargne ("CNC"), a financial institution owned by CDC and by French regional savings banks known as the Caisses d'Epargne; and CNP Assurances, a large French life insurance company. The registered address of CNC is 5, rue Masseran, 75007 Paris, France. The registered office of CDC is 56, rue de Lille, 75007 Paris, France. The registered address of CNP Assurances is 4, place Raoul Dautry, 75015 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 or Select 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 or Select 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, 2007. For the purpose of determining the expense of a share class of a Fund, the pro rata portion of the Fund's expenses attributable to a share class of that Fund is calculated daily. If a Fund is entitled to any reduction in fees or expenses, reimbursement is made monthly. 15 LITIGATION INVOLVING THE ADVISER In August 2004, a complaint entitled JONES, ET AL. V. HARRIS ASSOCIATES L.P. was filed in the U.S. District Court for the Western District of Missouri against the Adviser alleging, among other things, that the Adviser breached its fiduciary duty by charging excessive management fees to Oakmark Fund, Equity and Income Fund, and Global Fund in violation of Section 36(b) of the 1940 Act. The case was subsequently transferred to the U.S. District Court for the Northern District of Illinois. Plaintiffs seek unspecified damages and other relief, including a return by the Adviser of management fees paid by those Funds. The Adviser believes these allegations are without merit and intends to defend them vigorously. PORTFOLIO MANAGERS PORTFOLIO MANAGERS' MANAGEMENT OF OTHER ACCOUNTS Many of the Portfolio Managers of the Funds managed other accounts in addition to managing one or more of the Funds. The following table sets forth the number and total assets of the mutual funds and other accounts managed by each Portfolio Manager as of September 30, 2005, unless otherwise indicated. None of these accounts has an advisory fee based on the performance of the account.
REGISTERED INVESTMENT NAME OF PORTFOLIO COMPANIES OTHER POOLED INVESTMENT FUND MANAGER (OTHER THAN OAKMARK FUNDS) VEHICLES OTHER ACCOUNTS ---- ------- -------------------------- -------- -------------- (HARRIS ASSOCIATES L.P. SEPARATELY MANAGED ACCOUNTS)+ Number Number Number of of of Accounts Total Assets Accounts Total Assets Accounts Total Assets Oakmark William Nygren 4 $ 2,027,724,772 0 0 0 0 Kevin Grant 0 0 0 0 0 0 Select William Nygren 4 $ 2,027,724,772 0 0 0 0 Henry Berghoef 1 $ 44,685,611 0 0 0 0 Equity and Income Clyde McGregor 0 0 2 $ 585,352,167 156 $ 1,196,309,590 Edward Studzinski 0 0 0 0 0 0 Global Clyde McGregor 0 0 2 $ 585,352,167 156 $ 1,196,309,590 Robert Taylor++ 2 $ 1,488,577,084 4 $ 4,123,558,910 8 $ 1,139,598,060 International David Herro 6 $ 2,416,117,310 4 $ 5,028,545,910 11 $ 2,211,724,289 International Small Cap David Herro 6 $ 2,416,117,310 4 $ 5,028,545,910 11 $ 2,211,724,289 Chad Clark 5 $ 1,221,843,608 2 $ 1,460,536,262 6 $ 1,344,479,565
- ---------- + Personal investment accounts of portfolio managers and their families are not reflected. ++ The individual assumed co-portfolio manager responsibility on October 1, 2005, therefore information for this individual is as of that date. MATERIAL CONFLICTS OF INTEREST Conflicts of interest may arise in the allocation of investment opportunities and the allocation of aggregated orders among the Funds and the other accounts managed by the portfolio managers. A portfolio manager potentially could give favorable treatment to some accounts for a variety of reasons, including favoring larger accounts, accounts that have a different advisory fee arrangement (including any accounts that pay performance-based fees), accounts of affiliated companies, or accounts in which the portfolio manager has a personal investment. With respect to the allocation of investment opportunities, the Adviser makes decisions to recommend, purchase, sell or hold securities for all of its client accounts, including the Funds, based on the specific investment objectives, guidelines, restrictions and circumstances of each account. It is the Adviser's policy to allocate investment opportunities to each account, including the Funds, over a period of time on a fair and equitable basis relative to its other accounts. With respect to the allocation of aggregated orders, each account that participates in an aggregated order will participate at the average share price, and where the order has not been completely filled, each institutional account, including the Funds, will generally participate on a pro rata basis. For more information on how the Adviser aggregates orders and allocates securities among the accounts participating in those orders, see the section "Portfolio Transactions" in this Statement of Additional Information. 16 The Adviser has compliance policies and procedures in place that it believes are reasonably designed to mitigate these conflicts. However, there is no guarantee that such procedures will detect each and every situation in which an actual or potential conflict may arise. PORTFOLIO MANAGERS COMPENSATION STRUCTURE Each of the Funds' portfolio managers is compensated solely by the Adviser. Compensation for each of the portfolio managers is based on the Adviser's assessment of the individual's long-term contribution to the investment success of the firm and is structured as follows: (1) Base salary. The base salary is a fixed amount, and each portfolio manager receives the same base salary. (2) Participation in a discretionary bonus pool. A discretionary bonus pool for each of the Adviser's domestic and international investment groups is allocated among the senior level employees of the group and is paid annually. (3) Participation in a long-term compensation plan that provides current compensation to certain key employees of the Adviser and deferred compensation to both current and former key employees. The compensation plan consists of bonus units awarded to participants that vest and are paid out over a period of time. The determination of the amount of each portfolio manager's participation in the discretionary bonus pool and the long-term compensation plan is based on a variety of qualitative and quantitative factors. The factor given the most significant weight is the subjective assessment of the individual's contribution to the overall investment results of the Adviser's domestic or international investment group, whether as a portfolio manager, a research analyst, or both. The quantitative factors considered in evaluating the contribution of a portfolio manager include the performance of the portfolios managed by that individual relative to benchmarks, peers and other portfolio managers, as well as the assets under management in the Funds and other accounts managed by the portfolio manager. The portfolio manager's compensation is not based solely on an evaluation of the performance of the Funds or the amount of Fund assets. Performance is measured in a number of ways, including by Fund, by other accounts and by strategy, and is compared to one or more of the following benchmarks: S&P500, Russell Mid-Cap Value, Russell 1000 Value, Lipper Balanced, 60/40 S&P/Lehman (60% S&P500 and 40% Lehman Bond Index), Morgan Stanley Capital International EAFE (Europe, Australasia Far East) Index, and the Adviser's approved lists of stocks, depending on whether the portfolio manager manages accounts in a particular strategy for which a given benchmark would be applicable. Performance is measured over one and three-year periods and on a pre-tax and after-tax basis to the extent such information is available. If a portfolio manager also serves as a research analyst, then his compensation is also based on the contribution made to the Adviser in that role. The specific quantitative and qualitative factors considered in evaluating a research analyst's contributions include, among other things, new investment ideas, the performance of investment ideas covered by the analyst during the current year as well as over longer-term periods, the portfolio impact of the analyst's investment ideas, other contributions to the research process, and an assessment of the quality of analytical work. In addition, an individual's other contributions to the Adviser, such as a role in investment thought leadership and management of the firm, are taken into account in the overall compensation process. 17 PORTFOLIO MANAGERS' OWNERSHIP OF FUND SHARES The following table sets forth the dollar range of shares of the Funds beneficially owned by the Portfolio Manager of each Fund as of September 30, 2005.
FUND NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF FUND HOLDINGS ---- ------------------------- ----------------------------- Oakmark William Nygren Over $1,000,000 Kevin Grant Over $1,000,000 Select William Nygren Over $1,000,000 Henry Berghoef Over $1,000,000 Equity and Income Clyde McGregor Over $1,000,000 Edward Studzinski $500,001-$1,000,000* Global Clyde McGregor Over $1,000,000 Robert Taylor Over $1,000,000 International David Herro Over $1,000,000 International Small Cap David Herro Over $1,000,000 Chad Clark $100,001-$500,000**
* As of December 31, 2005, Mr. Studzinski beneficially owned over $1,000,000 of the Fund's shares. **As of December 31, 2005, Mr. Clark beneficially owned over $1,000,000 of the Fund's shares. CODES OF ETHICS 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 Funds from engaging in personal securities investing, they regulate such investing by those employees. PROXY VOTING POLICIES AND PROCEDURES The Adviser, as part of its management responsibilities, is responsible for exercising all voting rights with respect to portfolio securities of the Funds in accordance with the Adviser's proxy voting policies and procedures. The Adviser exercises voting rights solely with the goal of serving the best interests of its clients (including the Funds) as shareholders of a company. In determining how to vote on any proposal, the Adviser's Proxy Committee considers the proposal's expected impact on shareholder value and does not consider any benefit to the Adviser or its employees or affiliates. The Adviser considers the reputation, experience and competence of a company's management when it evaluates the merits of investing in a particular company, and it invests in companies in which it believes management goals and shareholder goals are aligned. Therefore, on most issues, the Adviser casts votes in accordance with management's recommendations. However, when the Adviser believes that management's position on a particular issue is not in the best interests of the Funds and their shareholders, the Adviser will vote contrary to management's recommendation. 18 PROXY VOTING GUIDELINES The Adviser's Proxy Committee has established a number of proxy voting guidelines on various issues of concern to investors. The Proxy Committee normally votes proxies in accordance with those guidelines unless it determines that it is in the best economic interests of a Fund and its shareholders to vote contrary to the guidelines. The voting guidelines generally address issues related to boards of directors, auditors, equity based compensation plans, and shareholder rights. - With respect to a company's board of directors, the Adviser believes that there should be a majority of independent directors and that audit, compensation and nominating committees should consist solely of independent directors, and it will normally vote in favor of proposals that ensure such independence. - With respect to auditors, the Adviser believes that the relationship between a public company and its auditors should be limited primarily to the audit engagement, and it will normally vote in favor of proposals to prohibit or limit fees paid to auditors for any services other than auditing and closely-related activities that do not raise any appearance of impaired independence. - With respect to equity based compensation plans, the Adviser believes that appropriately designed plans approved by a company's shareholders can be an effective way to align the interests of long-term shareholders and the interests of management, employees and directors. However, the Adviser will normally vote against plans that substantially dilute its clients' ownership interest in the company or provide participants with excessive awards. The Adviser will also normally vote in favor of proposals to require the expensing of options. - With respect to shareholder rights, the Adviser believes that all shareholders of a company should have an equal voice and that barriers that limit the ability of shareholders to effect corporate change and to realize the full value of their investment are not desirable. Therefore, the Adviser will normally vote against proposals for supermajority voting rights, against the issuance of poison pill preferred shares, and against proposals for different classes of stock with different voting rights. - With respect to "social responsibility" issues, the Adviser believes that matters related to a company's day-to-day business operations are primarily the responsibility of management. The Adviser is focused on maximizing long-term shareholder value and will normally vote against shareholder proposals requesting that a company disclose or change certain business practices unless it believes the proposal would have a substantial positive economic impact on the company. The proxy voting committee may determine not to vote a Fund's proxy if it has concluded that the costs of or disadvantages resulting from voting outweigh the economic benefits of voting. For example, in some non-U.S. jurisdictions, the sale of securities voted may be prohibited for some period of time, usually between the record and meeting dates ("share blocking"), and the Adviser may determine that the loss of investment flexibility resulting from share blocking outweighs the benefit to be gained by voting. CONFLICTS OF INTEREST The Proxy Committee, in consultation with the Adviser's legal and compliance departments, will monitor and resolve any potential conflicts of interest with respect to proxy voting. A conflict of interest might exist, for example, when an issuer who is soliciting proxy votes also has a client relationship with the Adviser, when a client of the Adviser is involved in a proxy contest (such as a corporate director), or when one of the Adviser's employees has a personal interest in a proxy matter. When a conflict of interest arises, in order to ensure that proxies are voted solely in the best interest of the Funds and their shareholders, the Adviser will vote in accordance with either its written guidelines or the recommendation of an independent voting service. If the Adviser believes that voting in accordance with the guidelines or the recommendation of the voting service would not be in the collective best interests of the Funds and their shareholders, the Executive Committee of the Board of Trustees of the Funds will determine how shares should be voted. HOW TO OBTAIN THE OAKMARK FUNDS' PROXY VOTING RECORD No later than August 31 of each year, information regarding how the Adviser, on behalf of the Funds, voted proxies relating to the Funds' portfolio securities for the twelve months ended the preceding June 30 will be 19 available through a link on the Funds' website at www.oakmark.com and on the SEC's website at http://www.sec.gov. 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: TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE TRUST
NUMBER OF YEAR 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, 2005 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE ----------------- ----- -------------- ---------------- ---------- ------- MICHAEL J. FRIDUSS, 63 Trustee 1995 Principal, MJ 6 None Friduss & Associates, Inc. (telecommunications consultants) THOMAS H. HAYDEN, 54 Trustee 1995 President, 6 None Greenhouse Communications (advertising agency), since 2004; Executive Vice President, Campbell Mithun, (advertising and marketing communication agency), prior thereto CHRISTINE M. MAKI, 45 Trustee 1995 Vice President--Tax, 6 None Hyatt Corporation (hotel management) ALLAN J. REICH, 57 Trustee 1993 Partner, Seyfarth 6 None Shaw LLP (law firm), since 2003; Vice Chairman of D'Ancona & Pflaum LLC (law firm), prior thereto MARVIN R. ROTTER, 59 Trustee 1995 Retired since 2004; 6 None Senior Advisor to Chief Executive Officer, AXA Advisors, LLC (formerly named Rotter & Associates) prior thereto BURTON W. RUDER, 62 Trustee 1995 President, The 6 None Academy Financial Group (venture capital investment and transaction financing firm); Manager, Cedar Green Associates (real estate management firm)
20
NUMBER OF YEAR 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, 2005 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE ----------------- ----- -------------- ---------------- ---------- ------- GARY N. WILNER, M.D., 65 Trustee and 1993 Retired, since 2004; 6 Director, North Chairman of the Senior Attending American Board of Trustees Physician, Evanston Scientific, Hospital; Medical Inc. (developer Director - of Cardiopulmonary radioisotopic Wellness Program, products for Evanston Hospital the treatment Corporation, prior and diagnosis thereto of disease)
TRUSTEES WHO ARE INTERESTED PERSONS OF THE TRUST
NUMBER OF YEAR 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, 2005 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE ----------------- ----- -------------- ---------------- ---------- ------- PETER S. VOSS*, 59 Trustee 1995 Chairman and Chief 6 Chairman, AEW Executive Officer, Real Estate IXIS Asset Income Fund Management Group; (closed-end President and Chief investment Executive Officer, company); IXIS Asset Chairman and Management North Chief America, L.P., Executive formerly named CDC Officer, IXIS IXIS Asset Advisor Funds Management North (open-end America, L.P. investment (investment company - 14 management); Member portfolios) of the Supervisory Board, IXIS Asset Management; Director, Harris Associates, Inc. ("HAI") JOHN R. RAITT*, 51 Trustee and 2003 President and Chief 6 None President Executive Officer, HAI, Harris Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP") since 2003; Chief Operating Officer, HALP 2001- 2002; Director of Research, HALP, prior thereto
21 OTHER OFFICERS OF THE TRUST
YEAR FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2005 TRUST CURRENT OFFICE PAST FIVE YEARS# ----------------- ----- -------------- ---------------- ROBERT M. LEVY, 55 Executive Vice 2004 Chairman, HAI; Chief President Investment Officer of Domestic Equity, HALP, since 2001; President and Chief Executive Officer, HAI, HALP and HASLP, 1997 - 2002; Portfolio Manager, HALP HENRY R. BERGHOEF, 56 Vice President and 2000 Director of Domestic Portfolio Manager Research, HALP, (The Oakmark Select since 2003; Fund) Associate Director of Research, 2001 - 2002; Portfolio Manager and Analyst, HALP CHAD M. CLARK, 33 Vice President and 2005 Portfolio Manager, Portfolio Manager HALP, since 2001; (The Oakmark International International Small Analyst, HALP Cap Fund) KEVIN G. GRANT, 41 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Fund) DAVID G. HERRO, 45 Vice President and 1992 Chief Investment Portfolio Manager Officer of (The Oakmark International International Fund Equity, since 2003; and The Oakmark Portfolio Manager International Small and Analyst, HALP Cap Fund) JOHN J. KANE, 34 Treasurer 2005 Manager - Mutual Fund and Institutional Services, HALP CLYDE S. MCGREGOR, 53 Vice President and 1995 Portfolio Manager, Portfolio Manager HALP (The Oakmark Equity and Income Fund and The Oakmark Global Fund) WILLIAM C. NYGREN, 47 Vice President and 1996 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Fund and The Oakmark Select Fund) VINEETA D. RAKETICH, 34 Vice President 2003 Manager, International Operations and Client Relations, HALP, since 2003; Supervisor, Mutual Fund and Institutional Services, HALP, prior thereto
22
YEAR FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2005 TRUST CURRENT OFFICE PAST FIVE YEARS# ----------------- ----- -------------- ---------------- JANET L. REALI, 54 Vice President and 2001 Vice President, Secretary General Counsel and Secretary, HAI, HALP and HASLP ANN W. REGAN, 57 Chief Compliance 1996 Chief Compliance Officer Officer, Vice of the Trust, since 2004; President and Director of Mutual Assistant Secretary Fund Operations, HALP, prior thereto KRISTI L. ROWSELL, 39 Vice President, 2005 Director, Chief Principal Financial Financial Officer Officer and Treasurer, HAI; Chief Financial Officer, HALP and HASLP, prior thereto EDWARD A. STUDZINSKI, 56 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Equity and Income Fund) ROBERT A. TAYLOR, 33 Vice President and 2005 Director of Portfolio Manager International Research, since (The Oakmark Global 2004; Portfolio Fund) Manager and Analyst, HALP CHRISTOPHER P. WRIGHT, 31 Vice President 2005 Director of Mutual Fund Operations, HALP, since 2004; Assistant Director of Mutual Fund Operations, HALP, 2002-2004; Manager of Mutual Fund Operations, HALP, prior thereto.
- ----------- + 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 and Mr. Raitt are trustees who are "interested persons" of the Trust as defined in the 1940 Act because Mr. Voss is an officer of the Adviser's parent company, Mr. Raitt is an officer of the Adviser, and both Mr. Raitt and Mr. Voss are on the board of HAI. The Adviser, on customary terms, manages investment accounts controlled by Mr. Reich The 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 those committees, the function of each committee, and the number of meetings of each committee held during the fiscal year ended September 30, 2005. 23
NUMBER OF MEETINGS MEMBERS OF DURING FISCAL YEAR ENDED COMMITTEE COMMITTEE SEPTEMBER 30, 2005 PRINCIPAL FUNCTIONS OF COMMITTEE - --------- --------- ------------------ -------------------------------- EXECUTIVE COMMITTEE Gary N. Wilner, M.D.* 1** The executive committee generally has the Burton W. Ruder authority to exercise the powers of the board Peter S. Voss during intervals between meetings. AUDIT COMMITTEE Allan J. Reich* 5 The principal responsibilities of the audit Michael J. Friduss committee include the following: Thomas H. Hayden - to oversee the accounting and financial Christine M. Maki reporting policies and practices of the Gary N. Wilner, M.D. 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 approve the selection of the independent registered public accounting firm of the Funds; - 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. GOVERNANCE Michael J. Friduss* 7 The governance committee makes recommendations COMMITTEE Allan J. Reich to the board regarding board committees and Marvin R. Rotter 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 Thomas H. Hayden* 8 The committee on management contracts is CONTRACTS COMMITTEE Christine M. Maki responsible for reviewing in the first Marvin R. Rotter instance, and making recommendations to the Burton W. Ruder board regarding, investment advisory agreements Gary N. Wilner, M.D. and any other agreements relating to the management or administration of any Fund. PRICING COMMITTEE John R. Raitt 5 The committee is authorized, on behalf of the Janet L. Reali board, to determine, in accordance with the Kristi L. Rowsell valuation procedures established by the board, Vineeta D. Raketich fair valuations of portfolio securities. John J. Kane
- ---------- * Chair of the committee. ** The executive committee took action by unanimous written consent one time during the fiscal year ended September 30, 2005. 24 The following table shows the compensation paid by the Trust for the fiscal year ended September 30, 2005 to each trustee who was not an "interested person" of the Trust:
AGGREGATE AVERAGE COMPENSATION COMPENSATION NAME OF TRUSTEE* FROM THE TRUST** PER FUND --------------- --------------- -------- Michael J. Friduss 142,342 23,724 Thomas H. Hayden 134,000 22,333 Christine M. Maki 132,500 22,083 Allan J. Reich 138,250 23,042 Marvin R. Rotter 141,000 23,500 Burton W. Ruder 145,000 24,167 Gary N. Wilner, M.D. 183,158 30,526
* Victor A. Morgenstern resigned as a trustee effective December 31, 2004. Mr. Morgenstern received $86,000 in aggregate compensation from the Trust for the last calendar quarter of 2004. ** Each Fund is a series of the Trust and the Trust constitutes the entire fund complex. Aggregate compensation includes compensation that was deferred pursuant to the deferred compensation plan as described below. As of September 30, 2005, the total amounts accrued under the plan were $600,867 for Mr. Friduss, $571,463 for Mr. Hayden, $626,070 for Ms. Maki, $714,459 for Mr. Rotter, $389,285 for Mr. Ruder and $676,320 for Dr. Wilner. 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 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. 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 following table shows the value of shares of each Fund "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the Securities Exchange Act of 1934) by each trustee (within dollar ranges) as of December 30, 2005.
EQUITY AND INTERNATIONAL INTERNATIONAL TRUSTEE OAKMARK FUND SELECT FUND INCOME FUND GLOBAL FUND FUND SMALL CAP FUND ------- ------------ ----------- ----------- ----------- ---- -------------- MICHAEL J. FRIDUSS Over 100,000 Over 100,000 Over 100,000 Over 100,000 Over 100,000 Over 100,000 THOMAS H. HAYDEN 10,001-50,000 Over 100,000 10,001-50,000 50,001-100,000 None None CHRISTINE M. MAKI 50,001-100,000 Over 100,000 10,001-50,000 Over 100,000 10,001-50,000 10,001-50,000 JOHN R. RAITT Over 100,000 Over 100,000 Over 100,000 Over 100,000 Over 100,000 Over 100,000 ALLAN J. REICH Over 100,000 Over 100,000 Over 100,000 50,001-100,000 50,001-100,000 10,001-50,000
25
EQUITY AND INTERNATIONAL INTERNATIONAL TRUSTEE OAKMARK FUND SELECT FUND INCOME FUND GLOBAL FUND FUND SMALL CAP FUND ------- ------------ ----------- ----------- ----------- ---- -------------- MARVIN R. ROTTER None None None None Over 100,000 None BURTON W. RUDER None 10,001-50,000 10,001-50,000 Over 100,000 Over 100,000 Over 100,000 PETER S. VOSS Over 100,000 Over 100,000 50,001-100,000 None Over 100,000 Over 100,000 GARY N. 50,001-100,000 Over 100,000 1-10,000 Over 100,000 Over 100,000 50,001-100,000 WILNER, M.D.
At December 31, 2005 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, Equity and Income Fund, Global Fund and International Fund and the following percentages of the outstanding shares of each of the other Funds: Select, 1.4, and International Small Cap, 1.4. 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 30, 2005 were:
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ----------- Charles Schwab & Co. Inc. (1) Oakmark, Class I 28.13% 101 Montgomery Street International Fund, Class I 35.77 San Francisco, CA 94104-4122 Select, Class I 25.28 Equity and Income, Class I 31.88 International Small Cap, Class I 45.18 Global, Class I 37.87 Great West Life Annuity Insurance Co. (1) International, Class II 41.79% 8515 East Orchard Road Greenwood Village, CO 80111-5002 Hartford Life Insurance Company Equity and Income, Class II 5.27% P.O. Box 2999 Hartford, CT 06104-2999 Merrill Lynch Pierce Fenner & Smith Inc. (1) Oakmark, Class II 12.76% 4800 Deer Lake Drive E., 3rd Floor International Small Cap, Class II 42.32 Jacksonville, FL 32246-6484 Select, Class II 50.68 Equity and Income, Class II 31.45 International, Class II 33.28 Global, Class II 6.32 MetLife Retirement Plan Group Gap TTEE (1) Oakmark, Class II 14.14% 2 Montgomery Street Jersey City, NJ 07302-3802 National Financial Services Corp. (1) International Small Cap, Class II 45.22% 200 Liberty Street New York, NY 10281-1003
26
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ----------- National Financial Services Corp. (1) Oakmark, Class I 23.65% P.O. Box 3908, 5th Floor International, Class I 10.02 Church Street Station Select, Class I 31.12 New York, NY 10008-3908 Equity and Income, Class I 26.40 International Small Cap, Class I 18.67 Global, Class I 22.92 Nationwide Trust Company, FSB Oakmark, Class II 23.01% P.O. Box 182029 Equity and Income, Class II 21.31 Columbus, OH 43218-2029 International, Class II 9.65 Global, Class II 91.12 Prudential Investment Management Service (1) International Class I 6.41% 194 Wood Ave. S., Ste. 201 Iselin, NJ 08830-2710 Prudential Retirement Insurance and Annuity Company Select, Class II 11.90% 280 Trumbull Street Hartford, CT 06103-3509 Reliance Trust Co TTEE (1) Oakmark, Class II 33.07% FBO MetLife Retirement Plans Group Equity and Income, Class II 6.28 21 Montgomery Street Jersey City, NJ 07302 Reliance Trust Co. (1) Select, Class II 21.74% FBO MetLife Defined Contribution Group 2 Montgomery Street, 3rd Floor Jersey City, NJ 07302-3802 Trustlynx & Co. International Small Cap, Class II 12.46% P.O. Box 173736 Denver, CO 80217-3736 Union Bank Trust Nominee (1) Equity and Income, Class II 6.59% FBO SelectBenefit Ominbus P.O. Box 85484 San Diego, CA 92186-5484 Wachovia Bank (1) Oakmark, Class II 6.87% 1525 West Wt Harris Boulevard, Equity and Income, Class II 7.46 Charlotte, NC 28288-0001
- ---------- (1) Shares are held for accounts of customers. PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the Funds' prospectus under the headings "Investing with The Oakmark Funds," "How to Buy Class I Shares," "How to Sell Class I Shares" and "Shareholder Services." NET ASSET VALUE 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. 27 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. Domestic securities traded on securities exchanges are generally valued at the last sale price on the exchange where the security is principally traded, or lacking a reported sale at the time of valuation, at the most recent bid quotation. Each over-the-counter security traded on the NASDAQ National Market System shall be valued at the NASDAQ Official Closing Price ("NOCP"), or lacking a NOCP at the time of valuation, at the most recent bid quotation. Other over-the-counter securities 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. The values of securities of non-U.S. issuers that are traded on an exchange are generally based upon market quotations which, depending upon local convention or regulation, may be last sale price, last bid or asked price, the mean between last bid and asked prices, an official closing price, or may be valued based on a pricing composite. The market value of exchange-traded securities is determined by using prices provided by one or more professional pricing services, or, as needed, by obtaining market quotations from independent broker-dealers. Debt obligations and money market instruments maturing in more than 60 days from the date of purchase are valued at the latest bid quotation. Debt obligations and money market instruments with a maturity of 60 days or less from the date of purchase are valued on an amortized cost basis. 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. 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 days (such as Saturday) when the NYSE is not open and the Funds do not calculate their net asset value. In addition, trading in the Fund's portfolio securities may not occur on days when the NYSE is not 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. Even on days on which both the foreign markets and the NYSE are open, several hours may have passed between the time when trading in a foreign market closes and the NYSE closes and the Funds calculate their net asset values. 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. A Fund may value a security at a fair value if it appears that the valuation of the security has been materially affected by events occurring after the close of the primary market or exchange on which the security is traded but before the time as of which the net asset value is calculated. The Trust has retained a third party service provider to assist in determining estimates of fair values for foreign securities. That service utilizes statistical data based on historical performance of securities, markets and other data in developing factors used to estimate a fair value. When fair value pricing is employed, the value of a portfolio security used by a Fund to calculate its NAV may differ from quoted or published prices for the same security. Estimates of fair value utilized by the Funds as described above may differ from the value realized on the sale of those securities and the differences may be material to the net asset value of the applicable Fund. The Trust has adopted a policy regarding the correction of any error in the computation of NAV in accordance with guidance provided by the SEC. When an error is discovered, the difference between the originally computed (erroneous) NAV and the correct NAV is calculated. If the difference is equal to or less than one cent per share, the error is deemed immaterial and no action is taken. If the difference is greater than one cent per share, the following actions are taken:
AMOUNT OF DIFFERENCE ACTION TAKEN -------------------- ------------ LESS THAN 1/2 of 1% of the originally computed NAV The Fund determines whether it has
28 incurred a loss or a benefit. If the Fund has either paid excessive redemption proceeds or received insufficient subscription proceeds ("fund loss"), the party responsible for the error is expected to reimburse the Fund for the amount of the loss. If the Fund has received a benefit from the error, no action is taken. = or GREATER THAN 1/2 of 1% of the originally If any shareholder has sustained a loss exceeding computed NAV $10, the Fund or the party responsible for the error is expected to pay the shareholder any additional redemption proceeds owed and either refund excess subscription monies paid or credit the shareholder's account with additional shares as of the date of the error. Either the responsible party or the individual shareholders who experienced a benefit as a result of the error are expected to reimburse the Fund for any fund losses attributable to them.
SHARES PURCHASED THROUGH INTERMEDIARIES Class I Shares of any of the Funds may be purchased through certain financial service companies, such as broker-dealers, banks, retirement plan service providers and retirement plan sponsors, who are agents of the Funds for the limited purpose of receiving and transmitting instructions for the purchase or sale of fund shares ("Intermediaries"). Class II Shares of each Fund are offered only for purchase through certain retirement plans, such as 401(k), and profit sharing plans. To purchase Class II Shares, you must do so through an Intermediary. An Intermediary accepts purchase and sale orders as an authorized agent of the Funds pursuant to a written agreement. Any purchase or sale is made at the net asset value next determined after receipt and acceptance of the order by the Intermediary. Federal securities laws require Intermediaries to segregate any orders received on a business day after the close of regular session trading on the NYSE and transmit those orders separately for execution at the net asset value next determined after that business day. The Funds have no ability to verify compliance by the Intermediaries with that requirement. For services provided by an Intermediary with respect to Fund shares held through that Intermediary for its customers, the Intermediary may charge a fee of up to 0.40% of the average annual value of such shares. Each Fund may pay a portion of those fees for sub-transfer agency and shareholder servicing services, not to exceed the estimated fees that the Fund would have paid to its own transfer agent if those shares were registered directly in the customers' names on the books of the Fund's transfer agent. The balance of those fees is paid by the Adviser. Intermediaries may be paid from assets attributable to Class II shares of a Fund an additional service fee, at the rate of up to 0.25% of the average annual value of Class II Shares of the Fund purchased or held through the Intermediaries, for services associated with the administration of retirement plans. The Trust reserves the right to waive minimum investment requirements for purchases made through Intermediaries. REDEMPTION IN KIND Each Fund has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day period for any one shareholder. Redemptions in excess of those amounts will normally be paid in cash, but may be 29 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. SMALL ACCOUNT FEE AND REDEMPTION POLICY Due to the relatively high cost of maintaining small accounts, each Fund reserves the right to assess an annual fee of $25 on any account or to redeem all the shares in any account, and send the proceeds to the registered owner of the account if the account value has been reduced below $1,000 as a result of redemptions. Prior to redeeming all of the shares in such account, a Fund or its agent will make a reasonable effort to notify the registered owner if the account falls below the minimum in order to give the owner 30 days to increase the account value to $1,000 or more. 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 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 the Fund and is 2% of the redemption value and is deducted from either the redemption proceeds or from the balance of the account. 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 the Fund; - shares held in an account of certain retirement plans or profit sharing plans or purchased through certain Intermediaries; - shares redeemed pursuant to a systematic withdrawal plan; - shares redeemed pursuant to a required minimum distribution; - shares redeemed from account that has changed registration; or - an account that is closed because the Funds cannot verify the owner's identity pursuant to the Funds' customer identification program. MONEY MARKET EXCHANGE FUND The Adviser acts as a Service Organization for the Institutional Liquid Assets Service Units ("Oakmark Units") of the Government Portfolio of Goldman Sachs Trust, which Oakmark Units may be purchased directly or by exchanging shares of a Fund. For its services, the Adviser receives fees at a rate of 0.50% of the average annual net assets of the portfolio, pursuant to a 12b-1 plan adopted by the Goldman Sachs Trust. ANTI-MONEY LAUNDERING COMPLIANCE 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. 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. 30 The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act") reduced the maximum tax rate on long-term capital gains of noncorporate investors from 20% to 15%. The Act also reduced to 15% the maximum tax rate on "qualified dividend income" received by noncorporate shareholders who satisfy certain holding period requirements. The amount of dividends that may be eligible for the reduced rate may not exceed the amount of aggregate qualifying dividends received by that Fund. To the extent a Fund distributes amounts of dividends, including capital gain dividends, that the Fund determines are eligible for the reduced rates, it will identify the relevant amounts in its annual tax information reports to its shareholders. Without further legislative change, the rate reductions enacted by the Act will lapse, and the previous rates will be reinstated, for taxable years beginning on or after January 1, 2009. You will be advised annually as to the source of distributions for tax purposes. If you are not subject to tax on your income, you will not be required to pay tax on these amounts. If you realize a loss on sale of Fund shares held for six months or less, your short-term loss is recharacterized as long-term to the extent of any long-term capital gain distributions you have received with respect to those shares. A Fund may be required to withhold federal income tax ("backup withholding") from certain payments to you, generally redemption proceeds and payments of dividends and distributions. Backup withholding may be required if: - You fail to furnish your properly certified social security or other tax identification number; - You fail to certify that your tax identification number is correct or that you are not subject to backup withholding due to the underreporting of certain income; - You fail to certify that you are a U.S. Person (including a U.S. resident alien); or - The IRS informs the Fund that your tax identification number is incorrect. As modified by the Act, the backup withholding percentage is 28% for amounts paid through 2010, when the percentage will increase to 31% unless amended by Congress. Those certifications are contained in the application that you complete when you open your Fund account. Each Fund must promptly pay the IRS all amounts withheld. Therefore, it usually is not possible for the Funds to reimburse you for amounts withheld. You may, however, claim the amount withheld as a credit on your federal income tax return. 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 31 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. The discussion of taxation above is not intended to be a full discussion of income tax laws and their effect on shareholders. You are encouraged to consult your own tax advisor. The foregoing information applies to U.S. shareholders. U.S. citizens residing in a foreign country should consult their tax advisors as to the tax consequences of ownership of Fund shares. DISTRIBUTOR Shares of the Funds are offered for sale by HASLP 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 will continue in effect from year to year 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 HOLDINGS DISCLOSURE The Adviser maintains portfolio holdings disclosure policies and procedures that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. These portfolio holdings disclosure policies have been approved by the board of trustees. The board of trustees periodically reviews these policies and procedures to ensure they adequately protect shareholders. It is the policy of the Funds and their service providers to protect the confidentiality of portfolio holdings and to prevent the selective disclosure of non-public information about each Funds' portfolio holdings. Rating and ranking organizations such as Lipper, Inc. and Morningstar, Inc. or consultants and/or other financial industry institutions may request a complete list of portfolio holdings in order to rank or rate a Fund or to assess the risks of the Fund's portfolio and to produce related performance attribution statistics. Similarly, an Intermediary may be provided with portfolio holdings in order to allow the Intermediary to prepare Fund information for shareholders on a timely basis. The disclosure of portfolio holdings to such third parties will be subject to a requirement that those third parties maintain the confidentiality of such information and that the information be used only for a stated legitimate business purpose other than for trading. The Funds' Chief Compliance Officer, Chief Executive Officer and Treasurer are authorized to disclose each Fund's portfolio securities in accordance with the procedures. Neither the Trust nor the Adviser may receive compensation or other consideration in connection with the disclosure of portfolio holdings. Disclosure of each Fund's complete holdings is required to be made quarterly within 60 days of the end of each fiscal quarter in the annual and semi-annual reports to Fund shareholders and in the quarterly reports on Form N-Q in the first and third quarters. These reports are available, free of charge, on the EDGAR database on the SEC's website at www.sec.gov. 32 Additionally, each Fund, except Select Fund, posts on its website at www.oakmark.com a complete list of its portfolio holdings within 30 days of month-end. Also, each Fund, including Select Fund, posts on its website a complete list of portfolio holdings within 12 business days of fiscal quarter-end. PORTFOLIO TRANSACTIONS Portfolio transactions for each Fund are placed with those securities brokers and dealers that the Adviser believes will provide the best value in transaction and research services for that Fund, either in a particular transaction or over a period of time. 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 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. Prior to its ceasing portfolio trading operations in June 2005, HASLP was permitted to 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, had determined that portfolio transactions for a Fund may be executed through HASLP if, in the judgment of the Adviser, the use of HASLP was 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 charged 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 had adopted procedures that were reasonably designed to provide that any commission, fee or other remuneration paid to HASLP was consistent with the foregoing standard. The Funds did not effect principal transactions with HASLP. In executing transactions through HASLP, the Funds were subject to, and complied 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. There were substantial decreases in the aggregate commissions paid by Oakmark Fund and Global Fund during the 2005 fiscal year resulting primarily from a general decline in commission rates. There was a substantial increase 33 in the aggregate commissions paid by International Small Cap Fund, resulting primarily from an increase in the portfolio turnover rate. The total commissions paid to affiliated brokers for all of the Funds, except Select Fund, were lower in fiscal year 2005 compared to 2004 and 2003. Those commissions were lower primarily because the affiliated broker ceased trading operations in June 2005 and because the Funds used more direct access brokers and electronic trading venues at lower commission rates.
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ------------------ ------------------ ------------------ Oakmark Fund Aggregate commissions $2,549,820 $5,076,567 $4,534,892 Commissions paid to affiliate 144,892 188,945 951,978 Percentage of aggregate commissions paid to affiliate* 5.68% 3.72% 20.9% Select Fund Aggregate commissions 3,713,661 3,554,160 3,748,486 Commissions paid to affiliate 59,518 37,119 544,621 Percentage of aggregate commissions paid to affiliate* 1.60% 1.04% 14.5% Equity and Income Fund Aggregate commissions 4,903,984 5,456,305 3,773,931 Commissions paid to affiliate 41,253 251,104 845,629 Percentage of aggregate commissions paid to affiliate* 0.84% 4.6% 22.4% Global Fund Aggregate commissions 1,102,771 1,844,307 1,652,256 Commissions paid to affiliate 1,251 45,850 171,703 Percentage of aggregate commissions paid to affiliate* 0.11% 2.41% 10.4% International Fund Aggregate commissions 4,543,752 5,431,968 5,497,451 Commissions paid to affiliate -- -- -- Percentage of aggregate commissions paid to affiliate* -- -- -- International Small Cap Fund Aggregate commissions 1,861,293 1,086,752 758,356 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: 34
YEAR ENDED YEAR ENDED YEAR ENDED FUND SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ---- ------------------ ------------------ ------------------ Oakmark 4.85% 4.13% 21.0% Select 1.24% 1.40% 20.5 Equity and Income 0.18% 1.95% 18.8 Global 0.27% 2.78% 11.0 International -- -- 10.6 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. For the fiscal year ended September 30, 2005, no fund paid such commissions. For the fiscal year ended September 30, 2004, those commission amounts were: Oakmark Fund, $95,093; Select Fund, $114,297; Equity and Income Fund, $66,236; Global Fund, $3,000; and the aggregate dollar amounts involved in those transactions for those respective Funds were: $3,457,070, $3,837,836, $4,627,960, $158,670. Such commissions are not included in commissions paid to affiliates. During the year ended September 30, 2005, brokers that provided research products or services to the Adviser were paid the following commissions on portfolio transactions: Oakmark Fund, $424,410; Select Fund, $644,410; Equity and Income Fund, $814,964; International Fund, $1,203,111; International Small Cap Fund, $531,504; Global Fund, $274,830; and the aggregate dollar amounts involved in those transactions for those respective Funds were: $324,121,376, $395,924,040, $602,644,046, $531,657,375, $218,552,237, $155,454,787. Transactions of the Funds in the over-the-counter market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. When the Adviser believes it desirable, appropriate and feasible to purchase or sell the same security for a number of client accounts at the same time, the Adviser may aggregate its clients' orders ("Aggregated Orders"), including orders on behalf of the Funds, in a way that seeks to obtain more favorable executions, in terms of the price at which the security is purchased or sold, the costs of the execution of the orders, and the efficiency of the processing of the transactions. Each account that participates in an Aggregated Order will participate at the average share price. The trade allocation process takes place on as timely a basis as possible, i.e. as a client order is completed in full, or, in the case of a partially executed Aggregated Order, at the market's close when the average price can be calculated. The trader will aggregate trade orders of different portfolio managers if the trader believes the Aggregated Order would provide each client with an opportunity to achieve a more favorable execution. In the case of an Aggregated Order that has not been completely filled, the Adviser's traders determine an average execution price and then allocate securities among the accounts participating in the order. Institutional accounts, including the Funds, are generally allocated in proportion to the size of the order placed for each account (i.e. pro rata). Although the Adviser believes that the ability to aggregate orders for client accounts will in general benefit its clients as a whole over time, in any particular instance, such aggregation may result in a less favorable price or execution for a particular client than might have been obtained if the transaction had been effected on an unaggregated basis. 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 total portfolio turnover rate of Equity and Income Fund was much higher in fiscal year 2005 compared to 2004 and 2003, although the portfolio turnover rate of the equity portion of the portfolio remained relatively stable during those periods. The increase in total portfolio turnover resulted from changes in the fixed income portion of the portfolio driven primarily by a combination of tax trading as well as portfolio repositioning to lessen the impact of a rising interest rate environment on the fixed income assets. 35 The Funds acquired securities of certain regular brokers or dealers, as defined in Rule 10b-1 of the 1940 Act, during their most recent fiscal year. As of September 30, 2005, the Funds held securities of the following regular brokers or dealers having the following aggregate values: Oakmark Fund held $132,008,000 of Citigroup, Inc.; Equity and Income Fund held $172,608,000 of Morgan Stanley; and International Fund held $115,507,591 of Credit Suisse Group. DECLARATION OF TRUST The Trust was organized as a Massachusetts business trust on February 1, 1991. The Declaration of Trust disclaims liability of the shareholders, trustees and officers of the Trust for acts or obligations of the Trust. 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 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. Boston Financial Data Services ("BFDS"), Two Heritage Drive, Quincy, Massachusetts, 02171, performs transfer agency services for the Funds. BFDS 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 BFDS for its services based on the number of open shareholder accounts. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP, 111 S. Wacker Drive, Chicago, IL 60606-4302, 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 APPENDIX B -- FINANCIAL STATEMENTS The financial statements for each of the Funds for the fiscal year ended September 30, 2005, the notes thereto and report of the independent registered public accounting firm thereon, are incorporated herein by reference from the Funds' annual report to shareholders. B-1 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 July 27, 2005 (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) Form of second amendment to investment advisory agreement for The Oakmark Fund dated November 1, 2004 (exhibit (d)(3) to Post-effective Amendment no. 30*) (d)(4) Investment advisory agreement for The Oakmark Select Fund dated October 30, 2000 (exhibit (d)(2) to Post-effective Amendment no. 25*) (d)(5) 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)(6) Form of second amendment to investment advisory agreement for The Oakmark Select Fund dated November 1, 2004 (exhibit (d)(6) to Post-effective Amendment no. 30*) (d)(7) Investment advisory agreement for The Oakmark Small Cap Fund dated October 30, 2000 (exhibit (d)(3) to Post-effective Amendment no. 25*) (d)(8) 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)(9) Investment advisory agreement for The Oakmark Equity and Income Fund dated October 30, 2000 (exhibit (d)(4) to Post-effective Amendment no. 25*) (d)(10) 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)(11) Form of Second amendment to investment advisory agreement for The Oakmark Equity and Income Fund dated November 1, 2003 (exhibit (d)(9) to Post-effective Amendment No. 29*) (d)(12) Form of third amendment to investment advisory agreement for The Oakmark Equity and Income Fund dated November 1, 2004 (exhibit (d)(12) to Post-effective Amendment no. 30*) (d)(13) Investment advisory agreement for The Oakmark Global Fund dated October 30, 2000 (exhibit (d)(5) to Post-effective Amendment no. 25*) (d)(14) First amendment to investment advisory agreement for The Oakmark Global Fund dated April 18, 2001 (exhibit (d)(10) to Post-effective Amendment no. 26*) (d)(15) Form of Second amendment to investment advisory agreement for The Oakmark Global Fund dated November 1, 2003 (exhibit (d)(12) to Post-effective Amendment no. 29*) C-1 (d)(16) Investment advisory agreement for The Oakmark International Fund dated October 30, 2000 (exhibit (d)(6) to Post-effective Amendment no. 25*) (d)(17) 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)(18) Form of second amendment to investment advisory agreement for The Oakmark International Fund dated November 1, 2004 (exhibit (d)(18) to Post-effective Amendment no. 30*) (d)(19) Investment advisory agreement for The Oakmark International Small Cap Fund dated October 30, 2000 (exhibit (d)(7) to Post-effective Amendment no. 25*) (d)(20) 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*) (d)(21) Form of second amendment to investment advisory agreement for The Oakmark International Small Cap Fund dated November 1, 2004 (exhibit (d)(21) to Post-effective Amendment no. 30*) (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 (exhibit (g)(1) to post-effective amendment no. 28*) (g)(2) Foreign custody delegation agreement with Investors Bank & Trust Company dated as of April 1, 2002 (exhibit (g)(2) to post-effective amendment no. 28*) (g)(3) Special custody and pledge agreement among Harris Associates Investment Trust, Pershing LLC and Investors Bank & Trust Company dated as of May 9, 2005. (h)(1) Transfer agency and service agreement with Boston Financial Data Services, Inc. dated October 1, 2005 (h)(2) Administrative agreement with Investors Bank & Trust Company dated as of April 1, 2002 (exhibit (h)(5) to Post-effective amendment no. 28*) (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 27, 2006 (j) Consent of independent registered public accounting firm dated January 24, 2006 (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 and statement on insider trading of Harris Associates L.P., Harris Associates Securities L.P. and Harris Associates Investment Trust dated September 30, 2005 (p)(2) Code of ethics for non-interested trustees of Harris Associates Investment Trust dated July 27, 2005 - ---------- * 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 ---- -------------------------- -------------------------- John R. Raitt Chief Executive Officer President Robert Levy None Executive Vice President Kristi L. Rowsell Chief Financial Officer Vice President and Principal Financial Officer Janet L. Reali Chief Compliance Officer Vice President and Secretary
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 02117-9138 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) Boston Financial Data Services, Inc. Two Heritage Drive Quincy, MA 02171 Rule 31a-1; 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 27, 2006. HARRIS ASSOCIATES INVESTMENT TRUST By /s/ John R. Raitt ---------------------------------- John R. Raitt, 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/ Allan J. Reich Trustee ) - ---------------------------------- ) Allan J. Reich ) ) January 27, 2006 /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/ John R. Raitt Trustee and ) - ---------------------------------- President (Chief ) John R. Raitt executive officer) ) ) /s/ Kristi L. Rowsell Vice President ) - ---------------------------------- (Principal financial ) Kristi L. Rowsell and accounting ) officer) ) )
Exhibits Being Filed with This Amendment EXHIBIT (b) Bylaws as amended and restated through July 27, 2005 (g)(3) Special custody and pledge agreement among Harris Associates Investment Trust, Pershing LLC and Investors Bank & Trust Company dated as of May 9, 2005 (h)(1) Transfer agency and service agreement with Boston Financial Data Services, Inc. dated October 1, 2005 (i)(6) Consent of Bell, Boyd & Lloyd LLC (j) Consent of independent registered public accounting firm (p)(1) Code of ethics and statement on insider trading of Harris Associates L.P., Harrris Associates Securities L.P. and Harris Associates Investment Trust dated September 30, 2005 (p)(2) Code of ethics for non-interested trustees of Harris Associates Investment Trust dated July 27, 2005 EX-99.(B) 2 a2166852zex-99_b.txt EXHIBIT-99(B) Exhibit 99(b) HARRIS ASSOCIATES INVESTMENT TRUST BYLAWS as amended through July 27, 2005 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] 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 2 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] 3.8 CHAIRMAN OF THE TRUSTEES. The Trustees may appoint one of their number to be chairman of the Trustees. The chairman shall not be an "interested person" of the Trust within the meaning of the Investment Company Act of 1940. The chairman shall preside at all meetings of the Trustees and Shareholders and shall have such other duties as may be assigned to the chairman by the Trustees from time to time. A Trustee serving as chairman shall not be an officer of the Trust and shall have no greater liability, nor be held to any higher standard or duty, than that to which he or she would be subject if not serving as chairman. [amended 4/27/05] 3.9 COMMITTEE CHAIRS. The Trustees may appoint one of their number to be a chair of each respective committee. Each committee chair shall not be an "interested person" of the Trust within the meaning of the Investment Company Act of 1940. Each committee chair shall preside at all meetings of their respective committees and shall have such other duties as may be assigned to the committee chair by the Trustees from time to time. A Trustee serving as committee chair shall have no greater liability, nor be held to any higher standard or duty, than that to which he or she would be subject if not serving as committee chair. [amended 4/27/05] 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 3 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] 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 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, 1/15/03, and 7/27/05] 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] 4 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] 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, 5 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 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)(3) 3 a2166852zex-99_g3.txt EXHIBIT-99.(G)(3) Exhibit 99(g)(3) SPECIAL CUSTODY AND PLEDGE AGREEMENT (Short Sales and Exchange-Listed Options) AGREEMENT, (hereinafter "Agreement") dated as of May 9, 2005, among HARRIS ASSOCIATES INVESTMENT TRUST, ON BEHALF OF ITS SERIES LISTED ON SCHEDULE A ATTACHED HERETO ("Customer"), PERSHING 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 approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days. 2 "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 "Pershing 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 Option 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 from (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 that 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 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 exits 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 Agreement 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 right 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 his 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) 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 (14) 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.: 617-937-6700 Phone No: 617-937-6700 (b) if to Customer, to: Harris Associates Investment Trust 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: Pershing LLC One Pershing Plaza Jersey City, NJ 07399 Attention: John Iachello Fax No.: 201-413-4178 Phone No.: 201-413-2273 (15) 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. (16) Nothing in the Agreement will prohibit Broker, Customer or Custodian from entering into similar agreements with others in order to facilitate option contract transactions. (17) 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 shall be carried out as if any such valid or unenforceable provision or condition were not contained herein. (18) All references herein to times of day shall mean the time in New York, New York, U.S.A. 8 (19) 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. (20) 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 offers 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 PERSHING LLC By: John Iachello Signature: /s/ John Iachello Title: Managing Director [SEAL] INVESTORS BANK & TRUST COMPANY By: Andrew M. Nesvet Signature: /s/ Andrew M. Nesvet Title: Managing Director 10 SCHEDULE A Dated May 9, 2005 To Special Custody and Pledge Agreement Among Harris Associates Investment Trust, on behalf of its series listed on Schedule A, Pershing 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 11 EX-99.(H)(1) 4 a2166852zex-99_h1.txt EXHIBIT-99(H)(1) Exhibit 99(h) TRANSFER AGENCY AND SERVICE AGREEMENT BETWEEN EACH OF THE ENTITIES LISTED ON APPENDIX A AND BOSTON FINANCIAL DATA SERVICES, INC. TABLE OF CONTENTS
PAGE ---- 1. Terms of Appointment and Duties 1 2. Intentionally Omitted 3. Fees and Expenses 6 4. Representations and Warranties of the Transfer Agent 7 5. Representations and Warranties of the Fund 7 6. Wire Transfer Operating Guidelines 8 7. Data Access and Proprietary Information 9 8. Indemnification 11 9. Standard of Care/Limitation on Liability 13 10. Confidentiality 13 11. Covenants of the Fund and the Transfer Agent 14 12. Termination of Agreement 15 13. Assignment and Third Party Beneficiaries 16 14. Subcontractors 17 15. Miscellaneous 17 16. Additional Funds/Portfolios 19 17. Limitations of Liability of the Trustees and Shareholders 20
Appendix A Funds and Portfolios Schedule 1.2(f) AML Delegation Schedule 1.3 Service Level Agreement Schedule 3.1 Fees and Expenses Schedule 9 Transfer Agent's Liability TRANSFER AGENCY AND SERVICE AGREEMENT THIS AGREEMENT made as of the 1st day of October, 2005, by and between each of the entities listed on Appendix A hereto and each being an entity of a type as set forth on Appendix A and organized under the laws of the state as set forth on Appendix A, each with place of business at 2 North LaSalle Street, Suite 500, Chicago, IL 60602 and each of which is acting on its own behalf and on behalf of each of the portfolios listed under its name on Appendix A, but not jointly with any other entities listed on Appendix A (each such entity, together with its Portfolios (as defined below), shall be severally referred to as the "Fund") and BOSTON FINANCIAL DATA SERVICES, INC., a Massachusetts corporation having its principal office and place of business at Two Heritage Drive, Quincy, Massachusetts 02171 (the "Transfer Agent"). WITNESSETH: WHEREAS, each Fund currently set forth on Appendix A is a trust registered with the Securities and Exchange Commission as an investment company pursuant to the Investment Company Act of 1940, as amended; and WHEREAS, each Fund currently set forth on Appendix A is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets (each such series, together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with SECTION 16 being herein referred to severally as the Fund's "Portfolios"); and WHEREAS, it is contemplated that additional Funds and their Portfolios may become parties to this Agreement by mutual consent of the parties hereto and by execution of a counterpart signature page to this Agreement subject to the provisions of SECTION 16 hereto; and WHEREAS, the Fund (as used herein "the Fund" shall refer severally to each entity listed on Appendix A together with its Portfolios) on behalf of the Portfolios desires to appoint the Transfer Agent as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and the Transfer Agent desires to accept such appointment. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. TERMS OF APPOINTMENT AND DUTIES 1.1 TRANSFER AGENCY SERVICES. Subject to the terms and conditions set forth in this Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints the Transfer Agent to act as, and the Transfer Agent agrees to act as, its transfer agent for the Fund's authorized and issued shares of its beneficial interest ("Shares"), dividend disbursing agent and agent in connection with any accumulation, open-account or similar plan provided to the shareholders of each of the respective Portfolios of the Fund ("Shareholders") and set out in the currently effective prospectus(es) and statement(s) of additional information ("prospectus") of the Fund on behalf of the applicable Portfolio, including without limitation any periodic investment plan or periodic withdrawal program. In accordance with the prospectus and the procedures established from time to time by agreement between the Fund on behalf of each of the Portfolios, as applicable and the Transfer Agent, the Transfer Agent agrees that it will perform the following services: (a) Receive for acceptance, orders for the purchase of Shares, and promptly deliver payment and appropriate documentation thereof to the Custodian of the Fund authorized pursuant to the Trust Instrument of the Fund (the "Custodian"); (b) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (c) Receive for acceptance redemption requests and redemption directions and deliver the appropriate documentation thereof to the Custodian; (d) In respect to the transactions in items (a), (b) and (c) above, the Transfer Agent shall execute transactions directly with broker-dealers authorized by the Fund; (e) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (f) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (g) Prepare and transmit payments for dividends and distributions declared by the Fund on behalf of the applicable Portfolio; (h) Issue replacement certificates for those certificates alleged to have been lost, stolen or destroyed upon receipt by the Transfer Agent of indemnification satisfactory to the Transfer Agent and protecting the Transfer Agent and the Fund, and the Transfer Agent at its option, may issue replacement certificates in place of mutilated stock certificates upon presentation thereof and without such indemnity; (i) Issue replacement checks and place stop orders on original checks based on Shareholder's representation that a check was not received or was lost. Such stop orders and replacements will be deemed to have been made at the request of the Fund, and the Fund shall be responsible for all losses or claims resulting from such replacement; (j) Maintain records of account for and advise the Fund and its Shareholders as to the foregoing; (k) Record the issuance of Shares of the Fund and maintain pursuant to Rule 17Ad-10(e) under the Securities and Exchange Act of 1934, as amended, a record of the total number of Shares of the Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. The Transfer Agent shall also provide the Fund on a regular 2 basis with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund; (l) Maintain such bank accounts (demand deposit accounts or "DDAs") as the Transfer Agent shall deem necessary to the performance of its duties hereunder, including, but not limited to, the processing of Share purchases and redemptions and the payment of Portfolio dividends; (m) Report abandoned property to state authorities as authorized by the Fund in accordance with the policies and procedures agreed upon by the Fund and the Transfer Agent; (n) Provide Shareholder proxy coordination; (o) Provide Shareholder account information through various means, including but not limited to, telephone calls, correspondence and research; (p) Monitor transactions in the Fund for market timing activity in accordance with the specifications and procedures agreed upon by the parties in writing, which may be amended from time to time. The services provided under this SECTION 1.1(p) will be ministerial only and such monitoring will not subject the Transfer Agent to any liability for failure to detect market timing activity; provided, however that the Transfer Agent shall be liable for its willful misconduct in connection with performing the services in this SECTION 1.1(p); and (q) Account for and administer the redemption fees on the redemption and exchange of Shares. 1.2 ADDITIONAL SERVICES. In addition to, and neither in lieu nor in contravention of, the services set forth in the above paragraph, the Transfer Agent shall perform the following services: (a) OTHER CUSTOMARY SERVICES. Perform the customary services of a transfer agent, dividend disbursing agent and, as relevant, agent in connection with accumulation, open-account or similar plan (including without limitation any periodic investment plan, DRIP or periodic withdrawal program), including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing Shareholder proxies, Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmation forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, providing Shareholder 3 account information and coordinating with and overseeing the print/mail vendor in accordance with the provisions of SECTION 14.1 below; (b) CONTROL BOOK (ALSO KNOWN AS "SUPER SHEET"). Maintain a daily record and produce a daily report for the Fund of all transactions and receipts and disbursements of money and securities and deliver a copy of such report for the Fund for each business day to the Fund no later than 9:00 AM Eastern Time, or such earlier time as the Fund may reasonably require, on the next business day; (c) "BLUE SKY" REPORTING. The Fund shall (i) identify to the Transfer Agent in writing those transactions and assets to be treated as exempt from blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of the Transfer Agent for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and providing a system which will enable the Fund to monitor the total number of Shares sold in each State; (d) NATIONAL SECURITIES CLEARING CORPORATION (THE "NSCC"). (i) accept and effectuate the registration and maintenance of accounts through Networking and the purchase, redemption, transfer and exchange of shares in such accounts through Fund/SERV (Networking and Fund/SERV being programs operated by the NSCC on behalf of NSCC's participants, including the Fund), in accordance with, instructions transmitted to and received by the Transfer Agent by transmission from NSCC on behalf of broker-dealers and banks which have been established by, or in accordance with the instructions of authorized persons, as hereinafter defined on the dealer file maintained by the Transfer Agent; (ii) issue instructions to Fund's banks for the settlement of transactions between the Fund and NSCC (acting on behalf of its broker-dealer and bank participants); (iii) provide account and transaction information from the affected Fund's records on DST Systems, Inc. computer system TA2000 ("TA2000 System") in accordance with NSCC's Networking and Fund/SERV rules for those broker-dealers; (iv) comply with NSCC rules and procedures applicable to the Transfer Agent's use of Networking; (v) implement and maintain procedures reasonably designed to ensure the accuracy of all transmissions through Networking and to limit the access to, and the imputing of data into, Networking to persons specifically authorized by the Transfer Agent; and (vi) otherwise perform any and all duties, functions, procedures and responsibilities pursuant to each NSCC matrix level and as otherwise established by NSCC from time to time. (e) NEW PROCEDURES. New procedures as to who shall provide certain of these services in SECTION 1 may be established in writing from time to time by agreement between the Fund and the Transfer Agent. The Transfer Agent may at times perform only a portion of these services and the Fund or its agent may perform these services on the Fund's behalf; (f) ANTI-MONEY LAUNDERING ("AML") DELEGATION. The Fund has elected to delegate to the Transfer Agent certain AML duties and customer identification procedure ("CIP") duties under this Agreement and the parties have agreed to such duties and terms as 4 stated in the attached schedule (Schedule 1.2(f) entitled "AML Delegation"), which may be changed from time to time subject to mutual written agreement between the parties. (g) LAWS AND REGULATION. The Transfer Agent will take reasonable steps to stay informed of new securities and tax laws and regulations which apply to the Transfer Agent's products and services hereunder and will take reasonable steps to update its products and/or services to comply with new securities and tax laws and regulations applicable to its transfer agency business in the time and manner as required by such laws and regulations. On a quarterly basis, upon request of the Fund, the Transfer Agent shall provide the Fund with a Rule 38a-1 certification substantially in the format previously provided to the Fund in connection with the negotiation of this Agreement. The Transfer Agent reserves the right to amend and update the form of its Rule 38a-1 certification from time to time to comply with new or amended requirements of applicable law or to enhance its Compliance+ program. 1.3 SERVICE LEVEL AGREEMENT. The Transfer Agent shall maintain a quality control process designed to provide a consistent level of quality and timeliness for its call center, correspondence services and transaction processing and level of systems availability. The Transfer Agent's performance of the services under this Agreement will be measured against service levels and standards ("SLAs"), which will be established in good faith by mutual written agreement of the parties and shall be made a part of this Agreement as Schedule 1.3. 1.4 FACSIMILE COMMUNICATIONS. (a) The Fund hereby authorizes and instructs the Transfer Agent, as transfer agent for the Portfolios listed on Appendix A: (i) to accept facsimile transaction requests on behalf of individual Shareholders received from broker/dealers of record, third-party administrators ("TPAs") or the Fund; (ii) that the broker/dealers, TPAs and the Fund are duly authorized to initiate such transactions on behalf of the Shareholders; and (iii) that the original source documentation is in good order and the broker/dealers, TPAs or the Fund will retain such documentation. (b) The Transfer Agent acknowledges that requests for a change in wiring instructions or for redemptions, the proceeds of which are to be paid to third parties or wired to an account other than the account of record, may not be accepted by facsimile transmission in accordance with the Fund's current prospectus. The Transfer Agent will not accept facsimile requests for the foregoing unless and until such time as the Fund's prospectus permits the acceptance of such instructions by facsimile. 1.5 E-MAIL COMMUNICATIONS. (a) The Fund hereby instructs the Transfer Agent, as transfer agent for the Portfolios listed on Appendix A, to accept instructions using e-mail ("E-mail Communications"), as further set out below. The Fund instructs the Transfer Agent to accept such E-mail Communications to and from the Fund. The Fund acknowledges that the Transfer Agent will not act on E-mail Communications to it coming directly from Shareholders. 5 (b) The Fund acknowledges that the Transfer Agent is not extending any warranties or making any representations with respect to the services of any internet services provider. Any delays or errors attributable to the non-functioning of the internet is at the risk of the Fund. The Fund has been advised by the Transfer Agent that E-mail Communications to or from the Transfer Agent may not be encrypted. (c) The Fund, when submitting instructions via e-mail, will be responsible for determining that any original source documentation supporting such instructions is in good order and for retaining such original documentation. 2. INTENTIONALLY OMITTED 3. FEES AND EXPENSES 3.1 FEE SCHEDULE. For the performance by the Transfer Agent pursuant to this Agreement, the Fund agrees to pay the Transfer Agent an annual maintenance fee for each Shareholder account as set forth in the attached fee schedule ("Schedule 3.1"). Such fees and out-of-pocket expenses and advances identified under SECTION 3.2 below may be changed from time to time subject to mutual written agreement between the Fund and the Transfer Agent. 3.2 OUT-OF-POCKET EXPENSES. In addition to the fee paid under SECTION 3.1 above, the Fund agrees to reimburse the Transfer Agent for out-of-pocket expenses in accordance with the terms of Schedule 3.1 attached hereto. 3.3 POSTAGE. Postage for mailing of dividends, proxies, Fund reports and other mailings to all shareholder accounts shall be advanced to the Transfer Agent by the Fund at least seven (7) days prior to the mailing date of such materials. 3.4 INVOICES. The Fund agrees to pay all fees and reimbursable expenses within thirty (30) days following the receipt of the respective billing notice, except for any fees or expenses that are subject to good faith dispute. In the event of such a dispute, the Fund may only withhold that portion of the fee or expense subject to the good faith dispute. The Fund shall notify the Transfer Agent in writing within twenty-one (21) calendar days following the receipt of each billing notice if the Fund is disputing any amounts in good faith. If the Fund does not provide such notice of dispute within the required time, the billing notice will be deemed accepted by the Fund. The Fund shall settle such disputed amounts within five (5) days of the day on which the parties agree on the amount to be paid by payment of the agreed amount. If no agreement is reached, then such disputed amounts shall be settled as may be required by law or legal process. 3.5 COST OF LIVING ADJUSTMENT. Unless otherwise agreed to at the time of renewal, commencing in the initial year of the first Renewal Term (if any), the total fee for all services for that year and for each successive year of that or any subsequent Renewal Term shall equal the fee that would be charged for the same services based on a fee rate (as reflected in a fee rate schedule) increased by the percentage increase for the twelve- 6 month period of such previous calendar year of the CPI-W (defined below), or, in the event that publication of such Index is terminated, any successor or substitute index, appropriately adjusted, acceptable to both parties. As used herein, "CPI-W" shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers for Boston-Brockton-Nashua, MA-NH-ME-CT, (Base Period: 1982-84 = 100), as published by the United States Department of Labor, Bureau of Labor Statistics. 4. REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT The Transfer Agent represents and warrants to the Fund that: 4.1 It is a corporation duly organized and existing and in good standing under the laws of The Commonwealth of Massachusetts. 4.2 It is duly qualified to carry on its business in The Commonwealth of Massachusetts. 4.3 It is empowered under applicable laws and by its Articles of Organization and By-Laws to enter into and perform this Agreement. 4.4 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 4.5 It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to the Transfer Agent that: 5.1 It is a trust duly organized and existing and in good standing under the laws of the state of its organization as set forth on APPENDIX A. 5.2 It is empowered under applicable laws and by its Agreement and Declaration of Trust and By-Laws to enter into and perform this Agreement. 5.3 All corporate proceedings required by said Agreement and Declaration of Trust and By-Laws have been taken to authorize it to enter into and perform this Agreement. 5.4 The Fund and each of its Portfolios is an open-end management investment company registered under the Investment Company Act of 1940, as amended. 5.5 A registration statement under the Securities Act of 1933, as amended, is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares being offered for sale. 6. WIRE TRANSFER OPERATING GUIDELINES/ARTICLES 4A OF THE UNIFORM COMMERCIAL CODE 7 6.1 OBLIGATION OF SENDER. The Transfer Agent is authorized to promptly debit the appropriate Fund account(s) upon the receipt of a payment order in compliance with the selected security procedure (the "Security Procedure") chosen for funds transfer and in the amount of money that the Transfer Agent has been instructed to transfer. The Transfer Agent shall execute payment orders in compliance with the Security Procedure and with the Fund instructions on the execution date provided that such payment order is received by the customary deadline for processing such a request, unless the payment order specifies a later time. All payment orders and communications received after the customary deadline will be deemed to have been received the next business day. 6.2 SECURITY PROCEDURE. The Fund acknowledges that the Security Procedure it has designated on the Fund Selection Form was selected by the Fund from security procedures offered by the Transfer Agent. The Fund shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated to the Transfer Agent in writing. The Fund must notify the Transfer Agent immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Fund's authorized personnel. The Transfer Agent shall verify the authenticity of all Fund instructions according to the Security Procedure. 6.3 ACCOUNT NUMBERS. The Transfer Agent shall process all payment orders on the basis of the account number contained in the payment order. In the event of a discrepancy between any name indicated on the payment order and the account number, the Transfer Agent shall use commercially reasonable efforts to resolve the discrepancy. For all discrepancies that remain unresolved after the use of commercially reasonable efforts, the account number shall take precedence and govern. 6.4 REJECTION. The Transfer Agent reserves the right to decline to process or delay the processing of a payment order which (a) is in excess of the collected balance in the account to be charged at the time of the Transfer Agent's receipt of such payment order; (b) if initiating such payment order would cause the Transfer Agent, in the Transfer Agent's sole judgement, to exceed any volume, aggregate dollar, network, time, credit or similar limits which are applicable to the Transfer Agent; or (c) if the Transfer Agent, in good faith, is unable to satisfy itself that the transaction has been properly authorized. 6.5 CANCELLATION AMENDMENT. The Transfer Agent shall use reasonable best efforts to act on all authorized requests to cancel or amend payment orders received in compliance with the Security Procedure provided that such requests are received in a timely manner affording the Transfer Agent reasonable opportunity to act. However, the Transfer Agent assumes no liability if the request for amendment or cancellation cannot be satisfied. 6.6 ERRORS. The Transfer Agent shall assume no responsibility for failure to detect any erroneous payment order provided that the Transfer Agent complies with the payment order instructions as received and the Transfer Agent complies with the Security Procedure. The Security Procedure is established for the purpose of authenticating payment orders only and not for the detection of errors in payment orders. 8 6.7 INTEREST. The Transfer Agent shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order, unless the Transfer Agent is notified of the unauthorized payment order within thirty (30) days of notification by the Transfer Agent of the acceptance of such payment order. 6.8 ACH CREDIT ENTRIES/PROVISIONAL PAYMENTS. When the Fund initiates or receives Automated Clearing House credit and debit entries pursuant to these SECTION 6 guidelines and the rules of the National Automated Clearing House Association and the New England Clearing House Association, State Street Bank and Trust Company will act as an Originating Depository Financial Institution and/or Receiving Depository Financial Institution, as the case may be, with respect to such entries. Credits given by the Transfer Agent with respect to an ACH credit entry are provisional until the Transfer Agent receives final settlement for such entry from the Federal Reserve Bank. If the Transfer Agent does not receive such final settlement, the Fund agrees that the Transfer Agent shall receive a refund of the amount credited to the Fund in connection with such entry, and the party making payment to the Fund via such entry shall not be deemed to have paid the amount of the entry. 6.9 CONFIRMATION. Confirmation of Transfer Agent's execution of payment orders shall ordinarily be provided within twenty four (24) hours notice of which may be delivered through the Transfer Agent's proprietary information systems, or by facsimile or call-back. Fund must report any objections to the execution of an order within thirty (30) days. 7. DATA ACCESS AND PROPRIETARY INFORMATION 7.1 The Fund acknowledges that the databases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Fund by the Transfer Agent as part of the Fund's ability to access certain Fund-related data maintained by the Transfer Agent on databases under the control and ownership of the Transfer Agent or other third party ("Data Access Services") constitute copyrighted, trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to the Transfer Agent or other third party. In no event shall Proprietary Information be deemed to include Customer Data (as defined in SECTION 10.1 below) which shall remain proprietary to the Fund. The Fund agrees to treat all Proprietary Information as proprietary to the Transfer Agent and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder. Without limiting the foregoing, the Fund agrees for itself and its employees and agents to: (a) Use such programs and databases (i) solely on the Fund's computers or those of the Fund's investment adviser, administrator or distributor, or (ii) solely from equipment at the location agreed to between the Fund and the Transfer Agent and (iii) solely in accordance with the Transfer Agent's applicable user documentation; 9 (b) Refrain from copying or duplicating in any way (other than in the normal course of performing processing on the Fund's computer(s) or those of the Fund's investment adviser, administrator or distributor), the Proprietary Information; (c) Refrain from obtaining unauthorized access to any portion of the Proprietary Information, and if such access is inadvertently obtained, to inform in a timely manner of such fact and dispose of such information in accordance with the Transfer Agent's instructions; (d) Refrain from causing or allowing information transmitted from the Transfer Agent's computer to the Fund's terminal or that of the Fund's investment adviser, administrator or distributor to be retransmitted to any other computer terminal or other device except as expressly permitted by the Transfer Agent (such permission not to be unreasonably withheld); and (e) Honor all reasonable written requests made by the Transfer Agent to protect at the Transfer Agent's expense the rights of the Transfer Agent in Proprietary Information at common law, under federal copyright law and under other federal or state law. Notwithstanding the foregoing, the Transfer Agent acknowledges that the Fund may share the Proprietary Information of the Transfer Agent with the Fund's investment adviser, administrator or distributor or any of their affiliates; provided that such parties are subject to obligations of confidentiality to the Fund with regard to such Proprietary Information of the Transfer Agent no less stringent than those set forth in this Agreement 7.2 Proprietary Information shall not include all or any portion of any of the foregoing items that: (i) are or become publicly available without breach of this Agreement; (ii) are released for general disclosure by a written release by the Transfer Agent; or (iii) are already in the possession of the receiving party at the time of receipt without obligation of confidentiality or breach of this Agreement. 7.3 The Fund acknowledges that its obligation to protect the Transfer Agent's Proprietary Information is essential to the business interest of the Transfer Agent and that the disclosure of such Proprietary Information in breach of this Agreement would cause the Transfer Agent immediate, substantial and irreparable harm, the value of which would be extremely difficult to determine. Accordingly, the parties agree that, in addition to any other remedies that may be available in law, equity, or otherwise for the disclosure or use of the Proprietary Information in breach of this Agreement, the Transfer Agent shall be entitled to seek and obtain a temporary restraining order, injunctive relief, or other equitable relief against the continuance of such breach. 7.4 If the Fund notifies the Transfer Agent that any of the Data Access Services do not operate in material compliance with the most recently issued user documentation for such services, the Transfer Agent shall endeavor in a timely manner to correct such failure. Organizations from which the Transfer Agent may obtain certain data included in the Data Access Services are solely responsible for the contents of such data and the Fund agrees to make no claim against the Transfer Agent arising out of the contents of such 10 third-party data, including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE TRANSFER AGENT EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 7.5 If the transactions available to the Fund include the ability to originate electronic instructions to the Transfer Agent in order to (i) effect the transfer or movement of cash or Shares or (ii) transmit Shareholder information or other information, then in such event the Transfer Agent shall be entitled to rely on the validity and authenticity of such instruction without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by the Transfer Agent from time to time and agreed to by the Fund. 7.6 Each party shall take reasonable efforts to advise its employees of their obligations pursuant to this SECTION 7. The obligations of this Section shall survive any earlier termination of this Agreement. 8. INDEMNIFICATION 8.1 The Transfer Agent shall not be responsible for, and the Fund shall indemnify and hold the Transfer Agent harmless, and with respect to SECTION 8.1(f) herein, also State Street Bank and Trust Company ("State Street"), from and against, any and all losses, damages, costs, charges, reasonable counsel fees (including the defense of any law suit in which the Transfer Agent or affiliate is a named party), payments, expenses and liability arising out of or attributable to: (a) All actions of the Transfer Agent or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct; (b) The Fund's lack of good faith, negligence or willful misconduct; (c) The reliance upon, and any subsequent use of or action taken or omitted, by the Transfer Agent, or its agents or subcontractors on: (i) any information, records, documents, data, stock certificates or services, which are received by the Transfer Agent or its agents or subcontractors by machine readable input, facsimile, CRT data entry, electronic instructions or other similar means authorized by the Fund, and which have been prepared, maintained or performed by the Fund or any other person or firm on behalf of the Fund including but not limited to any broker-dealer, TPA or previous transfer agent; (ii) any instructions or requests of the Fund or any of its officers; (iii) any instructions or opinions of legal counsel with respect to any matter arising in connection with the services to be performed by the Transfer Agent under this Agreement which are provided to the Transfer Agent after consultation with such legal counsel; or (iv) any 11 paper or document, reasonably believed to be genuine, authentic, or signed by the proper person or persons; (d) The offer or sale of Shares in violation of federal or state securities laws or regulations requiring that such Shares be registered or in violation of any stop order or other determination or ruling by any federal or any state agency with respect to the offer or sale of such Shares; (e) The acceptance of facsimile transaction requests on behalf of individual Shareholders received from broker-dealers, TPAs or the Fund, and the reliance by the Transfer Agent on the broker-dealer, TPA or the Fund ensuring that the original source documentation is in good order and properly retained; (f) The negotiation and processing of any checks, wires or ACH transmissions (including in connection with payroll or MSA transmissions) including without limitation for deposit into, or credit to, the Fund's demand deposit account maintained by the Transfer Agent; (g) Upon the Fund's request entering into any agreements required by the NSCC for the transmission of Fund or Shareholder data through the NSCC clearing systems; or (h) The breach of any representation or warranty set forth in SECTION 5 above. 8.2 To the extent the Transfer Agent is not entitled to indemnification pursuant to SECTION 8.1 above, the Fund shall not be responsible for, and the Transfer Agent shall indemnify and hold the Fund, its Board of Trustees, officers, employees and agents, harmless from and against any losses, damages, costs, charges, reasonable counsel fees, payments, expenses and liability arising directly out of or attributable to any action or failure of the Transfer Agent to act as a result of the Transfer's Agent's lack of good faith, negligence or willful misconduct in the performance of its services hereunder or the breach of any representation or warranty set forth in SECTION 4 above. 8.3 In order that the indemnification provisions contained in this SECTION 8 shall apply, upon the assertion of an indemnification claim, the party seeking the indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The Fund shall have the option to participate with the Transfer Agent in the defense of such claim or to defend against said claim in its own name or that of the Transfer Agent. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the indemnifying party's written consent, which consent shall not be unreasonably withheld. 12 9. STANDARD OF CARE/LIMITATION OF LIABILITY The Transfer Agent shall at all times act in good faith and agrees to use its best efforts within reasonable limits to ensure the accuracy of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors, including encoding and payment processing errors, unless said errors are caused by its negligence, bad faith, or willful misconduct or that of its employees or agents. The parties agree that any encoding or payment processing errors shall be governed by this standard of care and Section 4-209 of the Uniform Commercial Code is superseded by SECTION 9 of this Agreement. This standard of care also shall apply to Exception Services, as defined in SECTION 2.3 herein, but such application shall take into consideration the manual processing involved in, and time sensitive nature of, Exception Services. Notwithstanding the foregoing, the Transfer Agent's aggregate liability during any term of this Agreement, whether in contract, or in tort, or otherwise shall be as determined and as set forth on Schedule 9 to this Agreement. 10. CONFIDENTIALITY 10.1 (a) The Transfer Agent and the Fund agree that they will not, at any time during the term of this Agreement or after its termination, reveal, divulge, or make known to any person, firm, corporation or other business organization, any customers' lists, trade secrets, cost figures and projections, profit figures and projections, or any other secret or confidential information whatsoever, whether of the Transfer Agent or of the Fund, used or gained by the Transfer Agent or the Fund during performance under this Agreement (such party's "Confidential Information"). The Fund and the Transfer Agent further covenant and agree to retain all such Confidential Information of the other party whatsoever in trust for the sole benefit of the Transfer Agent or the Fund and their successors and assigns. In the event of breach of the foregoing by either party, the remedies provided by SECTION 7.3 shall be available to the party whose confidential information is disclosed. The Transfer Agent acknowledges that the Fund may share the Confidential Information of the Transfer Agent with the Fund's investment adviser, administrator and distributor and any of their affiliates, agents, legal counsel and consultants provided that such parties are subject to obligations of confidentiality to the Fund with regard to such Confidential Information of the Transfer Agent no less stringent than those set forth in this Agreement. (b) The Transfer Agent represents, covenants, and warrants that Transfer Agent will use the nonpublic personal information of the Fund's Shareholders ("Customer Data") only in compliance with (i) this Agreement, (ii) its own Privacy and Information Sharing Policy, as amended from time to time, (iii) the Gramm-Leach-Bliley Act (the "GLB Act") and Regulation S-P promulgated thereunder to the extent each is specifically applicable to its transfer agency business, and (iv) as directed by authorized persons of the Fund in writing and will not, except as set forth above, at any time during the term of this Agreement or after its termination, reveal, divulge or make known to any person, firm or other business organization any Customer Data as obtained by the Transfer Agent in performance of its services pursuant to this Agreement. 13 10.2 In the event that any requests or demands are made for the inspection of the Shareholder records of the Fund, other than request for records of Shareholders pursuant to standard subpoenas from state or federal government authorities (i.e., divorce and criminal actions), the Transfer Agent will use best efforts to notify the Fund and to secure instructions from an authorized officer of the Fund as to such inspection. The Transfer Agent expressly reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by counsel that it may be held liable for the failure to exhibit the Shareholder records to such person or if required by law or court order. 11. COVENANTS OF THE FUND AND THE TRANSFER AGENT 11.1 The Fund shall promptly furnish to the Transfer Agent the following: (a) A certified copy of the resolution of the Board of Trustees of the Fund authorizing the appointment of the Transfer Agent and the execution and delivery of this Agreement; and (b) A copy of the Agreement and Declaration of Trust and By-Laws of the Fund and all amendments thereto. 11.2 The Transfer Agent hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 11.3 The Transfer Agent shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the rules thereunder, the Transfer Agent agrees that all such records prepared or maintained by the Transfer Agent relating to the services to be performed by the Transfer Agent hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with such Section and rules thereunder, and will be surrendered promptly to the Fund on and in accordance with its request. 11.4 The Transfer Agent shall maintain a fidelity bond covering larceny and embezzlement and an insurance policy with respect to directors' and officers' errors and omissions coverage in amounts that are appropriate in light of its duties and responsibilities hereunder. Upon the request of the Fund, the Transfer Agent shall provide evidence that coverage is in place. The Transfer Agent shall notify the Fund should its insurance coverage with respect to professional liability or errors and omissions be canceled. Such notification shall include the date of cancellation and the reasons therefore. The Transfer Agent shall notify the Fund of any material claims against it with respect to the services provided under this Agreement to the Fund, whether or not they may be covered by insurance, and shall notify the Fund should the total outstanding claims made by the Transfer Agent under its insurance coverage materially impair, or threaten to materially impair, the adequacy of its coverage. 14 12. TERMINATION OF AGREEMENT 12.1 TERM. The initial term of this Agreement (the "Initial Term") shall be three (3) years from the date first stated above unless terminated pursuant to the provisions of this SECTION 12. Unless a terminating party gives written notice to the other party at least one hundred and twenty (120) days before the expiration of the Initial Term or any Renewal Term (as defined herein), this Agreement will renew automatically for an additional one-year term and, thereafter, for successive one-year terms (each such year-to-year renewal term, a "Renewal Term"). Notwithstanding the foregoing, during a Renewal Term, this Agreement may be terminated by either party upon at least one hundred and twenty (120) days' written notice to the other party. The notification requirements herein shall not apply to a termination for cause, which shall be governed by the provisions of SECTION 12.6 below. One hundred and twenty (120) days before the expiration of the Initial Term or a Renewal Term the parties to this Agreement will agree upon a Fee Schedule for the upcoming Renewal Term. Otherwise, the fees shall be increased pursuant to SECTION 3.5 of this Agreement. 12.2 EARLY TERMINATION. Notwithstanding anything contained in this Agreement to the contrary, should the Fund desire to move any of its services provided by the Transfer Agent hereunder to a successor service provider prior to the expiration of the then-current Initial or Renewal Term, or without the required notice, the Transfer Agent shall make a good faith effort to facilitate the conversion on such prior date; however, there can be no guarantee or assurance that the Transfer Agent will be able to facilitate a conversion of services on such prior date. In connection with the foregoing, if during the Initial Term, the Fund should convert all or substantially all of such services to a successor service provider, or if the Fund or substantially all of its Portfolios are liquidated or all or substantially all of its assets are merged or purchased or the like with or by another entity which does not utilize the services of the Transfer Agent, its affiliates or the TA2000 platform as set forth below, the fees payable to the Transfer Agent shall be calculated as if the services had been performed by the Transfer Agent until the expiration of the Initial Term and calculated at the asset and/or Shareholder account levels, as the case may be, on the date notice of termination was given to the Transfer Agent, and the payment of all fees to the Transfer Agent as set forth herein shall be accelerated to the business day immediately prior to the conversion or termination of services (the "Early Termination Fee"). In the event that (i) the Fund terminates this Agreement as the result of its acquisition by or merger into another fund and such other fund's shareholder records are, at the time of such acquisition or merger, maintained by the Transfer Agent or its affiliates, or (ii) the Fund wishes to move its transfer agency servicing operation from the Transfer Agent to an affiliated entity or another DST TA2000 platform (i.e., become a remote user of DST's TA2000 system) as the result of Fund's acquisition by or merger into another fund, then the parties agree to negotiate in good faith to determine whether or to what extent the Early Termination Fee shall apply to such termination. 12.3 TERMINATION EXPENSES AND COSTS. During the Initial Term or Renewal Term, whichever currently is in effect, should either party exercise its right to terminate, all out-of-pocket expenses or costs associated with the movement of records and material will be borne by 15 the Fund. Additionally, the Transfer Agent reserves the right to charge for any other reasonable expenses associated with such termination. 12.4 CONFIDENTIAL INFORMATION. Upon termination of this Agreement, each party shall return to the other party all copies of confidential or proprietary materials or information received from such other party hereunder, other than materials or information required to be retained by such party under applicable laws or regulations. Each party hereby agrees to dispose of any "consumer report information," as such term is defined under Regulation S-P promulgated under the GLB Act, in accordance with the provisions of Regulation S-P and the GLB Act applicable to its respective business. 12.5 UNPAID INVOICES. Except with respect to any amount subject to a good faith dispute within the meaning of SECTION 3.4 of this Agreement, the Transfer Agent may terminate this Agreement in the event that an invoice payable by the Fund to the Transfer Agent remains outstanding for more than ninety (90) days; provided that the Transfer Agent has provided written notice to the Fund at least thirty (30) days prior to such termination (which notice may be provided prior to the expiration of the ninety (90) day period). 12.6 TERMINATION BY EITHER PARTY FOR CAUSE. In the event that: (i) the Transfer Agent defaults in the performance of its obligations under Schedule 1.3 "Service Level Agreement" in accordance with the terms of such schedule and, as a result thereof, the Fund is entitled to exercise a Service Level Termination Right as defined in such schedule or (ii) either party fails perform its duties hereunder (including any material interruption or cessation of its operations), which failure materially adversely affects the business operations of the other party and which failure continues for thirty (30) days after receipt of written notice from the first party, unless such failure is excused under the terms of Schedule 1.3 or SECTION 15.3 (Force Majeure) of this Agreement, such non-defaulting party may terminate this Agreement by giving written notice to the other party as of the termination date specified in the notice of termination. The Transfer Agent shall make a good faith effort to facilitate conversion as described in SECTION 12.2 above. In the event of a termination by the Fund for cause, the Fund shall not be obligated to pay the Early Termination Fee as defined in SECTION 12.2 above. 13. ASSIGNMENT AND THIRD PARTY BENEFICIARIES 13.1 Except as provided in Section 14.1 below neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. Any attempt to do so in violation of this Section shall be void. Unless specifically stated to the contrary in any written consent to an assignment, no assignment will release or discharge the assignor from any duty or responsibility under this Agreement. For the avoidance of doubt, a transaction involving a merger or sale of substantially all of the assets of a Portfolio or a Fund shall not require the written consent of the Transfer Agent. 13.2 Except as explicitly stated elsewhere in this Agreement, nothing under this Agreement shall be construed to give any rights or benefits in this Agreement to anyone other than the Transfer Agent and the Fund, and the duties and responsibilities undertaken pursuant 16 to this Agreement shall be for the sole and exclusive benefit of the Transfer Agent and the Fund. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 13.3 This Agreement does not constitute an agreement for a partnership or joint venture between the Transfer Agent and the Fund. Other than as provided in Section 14.1 and Schedule 1.2(f), neither party shall make any commitments with third parties that are binding on the other party without the other party's prior written consent. 14. SUBCONTRACTORS 14.1 The Transfer Agent may, without further consent on the part of the Fund, subcontract for the performance hereof with an affiliate of the Transfer Agent duly registered as a transfer agent or, with regard to print/mail services, with another affiliate or provider; provided, however, that consent of the Fund shall be required with regard to print/mail services which the Fund currently maintains by a separate agreement. The Transfer Agent shall be fully responsible to the Fund for the acts and omissions of its affiliate as it is for its own acts and omissions. With regard to print/mail services that are provided by a vendor not affiliated with the Transfer Agent, the Transfer Agent will use all reasonable commercial efforts to coordinate with such outside print/mail vendor and to timely and accurately provide all information requested by such print/mail vendor; provided, however, that the Transfer Agent shall not be held liable to the Fund or any affiliated party of the Fund for any act or failure to act by such outside print/mail vendor except where the Transfer Agent's negligent acts or omissions were the proximate cause of such vendor's non-performance. 14.2 Nothing herein shall impose any duty upon the Transfer Agent in connection with or make the Transfer Agent liable for the actions or omissions to act of unaffiliated third parties such as by way of example and not limitation, Airborne Services, Federal Express, United Parcel Service, the U.S. Mails, the NSCC and telecommunication companies, provided that, if the Transfer Agent selected such company, the Transfer Agent shall have exercised due care in selecting the same. 15. MISCELLANEOUS 15.1 AMENDMENT. This Agreement may be amended or modified only by a written agreement executed by both parties. 15.2 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. 15.3 FORCE MAJEURE. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, acts of war or terrorism, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such 17 causes; provided, however, that this provision shall not imply that the Transfer Agent is excused from maintaining reasonable business continuity plans to address potential service outages. 15.4 CONSEQUENTIAL DAMAGES. Neither party to this Agreement shall be liable to the other party for special, indirect or consequential damages under any provision of this Agreement or for any special, indirect or consequential damages arising out of any act or failure to act hereunder. 15.5 SURVIVAL. All provisions regarding indemnification, warranty, liability, and limits thereon, and confidentiality and/or protections of proprietary rights and trade secrets shall survive the termination of this Agreement. 15.6 SEVERABILITY. If any provision or provisions of this Agreement shall be held invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired. 15.7 THE PARTIES. All references herein to the "Fund" are to each of the management investment companies listed on Appendix A hereto, and each management company made subject to this Agreement in accordance with SECTION 16 below, individually, as if the Agreement were between each such Fund and the Transfer Agent. In the case of a series trust, all references to "Portfolio" are to the individual series or portfolio of such trust or to such trust on behalf of the individual series or portfolio, as appropriate. 15.8 PRIORITIES CLAUSE. In the event of any conflict, discrepancy or ambiguity between the terms and conditions contained in this Agreement and any Schedules or attachments hereto, the terms and conditions contained in this Agreement shall take precedence. 15.9 WAIVER. No waiver by either party or any breach or default of any of the covenants or conditions herein contained and performed by the other party shall be construed as a waiver of any succeeding breach of the same or of any other covenant or condition. 15.10 MERGER OF AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written. 15.11 COUNTERPARTS. This Agreement may be executed by the parties hereto in any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 15.12 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, 18 and that any enlargement, facsimile or further reproduction shall likewise be admissible in evidence. 15.13 NOTICES. All notices and other communications as required or permitted hereunder shall be in writing and sent by first class mail, postage prepaid, addressed as follows or to such other address or addresses of which the respective party shall have notified the other. (a) If to Boston Financial Data Services, Inc., to: Boston Financial Data Services, Inc. 2 Heritage Drive, 4th Floor North Quincy, Massachusetts 02171 Attention: Legal Department Facsimile: (617) 483-2490 (b) If to an entity set forth on Appendix A hereto, to: Christopher Wright Director of Mutual Fund Operations 2 North LaSalle Street, Suite 500 Chicago, IL 60602 Facsimile: (312) 621-0582 16. ADDITIONAL FUNDS/PORTFOLIOS In the event that the Fund establishes one or more series of Shares, in addition to those listed on the attached Appendix A, with respect to which it desires to have the Transfer Agent render services as transfer agent under the terms hereof, it shall so notify the Transfer Agent in writing, and if the Transfer Agent agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. Furthermore, in the event that one or more additional funds affiliated with the Fund desire(s) to have the Transfer Agent render services as transfer agent under the terms hereof, such fund or funds shall so notify the Transfer Agent in writing, and if the Transfer Agent agrees in writing to provide such services, such fund or funds, together with their portfolios, may become parties to this Agreement by execution of a counterpart signature page hereto. In the event that new affiliated funds and their portfolios become parties to this Agreement, the fees and expenses set forth on Schedule 3.1 shall apply to such funds and portfolios for their applicable initial term or renewal term, provided that the requirements of such funds and portfolios are generally consistent with the services then being provided by the Transfer Agent under this Agreement to the Fund and its Portfolios. Notwithstanding the foregoing, however, at such time as the number of CUSIPs serviced by the Transfer Agent for all Harris Associates funds and their affiliated funds has increased by forty percent (40%) or more from the number of CUSIPs serviced by the Transfer Agent on the first date of this Agreement (as to all Harris Associates funds and their affiliates together) the parties agree to review and, if necessary, negotiate the fees 19 and expenses set forth on Schedule 3.1 for the Fund and its Portfolios and any new affiliated funds and their portfolios in light of the additional administrative, technical and other service costs imposed on the Transfer Agent by such additional services. 17. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS A copy of the Agreement and Declaration of Trust of each Fund listed on Appendix A is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed by an officer of the Trust on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers or Shareholders individually but are binding only upon the assets and property of the Fund. [THE REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK] 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers, as of the day and year first above written. HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ John R. Raitt --------------------------------- Name: John R. Raitt --------------------------------- Title: President --------------------------------- As an Authorized Officer on behalf of the Fund listed above. ATTEST: /s/ Janet L. Reali - ----------------------------------- BOSTON FINANCIAL DATA SERVICES, INC. By: /s/ Richard Ahl --------------------------------- Name: Richard Ahl --------------------------------- Title: Senior Vice President --------------------------------- ATTEST: /s/ Katherine Comer - ----------------------------------- 21 APPENDIX A FUNDS AND PORTFOLIOS Dated: October 1, 2005 Harris Associates Investment Trust, a business trust organized under the laws of the Commonwealth of Massachusetts. The Oakmark Fund The Oakmark Select Fund The Oakmark Equity and Income Fund The Oakmark Global Fund The Oakmark International Fund The Oakmark International Small Cap Fund HARRIS ASSOCIATES INVESTMENT TRUST BOSTON FINANCIAL DATA SERVICES, INC. By: /s/ John R. Raitt By: /s/ Richard Ahl ---------------------------------- ---------------------------------- Name: John R. Raitt Name: Richard Ahl -------------------------------- -------------------------------- Title: President Title: Senior Vice President ------------------------------- ------------------------------- As an Authorized Officer on behalf of the Fund listed above. A - 1 SCHEDULE 1.2(f) AML DELEGATION Dated : October 1, 2005 1. DELEGATION. 1.1 Subject to the terms and conditions set forth in this Agreement, the Fund hereby delegates to the Transfer Agent those aspects of the Fund's Program that are set forth in Section 4 below (the "Delegated Duties"). The Delegated Duties set forth in Section 4 may be amended, from time to time, by mutual agreement of the Fund and the Transfer Agent upon the execution by such parties of a revised Schedule 1.2(f) bearing a later date than the date hereof. 1.2 The Transfer Agent agrees to perform such Delegated Duties, with respect to the ownership of shares in the Fund for which the Transfer Agent maintains the applicable shareholder information, subject to and in accordance with the terms and conditions of this Agreement. 2. CONSENT TO EXAMINATION. In connection with the performance by the Transfer Agent of the Delegated Duties, the Transfer Agent understands and acknowledges that the Fund remains responsible for assuring compliance with the USA PATRIOT Act and that the records the Transfer Agent maintains for the Fund relating to the AML Program may be subject, from time to time, to examination and/or inspection by federal regulators in order that the regulators may evaluate such compliance. The Transfer Agent hereby consents to such examination and/or inspection and agrees to cooperate with such federal examiners in connection with their review. For purposes of such examination and/or inspection, the Transfer Agent will use its best efforts to make available, during normal business hours and on reasonable notice all required records and information for review by such examiners. 3. LIMITATION ON DELEGATION. The Fund acknowledges and agrees that in accepting the delegation hereunder, the Transfer Agent is agreeing to perform only the Delegated Duties, as may be amended from time to time, and is not undertaking and shall not be responsible for any other aspect of the AML Program or for the overall compliance by the Fund with the USA PATRIOT Act or for any other matters that have not been delegated hereunder. Additionally, the parties acknowledge and agree that the Transfer Agent shall only be responsible for performing the Delegated Duties with respect to the ownership of, and transactions in, shares in the Fund for which the Transfer Agent maintains the applicable shareholder information. 4. DELEGATED DUTIES 4.1 Consistent with the services provided by the Transfer Agent and with respect to the ownership of shares in the Fund for which the Transfer Agent maintains the applicable shareholder information, the Transfer Agent shall: (a) Submit all new account and registration maintenance transactions through the Office of Foreign Assets Control ("OFAC") database and such other lists or databases of trade 1 restricted individuals or entities as may be required from time to time by applicable regulatory authorities; (b) Submit special payee checks through OFAC database; (c) Review redemption transactions that occur within thirty (30) days of account establishment or maintenance; (d) Review wires sent pursuant to instructions other than those already on file with the Transfer Agent; (e) Review accounts with small balances followed by large purchases; (f) Review accounts with frequent activity within a specified date range followed by a large redemption; (g) On a daily basis, review purchase and redemption activity per tax identification number ("TIN") within the Fund to determine if activity for that TIN exceeded the $100,000 threshold on any given day; (h) Compare all new accounts and registration maintenance through the Known Offenders database and notify the Fund of any match. (i) Monitor and track cash equivalents under $10,000 for a rolling twelve-month period and file IRS Form 8300 and issue the Shareholder notices required by the IRS; (j) Determine when a suspicious activity report ("SAR") should be filed as required by regulations applicable to mutual funds and prepare and file the SAR. Provide the Fund with a copy of the SAR within a reasonable time after filing; notify the Fund if any further communication is received from U.S. Department of the Treasury or other law enforcement agencies regarding the SAR; (k) Compare account information to any FinCEN request received by the Fund and provided to the Transfer Agent pursuant to USA PATRIOT Act Sec. 314(a). Provide the Fund with documents/information necessary to respond to requests under USA PATRIOT Act Sec. 314(a) within required time frames; and (l) Pursuant to applicable regulations: (i) verify the identity of any person seeking to open an account with the Fund; (ii) maintain records of the information used to verify the person's identity; and (iii) determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the Fund by any government agency. 4.2 In the event that the Transfer Agent detects activity as a result of the foregoing procedures, which necessitates the filing by the Transfer Agent of a SAR, a Form 8300 or other similar report or notice to OFAC, then the Transfer Agent shall timely file such report and also immediately notify the Fund, unless prohibited by applicable law. 2 4.3 AML Reporting (a) On a quarterly basis, the Transfer Agent shall provide a report to the Fund on its performance of the AML Delegated Duties, among other compliance items, which report shall include information regarding the number of: (i) potential incidents involving cash and cash equivalents or unusual or suspicious activity, (ii) Forms 8300 and SARs filed on behalf of the Fund, (iii) outstanding customer verification items, (iv) potential and confirmed matches against the known offender and OFAC databases and (v) potential and confirmed matches in connection with FinCen requests. Notwithstanding anything in this Section 4.3(a) to the contrary, the Transfer Agent reserves the right to amend and update the form of its AML reporting from time to time to comply with new or amended requirements of applicable law or to enhance its Compliance+ program. (b) At least annually, the Transfer Agent will arrange for independent testing (an audit) of the AML services it provides to its clients on an organization-wide basis by a qualified independent auditing firm. The Transfer Agent will provide the AML compliance officer of the Fund with the results of the audit and testing, including any material deficiencies or weaknesses identified and any remedial steps that will be taken or have been taken by the Transfer Agent to address such material deficiencies or weaknesses. HARRIS ASSOCIATES INVESTMENT TRUST BOSTON FINANCIAL DATA SERVICES, INC. By: /s/ John R. Raitt BY: /s/ Richard Ahl ---------------------------------- ---------------------------------- Name: John R. Raitt Name: Richard Ahl -------------------------------- -------------------------------- Title: President Title: Senior Vice President ------------------------------- ------------------------------- As an Authorized Officer on behalf of the Fund listed above. 3 SCHEDULE 1.3 SERVICE LEVEL AGREEMENT Dated: October 1, 2005 OVERVIEW The standards below represent the levels and standards which the Transfer Agent is generally achieving in its day-to-day operations and which the Fund may reasonably expect the Transfer Agent to generally achieve. Notwithstanding anything in the Transfer Agency and Service Agreement or any schedule or exhibit thereto (the "Agreement") to the contrary, this does not mean, and, the Transfer Agent neither represents, warrants or covenants that, nor does the Fund necessarily expect, that the Transfer Agent shall always meet, fulfill or comply with the levels and standards set forth below at all times. Rather, it is the expectation of the parties that, in the event of a failure to meet, fulfill or comply with the levels and standards set forth below, the parties shall coordinate and cooperate to correct the inadequacies as set forth immediately below in "Service Level Standard Resolution". SERVICE LEVEL STANDARD RESOLUTION Notwithstanding the Transfer Agent's best efforts to achieve the levels and standards herein, the Fund acknowledges that such levels and standards may not be met at all times. In the event that there is a failure to meet a service level or standard, the Transfer Agent shall promptly notify the senior officer designated by the Fund. Thereafter, the parties shall meet to discuss the reason(s) that the Transfer Agent failed to meet such service level or standard with a view to restoring compliance with such level as quickly as reasonably possible under the circumstances to avoid a repeated failure by the Transfer Agent. As part of the resolution process, the parties may, as agreed upon, amend the service level or standard listed below. The parties agree that if the Transfer Agent does not meet (i) the majority of timeliness standards or (ii) the overall quality standard for a period of three (3) consecutive months as measured on a monthly basis and the Transfer Agent, after receiving written notice of such failure from the Fund, does not remedy the failure to meet such service level or standard for forty-five (45) days following such consecutive three (3) month period (or such longer period of time as the parties may agree upon) then the Fund may terminate the Agreement for cause upon at least sixty (60) days' advance written notice to the Transfer Agent (the foregoing, a "Service Level Termination Right"). COMPLIANCE MEASUREMENT The Transfer Agent agrees to retain, at its expense, National Quality Review ("NQR") through December 31, 2005 for the purposes of measuring compliance with the levels and standards set forth below. The parties agree, however, that measurement of the service levels and standards set forth herein for purposes of the Service Level Termination Right shall not commence until January 1, 2006 in order to provide for an orderly transition of services to the Transfer Agent. Beginning in January 2006, the Transfer Agent will utilize its own internal quality review process (or, any third party quality review process as the Transfer Agent may elect from time to time to utilize, such process, "Quality Review") to monitor the quality of services provided under the Agreement and the Transfer Agent's satisfaction of the standards and levels set forth herein. The Transfer Agent will measure its performance in accordance with industry standards for (i) timeliness and accuracy of Financial and Non Financial transactions and Call Centers and Correspondence and (ii) systems availability through its Quality Review. The Fund may, at any time, elect to retain, at its own expense, NQR (or, such other industry-recognized, external quality review process as the Fund may elect from time to time to utilize). 1 In the event the Fund retains NQR or another third party quality review process, the Transfer Agent will use all reasonable commercial efforts to assist and cooperate with NQR (or such other industry recognized external quality review process as the Fund may elect from time to time to utilize). In addition, the Transfer Agent will provide to the Funds detail from the Quality Review on a monthly basis. The Transfer Agent and the Fund agree to review the Quality Review scores to implement process improvements going forward in the event that improvements are necessary. CALL CENTER AND PROCESSING STANDARDS.
MONTHLY REPORTING ACTIVITY STANDARDS -------- --------- TIMELINESS STANDARDS CALL CENTER Average Speed of Answer 15 seconds Abandonment Rate 2% Service Levels 85% within 15 seconds CORRESPONDENCE Financial Inquiries 3 days Non-Financial Inquiries 6 days IRA Acct Transfer Request Notices 3 days IRA Acct Transfer Reminder Notices 15,30, and 45 days TRANSACTIONS Adjustments 98% within 2 days Exchanges 100% date of receipt Maintenance 98% within 3 days New Accounts 100% date of receipt Purchases 100% date of receipt Redemptions 100% date of receipt Transfers 98% within 2 days Commission runs 3 business days Trail commissions 5 business days ACCURACY STANDARDS Adjustments 95% Exchanges 98% Maintenances 98% New Accounts 93% Purchases 98% Redemptions 97% Transfers 97% Overall Quality Standard 96%
SYSTEMS AVAILABILITY:
SYSTEM/ SYSTEM APPLICATIONS HOURS OF AVAILABILITY* AVAILABILITY *Holidays with 7 calendar days advance notice
2 AS/400 99.0% Boston Financial Monday-Friday 6:00 AM to 11:00 PM (EST) AWD Databases Saturday 1:30 AM to 5:00 PM (EST) Sunday 1:30 AM to 11:00 PM (EST) TA2000 99.0% Monday-Friday 7:00 AM to 11:00 PM (EST) Please refer to our response below for additional information Saturday-Sunday Generally available, other than for scheduled maintenance or events
AS400: Server availability is defined as the monthly availability rate that the Transfer Agent (through its parent DST Systems, Inc., "DST") guarantees to maintain for servers in the AWD Data Center in regard to server hardware, operating system, and AWD applications. The monthly availability rate does not include any third party applications, including any custom code. TA2000 AVAILABILITY: TA2000 is generally available in some capacity on 24 hours a day, 7 days a week basis. Below we have provided a description of general availability: Service level agreements between DST and Boston Financial require that the CICS regions be fully functional between the hours of 7:00 AM EST to the agreed upon start of the nightly cycle, generally 10:00 PM EST on all days during which the New York Stock Exchange is open for business; however, in actuality the system is much more widely available than the service level agreement implies. During the nightly cycle, certain files are sporadically unavailable for batch updates. When the shareowner master and history files are unavailable, alternate files are allocated to the on-lines to allow some limited lookup and transaction functionality. Unless there is scheduled maintenance or other activity, such as a purge or conversion, CICS regions are fully available and functional on all non-business days. Scheduled DST maintenance occurs routinely, generally late on a Saturday night or early on a Sunday morning. Purge and conversion events occur over weekends, generally early Saturday morning through mid-afternoon. When these evens occur, the system is usually unavailable. For most purge and conversion events, it is possible to implement the alternate file process. All scheduled maintenance and other scheduled activities are reported via change control at least two weeks in advance of the event. 3 FANWEB AND VOICE RESPONSE UNIT (VRU) AVAILABILITY Internet websites and VRU will be available 99.5% of the time on a 7 day/24 hour basis, excluding for regularly scheduled maintenance to the Website and VRU. ADDITIONAL INFORMATION: The Transfer Agent shall not be obligated to meet the foregoing levels and standards during such periods where the Transfer Agent's failure to meet such levels and standards arises out of, results from or is proximately caused by: (i) a failure, inadequacy in the performance of or unavailability of communication lines or communication facilities (including the equipment or computer being used to access the communication lines) OUTSIDE of the Transfer Agent's facilities; (ii) a Force Majeure event as set forth in Section 15.3 of the Agreement, (iii) an event which requires the Transfer Agent to process at its disaster recovery facility, (iv) a failure to perform properly or timely by a third party whose performance is a prerequisite for the Transfer Agent's performance, (v) a failure, unavailability, disruption or circumstances arising out of or resulting from the Internet if any service hereunder involves or entails utilization of the Internet to transmit to or from the Transfer Agent's facilities, (vi) a pre-planned extraordinary event (E.G., a hardware or software installation), and/or (vii) failures to perform caused by third parties (including the Fund) whose actions are beyond the Transfer Agent's reasonable control. The Transfer Agent shall have no responsibility or liability for the unavailability of a system or service where such unavailability was caused or contributed to by inadequacies of the Fund's equipment. The Transfer Agent's performance during periods affected by any one or more of the foregoing conditions shall not be measured and included in any Quality Review report provided by the Transfer Agent to the Fund; provided, however, that as soon as any of the foregoing circumstances is rectified or alleviated, the measurement of the Transfer Agent's performance under the foregoing levels and standards shall recommence. From time to time, business environment changes may necessitate updates to the levels and standards contained within this document. The Transfer Agent and the Fund agree to negotiate in good faith to reach agreement on such additional requirements. 4 SCHEDULE 3.1 HARRIS ASSOCIATES INVESTMENT TRUST EFFECTIVE 10/1/05 TO 9/30/08 GENERAL: Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A charge is made for an account in the month that an account opens or closes. ANNUAL ACCOUNT SERVICE FEES Open Accounts*: Networked $9.00/account Non-Networked $15.00/account Closed Accounts All $2.00/account *NOTE: Includes AML/CIP Services (excluding CIP-related search charges) ACTIVITY BASED FEES Marketing/Sales Calls** $1.25/minute **NOTE: Billed to the investment adviser or distributor of the Fund. FIDUCIARY FEES Effective January 1, 2006, all fiduciary fees (including set-up, maintenance and closeout) paid by Shareholders or swept from current accounts (based on current rates and terms with each Fund) will be retained by the Transfer Agent. For fees assessed and collected during the 2005 annual fee assessment, the Transfer Agent will retain 25% of such fees and will remit 75% of such fees to IXIS Asset Management Service Company (ISC) in accordance with the respective service periods of such entities during 2005. For redemption/distribution activity during the fourth quarter of 2005, the fiduciary fees will be retained by the Transfer Agent. The parties acknowledge that any additional waivers of fiduciary fees beyond the existing waivers and 2005 budgeted amounts may require adjustment to the fees and expenses set forth on this Schedule 3.1. DDA BALANCE EARNINGS CREDITS The Transfer Agent shall retain all DDA balance earnings credits in lieu of additional fees hereunder and will advise the Fund, upon its request, of the amount of such balance earnings credits retained by the Transfer Agent. 1 PROJECT MANAGEMENT HOURS The Fund may request assistance from the Transfer Agent project team with the coordination and usage of any DST Systems, Inc. ("DST") products available for use by the Fund. The parties acknowledge that while the Transfer Agent will use all reasonable efforts to assist the Fund as requested, certain systems or products are proprietary to DST and not under the direct control of the Transfer Agent. The Transfer Agent project team shall provide up to twelve hundred (1200) dedicated hours per year, (for all Harris Associates Funds) without an additional charge.*** If the project team receives requests for work that would exceed 1,200 hours in any year, then the requests and estimated hours for each will be reviewed and approved by senior management of the Fund and the Transfer Agent prior to the completion of such requested work. The parties agree that each additional project hour over the maximum 1,200 hours per year and approved by senior management as described in the foregoing sentence shall be billed at $125.00 per hour. ***NOTE: Excludes any project in process or requested as of the date hereof. OUT-OF-POCKET EXPENSES Billed as Incurred**** Out-of-Pocket expenses include but are not limited to: tapes, postage, post office box rental, supplies, statements, checkwriting, print and mailing services, information disc (year end), COOL (computer output on-line), freight, telephone charges, fax lines, 800 line charges, TA2000 voice, disaster recovery, offsite storage, Vax payroll processing, state tax reporting, NSCC processing, Fund/SERV, Fan Web, literature requests, lost shareholder searches, lost shareholder tracking, regulatory compliance charge (per CUSIP), Vision, escheatment, year-end forms, programming hours (as set forth above), on-request and scheduled reports, CIP-related search charges and other expenses incurred at the specific direction of the Fund or with advance written notice to the Fund. ****NOTE: The Transfer Agent reserves the right to introduce specific fee increases, as necessary, to cover increases in the costs of out-of-pocket expenses or regulatory changes; provided, that such fee increases are applied on a universal basis to other clients of the Transfer Agent and that the Transfer Agent provides 90 days advance written notice to the Fund of each such increase. E-mail communication directed to the respective parties identified in Section 15.13 of the Agreement shall be deemed a written communication for purposes of the notice provisions herein. HARRIS ASSOCIATES INVESTMENT TRUST BOSTON FINANCIAL DATA SERVICES, INC. BY: /s/ John R. Raitt BY: /s/ Richard Ahl ---------------------------------- ---------------------------------- Name: John R. Raitt Name: Richard Ahl -------------------------------- -------------------------------- Title: President Title: Senior Vice President ------------------------------- ------------------------------- As an Authorized Officer on behalf of the Fund listed above. 2 SCHEDULE 9 TRANSFER AGENT'S LIABILITY In accordance with the provisions of Section 6 of the Agreement to which this Schedule 9 is attached, the parties hereto agree that as of the date of this Agreement, no separate limitation on the liability of Boston Financial has been established by the parties and Boston Financial's liability, if any, hereunder shall be determined in accordance with the terms of the Agreement. 1 EX-99.(I)(6) 5 a2166852zex-99_i6.txt EXHIBIT-99.(I)(6) BELL,BOYD & LLOYD LLC 70 West Madison Street, Suite 3100 -- Chicago, Illinois 60602-4207 312.372.1121 -- Fax 312.827.8000 January 27, 2006 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 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) 6 a2166852zex-99_j.txt EXHIBIT-99(J) [DELOITTE & TOUCHE LLP LETTERHEAD] CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Post-Effective Amendment No. 32 to Registration Statement No. 33-38953 of Harris Associates Investment Trust on Form N-1A of our report dated October 28, 2005 appearing in the Annual Report of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Equity and Income Fund, The Oakmark Global Fund, The Oakmark International Fund, and The Oakmark International Small Cap Fund for the year ended September 30, 2005, and to the reference to us under the heading "Independent Registered Public Accounting Firm" in the Statement of Additional Information, which is part of this Registration Statement. We also consent to the reference to us under the heading "Financial Highlights" in the Prospectus, which is also part of this Registration Statement. DELOITTE & TOUCHE LLP Chicago, Illinois January 24, 2006 EX-99.(P)(1) 7 a2166852zex-99_p1.txt EXHIBIT-99.(P)(1) Exhibit 99(p)(1) HARRIS ASSOCIATES L.P., HARRIS ASSOCIATES SECURITIES L.P. AND HARRIS ASSOCIATES INVESTMENT TRUST CODE OF ETHICS AND STATEMENT ON INSIDER TRADING AS AMENDED SEPTEMBER 30, 2005 I. DEFINITIONS A. FIRM OR HARRIS. The term "Firm" or "Harris" shall include Harris Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP"). B. TRUST. The term "Trust" shall mean Harris Associates Investment Trust, including any series of shares of beneficial interest of the Trust (each, a "Fund"). C. EMPLOYEE. The term "Employee" shall include any person employed by the Firm, whether on a full or part-time basis and all partners, officers, shareholders and directors (other than Non-Access Directors (as defined below)) of the Firm. D. ACCESS PERSON. The term "Access Person" shall have the meaning set forth in Section 17j-1(a)(1) of the Investment Company Act of 1940 and rules thereunder (the "Act") and Section 204A-1(e)(1) of the Investment Advisers Act of 1940 (the "Advisers Act"). Accordingly, Access Person means any director, officer, general partner, or Advisory Person (as defined below) of the Fund or HALP, but shall not include any trustee of the Trust who is not an "interested person" of the Trust and, in the case of HALP, shall not include any Non-Access Director. E. ADVISORY PERSON. The term "Advisory Person" shall have the meaning set forth in Section 17j-1(a)(2) of the Act. Accordingly, Advisory Person means any Employee of the Firm, who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities (as defined below) by a Client (as defined below), or whose functions relate to the making of any recommendations with respect to purchases and sales. For the purpose of this Code, each Employee of the Firm with an office at the Firm's principal place of business shall be deemed to be an Advisory Person. F. PERSONS SUBJECT TO THIS CODE. Each Employee is subject to this Code. In addition, Non-Access Directors are subject to the following provisions of this Code: II.A, II.B, II.C.i, II.J, and III (other than III.B.3 (i), (ii) and (iv) and the last sentence of III.B.4). G. COVERED SECURITY. The term "Covered Security" shall have the meaning set forth in Section 2(a)(36) of the Act, (1) including any right to acquire such security, except that it shall not include - ---------- (1) SEC. 2(a)(36) "Security" means 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 (including a certificate of deposit) or on any 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 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 purchase, any of the foregoing. 1 securities which are direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debit instruments (including repurchase agreements), and shares issued by open-end investment companies other than Reportable Funds (defined below). H. REPORTABLE FUND. The term "Reportable Fund" shall have the meaning set forth in Section 204A-1(e)(9) of the Advisers Act. Reportable Fund means any investment company registered under the Act that is advised or sub-advised or distributed by the Firm or any affiliated company (e.g. IXIS Asset Management Advisers, Loomis Sayles, or Hansberger). Reportable Funds include, for example, open-ended investment companies and closed-end funds(2). A current list of Reportable Funds is maintained on the Compliance page of the Firm's intranet site. I. BENEFICIAL INTEREST OR OWNERSHIP. The term "beneficial interest or ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and rules thereunder, which includes any interest in which a person, directly or indirectly, has or shares a direct or indirect pecuniary interest. A pecuniary interest is the opportunity, directly or indirectly, to profit or share in any profit derived from any transaction. Each person will be assumed to have a pecuniary interest, and therefore, beneficial interest or ownership, in all securities held by that person, that person's spouse, all members of that person's immediate family and adults sharing the same household with that person (other than mere roommates) and all minor children of that person and in all accounts subject to their direct or indirect influence or control and/or through which they obtain the substantial equivalent of ownership, such as trusts in which they are a trustee or beneficiary, partnerships in which they are the general partner, corporations in which they are a controlling shareholder or any other similar arrangement. Any questions an Employee may have about whether an interest in a security or an account constitutes beneficial interest or ownership should be directed to the Firm's General Counsel or Compliance Department. Examples of beneficial interest or ownership are attached as Appendix A. J. CLIENT. The term "Client" shall mean any client of HALP, including any Fund. K. SPECIAL COMPLIANCE PERSON. The term "Special Compliance Person" shall mean the current Compliance Officer of IXIS Asset Management - North America. - ---------- (2) Reportable Funds that are money market funds are not subject to the Code's reporting requirements or holding periods (see Section II.G - Procedures to Implement Trading Restrictions and Reporting Obligations). 2 L. NON-ACCESS DIRECTOR. The term "Non-Access Director" shall mean any person who is a Director of Harris Associates, Inc., the corporate general partner of HALP and HASLP, but who is not an officer or employee of any of HALP, HASLP or Harris Associates, Inc. and who meets ALL of the following conditions: i) He or she, in connection with his or her regular functions or duties, does not make, participate in or obtain information regarding the purchase or sale of Covered Securities by a registered investment company, and whose functions do not relate to the making of recommendations with respect to such purchases or sales; ii) He or she does not have access to nonpublic information regarding any Firm clients' purchases or sales of securities (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a client of the Firm), or nonpublic information regarding the portfolio holdings of any Reportable Fund; and iii) He or she is not involved in making securities recommendations to Firm clients, and does not have access to such recommendations that are nonpublic (other than information contained in standard account statements or reports that the Firm may furnish to such person in his or her capacity as a client of the Firm). II. CODE OF ETHICS A. GENERAL STATEMENT Harris seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in mutual funds and clients with accounts advised by the Firm is something that is highly valued and must be protected. The Firm owes a fiduciary duty to its advisory clients, and the fundamental principle of the Firm is that at all times the interests of its Clients come first. As a result, any activity which creates even the suspicion of misuse of material non-public information by the Firm or any of its Employees, which gives rise to or appears to give rise to any breach of fiduciary duty owed to any Client, or which creates any actual or potential conflict of interest between any Client and the Firm or any of its Employees or even the appearance of any conflict of interest must be avoided and is prohibited. The Investment Company Act and rules make it illegal for any person covered by the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by the Trust to: i) employ any device, scheme, or artifice to defraud the Trust; ii) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading or in any way mislead the Trust regarding a material fact; iii) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust; or iv) engage in any manipulative practice with respect to the Trust. 3 The restrictions on personal securities transactions contained in this Code are intended to help the Firm monitor for compliance with these prohibitions. Additionally, the federal securities laws require that an investment adviser maintain a record of every transaction in any Covered Security and Reportable Fund in which an Access Person acquires any direct or indirect beneficial interest or ownership, except any transaction in an account in which the Access Person has no direct or indirect control or influence. To attempt to ensure that each Person Subject to this Code satisfies this Code and these record keeping obligations, the Firm has developed the following rules relating to personal securities trading, outside employment, personal investments with external investment managers and confidentiality. The General Counsel, Chief Executive Officer, and Chief Compliance Officer, acting in concert, have the authority to grant written waivers of the provisions of this Code in appropriate instances. However, the Firm expects that waivers will be granted only in rare instances, and some provisions of the Code that are mandated by the Act or the Advisers Act cannot be waived. The Firm expects all Access Persons to comply with the spirit of the Code as well as the specific rules contained in the Code. Any violations of the Code must be reported promptly to the Firm's Chief Compliance Officer. B. COMPLIANCE WITH FEDERAL SECURITIES LAWS More generally, Firm personnel and Non-Access Directors are required to comply with applicable federal securities laws at all times. Examples of applicable federal securities laws include: i) the Securities Act of 1933, Securities Act of 1934, Sarbanes-Oxley Act of 2002 and SEC rules thereunder; ii) the Investment Advisers Act of 1940 and SEC rules thereunder; iii) the Investment Company Act of 1940 and SEC rules thereunder; iv) Title V of the Gramm-Leach-Bliley Act of 1999 (privacy and security of client non-public information); and v) the Bank Secrecy Act, as it applies to mutual funds and investment advisers, and SEC and Department of the Treasury rules thereunder. C. RESTRICTIONS ON EMPLOYEE TRADING No trading activity by an Employee in any security in which an Employee has any beneficial interest or ownership which is also the subject of a Client portfolio purchase or sale shall disadvantage or appear to disadvantage such Client transaction. Further, the following specific restrictions apply to all trading activity for Advisory Persons: i) Any transaction in a security in anticipation of client orders ("frontrunning") is prohibited, 4 ii) Any transaction in a security which is the subject of a Firm recommendation is prohibited until the tenth business day following the dissemination of the recommendation, or any longer period specified in this Code, iii) Any transaction in a security which the Advisory Person knows or has reason to believe is being purchased or sold or considered for purchase or sale(3) by any investment company advised by the Firm is prohibited until the transaction by such investment company has been completed or consideration of such transaction has been abandoned,(4) iv) Any same day transaction in a security in which any Client advised by the Firm has a pending or actual transaction is prohibited. If an Advisory Person places a same day order for such security prior to the Client placing an order, the Employee's order will be canceled, v) Any transaction in a security within two business days after any investment company advised by the Firm has traded in that security is prohibited, vi) Any transaction involving options, single stock futures, or other derivatives relating to any security on the Firm's approved list or which are held by any investment company advised by the Firm that appears to evade the restrictions of the Code is prohibited, and vii) Any acquisition of an equity security in an initial public offering is prohibited. Additionally, no Employee of the Firm shall knowingly sell to or purchase from the Funds or the Trust any security or other property except, in the case of the Funds, securities issued by the Funds. Neither shall the Firm, HASL nor any Employee share in the profits or losses in any account of a customer carried by the Firm or HASL or any other NASD member, except to the extent provided for by Rule 205-3 of the Investment Advisors Act of 1940 and/or NASD Rule 2330. D. PRIVATE PLACEMENTS AND INVESTMENTS WITH EXTERNAL MONEY MANAGERS. No Advisory Person or Access Person shall acquire any security or interest in a private placement or commit initial capital to any account for which such person has any beneficial interest (other than non-affiliated mutual funds where the account is held directly at such fund) with an external investment manager without the prior written approval of the Firm's Chief Executive Officer and Chief - ---------- (3) A security is "being considered for purchase or sale"; the earlier of, when a recommendation to purchase or sell has been made and communicated or the security is placed on the research project list and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. (4) Among the clients of the Firm are private investment partnerships (partnerships) in which various Employees of the Firm have equity interests. This trading prohibition shall not restrict purchases or sales for the accounts of such partnerships provided that the Trust and such accounts are treated fairly and equitably in connection with such purchases and sales. 5 Compliance Officer. For purposes of this Code, "private placement" shall mean any limited offering that is generally not available to the public, including unregistered investment pool vehicles (e.g., hedge funds, commodity pools), Rule 144A securities, limited partnerships, etc. In deciding whether to grant approval, consideration will be given to whether the investment is consistent with the Firm's investment philosophy and guidelines and should be offered to Clients, and whether the investment creates an actual conflict or the appearance of a conflict of interest. An Advisory Person who has acquired a security in a private placement must disclose that investment to the Firm's Chief Executive Officer and Chief Compliance Officer if such Advisory Person later participates in the consideration of that issuer for inclusion on any list of securities approved for purchase by Firm clients. E. ADDITIONAL RESTRICTION ON FUND MANAGERS OF INVESTMENT COMPANY ACCOUNTS. Any Access Person who is a fund manager of any registered investment company that is advised by the Firm is prohibited from buying or selling a security for an account in which he or she has a beneficial interest within fifteen calendar days before and after the investment company that he/she manages trades in that security. Any profits realized on trades within the proscribed periods shall be required to be disgorged.(5) F. CERTAIN ACCOUNTS EXEMPT FROM REQUIREMENTS OF CODE. Any account (including open-end investment companies and limited partnerships) for which the Firm acts as investment adviser or general partner shall be managed in accordance with the Firm's trading procedures for a Client account. Any such account shall be exempt from the provisions of Sections B, C and D of Part II of this Code if (1) accounts of persons not affiliated with the Firm are also invested in the account or (2) the account is being operated as a model portfolio in contemplation of management of Client accounts in the same or a similar strategy. G. PROCEDURES TO IMPLEMENT TRADING RESTRICTIONS AND REPORTING OBLIGATIONS. 1) TRADING THROUGH HARRIS' TRADING DESK. All Advisory Persons who have personal accounts that hold or can hold Covered Securities are required to maintain such accounts at Pershing LLC ("Pershing"), the Firm's prime broker. All transactions in Covered Securities in which an Advisory Person has any beneficial interest or ownership or in any accounts in which an Advisory Person has discretion, other than fee paying accounts ("Advisory Person account"),must be processed through the Firm's trading desk. Additionally, all transactions in Reportable Funds in which an Advisory Person has any beneficial - ---------- (5) Any profits disgorged shall be given to a tax-exempt charitable organization of Harris' choosing. 6 interest or ownership must be processed (i) directly with the fund; (ii) through the Firm's mutual fund trading desk for the Advisory Person's Pershing brokerage account; or (iii) through the Firm's Profit Sharing and Savings Plan. Reportable Funds are not allowed to be held in outside brokerage accounts. An Advisory Person may have beneficial ownership of Reportable Funds in his or her spouse's retirement or 401(k) plan held at another bank or broker. In such instances, the Advisory Person should contact the Chief Compliance Officer to apply for a waiver to transact and hold Reportable Funds through the spouse's plan Reportable Fund transactions effected pursuant to an automatic investment plan or in any account over which the Access Person has no direct or indirect influence or control do not need to be reported. Changes in allocations of funds connected to an automatic investment plan are considered volitional transactions and need to be reported. Transactions at brokers other than Pershing or banks are not permitted except in unusual circumstances and then only after the Advisory Person has: (i) provided notice in writing to his/her Supervisor and the Compliance Department prior to opening or placing an initial order in an account with such other broker or bank, (ii) obtained the written approval of his/her Supervisor and the Compliance Department prior to opening or placing an initial order in such account, (iii) provided such other broker or bank with a written notice of the Advisory Person's affiliation with Harris and request that copies of confirmations and statements be sent to the Firm's Compliance Department, and provide a report to the Firm that includes the name of the broker or bank with whom the account was established, the date the account was established, and the date the report is submitted. A copy of such written notice and request should also be provided to his/her Supervisor and the Compliance Department. Even after an Advisory Person has obtained approval to execute transactions through another broker or bank, the Advisory Person must still present the Firm's trading desk with an order ticket for an order to be executed at the other broker or bank. In those exceptional situations in which it is inappropriate for the Firm's trading desk to place the order, the Advisory Person must promptly present the trading desk with a completed order ticket reflecting the details of the transaction and clearly indicating that the transaction has been completed. 2) MONITORING OF TRADES. Transactions for an account of an Advisory Person that are executed through the Firm's trading desk are to be monitored by the Trading Department and reviewed and approved by the Chief Compliance Officer (or such party to whom he or she delegates). These transactions are unsolicited brokerage transactions, should be so marked on the original order ticket and may not be executed if they are in conflict with discretionary orders. Should a conflict arise, sharing of executions may be approved by the Chief Investment Officer, or in his/her absence, the Trading Supervisor. The Firm's Compliance Department will access Advisory Person trade information online from Pershing (including the title and exchange ticker symbol or CUSIP number of each Covered Security or Reportable Fund involved, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security or Reportable Fund involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected, and the date on which the report is submitted). 7 Transactions at brokers other than Pershing or banks, in addition to being placed through the trading desk, are to be monitored by the Compliance Department. To accomplish this, all Access Persons shall submit to the Compliance Department within thirty days after any transaction a report which includes the title and exchange ticker or CUSIP number of the Covered Security, the date of the transaction, the interest rate and maturity rate (if applicable), the number of shares and principal amount of each Covered Security involved, the nature of the transaction (i.e. buy/sell), the price at which the transaction was effected, the name of the broker or bank through which the transaction was effected and the date on which the report is submitted. This requirement may be satisfied by having the broker or bank send the Firm duplicate copies of confirmations and statements, provided that such confirmations and statements contain all of the information otherwise required to be provided in the report. The Compliance Department will maintain copies of all such transaction reports. 3) CANCELLATION OF TRADES. Any transaction for an account of an Access Person is subject to cancellation or reversal if it is determined by either the Chief Executive Officer (or such party to whom he delegates), the Trading Supervisor, or the Compliance Department that the transaction is or was in conflict with or appeared to be in conflict with any Client transaction or any of the trading restrictions of this Code. Cancellations or reversals of transactions may be required after an extended period past the settlement date. The Trading Supervisor may also prevent the execution of orders for an Advisory Person's account if it appears that the trade may have to be canceled or reversed. Client transactions include transactions for any investment company managed by the Firm, any other discretionary advisory clients or any other accounts managed or advised by Employees of the Firm for a fee. The determination that a transaction of an Access Person may conflict with a Client transaction will be subjective and individualized and may include questions about timely and adequate dissemination of information, availability of bids and offers, as well as many other factors deemed pertinent for that transaction or series of transactions. It is possible that a cancellation or reversal of a transaction could be costly to an Access Person or his/her family. Therefore, great care is required to adhere to the Firm's trading restrictions and avoid conflicts or the appearance of conflicts. 4) HOLDING PERIODS FOR REPORTABLE FUNDS No Advisory Person may purchase and sell, or conversely sell and repurchase shares of the same Reportable Fund within 30 calendar days. This restriction applies to purchases and sales IN ALL ACCOUNTS in which the Advisory Person has a beneficial ownership interest, including retirement plans and 401(k) plan investments. Note that an exchange of shares counts as a sale of shares for purposes of this prohibition. For purposes of applying the 30-day holding period, the most recent purchase (or sale) will be measured against the sale (or purchase) in question. That is, a last-in-first-out analysis will apply. 8 All volitional purchase and sale transactions of Reportable Funds in any share class and in ANY account will be evaluated for purposes of applying the Holding Period, for example if an Access Person purchased a Reportable Fund in his Pershing brokerage account and sold the Reportable Fund in his 401(k) account within 30 days, he would have violated the Holding Period. Hardship exemptions may be requested in advance from the Compliance Department. The Chief Executive Officer, General Counsel, and Chief Compliance Officer must approve any such waiver in accordance with Section II.A, above. 5) PARTICIPATION IN DIVIDEND REINVESTMENT PLANS AND SYSTEMATIC PURCHASE PLANS. Advisory Persons may purchase Covered Securities through dividend reinvestment plans or systematic purchase plans without processing such transactions through the Firm's trading desk. Purchases are permitted only after the Advisory Person has: (i) provided notice in writing to his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase, and (ii) obtained the written approval of his/her Supervisor and the Compliance Department prior to opening an account or placing an initial purchase. Even after the Advisory Person has obtained approval to invest in such a plan, the Advisory Person must provide the Compliance Department with duplicate copies of statements within thirty days after the end of each calendar quarter. Such report or statements must contain all of the information required to be reported with respect to transactions in Covered Securities under II(F)(2) above. The Compliance Department will maintain copies of all such transaction reports. 6) REPORTING ALL OTHER SECURITIES TRANSACTIONS. Because the obligations of an investment adviser to maintain records of Employee's personal securities transactions is broader than the type of transactions discussed above in this Section, all Employees have the following ADDITIONAL reporting obligations. Any transaction in a Covered Security not required to be placed through the Firm's trading desk in which an Employee has any beneficial interest or ownership (such as, real estate or oil and gas limited partnership interests and other privately placed securities and funds) must be reported to the Compliance Department. This report must be submitted within thirty days after the end of each calendar quarter and include: the title and exchange ticker symbol or CUSIP number, price, number of shares and principal amount of each Covered Security involved, the date and nature of the transaction (i.e. buy/sell), the name of the broker or bank used, if any, interest rate and maturity, if applicable, and the date on which the report is submitted. This report may be in any form, including a copy of a confirmation or monthly statement. However, no report is necessary for any transaction in an account in which the Employee has no control or influence. 7) INITIAL AND ANNUAL REPORTING REQUIREMENTS. Each Access Person shall initially disclose in writing to the Compliance Department or within ten business days of becoming an Access Person, and annually thereafter within forty-five business days after each calendar year-end, the title and exchange ticker or CUSIP number, type of security, number of shares and principal amount of all Covered Securities and Reportable Funds beneficially owned by such Access Person, and the date the Access Person submits the report, as of the date of becoming a 9 Access Person or as of the preceding December 31 for annual reporting and the name of the broker or bank with whom the Access Person maintains an account in which he or she has beneficial ownership of ANY security. The first such annual report of Reportable Funds under this amended Code of Ethics shall be made by February 1, 2005 for holdings as of December 31, 2004. An Access Person need not make an Initial or Annual Report for Covered Securities held in any account over which the Employee has no direct or indirect influence or control. H. CONFIDENTIALITY & OBLIGATIONS OF EMPLOYEES During the period of employment with the Firm an Employee will have access to certain "confidential information" concerning the Firm and its clients. This information is a valuable asset and the sole property of the Firm and may not be misappropriated and used outside of the Firm by an Employee or former Employee. "Confidential Information", defined as all information not publicly available about the business of the Firm, may include, but is not limited to, Client and prospect names and records, research, trading and portfolio information and systems, information concerning externally managed entities or accounts which have been considered or made on behalf of fee paying clients, and the financial records of the Firm and/or its Employees. In order to protect the interests of the Firm, an Employee or ex-Employee shall not, without the express written consent of the Firm's Chief Executive Officer, disclose directly or indirectly confidential information to anyone outside of the Firm. An Employee should be extremely careful to avoid inadvertent disclosures and to exercise maximum effort to keep confidential information confidential. Any questions concerning the confidentiality of information should be directed to the Chief Executive Officer or the General Counsel. An abuse of the Firm's policy of confidentiality could subject an Employee to immediate disciplinary action that may include dismissal from the Firm. I. OUTSIDE EMPLOYMENT, ASSOCIATIONS AND BUSINESS ACTIVITIES 1) OUTSIDE EMPLOYMENT AND ASSOCIATIONS. It is Harris's policy not to permit Advisory Persons to hold outside positions of authority, including that of being an officer, partner, director or employee of another business entity (except in the case of entities managed by the Firm). Also, Harris requires that all Advisory Persons make their positions with the Firm a full-time job. The approval of Harris, and in some cases the approval of the NASD, is required before any Advisory Person may hold any outside position with any business organization, regardless of whether such position is compensated or not. Any exception to this policy must be approved in writing by the Firm's Chief Executive Officer (or other person as he may delegate) and the Access Person's Supervisor, and a copy of such approval shall be provided by the Advisory Person to the Compliance Department. Any change in the status of such approved position immediately must be reported in writing to the Compliance Department and the Advisory Person's Supervisor. Any income or compensation received by an Advisory Person for serving in such position must be paid in full to the Firm. Under no circumstance may an Advisory Person represent or suggest that Harris has approved or recommended the business activities of the outside organization or any person associated with it. 10 2) OUTSIDE BUSINESS ACTIVITIES. To further avoid actual or potential conflicts of interest and to maintain impartial investment advice, and equally important, the appearance of impartial investment advice, each Advisory Person must disclose in writing to the Compliance Department any special relationships and/or investments or business activities that they or their families have which could influence the investment activities of the Firm. If an Employee has any questions about any activities and the need for disclosure, the Employee should be cautious and direct any questions to the Firm's General Counsel or Compliance Department. J. CERTIFICATION OF COMPLIANCE BY ACCESS PERSONS. The Firm shall distribute the Code to each Employee and Non-Access Director upon inception of employment and whenever the Code is amended, but no less frequently than annually. Each Access Person and Non-Access Director is required to certify in writing annually that (i) he or she has read and understands the Code, (ii) recognizes that he or she is subject to the Code, and, in the case of Access Persons, (iii) he or she has disclosed or reported all Personal Securities Transactions required to be disclosed or reported under the Code Each Access Person who has not engaged in any personal securities transactions during the preceding year for which a report was required to be filed pursuant to the Code shall include a certification to that effect in his or her annual certification. K. ANNUAL REPORT TO THE TRUST'S BOARD OF TRUSTEES. The officers of the Trust shall prepare an annual report to the board of trustees of the Trust that: i) summarizes existing procedures concerning personal investing and any changes in those procedures during the past year; ii) describes issues that arose during the previous year under the Code or procedures concerning personal investing, including but not limited to information about material violations of the Code and sanctions imposed; iii) certifies to the board that the Trust has adopted procedures reasonably necessary to prevent its Investment Personnel and Access Persons from violating the Code; and iv) identifies any recommended changes in existing restrictions or procedures based upon experience under the Code, evolving industry practices, or developments in applicable laws or regulations. 11 III. POLICY STATEMENT ON INSIDER TRADING A. BACKGROUND Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission (SEC) can recover the profits gained or losses avoided through the violative trading, obtain a penalty of up to three times the illicit windfall and issue an order permanently barring you from the securities industry. Finally, you may be sued by investors seeking to recover damages for insider trading violations. Regardless of whether a government inquiry occurs, Harris views seriously any violation of this Policy Statement. Such violations constitute grounds for disciplinary sanctions, including dismissal. The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, a single question can forestall disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the General Counsel, or, in her absence, a member of the Stock Selection Group, or the Compliance Department. You also must notify the General Counsel, or, in her absence, a member of the Stock Selection Group or the Compliance Department immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur. B. POLICY STATEMENT ON INSIDER TRADING No person to whom this Policy Statement applies may TRADE, either personally or on behalf of others (such as Clients), while in possession of material, nonpublic information; nor may such persons COMMUNICATE material, nonpublic information to others in violation of the law. This Policy Statement is drafted broadly; it will be applied and interpreted in a similar manner. This Policy Statement applies to securities trading and information handling by all Access Persons (including their spouses, minor children and adult members of their households). The section below reviews principles important to this Policy Statement. 1. WHAT IS MATERIAL INFORMATION? Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information whose disclosure will have a substantial effect on the price of a company's securities. No simple "bright line" test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is 12 material to the General Counsel, or, in her absence, a member of the Stock Selection Group, or Compliance Department. Material information often relates to a company's results and operations including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments. Material information also may relate to the MARKET for a company's securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material. 2. WHAT IS NONPUBLIC INFORMATION? Information is "nonpublic" until it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other governmental agency, the Dow Jones "tape" or the WALL STREET JOURNAL or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely. 3. IDENTIFYING INSIDE INFORMATION Before executing any trade for yourself or others, including Clients, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps: i) Immediately alert the Trading Department to restrict trading in the security by placing the security on the restricted list maintained in the trading room. No reason or explanation should be given to the Trading Department for the restriction. ii) Report the information and proposed trade immediately to the General Counsel and the Chief Compliance Officer, or in their absence, a member of the Stock Selection Group. iii) Do not purchase or sell the securities on behalf of yourself or others, including Clients. iv) Do not communicate the information inside or outside Harris other than to the above individuals. v) After the above individuals have reviewed the issue, the Firm will determine whether the information is material and nonpublic and, if so, what action(s) the Firm should take. 13 4. CONTACTS WITH PUBLIC COMPANIES For Harris, contacts with public companies represent an important part of our research efforts. Harris may make investment decisions on the basis of the Firm's conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, an Access Person becomes aware of MATERIAL, nonpublic information. This could happen, for example, if a company's Chief Financial Officer prematurely discloses quarterly results to an analyst or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, Harris must make a judgment as to its further conduct. To protect yourself, Clients and the Firm, you should contact the General Counsel, or in her absence, a member of the Stock Selection Group, or Compliance Department immediately if you believe that you may have received material, nonpublic information. 5. TENDER OFFERS Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Employees should exercise particular caution any time they become aware of nonpublic information relating to a tender offer. C. PROCEDURES TO IMPLEMENT THE POLICY STATEMENT ON INSIDER TRADING 1. PERSONAL SECURITIES TRADING The restrictions on Employee trading and procedures to implement those restrictions and the Firm's reporting obligations, which are set forth in Section II above, constitute the same procedures to implement this Policy Statement. Review those procedures carefully and direct any questions about their scope or applicability to the General Counsel or the Compliance Department. 2. RESTRICTIONS ON DISCLOSURES Harris Employees shall not disclose any nonpublic information (whether or not it is material) relating to Harris or its securities transactions to any person outside Harris (unless such disclosure has been authorized by Harris). Material, nonpublic information may not be communicated to anyone, including persons within Harris, except as provided in Section III(B)(3) above. Such information must be secured. For example, access to files containing material, nonpublic information and computer files containing such information should be restricted, and conversations containing such information, if appropriate at all, should be conducted in private. 14 IV. RETENTION OF RECORDS The Compliance Department or the Secretary of the Trust will maintain the records listed below for a period of five years. Such records shall be maintained at the Firm's principal place of business in an easily accessible place: i) a list of all persons subject to the Code during that period; ii) receipts signed by all persons subject to the Code acknowledging receipt of copies of the Code and acknowledging that they are subject to it; iii) a copy of each Code of Ethics that has been in effect at any time during the period; iv) a copy of each report filed pursuant to the Code and a record of any known violations and actions taken as a result thereof during the period as well as a record of all persons responsible for reviewing these reports; and v) a copy of any decision and the reasons supporting the decision, to approve the acquisition of Limited Offerings. 15 ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT ON INSIDER TRADING CODE OF ETHICS. Harris Associates L.P. ("HALP"), Harris Associates Securities L.P. ("HASLP") and Harris Associates Investment Trust (the "Trust") have adopted a written Code of Ethics and Statement on Insider Trading (the "Code") to avoid potential conflicts of interest by HALP and HASLP personnel and to govern the use and handling of material non-public information. A copy of the Code is attached to this acknowledgement. As a condition of your continued employment with HALP and HASLP, and/or the retention of your position, if any, as an officer of the Trust or a member of the board of HALP's general partner, you are required to read, understand and abide by the Code. COMPLIANCE PROGRAM. The Code requires that all personnel (other than Non-Access Directors) furnish to the Compliance Department information regarding any investment account in which you have a "beneficial interest." You are also required to furnish to the Compliance Department copies of your monthly or quarterly account statements, or other documents, showing all purchases or sales of securities in any such account, or which are effected by you or for your benefit, or the benefit of any member of your household. Additionally, you are required to furnish a report of your personal securities holdings within ten days of commencement of your employment with HALP or HASLP and annually thereafter. These requirements apply to any investment account, such as an account at a brokerage house, trust account at a bank, custodial account or similar types of accounts. This compliance program also requires that employees report any contact with any securities issuer, government or its personnel, or others, that, in the usual course of business, might involve material non-public financial information. The Code requires that employees bring to the attention of the General Counsel any information they receive from any source, which might be material non-public information. Any questions concerning the Code should be directed to the General Counsel or the Compliance Department. I affirm that I have read and understand the Code. I agree to the terms and conditions set forth in the Code. - -------------------------------- ---------------- Signature Date 1 ANNUAL AFFIRMATION OF COMPLIANCE FOR ACCESS PERSONS AND NON-ACCESS DIRECTORS I affirm that: 1. I have again read and, during the past year to the best of my knowledge, have complied with the Code of Ethics and Statement of Insider Trading (the "Code"). 2. I have provided to the Compliance Department the names and addresses of each investment account that I have with any firm, including, but not limited to, broker-dealers, banks and others. (List of known accounts attached.) (Access Persons only) 3. I have provided to the Compliance Department copies of account statements or other reports showing each and every transaction in any security in which I have a beneficial interest, as defined in the Code, during the most recently ended calendar year or During the most recent calendar year there were no transactions in any security in which I had a beneficial interest required to be reported pursuant to the Code. (Access Persons only) 4. I have provided to the Compliance Department a report of my personal securities holdings as of the end of the most recent calendar year, including all required information for each security in which I have any direct or indirect beneficial ownership. (Access Persons only) - -------------------------------- ----------------- Signature Date EXAMPLES OF BENEFICIAL INTEREST For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include: - - securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example); - - securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust); - - securities held by you as trustee or co-trustee, where either you or any member of your immediate family (I.E., spouse, children or descendants, stepchildren, parents and their ancestors, and stepparents, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust. - - securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control; - - securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; - - securities held by a personal holding company controlled by you alone or jointly with others; - - securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) your minor children or any immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or - - securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not presently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership. You will NOT be deemed to have beneficial ownership of securities in the following situations: - - securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnership's portfolio; and - - securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift. These examples are not exclusive. There are other circumstances in which you may be deemed to have a beneficial interest in a security. Any questions about whether you have a beneficial interest should be directed to the General Counsel or Compliance Department. EX-99.(P)(2) 8 a2166852zex-99_p2.txt EXHIBIT 99.(P)(2) Exhibit 99(p)(2) HARRIS ASSOCIATES INVESTMENT TRUST Code of Ethics for Non-Interested Trustees (as amended July 27, 2005) The following Code of Ethics has been adopted in accordance with Rule l7j-1 under the Investment Company Act of 1940 (the "Act") by the board of trustees of Harris Associates Investment Trust (the "Trust") on March 8, 1994, and has been amended by the board of trustees of the trust on June 9, 1998, April 18, 2000, July 17, 2002 and July 27, 2005. The Act and rules and regulations thereunder make it illegal for any Person Subject to the Code, directly or indirectly, in connection with the purchase or sale of a security held or to be acquired by the Trust to: a. employ any device, scheme, or artifice to defraud the Trust; b. make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of circumstances under which they are made, not misleading or in any way mislead the Trust regarding a material fact; c. engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust; or d. engage in any manipulative practice with respect to the Trust. 1. DEFINITIONS OF TERMS USED. (a) TRUST: Harris Associates Investment Trust. (b) FUND: Each of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Equity and Income Fund, The Oakmark Global Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund, and any other series of shares of beneficial interest of the Trust. (c) ADVISER: Harris Associates L.P., the investment adviser to the Trust. (d) CODE: This Code of Ethics. (e) PERSON SUBJECT TO THE CODE: Each non-interested trustee of the Trust. (f) NON-INTERESTED TRUSTEE: A trustee of the Trust who is not an "interested person" of the Trust as defined in section 2(a)(19) of the Act. (g) SECURITY: Security shall have the meaning set forth in section 2(a)(36) of the Act, including any right to acquire such security, except that it shall not include securities issued by the Government of the United States, short-term debt securities which are "government securities" within the meaning of Section 2(a)(16) of the Act, bankers acceptances, bank certificates of deposit, commercial paper and securities issued by a registered open-end investment company. (h) BENEFICIAL INTEREST OR OWNERSHIP: Beneficial interest or ownership of a person shall be interpreted in the same manner as it would be in determining whether the person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, but applied to all securities owned or acquired and not only those within the scope of Section 16. Examples of beneficial interest or ownership are attached as Appendix A. 2. CONSIDERATION OF TRANSACTION FOR A FUND. The Adviser shall be deemed to be considering a transaction in a security for a Fund, the earlier of (i) when a recommendation to purchase or sell a security has been made and communicated to the Trust or the security is placed on the research project list and (ii) with respect to the person making the recommendations, when such person seriously considers making such recommendation. 3. PROHIBITED SECURITIES TRANSACTIONS. No Person Subject to the Code shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership or interest and when the person knows or has reason to believe that securities of the same class are being purchased or sold or considered for purchase or sale by a Fund, until the Fund's transactions have been completed or consideration of such transaction is abandoned. This prohibition does not apply to any transaction in an investment advisory account of any Person Subject to the Code (either alone or with others) over which the investment adviser for the account exercises investment discretion if the Person Subject to the Code did not have knowledge of the transaction until after the transaction had been executed; provided that the Person Subject to the Code had previously identified the account to the Secretary of the Trust. Among the advisory clients of the Adviser are private investment partnerships in which various Persons Subject to the Code may have equity interests. This section shall not restrict purchases or sales for the accounts of such partnerships provided that a Fund and such accounts are treated fairly and equitably in connection with such purchases and sales. 4. EXEMPTED TRANSACTIONS. The provisions of this Code are not intended to restrict unnecessarily the personal investment activities of Persons Subject to the Code. Therefore, the provisions of Section 3 of this Code shall not apply to: (a) Purchases or sales effected in any account over which the Persons Subject to the Code has no direct or indirect influence or control; (b) Purchases or sales of securities that are not eligible for purchase or sale by a Fund; (c) Purchases or sales that are non-volitional on the part of either the Person Subject to the Code or a Fund; 2 (d) Purchases that are part of an automatic dividend reinvestment plan; (e) Purchases effected upon the exercise of rights issued by an issuer PRO RATA to all holders of a class of its securities to the extent such rights were acquired from such issuer, and sales of such rights so acquired; and (f) Purchases or sales that receive the prior approval of the Chief Compliance Officer of the Trust or Adviser on the ground that they are not inconsistent with this Code or the provisions of Rule 17-j-l(a). 5. REPORTING SECURITIES TRANSACTIONS. (a) DUTY TO REPORT. If any Person Subject to the Code has a beneficial interest in a transaction in a security and at the time of the transaction knew, or in the ordinary course of fulfilling his or her official duties as a trustee of the Trust should have known, that on the day of the transaction or within 15 days before or after that day a purchase or sale of that class of security was made or being considered for a Fund, he or she shall report the transaction to the Chief Compliance Officer of the Trust within 10 days after the end of the calendar quarter in which the transaction occurred. (b) FORM OF REPORT. A report pursuant to Section 5(a) may be in any form (including a copy of a confirmation or monthly brokerage statement) but must include: (i) the date of the transaction; (ii) the title, interest rate and maturity date (if applicable), number of shares, and the principal amount (if applicable) of the security; (ii) the nature of the transaction (i.e., purchase, sale, gift, or other type of acquisition or disposition); (iii) the price at which the transaction was effected; (iv) the name of the broker, dealer or bank with or through whom the transaction was effected; (v) the name of the reporting person; and (vi) the date on which the report is submitted. 6. TRANSACTIONS WITH A FUND OR THE TRUST. No Person Subject to the Code will knowingly sell to or purchase from a Fund or the Trust any security or other property except securities issued by a Fund. 7. ENFORCEMENT. 3 (a) CONFIDENTIALITY; ADDITIONAL INFORMATION. Reports filed pursuant to Section 5 of the Code will be maintained in strictest confidence but will be reviewed by the Trust or the Adviser to verify compliance with the Code. Additional information may be required to clarify the nature of particular transactions. (b) SANCTIONS FOR NON-COMPLIANCE. Conduct that is not in accordance with the Code shall constitute grounds for appropriate sanctions by the Trust, including letters of sanction, suspension, or removal from office. (c) RETENTION OF RECORDS. The Secretary of the Trust will maintain the records listed below for a period of five years. Such records shall be maintained at the Trust's principal place of business in an easily accessible place: (i) a list of all Persons Subject to the Code during the period; (ii) receipts signed by al1 persons subject to the Code acknowledging receipt of copies of the Code and acknowledging that they are subject to it; (iii) a copy of each Code of Ethics that has been in effect at any time during the period; and (iv) a copy of each report filed pursuant to the Code and a record of any known violations and actions taken as a result thereof during the period as well as a record of all persons responsible for reviewing these reports. * * * * * 4 ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT ON INSIDER TRADING FOR NON-INTERESTED TRUSTEES Harris Associates Investment Trust (the "Trust") has adopted a written Code of Ethics for Non-Interested Trustees (the "Code") to avoid potential conflicts of interest. A copy of the Code is attached to this acknowledgement. As a condition of the retention of your position as a trustee, you are required to read, understand and abide by the Code. Any questions concerning the Code should be directed to the Chief Compliance Officer of the Trust. I affirm that I have read and understand the Code. I agree to the terms and conditions set forth in the Code. - ------------------------------------- -------------------- Signature Date 1 APPENDIX A EXAMPLES OF BENEFICIAL INTEREST For purposes of the Code, you will be deemed to have a beneficial interest in a security if you have the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. Examples of beneficial ownership under this definition include: - securities you own, no matter how they are registered, and including securities held for you by others (for example, by a custodian or broker, or by a relative, executor or administrator) or that you have pledged to another (as security for a loan, for example); - securities held by a trust of which you are a beneficiary (except that, if your interest is a remainder interest and not a current income interest and you do not have or participate in investment control of trust assets, you will not be deemed to have a beneficial interest in securities held by the trust); - securities held by you as trustee or co-trustee, where either you or any member of your immediate family (I.E., spouse, child, descendant, stepchild, parent or other ancestor or step-parent, in each case treating a legal adoption as blood relationship) has a beneficial interest (using these rules) in the trust. - securities held by a trust of which you are the settlor, if you have the power to revoke the trust without obtaining the consent of all the beneficiaries and have or participate in investment control; - securities held by any partnership in which you are a general partner, to the extent of your interest in partnership capital or profits; - securities held by a personal holding company controlled by you alone or jointly with others; - securities held by (i) your spouse, unless legally separated, or you and your spouse jointly, or (ii) a minor child or any other immediate family member of you or your spouse (including an adult relative), directly or through a trust, who is sharing your home, even if the securities were not received from you and the income from the securities is not actually used for the maintenance of your household; or - securities you have the right to acquire (for example, through the exercise of a derivative security), even if the right is not currently exercisable, or securities as to which, through any other type of arrangement, you obtain benefits substantially equivalent to those of ownership. 2 You will NOT be deemed to have beneficial ownership of securities in the following situations: - securities held by a limited partnership in which you do not have a controlling interest and do not have or share investment control over the partnership's portfolio; and - securities held by a foundation of which you are a trustee and donor, provided that the beneficiaries are exclusively charitable and you have no right to revoke the gift. These examples are not exclusive. There are other circumstances in which you may be deemed to have a beneficial interest in a security. Any questions about whether you have a beneficial interest should be directed to the Chief Compliance Officer of the Trust. 3 -----END PRIVACY-ENHANCED MESSAGE-----