-----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, Hsi8AvCSuAbfsTyKZDgzqvmyKMVyq+FVIpgxP66pUeo1iH3L8eyG48tkTw9W6mNq ET08rBEel8jbIwoPuOIwGQ== 0001047469-98-039331.txt : 19981106 0001047469-98-039331.hdr.sgml : 19981106 ACCESSION NUMBER: 0001047469-98-039331 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19981105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-38953 FILM NUMBER: 98738803 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-06279 FILM NUMBER: 98738804 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 485APOS 1 485APOS As filed with the Securities and Exchange Commission on November 5, 1998 Securities Act registration no. 33-38953 Investment Company Act file no. 811-06279 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A - -------------------------------------------------------------------------------- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Post-Effective Amendment No. 21 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 23 [X] - -------------------------------------------------------------------------------- HARRIS ASSOCIATES INVESTMENT TRUST (Registrant) Two North La Salle Street, Suite 500 Chicago, Illinois 60602-3790 Telephone number 312/621-0600 - -------------------------------------------------------------------------------- Victor A. Morgenstern Cameron S. Avery Harris Associates L.P. Bell, Boyd & Lloyd Two North La Salle Street, #500 70 West Madison Street, #3300 Chicago, Illinois 60602 Chicago, Illinois 60602 (Agents for service) - -------------------------------------------------------------------------------- Amending Parts A, B and C and filing Exhibits - -------------------------------------------------------------------------------- It is proposed that this filing will become effective: immediately upon filing pursuant to rule 485(b) ------ on _______________ pursuant to rule 485(b) ------ 60 days after filing pursuant to rule 485(a)(1) ------ on _____________ pursuant to rule 485(a)(1) by acceleration ------ 75 days after filing pursuant to rule 485(a)(2) ------ X on January 4, 1999 pursuant to rule 485(a)(2) ------ - -------------------------------------------------------------------------------- JANUARY 4, 1999 - -------------------------------------------------------------------------------- FUND/TICKER SYMBOL INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------- THE OAKMARK FUND LONG-TERM CAPITAL APPRECIATION OAKMX The Fund invests primarily in U.S. equity securities. - -------------------------------------------------------------------------------- THE OAKMARK LONG-TERM CAPITAL APPRECIATION SELECT FUND The Fund invests primarily in a non- OAKLX diversified portfolio of U.S. equity securities. - -------------------------------------------------------------------------------- THE OAKMARK LONG-TERM CAPITAL APPRECIATION SMALL CAP FUND The Fund invests primarily in U.S. OAKSX equity securities of companies with (re-opened to new investors as of small market capitalizations. August 31, 1998) - -------------------------------------------------------------------------------- THE OAKMARK HIGH CURRENT INCOME AND PRESERVATION EQUITY AND INCOME FUND AND GROWTH OF CAPITAL The Fund OAKBX invests primarily in a diversified portfolio of U.S. equity and fixed- income securities. - -------------------------------------------------------------------------------- THE OAKMARK LONG-TERM CAPITAL APPRECIATION INTERNATIONAL FUND The Fund invests primarily in OAKIX equity securities of non-U.S. issuers. - -------------------------------------------------------------------------------- THE OAKMARK LONG-TERM CAPITAL APPRECIATION INTERNATIONAL The Fund invests primarily in SMALL CAP FUND equity securities of non-U.S. OAKEX issuers with small market capitalizations. - -------------------------------------------------------------------------------- NO LOAD, NO SALES CHARGE, NO 12B-1 FEES MINIMUM INITIAL INVESTMENT - $1,000 or $500 for Automatic Investment Plan, Payroll Deduction Plan or Education IRA MINIMUM SUBSEQUENT INVESTMENTS - $100 (see "Purchasing Shares") - -------------------------------------------------------------------------------- Each "Fund" is a series of Harris Associates Investment Trust. The Funds may invest to a limited extent in high-yield, high-risk bonds and in other securities that entail certain risks. See "The Funds - Risk Factors." This prospectus contains information you should know before investing. Please retain it for future reference. A Statement of Additional Information regarding the Funds dated the date of this prospectus has been filed with the Securities and Exchange Commission and (together with any supplement to it) is incorporated by reference. That Statement may be obtained at no charge by writing or telephoning the transfer agent at its address or telephone number shown inside the back cover. The Statement, material incorporated by reference and other information regarding registrants that file electronically with the Commission is available at website http://www.sec.gov. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS TABLE OF CONTENTS
Page ---- HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Shareholder Transaction Expenses. . . . . . . . . . . . . . . . . . . . 4 Annual Fund Operating Expenses. . . . . . . . . . . . . . . . . . . . . 5 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . 8 THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 How the Funds Invest. . . . . . . . . . . . . . . . . . . . . . . . . . 19 Investment Techniques . . . . . . . . . . . . . . . . . . . . . . . . . 22 Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Restrictions on the Funds' Investments. . . . . . . . . . . . . . . . . 29 PURCHASING SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 How to Purchase Shares - Class I. . . . . . . . . . . . . . . . . . . . 30 How to Purchase Shares - Class II . . . . . . . . . . . . . . . . . . . 32 REDEEMING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 How to Redeem Shares - Class I. . . . . . . . . . . . . . . . . . . . . 33 How to Redeem Shares - Class II . . . . . . . . . . . . . . . . . . . . 36 Shareholder Services - Class I. . . . . . . . . . . . . . . . . . . . . 38 Shareholder Services - Class II . . . . . . . . . . . . . . . . . . . . 39 Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 46 OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
FOR MORE INFORMATION Access our website at www.oakmark.com to obtain a prospectus and account application and other Fund information, and to obtain your shareholder account information, or call 1-800-OAKMARK (1-800-625-6275). [LOGO] WEBSITE AND 24-HOUR NET ASSET VALUE HOTLINE Access our website at www.oakmark.com to obtain the current net asset value per share of a Fund, or call 1-800-GROWOAK (1-800-476-9625). HIGHLIGHTS Harris Associates Investment Trust (the "Trust") provides investors an opportunity to pool their money to achieve economies of scale and diversification, and to take advantage of the professional investment expertise of Harris Associates L.P. (the "Adviser"). 1 The Trust currently issues shares in six series (collectively, the "Funds" and generally, a "Fund"). Each series has distinct investment objectives and policies, and a shareholder's interest is limited to the series in which he or she owns shares. The six series are: The Oakmark Fund ("Oakmark Fund"), The Oakmark Select Fund ("Select Fund"), The Oakmark Small Cap Fund ("Small Cap Fund"), The Oakmark Equity and Income Fund("Equity and Income Fund"), The Oakmark International Fund ("International Fund") and The Oakmark International Small Cap Fund ("International Small Cap Fund"). Each is a "no-load" fund, and there are no sales or 12b-1 charges. As of the date of this prospectus, the Trust offers two classes of shares of each Fund. The classes are designated Class I Shares and Class II Shares. Class II Shares are the new class of shares being offered as of the date of this prospectus. The Class II Shares of each Fund are offered to certain 401(k) plans and certain other tax-qualified plans. Class I Shares of each Fund are offered to the general public. If you held shares of a Fund on January 1, 1999, those shares have been renamed Class I Shares so that you now hold Class I Shares of your Fund. Although the name of your shares is now different, the shares will remain the same in all other respects, and if, in the future, you want to purchase additional shares for your Fund account, you will purchase the Class I Shares offered to the general public. Since Class II Shares of each Fund are being offered to certain 401(k) plans and other tax-qualified plans, Class II Shares of the Fund pay a service fee at the annual rate of .25% of the average net assets of Class II Shares of the Fund for the administrative services associated with the administration of such tax-qualified retirement plans. When newspapers and other media report the net asset value (NAV) or the performance of shares of a Fund, they will use the Class I and Class II designations to differentiate between the classes. The Trust is designed for long-term investors, including those who wish to use shares of one or more series as a funding vehicle for tax-deferred plans (including tax-qualified retirement plans and Individual Retirement Account (IRA) plans and Educational IRAs), and NOT FOR INVESTORS WHO INTEND TO LIQUIDATE THEIR INVESTMENTS AFTER A SHORT PERIOD OF TIME. Only Equity and Income Fund is intended to present a balanced investment program between growth and income. The chief consideration in selecting equity securities for each Fund's portfolio is the size of the discount of market price relative to the economic value of the security as determined by the Adviser. The Trust's investment philosophy is predicated on the belief that over time market price and value converge and that investment in securities priced significantly below long-term value presents the best opportunity to achieve long-term capital appreciation. OAKMARK FUND seeks long-term capital appreciation by investing primarily in U.S. equity securities. SELECT FUND seeks long-term capital appreciation by investing primarily in a non-diversified portfolio of U.S. equity securities. SMALL CAP FUND seeks long-term capital appreciation by investing primarily in U.S. equity securities of companies with small market capitalizations. EQUITY AND INCOME FUND seeks high current income and preservation and growth of capital by investing primarily in a diversified portfolio of U.S. equity and fixed-income securities. INTERNATIONAL FUND seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers. INTERNATIONAL SMALL CAP FUND seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers with small market capitalizations. RISKS. The Funds are intended for long-term investors who can accept fluctuations in value and other risks associated with seeking the investment objectives of the respective Funds through investments in the 2 types of securities in which the Funds may invest. You should understand and consider carefully the risks involved in a Fund before investing in that Fund. See "Risk Factors" for a more detailed discussion. PURCHASES. The minimum initial investment for each Fund is $1,000 or $500 in the case of the Automatic Investment Plan, Payroll Deduction Plan, or Education IRA; each additional investment must be at least $100. For information on purchasing Fund shares, see "Purchasing Shares." REDEMPTIONS. For information on redeeming Fund shares, see "Redeeming Shares." NET ASSET VALUE. The purchase and redemption price of either class of a Fund's shares is the net asset value per share of that class. The net asset value is determined as of the close of regular session trading on the New York Stock Exchange. See "Net Asset Value." ADVISER. Harris Associates L.P. (the "Adviser") provides management and investment advisory services to the Funds. See "Management of the Funds."
SHAREHOLDER TRANSACTION EXPENSES ALL FUNDS Commission to purchase shares (sales load) . . . . . . . . . None Commission to reinvest dividends . . . . . . . . . . . . . . None Deferred sales load. . . . . . . . . . . . . . . . . . . . . None Redemption fee*. . . . . . . . . . . . . . . . . . . . . . . None Fee to exchange shares . . . . . . . . . . . . . . . . . . . None
___________ * If you request payment of redemption proceeds by wire transfer, you must pay the cost of the wire transfer (currently $5). 3 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) The following tables are intended to help you understand the costs and expenses that an investor in the Funds may bear directly or indirectly. For a more complete explanation of the fees and expenses borne by the Funds, see the discussions under the prospectus headings "Purchasing Shares" and "Management of the Funds," as well as the Statement of Additional Information incorporated by reference into this prospectus. The Class I Shares of each Fund incurred the following expenses during the fiscal year ended September 30, 1998:
EQUITY AND INT'L OAKMARK SELECT SMALL CAP INCOME INT'L SMALL CAP FUND FUND FUND FUND FUND FUND CLASS I CLASS I CLASS I CLASS I CLASS I CLASS I - -------------------------------------------------------------------------------------------------------------------------- Investment management fees .93% .98% 1.28% .74% 1.03% 1.27% 12b-1 fees None None None None None None Other expenses .15 .24 .17 .57 .29 .69 - -------------------------------------------------------------------------------------------------------------------------- Total Fund operating expenses 1.08% 1.22% 1.45% 1.31% 1.32% 1.96%
It is estimated that Class II Shares of each Fund will incur the following expenses (annualized) during their initial partial fiscal year ending September 30, 1999:
EQUITY AND INT'L SELECT SMALL CAP INCOME INT'L SMALL CAP OAKMARK FUND FUND FUND FUND FUND FUND CLASS II CLASS II CLASS II CLASS II CLASS II CLASS II - ---------------------------------------------------------------------------------------------------------------------------- Investment management fees .93% .98% 1.28% .74% 1.03% 1.27% 12b-1 fees None None None None None None Service fee .25 .25 .25 .25 .25 .25 Other expenses .15 .24 .17 .57 .29 .69 - ---------------------------------------------------------------------------------------------------------------------------- Total Fund operating expenses 1.33% 1.47% 1.70% 1.56% 1.57% 2.21%
4 The following examples illustrate the expenses that you would pay on a $1,000 investment in shares of each class of each Fund over various time periods assuming (1) a 5% annual rate of return, (2) the operating expense percentages listed in the applicable table above remain the same through each of the periods, (3) reinvestment of all dividends and capital gain distributions, and (4) redemption at the end of each time period. The projected expenses for Class I Shares of each Fund are shown below:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- Oakmark Fund Class I $11 $34 $59 $131 Select Fund Class I 12 38 66 147 Small Cap Fund Class I 15 46 79 174 Equity and Income Fund Class I 13 41 71 157 International Fund Class I 13 41 72 159 International Small Cap Fund 20 62 106 229 Class I
The projected expenses for Class II Shares of each Fund are shown below:
1 YEAR 3 YEARS 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- Oakmark Fund Class II $14 $43 $74 $161 Select Fund Class II 15 46 80 175 Small Cap Fund Class II 17 53 92 200 Equity and Income Fund Class II 16 49 85 186 International Fund Class II 16 50 86 188 International Small Cap Fund 22 69 118 254 Class II
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND PERFORMANCE MAY BE GREATER OR LESS THAN THOSE SHOWN. 5 FINANCIAL HIGHLIGHTS The tables below for Oakmark Fund, Select Fund, Small Cap Fund, Equity and Income Fund, International Fund and International Small Cap Fund reflect the results of the operations for a Class I Share outstanding throughout the periods shown and have been audited by Arthur Andersen LLP, independent public accountants. Because no Class II Shares had been issued as of September 30, 1998, similar information does not exist for them. These tables should be read in conjunction with the Funds' financial statements and notes thereto, which may be obtained from the Trust upon request without charge.
OAKMARK FUND CLASS I ------------------------------------------------------------------------------------------ Year Ended 11 Months Ended Year Ended October 31, -------------------------------------------------------- Sept. 30, 1998 Sept. 30, 1997 1996 1995 1994 1993 1992 1991(a) -------------- -------------- ---- ---- ---- ---- ---- ------ Net Asset Value, beginning of period $41.21 $32.39 $28.47 $25.21 $24.18 $17.11 $12.10 $10.00 Income from investment operations: Net investment income (loss) 0.47 0.36 0.34 0.30 0.27 0.17 (0.03) (0.01) Net gains or losses on securities (1.73) 10.67 4.70 4.66 1.76 7.15 5.04 2.11 (both realized and unrealized) Total from investment (1.26) 11.03 5.04 4.96 2.03 7.32 5.01 2.10 operations Less distributions: Dividends (from net investment (0.40) (0.34) (0.28) (0.23) (0.23) (0.04) -- -- income) Distributions (from capital gains) (6.01) (1.87) (0.84) (1.47) (0.77) (0.21) -- -- Total distributions (6.41) (2.21) (1.12) (1.70) (1.00) (0.25) -- -- Net asset value, end of period $33.54 $41.21 $32.39 $28.47 $25.21 $24.18 $17.11 $12.10 Total return (4.06)% 39.24%* 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%* Ratios/supplemental data: Net assets, end of period $6,924.0 $6,614.9 $3,933.9 $2,827.1 $1,677.3 $1,107.0 $114.7 $4.8 ($ million) Ratio of expenses to average net 1.08% 1.08%* 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)* assets Ratio of net income (loss) to 1.22% 1.19%* 1.13% 1.27% 1.19% 0.94% (.24)% (0.66)%(c)* average net assets Portfolio turnover rate 43% 17% 24% 18% 29% 18% 34% 0%
___________ * Data has been annualized. (a) From August 5, 1991, the date on which Fund shares were first offered for sale to the public. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. 6
SELECT CLASS I SMALL CAP CLASS I ----------------------------------- ------------------------------------------------- Year Eleven Year Eleven Year Ended Months Ended Ended Months Ended Ended Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997 Oct. 31, 1996 -------------- -------------- -------------- -------------- ------------ Net Asset Value, beginning of period $16.34 $10.00 $20.34 $13.19 $10.00 Income from investment operations: Net investment income (loss) 0.03 (0.01) (0.12) (0.01) (0.02) Net gains or losses on securities 0.56 6.35 (4.73) 7.16 3.21 (both realized and unrealized) ----- ----- ----- ---- ---- Total from investment operations 0.59 6.34 (4.85) 7.15 3.19 Less distributions: Dividends (from net investment 0.00 0.00 0.00 0.00 0.00 income) Distributions (from capital gains) (0.17) 0.00 (2.86) 0.00 0.00 Total distributions (0.17) 0.00 (2.86) 0.00 0.00 Net asset value, end of period $16.76 $16.34 $12.63 $20.34 $13.19 Total return 3.64% 69.16%* (26.37%) 59.14%* 31.94% Ratios/supplemental data: Net assets, end of period ($million) $1,227.9 $514.2 $618.0 $1,513.4 $218.4 Ratio of expenses to average net 1.22% 1.12%* 1.45% 1.37%* 1.61% assets Ratio of net income (loss) to 0.17% (0.11%)* (0.40%) (0.25%)* (0.29%) average net assets Portfolio turnover rate 56% 37% 34% 27% 23%
_______________ * Data has been annualized. 7
EQUITY AND INCOME CLASS I ---------------------------------------------- Year Eleven Year Ended Months Ended Ended Sept. 30, 1998 Sept. 30, 1997 Oct. 31, 1996 -------------- -------------- ------------- Net Asset Value, beginning of $14.49 $11.29 $10.00 period Income from investment operations: Net investment income (loss) 0.29 0.21 0.10 Net gains or losses on 0.04 3.24 1.19 securities (both realized and unrealized) Total from investment 0.33 3.45 1.29 operations Less distributions: Dividends (from net (0.24) (0.12) 0.00 investment income) Distributions (from capital (0.59) (0.13) 0.00 gains) Total distributions (0.83) (0.25) 0.00 Net asset value, end of $13.99 $14.49 $11.29 period Total return 2.57% 34.01%* 12.91% Ratios/supplemental data: Net assets, end of period $57.7 $33.5 $13.8 ($million) Ratio of expenses to 1.31% 1.50%*(a) 2.50%(a) average net assets Ratio of net income (loss) 2.39% 2.38%*(a) 1.21%(a) to average net assets Portfolio turnover rate 46% 53% 66%
___________ * Data has been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, ratios would have been as follows:
Eleven Months Year Ended Ended September 30, 1997 October 31, 1996 ----------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.70% 2.64% Ratio of Net Income (Loss) to Average Net Assets 2.18% 1.08%
8
INTERNATIONAL FUND CLASS I ------------------------------------------------------------------------------------- 11 Months Year Ended Ended Year Ended October 31, Sept. 30, Sept. 30, ---------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992(a) ---- ---- ---- ---- ---- ---- ------- Net Asset Value, beginning of period $18.77 $14.92 $12.97 $14.50 $14.09 $9.80 $10.00 Income from investment operations: Net investment income (loss) 0.41 0.27 0.09 0.30 0.21 0.06 0.26 Net gains or losses on securities (both realized and unrealized) (5.32) 3.74 2.90 (0.77) 0.43 4.48 (0.46) Total from investment operations (4.91) 4.01 2.99 (0.47) 0.64 4.54 (0.20) Less distributions: Dividends (from net investment income) (0.58) (0.16) 0.00 0.00 (0.08) (0.25) -- Distributions (from capital gains) (2.86) 0.00 (1.04) (1.06) (0.15) -- -- Total distributions (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) -- Net asset value, end of period $10.42 $18.77 $14.92 $12.97 $14.50 $14.09 $9.80 Total return (29.90%) 29.63%* 24.90% (3.06%) 4.62% 47.49% $(22.81%)* Ratios/supplemental data: Net assets, end of period ($ million) $756.1 $1.647.3 $1,172.8 $819.7 $1,286.0 $815.4 $23.5 Ratio of expenses to average net assets 1.32% 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04% Ratio of net income (loss) to average net assets 1.95% 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02% Portfolio turnover rate 43% 61% 42% 26% 55% 21% 0%
- ----------------- * Ratios have been annualized. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. 9
INTERNATIONAL SMALL CAP FUND CLASS I ------------------------------------------------------- Year Eleven Year Ended Months Ended Ended Sept. 30, 1998 Sept. 30, 1997 Oct. 31, 1996 -------------- -------------- ------------- Net Asset Value, beginning of period $12.20 $11.41 $10.00 Income from investment operations: Net investment income (loss) 0.18 0.13 0.04 Net gains or losses on securities (both realized and unrealized) (4.09) 1.10 1.37 Total from investment operations (3.91) 1.23 1.41 Less distributions: Dividends (from net investment income) (0.06) (0.08) 0.00 Distributions (from capital gains) (1.34) (0.36) 0.00 Total distributions (1.40) (0.44) 0.00 Net asset value, end of period $6.89 $12.20 $11.41 Total return (35.20%) 12.07%* 14.15% Ratios/supplemental data: Net assets, end of period ($million) $51.8 $66.0 $39.8 Ratio of expenses to average net assets 1.96% 1.93%* 2.50%(a) Ratio of net income (loss) to average net assets 2.17% 1.23%* 0.65%(b) Portfolio turnover rate 69% 63% 27%
- -------------- * Ratios have been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, the ratio of expenses to average net assets would have been 2.65%. (b) Computed giving effect to the Adviser's expense limitation undertaking. 10 For the Funds named below, bank borrowing activity for the 11 months ended September 30, 1997 was as follows:
Average Debt Maximum Amount Weighted Outstanding Outstanding Debt Outstanding Average during Period during Period at End of Period Interest Rate (in thousands) (in thousands) ------------------------------------------------------------------ Select Fund $0 6.217% $126 $10,000 Small Cap Fund 0 6.318 198 19,000 Equity and Income Fund 0 6.125 6 1,000
For the Funds named below, bank borrowing activity for the year ended September 30, 1998 was as follows:
Average Debt Maximum Amount Weighted Outstanding Outstanding Debt Outstanding Average during Period during Period at End of Period Interest Rate (in thousands) (in thousands) ------------------------------------------------------------------ International Small Cap Fund $0 6.688% $3 $1,000
11 THE FUNDS The mutual funds offered by this prospectus are OAKMARK FUND, SELECT FUND, SMALL CAP FUND, EQUITY AND INCOME FUND, INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND. Each of the Funds is a no-load "mutual fund" and, except for Select Fund, is a diversified Fund. No Fund imposes any commission or charge when shares are purchased, nor bears any 12b-1 charges. The Funds are series of Harris Associates Investment Trust (the "Trust"), which is authorized to issue shares in separate series. Each Fund is a separate portfolio of securities and other assets, with its own investment objective and policies. The Funds are available for purchase by residents of the United States, Puerto Rico, Guam and the U.S. Virgin Islands. Each Fund offers two classes of shares: Class I Shares and Class II Shares. Each class is offered at net asset value per share of that class. Class I Shares of each Fund are offered to members of the general public. The shares of each Fund that were outstanding on January 1, 1999 have been designated Class I Shares of that Fund. Class II Shares of each Fund are offered to certain 401(k) plans and other tax-qualified plans. Class II Shares of the Fund pay a service fee at the annual rate of .25% of the average net assets of Class II Shares of the Fund for the administrative services associated with the administration of such tax-qualified retirement plans. Harris Associates L.P. (the "Adviser") provides investment advisory and administrative services to the Funds. HOW THE FUNDS INVEST The chief consideration in the selection of equity securities for each Fund is the size of the discount of market price relative to the economic value, or underlying value, of the security as determined by the Adviser. The economic or underlying value of a security generally represents the per share net present value of the issuer's estimated long-term cash flows. The Funds may also employ the techniques described below under "Investment Techniques." OAKMARK FUND seeks long-term capital appreciation by investing primarily in equity securities. Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. The Fund invests principally in securities of U.S. issuers. However, it may invest up to 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors - International Investing" below. SELECT FUND seeks long-term capital appreciation by investing primarily in a non-diversified portfolio of equity securities. The Fund invests principally in securities of U.S. issuers. However, it may invest up to 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors - International Investing" below. As a "non-diversified" fund, the Fund is not limited under the Investment Company Act of 1940 in the percentage of its assets that it may invest in any one issuer. See "Risk Factors - Non- diversification of Select Fund." SMALL CAP FUND seeks long-term capital appreciation by investing primarily in equity securities. Under normal market conditions, the Fund invests at least 65% of its total assets, valued at the time of investment, in "small cap companies," as defined below under "How the Funds Invest - Small Cap Companies." Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. 12 The Fund invests principally in securities of U.S. issuers. However, it may invest up to 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. There are no geographic limits on the Fund's foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors - International Investing" below. At September 30, 1998 the median market capitalization of the Fund's portfolio was $365.3 million. See "How the Funds Invest - Median Market Capitalization" below. EQUITY AND INCOME FUND seeks high current income and preservation and growth of capital by investing in a diversified portfolio of equity and fixed-income securities. The Fund is intended to present a balanced investment program between growth and income. It generally invests approximately 50-65% of its total assets in equity securities, including securities convertible into equity securities, 25-50% of its assets in U.S. Government securities and debt securities rated at time of purchase within the two highest grades assigned by Moody's Investors Service, Inc. ("Moody's") (Aaa or Aa) or by Standard & Poor's Corporation ("S&P") (AAA or AA), and up to 20% in unrated or lower rated debt securities (measured at market value at the time of investment). The Fund invests principally in securities of U.S. issuers. However, it may invest up to 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, including foreign government obligations and foreign equity and debt securities that are traded over-the-counter or on foreign exchanges. The Fund has no geographic limits on its foreign investments, but the Fund does not expect to invest more than 5% of its assets in securities of issuers based in emerging markets. See "Risk Factors - International Investing" below. INTERNATIONAL FUND seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers. Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. The Adviser considers the relative political and economic stability of the issuer's home country, the ownership structure of the company, and the company's accounting practices in evaluating the potential rewards and risks of an investment opportunity. The Fund may invest in securities traded in mature markets (for example, Japan, Canada and the United Kingdom), in less developed markets (for example, Mexico and Thailand), and in selected emerging markets (such as Peru and India). Investments in securities of non-U.S. issuers, especially those traded in less developed or emerging markets, present additional risk. There are no limits on the Fund's geographic asset distribution, but, to provide adequate diversification, the Fund ordinarily invests in the securities markets of at least five countries outside the United States. See "Risk Factors - International Investing" below. The equity securities in which the Fund may invest include common and preferred stocks and warrants or other similar rights and convertible securities. The Fund may purchase securities of non-U.S. issuers directly or in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), or other securities representing underlying shares of non-U.S. issuers. Under normal market conditions, the Fund invests at least 65% of its total assets, valued at the time of investment, in securities of non-U.S. issuers. INTERNATIONAL SMALL CAP FUND seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers with small market capitalizations. Under normal market conditions, the Fund invests at least 65% of its total assets, valued at the time of investment, in "small cap companies," as defined below under "Small Cap Companies." Although income is considered in the selection of securities, the Fund is not designed for investors whose primary investment objective is income. The Adviser considers the relative political and economic stability of the issuer's home country, the ownership structure of the company, and the company's accounting practices in evaluating the potential rewards and risks of an investment opportunity. The Fund invests in securities traded in both developed and emerging markets. Investments in securities of non-U.S. issuers, especially those traded in less developed or emerging markets, present additional risks. There are no limits on the Fund's geographic asset distribution, but, to provide adequate diversification, the Fund ordinarily invests in the securities markets of at least five countries outside the United States. See "Risk Factors - International Investing" below. 13 The equity securities in which the Fund may invest include common and preferred stocks and warrants or other similar rights and convertible securities. The Fund may purchase securities of non-U.S. issuers directly or in the form of ADRs, EDRs, GDRs, or other securities representing underlying shares of non-U.S. issuers. At September 30, 1998 the median market capitalization of the Fund's portfolio was $125.3 million. See "How the Funds Invest - Median Market Capitalization" below. OTHER STRATEGIES. Under normal market conditions, each Fund expects to be substantially fully invested in the types of securities described in the preceding paragraphs. Within the limitations described in this prospectus, the percentages of Fund assets invested in various types of securities will vary in accordance with the judgment of the Adviser. To the extent that investments meeting a Fund's criteria for investment are not available, or when the Adviser considers a temporary defensive posture advisable, the Fund may invest without limitation in high-quality corporate debt obligations of U.S. companies or U.S. government obligations, or may hold cash in domestic or foreign currencies or invest in domestic or foreign money market securities. In seeking to achieve its investment objective, each Fund ordinarily invests on a long-term basis, but on occasion may also invest on a short-term basis (for example, where short-term perceptions have created a significant gap between price and value). Occasionally, securities purchased on a long-term basis may be sold within 12 months after purchase in light of a change in the circumstances of a particular company or industry or in general market or economic conditions. SMALL CAP COMPANIES. As used in this prospectus a "small cap company" is one whose market capitalization is no larger than the largest market capitalization of the companies included in the S&P Small Cap 600 Index (the "S&P Index") as most recently reported. The market capitalization of a company is the total market value of its outstanding common stock. The S&P Index is a broad index of 600 small capitalization companies. As of September 30, 1998 the largest market capitalization of companies included in the S&P Index was $3.2 billion. MEDIAN MARKET CAPITALIZATION. The "median market capitalization" of the portfolio of Small Cap Fund or of International Small Cap Fund stated above is a measure of the size of the companies in which the Fund invests. One-half of the Fund's equity investments as of the stated date were in securities of companies with market capitalizations at or below the stated median market capitalization of the Fund's portfolio. INVESTMENT TECHNIQUES EQUITY SECURITIES. The equity securities in which each Fund may invest include common and preferred stocks and warrants or other similar rights and convertible securities. The chief consideration in the selection of equity securities for each Fund is the size of the discount of market price relative to the economic value of the security as determined by the Adviser. The Adviser's investment philosophy for those investments is predicated on the belief that over time market price and value converge and that investment in securities priced significantly below long-term value presents the best opportunity to achieve long-term capital appreciation. The Adviser uses several qualitative and quantitative methods in analyzing economic value, but considers the primary determinant of value to be the enterprise's long-run ability to generate cash for its owners. Once the Adviser has determined that a security is undervalued, the Adviser will consider it for purchase by a Fund, taking into account the quality and motivation of the management, the firm's market position within its industry and its degree of pricing power. The Adviser believes that the risks of equity investing are often reduced if management's interests are strongly aligned with the interests of its stockholders. DEBT SECURITIES. Each Fund may invest in debt securities of both governmental and corporate issuers. Each of Oakmark Fund, Select Fund and Small Cap Fund may invest up to 25% of its assets, Equity and Income Fund may invest up to 20% of its assets, and International Fund and International Small Cap Fund may invest up to 10% of its assets (valued at the time of investment), in debt securities that are rated below investment grade, without a minimum rating requirement. Lower-grade debt securities (commonly called "junk bonds") are obligations of issuers rated BB or lower by S&P or Ba or lower by Moody's. Lower-grade debt securities are considered speculative and may be in poor standing or actually in default. Medium-grade debt securities are those rated BBB by S&P or Baa by Moody's. Securities so rated are considered to have speculative characteristics. See "Risk Factors." A description of the ratings used by S&P and Moody's is included as an appendix to the Statement of Additional Information. 14 SHORT SALES AGAINST THE BOX. Each Fund may sell short securities the Fund owns or has the right to acquire without further consideration, a technique called selling short "against the box." Short sales against the box may protect the Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such securities should be wholly or partially offset by a corresponding loss in the short position. Short sales against the box may be used to lock in a profit on a security when, for tax reasons or otherwise, the Adviser does not want to sell the security. The Trust does not currently expect that more than 20% of any Fund's total assets would be involved in short sales against the box. For a more complete explanation, please refer to the Statement of Additional Information. CURRENCY EXCHANGE TRANSACTIONS. Each Fund may engage in currency exchange transactions either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks and broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. The Funds' forward currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or actual or anticipated portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to a specific receivable or payable of a Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to an actual or anticipated portfolio security position denominated or quoted in a particular currency. Each Fund may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in such currency. When a Fund owns or anticipates owning securities in countries whose currencies are linked, the Adviser may aggregate such positions as to the currency hedged. Although forward contracts may be used to protect a Fund from adverse currency movements, the use of such hedges may reduce or eliminate the potentially positive effect of currency revaluations on the Fund's total return. OTHER INVESTMENT COMPANIES. Certain markets are closed in whole or in part to equity investments by foreigners. A Fund may be able to invest in such markets solely or primarily through governmentally authorized investment vehicles or companies. Each Fund generally may invest up to 10% of its assets in the aggregate in shares of other investment companies and up to 5% of its assets in any one investment company, as long as no investment represents more than 3% of the outstanding voting stock of the acquired investment company at the time of investment. Investment in another investment company may involve the payment of a premium above the value of such issuers' portfolio securities, and is subject to market availability. The Trust does not intend to invest in such vehicles or funds unless, in the judgment of the Adviser, the potential benefits of the investment justify the payment of any applicable premium or sales charge. As a shareholder in an investment company, a Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time the Fund would continue to pay its own management fees and other expenses. WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. Each Fund may purchase securities on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis in order to hedge against anticipated changes in interest rates and prices. There is a risk that the securities may not be delivered or that they may decline in value before the settlement date. PRIVATE PLACEMENTS. Each Fund may acquire securities in private placements. Because an active trading market may not exist for such securities, the sale of such securities may be subject to delay and additional costs. No Fund will purchase such a security if more than 15% of the value of such Fund's net assets would be invested in illiquid securities. LENDING OF PORTFOLIO SECURITIES. Each Fund except Oakmark Fund may lend its portfolio securities to broker-dealers and banks to the extent indicated in restriction 5 under "Restrictions on the Funds' Investment." Any such loan must be continuously secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to the market value of the securities loaned by a Fund. The Fund would continue to 15 receive the equivalent of the interest or dividends paid by the issuer on the securities loaned, and would also receive an additional return that may be in the form of a fixed fee or a percentage of the earnings on the collateral. The Fund would have the right to call the loan and obtain the securities loaned at any time on notice of not more than five business days. In the event of bankruptcy or other default of the borrower, the Fund could experience ^ delays in liquidating the loan collateral or recovering the loaned securities and incur expenses related to enforcing its rights. In addition, there could be a decline in the value of the collateral or in the value of the securities loaned while the Fund seeks to enforce its rights thereto^ and the Fund could experience subnormal levels of income and lack of access to income during this period^. OPTIONS. Each Fund may purchase both call options and put options on securities. A call or put option is a contract that gives the Fund, in return for a premium paid on purchase of the option, the right to buy from, or to sell to, the seller of the option the security underlying the option at a specified exercise price during the term of the option. CASH RESERVES. To meet liquidity needs or for temporary defensive purposes, each Fund may hold cash in domestic and foreign currencies and may invest in domestic and foreign money market securities. RISK FACTORS GENERAL. All investments, including those in mutual funds, have risks, and no investment is suitable for all investors. Each Fund is intended for long-term investors. Only Equity and Income Fund is intended to present a balanced investment program between growth and income. SMALL CAP COMPANIES. During some periods, the securities of small cap companies, as a class, have performed better than the securities of large companies, and in some periods they have performed worse. Stocks of small cap companies tend to be more volatile and less liquid than stocks of large companies. Small cap companies, as compared to larger companies, may have a shorter history of operations, may not have as great an ability to raise additional capital, may have a less diversified product line making them susceptible to market pressure, and may have a smaller public market for their shares. INTERNATIONAL INVESTING. International Fund and International Small Cap Fund provide long-term investors with an opportunity to invest a portion of their assets in a diversified portfolio of securities of non-U.S. issuers. Each of the other Funds may invest up to 25% (or 10% in the case of Equity and Income Fund) of its assets in securities of non-U.S. issuers. International investing allows you to achieve greater diversification and to take advantage of changes in foreign economies and market conditions. Many foreign economies have, from time to time, grown faster than the U.S. economy, and the returns on investments in these countries have exceeded those of similar U.S. investments, although there can be no assurance that these conditions will continue. You should understand and consider carefully the greater risks involved in investing internationally. Investing in securities of non-U.S. issuers, positions in which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve both opportunities and risks not typically associated with investing in U.S. securities. These include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers and issuers of securities; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign subcustodial arrangements. Although the Funds try to invest in companies and governments of countries having stable political environments, there is the possibility of restriction of foreign investment, expropriation of assets, or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social or diplomatic developments that could affect investment in these nations. Economies in individual emerging markets may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many emerging market countries have experienced high rates of inflation for many years, which has had and may continue to have very negative effects on the economies and securities markets of those countries. 16 The securities markets of emerging countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of the United States and other more developed countries. Disclosure and regulatory standards in many respects are less stringent than in the U.S. and other major markets. There also may be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets, and enforcement of existing regulations has been extremely limited. Any Fund may invest in ADRs, EDRs or GDRs that are not sponsored by the issuer of the underlying security. To the extent it does so, the Fund would probably bear its proportionate share of the expenses of the depository and might have greater difficulty in receiving copies of the issuer's shareholder communications than would be the case with a sponsored ADR, EDR or GDR. The cost of investing in securities of non-U.S. issuers is higher than the cost of investing in U.S. securities. International Fund and International Small Cap Fund provide an efficient way for an individual to participate in foreign markets, but their expenses, including advisory and custody fees, are higher than for a typical domestic equity fund. The European Monetary Union has established a common European currency for participating countries called the "euro." Each participating country will supplement its existing currency with the euro effective January 1, 1999 and replace its existing currency with the euro on July 2, 2002. The consequences of the euro conversion for foreign exchange rates, interest rates and the value of European securities are currently unclear. Uncertainties include whether operational systems of banks and other financial institutions will be able to deal with the euro conversion both before and after the effective date; whether exchange rates for existing currencies and the euro will be applied successfully; whether suitable clearing and settlement systems will be created for the new currency; how certain financial contracts that refer to existing currencies rather than the euro will be interpreted; and whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time. These and other factors, including economic and political risks, could cause market disruptions before or after the introduction of the euro, and could adversely affect the value of securities held by International Fund and International Small Cap Fund. DEBT SECURITIES. As noted above, each Fund may invest to a limited extent in debt securities that are rated below investment grade or, if unrated, are considered by the Fund's investment adviser to be of comparable quality. A decline in prevailing levels of interest rates generally increases the value of debt securities in a Fund's portfolio, while an increase in rates usually reduces the value of those securities. As a result, to the extent that a Fund invests in debt securities, interest rate fluctuations will affect its net asset value, but not the income it receives from its debt securities. In addition, if the debt securities contain call, prepayment or redemption provisions, during a period of declining interest rates, those securities are likely to be redeemed, and the Fund would probably be unable to replace them with securities having as great a yield. Investment in medium- or lower-grade debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt this market and adversely affect the value of outstanding bonds and the ability of the issuers to repay principal and interest. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Furthermore, medium- and lower-grade debt securities tend to be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and the Fund may have greater difficulty selling its portfolio securities. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. NON-DIVERSIFICATION OF SELECT FUND. As a "non-diversified" fund, Select Fund is not limited under the Investment Company Act of 1940 in the percentage of its assets that it may invest in any one issuer. However, the Fund intends to comply with the diversification standards applicable to regulated investment companies under the Internal Revenue Code of 1986. In order to meet those standards, among other requirements, at the close of each quarter of its taxable year (a) at least 50% of the value of the Fund's total assets must be represented by one or more of the following: (i) cash and cash items, including receivables; (ii) U.S. Government securities; (iii) securities of other regulated investment companies; and (iv) securities (other than 17 those in items (ii) and (iii) above) of any one or more issuers as to which the Fund's investment in an issuer does not exceed 5% of the value of the Fund's total assets (valued at the time of investment); and (b) not more than 25% of its total assets (valued at the time of investment) may be invested in the securities of any one issuer (other than U.S. Government securities or securities of other regulated investment companies). Since Select Fund may invest more than 5% of its assets in a single portfolio security, the appreciation or depreciation of such a security will have a greater impact on the net asset value of the Fund, and the net asset value per share of the Fund can be expected to fluctuate more than would the net asset value of a comparable "diversified" fund. See Investment Restriction number 1, below. CHANGE IN OBJECTIVE. Each Fund's investment objective may be changed by the board of trustees without shareholder approval. Shareholders would receive at least 30 days' written notice of any change in a Fund's objective. If there is a change in investment objective, you should consider whether the Fund remains an appropriate investment in light of your then current financial position and needs. There can be no assurance that any Fund will achieve its investment objective. YEAR 2000. The smooth operation of the Funds depends on the ability of the Funds' custodian and the other service providers to the Funds to provide services without interruption. Some computer systems used today are unable to process date-related information because they are not programmed to distinguish between the year 2000 and the year 1900. The Adviser, like many other businesses, is taking steps to ensure that the computer systems on which the smooth operation of the Funds depends will continue to function properly. The Adviser is working with the service providers to the Funds, such as the custodian and various broker-dealers through which portfolio securities of the Funds are traded, to arrange for testing of internal and external systems. Based on the information currently available, the Adviser does not anticipate any material impact on the delivery of services currently provided. There can be no guarantee, however, that the steps taken by the Adviser in preparation for the year 2000 will be sufficient to avoid any adverse impact on the Funds. RESTRICTIONS ON THE FUNDS' INVESTMENTS No Fund will: 1. [THIS RESTRICTION DOES NOT APPLY TO SELECT FUND] In regard to 75% of its assets, invest more than 5% of its assets (valued at the time of investment) in securities of any one issuer, except in U.S. government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer, or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Borrow money except from banks for temporary or emergency purposes in amounts not exceeding 10% of the value of the Fund's assets at the time of borrowing [the Fund will not purchase additional securities when its borrowings, less receivables from portfolio securities sold, exceed 5% of total assets]; 4. Issue any senior security except in connection with permitted borrowings; or 5. Make loans, except that each Fund may invest in debt obligations and repurchase agreements, * and each Fund other than Oakmark Fund may lend its portfolio securities [a Fund will not lend securities having a value in excess of 33% of its assets, including collateral received for loaned securities (valued at the time of any loan)]. - ----------------------------- * 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. 18 These restrictions, except the bracketed portions and the footnote, are "fundamental" and cannot be changed as to a Fund without the approval of a "majority of the outstanding voting securities" of that Fund as defined in the Investment Company Act of 1940. All of the Funds' investment restrictions, including additional fundamental restrictions, are set forth in the Statement of Additional Information. PURCHASING ^ SHARES ^ The Funds are available for purchase by residents of the United States, Puerto Rico, Guam and the U.S. Virgin Islands. HOW TO PURCHASE SHARES - CLASS I The following purchase procedures apply ONLY TO CLASS I SHARES. You may purchase shares of any of the Funds by check, by wire transfer, by electronic transfer or by exchange. There are no sales commissions or underwriting discounts. The minimum initial investment for each Fund is $1,000 ^ or $500 in the case of an ^ Education IRA or participation in the Automatic Investment Plan or Payroll Deduction Plan. Minimum subsequent investments are $100, except for reinvestments of dividends and capital gain distributions. ^ BY CHECK. To make an initial purchase of shares, complete and sign the New Account Registration Form and mail it to the Trust's transfer agent, State Street Bank and Trust Company, Attention: Oakmark Funds, P.O. Box 8510, Boston, Massachusetts 02266-8510, together with a check for the total purchase amount payable to State Street Bank and Trust Company. To make subsequent purchases of shares, submit a check along with the stub from your Fund account confirmation statement or ^ submit a check and a note indicating the amount of the purchase, your account number, and the name in which your account is registered^. THE TRUST WILL NOT ACCEPT CASH, DRAFTS, "STARTER" CHECKS, THIRD PARTY CHECKS, OR CHECKS DRAWN ON MONEY MARKET ACCOUNTS OR BANKS OUTSIDE OF THE UNITED STATES. If your order to purchase shares of a Fund is canceled because your check does not clear, you will be responsible for any resulting loss incurred by the Fund. BY WIRE TRANSFER. You may also purchase shares by instructing your bank to wire transfer money to the Trust's custodian bank. Your bank may charge you a fee for sending the wire transfer. IF YOU ARE OPENING A NEW ACCOUNT BY WIRE TRANSFER, YOU MUST FIRST TELEPHONE THE TRANSFER AGENT AT 1-800-OAKMARK (CHOOSE MENU OPTION 2) TO REQUEST AN ACCOUNT NUMBER AND TO FURNISH YOUR SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER. Neither the Funds nor the Trust will be responsible for the consequences of delays, including delays in the banking or Federal Reserve wire transfer systems. BY TELEPHONE CALL AND ELECTRONIC TRANSFER. If you have an established Fund account with an established electronic transfer privilege, you may pay for subsequent purchases of shares by having the purchase price transferred electronically from your bank account by calling the Funds' ^ Voice Response System ("OAKLINK") at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800-OAKMARK and choosing menu option 2. You may not open a new account through electronic transfer. If your order to purchase shares of a Fund is canceled because your electronic transfer does not clear, you will be responsible for any resulting loss incurred by the Fund. BY AUTOMATIC INVESTMENT. You may authorize the monthly or quarterly subsequent purchase of shares of a Fund for a specified dollar amount to be transferred electronically from your bank account each month or quarter ^. You may choose the Automatic Investment Plan on your New Account Registration Form. If you choose the Automatic Investment Plan, your minimum initial investment is $500. BY PAYROLL DEDUCTION. You may also make subsequent purchases of shares of a Fund on a monthly, bi-monthly or quarterly basis by authorizing your employer to deduct from your paycheck a specified dollar amount (minimum subsequent investment $100 per Fund). To enroll in the Payroll Deduction Plan, you must complete the Payroll Deduction Plan Application. If you choose the Payroll Deduction Plan, your minimum initial investment is $500. 19 BY EXCHANGE. You may purchase shares of a Fund by exchange of shares from another Fund or by exchange of "Oakmark Units." (Oakmark Units are Service Units of GS Short Duration Tax-Free Fund, a portfolio of Goldman Sachs Trust, or ILA Service Units of Government Portfolio or Tax-Exempt Portfolio, each a portfolio of Goldman Sachs-Institutional Liquid Assets). You may initiate a purchase by exchange either by calling the Funds' ^ Voice Response System, OAKLINK, at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800- OAKMARK and choosing menu option 2 (if the telephone exchange privilege has been established on the account from which the exchange is being made), or by mail, or you may authorize a monthly or quarterly redemption of a specified dollar amount of Oakmark Units to be used to purchase shares of a Fund. AN EXCHANGE TRANSACTION IS A SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN CAPITAL GAIN OR LOSS. EXCEPT FOR AUTOMATIC EXCHANGES FROM OAKMARK UNITS, YOU MAY NOT MAKE MORE THAN FOUR EXCHANGES FROM ANY FUND IN ANY CALENDAR YEAR, AND THE TRUST MAY REFUSE REQUESTS FOR MORE FREQUENT EXCHANGES. Restrictions apply; please review the information under ^"Redeeming Shares - How to Redeem Shares - Class I - By Exchange." PURCHASES THROUGH INTERMEDIARIES. You may purchase or redeem shares of the Funds through certain ^ broker-dealers, banks or other intermediaries ("Intermediaries"). These Intermediaries may charge for their services. Any such charges could constitute a substantial portion of a smaller account, and may not be in your best interest. You may purchase or redeem shares of the Funds directly from or with the Trust without any charges other than those described in this prospectus. An investment in a Fund is not a deposit in any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. An Intermediary, who accepts orders that are processed at the net asset value next determined after receipt of the order by the Intermediary, accepts such orders as an authorized agent of the Trust. The Intermediary is required to segregate any orders received on a business day after the close of regular session trading on the New York Stock Exchange and transmit those orders separately for execution at the net asset value next determined after that business day. PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of ^ Class I Shares of a Fund is made at ^ the net asset value of Class I Shares (see "Net Asset Value") next determined as follows: A purchase BY CHECK, WIRE TRANSFER OR ELECTRONIC TRANSFER is made at the net asset value next determined after receipt by the Trust's transfer agent of your check or wire transfer or your electronic transfer investment instruction. A purchase THROUGH AN INTERMEDIARY that IS NOT an authorized agent of the Trust for the receipt of orders is made at the net asset value next determined after receipt of your order by the Trust's transfer agent. A purchase THROUGH AN INTERMEDIARY that IS an authorized agent of the Trust for the receipt of orders is made at the net asset value next determined after receipt of the order by the Intermediary. HOW TO PURCHASE SHARES - CLASS II Class II Shares are offered to certain 401(k) and other tax-qualified retirement plans. Class II Shares pay a service fee for administrative services associated with the administration of such retirement plans. IF YOU INVEST IN CLASS II SHARES, THE PROCEDURES BY WHICH YOU CAN PURCHASE SHARES ARE GOVERNED BY THE TERMS OF YOUR RETIREMENT PLAN. CALL YOUR PLAN SPONSOR OR SERVICE PROVIDER FOR INFORMATION ON HOW TO PURCHASE SHARES. To purchase Class II Shares, you must do so through an Intermediary, such as a broker-dealer, bank, retirement plan service provider or retirement plan sponsor. The Intermediary accepts purchase orders as an authorized agent of the Trust. The Intermediary is required to segregate any orders received on a business day after the close of regular session trading on the New York Stock Exchange and transmit those orders separately for execution at the net asset value next determined after that business day. An investment in a Fund is not a deposit in any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 20 PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of Class II Shares of a Fund through an Intermediary is made at the net asset value of Class II Shares next determined after receipt of the order by the Intermediary (see "Net Asset Value"). GENERAL PURCHASING POLICIES. The Trust cannot accept a purchase order specifying a particular purchase date or price per share. Each purchase order for a Fund must be accepted by an authorized agent or officer of the Trust or its transfer agent and is not binding until accepted and entered on the books of that Fund. Once your purchase order has been accepted, you may not cancel or revoke it; however, you may redeem the shares. The Trust reserves the right not to accept any purchase order that it determines not to be in the best interest of the Trust or of a Fund's shareholders. The Trust will not be responsible for any loss resulting from an unauthorized transaction initiated by telephone if it or its transfer agent follows reasonable procedures designed to verify the identity of the caller. Those procedures may include recording the call, requesting additional information and sending written confirmation of telephone transactions. You should verify the accuracy of telephone transactions immediately upon receipt of your confirmation statement. REDEEMING SHARES HOW TO REDEEM SHARES - CLASS I The following redemption procedures apply ONLY TO CLASS I SHARES. BY MAIL. You may redeem all or any part of your shares of a Fund upon your written request delivered to the Trust's transfer agent, State Street Bank and Trust Company, Attention: Oakmark Funds, P.O. Box 8510, Boston, Massachusetts 02266-8510. Your redemption request must: (1) identify the Fund and give your account number; (2) specify the number of shares or dollar amount to be redeemed; and (3) be signed in ink by all account owners exactly as their names appear on the account registration. Your request must also INCLUDE A SIGNATURE GUARANTEE if any of the following situations applies: - your account registration has been changed within the last 30 days; - the redemption check is to be mailed to an address different from the one on your account (record address); - the redemption check is to be made payable to someone other than the registered account owner; or - you are instructing us to transmit the proceeds to a bank account that you have not previously designated as the recipient of such proceeds. You should be able to obtain a signature guarantee from a bank, securities broker-dealer, credit union (if authorized under state law), securities exchange or association, clearing agency or savings association, but not a notary public. The signature guarantee must include an ink-stamped guarantee for each signature on the redemption request and must include the name of the guarantor bank or firm and an authorized signature. Special rules apply to redemptions by corporations, trusts and partnerships. In the case of a corporation, the request must be signed in the name of the corporation by an officer whose title must be stated, and must be accompanied by a bylaw provision or resolution of the board of directors, certified within 60 days, authorizing the officer to so act. A redemption request from a partnership or a trust must be signed in the name of the partnership or trust by a general partner or a trustee and include a signature guarantee. If the trustee is not named in the account registration, a redemption request by a trust must also include evidence of the trustee's appointment as such (e.g., a certified copy of the relevant portions of the trust instrument). Under certain circumstances, before the shares can be redeemed, additional documents may be required in order to verify the authority of the person seeking to redeem. 21 BY TELEPHONE. You may redeem shares from your account by calling the Funds' ^ Voice Response System, OAKLINK, at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800-OAKMARK and choosing menu option 2. The proceeds may be sent by check to your registered address or you may request of the shareholder service representative that payment be made by wire transfer, or by electronic transfer, to a checking account previously designated by you at a bank that is a member of the Automated Clearing House. Redemption proceeds payable by wire transfer or by electronic transfer will normally be sent on the next business day after receipt of the redemption request. A redemption request received by telephone after 4 p.m. eastern time (or after the close of regular session trading on the New York Stock Exchange if the NYSE closes before 4 p.m.) is deemed received on the next business day. You may not redeem by telephone shares held in an IRA account or an account for which you have changed the address within the preceding 30 days. BY EXCHANGE. You may redeem all or any portion of your shares of a Fund or of Oakmark Units and use the proceeds to purchase shares of any of the other Funds or Oakmark Units if your signed, properly completed Registration Form is on file. AN EXCHANGE TRANSACTION IS A SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN CAPITAL GAIN OR LOSS. EXCEPT FOR AUTOMATIC EXCHANGES FROM OAKMARK UNITS, YOU MAY NOT MAKE MORE THAN FOUR EXCHANGES FROM ANY FUND IN ANY CALENDAR YEAR, AND THE TRUST MAY REFUSE REQUESTS FOR MORE FREQUENT EXCHANGES. Before exchanging into Oakmark Units, you should obtain the prospectus relating to the Oakmark Units from the Adviser and read it carefully. The exchange privilege is not an offering or recommendation of Oakmark Units. The registration of the account to which you are making an exchange must be exactly the same as that of the account from which the exchange is made and the amount you exchange must meet any applicable minimum investment of the fund being purchased. An exchange may be made "By Mail" by following the redemption procedure described above under "By Mail" and indicating the fund to be purchased, except that a signature guarantee normally is not required. You may exchange among shares of the Funds and Oakmark Units "By Telephone" by calling the Funds' ^ Voice Response System, OAKLINK, at 1-800-OAKMARK and choosing menu options 1 then 3 and following the instructions, or by calling a shareholder service representative at 1-800-OAKMARK and choosing menu option 2. An exchange request received by telephone after 4 p.m. eastern time (or after the close of regular session trading on the New York Stock Exchange if the NYSE closes before 4 p.m.) is deemed received on the next business day. The Trust's general redemption policies apply to redemptions by Telephone Exchange. See "General Redemption Policies." The Trust reserves the right at any time without prior notice to suspend or terminate the use of the telephone exchange privilege by any person or class of persons. The Trust believes that use of the telephone exchange privilege by investors utilizing market-timing strategies adversely affects the Funds. THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS "MARKET-TIMERS." EXCEPT FOR AUTOMATIC EXCHANGES FROM OAKMARK UNITS, YOU MAY NOT MAKE MORE THAN FOUR EXCHANGES FROM ANY FUND IN ANY CALENDAR YEAR. Although the Trust will attempt to give prior notice of a suspension or termination of an exchange privilege when it is reasonably able to do so, the suspension or termination may be effective immediately, thereby preventing any uncompleted exchange. See ^"Redeeming Shares - How to Redeem Shares - Class I - By Exchange." During periods of volatile economic and market conditions, you may have difficulty placing your exchange by telephone call to a shareholder service representative; during such periods, you may wish to consider placing your exchange by mail or by telephone through the Funds' ^ Voice Response System, OAKLINK. 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. GENERAL REDEMPTION POLICIES. You may not cancel or revoke your redemption order once your instructions have been received and accepted. THE TRUST CANNOT ACCEPT A REDEMPTION REQUEST THAT SPECIFIES A PARTICULAR DATE OR PRICE FOR REDEMPTION OR ANY SPECIAL CONDITIONS. PLEASE TELEPHONE A SHAREHOLDER SERVICE REPRESENTATIVE AT 1-800-OAKMARK AND CHOOSE MENU OPTION 2 IF YOU HAVE ANY QUESTIONS ABOUT REQUIREMENTS FOR A REDEMPTION BEFORE SUBMITTING YOUR REQUEST. The Trust reserves the right to require a properly completed New Account Registration Form before making payment for shares redeemed. 22 The price at which your redemption order will be executed is the net asset value next determined after proper redemption instructions are received. See "Net Asset Value." Because the redemption price you receive depends upon ^ the net asset value per share at the time of redemption, it may be more or less than the price you originally paid for the shares and may result in a realized capital gain or loss. The Trust will generally mail redemption proceeds that are payable by check within seven days after proper instructions are received. If you attempt to redeem shares within 15 days after they have been purchased by check or electronic transfer, the Trust may delay payment of the redemption proceeds to you until it can verify that payment for the purchase of those shares has been (or will be) collected. To reduce such delays, the Trust recommends that your purchase be made by wire transfer through your bank. If you so request, the proceeds of your redemption may be paid by wire transfer to your bank account, provided the redemption proceeds are at least $250, but the cost of the wire transfer (currently $5) will be deducted from the redemption proceeds. A wire transfer will normally result in your bank account receiving "good funds" on the business day following the date of redemption of your shares. If the proceeds of your redemption are sent by electronic transfer, your bank will be notified of the transfer, but your bank account will not receive "good funds" for at least one week. Neither the Trust, its transfer agent, nor their respective officers, trustees, directors, employees, or agents will be responsible for the authenticity of instructions provided by telephone, nor for any loss, liability, cost or expense for acting upon instructions furnished thereunder if they reasonably believe that such instructions are genuine. The Funds employ procedures reasonably designed to confirm that instructions communicated by telephone are genuine. Use of any telephone redemption or exchange privilege authorizes the Funds and their transfer agent to tape-record all instructions to redeem. In addition, callers are asked to identify the account number and registration, and may be required to provide other forms of identification. Written confirmations of transactions are mailed promptly to the registered address; a legend on the confirmation requests the shareholder to review the transactions and inform the Fund immediately if there is a problem. If a Fund does not follow reasonable procedures for protecting shareholders against loss on telephone transactions, it may be liable for any loss due to unauthorized or fraudulent instructions. The Trust reserves the right at any time without prior notice to suspend, limit, modify or terminate any privilege or its use in any manner by any person or class. The Trust also reserves the right to redeem shares in any account and send the proceeds to the owner if the shares in the account do not have a value of at least $1,000. A shareholder would be notified that the account is below the minimum and allowed 30 days to bring the account value up to the minimum. Shares in any account you maintain with a Fund may be redeemed to the extent necessary to reimburse a Fund for any loss it sustains that is caused by you (such as losses from uncollected checks and electronic transfers or any Fund liability under the Internal Revenue Code provisions on backup withholding relating to your account). HOW TO REDEEM SHARES - CLASS II Class II Shares are offered to certain 401(k) and other tax-qualified retirement plans. IF YOU INVEST IN CLASS II SHARES, THE PROCEDURES BY WHICH YOU CAN REDEEM SHARES ARE GOVERNED BY THE TERMS OF YOUR RETIREMENT PLAN. CALL YOUR PLAN SPONSOR OR SERVICE PROVIDER FOR INFORMATION ON HOW TO REDEEM SHARES. To redeem Class II Shares, you must do so through an Intermediary, such as a broker-dealer, bank, retirement plan service provider or retirement plan sponsor. The Intermediary accepts redemption orders as an authorized agent of the Trust. The Intermediary is required to segregate any orders received on a business day after the close of regular session trading on the New York Stock Exchange and transmit those orders separately for execution at the net asset value next determined after that business day. 23 GENERAL REDEMPTION POLICIES. You may not cancel or revoke your redemption order once your instructions have been received and accepted. THE TRUST CANNOT ACCEPT A REDEMPTION REQUEST THAT SPECIFIES A PARTICULAR DATE OR PRICE FOR REDEMPTION OR ANY SPECIAL CONDITIONS. The price at which your redemption order will be executed is the net asset value next determined after proper redemption instructions are received. See "Net Asset Value." Because the redemption price you receive depends upon the net asset value per share at the time of redemption, it may be more or less than the price you originally paid for the shares and may result in a realized capital gain or loss. The Trust will generally mail redemption proceeds that are payable by check within seven days after proper instructions are received. Neither the Trust, its transfer agent, nor their respective officers, trustees, directors, employees, or agents will be responsible for the authenticity of instructions provided by telephone, nor for any loss, liability, cost or expense for acting upon instructions furnished thereunder if they reasonably believe that such instructions are genuine. The Funds employ procedures reasonably designed to confirm that instructions communicated by telephone are genuine. Use of any telephone redemption or exchange privilege authorizes the Funds and their transfer agent to tape-record all instructions to redeem. In addition, callers are asked to identify the account number and registration, and may be required to provide other forms of identification. If a Fund does not follow reasonable procedures for protecting shareholders against loss on telephone transactions, it may be liable for any loss due to unauthorized or fraudulent instructions. The Trust reserves the right at any time without prior notice to suspend, limit, modify or terminate any privilege or its use in any manner by any person or class. The Trust also reserves the right to redeem shares in any account and send the proceeds to the owner if the shares in the account do not have a value of at least $1,000. An Intermediary would be notified that the account is below the minimum and allowed 30 days to bring the account value up to the minimum. SHAREHOLDER SERVICES - CLASS I REPORTING TO SHAREHOLDERS. You will receive a confirmation statement reflecting each of your purchases and redemptions of shares of a Fund, as well as periodic statements detailing distributions made by that Fund. Shares purchased by reinvestment of dividends or pursuant to an automatic plan will be confirmed to you quarterly. In addition, the Trust will send you periodic reports showing Fund portfolio holdings and will provide you annually with tax information. IRA PLANS. The Trust has a master individual retirement account (IRA) plan that allows you to invest in ^ a Regular IRA ^, Roth IRA 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 Regular IRA a lump sum distribution from a qualified pension or profit-sharing plan, thereby postponing federal income tax on the distribution. If your employer has a Simplified Employee Pension Plan (SEP), you may establish a Regular IRA with the Fund to which your employer may contribute, subject to special rules designed to avoid discrimination. The Trust also offers an Educational IRA. Information on IRAs may be obtained by calling the transfer agent at 1-800-OAKMARK (choose menu option 3). ESTABLISHING PRIVILEGES. You may establish any of the shareholder privileges when you complete an application to purchase shares of a Fund. If you have already established an account and want to add or change a privilege, please call a shareholder service representative at 1-800-OAKMARK (choose menu option 2) to request the appropriate form. Your call will be recorded. ^ VOICE RESPONSE 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 Response System, OAKLINK, at 1-800-OAKMARK (choose menu option 1). Please note: you must have a personal identification ("PIN") number to access ^ OAKLINK. Call 1-800-OAKMARK (choose menu option 2) and speak with a customer service representative to obtain your PIN number. Your call will be recorded. 24 WEBSITE. To obtain information about your account, such as your account balance, your last transaction and account history, as well as the daily net asset value of your Fund, access our website at www.oakmark.com. ACCOUNT ADDRESS CHANGE. You may change your address of record for a Fund account by sending written instructions to the transfer agent at its address shown on the inside back cover of this prospectus or by telephoning a shareholder service representative at 1-800-OAKMARK (choose menu option 2). Your call will be recorded. ACCOUNT REGISTRATION CHANGE. You may change your account registration only by sending your written instructions with a signature guarantee to the transfer agent at its address shown on the inside back cover of this prospectus. See ^"Redeeming Shares - How to Redeem Shares - Class I - By Mail" regarding signature guarantees. QUESTIONS ABOUT YOUR ACCOUNT. If you have a question about your account, you may telephone a shareholder service representative at 1-800-OAKMARK (choose menu option 2). SHAREHOLDER SERVICES - CLASS II If you are a holder of Class II Shares, 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. NET ASSET VALUE The net asset value of a share of Class I or Class II of each Fund is determined by the Fund's custodian, State Street Bank and Trust Company, as of the close of regular session trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time) on any day on which that exchange is open for trading. 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. Trading in the portfolio securities of International Fund or International Small Cap Fund (and in any securities of non-U.S. issuers held by any other Fund) takes place in various markets on days and at times other than when the New York Stock Exchange is open for trading. Therefore, the calculation of net asset value does not take place at the same time as the prices of many of those portfolio securities are determined and the value of the Funds' portfolios may change on days when the Funds are not open for business and their shares may not be purchased or redeemed. Price information may be obtained by accessing the Funds' website at www.oakmark.com or by calling the 24-Hour Net Asset Value Hotline, 1-800-GROWOAK (1-800-476-9625). DISTRIBUTIONS Each Fund distributes to shareholders at least annually substantially all net investment income and any net capital gains realized from sales of the Fund's portfolio securities. All of your income dividends and capital gain distributions will be reinvested in additional shares unless you elect to have distributions paid by check. If any check from a Fund mailed to you is returned as undeliverable or is not presented for payment within six months, the Trust reserves the right to reinvest the check proceeds and future distributions in additional Fund shares. TAXES Dividends from investment income and net short-term capital gains are taxable as ordinary income. Distributions of long-term capital gains are taxable as long- term capital gains regardless of the length of time you have held your Fund shares. Distributions will be taxable to you whether received in cash or reinvested in Fund shares. You will be advised annually as to the source of your distributions for tax purposes. If you are not subject to income taxation, you will not be required to pay tax on amounts distributed to you. 25 If you purchase shares shortly before a record date for a distribution you will, in effect, receive a return of a portion of your investment, but the distribution will be taxable to you even if the net asset value of your shares is reduced below your cost. However, for federal income tax purposes your original cost would continue as your tax basis. If you redeem shares within six months, any loss on the sale of those shares would be long-term capital loss to the extent of any distributions of long-term capital gain that you have received on those shares. Investment income received by a Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. If a Fund pays nonrefundable taxes to foreign governments during the year, the taxes will reduce that Fund's dividends but will still be included in your taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. If (a) you fail to (i) furnish your properly certified social security or other tax identification number or (ii) certify that your tax identification number is correct or that you are not subject to backup withholding due to the underreporting of certain income, or (b) the Internal Revenue Service informs the Trust that your tax identification number is incorrect, the Trust may be required to withhold Federal income tax at a rate of 31% ("backup withholding") from certain payments (including redemption proceeds) to you. These certifications are contained in the New Account Registration Form that ^ should ^ be completed and ^ returned when ^ opening an account. The Fund must promptly pay to the IRS all amounts withheld. Therefore, it is usually not possible for the Fund to reimburse you for amounts withheld. You may claim the amount withheld as a credit on your Federal income tax return. This discussion of U.S. and foreign taxation applies only to U.S. shareholders and is not intended to be a full discussion of income tax laws and their effect. You may wish to consult your own tax adviser. MANAGEMENT OF THE FUNDS The board of trustees of the Trust has overall responsibility for the conduct of the affairs of the Funds and the Trust. The trustees serve indefinite terms of unlimited duration. The trustees appoint their own successors, provided that at least two-thirds of the trustees, after such appointment, have been elected by shareholders. Shareholders may remove a trustee, with or without cause, upon the declaration in writing or vote of two-thirds of the Trust's outstanding shares. A trustee may be removed with or without cause upon the written declaration of a majority of the trustees. The Funds' investments and business affairs are managed by the Adviser, Harris Associates L.P. The Adviser also serves as investment adviser to individuals, trusts, retirement plans, endowments and foundations, and manages numerous private partnerships. The Adviser was organized in 1995 to succeed to the business of a previous limited partnership, also named Harris Associates L.P. (the "Former Adviser"), that, together with its predecessor, had advised and managed mutual funds since 1970. The Adviser, a limited partnership, is managed by its general partner, Harris Associates, Inc. ("HAI"), a wholly-owned subsidiary of Nvest Companies, L.P. (formerly known as New England Investment Companies, ^ L.P.) ("Nvest"). Nvest owns all of the limited partnership interests in the Adviser. ^ Nvest is a publicly traded limited partnership that owns investment management firms and that is a subsidiary of Metropolitan Life Insurance Company. Subject to the overall authority of the board of trustees, the Adviser furnishes continuous investment supervision and management to the Funds and also furnishes office space, equipment and management personnel. For its services, the Adviser receives from each Fund the following advisory fee, stated as a percentage of average net assets: Equity and Income, .75%; Oakmark, 1% up to $2.5 billion, .95% on the next $1.25 billion, .90% on the next $1.25 billion, ^.85% over $5 billion and .80% over $10 billion; International, 1% up to $2.5 billion, .95% on the next $2.5 billion, and .90% over $5 billion; Select, 1% up to $1 billion, .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million, ^.80% over $2.5 billion and .75% over $5 billion; Small Cap, 1.25% up to $1 billion, 1.15% on the next $500 million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1% over $2.5 billion; International Small Cap, 1.25%. The Adviser has voluntarily agreed to reimburse 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: 1.5% in the case of Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund and 2% 26 in the case of International Fund and International Small Cap Fund. The Adviser has also voluntarily agreed to reimburse Class II Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class II Shares: Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund, 1.75% (1.50% + .25%); International Fund and International Small Cap Fund, 2.25% (2.00% + .25%). Each such agreement is effective through January 31, 2000, subject to earlier termination by the Adviser on 30 days' notice to the Fund. The Trust uses "Harris Associates" in its name and "Oakmark" in the names of the Funds by license from the Adviser and would be required to stop using those names if Harris Associates ceased to be the Adviser. The Adviser has the right to use the names for another enterprise, including another investment company. The investment objective and policies of Oakmark Fund were developed by the Adviser and by Robert J. Sanborn, C.F.A., the Fund's portfolio manager. Mr. Sanborn joined the Adviser as a portfolio manager and analyst in 1988. Prior thereto, he had been a portfolio manager/analyst with The State Teachers Retirement System of Ohio. Mr. Sanborn holds an M.B.A. in Finance from the University of Chicago (1983) and a B.A. in Economics from Dartmouth College (1980). The investment objective and policies of Select Fund were developed by the Adviser and by William C. Nygren, C.F.A., the Fund's portfolio manager. Mr. Nygren joined the Adviser as an analyst in 1983, and has been the Adviser's Director of Research since 1990. Prior thereto, he had been an analyst with Northwestern Mutual Life Insurance Company. Mr. Nygren holds an M.S. in Finance from the University of Wisconsin (1981) and a B.S. in Accounting from the University of Minnesota (1980). The investment objective and policies of Small Cap Fund were developed by the Adviser and by Steven J. Reid, C.F.A., the Fund's portfolio manager. Mr. Reid joined the Adviser as an accountant in 1980 and has been an investment analyst since 1985. He holds a B.A. in Business from Roosevelt University (1979). The investment objective and policies of Equity and Income Fund were developed by the Adviser and by Clyde S. McGregor, C.F.A., the Fund's portfolio manager. Mr. McGregor joined the Adviser as an analyst in 1981 and began managing portfolios in 1986. He holds an M.B.A. in Finance from the University of Wisconsin - Madison (1977) and a B.A. in Economics and Religion from Oberlin College (1974). The investment objective and policies of International Fund were developed by the Adviser and by David G. Herro, C.F.A., ^ and Michael J. Welsh, C.F.A. and C.P.A., the Fund's portfolio managers. Mr. Herro joined the Adviser in 1992 as a portfolio manager and analyst. Previously, he had been an international portfolio manager for the State of Wisconsin Investment Board and The Principal Financial Group. Mr. Herro holds an M.A. in Economics from the University of Wisconsin - Milwaukee (1985) and a B.S. in Business and Economics from the University of Wisconsin - Platteville (1983). Mr. Welsh joined the adviser as an international analyst in 1992. Previously he had been a senior associate, valuation services, with Coopers & Lybrand. Mr. Welsh holds an M.M. in Finance from Northwestern University (1993) and a B.S. in Accounting from the University of Kansas (1985). The investment objective and policies of International Small Cap Fund were developed by the Adviser and by David G. Herro and Michael J. Welsh, the Fund's portfolio ^ managers. Brokerage transactions for the Funds may be executed through Harris Associates Securities L.P., a registered broker-dealer and an affiliate of the Adviser. The trustees and officers of the Trust and their principal business activities during the past five years are:
NAME, POSITION(S) WITH TRUST AND AGE AT ^ PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS# SEPTEMBER 30, 1998 VICTOR A. MORGENSTERN* Chairman of the Board, HAI, since 1996 and Trustee and Chairman, ^ 56 President prior thereto; Chairman, Harris Partners, L.L.C., since September 1995 27 NAME, POSITION(S) WITH TRUST AND AGE AT ^ PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS# SEPTEMBER 30, 1998 MICHAEL J. FRIDUSS Principal, MJ Friduss & Associates Trustee, ^ 56 (telecommunications consultants) THOMAS H. HAYDEN Executive Vice President and director, Bozell Trustee, ^ 47 Worldwide, Inc. (advertising and public relations) CHRISTINE M. MAKI Vice President--Tax, Hyatt Corporation (hotel Trustee, ^ 38 management) since 1995; Tax Manager, Coopers & Lybrand (independent accountants), prior thereto ALLAN J. REICH Senior Partner and Chair of Corporate/Securities Trustee, ^ 50 Practice Group, D'Ancona & Pflaum (attorneys) MARV R. ROTTER General Manager, Rotter & Associates (financial Trustee, ^ 52 services) BURTON W. RUDER President, The Academy Group (venture capital Trustee, ^ 55 investments and transaction financing) PETER S. VOSS* Chairman and Chief Executive Officer, ^ Nvest Trustee, ^ 52 Companies, Inc. and ^ Nvest Companies, L.P. GARY N. WILNER, M.D. Senior Attending Physician, Evanston Hospital, Trustee, ^ 58 and Medical Director - CardioPulmonary Wellness Program, Evanston Hospital Corporation ROBERT LEVY President and Chief Executive Officer, HAI, since President, ^ 48 1997; Portfolio Manager, HALP prior thereto ROBERT J. SANBORN Portfolio Manager and Analyst, HALP Executive Vice President and Portfolio Manager (Oakmark Fund), ^ 40 DAVID G. HERRO Portfolio Manager and Analyst, HALP Vice President and Portfolio Manager (International Fund and International Small Cap Fund), ^ 38 CLYDE S. MCGREGOR Portfolio Manager and Analyst, HALP Vice President and Portfolio Manager (Equity and Income Fund), ^ 46 WILLIAM C. NYGREN Portfolio Manager and Director of Research, HALP Vice president and Portfolio Manager (Select Fund), ^ 40 STEVEN J. REID Portfolio Manager and Analyst, HALP Vice President and Portfolio Manager (Small Cap Fund), ^ 42 28 NAME, POSITION(S) WITH TRUST AND AGE AT ^ PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS# SEPTEMBER 30, 1998 MICHAEL J. WELSH Portfolio Manager and Analyst, HALP Vice President and Co-portfolio Manager (International Fund and International Small Cap Fund), ^ 35 ANN W. REGAN Director of Mutual Fund Operations, HALP, since Vice President-Shareholder 1996; Special Projects Assistant to the General Operations and Assistant Counsel, HALP, 1995-1996; Deputy Corporation Secretary, ^ 50 Counsel, City of Chicago, prior thereto Donald Terao Secretary, Treasurer and Chief Financial Officer, Vice President - Finance, HAI, since 1995; Controller, HALP, prior thereto ^ 49 ANITA M. NAGLER Vice President, HAI, since 1994; General Counsel, Secretary, ^ 42 HALP, since 1993^ KRISTI L. ROWSELL Assistant Treasurer, HALP, since 1996; Tax and Treasurer, ^ 32 Accounting Manager, HALP, 1995-1996; Vice President and Treasurer, Calamos Asset Management, Inc., prior thereto
- -------------------------------- # As used in this table, from and after September 29, 1995 "HALP" and "HAI" refer to the Adviser and the general partner of the Adviser, respectively, and prior to that date those terms refer to the Former Adviser and the general partner of the Former Adviser, respectively. * Messrs. Morgenstern and Voss are trustees who are "interested persons" (as defined in the Investment Company Act) of the Trust by virtue of their relationships with HAI. PERFORMANCE INFORMATION From time to time the Funds may quote total return figures in sales material. "Total Return" for a period is the percentage change in value during the period of an investment in Fund shares, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compound rate of change in value represented by the Total Return for the period. All of these calculations assume the reinvestment of dividends and distributions in additional shares of the Fund. Income taxes are not taken into account. In advertising and sales literature, a Fund's performance may be compared to market indexes and to the performance of other mutual funds. A Fund may also publicize its comparative performance as computed in rankings or ratings determined by independent services or publications including Lipper Analytical Services, Inc., Morningstar, Inc. and others. The performance of an investment in a Fund is a function of conditions in the securities markets, portfolio management and operating expenses, and past results are not necessarily indicative of future results. See "The Funds - How the Funds Invest" and "The Funds - Restrictions ^ on the Funds' Investments." Performance information supplied by a Fund may not provide a basis for comparison with other investments using different reinvestment assumptions or time periods. 29 OTHER INFORMATION The Funds are series of Harris Associates Investment Trust (the "Trust"), an open-end management investment company, and each Fund other than Select Fund is diversified. Prior to July 15, 1997, the name of Equity and Income Fund was ^ The Oakmark Balanced Fund. The International Small Cap Fund was formerly known as The Oakmark International Emerging Value Fund. The Trust is a Massachusetts business trust organized under an Agreement and Declaration of Trust ("Declaration of Trust") dated February 1, 1991, which provides that each shareholder shall be deemed to have agreed to be bound by the terms thereof. The Declaration of Trust may be amended by a vote of either the Trust's shareholders or its trustees. The Trust may issue an unlimited number of shares, in one or more series, each with its own investment objective, policies and restrictions, as the board of trustees may authorize. Any such series of shares may be further divided, without shareholder approval, into two or more classes of shares having such preferences or special or relative rights or privileges as the trustees may determine.^ The Funds are the only series of the Trust currently being offered. All shares issued will be fully paid and non-assessable and will have no preemptive or conversion rights. Each share of a series is entitled to participate pro rata in any dividends and other distributions declared by the board of trustees with respect to that series, and all shares of a series have equal rights in the event of liquidation of that series. The board of trustees has authorized the issuance of two classes of shares of each Fund. The shares of a Fund that were outstanding on January 1, 1999 are now known as Class I Shares of that Fund, and have the same rights and privileges that they had before they were designated as Class I. Class II Shares are new, and are offered to certain 401(k) plans and other tax-qualified retirement plans. The shares of each class represent an interest in the same portfolio of investments of a Fund. Each class has equal rights as to voting, redemption, dividends and liquidation. Each share is entitled to one vote on each matter presented to shareholders. As a business trust, the Trust is not required to hold annual shareholder meetings. However, special meetings may be called for purposes such as electing or removing trustees, changing fundamental policies, or approving an investment advisory contract. On any matter submitted to a vote of shareholders, shares are voted in the aggregate and not by individual series or class except when required by the Investment Company Act of 1940 or other applicable law, or when the board of trustees determines that the matter affects only the interests of one or more series or classes, in which case shareholders of the unaffected series or classes are not entitled to vote on such matters. All shares of the Trust are voted together in the election of trustees. Inquiries regarding the Funds should be directed to the Advisor or Transfer Agent of the Trust at its address or telephone number shown on the inside back cover. 30 THE OAKMARK FAMILY OF FUNDS 1998 PROSPECTUS INVESTMENT ADVISER Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602-3790 TRANSFER AGENT, DIVIDEND DISBURSING AGENT & CUSTODIAN State Street Bank and Trust Company Attention: Oakmark Funds P.O. Box 8510 Boston, Massachusetts 02266-8510 ^ INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP Chicago, Illinois LEGAL COUNSEL Bell, Boyd & Lloyd Chicago, Illinois FOR MORE INFORMATION Access our website at www.oakmark.com to obtain a prospectus and account application and other Fund information, and to obtain your shareholder account information, or call 1-800-OAKMARK (1-800-625-6275). [LOGO] WEBSITE AND 24-HOUR NET ASSET VALUE HOTLINE Access our website at www.oakmark.com to obtain the current net asset value per share of a Fund, or call 1-800-GROWOAK (1-800-476-9625). JANUARY 4, 1999 THE OAKMARK FAMILY OF FUNDS No-Load Funds Two North LaSalle Street Chicago, Illinois 60602-3790 Telephone 1-800-OAKMARK (1-800-625-6275) www.oakmark.com This Statement of Additional Information relates to The Oakmark Fund ("Oakmark Fund"), The Oakmark Select Fund ("Select Fund"), The Oakmark Small Cap Fund ("Small Cap Fund"), The Oakmark Equity and Income Fund, ("Equity and Income Fund"), The Oakmark International Fund ("International Fund") and The Oakmark International Small Cap Fund ("International Small Cap Fund"), each a series of Harris Associates Investment Trust (the "Trust"). It is not a prospectus but provides information that should be read in conjunction with the Funds' prospectus dated the same date as this Statement of Additional Information and any supplement thereto. You may obtain a prospectus or annual report from the Funds at no charge by writing, telephoning or accessing the Funds at their address, telephone number or website shown above. - ------------------------------------------------------------------------------- Table of Contents The Funds 2 Investment Restrictions 2 How the Funds Invest 4 Performance Information 12 Investment Adviser 15 Trustees and Officers 17 Principal Shareholders 18 Purchasing and Redeeming Shares 19 Additional Tax Information 20 Taxation of Foreign Shareholders 21 Portfolio Transactions 21 Declaration of Trust 25 Custodian 25 Independent Public Accountants 25 Appendix A -- Bond Ratings A-1 Appendix B -- Financial Statements B-1 - -------------------------------------------------------------------------------- THE FUNDS OAKMARK FUND seeks long-term capital appreciation by investing primarily in U.S. equity securities. SELECT FUND seeks long-term capital appreciation by investing primarily in a non-diversified portfolio of U.S. equity securities. SMALL CAP FUND seeks long-term capital appreciation by investing primarily in U.S. equity securities of companies with small market capitalizations. EQUITY AND INCOME FUND seeks high current income with regard for both preservation and growth of capital by investing primarily in a diversified portfolio of U.S. equity and fixed-income securities. INTERNATIONAL FUND seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers. INTERNATIONAL SMALL CAP FUND seeks long-term capital appreciation by investing primarily in equity securities of non-U.S. issuers with small market capitalizations. As of the date of this Statement of Additional Information, each Fund began offering a second class of shares, so that it now offers two 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 401(k) plans and other tax-qualified plans. Class II Shares of the Fund will pay a service fee at the annual rate of .25% of the average net assets of Class II Shares of the Fund for the administrative services associated with the administration of such tax-qualified retirement plans. 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 2 under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 7. Make loans, but this restriction shall not prevent the Fund from (a) investing in debt obligations, (b) investing in repurchase agreements,(1)or (c) [FUNDS OTHER THAN OAKMARK FUND] lending its portfolio securities [the Fund will not lend securities having a value in excess of 33% of its assets, including collateral received for loaned securities (valued at the time of any loan)]; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into forward foreign currency contracts; 10. Acquire securities of other investment companies except (a) by purchase in the open market, where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission or (b) where the acquisition results from a dividend or a merger, consolidation or other reorganization;(2) 11. Make margin purchases or participate in a joint or on a joint or several basis in any trading account in securities; 12. Invest in companies for the purpose of management or the exercise of control; 13. Invest more than 15% of its net assets (valued at the time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; 14. Invest in oil, gas or other mineral leases or exploration or development programs, although it may invest in marketable securities of enterprises engaged in oil, gas or mineral exploration; 15. [OAKMARK FUND, SELECT FUND, SMALL CAP FUND AND EQUITY AND INCOME FUND ONLY] Invest more than 2% of its net assets (valued at the time of investment) in warrants not listed on the New York or American stock exchanges, valued at cost, nor more than 5% of its net assets in all warrants, provided that warrants acquired in units or attached to other securities shall be deemed to be without value for purposes of this restriction; [INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND ONLY] Invest more than 10% of its net assets (valued at the time of investment) in - --------------------------- (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) 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 warrants valued at the lower of cost or market, provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction; 16. [OAKMARK FUND, SELECT FUND AND SMALL CAP FUND ONLY] Invest more than 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers (other than securities represented by American Depositary Receipts) [EQUITY AND INCOME FUND ONLY] Invest more than 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers (other than securities represented by American Depositary Receipts);(3) 17. Make short sales of securities unless the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, without payment of further consideration, into at least an equal amount of such securities; 18. Purchase a call option or a put option if the aggregate premium paid for all call and put options then held exceed 20% of its net assets (less the amount by which any such positions are in-the-money); 19. Invest in futures or options on futures, except that it may invest in forward foreign currency contracts. The first 10 restrictions listed above, except the bracketed portions, are fundamental policies and may be changed only with the approval of the holders of a "majority of the outstanding voting securities" of the respective Fund, which is defined in the Investment Company Act of 1940 (the "1940 Act") as the lesser of (i) 67% of the shares of the Fund present at a meeting if more than 50% of the outstanding shares of the Fund are present in person or represented by proxy or (ii) more than 50% of the outstanding shares of the Fund. Those restrictions not designated as "fundamental," and a Fund's investment objective, may be changed by the board of trustees without shareholder approval. A Fund's investment objective will not be changed without at least 30 days' notice to shareholders. Notwithstanding the foregoing investment restrictions, a Fund may purchase securities pursuant to the exercise of subscription rights, provided, in the case of each Fund other than Select Fund, that such purchase will not result in the Fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in a Fund's interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, a Fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of a Fund's portfolio securities with the result that the Fund would be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising the rights. HOW THE FUNDS INVEST SECURITIES OF NON-U.S. ISSUERS International Fund and International Small Cap Fund invest primarily in securities of non-U.S. issuers, and the other Funds each may invest a minor portion of their assets (up to 25% for - ------------------------- (3) Although securities represented by American Depositary Receipts ("ADRs") are not subject to restriction 16, none of these Funds has any present intention to invest more than the indicated percentage of its total assets in ADRs and securities of foreign issuers. 4 Oakmark Fund, Select Fund and Small Cap Fund and up to 10% for Equity and Income Fund) in securities of non-U.S. issuers. International investing permits an investor to take advantage of the growth in markets outside the United States. Investing in securities of non-U.S. issuers may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. The Funds may invest in securities of non-U.S. issuers directly or in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company and trading in U.S. markets evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. Generally ADRs, in registered form, are designed for use in the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. GDRs are receipts that may trade in U.S. or non-U.S. markets. The Funds may invest in both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a sponsored depositary receipt, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to depositary receipt holders. An unsponsored depositary receipt is created independently of the issuer of the underlying security. The depositary receipt holders generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. With respect to portfolio securities of non-U.S. issuers or denominated in foreign currencies, a Fund's investment performance is affected by the strength or weakness of the U.S. dollar against these currencies. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions." You should understand and consider carefully the risks involved in international investing. Investing in securities of non-U.S. issuers, positions in which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign subcustodial arrangements. Although the Funds try to invest in companies and governments of countries having stable political environments, there is the possibility of expropriation of assets, confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse, political, social or diplomatic developments that could affect investment in these nations. PRIVATIZATIONS. Some governments have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The adviser believes that privatizations may offer opportunities for significant capital appreciation, and intends to invest assets of International Fund and International Small Cap Fund in privatizations in appropriate circumstances. In certain of those markets, the ability of foreign entities such as International Fund and International Small Cap Fund to participate in privatizations may be limited by local law, and/or the terms on which such Funds may be permitted to participate may be less 5 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 the International Fund and International Small Cap Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to those Funds due to subsequent declines in the value of those securities or, if either 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. International Fund and International Small Cap 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 either 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 either Fund's securities in such markets may not be readily available. International Fund and International Small Cap 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 either Fund believes that appropriate circumstances exist, it will promptly apply to the SEC for a determination that such an emergency is present. During the period commencing from either 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 International Fund or International Small Cap 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 6 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 the Fund owns or anticipates owning securities in countries whose currencies are linked, the Adviser may aggregate such positions as to the currency hedged. If a Fund enters into a forward contract hedging an anticipated purchase of portfolio securities, liquid assets of the Fund, which may include equities, debt obligations, U.S. government securities or cash, having a value at least as great as the commitment under the forward contract will be segregated on the books of the Fund, marked to market daily, and held by the Fund's custodian while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may either sell the portfolio security related to such contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for a Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency the Fund is obligated to deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between the Fund's 7 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. EUROPEAN CURRENCY UNIFICATION. Effective January 1, 1999, eleven of the fifteen member countries of the European Union adopted a single European currency, the euro. The countries participating in the Economic and Monetary Union ("EMU") are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The four countries missing from the new unified currency are Great Britain, Denmark, Sweden and Greece. A new European Central Bank ("ECB") will manage the monetary policy of the new unified region, and the exchange rates among the EMU member countries will be permanently fixed. National currencies will continue to circulate until they are replaced by euro coins and bank notes by the middle of 2002. This change is likely to significantly impact the European capital markets in which International Fund and International Small Cap Fund may invest their assets. The biggest changes will be the additional risks that the Funds may face in pursuing their investment objectives. All of the risks described below may increase the volatility of the prices of securities that are traded principally in EMU member countries. TAXES. IRS regulations generally provide that the euro conversion will not cause a U.S. taxpayer to realize gain or loss to the extent the taxpayer's rights and obligations are altered solely by reason of the euro conversion. However, there may be changes in indices, accrual periods or holiday conventions that may require the realization of a gain or loss. VOLATILITY OF CURRENCY EXCHANGE RATES. Exchange rates between the U.S. dollar and European currencies could become more volatile and unstable. In addition, because some European countries will not be participants in the euro, there could be greater volatility in the exchange rates between those non-participating countries and the euro. That risk is expected to remain during the period following unification. CAPITAL MARKET REACTION. Uncertainty during the period leading up to the introduction of the euro may cause a shift by institutional money managers away from European currencies and into other currencies. Such a reaction could depress the prices of securities and make markets less liquid and thus more difficult for International Fund and International Small Cap Fund to pursue their investment strategies. CONVERSION COSTS. European issuers of securities, particularly those that deal in goods and services, may face substantial conversion costs. Those costs may not be accurately anticipated and therefore present another risk factor that may affect issuer profitability and creditworthiness. 8 CONTRACT CONTINUITY. Some financial contracts may become unenforceable when the currencies are unified. Those financial contracts may include bank loan agreements, master agreements for swaps and other derivatives, master agreements for foreign exchange and currency option transactions and debt securities. The risk of unenforceability may arise in a number of ways. For example, a contract used to hedge against exchange rate volatility between two EU currencies will become "fixed," rather than "variable," as a result of the conversion since the currencies have, in effect, disappeared for exchange purposes. The European Council has enacted laws and regulations designed to ensure that financial contracts will continue to be enforceable after conversion. There is no guarantee, however, that those laws will be effective in preventing disputes and litigation over those financial contracts. Such disputes could negatively impact a Fund's portfolio holdings, and may create uncertainties in the valuation of those contracts. ECB POLICYMAKING. As the ECB and European market participants search for a common understanding of policy targets and instruments, interest rates and exchange rates could become more volatile. DEBT SECURITIES Each Fund may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk bonds") and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by a Fund or the portion of a Fund's assets that may be invested in debt securities in a particular ratings category, except that International Fund and International Small Cap Fund will not invest more than 10% of their respective total assets in securities rated below investment grade, Equity and Income Fund will not invest more than 20% of its total assets in such securities, and each of the other Funds will not invest more than 25% of its total assets in such securities. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- or lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio securities. See "Net Asset Value." The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. A description of the characteristics of bonds in each ratings category is included in the appendix to this statement of additional information. WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES Each Fund may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time a Fund enters into the commitment, the securities may be delivered and paid for a month or more after 9 the date of purchase, when their value may have changed. A Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if the adviser deems it advisable for investment reasons. A Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed-delivered basis. At the time a Fund enters into a binding obligation to purchase securities on a when-issued basis, liquid assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a Fund, may increase net asset value fluctuation. ILLIQUID SECURITIES No Fund may invest in illiquid securities, if as a result such securities would comprise more than 15% of the value of the Fund's assets. If through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% of the value of its net assets are invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity. Illiquid securities may include restricted securities, which may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where a Fund holds restricted securities and registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by the board of trustees. Notwithstanding the above, each Fund may purchase securities that, although privately placed, are eligible for purchase and sale under Rule 144A under the 1933 Act. This rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities even though such securities are not registered under the 1933 Act. The adviser, under the supervision of the board of trustees, may consider whether securities purchased under Rule 144A are liquid and thus not subject to the Fund's restriction of investing no more than 15% of its assets in illiquid securities. (See restriction 13 under "Investment Restrictions.") A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination the adviser will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, the adviser could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, (4) and the nature of the security and of market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. 10 SHORT SALES Each Fund may sell securities short against the box, that is: (1) enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns without additional consideration; and (2) enter into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. A Fund may make short sales of securities only if at all times when a short position is open the Fund owns at least an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short. In a short sale against the box, a Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. A Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time a Fund replaces the borrowed security, the Fund will incur a loss and if the price declines during this period, the Fund will realize a short-term capital gain. Any realized short-term capital gain will be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Fund may have to pay in connection with such short sale. Certain provisions of the Internal Revenue Code may limit the degree to which a Fund is able to enter into short sales. There is no limitation on the amount of each Fund's assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. No Fund currently expects that more than 20% of its total assets would be involved in short sales against the box. OPTIONS Each Fund may purchase both call options and put options on securities. A call or put option is a contract that gives the Fund, in return for a premium paid upon purchase of the option, the right during the term of the option to buy from, or to sell to, the seller of the option the security underlying the option at a specified exercise price. The option is valued initially at the premium paid for the option. Thereafter, the value of the option is marked-to-market daily. It is expected 11 that a Fund will not purchase a call option or a put option if the aggregate value of all call and put options held by the Fund would exceed 5% of the Fund's net assets. TEMPORARY STRATEGIES Each Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the adviser may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers, and most or all of International Fund's investments and International Small Cap Fund's investments may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, each Fund temporarily may hold cash (U.S. dollars, foreign currencies or multinational currency units) and may invest any portion of its assets in money market instruments. PERFORMANCE INFORMATION From time to time the Funds may quote total return figures in sales material. "Total Return" for a period is the percentage change in value during the period of an investment in Fund shares, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compounded rate of change in value represented by the Total Return for the period. Average Annual Total Return will be computed as follows: ERV = P(1+T)n Where: P = the amount of an assumed initial investment in Fund shares T = average annual total return n = number of years from initial investment to the end of the period ERV = ending redeemable value of shares held at the end of the period For example, Total Return and Average Annual Total Return on a $1,000 investment in each Fund for the following periods ended September 30, 1998 were:
Total Average Annual Return Total Return ------ ------------ Oakmark Fund Class I One year -4.06% -4.06% Five years 116.06 16.65 Life of Fund* 398.99 25.17 Select Fund Class I One year 3.64 3.64 Life of Fund* 69.36 31.67 Small Cap Fund Class I One year -26.37 -26.37 Life of Fund* 49.76 14.85 12 Equity and Income Fund Class I One year 2.57 2.57 Life of Fund* 51.91 15.41 International Fund Class I One year -29.90 -29.90 Five years 21.92 4.04 Life of Fund* 63.22 8.50 International Small Cap Fund Class I One year -35.20 -35.20 Life of Fund* -17.90 -6.53
- -------------------- * Life of Fund commenced with the public offering of its shares as follows: Oakmark, 8/5/91; Select, 11/1/96; International, 9/30/92; Small Cap, Equity and Income and International Small Cap, 11/1/95. Total Return and Average Annual Total Return of Class II Shares of each Fund will be calculated in the same way as for Class I Shares, but the performance of Class II Shares will likely be different from the performance of Class I Shares because the expense allocation for each class will be different. Because the expense ratio for Class II Shares is expected to be higher, the Total Return and Average Annual Total Return of Class II Shares are expected to be lower than for Class I Shares. Performance figures quoted by the Funds will assume reinvestment of all dividends and distributions, but will not take into account income taxes payable by shareholders. The Funds impose no sales charge and pay no distribution ("12b-1") expenses. Each Fund's performance is a function of conditions in the securities markets, portfolio management, and operating expenses. Although information such as yield and total return is useful in reviewing a Fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. In advertising and sales literature, the performance of a Fund may be compared with that of other mutual funds, indexes or averages of other mutual funds, indexes of related financial assets or data, and other competing investment and deposit products available from or through other financial institutions. The composition of these indexes or averages differs from that of the Funds. Comparison of a Fund to an alternative investment should consider differences in features and expected performance. All of the indexes and averages noted below will be obtained from the indicated sources or reporting services, which the Funds generally believe to be accurate. The Funds may also refer to publicity (including performance rankings) in newspapers, magazines, or other media from time to time. However, the Funds assume no responsibility for the accuracy of such data. Newspapers and magazines that might mention the Funds include, but are not limited to, the following: Barron's Business Week Changing Times Chicago Tribune Chicago Sun-Times Crain's Chicago Business Consumer Reports Consumer Digest Financial World Forbes Fortune Global Finance Investor's Business Daily Kiplinger's Personal Finance Los Angeles Times Money Mutual Fund Letter Mutual Funds Magazine Morningstar Newsweek The New York Times Pensions and Investments Personal Investor Smart Money Stanger Reports Time USA Today U.S. News and World Report The Wall Street Journal Worth 13 A Fund may compare its performance to the Consumer Price Index (All Urban), a widely recognized measure of inflation. The performance of a Fund may also be compared to the Morgan Stanley EAFE (Europe, Australia and Far East) Index*, a generally accepted benchmark for performance of major overseas markets, and to the following indexes or averages: Dow-Jones Industrial Average* Standard & Poor's 500 Stock Index* Standard & Poor's 400 Industrials Standard & Poor's Small Cap 600* Standard & Poor's Mid Cap 400* Russell 2000 Wilshire 5000 New York Stock Exchange Composite Index American Stock Exchange Composite Index NASDAQ Composite NASDAQ Industrials In addition, each of Oakmark Fund, Select Fund, Small Cap Fund and Equity and Income Fund may compare its performance to the following indexes and averages: Value Line Index; Lipper Capital Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds Average; Lipper Small Company Growth Fund Index; and Lehman Brothers Government/Corporate Bond Index. Each of International Fund and International Small Cap Fund may compare its performance to the following indexes and averages: Lipper International & Global Funds Average; Lipper International Fund Index; Lipper International Equity Funds Average; Micropal International Small Company Fund Index; Morgan Stanley Capital International World ex the U.S. Index*; Morningstar International Stock Average. Lipper Indexes and Averages are calculated and published by Lipper Analytical Services, Inc. ("Lipper"), an independent service that monitors the performance of more than 1,000 funds. The Funds may also use comparative performance as computed in a ranking by Lipper or category averages and rankings provided by another independent service. Should Lipper or another service reclassify a Fund to a different category or develop (and place a Fund into) a new category, that Fund may compare its performance or ranking against other funds in the newly assigned category, as published by the service. Each Fund may also compare its performance or ranking against all funds tracked by Lipper or another independent service, including Morningstar, Inc. The Funds may cite their ratings, recognition, or other mention by Morningstar or any other entity. Morningstar's rating system is based on risk-adjusted total return performance and is expressed in a star-rating format. The risk-adjusted number is computed by subtracting a fund's risk score (which is a function of the fund's monthly returns less the 3-month T-bill return) from the fund's load-adjusted total return score. This numerical score is then translated into rating categories, with the top 10% labeled five star, the next 22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled two star, and the bottom 10% one star. A high rating reflects either above-average returns or below-average risk or both. To illustrate the historical returns on various types of financial assets, the Funds may use historical data provided by Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains) very long-term (since 1926) total return data (including, for example, total return indexes, total return percentages, average annual total returns and standard deviations of such returns) for the following asset types: common stocks; Small company stocks; - ------------------------------------ * With dividends reinvested. 14 long-term corporate bonds; long-term government bonds; intermediate-term government bonds; U.S. Treasury bills; and Consumer Price Index. INVESTMENT ADVISER The Funds' investment adviser, Harris Associates L.P. (the "Adviser"), furnishes continuing investment supervision to the Funds and is responsible for overall management of the Funds' business affairs pursuant to investment advisory agreements relating to the respective Funds (the "Agreements"). The Adviser furnishes office space, equipment and personnel to the Funds, and assumes the expenses of printing and distributing the Funds' prospectus and reports to prospective investors. Each Fund pays the cost of its custodial, stock transfer, dividend disbursing, bookkeeping, audit and legal services. Each Fund also pays other expenses such as the cost of proxy solicitations, printing and distributing notices and copies of the prospectus and shareholder reports furnished to existing shareholders, taxes, insurance premiums, the expenses of maintaining the registration of that Fund's shares under federal and state securities laws and the fees of trustees not affiliated with the Adviser. The Adviser has voluntarily agreed to reimburse 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: 1.5% in the case of Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund and 2% in the case of International Fund and International Small Cap Fund. The Adviser has also voluntarily agreed to reimburse Class II Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class II Shares: Oakmark Fund, Select Fund, Small Cap Fund or Equity and Income Fund, 1.75% (1.50% + .25%); International Fund and International Small Cap Fund, 2.25% (2.00% + .25%). Each such agreement is effective through January 31, 2000, subject to earlier termination by the Adviser on 30 days' notice to the Fund. For the purpose of determining whether a share class of a Fund is entitled to any reduction in advisory fee or expense reimbursement, the pro rata portion of the Fund's expenses attributable to a share class of that Fund, is calculated daily and any reduction in fee or reimbursement is made monthly. 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: 15 FUND FEE ---- --- Equity and Income .75% Oakmark 1% up to $2.5 billion; .95% on the next $1.25 billion; .90% on the next $1.25 billion; .85% on net assets in excess of $5 billion; and .80% on net assets in excess of $10 billion International 1% up to $2.5 billion; .95% on the next $2.5 billion; and .90% on net assets in excess of $5 billion Select 1% up to $1 billion; .95% on the next $500 million; .90% on the next $500 million; .85% on the next $500 million; .80% over $2.5 billion; and .75% over $5 billion. Small Cap 1.25% up to $1 billion; 1.15% on the next $500 million; 1.10% on the next $500 million; 1.05% on the next $500 million; 1% over $2.5 billion. International Small Cap 1.25% The table below shows gross advisory fees paid by the Funds and any expense reimbursements by the Adviser to them, which are described in the prospectus.
YEAR ENDED ELEVEN MONTHS YEAR ENDED TYPE OF SEPTEMBER ENDED SEPTEMBER 30, OCTOBER FUND PAYMENT 30, 1998 1997 31, 1996 ---- ------- -------- ---- -------- Oakmark Advisory fee $72,196,251 $43,705,462 $36,082,925 Select Advisory fee 11,525,158 1,731,599 -- Small Cap Advisory fee 15,863,707 7,705,828 956,809 Equity and Advisory fee 359,708 140,973 69,005 Income Reimbursement -- 39,450 14,245 International Advisory fee 12,623,371 13,040,702 10,113,272 International Advisory fee 827,611 648,148 258,427 Small Cap Reimbursement -- -- 35,441
The Agreement for each Fund was for an initial term expiring September 30, 1997. Each Agreement will continue from year to year thereafter so long as such continuation is approved at least annually by (1) the board of trustees or the vote of a majority of the outstanding voting securities of the Fund, and (2) a majority of the trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Agreement may be terminated at any time, without penalty, by either the Trust or the Adviser upon sixty days' written notice, and is automatically terminated in the event of its assignment as defined in the 1940 Act. The Adviser is a limited partnership managed by its general partner, Harris Associates, Inc., whose directors are David G. Herro, Robert M. Levy, Roxanne M. Martino, Victor A. Morgenstern, Anita M. Nagler, William C. Nygren, Neal Ryland, Robert J. Sanborn and Peter S. Voss. Mr. Levy is the president and chief executive officer of Harris Associates, Inc. 16 TRUSTEES AND OFFICERS Information on the trustees and officers of the Trust is included in the Funds' prospectus under "Management of the Funds." All of that information is incorporated herein by reference. The addresses of the trustees are as follows: Michael J. Friduss c/o MJ Friduss & Associates 1555 Museum Drive Highland Park, Illinois 60035 Thomas H. Hayden c/o Bozell Worldwide, Inc. 625 North Michigan Avenue Chicago, Illinois 60611-3110 Christine M. Maki c/o Hyatt Corporation 200 West Madison Street Chicago, Illinois 60606 Victor A. Morgenstern c/o Harris Associates L.P. Two North La Salle Street, Suite 500 Chicago, Illinois 60602 Allan J. Reich c/o D'Ancona & Pflaum 30 North La Salle Street, Suite 2900 Chicago, Illinois 60602 Marv R. Rotter c/o Rotter & Associates 5 Revere Drive, Suite 400 Northbrook, Illinois 60062-1571 Burton W. Ruder c/o The Academy Group 707 Skokie Boulevard, Suite 410 Northbrook, Illinois 60062 Peter S. Voss c/o Nvest Companies, L.P. 399 Boylston Street Boston, Massachusetts 02116 Gary N. Wilner, M.D. c/o Evanston Hospital 2650 Ridge Avenue Evanston, Illinois 60201 Messrs. Morgenstern and Voss are trustees who are "interested persons" of the Trust as defined in the 1940 Act. They and Dr. Wilner are members of the executive committee, which has authority during intervals between meetings of the board of trustees to exercise the powers of the board, with certain exceptions. At September 30, 1998, the trustees and officers as a group owned beneficially the following percentages of the outstanding shares of the Funds: Select, 1.36%; Small Cap, 1.30%; International Small Cap, 17.92%; and less than 1% in the case of each other Fund. The following table shows the compensation paid by the Trust for the year ended September 30, 1998 to each trustee who was not an "interested person" of the Trust: 17
AGGREGATE COMPENSATION NAME OF TRUSTEE FROM THE TRUST* - ------------------------------------------------------------------------------- Christine M. Maki $37,250 Michael J. Friduss 37,250 Thomas H. Hayden 37,750 Allan J. Reich 37,750 Marv R. Rotter 37,250 Burton W. Ruder 35,250 Gary N. Wilner, M.D. 41,250 - -------------------------------------------------------------------------------
* The Trust is not part of a fund complex. Other trustees who are "interested persons" of The Trust, as well as the officers of the Trust, are compensated by the Adviser and not by The Trust. The Trust does not provide any pension or retirement benefits to its trustees. PRINCIPAL SHAREHOLDERS The only persons known by the Trust to own of record or "beneficially" (within the meaning of that term as defined in rule 13d-3 under the Securities Exchange Act of 1934) 5% or more of the outstanding shares of any Fund as of September 30, 1998 were:
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND SHARES HELD - ---------------- ---- ----------- Charles Schwab & Co. Inc. (1) Oakmark 33.67% 101 Montgomery Street Select 31.96 San Francisco, CA 94104-4122 Small Cap 33.65 Equity and Income 18.30 International 31.44 International Small Cap 29.43 David G. Herro (2) International Small Cap 9.42 Two North LaSalle Street, #500 Chicago, IL 60602 Clyde S. and Joan K. McGregor Equity and Income 5.20 Two North LaSalle Street, #500 Chicago, IL 60602 Morgan Stanley & Co., Inc. (1) Equity and Income 6.51 1 Pierrepont Plaza, 10th Floor International Small Cap 18.00 Brooklyn, NY 11201-2776 18 National Financial Services Corp. (1) Oakmark 8.06 P.O. Box 3908 Select 20.62 Church Street Station Small Cap 9.04 New York, NY 10008-3908 International 5.91 International Small Cap 6.29
- -------------------- (1) Shares are held for accounts of customers. (2) 416,646 of these shares are included in shares held by Morgan Stanley & Co., Inc. PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the Funds' prospectus under the headings "Purchasing Shares," "Redeeming Shares," and "Shareholder Services." All of that information is incorporated herein by reference. The net asset value per share of Class I or Class II of each Fund is determined by the Trust's custodian, State Street Bank and Trust Company. 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 I Shares outstanding. Securities traded on securities exchanges, or in the over-the-counter market in which transaction prices are reported on the NASDAQ National Market System, are valued at the last sales prices at the time of valuation or, lacking any reported sales on that day, at the most recent bid quotations. Other securities traded over-the-counter are also valued at the most recent bid quotations. Money market instruments having a maturity of 60 days or less from the valuation date are valued on an amortized cost basis. The values of securities of foreign issuers are generally based upon market quotations which, depending upon local convention or regulation, may be last sale price, last bid or asked price, or the mean between last bid and asked prices as of, in each case, the close of the appropriate exchange or other designated time. Securities for which quotations are not available and any other assets are valued at a fair value as determined in good faith by or under the direction of the board of trustees. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by any major bank or dealer. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by the Board. The Funds' net asset values are determined only on days on which the New York Stock Exchange is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in January and February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving and Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Trading in the portfolio securities of International Fund or International Small Cap Fund (and of any other Fund, to the extent it invests in securities of non-U.S. issuers) takes place in various foreign markets on certain days (such as Saturday) when the Fund is not open for business and does not calculate its net asset value. In addition, trading in the Fund's portfolio securities may not occur on days when the Fund is open. Therefore, the calculation of net asset value does not take place contemporaneously with the determinations of the prices of many of the Fund's portfolio securities and the value of the Fund's portfolio may be significantly affected on days when shares of the Fund may not be purchased or redeemed. Computation of net asset value (and the sale and redemption of a Fund's shares) may be suspended or postponed during any period when (a) trading on the New York Stock Exchange is restricted, as determined by the Securities and Exchange Commission, or that exchange is closed for other than customary weekend and holiday closings, (b) the Commission has by order 19 permitted such suspension, or (c) an emergency, as determined by the Commission, exists making disposal of portfolio securities or valuation of the net assets of a Fund not reasonably practicable. Shares of any of the Funds may be purchased through certain financial service companies, without incurring any transaction fee. For services provided by such a company with respect to Fund shares held by that company for its customers, the company may charge a fee of up to 0.30% of the annual average value of those accounts. Each Fund may pay a portion of those fees, not to exceed the estimated fees that the Fund would pay to its own transfer agent if the shares of the Fund held by such customers of the company were registered directly in their names on the books of the Fund's transfer agent. The balance of those fees are paid by the Adviser. The Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day period for any one shareholder. Redemptions in excess of 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. Due to the relatively high cost of maintaining small accounts, the Trust reserves the right to redeem at net asset value the shares of any shareholder whose account in any Fund has a value of less than the minimum amount specified by the board of trustees, which currently is $1,000. Before such a redemption, the shareholder will be notified that the account value is less than the minimum and will be allowed at least 30 days to bring the value of the account up to the minimum. The agreement and declaration of trust also authorizes the Trust to redeem shares under certain other circumstances as may be specified by the board of trustees. The Adviser acts as a Service Organization for the Government Portfolio and the Tax-Exempt Diversified Portfolio of Goldman Sachs Money Market Trust and the GS Short Duration Fund Portfolio of Goldman Sachs Trust. For its services it receives fees at rates of up to .50% of the average annual net assets of each account in those portfolios , pursuant to 12b-1 plans adopted by those investment companies. ADDITIONAL TAX INFORMATION GENERAL. Each Fund intends to continue to qualify to be taxed as a regulated investment company under the Internal Revenue Code of 1986, as amended, so as to be relieved of federal income tax on its capital gains and net investment income currently distributed to its shareholders. At the time of your purchase, a Fund's net asset value may reflect undistributed income, capital gains or net unrealized appreciation of securities held by that Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as dividends or capital gain distributions. INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND. Dividends and distributions paid by International Fund and International Small Cap Fund are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of such Funds' income consists of dividends paid by United States corporations. Capital gain distributions paid by the Funds are never eligible for this deduction. Certain foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations are taxable as ordinary income. If the net effect of these transactions is a gain, the dividend paid by either of these Funds will be 20 increased; if the result is a loss, the income dividend paid by either of these Funds will be decreased. Income received by International Fund or International Small Cap Fund from sources within various foreign countries will be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of the Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations, the Fund may file an election with the Internal Revenue Service to "pass through" to the Fund's shareholders the amount of foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Both International Fund and International Small Cap Fund intend to meet the requirements of the Code to "pass through" to its shareholders foreign income taxes paid, but there can be no assurance that a Fund will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of a Fund, if the foreign taxes paid by the Fund will "pass through" for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. TAXATION OF FOREIGN SHAREHOLDERS The Code provides that dividends from net income (which are deemed to include for this purpose each shareholder's pro rata share of foreign taxes paid by International Fund and International Small Cap Fund (see discussion of "pass through" of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividend in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by these Funds are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. PORTFOLIO TRANSACTIONS Portfolio transactions for each Fund are placed with those securities brokers and dealers that the Adviser believes will provide the best value in transaction and research services for that Fund, either in a particular transaction or over a period of time. Subject to that standard, portfolio transactions for each Fund may be executed through Harris Associates Securities L.P. ("HASLP"), a registered broker-dealer and an affiliate of the Adviser. In valuing brokerage services, the Adviser makes a judgment as to which brokers are capable of providing the most favorable net price (not necessarily the lowest commission) and the best execution in a particular transaction. Best execution connotes not only general competence and reliability of a broker, but specific expertise and effort of a broker in overcoming the anticipated difficulties in fulfilling the requirements of particular transactions, because the problems of execution and the required skills and effort vary greatly among transactions. 21 Although some transactions involve only brokerage services, many involve research services as well. In valuing research services, the Adviser makes a judgment of the usefulness of research and other information provided by a broker to the Adviser in managing a Fund's investment portfolio. In some cases, the information, e.g., data or recommendations concerning particular securities, relates to the specific transaction placed with the broker, but for the greater part the research consists of a wide variety of information concerning companies, industries, investment strategy and economic, financial and political conditions and prospects, useful to the Adviser in advising the Funds. The Adviser is the principal source of information and advice to the Funds, and is responsible for making and initiating the execution of the investment decisions for each Fund. However, the board of trustees recognizes that it is important for the Adviser, in performing its responsibilities to the Funds, to continue to receive and evaluate the broad spectrum of economic and financial information that many securities brokers have customarily furnished in connection with brokerage transactions, and that in compensating brokers for their services, it is in the interest of the Funds to take into account the value of the information received for use in advising the Funds. Consequently, the commission paid to brokers (other than HASLP) providing research services may be greater than the amount of commission another broker would charge for the same transaction. The extent, if any, to which the obtaining of such information may reduce the expenses of the Adviser in providing management services to the Funds is not determinable. In addition, it is understood by the board of trustees that other clients of the Adviser might also benefit from the information obtained for the Funds, in the same manner that the Funds might also benefit from information obtained by the Adviser in performing services to others. HASLP may act as broker for a Fund in connection with the purchase or sale of securities by or to the Fund if and to the extent permitted by procedures adopted from time to time by the board of trustees of the Trust. The board of trustees, including a majority of the trustees who are not "interested" trustees, has determined that portfolio transactions for a Fund may be executed through HASLP if, in the judgment of the Adviser, the use of HASLP is likely to result in prices and execution at least as favorable to the Fund as those available from other qualified brokers and if, in such transactions, HASLP charges the Fund commission rates at least as favorable to the Fund as those charged by HASLP to comparable unaffiliated customers in similar transactions. The board of trustees has also adopted procedures that are reasonably designed to provide that any commissions, fees or other remuneration paid to HASLP are consistent with the foregoing standard. The Funds will not effect principal transactions with HASLP. In executing transactions through HASLP, the Funds will be subject to, and intend to comply with, section 17(e) of the 1940 Act and rules thereunder. The reasonableness of brokerage commissions paid by the Funds in relation to transaction and research services received is evaluated by the staff of the Adviser on an ongoing basis. The general level of brokerage charges and other aspects of the Funds' portfolio transactions are reviewed periodically by the board of trustees. Transactions of the Funds in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. Although investment decisions for the Funds are made independently from those for other investment advisory clients of the Adviser, it may develop that the same investment decision is made for both a Fund and one or more other advisory clients. If both a Fund and other clients purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each. 22 The Funds do not purchase securities with a view to rapid turnover. However, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons, including general conditions in the securities market, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. A high rate of portfolio turnover would result in increased transaction expense, which must be borne by the Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. The portfolio turnover rates for the Funds are set forth in the prospectus under "Financial Highlights." 23 The following table shows the aggregate brokerage commissions (excluding the gross underwriting spread on securities purchased in initial public offerings) paid by each Fund during the periods indicated, as well as the aggregate commissions paid to affiliated persons of the Trust.
Year Ended Eleven Months Ended Year Ended September 30, September 30, October 31, 1998 1997 1996 ---- ---- ---- Oakmark Fund Aggregate commissions $7,578,511 (100%) $3,094,186 (100%) $2,863,961 (100%) Commissions paid to affiliates* 2,068,690 (27.3%) 997,845 (32.2%) 1,192,641 (41.6%) Select Fund Aggregate commissions 2,408,373 (100%) 750,698 (100%) -- Commissions paid to affiliates* 589,564 (24.5%) 341,805 (45.5%) -- Small Cap Fund Aggregate commissions 1,956,668 (100%) 1,906,488 (100%) 404,602 (100%) Commissions paid to affiliates* 193,708 (9.9%) 401,345 (21.0%) 132,729 (32.8%) Equity and Income Fund Aggregate commission 66,195 (100%) 24,588 (100%) 19,797 (100%) Commissions paid to affiliates* 41,979 (63.4%) 15,611 (63.5%) 14,487 (73.2%) International Fund Aggregate commissions 4,287,619 (100%) 5,319,725 (100%) 2,804,611 (100%) Commissions paid to affiliates* -- 9,732 (0.2%) 82,872 (3.0%) International Small Cap Fund Aggregate commissions 387,461 (100%) 332,214 (100%) 198,847 (100%) Commissions paid to affiliates* -- 732 (0.2%) 6,128 (3.1%)
- -------------------------- * The percent of the dollar amount of each Fund's aggregate transactions involving the Fund's payment of brokerage commissions that were executed through affiliates for each of the periods is shown below.
Year Ended Year Ended September 30, Eleven Months Ended October 31, Fund 1998 September 30, 1997 1996 ---- ---- ------------------ ---- Oakmark 29.50% 36.5% 47.0% Select 33.06 48.0 - Small Cap 14.51 23.2 40.0 Equity and Income 63.50 67.0 78.0 International - 0.4 5.0 International Small Cap - 0.5 0.4
Of the aggregate brokerage transactions during the year ended September 30 , 1998, the Funds paid the following commissions on transactions directed to brokers because of research services they provided: Oakmark, $1,142,374; Select, $201,272; Small Cap, $237,696; Equity and Income, $5,196; International, $4,084,575; and International Small Cap, $362,321; and the aggregate dollar amounts involved in those transactions for the respective Funds were $880,711,989, $112,769,699, $122,006,697, $3,817,981, $1,304,968,668 and $89,091,569, respectively. 24 DECLARATION OF TRUST The Agreement and Declaration of Trust under which the Trust has been organized ("Declaration of Trust") disclaims liability of the shareholders, trustees and officers of the Trust for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or contract entered into or executed by the Trust or the board of trustees. The Declaration of Trust provides for indemnification out of the Trust's assets for all losses and expenses of any shareholder held personally liable for obligations of the Trust. Thus, although shareholders of a business trust may, under certain circumstances, be held personally liable under Massachusetts law for the obligations of the Trust, the risk of a shareholder incurring financial loss on account of shareholder liability is believed to be remote because it is limited to circumstances in which the disclaimer is inoperative and the Trust itself is unable to meet its obligations. The risk to any one series of sustaining a loss on account of liabilities incurred by another series is also believed to be remote. CUSTODIAN State Street Bank and Trust Company, P.O. Box 8510, Boston Massachusetts 02266-8510 is the custodian for the Trust. It is responsible for holding all securities and cash of each Fund, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, making all payments covering expenses of the Funds, and performing other administrative duties, all as directed by authorized persons of the Trust. The custodian also performs certain portfolio accounting services for the Funds, for which each Fund pays the custodian a monthly fee. The fee paid by Oakmark Fund is $2,500 per month. The fee paid by Oakmark International is $3,000 per month. The fee paid by each of Select Fund, Small Cap Fund and Equity and Income Fund is $2,500 per month and the fee paid by International Small Cap Fund is $3,000 per month. The custodian does not exercise any supervisory function in such matters as the purchase and sale of portfolio securities, payment of dividends, or payment of expenses of a Fund. The Trust has authorized the custodian to deposit certain portfolio securities of each Fund in central depository systems as permitted under federal law. The Funds may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603, audits and reports on each Fund's annual financial statements, reviews certain regulatory reports and the Funds' federal income tax returns, and performs other professional accounting, auditing, tax and advisory services when engaged to do so by the Trust. 25 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 Corporation ("S&P"). RATINGS BY MOODY'S: Aaa. Bonds rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such bonds. Aa. Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in the Aaa bonds, fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa bonds. A. Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa. Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba. Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class. B. Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be -SM-all. 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. A-1 Ca. Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C. Bonds rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Ratings By Standard & Poor's: AAA. Debt rated AAA has the highest rating. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. A. Debt rated A has a very strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions, or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB-B-CCC-CC. Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C. This rating is reserved for income bonds on which no interest is being paid. D. Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears. NOTE: The ratings from AA to B may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. A-2 APPENDIX B -- FINANCIAL STATEMENTS B-1 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--88.5% FOOD & BEVERAGE--15.2% Philip Morris Companies Inc. 13,810,700 $ 636,155,369 H.J. Heinz Company 4,007,250 204,870,656 Gallaher Group Plc (b) 3,835,500 112,667,812 Nabisco Holdings Corporation, Class A 2,572,100 92,434,844 The Quaker Oats Company 118,000 6,962,000 -------------- 1,053,090,681 APPAREL--6.1% Nike, Inc., Class B 11,457,100 $ 421,764,494 RETAIL--0.3% American Stores Company 648,400 $ 20,870,375 OTHER CONSUMER GOODS & SERVICES--20.1% Mattel, Inc. 13,439,400 $ 376,303,200 The Black & Decker Corporation (c) 8,267,000 344,113,875 H&R Block, Inc. (c) 7,665,800 317,172,475 Polaroid Corporation (c) 4,552,400 111,818,325 Brunswick Corporation (c) 7,280,800 94,195,350 Fortune Brands, Inc. 2,746,800 81,373,950 Juno Lighting, Inc. (c) 1,085,000 24,276,875 First Brands Corporation 1,070,400 23,348,100 GC Companies, Inc. (a)(c) 397,000 15,334,125 -------------- 1,387,936,275 BANKS & THRIFTS--14.0% Banc One Corporation 8,800,548 $ 375,123,359 Washington Mutual, Inc. 10,100,000 340,875,000 Mellon Bank Corporation 4,540,500 250,011,281 -------------- 966,009,640 INSURANCE--1.3% Old Republic International Corporation 4,122,930 $ 92,765,925 PUBLISHING--4.8% Knight-Ridder, Inc. (c) 6,929,400 $ 308,358,300 R. H. Donnelley Corporation (c) 2,098,260 25,965,967 -------------- 334,324,267 INFORMATION SERVICES--5.6% The Dun & Bradstreet Corporation (c) 10,491,300 $ 283,265,100 ACNielsen Corporation (c) 4,764,000 105,999,000 -------------- 389,264,100 COMPUTER SERVICES--2.2% Electronic Data Systems Corporation 4,588,000 $ 152,264,250
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FUND 7 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
SHARES HELD/ PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--88.5% (CONT.) MEDICAL CENTERS--3.9% Columbia/HCA Healthcare Corporation 13,601,000 $ 272,870,063 MEDICAL PRODUCTS--0.9% Sybron International Corporation (a) 3,135,600 $ 59,968,350 AUTOMOTIVE--0.5% SPX Corporation (a)(c) 875,200 $ 36,156,700 AEROSPACE & DEFENSE--9.1% Lockheed Martin Corporation 3,625,000 $ 365,445,312 The Boeing Company 7,599,400 260,754,413 -------------- 626,199,725 MACHINERY & INDUSTRIAL PROCESSING--2.5% Eaton Corporation 2,721,100 $ 170,578,956 FORESTRY PRODUCTS--0.1% Fort James Corporation 237,200 $ 7,783,125 MINING--1.2% DeBeers Centenary AG (b) 6,546,000 $ 82,234,125 OTHER INDUSTRIAL GOODS & SERVICES--0.7% Bandag Incorporated, Class A 1,104,100 $ 34,227,100 The Geon Company 971,600 17,245,900 -------------- 51,473,000 TOTAL COMMON STOCKS (COST: $5,810,888,085) 6,125,554,051 SHORT TERM INVESTMENTS--11.0% GOVERNMENT AND AGENCY SECURITIES--1.4% U.S. GOVERNMENT BILLS--1.4% United States Treasury Bills, 4.29%-5.15% due 10/15/1998-1/14/1999 $100,000,000 $ 99,199,666 -------------- TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $99,146,486) 99,199,666
8 THE OAKMARK FUND THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--11.0% (CONT.) COMMERCIAL PAPER--7.4% American Express Credit Corp., 5.27%-5.55% due 10/1/1998-10/14/1998 $180,000,000 $ 180,000,000 Ford Motor Credit Corp., 5.40%-5.55% due 10/1/1998-10/9/1998 160,000,000 160,000,000 General Electric Capital Corporation, 5.45%-5.70% due 10/1/1998-10/5/1998 170,000,000 170,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $510,000,000) 510,000,000 REPURCHASE AGREEMENTS--2.2% State Street Repurchase Agreement, 5.30% due 10/1/1998 $153,865,000 $ 153,865,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $153,865,000) 153,865,000 TOTAL SHORT TERM INVESTMENTS (COST: $763,011,486) 763,064,666 Total Investments (Cost $6,573,899,571)--99.5% (d) $6,888,618,717 Other Assets In Excess Of Other Liabilities--0.5% 35,339,165 -------------- TOTAL NET ASSETS--100% $6,923,957,882 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At September 30, 1998, net unrealized appreciation of $314,719,146, for federal income tax purposes consisted of gross unrealized appreciation of $1,142,918,937 and gross unrealized depreciation of $828,199,791. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FUND 9 THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--88.3% RETAIL--8.2% Gucci Group (b) 2,787,900 $ 100,712,887 OTHER CONSUMER GOODS & SERVICES--5.8% Host Marriott Corporation (a) 3,260,900 $ 41,372,669 Ralston Purina Group 1,016,400 29,729,700 -------------- 71,102,369 BANKS & THRIFTS--8.0% Washington Mutual, Inc. 1,725,000 $ 58,218,750 People's Bank of Bridgeport, Connecticut 1,642,600 40,243,700 -------------- 98,462,450 INSURANCE--8.2% PartnerRe Ltd. (c) 2,522,600 $ 101,061,662 BROADCASTING & CABLE TV--13.8% Cablevision Systems Corporation, Class A (a) 3,930,200 $ 169,735,512 TV PROGRAMMING--4.4% Tele-Communications, Liberty Media, Class A (a) 1,453,550 $ 53,327,116 INFORMATION SERVICES--4.0% The Dun & Bradstreet Corporation 1,818,600 $ 49,102,200 COMPUTER SERVICES--7.2% First Data Corporation 1,900,000 $ 44,650,000 Electronic Data Systems Corporation 1,310,900 43,505,494 -------------- 88,155,494 MEDICAL PRODUCTS--6.0% Amgen, Inc. (a) 975,000 $ 73,673,438 BUILDING MATERIALS & CONSTRUCTION--9.7% USG Corporation (d) 2,740,800 $ 118,539,600 OTHER INDUSTRIAL GOODS & SERVICES--3.8% Premark International, Inc. 1,678,800 $ 47,111,325 DIVERSIFIED CONGLOMERATES--9.2% U.S. Industries, Inc. (d) 7,514,000 $ 113,179,625 TOTAL COMMON STOCKS (COST: $1,075,412,040) 1,084,163,678
12 THE OAKMARK SELECT FUND THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--12.0% GOVERNMENT AND AGENCY SECURITIES--3.2% U.S. GOVERNMENT BILLS--3.2% United States Treasury Bills, 4.29%-5.07% due 10/8/1998-1/14/1999 $40,000,000 $ 39,709,859 -------------- TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $39,688,587) 39,709,859 COMMERCIAL PAPER--6.1% American Express Credit Corp., 5.27%-5.55% due 10/1/1998-10/9/1998 $25,000,000 $ 25,000,000 Ford Motor Credit Corp., 5.30%-5.53% due 10/1/1998-10/7/1998 20,000,000 20,000,000 General Electric Capital Corporation, 5.70% due 10/1/1998 30,000,000 30,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $75,000,000) 75,000,000 REPURCHASE AGREEMENTS--2.7% State Street Repurchase Agreement, 5.30% due 10/1/1998 $32,399,000 $ 32,399,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $32,399,000) 32,399,000 TOTAL SHORT TERM INVESTMENTS (COST: $147,087,587) 147,108,859 Total Investments (Cost $1,222,499,627)--100.3% (e) $1,231,272,537 Other Liabilities In Excess Of Other Assets--(0.3)% (3,378,151) -------------- TOTAL NET ASSETS--100% $1,227,894,386 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents foreign domiciled corporation. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At September 30, 1998, net unrealized appreciation of $8,772,910, for federal income tax purposes consisted of gross unrealized appreciation of $155,507,575 and gross unrealized depreciation of $146,734,665. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK SELECT FUND 13 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--91.9% FOOD & BEVERAGE--11.2% Ralcorp Holdings, Inc. (a)(b) 1,750,000 $ 24,500,000 Triarc Companies, Inc. (a)(b) 1,250,000 19,453,125 Vlasic Foods International Inc. (a) 500,000 9,343,750 International Multifoods Corporation 500,000 8,218,750 M & F Worldwide Corp. (a) 750,000 7,453,125 -------------- 68,968,750 RETAIL--3.7% Department 56, Inc. (a) 520,000 $ 14,040,000 Ugly Duckling Corporation (a)(b) 1,676,200 8,695,288 -------------- 22,735,288 OTHER CONSUMER GOODS & SERVICES--13.0% First Brands Corporation 1,250,000 $ 27,265,625 Scotsman Industries, Inc. (b) 983,000 22,240,375 Libbey, Inc. 420,500 12,404,750 Barry (R.G.) Corporation (a)(b) 849,100 11,781,262 P.H. Glatfelter Company 500,000 6,531,250 -------------- 80,223,262 BANKS & THRIFTS--11.5% People's Bank of Bridgeport, Connecticut 2,000,000 $ 49,000,000 BankAtlantic Bancorp, Inc., Class A 1,000,001 7,187,507 Northwest Bancorp Inc. 550,000 5,637,500 Niagara Bancorp Inc. (a) 400,000 3,925,000 PennFed Financial Services, Inc. 260,000 3,445,000 Finger Lakes Financial Corp. (b) 188,000 2,068,000 -------------- 71,263,007 INSURANCE--2.3% Financial Security Assurance Holdings Ltd. 292,600 $ 14,264,250 OTHER FINANCIAL--5.5% ARM Financial Group, Inc., Class A 1,000,000 $ 17,750,000 Duff & Phelps Credit Rating Co. (b) 350,000 16,121,875 -------------- 33,871,875 BROADCASTING & CABLE TV--6.8% Cablevision Systems Corporation, Class A (a) 689,800 $ 29,790,737 Ascent Entertainment Group, Inc. (a)(b) 1,500,000 12,000,000 -------------- 41,790,737 TELECOMMUNICATIONS--0.9% ROHN Industries, Inc. (b) 3,000,000 $ 5,812,500 COMPUTER SERVICES--1.5% Symantec Corporation (a) 725,000 $ 9,560,938
16 THE OAKMARK SMALL CAP FUND THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
SHARES HELD/ PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--91.9% (CONT.) AUTOMOTIVE--7.9% SPX Corporation (a) 500,000 $ 20,656,250 Stoneridge, Inc. (a) 1,000,000 16,187,500 Standard Motor Products, Inc. 500,000 12,187,500 -------------- 49,031,250 TRANSPORTATION SERVICES--2.7% Teekay Shipping Corporation (c) 900,000 $ 16,368,750 MACHINERY & INDUSTRIAL PROCESSING--1.9% Northwest Pipe Company (a)(b) 500,000 $ 9,250,000 The Carbide/Graphite Group, Inc. (a) 240,000 2,670,000 -------------- 11,920,000 FORESTRY PRODUCTS--0.8% Schweitzer-Mauduit International, Inc. 216,500 $ 4,708,875 OTHER INDUSTRIAL GOODS & SERVICES--10.3% Ferro Corporation 900,000 $ 17,887,500 Columbus McKinnon Corporation (b) 900,000 17,325,000 MagneTek, Inc. (a) 1,500,000 16,406,250 H.B. Fuller Company 200,000 7,575,000 Binks Sames Corporation (b) 275,000 4,675,000 -------------- 63,868,750 COMMERCIAL REAL ESTATE--4.1% Catellus Development Corporation (a) 1,500,000 $ 19,500,000 Prime Hospitality Corp. 800,000 5,600,000 -------------- 25,100,000 DIVERSIFIED CONGLOMERATES--7.8% U.S. Industries, Inc. 3,200,000 $ 48,200,000 TOTAL COMMON STOCKS (COST: $633,782,649) 567,688,232 SHORT TERM INVESTMENTS--7.8% COMMERCIAL PAPER--5.6% American Express Credit Corp., 5.27%-5.55% due 10/1/1998-10/6/1998 $15,000,000 $ 15,000,000 Ford Motor Credit Corp., 5.40% due 10/2/1998 5,000,000 5,000,000 General Electric Capital Corporation, 5.70% due 10/1/1998 15,000,000 15,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $35,000,000) 35,000,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK SMALL CAP FUND 17 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- REPURCHASE AGREEMENTS--2.2% State Street Repurchase Agreement, 5.30% due 10/1/1998 $13,543,000 $ 13,543,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $13,543,000) 13,543,000 TOTAL SHORT TERM INVESTMENTS (COST: $48,543,000) 48,543,000 Total Investments (Cost $682,325,649)--99.7% (d) $ 616,231,232 Other Assets In Excess Of Other Liabilities--0.3% 1,763,530 -------------- TOTAL NET ASSETS--100% $ 617,994,762 -------------- --------------
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) Represents foreign domiciled corporation. (d) At September 30, 1998, net unrealized depreciation of $66,094,417, for federal income tax purposes consisted of gross unrealized appreciation of $47,329,047 and gross unrealized depreciation of $113,423,464. 18 THE OAKMARK SMALL CAP FUND SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--57.4% OFFICE EQUIPMENT--3.1% Lexmark International Group, Inc., Class A (a) 26,000 $ 1,802,125 OTHER CONSUMER GOODS & SERVICES--6.4% Juno Lighting, Inc. 76,300 $ 1,707,213 H&R Block, Inc. 33,000 1,365,375 National Presto Industries, Inc. 17,000 637,500 -------------- 3,710,088 BANKS & THRIFTS--4.7% Washington Mutual, Inc. 50,000 $ 1,687,500 Banc One Corporation 23,674 1,009,104 -------------- 2,696,604 INSURANCE--4.2% PartnerRe Ltd. (b) 32,500 $ 1,302,031 Old Republic International Corporation 49,500 1,113,750 -------------- 2,415,781 TV PROGRAMMING--3.4% Tele-Communications, Liberty Media, Class A (a) 52,800 $ 1,937,100 PUBLISHING--1.5% Lee Enterprises, Inc. 33,900 $ 879,281 INFORMATION SERVICES--3.3% The Dun & Bradstreet Corporation 70,000 $ 1,890,000 COMPUTER SERVICES--5.8% First Data Corporation 80,000 $ 1,880,000 Electronic Data Systems Corporation 45,000 1,493,438 -------------- 3,373,438 DATA STORAGE--4.0% Imation Corp. (a) 125,000 $ 2,312,500 MEDICAL PRODUCTS--3.1% Sybron International Corporation (a) 93,000 $ 1,778,625 AUTOMOTIVE--6.5% Chrysler Corporation 42,000 $ 2,010,750 Lear Corporation (a) 40,000 1,750,000 -------------- 3,760,750 OTHER INDUSTRIAL GOODS & SERVICES--2.7% Premark International, Inc. 56,500 $ 1,585,531
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK EQUITY AND INCOME FUND 21 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
SHARES HELD/ PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--57.4% (CONT.) COMMERCIAL REAL ESTATE--6.2% Amli Residential Properties Trust 90,000 $ 1,918,125 Catellus Development Corporation (a) 127,728 1,660,464 -------------- 3,578,589 DIVERSIFIED CONGLOMERATES--2.5% U.S. Industries, Inc. 94,000 $ 1,415,875 TOTAL COMMON STOCKS (COST: $30,820,268) 33,136,287 FIXED INCOME--33.7% PREFERRED STOCK--5.1% BANKS & THRIFTS--5.1% BBC Capital Trust I, Preferred, 9.50% 28,000 $ 714,000 Pennfed Capital Trust, Preferred, 8.90% 27,500 687,500 PennFirst Capital Trust 1, Preferred, 8.625% 70,000 673,750 RBI Capital Trust I, Preferred, 9.10% 42,500 430,312 Fidelity Capital Trust I, Preferred, 8.375% 43,500 424,125 -------------- 2,929,687 TOTAL PREFERRED STOCK (COST: $2,970,738) 2,929,687 CORPORATE BONDS--2.4% AEROSPACE & AUTOMOTIVE--0.3% Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 157,687 Coltec Industries, Inc., 9.75% due 11/1/1999 25,000 26,188 -------------- 183,875 BUILDING MATERIALS & CONSTRUCTION--0.3% USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 150,000 $ 160,313 UTILITIES--0.3% Midland Funding Corporation, 11.75% due 7/23/2005 150,000 $ 173,438 OTHER INDUSTRIAL GOODS & SERVICES--1.5% Scotsman Industries, Inc., 8.625% due 12/15/2007, Senior Subordinated Note 565,000 $ 560,762 UCAR Global Enterprises Inc., 12.00% due 1/15/2005, Senior Subordinated Note 300,000 304,500 -------------- 865,262 TOTAL CORPORATE BONDS (COST: $1,395,124) 1,382,888
22 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- FIXED INCOME--33.7% (CONT.) GOVERNMENT AND AGENCY SECURITIES--26.2% U.S. GOVERNMENT BONDS--25.7% United States Treasury Notes, 7.875% due 11/15/2004 $6,000,000 $ 7,107,720 United States Treasury Notes, 7.50% due 5/15/2002 6,000,000 6,616,140 United States Treasury Notes, 6.25% due 2/15/2007 1,000,000 1,122,490 -------------- 14,846,350 U.S. GOVERNMENT AGENCIES--0.5% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond 300,000 $ 311,895 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $14,288,633) 15,158,245 TOTAL FIXED INCOME (COST: $18,654,495) 19,470,820 SHORT TERM INVESTMENTS--8.5% COMMERCIAL PAPER--6.1% American Express Credit Corp., 5.27% due 10/5/1998 $500,000 $ 500,000 Ford Motor Credit Corp., 5.55% due 10/1/1998 1,500,000 1,500,000 General Electric Capital Corporation, 5.70% due 10/1/1998 1,500,000 1,500,000 -------------- TOTAL COMMERCIAL PAPER (COST: $3,500,000) 3,500,000 REPURCHASE AGREEMENTS--2.4% State Street Repurchase Agreement, 5.30% due 10/1/1998 $1,390,000 $ 1,390,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $1,390,000) 1,390,000 TOTAL SHORT TERM INVESTMENTS (COST: $4,890,000) 4,890,000 Total Investments (Cost $54,364,763)--99.6% (c) $ 57,497,107 Other Assets In Excess Of Other Liabilities--0.4% 248,748 -------------- TOTAL NET ASSETS--100% $ 57,745,855 -------------- --------------
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) At September 30, 1998, net unrealized appreciation of $3,132,344, for federal income tax purposes consisted of gross unrealized appreciation of $5,429,008 and gross unrealized depreciation of $2,296,664. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK EQUITY AND INCOME FUND 23 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.3% CONSUMER NON-DURABLES--5.7% Fila Holding S.p.A. (Italy), Athletic Footwear Manufacturing (b)(e) 2,574,800 $ 21,885,800 Citizen Watch Co. (Japan) Watch Manufacturer and Retailer 3,166,000 21,438,086 -------------- 43,323,886 FOOD & BEVERAGE--10.1% Quilmes Industrial SA Brewer (Argentina), (b) 4,724,300 $ 38,680,206 Pernod Ricard (France) Manufactures Wines, Spirits, & Fruit 228,579 16,837,894 Juices Tate & Lyle PLC (Great Sugar Producer & Distributor Britain) 2,665,700 14,774,171 Lotte Chilsung Beverage Manufacturer of Soft Drinks, Juices, & Company (Korea) (e) Sport Drinks 123,000 3,095,452 Lotte Confectionery Company Confection Manufacturer (Korea) 65,270 2,933,219 -------------- 76,320,942 HOUSEHOLD PRODUCTS--1.6% Amway Japan Limited (Japan) Marketing of Household Products 1,630,300 $ 11,934,409 RETAIL--1.2% Giordano International East Asian Clothing Retailer & Limited (Hong Kong) (e) Manufacturer 69,304,000 $ 9,391,028 OTHER CONSUMER GOODS & SERVICES--6.8% Canon, Inc. (Japan) Office and Video Equipment 1,007,000 $ 20,419,383 Sankyo Company, Ltd. (Japan) Pachinko Machine Manufacturer 1,234,800 16,722,520 Mandarin Oriental Hotel Management International Limited (Singapore) 30,539,000 14,353,330 -------------- 51,495,233
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND 27 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.3% (CONT.) BANKS--8.2% Uniao de Bancos Brasileiros Major Brazilian Bank S.A. (Brazil), (c) 1,834,900 $ 24,771,150 Banco Latinoamericano de Multinational Bank Exportaciones, S.A., Class E (Panama), (b)(e) 1,316,500 21,146,282 United Overseas Bank Ltd., Commercial Banking Foreign Shares (Singapore) 5,443,000 15,864,668 -------------- 61,782,100 OTHER FINANCIAL--3.4% Sedgwick Group plc (Great Insurance Broker, Financial Services Britain) 7,510,000 $ 25,343,973 MARKETING SERVICES--9.5% Cordiant Communications Advertising Services Group plc (Great Britain) (e) 21,997,578 $ 40,015,927 Saatchi & Saatchi plc (Great Advertising Services Britain), (e) 17,757,578 31,699,125 -------------- 71,715,052 BROADCASTING & PUBLISHING--5.3% Singapore Press Holdings Newspaper Publisher Ltd. (Singapore) 2,740,000 $ 22,725,119 Europe 1 Communication Television Production (France) 74,020 14,804,529 Woongjin Publishing Company Publisher (Korea) (e) 148,410 1,259,204 South China Morning Post Newspaper Publisher (Holdings) Ltd. (Hong Kong) 3,130,000 1,231,997 -------------- 40,020,849 TELECOMMUNICATIONS--2.8% Telesp Participacoes S.A. Telecommunications (Brazil), (a) 401,100,000 $ 6,293,357 Embratel Participacoes S.A. Telecommunications (Brazil), (a) 401,100,000 3,315,855 SK Telecom Co. Ltd. (Korea) Telecommunications 10,395 3,146,716 Tele Centro Sul Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 2,233,127 Tele Norte Leste Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 2,030,115
28 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.3% (CONT.) TELECOMMUNICATIONS--2.8% (CONT.) Telesp Celular Participacoes Telecommunications S.A. (Brazil), (a) 401,100,000 $ 1,691,763 Tele Sudeste Celular Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 676,705 Technology Resources Telecommunications Industries Berhad (Malaysia) 1,485,000 472,855 Tele Celular Sul Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 304,517 Tele Centro Oeste Celular Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 213,162 Telemig Celular Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 179,327 Tele Nordeste Celular Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 172,560 Tele Leste Celular Telecommunications Participacoes (Brazil), (a) 401,100,000 111,656 Tele Norte Celular Telecommunications Participacoes S.A. (Brazil), (a) 401,100,000 84,588 Telecomunicacoes Brasileiras Telecommunications S.A. (Brazil) 401,100,000 84,588 -------------- 21,010,891 AEROSPACE--6.0% Rolls-Royce plc (Great Jet Engines Britain) 9,228,552 $ 31,928,037 Hong Kong Aircraft Commercial Aircraft Overhaul & Engineering Company Ltd. Maintenance (Hong Kong) (e) 11,096,900 13,175,134 -------------- 45,103,171 AIRLINES--2.2% Qantas Airways Limited International Airline (Australia) 10,798,714 $ 16,828,789 OIL & NATURAL GAS--0.5% ISIS (France), (a) Oil Services 57,000 $ 3,867,995
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND 29 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.3% (CONT.) CHEMICALS--6.7% Fernz Corporation Limited Agricultural & Industrial Chemical (New Zealand) (e) Producer 13,373,250 $ 33,797,841 European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands) (e) 1,212,299 15,126,783 Nagase & Co., Ltd. (Japan) Chemical Wholesaler 569,000 2,032,663 -------------- 50,957,287 COMPONENTS--3.4% Varitronix International Liquid Crystal Displays Limited (Hong Kong) 13,421,000 $ 26,066,752 MACHINERY & METAL PROCESSING--2.2% Outokumpu Oyj (Finland) Metal Producer 1,235,000 $ 10,250,172 The Rauma Group (Finland) Pulp Machinery 544,300 6,155,423 -------------- 16,405,595 MINING AND BUILDING MATERIALS--0.7% Keumkang Ltd. (Korea) (e) Building Materials 560,460 $ 4,956,792 Asia Cement Manufacturing Cement Producer Company Ltd. (Korea) 10,500 42,581 -------------- 4,999,373 OTHER INDUSTRIAL GOODS & SERVICES--13.7% Tomkins plc (Great Britain) Industrial Management Company 9,065,000 $ 42,496,931 Chargeurs SA (France) (e) Wool Production Holding Company 524,387 25,752,067 Kone Corporation, Class B Elevators (Finland) 103,870 10,418,665 Charter plc (Great Britain) Welding Products Manufacturer 1,884,100 10,250,102 Groupe Legris Industries SA European Crane Manufacturer (France) 217,815 9,720,341 Dongah Tire Industry Company Tire Manufacturer (Korea), (a)(e) 166,290 4,603,390 -------------- 103,241,496 STEEL--2.9% USIMINAS (Brazil), (e) Steel Production 7,401,370 $ 21,852,288 Pohang Iron & Steel Company Manufactures Steel Products Ltd. (Korea) 14,000 443,933 -------------- 22,296,221
30 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
SHARES HELD/ DESCRIPTION PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.3% (CONT.) DIVERSIFIED CONGLOMERATES--1.4% First Pacific Company Ltd. Diversified Operations (Hong Kong) 19,948,000 $ 5,856,610 Tae Young Corporation Heavy Construction (Korea) (e) 518,300 4,770,261 Lamex Holdings Ltd. (Hong Office Furniture Supplier Kong) (e) 14,040,000 322,517 -------------- 10,949,388 TOTAL COMMON STOCKS (COST: $1,061,918,399) 713,054,430
SHORT TERM INVESTMENTS--3.5% COMMERCIAL PAPER--2.0% General Electric Capital Corporation, 5.70% due 10/1/1998 $15,000,000 $ 15,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $15,000,000) 15,000,000 REPURCHASE AGREEMENTS--1.5% State Street Repurchase Agreement, 5.30% due 10/1/1998 $11,121,000 $ 11,121,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $11,121,000) 11,121,000 TOTAL SHORT TERM INVESTMENTS (COST: $26,121,000) 26,121,000 Total Investments (Cost $1,088,039,399)--97.8% (f) $ 739,175,430 Foreign Currencies (Proceeds $1,367,998)--0.2% 1,367,813 Other Assets In Excess Of Other Liabilities--2.0% (d) 15,561,065 -------------- TOTAL NET ASSETS--100% $ 756,104,308 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) Includes portfolio and transaction hedges. (e) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (f) At September 30, 1998, net unrealized depreciation of $348,863,969, for federal income tax purposes consisted of gross unrealized appreciation of $42,503,436 and gross unrealized depreciation of $391,367,405. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND 31 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.7% CONSUMER NON-DURABLES--3.9% Royal Doulton plc (Great Britain) Tableware and Giftware 990,000 $ 1,540,035 Designer Textiles (NZ) Limited Knit Fabrics (New Zealand) (c) 2,960,000 459,213 Dickson Concepts International Jewlery Wholesaler and Retailer Limited (Hong Kong) 20,000 15,615 -------------- 2,014,863 FOOD & BEVERAGE--9.6% Matthew Clark plc (Great Britain) Spirits & Drinks 1,054,000 $ 2,150,285 Alaska Milk Corporation Milk Producer (Philippines), (a) 39,327,000 1,707,915 Hite Brewery Company (Korea) Brewer 165,010 761,722 Souza Cruz S/A (Brazil) Tobacco Products 55,000 347,969 -------------- 4,967,891 RETAIL--11.3% Carpetright plc (Great Britain) Carpet Retailer 650,000 $ 2,375,889 Daimon (Japan) (c) Liquor Retailer & Distributor 657,700 1,516,602 Paris Miki Inc. (Japan) Optical Supplies Retailer 85,100 1,140,024 Giordano International Limited East Asian Clothing Retailer & (Hong Kong) Manufacturer 3,112,000 421,691 Jusco Stores Co., Limited (Hong Department Stores Kong) 4,244,000 410,773 -------------- 5,864,979 OTHER CONSUMER GOODS & SERVICES--6.5% Sanford Limited (New Zealand) Fisheries 1,275,240 $ 1,595,485 CeWe Color Holding AG (Germany) Photo Equipment & Supplies 9,400 1,519,806 CDL Hotels International Limited Hotel Operator (Hong Kong) 1,072,000 246,252 -------------- 3,361,543 BANKS--0.3% Shinhan Bank (Korea) Commercial Bank 47,764 $ 110,931 Kookmin Bank (Korea) Commercial Bank 11,351 27,587 -------------- 138,518 OTHER FINANCIAL--11.0% Lambert Fenchurch Group plc Insurance Broker (Great Britain) 1,411,000 $ 2,470,805 JCG Holdings Ltd. (Hong Kong) Investment Holding Company 9,461,000 1,709,348 Ichiyoshi Securities (Japan) Stock Broker 1,575,000 1,498,847 -------------- 5,679,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL SMALL CAP FUND 35 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.7% (CONT.) COMPUTER SOFTWARE--7.5% Enix Corporation (Japan) Entertainment Software 129,100 $ 2,778,478 Koei (Japan) Computer Software 196,000 1,120,574 -------------- 3,899,052 COMPUTER SYSTEMS--3.9% Solution 6 Holdings Limited Systems Design & Consulting (Australia), (a)(c) 4,150,893 $ 1,992,286 MARKETING SERVICES--5.0% Cordiant Communications Group plc Advertising Services (Great Britain) 1,428,500 $ 2,598,593 BROADCASTING & PUBLISHING--5.2% Matichon Public Company Limited, Newspaper Publisher Foreign Shares (Thailand) (c) 2,038,900 $ 1,801,468 Woongjin Publishing Company Publisher (Korea) 107,076 908,501 Matichon Public Company Limited Newspaper Publisher (Thailand) 600 505 -------------- 2,710,474 TELECOMMUNICATIONS--0.5% SK Telecom Co. Ltd. (Korea) Telecommunications 803 $ 243,080 CHEMICALS--2.0% European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands) 83,100 $ 1,036,902 MACHINERY & METAL PROCESSING--1.5% Denyo Co., Ltd. (Japan) Welding Machines & Power Generators 184,000 $ 793,353 MINING AND BUILDING MATERIALS--3.1% Parbury Limited (Australia) (c) Building Products 11,119,712 $ 1,581,357 OTHER INDUSTRIAL GOODS & SERVICES--11.6% Elevadores Atlas, SA (Brazil) Elevators 229,200 $ 2,378,135 Dongah Tire Industry Company Tire Manufacturer (Korea), (a) 43,900 1,215,280 Nishio Rent All Company (Japan) Construction Equipment Rental 163,900 995,842 Yip's Hang Cheung Ltd. (Hong Paint & Solvents Kong) (c) 24,724,000 845,532
36 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT. ........................................................................
SHARES HELD/ DESCRIPTION PRINCIPAL VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.7% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--11.6% (CONT.) Groupe Legris Industries SA European Crane Manufacturer (France) 12,800 $ 571,220 -------------- 6,006,009 PRODUCTION EQUIPMENT--3.9% NSC Groupe (France) Manufacturer of Textile Equipment 11,532 $ 1,637,191 Skyjack Inc. (Canada), (a) Producer of Elevating Platforms & Lifts 32,200 406,339 -------------- 2,043,530 STEEL--4.3% Steel & Tube Holdings Ltd. (New Produces and Distributes Steel Zealand) 2,995,400 $ 2,023,714 Pohang Iron & Steel Company Ltd. Manufactures Steel Products (Korea) 6,580 208,649 -------------- 2,232,363 DIVERSIFIED CONGLOMERATES--4.6% Haw Par Corporation Ltd. Healthcare and Leisure Products (Singapore) 3,113,000 $ 2,397,452 TOTAL COMMON STOCKS (COST: $78,457,722) 49,561,245
SHORT TERM INVESTMENTS--1.9% REPURCHASE AGREEMENTS--1.9% State Street Repurchase Agreement, 5.30% due 10/1/1998 $967,000 $ 967,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $967,000) 967,000 TOTAL SHORT TERM INVESTMENTS (COST: $967,000) 967,000 Total Investments (Cost $79,424,722)--97.6% (d) $ 50,528,245 Foreign Currencies (Proceeds $31,439)--0.1% 31,436 Other Assets In Excess Of Other Liabilities--2.3% (b) 1,210,894 -------------- TOTAL NET ASSETS--100% $ 51,770,575 -------------- --------------
(a) Non-income producing security. (b) Includes portfolio and transaction hedges. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At September 30, 1998, net unrealized depreciation of $28,896,477, for federal income tax purposes consisted of gross unrealized appreciation of $437,043 and gross unrealized depreciation of $29,333,520. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL SMALL CAP FUND 37 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--SEPTEMBER 30, 1998 ........................................................................
THE OAKMARK THE OAKMARK FUND SELECT FUND ------------------------- ------------------------- - --------------------------------------------------------------------------------- ASSETS Investments, at market value $ 6,888,618,717 $ 1,231,272,537 (cost: $6,573,899,571) (cost: $1,222,499,627) Cash 47,767 652 Foreign currency, at value 0 0 Collateral for securities loaned, at value 0 159,033,480 Receivable for: Forward foreign currency contracts 0 0 Securities sold 23,602,941 467,123 Fund shares sold 9,105,820 2,884,796 Dividends and interest 17,548,208 750,119 ------------------------- ------------------------- Total receivables 50,256,969 4,102,038 Other assets 37,203 8,444 ------------------------- ------------------------- Total assets $ 6,938,960,656 $ 1,394,417,151 ------------------------- ------------------------- ------------------------- ------------------------- ................................................................................. LIABILITIES AND NET ASSETS Payable for: Collateral for securities loaned, at value $ 0 $ 159,033,480 Securities purchased 0 4,837,276 Fund shares redeemed 7,227,480 1,045,502 Due to adviser 5,290,462 957,981 Forward foreign currency contracts 0 0 Other 2,484,832 648,526 ------------------------- ------------------------- Total liabilities 15,002,774 166,522,765 ------------------------- ------------------------- Net assets applicable to fund shares outstanding $ 6,923,957,882 $ 1,227,894,386 ------------------------- ------------------------- ------------------------- ------------------------- Fund shares outstanding 206,454,614 73,251,709 ------------------------- ------------------------- ------------------------- ------------------------- ................................................................................. PRICE OF SHARES Net asset value per share $ 33.54 $ 16.76 ------------------------- ------------------------- ------------------------- ------------------------- ................................................................................. ANALYSIS OF NET ASSETS Paid in capital $ 6,156,111,515 $ 1,149,816,590 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 375,272,768 67,603,248 Net unrealized appreciation (depreciation) of investments 314,719,146 8,772,910 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 Net unrealized appreciation (depreciation)--other 0 0 Accumulated undistributed net investment income (loss) 77,854,453 1,701,638 ------------------------- ------------------------- Net assets applicable to Fund shares outstanding $ 6,923,957,882 $ 1,227,894,386 ------------------------- ------------------------- ------------------------- -------------------------
38 THE OAKMARK FAMILY OF FUNDS ......................................................................
THE OAKMARK THE OAKMARK THE OAKMARK SMALL CAP EQUITY AND INTERNATIONAL FUND INCOME FUND FUND ------------------------- ------------------------- ------------------------- - ----------------------------------------------------------------------------------------------------------- ASSETS Investments, at market value $ 616,231,232 $ 57,497,107 $ 739,175,430 (cost: $682,325,649) (cost: $54,364,763) (cost: $1,088,039,399) Cash 1,013,396 585 601 Foreign currency, at value 0 0 1,367,813 Collateral for securities loaned, at value 26,009,161 1,759,177 73,675,393 Receivable for: Forward foreign currency contracts 0 0 2,446,315 Securities sold 12,674,906 0 15,095,665 Fund shares sold 1,033,409 15,175 203,924 Dividends and interest 532,476 461,512 5,128,670 ------------------------- ------------------------- ------------------------- Total receivables 14,240,791 476,687 22,874,574 Other assets 8,548 3,274 5,399 ------------------------- ------------------------- ------------------------- Total assets $ 657,503,128 $ 59,736,830 $ 837,099,210 ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ........................................................................................................... LIABILITIES AND NET ASSETS Payable for: Collateral for securities loaned, at value $ 26,009,161 $ 1,759,177 $ 73,675,393 Securities purchased 11,122,483 0 0 Fund shares redeemed 1,436,217 135,567 2,048,641 Due to adviser 670,322 34,324 683,804 Forward foreign currency contracts 0 0 3,977,540 Other 270,183 61,907 609,524 ------------------------- ------------------------- ------------------------- Total liabilities 39,508,366 1,990,975 80,994,902 ------------------------- ------------------------- ------------------------- Net assets applicable to fund shares outstanding $ 617,994,762 $ 57,745,855 $ 756,104,308 ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- Fund shares outstanding 48,938,247 4,127,329 72,552,725 ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ........................................................................................................... PRICE OF SHARES Net asset value per share $ 12.63 $ 13.99 $ 10.42 ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ........................................................................................................... ANALYSIS OF NET ASSETS Paid in capital $ 684,807,280 $ 52,589,935 $ 1,015,075,572 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 6,202,400 1,002,213 52,470,799 Net unrealized appreciation (depreciation) of investments (66,094,417) 3,132,344 (348,864,154) Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 (1,515,552) Net unrealized appreciation (depreciation)--other 0 0 198,784 Accumulated undistributed net investment income (loss) (6,920,501) 1,021,363 38,738,859 ------------------------- ------------------------- ------------------------- Net assets applicable to Fund shares outstanding $ 617,994,762 $ 57,745,855 $ 756,104,308 ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------- ------------------------- ------------------------- - ------------------------------ ASSETS Investments, at market value $ 50,528,245 (cost: $79,424,722) Cash 940 Foreign currency, at value 31,436 Collateral for securities loaned, at value 3,218,851 Receivable for: Forward foreign currency contracts 1,877 Securities sold 1,087,279 Fund shares sold 24,414 Dividends and interest 512,069 ------------------------- Total receivables 1,625,639 Other assets 3,350 ------------------------- Total assets $ 55,408,461 ------------------------- ------------------------- .............................. LIABILITIES AND NET ASSETS Payable for: Collateral for securities loaned, at value $ 3,218,851 Securities purchased 0 Fund shares redeemed 34,598 Due to adviser 58,195 Forward foreign currency contracts 179,274 Other 146,968 ------------------------- Total liabilities 3,637,886 ------------------------- Net assets applicable to fund shares outstanding $ 51,770,575 ------------------------- ------------------------- Fund shares outstanding 7,514,807 ------------------------- ------------------------- .............................. PRICE OF SHARES Net asset value per share $ 6.89 ------------------------- ------------------------- .............................. ANALYSIS OF NET ASSETS Paid in capital $ 80,845,737 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions (1,634,583) Net unrealized appreciation (depreciation) of investments (28,896,480) Net unrealized appreciation (depreciation) of foreign currency portfolio hedges (179,057) Net unrealized appreciation (depreciation)--other 5,883 Accumulated undistributed net investment income (loss) 1,629,075 ------------------------- Net assets applicable to Fund shares outstanding $ 51,770,575 ------------------------- -------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 39 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--YEAR ENDED SEPTEMBER 30, 1998 ........................................................................
THE OAKMARK THE OAKMARK SELECT FUND FUND ------------------------- ------------------------- - ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 132,309,356 $ 10,572,619 Interest Income 47,671,926 5,735,556 Securities lending income 0 109,602 Foreign taxes withheld (1,820,235) (169,788) ------------------------- ------------------------- Total investment income 178,161,047 16,247,989 ......................................................................................... EXPENSES: Investment advisory fee 72,196,251 11,525,158 Transfer and dividend disbursing agent fees 4,376,441 1,063,152 Other shareholder servicing fees 3,387,013 764,027 Reports to shareholders 1,664,357 318,511 Custody and accounting fees 868,661 178,446 Registration and blue sky expenses 673,806 335,384 Trustees fees 90,748 30,422 Legal fees 58,259 19,206 Audit fees 27,925 20,999 Other 343,480 46,872 ------------------------- ------------------------- Total expenses 83,686,941 14,302,177 Expense offset arrangements (6,489) (2,712) ------------------------- ------------------------- Net expenses 83,680,452 14,299,465 ------------------------- ------------------------- ......................................................................................... NET INVESTMENT INCOME (LOSS): 94,480,595 1,948,524 ......................................................................................... NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 1,258,937,339 69,415,172 Net realized gain (loss) on foreign currency transactions (8,898) 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (1,704,966,868) (78,902,257) Net change in appreciation of forward currency exchange contracts 0 0 Net change in appreciation (depreciation)--other 0 0 ------------------------- ------------------------- ......................................................................................... NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: (446,038,427) (9,487,085) ------------------------- ------------------------- ......................................................................................... NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (351,557,832) $ (7,538,561) ------------------------- ------------------------- ------------------------- -------------------------
40 THE OAKMARK FAMILY OF FUNDS ......................................................................
THE OAKMARK THE OAKMARK THE OAKMARK SMALL CAP EQUITY AND INTERNATIONAL FUND INCOME FUND FUND ------------------------- ------------------------- ------------------------- - ----------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 8,702,112 $ 737,103 $ 38,964,663 Interest Income 3,864,378 1,064,634 2,761,336 Securities lending income 434,864 5,635 1,625,921 Foreign taxes withheld 0 (1,560) (3,542,574) ------------------------- ------------------------- ------------------------- Total investment income 13,001,354 1,805,812 39,809,346 ....................................................................................................................... EXPENSES: Investment advisory fee 15,863,707 359,708 12,623,371 Transfer and dividend disbursing agent fees 780,579 95,816 967,291 Other shareholder servicing fees 700,403 12,676 580,069 Reports to shareholders 301,533 20,847 335,053 Custody and accounting fees 179,707 49,662 1,350,813 Registration and blue sky expenses 55,750 43,519 53,679 Trustees fees 30,535 18,442 27,749 Legal fees 20,157 11,337 17,726 Audit fees 21,041 19,544 26,722 Other 56,482 7,909 123,111 ------------------------- ------------------------- ------------------------- Total expenses 18,009,894 639,460 16,105,584 Expense offset arrangements (48,678) (212) (105,661) ------------------------- ------------------------- ------------------------- Net expenses 17,961,216 639,248 15,999,923 ------------------------- ------------------------- ------------------------- ....................................................................................................................... NET INVESTMENT INCOME (LOSS): (4,959,862) 1,166,564 23,809,423 ....................................................................................................................... NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 124,757,914 1,578,730 86,532,713 Net realized gain (loss) on foreign currency transactions 0 0 (3,890,444) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (374,056,372) (2,325,892) (502,914,491) Net change in appreciation of forward currency exchange contracts 0 0 (2,045,738) Net change in appreciation (depreciation)--other 0 0 195,384 ------------------------- ------------------------- ------------------------- ....................................................................................................................... NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: (249,298,458) (747,162) (422,122,576) ------------------------- ------------------------- ------------------------- ....................................................................................................................... NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (254,258,320) $ 419,402 $ (398,313,153) ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------- ------------------ ------------------------- - ------------------------------ INVESTMENT INCOME: Dividends $ 2,777,457 Interest Income 214,453 Securities lending income 7,556 Foreign taxes withheld (304,967) ------------------------- Total investment income 2,694,499 .............................. EXPENSES: Investment advisory fee 827,611 Transfer and dividend disbursing agent fees 112,828 Other shareholder servicing fees 27,531 Reports to shareholders 31,378 Custody and accounting fees 176,922 Registration and blue sky expenses 35,377 Trustees fees 18,433 Legal fees 12,111 Audit fees 24,144 Other 13,299 ------------------------- Total expenses 1,279,634 Expense offset arrangements (292) ------------------------- Net expenses 1,279,342 ------------------------- .............................. NET INVESTMENT INCOME (LOSS): 1,415,157 .............................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments (96,290) Net realized gain (loss) on foreign currency transactions (162,499) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (27,728,327) Net change in appreciation of forward currency exchange contracts (179,057) Net change in appreciation (depreciation)--other 2,414 ------------------------- .............................. NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: (28,163,759) ------------------------- .............................. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (26,748,602) ------------------------- -------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 41 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1998 ........................................................................
THE OAKMARK FUND ------------------------------------------------------- YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - ----------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 94,480,595 $ 55,858,346 Net realized gain on sale of investments 1,258,937,339 239,442,987 Net realized gain (loss) on foreign currency transactions (8,898) (2,673) Net change in unrealized appreciation (1,704,966,868) 1,231,138,352 ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS (351,557,832) 1,526,437,012 ......................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (66,321,023) (41,659,757) Net realized short-term gain (25,210,618) (13,947,126) Net realized long-term gain (1,098,260,243) (212,039,549) ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,189,791,884) (267,646,432) ......................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 2,836,315,983 2,107,074,877 Reinvestment of dividends and capital gain distributions 1,133,761,068 256,384,877 Payments for shares redeemed (2,119,718,081) (941,237,366) ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,850,358,970 1,422,222,388 ------------------------- ------------------------- ......................................................................................... TOTAL INCREASE IN NET ASSETS 309,009,254 2,681,012,968 NET ASSETS: Beginning of period 6,614,948,628 3,933,935,660 ------------------------- ------------------------- End of period $ 6,923,957,882 $ 6,614,948,628 ------------------------- ------------------------- ------------------------- ------------------------- Undistributed net investment income $ 77,854,452 $ 49,694,881 ------------------------- ------------------------- ------------------------- ------------------------- (1) DISTRIBUTIONS PER SHARE: Net investment income 0.3996 0.3441 Net realized short-term gain 0.1519 0.1152 Net realized long-term gain 5.8556 1.7514 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 6.4071 $ 2.2107
42 THE OAKMARK FAMILY OF FUNDS ......................................................................
THE OAKMARK SELECT FUND ------------------------------------------------------- YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - ----------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 1,948,524 $ (246,886) Net realized gain on sale of investments 69,415,172 5,070,435 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (78,902,257) 87,675,167 ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS (7,538,561) 92,498,716 ......................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 0 Net realized short-term gain (6,882,359) 0 Net realized long-term gain -- 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (6,882,359) 0 ......................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 1,440,695,723 571,117,746 Reinvestment of dividends and capital gain distributions 6,568,333 0 Payments for shares redeemed (719,123,322) (149,441,890) ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 728,140,734 421,675,856 ------------------------- ------------------------- ......................................................................................... TOTAL INCREASE IN NET ASSETS 713,719,814 514,174,572 NET ASSETS: Beginning of period 514,174,572 0 ------------------------- ------------------------- End of period $ 1,227,894,386 $ 514,174,572 ------------------------- ------------------------- ------------------------- ------------------------- Undistributed net investment income $ 1,701,638 $ (246,886) ------------------------- ------------------------- ------------------------- ------------------------- (1) DISTRIBUTIONS PER SHARE: Net investment income 0 0 Net realized short-term gain 0.1678 0 Net realized long-term gain 0 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1678 $ 0
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 43 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1998 CONT. ........................................................................
THE OAKMARK SMALL CAP FUND ------------------------------------------------------- YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - ----------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ (4,959,862) $ (1,684,439) Net realized gain on sale of investments 124,757,914 46,501,798 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (374,056,372) 287,859,202 ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS (254,258,320) 332,676,561 ......................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM: (1) Net investment income 0 0 Net realized short-term gain (35,041,133) 0 Net realized long-term gain (129,772,888) 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (164,814,021) 0 ......................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 416,817,749 1,289,718,462 Reinvestment of dividends and capital gain distributions 156,645,973 0 Payments for shares redeemed (1,049,792,259) (327,419,790) ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (476,328,537) 962,298,672 ------------------------- ------------------------- ......................................................................................... TOTAL INCREASE IN NET ASSETS (895,400,878) 1,294,975,233 NET ASSETS: Beginning of period 1,513,395,640 218,420,407 ------------------------- ------------------------- End of period $ 617,994,762 $ 1,513,395,640 ------------------------- ------------------------- ------------------------- ------------------------- Undistributed net investment income $ (6,920,502) $ (1,960,639) ------------------------- ------------------------- ------------------------- ------------------------- (1) DISTRIBUTIONS PER SHARE: Net investment income 0 0 Net realized short-term gain 0.4738 0 Net realized long-term gain 2.3874 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 2.8612 $ 0
44 THE OAKMARK FAMILY OF FUNDS ......................................................................
THE OAKMARK EQUITY AND INCOME FUND ------------------------------------------------------- YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - ----------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 1,166,564 $ 471,744 Net realized gain on sale of investments 1,578,730 904,824 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (2,325,892) 4,554,518 ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 419,402 5,931,086 ......................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM: (1) Net investment income (594,007) (148,466) Net realized short-term gain (882,071) (162,188) Net realized long-term gain (599,021) 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (2,075,099) (310,654) ......................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 43,125,943 24,903,007 Reinvestment of dividends and capital gain distributions 1,964,129 288,850 Payments for shares redeemed (19,151,033) (11,148,702) ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 25,939,039 14,043,155 ------------------------- ------------------------- ......................................................................................... TOTAL INCREASE IN NET ASSETS 24,283,342 19,663,587 NET ASSETS: Beginning of period 33,462,513 13,798,926 ------------------------- ------------------------- End of period $ 57,745,855 $ 33,462,513 ------------------------- ------------------------- ------------------------- ------------------------- Undistributed net investment income $ 1,021,363 $ 448,806 ------------------------- ------------------------- ------------------------- ------------------------- (1) DISTRIBUTIONS PER SHARE: Net investment income 0.2359 0.1202 Net realized short-term gain 0.3503 0.1311 Net realized long-term gain 0.2379 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.8241 $ 0.2513
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 45 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1998 CONT. ........................................................................
THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------- YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - ----------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 23,809,423 $ 27,666,383 Net realized gain on sale of investments 86,532,713 217,090,057 Net realized gain (loss) on foreign currency transactions (3,890,444) 17,724,883 Net change in unrealized appreciation (depreciation) (502,914,491) 70,717,122 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (2,045,738) 3,426,674 Net change in unrealized appreciation (depreciation)--other 195,384 197,532 ------------------------- ------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (398,313,153) 336,822,651 ......................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM: (1) Net investment income (46,460,573) (12,477,945) Net realized short-term gain (57,985,224) 0 Net realized long-term gain (173,099,244) 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (277,545,041) (12,477,945) ......................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 482,976,228 710,447,882 Reinvestment of dividends and capital gain distributions 263,415,429 11,903,359 Payments for shares redeemed (961,776,686) (572,115,610) ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (215,385,029) 150,235,631 ------------------------- ------------------------- ......................................................................................... TOTAL INCREASE (DECREASE) IN NET ASSETS (891,243,223) 474,580,337 NET ASSETS: Beginning of period 1,647,347,531 1,172,767,194 ------------------------- ------------------------- End of period $ 756,104,308 $ 1,647,347,531 ------------------------- ------------------------- ------------------------- ------------------------- Undistributed net investment income $ 38,738,859 $ 61,390,009 ------------------------- ------------------------- ------------------------- ------------------------- (1) DISTRIBUTIONS PER SHARE: Net investment income 0.5758 0.1617 Net realized short-term gain 0.7186 0 Net realized long-term gain 2.1453 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 3.4397 $ 0.1617
46 THE OAKMARK FAMILY OF FUNDS ......................................................................
THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------- YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - ----------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 1,415,157 $ 646,048 Net realized gain on sale of investments (96,290) 6,250,624 Net realized gain (loss) on foreign currency transactions (162,499) (232,740) Net change in unrealized appreciation (depreciation) (27,728,327) (1,464,546) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (179,057) 0 Net change in unrealized appreciation (depreciation)--other 2,414 5,257 ------------------------- ------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (26,748,602) 5,204,643 ......................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM: (1) Net investment income (308,015) (279,216) Net realized short-term gain (3,477,982) (1,285,114) Net realized long-term gain (3,890,139) 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (7,676,136) (1,564,330) ......................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 77,339,314 63,012,100 Reinvestment of dividends and capital gain distributions 7,427,846 1,523,977 Payments for shares redeemed (64,544,647) (41,955,631) ------------------------- ------------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 20,222,513 22,580,446 ------------------------- ------------------------- ......................................................................................... TOTAL INCREASE (DECREASE) IN NET ASSETS (14,202,225) 26,220,759 NET ASSETS: Beginning of period 65,972,800 39,752,041 ------------------------- ------------------------- End of period $ 51,770,575 $ 65,972,800 ------------------------- ------------------------- ------------------------- ------------------------- Undistributed net investment income $ 1,629,074 $ 521,933 ------------------------- ------------------------- ------------------------- ------------------------- (1) DISTRIBUTIONS PER SHARE: Net investment income 0.0559 0.0777 Net realized short-term gain 0.6312 0.3581 Net realized long-term gain 0.7060 0 ------------------------- ------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.3931 $ 0.4358
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 47 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS ........................................................................ 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. SECURITY VALUATION-- Investments are stated at current value. Securities traded on securities exchanges and securities traded on the NASDAQ National Market are valued at the last sales price on the day of valuation, or if lacking any reported sales that day, at the most recent bid quotation. Over-the-counter securities not so traded are valued at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the date of valuation are valued on an amortized cost basis which approximates market value. Securities for which quotations are not readily available are valued at a fair value as determined by the Trustees. FOREIGN CURRENCY TRANSLATIONS-- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. At September 30, 1998, only the International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:
INTERNATIONAL INTERNATIONAL SMALL CAP - ---------------------------------------------------------- Unrealized appreciation on dividends and dividend reclaims receivable $238,449 $ 12,428 Unrealized depreciation on open securities purchases and sales (17,431) (6,912) Unrealized appreciation (depreciation) on transaction hedge purchases and sales (15,673) 1,660 Unrealized depreciation on tax expense payable (6,561) (1,293) --------- ---------- Net Unrealized Appreciation - Other $198,784 $ 5,883 --------- ---------- --------- ----------
SECURITY TRANSACTIONS AND INVESTMENT INCOME-- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. FORWARD FOREIGN CURRENCY CONTRACTS-- At September 30, 1998, International and Int'l Small Cap had entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. 48 THE OAKMARK FAMILY OF FUNDS The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movements in currency values. The International Fund had the following outstanding contracts at September 30, 1998: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998 - ------------------------------------------------------------------------------------------------------------- $25,000,000 31,235,000 Brazilian Real January 1998 $ 1,310,201 20,000,000 24,992,000 Brazilian Real January 1998 1,112,769 30,654,500 18,500,000 Pound Sterling October 1998 (753,068) 37,289,250 22,500,000 Pound Sterling November 1998 (894,688) 14,801,400 9,000,000 Pound Sterling November 1998 (466,449) 14,794,200 9,000,000 Pound Sterling November 1998 (473,649) 14,607,000 9,000,000 Pound Sterling November 1998 (658,415) 14,233,120 8,800,000 Pound Sterling November 1998 (692,253) ------------------- $(1,515,552) ------------------- -------------------
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998 - --------------------------------------------------------------------------------------------------------------- $3,738,928 20,963,421 French Franc October 1998 $ (4,674) 3,143,545 1,865,827 Pound Sterling October 1998 (28,545) 1,594,391 933,429 Pound Sterling October 1998 7,468 3,223,084 1,886,499 Pound Sterling October 1998 15,848 1,844,181 1,087,820 Pound Sterling October 1998 (5,221) 472,144 278,043 Pound Sterling October 1998 (556) 14,664 20,353,856 South Korean Won October 1998 29 24,850 49,700 New Zealand Dollar October 1998 (22) ---------- $ (15,673) ---------- ----------
The Int'l Small Cap Fund had the following outstanding contracts: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998 - ------------------------------------------------------------------------------------------------------------- $7,456,500 4,500,000 Pound Sterling November 1998 $ (179,057) ---------- ----------
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998 - ------------------------------------------------------------------------------------------------------------------ $ 36,402 55,680 Canadian Dollar October 1998 $ (99) 441,298 259,480 Pound Sterling October 1998 156 214,840 125,748 Pound Sterling October 1998 1,057 7,541 1,025,913 Japanese Yen October 1998 31 60,660 8,252,168 Japanese Yen October 1998 251 92,447 12,576,472 Japanese Yen October 1998 382 131,033 262,066 New Zealand Dollar October 1998 (118) ------ $1,660 ------ ------
At September 30, 1998, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. THE OAKMARK FAMILY OF FUNDS 49 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ SECURITIES LENDING-- Each Fund except The Oakmark Fund may lend portfolio securities to broker- dealers and banks. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The Funds receive income from lending securities by investing the collateral and continue to earn income on the loaned securities. Security loans are subject to the risk of failure by the borrower to return the loaned securities, in which case the lending Fund could incur a loss. The market values (in thousands) of securities on loan to broker-dealers at September 30, 1998 are shown below.
INT'L SMALL EQUITY & SMALL SELECT CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------ Market Value of Securities Loaned $153,993 $24,519 $ 1,696 $67,416 $ 2,988 Collateral (Cash and U.S. Treasuries) 159,033 26,009 1,759 73,675 3,219
FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- No provision is made for Federal income taxes since the Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. The Funds hereby designate the following long term capital gain distributions for purposes of the dividends received deduction (in thousands):
INT'L SMALL EQUITY & SMALL OAKMARK SELECT CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------ Long Term Capital Gain $1,111,813 $ 67,892 $124,758 $ 1,111 $23,108 $ 0
BANK LOANS-- The Funds have two unsecured lines of credit with a syndication of banks. One line of credit is a committed line of $350 million and the other is an uncommitted line of $250 million. Borrowings under this arrangement bear interest at .50% above the Federal Funds Effective Rate. As of September 30, 1998, there were no outstanding borrowings. 2. TRANSACTIONS WITH AFFILIATES Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets and .85% on the excess of $5 billion of net assets. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets and .90% on the excess of $5 billion of net assets. Select pays 1% on the first $1 billion and .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million and .80% on the excess of $2.5 million of net assets. Small Cap pays 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1% on the excess of $2.5 billion. Equity and Income pays .75% of net assets and Int'l Small Cap pays 1.25% of net assets. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. Beginning October 1, 1998, additional breakpoints will be as follows: Oakmark will pay .80% on net assets in excess of $10 billion and Select will pay .75% on excess of $5 billion of net assets. The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% for domestic funds and 2.0% for international funds. In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International, approximately $7,283 each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to Select by the Adviser. These expenses are being amortized on a straight line basis through October, 2000 for Small Cap, Equity and Income and Int'l Small Cap, and October, 2001 for Select. Oakmark and International have fully amortized all organization expenses. During the year ended September 30, 1998, the Funds incurred brokerage commissions of $7,658,348, $2,399,359, $1,956,260, $66,195, $4,295,208 and $384,909 of which $2,068,690, $589,570, $193,708, $41,979, $0, and $0 were paid by Oakmark, Select, Small Cap, Equity and Income, International and Int'l Small Cap, respectively, to an affiliate of the Adviser. 50 THE OAKMARK FAMILY OF FUNDS 3. FUND SHARE TRANSACTIONS Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following number of shares (in thousands):
YEAR ENDED SEPTEMBER 30, 1998 -------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------------- Shares sold 68,340 81,093 22,121 3,014 34,513 8,604 Shares issued in reinvestment of dividends 30,513 410 9,667 149 20,108 786 Less shares redeemed (52,910) (39,717) (57,261) (1,344) (69,820) (7,284) ------- ------- --------- -------- ------------- ----- Net increase (decrease) in shares outstanding 45,943 41,786 (25,473) 1,819 (15,199) 2,106 ------- ------- --------- -------- ------------- ----- ------- ------- --------- -------- ------------- -----
ELEVEN MONTHS ENDED SEPTEMBER 30, 1997 -------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------------- Shares sold 57,226 42,529 78,065 1,941 41,288 5,229 Shares issued in reinvestment of dividends 7,962 0 0 25 793 135 Less shares redeemed (26,115) (11,063) (20,201) (880) (32,946) (3,438) ------- ------- --------- -------- ------ ----------- Net increase in shares outstanding 39,073 31,466 57,864 1,086 9,135 1,926 ------- ------- --------- -------- ------ ----------- ------- ------- --------- -------- ------ -----------
4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------------------------ Purchases $3,681,990 $1,219,648 $391,185 $41,789 $502,915 $57,346 Proceeds from sales 2,991,049 601,544 968,060 20,783 923,456 41,576
THE OAKMARK FAMILY OF FUNDS 51 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ 5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the year ended September 30, 1998 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST PROCEEDS INCOME VALUE - ----------------------------------------------------------------------------------------------- AC Nielsen Corporation $ - $ - $ - $ 105,999,000 Brunswick Corporation 47,321,680 - 1,789,400 94,195,350 GC Companies, Inc. - - - 15,334,125 H & R Block, Inc. 340,780,489 - 2,941,950 317,172,475 Juno Lighting, Incorporated - - 390,600 24,276,875 Knight Ridder 128,013,079 - 4,480,340 308,358,300 Polaroid Corporation 11,171,805 - 2,731,440 111,818,325 R. H. Donnelley Corporation 10,418,862 - 1,835,978 25,965,967 SPX Corporation - - - 36,156,700 The Black & Decker Corporation 46,677,053 - 3,899,160 344,113,875 The Dun & Bradstreet Corporation 107,175,516 - 6,115,747 283,265,100 ------------ ----------- ----------- -------------- TOTALS $691,558,484 - $24,184,615 $1,666,656,092
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST PROCEEDS INCOME VALUE - ----------------------------------------------------------------------------------------------- USG Corporation $ 96,334,193 $ 3,793,551 $ 26,492 $ 118,539,600 US Industries Inc. 148,983,455 16,251,897 1,212,415 113,179,625 ------------ ----------- ----------- -------------- TOTALS $245,317,648 $20,045,448 $ 1,238,907 $ 231,719,225
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST PROCEEDS INCOME VALUE - ----------------------------------------------------------------------------------------------- Ascent Entertainment Group, Inc. $ 3,794,484 $ 5,437,319 $ - $ 12,000,000 Barry (R.G.) Corporation 3,388,252 - - 11,781,263 Binks Sames Corporation 1,078,125 - 24,700 4,675,000 Columbus McKinnon Corporation 5,432,270 1,724,192 249,816 17,325,000 Duff & Phelps Credit Rating Company 3,082,142 - 38,808 16,121,875 Finger Lakes Financial Corp. - - 41,360 2,068,000 Northwest Pipe Company 1,520,000 2,103,411 - 9,250,000 Ralcorp Holdings, Inc. - 23,429,934 - 24,500,000 ROHN Industries, Inc. 17,335,121 - 50,000 5,812,500 Scotsman Industries, Inc. - 1,664,975 100,612 22,240,375 Triarc Companies, Inc. 1,959,905 10,981,722 - 19,453,125 Ugly Duckling Corporation 20,320,181 8,194,979 - 8,695,288 ------------ ----------- ----------- -------------- TOTALS $ 57,910,480 $53,536,532 $ 505,296 $ 153,922,426
52 THE OAKMARK FAMILY OF FUNDS SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST PROCEEDS INCOME VALUE - --------------------------------------------------------------------------------------------- Banco Latinoamericano de Exportaciones,S.A. Class E $ 39,751,365 $ 3,301,540 $ 849,888 $ 21,146,282 Chargeurs International SA - 9,934,608 1,430,885 25,752,067 Cordiant Communications Group PLC 2,891,044 - 420,931 40,015,927 Dongah Tire Industry Company 5,643,713 - - 4,603,390 European Vinyls Corporation Intl. NV - 3,188,031 1,951,039 15,126,783 Fernz Corporation Ltd. 6,718,676 2,115,546 1,574,294 33,797,841 Fila Holding S.p.A. 20,288,049 187,177 685,787 21,885,800 Giordano International Limited 8,556,185 98,829 89,476 9,391,028 Hong Kong Aircraft Engineering Company 3,216,275 607,632 1,026,373 13,175,134 Keumkang Ltd. 2,940,243 - 159,292 4,956,792 Lamex Holdings Ltd. - - 181,184 322,517 Lotte Chilsung Beverage Company 3,009,525 - 17,504 3,095,452 Saatchi & Saatchi PLC 523,408 7,666,881 492,036 31,699,125 Tae Young Corporation 13,975,221 1,023,976 88,023 4,770,261 USIMINAS 12,560,055 - 5,885,389 21,852,288 Woongjin Publishing Company 2,936,743 - 34,695 1,259,204 ------------ ----------- ----------- ------------ TOTALS $123,010,502 $28,124,220 $14,886,796 $252,849,891
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST PROCEEDS INCOME VALUE - --------------------------------------------------------------------------------------------- Daimon $ 836,251 $ 61,037 $ 63,270 $ 1,516,602 Designer Textiles (NZ) Limited - - 56,322 459,213 Matichon Public Company Limited, Foreign Shares 648,794 - 75,237 1,746,991 Parbury Limited 2,899,156 - 65,550 1,581,357 Solution 6 Holdings Ltd. 431,130 - - 1,992,286 Yip's Hang Cheung Ltd. 539,149 2,540 89,119 845,532 ------------ ----------- ----------- ------------ TOTALS $ 5,354,480 $ 63,577 $ 349,498 $ 8,141,981
6. INTRODUCTION OF THE EURO The European Monetary Union intends to establish a common European currency for participating countries to be called the "euro." Each participating country will supplement its existing currency with the euro on January 1, 1999 and replace its existing currency with the euro on July 2, 2002. The consequences of the euro conversion for foreign exchange rates, interest rates and the value of European securities are presently unclear. Uncertainties include whether operational systems of banks and other financial institutions will be ready by January 1, 1999; the application of exchange rates for existing currencies and the euro; the creation of suitable clearing and settlement systems for the new currency; the legal treatment of certain outstanding financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; and whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time. These and other factors, including economic and political risks, could cause market disruptions before or after the introduction of the euro, and could adversely affect the value of securities held by the Funds. THE OAKMARK FAMILY OF FUNDS 53 THE OAKMARK FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS ............................................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------ 1998 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 Income From Investment Operations: Net Investment Income (Loss) 0.47 0.36 0.34 0.30 0.27 0.17 Net Gains or Losses on Securities (both realized and unrealized) (1.73) 10.67 4.70 4.66 1.76 7.15 -------- -------------- --------- --------- --------- --------- Total From Investment Operations: (1.26) 11.03 5.04 4.96 2.03 7.32 Less Distributions: Dividends (from net investment income) (0.40) (0.34) (0.28) (0.23) (0.23) (0.04) Distributions (from capital gains) (6.01) (1.87) (0.84) (1.47) (0.77) (0.21) -------- -------------- --------- --------- --------- --------- Total Distributions (6.41) (2.21) (1.12) (1.70) (1.00) (0.25) -------- -------------- --------- --------- --------- --------- Net Asset Value, End of Period $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 -------- -------------- --------- --------- --------- --------- -------- -------------- --------- --------- --------- --------- Total Return (4.06)% 39.24%* 18.07% 21.55% 8.77% 43.21% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 6,924.0 $ 6,614.9 $ 3,933.9 $ 2,827.1 $ 1,677.3 $ 1,107.0 Ratio of Expenses to Average Net Assets 1.08% 1.08%* 1.18% 1.17% 1.22% 1.32% Ratio of Net Income (Loss) to Average Net Assets 1.22% 1.19%* 1.13% 1.27% 1.19% 0.94% Portfolio Turnover Rate 43% 17% 24% 18% 29% 18% PERIOD ENDED OCTOBER 31, 1992 1991(A) - ------------------------------ Net Asset Value, Beginning of Period $ 12.10 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.03) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 5.04 2.11 --------- ----------- Total From Investment Operations: 5.01 2.10 Less Distributions: Dividends (from net investment income) -- -- Distributions (from capital gains) -- -- --------- ----------- Total Distributions -- -- --------- ----------- Net Asset Value, End of Period $ 17.11 $ 12.10 --------- ----------- --------- ----------- Total Return 41.40% 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets (0.24)% (0.66)%(c)* Portfolio Turnover Rate 34% 0%
*Data has been annualized. (a) From August 5, 1991, the date on which Fund shares were first offered for sale to the public. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. 54 THE OAKMARK FAMILY OF FUNDS THE OAKMARK SELECT FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS ............................................................................... FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
ELEVEN MONTHS YEAR ENDED ENDED SEPTEMBER SEPTEMBER 30, 1998 30, 1997 - ----------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.34 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.03 (0.01) Net Gains or Losses on Securities (both realized and unrealized) 0.56 6.35 ---------- ---------- Total From Investment Operations: 0.59 6.34 Less Distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) (0.17) 0.00 ---------- ---------- Total Distributions (0.17) 0.00 ---------- ---------- Net Asset Value, End of Period $ 16.76 $ 16.34 ---------- ---------- ---------- ---------- Total Return 3.64% 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 1,227.9 $ 514.2 Ratio of Expenses to Average Net Assets (a) 1.22% 1.12%* Ratio of Net Income (Loss) to Average Net Assets (a) 0.17% (0.11)%* Portfolio Turnover Rate 56% 37%
Notes *Ratios have been annualized. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 55 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS ............................................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER SEPTEMBER OCTOBER 30, 1998 30, 1997 31, 1996 - -------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 20.34 $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.12) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) (4.73) 7.16 3.21 ---------- ---------- ---------- Total From Investment Operations: (4.85) 7.15 3.19 Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 Distributions (from capital gains) (2.86) 0.00 0.00 ---------- ---------- ---------- Total Distributions (2.86) 0.00 0.00 ---------- ---------- ---------- Net Asset Value, End of Period $ 12.63 $ 20.34 $ 13.19 ---------- ---------- ---------- ---------- ---------- ---------- Total Return (26.37%) 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 618.0 $ 1,513.4 $ 218.4 Ratio of Expenses to Average Net Assets 1.45% 1.37%* 1.61% Ratio of Net Income (Loss) to Average Net Assets (0.40%) (0.25%)* (0.29%) Portfolio Turnover Rate 34% 27% 23%
*Data has been annualized. 56 THE OAKMARK FAMILY OF FUNDS THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS ............................................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER SEPTEMBER OCTOBER 30, 1998 30, 1997 31, 1996 - -------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 14.49 $ 11.29 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.29 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 0.04 3.24 1.19 ---------- ---------- ---------- Total From Investment Operations: 0.33 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.24) (0.12) 0.00 Distributions (from capital gains) (0.59) (0.13) 0.00 ---------- ---------- ---------- Total Distributions (0.83) (0.25) 0.00 ---------- ---------- ---------- Net Asset Value, End of Period $ 13.99 $ 14.49 $ 11.29 ---------- ---------- ---------- ---------- ---------- ---------- Total Return 2.57% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 57.7 $ 33.5 $ 13.8 Ratio of Expenses to Average Net Assets 1.31% 1.50%*(a) 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.39% 2.38%*(a) 1.21%(a) Portfolio Turnover Rate 46% 53% 66%
*Data has been annualized (a) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment adviser, ratios would have been as follows:
SEPTEMBER OCTOBER 30, 1997 31, 1996 - ------------------------------------------------------ Ratio of Expenses to Average Net Assets 1.70 % 2.64 % Ratio of Net Income (Loss) to Average Net Assets 2.18 % 1.08 %
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS ............................................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN PERIOD MONTHS ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER SEPTEMBER SEPTEMBER -------------------------------------------- 31, 30, 1998 30, 1997 1996 1995 1994 1993 1992(A) - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.41 0.27 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) (5.32) 3.74 2.90 (0.77) 0.43 4.48 (0.46) ---------- ---------- -------- -------- -------- -------- ---------- Total From Investment Operations: (4.91) 4.01 2.99 (0.47) 0.64 4.54 (0.20) Less Distributions: Dividends (from net investment income) (0.58) (0.16) 0.00 0.00 (0.08) (0.25) -- Distributions (from capital gains) (2.86) 0.00 (1.04) (1.06) (0.15) -- -- ---------- ---------- -------- -------- -------- -------- ---------- Total Distributions (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) -- ---------- ---------- -------- -------- -------- -------- ---------- Net Asset Value, End of Period $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 9.80 ---------- ---------- -------- -------- -------- -------- ---------- ---------- ---------- -------- -------- -------- -------- ---------- Total Return (29.90%) 29.63%* 24.90% (3.06%) 4.62% 47.49% (22.81%)* Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 756.1 $ 1,647.3 $1,172.8 $ 819.7 $1,286.0 $ 815.4 $ 23.5 Ratio of Expenses to Average Net Assets 1.32% 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income (Loss) to Average Net Assets 1.95% 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 43% 61% 42% 26% 55% 21% 0%
*Ratios have been annualized. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. 58 THE OAKMARK FAMILY OF FUNDS THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS ............................................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER SEPTEMBER OCTOBER 30, 1998 30, 1997 31, 1996 - -------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.20 $ 11.41 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.18 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) (4.09) 1.10 1.37 ---------- ---------- ---------- Total From Investment Operations: (3.91) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.06) (0.08) 0.00 Distributions (from capital gains) (1.34) (0.36) 0.00 ---------- ---------- ---------- Total Distributions (1.40) (0.44) 0.00 ---------- ---------- ---------- Net Asset Value, End of Period $ 6.89 $ 12.20 $ 11.41 ---------- ---------- ---------- ---------- ---------- ---------- Total Return (35.20%) 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 51.8 $ 66.0 $ 39.8 Ratio of Expenses to Average Net Assets 1.96% 1.93%* 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.17% 1.23%* 0.65%(a) Portfolio Turnover Rate 69% 63% 27%
Notes *Ratios have been annualized. (a) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment advisor, the ratio of expenses to average net assets would have been 2.65% and the ratio of net income (loss) to average net assets would have been .50%. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59 THE OAKMARK FAMILY OF FUNDS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ........................................................................ TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF HARRIS ASSOCIATES INVESTMENT TRUST: WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (EACH A SERIES OF HARRIS ASSOCIATES INVESTMENT TRUST), INCLUDING THE SCHEDULES OF INVESTMENTS ON PAGES 7-9, 12-13, 16-18, 21-23, 27-31, AND 35-37, AS OF SEPTEMBER 30, 1998, AND THE RELATED STATEMENTS OF OPERATIONS, STATEMENTS OF CHANGES IN NET ASSETS AND THE FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON. THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE THE RESPONSIBILITY OF THE TRUST'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS. WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES INCLUDED CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 1998, BY CORRESPONDENCE WITH THE CUSTODIAN AND BROKERS. AS TO SECURITIES PURCHASED BUT NOT RECEIVED, WE REQUESTED CONFIRMATION FROM BROKERS, AND WHEN REPLIES WERE NOT RECEIVED, WE CARRIED OUT ALTERNATIVE AUDITING PROCEDURES. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION. IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITIONS OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND OF THE HARRIS ASSOCIATES INVESTMENT TRUST AS OF SEPTEMBER 30, 1998, THE RESULTS OF THEIR OPERATIONS, THE CHANGES IN THEIR NET ASSETS, AND THEIR FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. ARTHUR ANDERSEN LLP Chicago, Illinois October 21, 1998 60 THE OAKMARK FAMILY OF FUNDS PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS: (1) Financial statements included in Part A of this amendment: Financial Highlights (2) Financial statements included in Part B of this amendment: Audited financial statements of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund (schedules of investments at September 30, 1998, statements of assets and liabilities at September 30, 1998, statements of operations for the year ended September 30, 1998, statements of changes in net assets for the year ended September 30, 1998 and the eleven months ended September 30, 1997, and notes to financial statements). Schedule I for each Fund has been omitted as the required information is presented in the schedules of investments at September 30, 1998. Schedules II, III, IV, V, VI and VII for each Fund are omitted as the required information is not present. (b) EXHIBITS: Note: As used herein, "Registration Statement" refers to this registration statement under the Securities Act of 1933, no. 33-38953. "Pre-effective Amendment" refers to a pre-effective amendment to the Registration Statement, and "Post-effective Amendment" refers to a post-effective amendment to the Registration Statement. 1 Agreement and declaration of trust (exhibit 1 to Post-effective Amendment no. 18*) 2 Bylaws as amended through September 9, 1997 (exhibit 2 to Post-effective Amendment no. 19*) 3 None 4 The registrant does not issue share certificates. 5.1 Investment advisory agreement for The Oakmark Fund dated August 30, 1996 (exhibit 5.1 to Post-effective Amendment no. 17*) 5.2 Investment advisory agreement for The Oakmark International Fund dated August 30, 1996 (exhibit 5.2 to Post-effective Amendment no. 17*) 5.3 Investment advisory agreement for The Oakmark Small Cap Fund dated August 30, 1996 (exhibit 5.3 to Post-effective Amendment no. 17*) C-1 5.4 Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Small Cap Fund (exhibit 5.4 to Post-effective Amendment No. 20*) 5.5 Investment advisory agreement for The Oakmark Equity and Income Fund dated August 30, 1996 (exhibit 5.4 to Post-effective Amendment no. 17*) 5.6 Investment advisory agreement for The Oakmark International Small Cap Fund dated August 30, 1996 (exhibit 5.5 to Post-effective Amendment no. 17*) 5.7 Investment advisory agreement for The Oakmark Select Fund dated October 22, 1996 (exhibit 5.6 to Post-effective Amendment no. 17*) 5.8 Amendment dated September 9, 1997 to investment advisory agreement for The Oakmark Select Fund (exhibit 5.6 to Post-effective Amendment No. 20*) 5.9 Amendment dated September 17, 1998 to investment advisory agreement for The Oakmark Fund 5.10 Amendment dated September 17, 1998 to investment advisory agreement for The Oakmark Select Fund 6 None 7 None 8.1 Custody agreement with State Street Bank and Trust Company dated July 10, 1991 (exhibit 8.1 to Post-effective Amendment no. 18*) 8.2 Special custody account agreement (short sales) dated September 24, 1991 (exhibit 8.2 to Post-effective Amendment no. 18*) 8.3 Form of letter agreement dated September 8, 1992 applying custody agreement (exhibit 8.1) to The Oakmark International Fund (exhibit 8.3 to Post-effective Amendment no. 18*) 8.4 Form of letter agreement dated September 15, 1995 applying custody agreement (exhibit 8.1) and transfer agency agreement to The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund (exhibit 8.4 to Post-effective Amendment no. 18*) 8.5 Form of letter agreement dated September 30, 1996 applying custody agreement (exhibit 8.1) to The Oakmark Select Fund (exhibit 8.5 to Post-effective Amendment no. 17*) 8.6 Form of Special custody account agreement (short sales) dated May 21, 1996 for each of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund (exhibit 8.6 to Post-effective Amendment No. 20*) 9 None 10.1 Opinion of Bell, Boyd & Lloyd dated November 1, 1998 - The Oakmark Fund C-2 10.2 Opinion of Bell, Boyd & Lloyd dated July 23, 1992 - The Oakmark International Fund (exhibit 10.2 to Post-effective Amendment no. 18*) 10.3 Opinion of Ropes & Gray dated September 20, 1995 - The Oakmark International Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund (exhibit 10.3 to Post-effective Amendment no. 18*) 10.4 Opinion of Bell, Boyd & Lloyd dated September 20, 1995 - The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund (exhibit 10.4 to Post-Effective Amendment no. 18*) 10.5 Opinion of Bell, Boyd & Lloyd dated October 22, 1996 - The Oakmark Select Fund (exhibit 10.5 to Post-effective Amendment no. 17*) 10.6 Consent of Bell, Boyd & Lloyd 11 Consent of independent public accountants 12 None 13.1 Organizational expense agreement for The Oakmark Fund dated July 31, 1991 (exhibit 13.1 to Post-effective Amendment no. 18*) 13.2 Organizational expense agreement for The Oakmark International Fund dated September 15, 1992 (exhibit 13.2 to Post-effective Amendment no. 18*) 13.3 Organizational expense agreement for The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund and The Oakmark International Small Cap Fund dated July 6, 1995 (exhibit 13.3 to Post-effective Amendment no. 18*) 13.4 Organizational expense agreement for The Oakmark Select Fund dated October 22, 1996 (exhibit 13.4 to Post-effective Amendment no. 17*) 13.5 Form of subscription agreement (exhibit 13.5 to Post-effective Amendment no. 18*) 14.1 The Oakmark Funds IRA Plan booklet and adoption agreement, effective January 1, 1998 (exhibit 14.1 to Post-effective Amendment No. 20*) 14.2 Form of individual retirement custodial account application, revised January 1, 1998 (exhibit 14.2 to Post-effective Amendment No. 20*) 14.3 Form of IRA transfer form, revised January 1, 1998 (exhibit 14.3 to Post-effective Amendment No. 20*) 14.4 The Oakmark Funds Education IRA Plan booklet and application 15 None C-3 16 Schedule for computation of performance quotations (exhibit 16 to Post-effective Amendment No. 20*) 17 Financial data schedule 18 Rule 18f-3 plan - -------------------- * Incorporated by reference ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT The registrant does not consider that there are any persons directly or indirectly controlling, controlled by, or under common control with, the registrant within the meaning of this item. The information in the prospectus under the caption "Management of the Fund" and in the Statement of Additional Information under the caption "Investment Adviser" and "Trustees and Officers" is incorporated by reference. ITEM 26. NUMBER OF HOLDERS OF SECURITIES As of September 30, 1998, the respective series of the Trust had the following numbers of shareholder accounts of record: The Oakmark Fund, 200,676; The Oakmark Select Fund, 49,630; The Oakmark Small Cap Fund, 29,175; The Oakmark Equity and Income Fund, 3,517; The Oakmark International Fund, 40,180; The Oakmark International Small Cap Fund, 4,051. ITEM 27. INDEMNIFICATION Article VIII of the agreement and declaration of trust of registrant (exhibit 1 to this registration statement, which is incorporated herein by reference) provides that registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, negligence or reckless disregard of the duties involved in the conduct of his office. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The registrant, its trustees and officers, Harris Associates L.P. ("HALP") (the investment adviser to registrant) and certain affiliated persons of HALP and affiliated persons of such persons are insured under a policy of insurance maintained by registrant and HALP, within the limits and C-4 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER The information in the prospectus under the caption "Management of the Funds" is incorporated by reference. Neither the Adviser nor its general partner has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its own account or in the capacity of director, officer, employee, partner or trustee, except that the Adviser is a registered commodity trading adviser and commodity pool operator and its general partner is also the general partner of a securities broker-dealer firm. ITEM 29. PRINCIPAL UNDERWRITERS Not applicable ITEM 30. LOCATION OF ACCOUNTS AND RECORDS Mr. Victor A. Morgenstern Harris Associates L.P. Two North La Salle Street, Suite 500 Chicago, Illinois 60602 ITEM 31. MANAGEMENT SERVICES None ITEM 32. UNDERTAKINGS (a) Not applicable (b) Not applicable (c) Registrant undertakes to furnish to each person to whom a prospectus is delivered a copy of the latest annual report(s) to shareholders of Registrant upon request and without charge. (d) Registrant undertakes, if required to do so by the holders of at least 10% of the Registrant's outstanding shares, to call a meeting of shareholders for the purpose of voting upon the question of removal of a director or directors and to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the registrant certifies that it has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois on November 4, 1998. HARRIS ASSOCIATES INVESTMENT TRUST By /s/ Victor A. Morgenstern ------------------------------ Victor A. Morgenstern, Chairman Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ Michael J. Friduss Trustee ) - ------------------------- ) Michael J. Friduss ) ) /s/ Thomas H. Hayden Trustee ) - ------------------------- ) Thomas H. Hayden ) ) /s/ Christine M. Maki Trustee ) - ------------------------- ) Christine M. Maki ) ) /s/ Victor A. Morgenstern Trustee and Chairman ) - ------------------------- (Chief Executive Officer) ) Victor A. Morgenstern ) ) /s/ Allan J. Reich Trustee ) - ------------------------- ) Allan J. Reich ) )November 4, 1998 /s/ Marv R. Rotter Trustee ) - ------------------------- ) Marv R. Rotter ) ) /s/ Burton W. Ruder Trustee ) - ------------------------- ) Burton W. Ruder ) Trustee ) - ------------------------- ) Peter S. Voss ) ) /s/ Gary N. Wilner Trustee ) - ------------------------- ) Gary N. Wilner ) ) /s/ Kristi L. Rowsell Treasurer (principal ) - ------------------------- accounting officer) ) Kristi L. Rowsell )
EXHIBITS BEING FILED WITH THIS AMENDMENT Exhibit Number - ------- 5.9 Amendment to investment advisory agreement for The Oakmark Fund 5.10 Amendment to investment advisory agreement for The Oakmark Select Fund 10.1 Opinion of Bell, Boyd & Lloyd - The Oakmark Fund 10.6 Consent of Bell, Boyd & Lloyd 11 Consent of independent public accountants 14.4 Education IRA Plan booklet and application 17 Financial data schedule 18 Rule 18f-3 plan EX-5.9 2 EXHIBIT 5.9 EXHIBIT 5.9 AMENDMENT TO INVESTMENT ADVISORY AGREEMENT FOR THE OAKMARK FUND HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end diversified management investment company (the "Trust"), and HARRIS ASSOCIATES L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser (the "Adviser"), agree that paragraph 6 of the investment advisory agreement between the parties for THE OAKMARK FUND (the "Fund") dated August 30, 1996 is amended as of the date of this amendment to read as follows: 6. COMPENSATION OF ADVISER. For the services to be rendered and the charges and expenses to be assumed and to be paid by the Adviser hereunder, the Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the Fund's net assets as of the last business day of the preceding month, at the annual rate of 1.00% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets, .85% on net assets in excess of $5 billion and .80% on net assets in excess of $10 billion. The fee for a month shall be paid as soon as practicable after the last day of that month. The fee payable hereunder shall be reduced proportionately during any month in which this agreement is not in effect for the entire month. Dated: September 17, 1998 HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ Victor A. Morgenstern HARRIS ASSOCIATES L.P. by Harris Associates, Inc. its General Partner By: /s/ Robert Levy EX-5.10 3 EXHIBIT 5.10 EXHIBIT 5.10 AMENDMENT TO INVESTMENT ADVISORY AGREEMENT FOR THE OAKMARK SELECT FUND HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end diversified management investment company (the "Trust"), and HARRIS ASSOCIATES L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser (the "Adviser"), agree that paragraph 6 of the investment advisory agreement between the parties for THE OAKMARK SELECT FUND (the "Fund") dated October 22, 1996 is amended as of the date of this amendment to read as follows: 6. COMPENSATION OF ADVISER. For the services to be rendered and the charges and expenses to be assumed and to be paid by the Adviser hereunder, the Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the Fund's net assets as of the last business day of the preceding month, at the annual rate of 1.00% on the first $1 billion of net assets, .95% on the next $500 million of net assets, .90% on the next $500 million of net assets, .85% on net assets in excess of $500 million, .80% on net assets in excess of $2.5 billion, and .75% on the net assets in excess of $5 billion. The fee for a month shall be paid as soon as practicable after the last day of that month. The fee payable hereunder shall be reduced proportionately during any month in which this agreement is not in effect for the entire month. Dated: September 17, 1998 HARRIS ASSOCIATES INVESTMENT TRUST By: /s/ Victor A. Morgenstern HARRIS ASSOCIATES L.P. by Harris Associates, Inc. its General Partner By: /s/ Robert Levy EX-10.1 4 EXHIBIT 10.1 Exhibit 10.1 BELL, BOYD & LLOYD Three First National Plaza 70 West Madison Street, Suite 3300 Chicago, Illinois 60602-4207 312 372 1121 Fax: 312 372 2098 November 1, 1998 Harris Associates Investment Trust Two North LaSalle Street, #500 Chicago, Illinois 60602 Ladies and Gentlemen: HARRIS ASSOCIATES INVESTMENT TRUST THE OAKMARK FUND We have acted as counsel for Harris Associates Investment Trust (the "Trust") in connection with the registration under the Securities Act of 1933 (the "Act") of an indefinite number of shares of beneficial interest (the "Shares"), without par value, of the series of the Trust designated The Oakmark Fund (the "Fund") in the Trust's registration statement on form N-1A, registration no. 33-38953 (the "Registration Statement"). In this connection we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate and other records, certificates and other papers as we deem it necessary to examine for the purpose of this opinion, including the agreement and declaration of trust (the "Trust Agreement") and bylaws (the "Bylaws") of the Trust, actions of the board of trustees of the Trust authorizing the issuance of shares of the Fund and the Registration Statement. Based on the foregoing examination, we are of the opinion that upon the issuance and delivery of the Shares of the Fund in accordance with the Trust Agreement and the actions of the board of trustees authorizing the issuance of the Shares, and the receipt by the Trust of the authorized consideration therefor, the Shares so issued will be validly issued, fully paid and nonassessable by the Trust. In giving this opinion we have relied upon the attached opinion of Ropes & Gray to us dated July 11, 1991, and have made no independent inquiry with respect to any matter covered by such opinion. We consent to the filing of this opinion as an exhibit to the Registration Statement. 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 Act. Very truly yours, /s/ Bell, Boyd & Lloyd Ropes & Gray One International Place Boston, Massachusetts 02110 July 11, 1991 Harris Associates Investment Trust Two North LaSalle Street Chicago, Illinois 60602-3790 Gentlemen: We are furnishing this opinion with respect to the proposed offer and sale from time to time of an indefinite number of shares of beneficial interest (the "Shares") of The Oakmark Fund (the "Fund"), a series of Harris Associates Investment Trust (the "Trust"), being registered under the Securities Act of 1933, as amended, by a Registration Statement on Form N-1A (the "Registration Statement"). We have acted as Massachusetts counsel for the Trust in connection with its organization and are familiar with the action taken by its trustees to authorize the issuance of the Shares. We have examined its by-laws and its Agreement and Declaration of Trust on file at the Office of the Secretary of State of The Commonwealth of Massachusetts and we have also examined such other documents as we deem necessary for the purpose of this opinion. We assume that appropriate action has been or will be taken to register or qualify the sale of the Shares under any applicable state and federal laws regulating sales and offerings of securities and that upon sales of the Shares the Trust will receive the net asset value thereof. Based upon the foregoing, we are of the opinion that the Trust is authorized to issue an unlimited number of Shares and upon the issue of any thereof for cash at net asset value and receipt by the Trust of the authorized consideration therefor, the Shares so issued will be validly issued, fully paid, and nonassessable by the Trust. The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Trust or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of the Trust's property for all loss and expense of any shareholder held personally liable solely by reason of his being or having been a shareholder. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Ropes & Gray Ropes & Gray 2 EX-10.6 5 EXHIBIT 10.6 Exhibit 10.6 BELL, BOYD & LLOYD Three First National Plaza 70 West Madison Street, Suite 3300 Chicago, Illinois 60602-4207 312 372 1121 Fax: 312 372 2098 November 1, 1998 As counsel for Harris Associates Investment Trust (the "Registrant"), we consent to the incorporation by reference of our opinion for each of the Registrant's series, filed with the Registrant's registration statement on Form N-1A, Securities Act File No. 33-38953 on each of the dates listed below:
Series Date of Opinion Date of Filing ------ --------------- -------------- The Oakmark International Fund July 23, 1992 February 28, 1997 The Oakmark Small Cap Fund September 20, 1995 February 28, 1997 The Oakmark Equity and Income Fund September 20, 1995 February 28, 1997 The Oakmark International Small Cap Fund September 20, 1995 February 28, 1997 The Oakmark Select Fund October 22, 1996 October 23, 1996
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 EX-11 6 EXHIBIT 11 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated October 21, 1998, and to all references to our Firm included in or made part of this Registration Statement on Form N-1A of the Harris Associates Investment Trust (comprising The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity and Income Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund). /s/ Arthur Andersen LLP Chicago, Illinois October 30, 1998 EX-14.4 7 EXHIBIT 14.4 THE OAKMARK FAMILY OF FUNDS EDUCATION IRA BOOKLET EFFECTIVE JUNE 22, 1998 ................................................................................ INTRODUCTION............................ 1 FREQUENTLY ASKED QUESTIONS.............. 3 INSTRUCTIONS FOR OPENING YOUR EDUCATIONAL IRA......................... 4 IRA CUSTODIAL AGREEMENT................. 6 IRA DISCLOSURE STATEMENT................ 15 FOR MORE INFORMATION: To obtain a prospectus, an application or periodic reports, access our web site at www.oakmark.com or call 1-800-OAKMARK (1-800-625-6275). WEB SITE AND 24-HOUR NET ASSET VALUE HOTLINE: Access our web site at www.oakmark.com to obtain the current net asset value of a fund, or call 1-800-GROWOAK (1-800-476-9625). INTRODUCTION ................................................................................ THE NEW EDUCATION IRA An Individual Retirement Account ("IRA") has always provided an attractive means to save money for the future on a tax-advantaged basis. A new law now makes IRAs an excellent vehicle to save for the expense of higher education. This new Education IRA allows taxpayers to make annual non-deductible contributions of up to $500 on behalf of any beneficiary who is 18 years old or younger. Earnings and interest grow tax free. Qualified withdrawals from the Education IRA are tax- and penalty-free. The Education IRA contribution limit phases out at modified adjusted gross income levels between $95,000 and $110,000 for single filers, and between $150,000 and $160,000 for married, joint return filers. Education IRAs became effective January 1, 1998. This booklet provides information on EDUCATION IRAS only. To learn more about the benefits and features of our Traditional IRA or our new Roth IRA, call us at (1-800-OAKMARK), access our website at www.oakmark.com, or write us at: State Street Bank & Trust Company Attn: The Oakmark Funds P.O. Box 8510 Boston, MA 02266-8510 WHAT'S IN THIS BOOKLET? In this booklet you will find detailed information about Education IRAs and everything needed to establish an Education IRA. The first section of this booklet contains a brief overview of the most frequently asked Education IRA questions, and the corresponding answers. The second section of this booklet contains instructions on how to open a new Education IRA, or how to transfer from another Education IRA to a Oakmark Education IRA. The third section of this booklet contains the Education IRA Custodial Account Agreement, which provides the legal provisions governing your Education IRA. The fourth section of this booklet contains our Education IRA Disclosure Statement, which describes the basic rules applicable to your Education IRA. OTHER POINTS TO NOTE The Disclosure Statement in this booklet provides you with the basic information that you should know about Oakmark Education IRAs. The Disclosure Statement provides general information about the rules and features of Education IRAs. However, the Education IRA Application and Adoption Agreement and Custodial Agreement are the primary documents governing your Oakmark Education IRA, and these shall govern in the case of any difference with the Disclosure Statement. PLEASE NOTE THAT EDUCATION IRAS ARE NEW UNDER THE TAX LAWS AND MANY LEGAL ISSUES CONCERNING THEIR OPERATION HAVE NOT YET BEEN RESOLVED. ALSO, SINCE THE INFORMATION IN THIS BOOKLET IS ONLY A SUMMARY, IT MAY NOT COVER ALL THE DETAILS THAT COULD AFFECT YOUR PERSONAL SITUATION. Finally, this booklet does not address the tax treatment of Education IRAs under state laws, which may vary. Therefore, you should consult your own tax advisor or the IRS if you have any questions about Education IRAs, or about latest developments or state tax treatment of Education IRAs. When used in this booklet YOU or YOUR refers to the person for whom the Education IRA is established. This individual is also called the STUDENT. Where the use of YOU, YOUR or STUDENT refers to an obligation, responsibility or duty of the Student related to the Student's Education IRA, and the Student has not attained the age of majority in the state of residence ("age of 1 ................................................................................ majority"), the parent or guardian identified in the Application and Adoption Agreement (the "Parent") must carry out the obligation, responsibility or duty on the Student's behalf. Acceptance by the State Street Bank and Trust Company, Custodian of the contributions to the Account is expressly conditioned on the Parent's assumption of such duties and responsibilities. INFORMATION FOR DONORS If you are a Donor other than a Student or Parent, read this information carefully. As a Donor, you must complete and sign the enclosed Application and Adoption Agreement, designate the Student for whom the Education IRA is to be maintained, and complete the other required sections of the Agreement--including the initial investment elections--and submit the signed form to the Custodian, along with your contribution. Once you submit the Agreement with the contribution, you will have no further control over the account or the amount contributed (unless you revoke the account). The Student (or Parent) will control investment choices and can withdraw amounts at any time without your consent. No amounts will revert to you. 2 FREQUENTLY ASKED QUESTIONS ABOUT THE EDUCATION IRA (SEE PAGE 15 THROUGH 22 FOR MORE DETAILS) ................................................................................ HOW MUCH MAY BE CONTRIBUTED TO AN EDUCATION IRA? You may contribute up to $500 per year for any single child. This total of $500 can be in one Education IRA or multiple Education IRA's. However, for an Oakmark Education IRA, the minimum initial investment is $500 and cannot be split into multiple Oakmark accounts. ARE MY EDUCATION IRA CONTRIBUTIONS TAX DEDUCTIBLE? No. However, if used for qualified higher education expenses your Education IRA can grow and be accessed without any tax consequences. CAN ANYONE CONTRIBUTE TO AN EDUCATION IRA? No. An individual may contribute up to $500, if the individual's modified adjusted gross income for the taxable year is no more than $95,000. If a married couple wishes to contribute the maximum of $500 to an Education IRA, the couple's modified adjusted gross income for the taxable year may be no more than $150,000. For an individual who's modified adjusted gross income is between $95,000 and $110,000 the maximum contribution amount gradually phases out, and for married couples the phase out occurs between $150,000 and $160,000. MAY THE BENEFICIARY CONTRIBUTE TO HIS/HER OWN EDUCATION IRA? Yes. DOES THE CONTRIBUTOR HAVE TO BE RELATED TO THE BENEFICIARY OF THE EDUCATION IRA? No. HOW LONG CAN AN INDIVIDUAL CONTRIBUTE TO AN EDUCATION IRA? An individual can contribute to an Education IRA as long as the beneficiary is under the age of 18. HOW LONG MAY AN INDIVIDUAL BE THE BENEFICIARY FOR AN EDUCATION IRA? Once an individual reaches the age of 30 he/she may no longer be the beneficiary of an Education IRA. A beneficiary of an Education IRA must, prior to reaching age 30, either use his/ her Education IRA proceeds for qualified higher education purposes, or roll over the balance of his/her Education IRA into another family member's Education IRA. If either of these options are not chosen, when the beneficiary reaches age 30, the balance of the Education IRA is distributed to the beneficiary and any gains are not only fully taxable but will also incur a 10% penalty. CAN I ROLL MY EDUCATION IRA INTO MY TRADITIONAL OR ROTH IRA? No. The proceeds in an Educational IRA are not exchangeable with any other IRA. MUST THE BENEFICIARY BE A FULL TIME STUDENT TO WITHDRAW MONEY FROM THE EDUCATION IRA FOR HIGHER EDUCATION PURPOSES? No. 3 INSTRUCTIONS FOR OPENING AN EDUCATION IRA ................................................................................ 1. Read carefully the Education IRA Disclosure Statement, the Education Individual Retirement Custodial Account Agreement document, the Education IRA Application and Adoption Agreement, and the prospectus(es) for any Fund(s) you are considering. Consult your lawyer or other tax advisor if you have any questions about how opening this Education IRA will affect your financial and tax situation or about the rules for contributions to or withdrawals from an Education IRA. 2. Complete the Education IRA Application and Adoption Agreement. - - In Part 1, provide all of the requested information about the Student for whose benefit the Education IRA is being opened. The Student must be under age 18 for an Annual Contribution Education IRA, or under age 30 for a Rollover or Transfer from another Education IRA. - - In Part 2, provide the requested information about the Parent or Guardian who will control the Account on behalf of any Student WHO HAS NOT YET REACHED THE AGE OF MAJORITY IN HIS STATE OF RESIDENCE. (Leave blank if inapplicable.) Indicate status (mother, father, guardian). If "guardian," written proof of guardianship MUST accompany this form. The Parent's Social Security Number is optional. Only one person may be listed as the "Parent" in Part 2, even though the Student lives with both parents, or even if such person is actually the Student's guardian. In these materials, the term "Parent" refers to a parent or guardian who is listed in Part 2. NOTE: CONTRIBUTIONS BENEFITING A PARTICULAR STUDENT ARE LIMITED TO $500 PER YEAR. IF NECESSARY, THE PARENT SHOULD CHECK WITH ANY OTHER PARENT OR GUARDIAN OF THE STUDENT TO ENSURE THAT CONTRIBUTIONS FOR A YEAR ON THAT STUDENT'S BEHALF (FROM ALL OTHER SOURCES) DO NOT EXCEED THE MAXIMUM LIMIT. - - In Part 3, provide the requested information about the Donor. The Donor is the individual making a contribution to the Account and must sign this Agreement where indicated. The Student or Parent can be the Donor. Unless the Donor is the student or parent, the Donor has no further rights or responsibilities related to the Account once the contribution has been made. If the only contribution to the account is a rollover or transfer from an existing Education IRA, leave Part 3 blank. - - In Part 4, check the box (or boxes) that shows the type of Education IRA you are opening. - - If this is an Annual Contribution Education IRA (one to which contributions may be made each year), check box A and enclose a check in the amount of the first contribution. UNLIKE REGULAR IRAS, CONTRIBUTIONS TO AN EDUCATION IRA MUST BE MADE BY DECEMBER 31 OF A YEAR. CONTRIBUTIONS FOR A PARTICULAR YEAR MAY NOT BE MADE BY APRIL 15 OF THE FOLLOWING YEAR. (Note: Although a Student may have more than one Annual Contribution Education IRA, the maximum combined annual contribution limit for ALL Education IRAs benefiting that particular Student is $500 per year.) - - If this is a rollover or transfer of funds from an existing Education IRA, check box B. Check the appropriate box to indicate whether the transaction is a rollover or direct transfer from another Education IRA custodian. (NOTE: You can only transfer or rollover amounts from another Education IRA; transfers or rollovers from Regular IRAs, Roth IRAs, an employer-sponsored plan, or any other similar arrangement are NOT permitted under federal law.) If this is a transfer directly from another custodian, complete the Transfer of Education IRA Assets Form. - - Check the box to indicate the relationship between the Student for whom this account is being opened and the person for whose benefit the transferring account was maintained. This can be the same Student or a family member. (Note: Under federal law, transfers or rollovers are permissible only if they are made to an Education IRA for the same Student or another person who is under age 30 and a member of the original Student's family. "Family members" for this purpose are defined as: a son or daughter, or a descendant of either; a stepson or stepdaughter; a brother, sister, stepbrother, or stepsister; the father or mother, or an ancestor of either; a stepfather or stepmother of the taxpayer; a son or daughter of a 4 ................................................................................ brother or sister; a brother or sister of the father or mother; a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law; or the spouse of any of these family members. Note: The list of family members does not include the individual's spouse.) - - In Part 5, indicate your investment choices. - - Sign and date the Application and Adoption Agreement. 3. If you are transferring assets directly from an existing Education IRA, complete the Transfer of Education IRA Assets Form in addition to the Application and Adoption Agreement. 4. The Custodian fees for maintaining your Education IRA are listed in the FEES AND EXPENSES section of the Disclosure Statement and in the Application and Adoption Agreement. If you are paying by check, enclose a check for the correct amount payable as specified below. If you do not pay by check, the correct amount will be taken from the Account. 5. Check to be sure you have properly completed all necessary forms and enclosed a check for the Custodian's fees and a check for the first contribution to your Education IRA (if applicable). Your Education IRA cannot be accepted without the properly completed documents or the Custodian fees. All checks should be payable to "State Street Bank & Trust." SPECIAL NOTE: If the Student for whose benefit this Education IRA is being opened is a minor under the laws of the Student's state of residence, acceptance by the Custodian of the contribution is expressly conditioned on the Parent's (as identified in Section 2 above) agreement to be responsible for all requirements of the Student, and to exercise the powers and duties of the Student, with respect to the operation of the Account, until the Student reaches the age of majority. Upon reaching the age of majority in the state in which the Student then resides, the Student may advise the Custodian in writing (accompanied by any supporting documentation the Custodian may require) that he or she is assuming sole responsibility to exercise all powers and duties associated with the administration of the Account. Absent such written notice by the Student, the Custodian shall have no responsibility to acknowledge the Student's exercise of such powers and duties of administration. Send the completed forms and checks to: State Street Bank & Trust Company Attn: The Oakmark Funds P.O. Box 8510 Boston, MA 02266-8510 5 EDUCATION IRA CUSTODIAL AGREEMENT ................................................................................ Articles I - X are in the form promulgated by the Internal Revenue Service in from 5305-EA. ARTICLE I. The Custodian may accept additional cash contributions. These contributions may be from the Depositor, or from any other individual, for the benefit of the Designated Beneficiary, provided the Designated Beneficiary has not attained the age of 18 as of the date such contributions are made. Total contributions that are not rollover contributions described in section 530(d)(5) are limited to a maximum amount of $500 for the taxable year. ARTICLE II. The maximum aggregate contribution that an individual may make to the Custodial Account in any year may not exceed the $500 in total contributions that the Custodial Account can receive. In addition, the maximum aggregate contribution that an individual may make to the Custodial Account in any year is phased out for unmarried individuals who have modified adjusted gross income (AGI) between $95,000 and $110,000 for the year of the contribution and for married individuals who file joint returns with modified AGI between $150,000 and $160,000 for the year for the contribution. Unmarried individuals with modified AGI above $110,000 for the year and married individuals who file joint returns and have modified AGI above $160,000 for the year may not make a contribution for that year. Modified AGI is defined in section 530(c)(2). ARTICLE III. No part of the Custodial Account funds may be invested in life insurance contracts, nor may the assets of the Custodial Account be commingled with other property except in a common investment fund (within the meaning of section 530(b)(1)(D). ARTICLE IV. 1. Any balance to the credit of the Designated Beneficiary on the date on which such Designated Beneficiary attains age 30 shall be distributed to the Designated Beneficiary within 30 days of such date. 2. Any balance to the credit of the Designated Beneficiary shall be distributed to the estate of the Designated Beneficiary within 30 days of the date of such Designated Beneficiary's death. ARTICLE V. The Depositor shall have the power to direct the Custodian regarding the investment of the above-listed amount assigned to the Custodial Account (including earnings thereon) in the investment choices offered by the Custodian. The Responsible Individual, however, shall have the power to redirect the Custodian regarding the investment of such amounts, as well as the power to direct the Custodian regarding the investment of all additional contributions (including earnings thereon) to the Custodial Account. In the event that the Responsible Individual does not direct the Custodian regarding the investment of additional contributions (including earnings thereon), the initial investment direction of the Depositor also will govern all additional contributions made to the Custodial Account until such time as the Responsible Individual otherwise directs the Custodian. Unless otherwise provided in this agreement, the Responsible Individual also shall have the power to direct the Custodian regarding the administration, management, and distribution of the Account. ARTICLE VI. The "Responsible Individual" named by the Depositor shall be a parent or guardian of the designated beneficiary. The Custodial Account shall have only one Responsible Individual at any time. If the Responsible Individual becomes incapacitated or dies while the Designated Beneficiary is a minor under state law, the successor Responsible Individual shall be the person named to succeed in that capacity by the preceding Responsible Individual in a witnessed writing or, if no successor is so named, the successor Responsible Individual shall be the Designated Beneficiary's other parent or successor guardian. At the time that the Designated Beneficiary attains the age of majority under state law, the Designated Beneficiary becomes the Responsible Individual. ARTICLE VII. The Responsible Individual may change the Beneficiary designated under this agreement to another member of the 6 ................................................................................ Designated Beneficiary's family described in section 529(e)(2) in accordance with the Custodian's procedures. ARTICLE VIII. 1. The Depositor agrees to provide the Custodian with the information necessary for the Custodian to prepare any reports required under section 530(h). 2. The Custodian agrees to submit reports to the Internal Revenue Service and the Responsible Individual as prescribed by the Internal Revenue Service. ARTICLE IX. Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through IV will be controlling. Any additional articles that are not consistent with section 530 and related regulations will be invalid. ARTICLE X. This Agreement will be amended from time to time to comply with the provisions of the Code and related regulations. Other amendments may be made with the consent of the Depositor and the Custodian whose signatures appear on the Application and Adoption Agreement. ARTICLE XI. 1. As used in this Custodial Agreement the following terms have the following meanings: "Account" or "Custodial Account" means the Education Individual Retirement Account established using the terms of this Agreement and the Application/Adoption Agreement signed by or on behalf of the Student. The term "Student" means the person designated as such in the Application and Adoption Agreement (or on a form acceptable to the Custodian for use in connection with the Custodial Account, and filed with the Custodian). The individual who is the "Student" (as used in this Article XI) and the individual who is the "Designated Beneficiary" (as used in Articles I through XI) are the same. The Student may, in writing on such form as may be acceptable to the Custodian designate another person, who is a "family member" of the Student (with in the meaning of section 529(e)(2) of the Code) who is under the age of 30 as the successor Designated Beneficiary and Student with respect to the Custodial Account hereunder, and thereafter such individual will be the Designated Beneficiary and the Student for purposes of Articles I through X and Article XI respectively. The term "Donor" means the person designated as such in the Application and Adoption Agreement (or on a form acceptable to the Custodian for use in connection with the Custodial Account, and filed with the Custodian.) The individual who is the "Donor" (as used in this Article XI) and the individual who is the "Depositor" (as used in Articles I through XI) are the same. "Custodian" means State Street Bank and Trust Company. The term "Parent" means the person designated as such in the Application and Adoption Agreement (or a form acceptable to the Custodian for use in connection with the Custodial Account). The individual who is the "Parent" (as used in this Article XI) and the individual who is the "Responsible Individual" (as used in Articles I through XI) are the same. "Fund" means any registered investment company which is specified in the Application and Adoption Agreement, or which is advised, sponsored or distributed by Sponsor; provided, however, that such a mutual fund or registered investment company must be legally offered for sale in the state of the Student's residence. "Distributor" means the entity which has a contract with the Fund(s) to serve as distributor of the shares of such Fund(s). In any case where there is no Distributor, the duties assigned hereunder to the Distributor may be performed by the Fund(s) or by an entity that has a contract to perform management or investment advisory services for the Fund(s). "Service Company" means any entity employed by the Custodian or the Distributor, including the transfer agent 7 ................................................................................ for the Fund(s), to perform various administrative duties of either the Custodian or the Distributor. In any case where there is no Service Company, the duties assigned hereunder to the Service Company will be performed by the Distributor (if any) or by an entity specified in the second preceding paragraph. "Sponsor" means [insert fund management company or other fund entity that is making Fund(s) available under this Agreement and has the power to appoint a successor custodian]. 2. (a) Subject to the last paragraph of this Section 2(a), the Donor may revoke the Custodial Account established hereunder by mailing or delivering a written notice of revocation to the Custodian within seven days after the Donor first receives the Disclosure Statement related to the Custodial Account. Mailed notice is treated as given to the Custodian on date of the postmark (or on the date of Post Office certification or registration in the case of notice sent by certified or registered mail). Upon timely revocation, the Donor will receive a payment equal to the initial contribution, without adjustment for administrative expenses, commissions or sales charges, fluctuations in market value or other changes. The Donor may certify in the Application and Adoption Agreement that the Donor received the Disclosure Statement related to the Custodial Account at least seven days before signing the Application and Adoption Agreement to establish the Custodial Account, and the Custodian may rely on such certification. (b) After making a contribution to the Custodial Account for the benefit of the Student, and specifying the initial investment elections, all rights and obligations to, in and for the Account shall irrevocably inure to, and be enjoyed and exercised by, Student, and Donor shall have no such rights or obligations (unless Donor and Student or Parent are the same person or unless Donor revokes the Account in accordance with subsection (a) above). The Donor must sign the Application and Adoption Agreement, and, for purposes of maintaining the Account, the Parent (identified in the Application and Adoption Agreement) must execute all forms, applications, certifications and other documents on behalf of any Student who has not yet attained the age of majority as recognized by the laws of the Student's state of residence ("age of majority"). Any right, power, responsibility, authority or requirement given to the Student under this Agreement or any related document shall be exercised or carried out by such Parent on behalf of any Student who has not yet attained the age of majority. The Custodian's acceptance of the Account on behalf of a minor Student is expressly conditioned upon the Parent's acceptance of the rights and responsibilities accorded hereunder. Upon attainment of the age of majority under the laws of the Student's state of residence at such time, the Student may advise the Custodian in writing (accompanied by such documentation as the Custodian may require) that he or she is assuming sole responsibility to exercise all rights, powers, obligations, responsibilities, authorities or requirements associated with the Account. Upon such notice to the Custodian, the Student shall have and shall be responsible for all of the foregoing, the Custodian will deal solely with the Student as the person controlling the administration of the Account, and Parent shall thereafter have or exercise none of the foregoing. (Absent such written notice by Student, Custodian shall be under no obligation to acknowledge Student's right to exercise such powers and authority.) 3. All contributions to the Custodial Account shall be invested and reinvested in full and fractional shares of one or more Funds. Such investments shall initially be made in such proportions and/or in such amounts as are specified in the Application and Adoption Agreement or by other written notice to the Service Company (in such form as may be acceptable to the Service Company) may direct. The Service Company shall be responsible for promptly transmitting all investment directions by the Student for the purchase or sale of shares of one or more Funds hereunder to the Funds' transfer agent for execution. However, if investment directions with respect to the investment of any contribution hereunder are not received initially from the Donor or thereafter from the Student as required or, if received, are unclear or incomplete in the opinion of the Service Company, the contribution may be paid to the Student, or may be held uninvested (or 8 ................................................................................ invested in a money market fund if available) pending clarification or completion by the Donor or the Student, as the case may be, in either case without liability for interest or for loss of income or appreciation. If any other directions or other orders by the Student with respect to the sale or purchase of shares of one or more Funds for the Custodial Account are unclear or incomplete in the opinion of the Service Company, the Service Company will refrain from carrying out such investment directions or from executing any such sale or purchase, without liability for loss of income or for appreciation or for depreciation of any asset, pending receipt of clarification or completion from the Student. All initial investment directions by the Donor or subsequent investment directions by the Student will be subject to any minimum initial or additional investment or minimum balance rules applicable to a Fund as described in its prospectus. All dividends and capital gains or other distributions received on the shares of any Fund held in the Account shall be (unless received in additional shares) reinvested in full and fractional shares of such Fund (or any other Fund offered by the Sponsor, if so directed). 4. Subject to the minimum initial or additional investment, minimum balance and other exchange rules applicable to a Fund, the Student may at any time direct the Service Company to exchange all or a specified portion of the shares of a Fund in the Account for shares and fractional shares of one or more other Funds. 5. Any purchase or redemption of shares of a Fund for or from the Account will be effected at the public offering price or net asset value of such Fund (as described in the then effective prospectus for such Fund) next established after the Service Company has transmitted the Student's investment directions to the transfer agent for the Fund(s). Any purchase, exchange, transfer or redemption of shares of a Fund for or from the Account will be subject to any applicable sales, redemption or other charge as described in the then effective prospectus for such Fund. 6. The Service Company shall maintain adequate records of all purchases or sales of shares of one or more Funds for the Student's Custodial Account. Any Account maintained in connection herewith shall be in the name of the Custodian for the benefit of the Student. All assets of the Custodial Account shall be registered in the name of the Custodian or of a suitable nominee. The books and records of the Custodian shall show that all such investments are part of the Custodial Account. The Custodian shall maintain or cause to be maintained adequate records reflecting transactions of the Custodial Account. In the discretion of the Custodian, records maintained by the Service Company with respect to the Account hereunder will be deemed to satisfy the Custodian's recordkeeping responsibilities therefor. The Service Company agrees to furnish the Custodian with any information the Custodian requires to carry out the Custodian's recordkeeping responsibilities. 7. Neither the Custodian nor any other party providing services to the Custodial Account will have any responsibility for rendering advice with respect to the investment and reinvestment of the Custodial Account, nor shall such parties be liable for any loss or diminution in value which results from Student's exercise of investment control over the Account. Student shall have and exercise exclusive responsibility for and control over the investment of the assets of the Account, and neither Custodian nor any other such party shall have any duty to question his directions in that regard or to advise him regarding the purchase, retention or sale of shares of one or more Funds for the Custodial Account. 8. The Student may in writing appoint an investment advisor with respect to the Custodial Account on a form acceptable to the Custodian and the Service Company. The investment advisor's appointment will be in effect until written notice to the contrary is received by the Custodian and the Service Company. While an investment advisor's appointment is in effect, the investment advisor may issue investment directions or may issue orders for the sale or purchase of shares of one or more Funds to the Service Company, and the Service Company will be fully protected in carrying out such investment directions or 9 ................................................................................ orders to the same extent as if they had been given by the Student. The Student's appointment of any investment advisor will also be deemed to be instructions to the Custodian and the Service Company to pay such investment advisor's fees to the investment advisor from the Custodial Account hereunder without additional authorization by the Student or the Custodian. 9. Distribution of the assets of the Custodial Account shall be made at such time and to such person or entity as the Student shall elect by written order to the Custodian. The Student will be responsible for (and the Custodian will have no responsibility for) including and reporting any distribution from the Account in the gross income of the Student in a manner consistent with Code section 72 and Code section 530 (which sections provide that distributions shall be considered to consist of principal (not subject to tax) and earnings (which may or may not be subject to tax), unless such distribution is used to pay the qualified education expenses of the Student (as defined in Code Section 530) and such qualified education expenses for the tax year are not less than the aggregate distributions from the Account during the tax year; and provide further that, if the aggregate distributions exceed the qualified education expenses for the Student for that year, the amount that must be included as income for tax purposes is determined by first determining the ratio that the qualified higher education expenses bear to the actual withdrawal. The portion of the withdrawal that is potentially subject to taxation--the amount of gains or dividends--is then multiplied by that percentage amount. The resultant sum is the amount excludable from income; and additionally provide further that the Student may waive application of the foregoing sentence and elect tax treatment in accordance with Code Section 72). (b) Student acknowledges that any distribution of a taxable amount from the Custodial Account (except for distributions specified in Code Section 530, including distribution on account of Student's disability or death, return of an "excess contribution" referred to in Code section 530(d)(4)(C), a "rollover" from this Custodial Account, or distributions made on account of a qualified scholarship, allowance or payment described in Code section 25A(g)(2)), may subject Student to an additional tax on distributions under Code section 530(d)(4). For these purposes, Student will be considered disabled if Student can prove, as provided in Code Section 72(m)(7), that Student is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or be of long-continued and indefinite duration. Neither the Custodian nor any other party providing services to the Custodial Account assumes any responsibility for monitoring or approving the purposes for which such distributions are used, nor for the tax treatment accorded any distribution from the Custodial Account; such responsibility rests solely with the person ordering the distribution. (c) Any balance remaining in the Account when the Student attains age 30 is, pursuant to Code section 530, to be distributed to the Student. The Student has the responsibility to notify the Custodian to make such distribution and the Student will be responsible for any tax consequences of not so directing the Custodian. However, the Custodian may, based upon its records, make a distribution to the Student upon the Student's attaining age 30 to the extent required by law, and/or the Custodian will report the balance in the Account at such time as a "deemed distribution" to the extent required by law, and the Custodian will have no responsibility for so doing. (d) Upon the death of the Student, any balance remaining in the Account will be distributed to the Student's estate in the manner required by Code section 530, and the Custodian will have no responsibility for making such a distribution, or for not making such distribution in the absence of instructions to do so from the legal representative of the Student's estate. 10. The Custodian assumes (and shall have) no responsibility to make any distribution except upon the written order of Student containing such information as the Custodian may reasonably request (provided that the Custodian may make distributions on its own initiative to the extent specifically provided for in Section 9 of this Article XI). Also, before making any distribution or honoring any assignment of the Custodial Account, Custodian shall be furnished with any and all applications, certificates, tax 10 ................................................................................ waivers, signature guarantees and other documents (including proof of any legal representative's authority) deemed necessary or advisable by Custodian, but Custodian shall not be responsible for complying with any order or instruction which appears on its face to be genuine, or for refusing to comply if not satisfied it is genuine, and Custodian has no duty of further inquiry. Any distributions from the Account may be mailed, first- class postage prepaid, to the last known address of the person or entity who is to receive such distribution, as shown on the Custodian's records, and such distribution shall to the extent thereof completely discharge the Custodian's liability for such payment. 11. (a) The Student agrees to provide information to the Custodian at such time and in such manner as may be necessary for the Custodian to prepare any reports required under Section 530(h) of the Code. (b) The Custodian or the Service Company will submit reports to the Internal Revenue Service and the Student at such time and manner and containing such information as is prescribed by the Internal Revenue Service. (c) The Student, Custodian and Service Company shall furnish to each other such information relevant to the Custodial Account as may be required under the Code and any regulations issued or forms adopted by the Internal Revenue Service thereunder or as may otherwise be necessary for the administration of the Custodial Account. (d) The Student and/or the Donor shall file any reports to the Internal Revenue Service which are required of either of them by law, and neither the Custodian nor Service Company shall have any duty to advise either concerning or monitor either's compliance with such requirement. 12. (a) Student retains the right to amend this Custodial Account document in any respect at any time, effective on a stated date which shall be at least 60 days after giving written notice of the amendment (including its exact terms) to Custodian by registered or certified mail, unless Custodian waives notice as to such amendment. If the Custodian does not wish to continue serving as such under this Custodial Account document as so amended, it may resign in accordance with Section 16 below. (b) Student delegates to the Custodian the Student's right so to amend, provided (i) the Custodian does not change the investments available under the Custodial Agreement and (ii) the Custodian amends in the same manner all agreements comparable to this one, having the same Custodian, permitting comparable investments, and under which such power has been delegated to it; this includes the power to amend retroactively if necessary or appropriate in the opinion of the Custodian in order to conform this Custodial Account to pertinent provisions of the Code and other laws or successor provisions of law, or to obtain a governmental ruling that such requirements are met, to adopt a prototype or master form of agreement in substitution for this Agreement, or as otherwise may be advisable in the opinion of the Custodian. Such an amendment by the Custodian shall be communicated in writing to Student, and Student shall be deemed to have consented thereto unless, within 30 days after such communication to Student is mailed, Student either (i) gives Custodian a written order for a complete distribution or transfer of the Custodial Account, or (ii) removes the Custodian and appoints a successor under Section 16 below. Pending the adoption of any amendment necessary or desirable to conform this Custodial Account document to the requirements of the Code, or any amendment thereto or to any applicable provision of the regulations or rulings thereunder, the Custodian and the Service Company may operate the Student's Custodial Account in accordance with such requirements to the extent that the Custodian and/or the Service Company deem necessary to preserve the tax benefits of the Account or otherwise necessary to meet all legal requirements. (c) Notwithstanding the provisions of subsections (a) and (b) above, no amendment shall increase the responsibilities or duties of Custodian without its prior written consent. (d) This Section 12 shall not be construed to restrict the Custodian's right to substitute fee schedules in the manner provided by Section 15 below, and no such substitution shall be deemed to be an amendment of this Agreement. 13. (a) Custodian shall terminate the Custodial Account if this Agreement is terminated or if, within 30 days (or such 11 ................................................................................ longer time as Custodian may agree) after resignation or removal of Custodian under Section 16, Student or Sponsor, as the case may be, has not appointed a successor which has accepted such appointment. Termination of the Custodial Account shall be effected by distributing all assets thereof in a single payment in cash or in kind to Student, subject to Custodian's right to reserve funds as provided in Section 16. (b) Upon termination of the Custodial Account, this Custodial Account document shall have no further force and effect (except for Sections 14(f), 16(b) and (c) hereof which shall survive the termination of the Custodial Account and this document), and Custodian shall be relieved from all further liability hereunder or with respect to the Custodial Account and all assets thereof so distributed. 14. (a) In its discretion, the Custodian may appoint one or more contractors or service providers to carry out any of its functions and may compensate them from the Custodial Account for expenses attendant to those functions. (b) The Service Company shall be responsible for receiving all instructions, notices, forms and remittances from Student and for dealing with or forwarding the same to the transfer agent for the Fund(s). (c) The parties do not intend to confer any fiduciary duties on Custodian or Service Company (or any other party providing services to the Custodial Account), and none shall be implied. Neither shall be liable (or assumes any responsibility) for the collection of contributions, the proper amount, time or tax treatment of any contribution to the Custodial Account or the propriety of any contributions under this Agreement, or the purpose, time, amount (including any required distribution amounts), tax treatment or propriety of any distribution hereunder, which matters are the sole responsibility of Student. (d) Not later than 60 days after the close of each calendar year (or after the Custodian's resignation or removal), the Custodian or Service Company shall file with Student a written report or reports reflecting the transactions effected by it during such period and the assets of the Custodial Account at its close. Upon the expiration of 60 days after such a report is sent to Student, the Custodian or Service Company shall be forever released and discharged from all liability and accountability to anyone with respect to transactions shown in or reflected by such report except with respect to any such acts or transactions as to which Student shall have filed written objections with the Custodian or Service Company within such 60 day period. (e) The Service Company shall deliver, or cause to be delivered, to Student all notices, prospectuses, financial statements and other reports to shareholders, proxies and proxy soliciting materials relating to the shares of the Funds(s) credited to the Custodial Account. No shares shall be voted, and no other action shall be taken pursuant to such documents, except upon receipt of adequate written instructions from Student. (f) Student and Parent shall always fully indemnify Service Company, Sponsor, Distributor, the Fund(s) and Custodian and save them harmless from any and all liability whatsoever which may arise either (i) in connection with this Agreement and the matters which it contemplates, except that which arises directly out of the Service Company's, Distributor's, Fund's, Sponsor's or Custodian's bad faith, gross negligence or willful misconduct, (ii) with respect to making or failing to make any distribution, other than for failure to make distribution in accordance with an order therefor which is in full compliance with Section 9, or (iii) actions taken or omitted in good faith by such parties. Neither Service Company nor Custodian shall be obligated or expected to commence or defend any legal action or proceeding in connection with this Agreement or such matters unless agreed upon by that party and Student, and unless fully indemnified for so doing to that party's satisfaction. The Custodian's acceptance of the contributions to this Account is expressly conditioned upon Parent's and Student's agreement with the foregoing, and with all other provisions of this Agreement. Exercise of any right, duty or responsibility by Parent (or Student, as the case may be) in connection with the Student's account shall be deemed to constitute acceptance of this condition. (g) The Custodian and Service Company shall each be responsible solely for performance of those duties expressly 12 ................................................................................ assigned to it in this Agreement, and neither assumes any responsibility as to duties assigned to anyone else hereunder or by operation of law. (h) The Custodian and Service Company may each conclusively rely upon and shall be protected in acting upon any written order from Student, or any investment advisor appointed under Section 8, or any other notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed, and so long as it acts in good faith, in taking or omitting to take any other action in reliance thereon. In addition, Custodian will carry out the requirements of any apparently valid court order relating to the Custodial Account and will incur no liability or responsibility for so doing. 15. (a) The Custodian, in consideration of its services under this Agreement, shall receive the fees specified on the applicable fee schedule. The fee schedule originally applicable shall be the one specified in the Application and Adoption Agreement or Disclosure Statement, as applicable. The Custodian may substitute a different fee schedule at any time upon 30 days' written notice to Student. The Custodian shall also receive reasonable fees for any services not contemplated by any applicable fee schedule and either deemed by it to be necessary or desirable or requested by Student. (b) Any income, gift, estate and inheritance taxes and other taxes of any kind whatsoever, including transfer taxes incurred in connection with the investment or reinvestment of the assets of the Custodial Account, that may be levied or assessed in respect to such assets, and all other administrative expenses incurred by the Custodian in the performance of its duties (including fees for legal services rendered to it in connection with the Custodial Account) shall be charged to the Custodial Account. If the Custodian is required to pay any such amount, the Student shall promptly upon notice thereof reimburse the Custodian. (c) All such fees and taxes and other administrative expenses charged to the Custodial Account shall be collected either from the amount of any contribution or distribution to or from the Account, or (at the option of the person entitled to collect such amounts) to the extent possible under the circumstances by the conversion into cash of sufficient shares of one or more Funds held in the Custodial Account (without liability for any loss incurred thereby). Notwithstanding the foregoing, the Custodian or Service Company may make demand upon the Student for payment of the amount of such fees, taxes and other administrative expenses. Fees which remain outstanding after 60 days may be subject to a collection charge. 16. (a) Upon 30 days' prior written notice to the Custodian, Student or Sponsor, as the case may be, may remove it from its office hereunder. Such notice, to be effective, shall designate a successor custodian and shall be accompanied by the successor's written acceptance. The Custodian also may, but is not required to, at any time resign upon 30 days' prior written notice to Sponsor, whereupon Sponsor shall notify the Student, and shall appoint a successor to the Custodian. In connection with its resignation hereunder, the Custodian may, but is not required to, designate a successor custodian by written notice to the Student, or Sponsor and the Student or Sponsor will be deemed to have consented to such successor unless the Student or Sponsor designates a different successor custodian and provides written notice thereof together with such different successor's written acceptance by such date as the Custodian specifies in its original notice to the Student or Sponsor (provided that the Student will have a minimum 30 days to designated a different successor). (b) The successor custodian shall be a bank, insured credit union, or other person satisfactory to the Secretary of the Treasury under Code section 530(b)(1)(B). Upon receipt by Custodian of written acceptance by its successor of such successor's appointment, Custodian shall transfer and pay over to such successor the assets of the Custodial Account and all records (or copies thereof) of Custodian pertaining thereto, provided that the successor custodian agrees not to dispose of any such records without the Custodian's consent. Custodian is authorized, however, to reserve such sum of money or property as it may deem advisable for payment of all its fees, compensation, costs, and expenses, or for payment of any other liabilities constituting a charge on or against the assets of the Custodial Account or on or against the Custodian, with any balance of such reserve 13 ................................................................................ remaining after the payment of all such items to be paid over to the successor custodian. (c) Any Custodian shall not be liable for the acts or omissions of its predecessor or its successor. 17. References herein to the "Internal Revenue Code" or "Code" and sections thereof shall mean the same as amended from time to time, including successors to such sections. 18. Except where otherwise specifically required in this Agreement, any notice from Custodian to any person provided for in this Agreement shall be effective if sent by first-class mail to such person at that person's last address on the Custodian's records. 19. Student shall not have the right or power to anticipate any part of the Custodial Account or to sell, assign, transfer, pledge or hypothecate any part thereof. The Custodial Account shall not be liable for the debts of Student or subject to any seizure, attachment, execution or other legal process in respect thereof except to the extent required by law. At no time shall it be possible for any part of the assets of the Custodial Account to be used for or diverted to purposes other than for the exclusive benefit of the Student except to the extent required by law. 20. When accepted by the Custodian, this Agreement is accepted in and shall be construed and administered in accordance with the laws of the state where the principal office of the Custodian is located. Any action involving the Custodian brought by any other party must be brought in such state. This Agreement is intended to qualify under Code section 530 as an Education IRA and to entitle Student to the tax benefits thereof, and if any provision hereof is subject to more than one interpretation or any term used herein is subject to more than one construction, such ambiguity shall be resolved in favor of that interpretation or construction which is consistent with that intent. However, the Custodian shall not be responsible for whether or not such intentions are achieved through use of this Agreement, and Student is referred to Student's attorney for any such assurances. 21. Student (or Donor) should seek advice from Student's (or Donor's) attorney regarding the legal consequences (including but not limited to federal and state tax matters) of entering into this Agreement, making contributions to the Custodial Account, and ordering Custodian to make distributions from the Account. Student (and Donor) acknowledges that Custodian and Service Company (and any company associated therewith) are prohibited by law from rendering such advice. 22. If any provision of any document governing the Custodial Account provides for notice, instructions or other communication from one party to another in writing, to the extent provided for in the procedures of the Custodian, Service Company or another party, any such notice, instructions or other communications may be given by telephonic, computer, other electronic or other means, and the requirement for written notice will be deemed satisfied. 23. This Agreement and the Application/Adoption Agreement signed by Student or Donor (as either may be amended) are the documents governing the Student's Custodial Account. Articles I through X are in the form promulgated by the Internal Revenue Service in Form 5305-EA for use in establishing and maintaining an Education IRA under Code section 530. If the Internal Revenue Service amends such form, the Custodian will amend this Agreement accordingly, and the Student specifically consents to such amendment in accordance with Section 12(b) hereof. 24. The Donor and/or Student acknowledges that he or she has received and read the current prospectus for each Fund in which the Account is invested and the Individual Retirement Account Disclosure Statement related to the Account. The Donor and Student each represent under penalties of perjury that his or her Social Security number (or other Taxpayer Identification Number) as stated in the Application and Adoption Agreement is correct. 14 EDUCATION IRA DISCLOSURE STATEMENT ................................................................................ SPECIAL NOTE This Disclosure Statement describes the rules applicable to Education IRAs, which became effective January 1, 1998. Education IRAs are a new type of IRA available for the first time in 1998. Contributions to an Education IRA for 1997 are not permitted. Contributions to an Education IRA are not tax-deductible to the person making the contribution, but withdrawals that meet certain requirements are not subject to federal income taxes when received. This makes the dividends on and growth of the investments held in an Education IRA tax-free for federal income tax purposes if the requirements are met. Traditional IRAs, which have existed since 1975, are still available. New Roth IRAs became available on January 1, 1998. Both Traditional IRAs and Roth IRAs provide a tax-advantaged savings vehicle that can be used to save for higher education expenses as well as other needs, including retirement. This Disclosure Statement does not describe either Roth or Traditional IRAs. This Disclosure Statement also does not describe IRAs established in connection with a Simplified Employee Pension (SEP) plan maintained by your employer. If you wish to receive information about these IRA products, including forms and explanatory materials, call 1-800-Oakmark or write the address listed at the end of this Disclosure Statement. ESTABLISHING AN EDUCATION IRA This Disclosure Statement contains information about an Education Individual Retirement Custodial Account with State Street Bank and Trust Company as Custodian. An Education IRA provides several tax benefits. While contributions to an Education IRA are not deductible to the contributor, dividends on and growth of the assets held in the Education IRA are not subject to federal income tax. Withdrawals from an Education IRA are excluded from income for federal income tax purposes if used for qualifying higher education expenses (described below). State income tax treatment of your Education IRA may differ from federal treatment; ask your state tax department or your personal tax advisor for details. Regular annual contributions to Education IRAs must be made in cash, on behalf of a designated individual (the "Student") who is less than 18 years old at the time of the contribution, and rollover contributions must be made on behalf of a Student who is less than age 30 at the time of the rollover. The IRA trustee or custodian must be a bank or other person who has been approved by the Secretary of the Treasury. Contributions may not be invested in life insurance or be commingled with other property except in a common trust or investment fund. The Student's interest in the account must be nonforfeitable at all times. Upon the death of the Student, any balance undistributed in the account shall be distributed to the Student's estate within 30 days of the date of death. You may obtain further information on Education IRAs from any district office of the Internal Revenue Service. The Donor may revoke a newly established Education IRA at any time within seven days after the date on which he or she receives this Disclosure Statement. An Education IRA established more than seven days after the date of receipt of this Disclosure Statement may not be revoked. To revoke the Education IRA, mail or deliver a written notice of revocation to the Custodian at the address which appears at the end of this Disclosure Statement. Mailed notice will be deemed given on the date that it is postmarked (or, if sent by certified or registered mail, on the date of certification or registration). If the Education IRA is revoked within the seven-day period, the Donor will receive payment of the entire amount originally contributed into the Education IRA, without adjustment for such items as sales charges, administrative expenses or fluctuations in market value. An Education IRA is established on behalf of the Student and is controlled by the Student (or Parent). The Donor making a contribution, if not the Student or Parent, may designate the initial investments in the Education IRA Account, but shall have no further rights, interests or obligations related to the Education IRA, except that he or she can make additional contributions, subject to the limits described below. The Application and Adoption Agreement must be signed by the Donor, and any and all forms, applications, certifications and other documents must be signed by the Parent, if the Student has not yet reached the age of majority recognized by the laws of the state of Student's residence ("age of majority"). 15 ................................................................................ While the Student remains a minor, the Parent identified in the Application and Adoption Agreement, will exercise all of the rights and responsibilities of the Student, including the selection and exchange of Fund shares in which the Education IRA is invested. The Custodian's acceptance of the contribution to this Education IRA account is conditioned on agreement by the Parent of a minor Student to be bound by all of the terms and conditions of this Disclosure Agreement and the provisions set out in Articles I-XI of the Custodial Account Agreement. The Student may notify the Custodian in writing that he or she has reached the age of majority in the state where the Student then resides (and provide any documentation the Custodian may request verifying the fact that he or she has attained such age). Upon receiving such request (and documentation, if requested), the Custodian will recognize the Student as the individual controlling the account with power to exercise all rights and responsibilities related to the Education IRA, and the Parent will thereafter have no control or power over the account. NOTE: The Custodian is under no obligation to determine whether any Parent actually holds the legal right and capacity to direct or control a Student's Education IRA account. FEES AND EXPENSES CUSTODIAN'S FEES The following is a list of the fees charged by the Custodian for maintaining your Education IRA. Set Up Fee $ 5.00 Annual Maintenance Fee per mutual fund $ 7.00 Termination, Rollover, or Transfer of Account to Successor Custodian $10.00 GENERAL FEE POLICIES - - Fees may be paid by you directly or the Custodian may deduct them from your Education IRA. - - Fees may be changed upon 30 days written notice to you. - - The full annual maintenance fee will be charged for any calendar year during which you have an Education IRA with us. This fee is not prorated for periods of less than one full year. - - If provided for in the Disclosure Statement or Application/Adoption Agreement, termination fees are charged when your account is closed whether the funds are distributed to you or transferred to a successor custodian or trustee. - - The Custodian may charge you for its reasonable expenses for services not covered by its fee schedule. OTHER CHARGES There may be sales or other charges associated with the purchase or redemption of shares of a Fund in which your Education IRA is invested. Before investing, be sure to read carefully the current prospectus of any Fund you are considering as an investment for your Education IRA for a description of applicable charges. CONTRIBUTIONS WHO MAY CONTRIBUTE TO AN EDUCATION IRA? Starting in 1998, anyone, including the Student, may open and contribute to an Education IRA established on the Student's behalf, as long as the Student is less than 18 at the time of the contribution. The person making the contribution--the "Donor"--can be anyone, even the Student; the Donor does not have to be related to the Student. ARE CONTRIBUTIONS TO AN EDUCATION IRA TAX DEDUCTIBLE? Contributions to an Education IRA are not deductible. This is a major difference between Education IRAs and Regular IRAs. WHEN CAN CONTRIBUTIONS BE MADE TO AN EDUCATION IRA? A Donor may make a contribution to an Education IRA for a particular calendar year by the end of that year (December 31). (NOTE: Unlike Regular IRAs or Roth IRAs, contributions for a particular year may NOT be made by the due date of the Donor's federal income tax return for that year.) 16 ................................................................................ HOW MUCH MAY BE CONTRIBUTED TO AN EDUCATION IRA? Donors may contribute up to $500 in a calendar year for the benefit of any one Student. For example, if Uncle Joe contributes $300 to a Oakmark Education IRA on behalf of Bobby, his nephew, all other contributions made on behalf of Bobby by Uncle Joe or any other potential Donor (such as parents or grandparents) to THIS OR ANY OTHER Education IRA, are limited to $200 for that tax year. NOTE: The Custodian is under no obligation, nor can it be, to determine whether the maximum limit for any Student has been reached. It is the Parent's responsibility to consult with the other parent or guardian to determine whether the maximum limits will be exceeded. For Donors with high income levels, the contribution limits may be reduced below $500. This depends upon the Donor's filing status and the amount of his or her modified adjusted gross income (MAGI). The following table shows how the contribution limits are restricted. EDUCATION IRA CONTRIBUTION LIMITS MODIFIED ADJUSTED GROSS INCOME (MAGI) LEVEL
IF DONOR IS A SINGLE TAXPAYER OR IF DONOR IS MARRIED MARRIED FILING SEPARATELY FILING JOINTLY THEN DONOR MAY MAKE - ------------------------- ------------------------- ------------------------- Up to $95,000 Up to $150,000 Full Contribution - ------------------------- ------------------------- ------------------------- More than $95,000 but More than $150,000 but Reduced Contribution less than $110,000 less than $160,000 (see explanation below) - ------------------------- ------------------------- ------------------------- $110,000 and up $160,000 and up Zero (No Contribution)
HOW ARE THE LIMITS CALCULATED FOR MAGI IN THE "REDUCED CONTRIBUTION" RANGE? If the Donor's MAGI falls in the reduced contribution range, that Donor's contribution limit must be calculated. To do this, multiply the normal contribution limit ($500) by a fraction. The numerator is the amount by which MAGI exceeds the lower limit of the reduced contribution range ($95,000 if single, or $150,000 if married filing jointly). The denominator is $15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this from the normal limit. For example, assume that a Donor's MAGI for the year is $157,555 and she is married, filing jointly. The Education IRA contribution limit would be calculated as follows: 1. The amount by which MAGI exceeds the lower limit of the reduced contribution deductible range: ($157,555 - $150,000) = $7,555 2. Is divided by $10,000: $ 7,555 ------- = 0.7555 $10,000 3. Multiply this by $500: 0.7555 X $500 = $377.75 4. Subtract this from the $500 contribution limit: ($500 - $377.75) = $122.25 This is the contribution limit. Of course, if one Donor is prevented by these rules from making a full $500 contribution on behalf of a Student, another person (who is not the Donor's spouse) may be willing to contribute so that the full $500 per year that the law allows will be added to the Student's Education IRA. NOTE: Any amount contributed to the Education IRA above the maximum is considered an "excess contribution," which is 17 ................................................................................ subject to excise tax of 6% for each year it remains in the Education IRA. HOW DO I DETERMINE MAGI? For most taxpayers MAGI is the same as adjusted gross income, which is their gross income minus those deductions which are available to all taxpayers even if they don't itemize. (Instructions to calculate AGI are provided with income tax Form 1040 or 1040A.) Modified AGI is simply regular AGI adjusted to include certain amounts earned abroad. If a Donor has not earned income in any foreign country, Guam, American Samoa, the Northern Mariana Islands or Puerto Rico, normal AGI should be used in the calculations above. ARE THERE ANY OTHER LIMITS ON THE AMOUNT THAT MAY BE CONTRIBUTED TO AN EDUCATION IRA? A Donor cannot contribute to an Education IRA in any year in which a contribution is made to a state prepaid tuition plan for the same Student. (A state tuition plan allows taxpayers to pay their child's tuition in advance.) Any amount contributed to an Education IRA in the same year that a contribution is made to a state prepaid tuition plan on behalf of the Student is an excess contribution, subjecting the Student (or the Parent, if the Student is under 14) to the 6% penalty tax. HOW ARE EXCESS CONTRIBUTIONS CORRECTED? Excess contributions may be corrected without paying a 6% penalty. To do so, the excess and any earnings on the excess must, in accordance with directions from the Student (or Parent) to the Custodian, be paid to the Student before the due date (including extensions) for filing his or her federal income tax return for the year for which the excess contribution was made. The earnings must be included in the Student's income for the tax year for which the contribution was made. One other way to eliminate excess contributions (and possibly avoid the 6% excess contribution penalty tax) is to contribute an amount out of the Education IRA to a qualified state tuition program, if there is one available to receive the contribution from the Education IRA. This must be done in the same year that the excess contribution was made. WHAT HAPPENS IF THE EXCESS CONTRIBUTION IS NOT CORRECTED BY THE TAX RETURN DUE DATE? Any excess contribution withdrawn after the tax return due date (including any extensions) for the year for which the contribution was made will subject the Student to the 6% excise tax. Unless an exception applies, the excess contribution and any earnings on it withdrawn after tax filing time will be includible in the Student's (or the Parent's, if the Student is under 14) taxable income and may be subject to a 10% withdrawal penalty. INVESTMENTS HOW ARE EDUCATION IRA CONTRIBUTIONS INVESTED? The Donor indicates the initial investment elections on the Application and Adoption Agreement. Thereafter, the Student controls the investment by making choices among the available Fund(s) in accordance with the Fund rules. Investments must be in one or more of the Fund(s) available as listed in the Application and Adoption Agreement for the Education IRA. The investments of your Education IRA are directed by giving the investment instructions to the Distributor or Service Company for the Fund(s). Since the Student controls the investment of the Education IRA, he or she is responsible for the investment results achieved; neither the Custodian, the Distributor nor the Service Company has any responsibility for any loss or diminution in value occasioned by your exercise of investment control. Transactions for the Education IRA will generally be at the applicable public offering price or net asset value for shares of the Fund(s) involved next established after the Distributor or the Service Company (whichever may apply) receives proper investment instructions from you; consult the current prospectus for the Fund(s) involved for additional information. Before making any investment, read carefully the current prospectus for any Fund under consideration as an investment for the Education IRA. The prospectus will contain information about the Fund's investment objectives and policies, as well as any minimum initial investment or 18 ................................................................................ minimum balance requirements and any sales, redemption or other charges. Because you control the selection of investments your Education IRA and because mutual fund shares fluctuate in value, the growth in value of the Education IRA cannot be guaranteed or projected. ARE THERE ANY RESTRICTIONS ON THE USE OF THE EDUCATION IRA ASSETS? The tax-exempt status of the Education IRA will be revoked if you engage in any of the prohibited transactions listed in Section 4975 of the tax code. Upon such revocation, the Education IRA is treated as distributing its assets to the Student. The taxable portion of the amount in the Education IRA will be subject to income tax unless the requirements for a tax-free withdrawal are satisfied (see below). Also, you may be subject to a 10% penalty tax on the taxable amount. WHAT IS A PROHIBITED TRANSACTION? Generally, a prohibited transaction is any improper use of the assets in your Education IRA. Some examples of prohibited transactions are: - - Direct or indirect sale or exchange of property between you and your Education IRA. - - Transfer of any property from your Education IRA to yourself or from yourself to your Education IRA. The Education IRA could lose its tax exempt status if you use all or part of your interest in your Education IRA as security for a loan or borrow any money from your Education IRA. Any portion of your Education IRA used as security for a loan will be treated as a distribution in the year in which the money is borrowed. This amount may be taxable and you may also be subject to the 10% premature withdrawal penalty on the taxable amount. WITHDRAWALS WHEN CAN I MAKE WITHDRAWALS FROM MY EDUCATION IRA? You may make a withdrawal from the Education IRA at any time. If the withdrawal meets the requirements discussed below, it is tax-free. This means that no federal income tax is due, even though the withdrawal includes dividends or gains on the Fund shares while held in the Education IRA. WHEN ARE DISTRIBUTIONS MANDATORY? Any amount remaining in the account as of your 30th birthday must be distributed to you, and any dividends or gains will be then subject to income tax and penalty (unless an exception applies.) You can avoid these tax implications if, before you reach age 30, you roll-over or transfer your account balance, or change the designated beneficiary of your Education IRA, to another member of your family. (See TRANSFERS/ROLLOVERS below.) If you die before withdrawing your entire account balance, your Education IRA must be distributed to your estate within 30 days after your death. WHAT ARE THE REQUIREMENTS FOR A TAX-FREE WITHDRAWAL? To be tax-free, a withdrawal from your Education IRA must meet two requirements. First, the amounts withdrawn must be made to cover the cost of "qualified higher education expenses" incurred by you while attending an "eligible educational institution." These two important terms are defined as follows: - - QUALIFIED HIGHER EDUCATION EXPENSES for all students include expenses for tuition, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. For students attending an eligible educational institution at least half time, qualified higher education expenses also include room and board. (NOTE: These costs will generally be the school's posted room and board charge, or $2,500 per year if the Student lives off-campus and not at home.) Also, qualified expenses include amounts contributed to a qualified state tuition program. - - An ELIGIBLE EDUCATIONAL INSTITUTION includes most colleges, universities, vocational schools, or other postsecondary educational institutions. The Student should check with his or her school to verify that it is an eligible educational institute as described in section 481 of the Higher Education Act of 1965. 19 ................................................................................ Second, the amount of the withdrawal in a year must not exceed your qualified higher education expenses for that year. HOW ARE WITHDRAWALS FROM AN EDUCATION IRA TAXED IF THE TAX-FREE REQUIREMENTS ARE NOT MET? If the withdrawal does not meet the tax-free requirements discussed above, the general rule is that the amount equal to the principal contributions will not be taxed, nor will the 10% withdrawal penalty apply to principal. However, that portion of the account attributable to dividends or gains is includible in the Student's (or the Parent's) gross income in the taxable year it is received, and may be subject to the 10% withdrawal penalty. A special rule may apply if the amount withdrawn exceeds the Student's qualified higher education expenses in a year. In this case, the amount that must be included as income for tax purposes is determined by first determining the ratio that the qualified higher education expenses bear to the actual withdrawal. The portion of the withdrawal that is potentially subject to taxation--the amount of gains or dividends--is then multiplied by that percentage amount. The resultant sum is the amount excludable from income. The following example explains this formula: In 2010, John withdraws $9,000 from his Education IRA, of which $4,000 is attributable to dividends or gains. John's qualified education expenses total only $7,000 for that year. Therefore, 77% ($7,000/$9,000) of the withdrawal is attributable to educational expenses. So, $3,080 (77% of $4,000) is excludible as income and the difference, $920, is includible as income and possibly subject to the 10% penalty tax. Taxable withdrawals of dividends and gains from an Education IRA are treated as ordinary income. Withdrawals of taxable amounts from an Education IRA are not eligible for averaging treatment currently available to certain lump sum distributions from qualified employer-sponsored retirement plans, nor are such withdrawals eligible for taxable gains tax treatment. The receipt of any taxable withdrawal from an Education IRA may also be subject to a 10% penalty tax, unless: - - The withdrawal is paid to your estate within thirty days of your death; - - The withdrawal is paid to you on account of your disability; or - - The withdrawal is equal to or less than the amount of a scholarship or other tax-free educational assistance you receive. NOTE: The Custodian is not responsible for monitoring withdrawals or determining whether any withdrawal is being made by any individual for education expenses, nor is the Custodian responsible for determining what taxes or penalties, if any, may apply. HOW DOES RECEIPT OF A TAX-FREE, QUALIFIED WITHDRAWAL AFFECT AVAILABLE EDUCATION TAX CREDITS? If the Student receives a tax-free distribution from an Education IRA in a particular tax year, none of the Student's education expenses for that year may be claimed as the basis for a Hope Scholarship Credit or Lifetime Learning Credit for that year. However, the tax-free treatment of the Education IRA withdrawal may be waived (thus subjecting the withdrawal to the imposition of tax, as discussed above), and the Student or Student's Parents, as the case may be, may elect instead to claim a Hope Scholarship Credit or Lifetime Learning Credit for the education expenses. You should consult with your tax advisor to determine whether you qualify for either credit and whether waiving the tax-free withdrawal of the Education IRA is right for you. TRANSFERS/ROLLOVERS CAN A DISTRIBUTION BE TRANSFERRED OR ROLLED OVER FROM AN EMPLOYER'S RETIREMENT PLAN INTO AN EDUCATION IRA? Distributions from qualified employer-sponsored retirement plans or 403(b) arrangements (for employees of tax-exempt employers) are NOT eligible for rollover or direct transfer to an Education IRA. Nor are withdrawals from other types of IRAs. 20 ................................................................................ CAN ROLLOVERS BE MADE FROM ONE EDUCATION IRA TO ANOTHER EDUCATION IRA? Amounts rolled over from one Education IRA to another Education IRA are permitted only if the receiving Education IRA is for your benefit or for the benefit of a member of your family. Such a rollover must be completed within 60 days after the withdrawal from the first Education IRA. Only one rollover from an Education IRA to another is permitted in a full year (365 days). CAN THE BENEFICIARY OF AN EDUCATION IRA BE CHANGED? Instead of rolling over an Education IRA account to another Education IRA account, the Student may simply change the designated beneficiary of his account to another member of his family who is under the age of 30. This can be done at any time. (Note: This approach can be used up to the day before your 30th birthday to avoid the tax and penalty that may otherwise apply if a distribution is required because you reach age 30.) (See WHEN ARE DISTRIBUTIONS MANDATORY? above.) WHO IS A MEMBER OF THE STUDENT'S FAMILY? Family members include the Student and any of the following who are under age 30: the Student's children and their descendants, stepchildren and their descendants, siblings and their children, parents and grandparents, stepparents, and spouses of all of the foregoing. (Note: The list of family members does not include include the individual's spouse.) HOW DO ROLLOVERS AFFECT EDUCATION IRA CONTRIBUTION LIMITS? Rollover contributions, if properly made, do not count toward the maximum contribution. Also, rollovers from one Education IRA to another can be made even during a year when the Donor is not eligible to contribute to an Education IRA (for example, because MAGI for that year is too high). TAX MATTERS WHAT IRA REPORTS DOES THE CUSTODIAN ISSUE? The Custodian will report all withdrawals to the IRS and the recipient on the appropriate form. The Custodian will report to the IRS the year-end value of the Account and the amount of any rollovers or regular contribution made during a calendar year. WHAT TAX INFORMATION MUST THE STUDENT REPORT TO THE IRS? The appropriate tax reporting form must be filed with the IRS for each taxable year for which there is made an excess contribution or in which there is a premature withdrawal that is subject to the 10% penalty tax. ARE EDUCATION IRA WITHDRAWALS SUBJECT TO WITHHOLDING? Federal income tax withholding requirements have not been established by the law or by IRS regulations or rulings. Consult your tax advisor or the IRS for the latest information on withholding requirements on taxable withdrawals from and Education IRA. ARE THE EARNINGS ON EDUCATION IRA FUNDS TAXED? Any dividends on or growth of investments held in an Education IRA are generally exempt from federal income taxes and will not be taxed until withdrawn, unless the tax exempt status of the Education IRA is revoked. If a withdrawal qualifies as a tax-free withdrawal (see above), amounts reflecting earnings or growth of assets in the Education IRA will not be subject to federal income tax. ACCOUNT TERMINATION The Student may terminate the Education IRA at any time after its establishment by sending a completed withdrawal form (or other instructions in a form acceptable to the Custodian), or a transfer authorization form, to: State Street Bank & Trust Company Attn: The Oakmark Funds P.O. Box 8510 Boston, MA 02266-8510 An Education IRA with State Street Bank will terminate upon the first to occur of the following: - - The date the Student's properly executed withdrawal form or instructions (as described above) withdrawing the total 21 ................................................................................ Education IRA balance is received and accepted by the Custodian. - - The date the Education IRA ceases to qualify under the tax code. This will be deemed a termination. - - The transfer of the Education IRA to another custodian/ trustee. - - The rollover of the amounts in the Education IRA to another custodian/trustee. Any outstanding fees must be received prior to such a termination of an Education IRA account. The amount received from an Education IRA upon termination of the account will be treated as a withdrawal, and thus the rules relating to Education IRA withdrawals will apply. For example, if the Education IRA is terminated and distributions are not made for qualified education expenses, the 10% early withdrawal penalty may apply to the taxable amount received. IMPORTANT: THE DISCUSSION OF THE TAX RULES FOR EDUCATION IRAS IN THIS DISCLOSURE STATEMENT IS BASED UPON THE BEST AVAILABLE INFORMATION. HOWEVER, EDUCATION IRAS ARE NEW UNDER THE TAX LAWS, AND NOT ALL ISSUES PERTAINING TO THE OPERATION AND TAX TREATMENT OF EDUCATION IRA ACCOUNTS HAVE BEEN ADDRESSED BY THE IRS. THEREFORE, THE STUDENT SHOULD CONSULT HIS OR HER TAX ADVISOR FOR THE LATEST DEVELOPMENTS OR FOR ADVICE ON HOW MAINTAINING AN EDUCATION IRA WILL AFFECT HIS OR HER (OR PARENT'S) PERSONAL TAX OR FINANCIAL SITUATION. EDUCATION IRA DOCUMENTS The terms contained in Articles I to X of the Oakmark Education Individual Retirement Custodial Account document are in the form promulgated by the IRS in Form 5305-EA for use in establishing an Education IRA under Code section 530. If the IRS issues an amendment to Form 5305-EA, the Custodian will adopt the provisions of such model form as an amendment, accordingly. IRS approval relates only to the form of Articles I to X and will not be an approval of the merits of the Education IRA or of any investment permitted by the Education IRA. ADDITIONAL INFORMATION For additional information you may write to the following address or call the following telephone number: State Street Bank & Trust Company Attn: The Oakmark Funds P.O. Box 8510 Boston, MA 02266-8510 1-800-Oakmark 22 NOTES ................................................................................ 23 NOTES ................................................................................ 24 Education IRA Application Page 1 of 4 A-00000000004300 EDUCATION IRA APPLICATION EDUCATION INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT APPLICATION AND ADOPTION AGREEMENT ("ADOPTION AGREEMENT") - -------------------------------------------------------------------------------- THE FUNDS WILL NOT ACCEPT THIRD PARTY CHECKS. Make check payable to: STATE STREET BANK AND TRUST COMPANY. Mail to: The Oakmark Funds/P.O. Box 8510/Boston, MA 02266-8510 Phone: 1-800-OAKMARK (1-800-625-6275) The undersigned, by signing this Application and Adoption Agreement, hereby establishes an Education Individual Retirement Account (the "Account") for the benefit of the Student with State Street Bank and Trust Company as Custodian ("Bank"). The terms of the Account are contained in the document entitled "Oakmark Education Individual Retirement Custodial Account Agreement" (which is incorporated by reference) and this Application and Adoption Agreement. The Account will be effective upon acceptance by the Bank. 1. STUDENT INFORMATION (SEE INSTRUCTIONS) - -------------------------------------------------------------------------------- Print Full Name of Student - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- City State Zip - -------------------------------------------------------------------------------- 2. PARENT INFORMATION (SEE INSTRUCTIONS-ONLY ONE PARENT SHOULD BE LISTED) - -------------------------------------------------------------------------------- Print Full Name of Parent - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- City State Zip NOTE: The "Parent" is the same individual described as the "Responsible Individual" in Articles I - X of the Custodial Account Agreement, as the "RI" on all account registration materials, and as the "Parent" in Article XI of the Custodial Account Agreement and the Disclosure Statement. - -------------------------------------------------------------------------------- http://www.oakmark.com/prospect/edu-ira/iraapp.htm 11/4/98 Education IRA Application Page 2 of 4 3. DONOR INFORMATION (SEE INSTRUCTIONS, - IF THIS IS A TRANSFER OR ROLLOVER, LEAVE THIS SECTION BLANK) - -------------------------------------------------------------------------------- Print Full Name - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- City State Zip - -------------------------------------------------------------------------------- 4. TYPE OF EDUCATION IRA A. / / ANNUAL CONTRIBUTION Contribution for the current tax year. Check enclosed for $ - -------------------------------------------- Contributions benefiting a particular student are limited to $500 per year and must be made by December 31. B. / / Rollover or Transfer* of existing Education IRA / / Transfer of existing Education IRA. Complete the Transfer of Education IRA Assets Form and return it with this form. / / Rollover of distribution from existing Education IRA to me within 60 days after distribution. The requirements for a valid rollover are complex. See the Education IRA Disclosure Statement for additional information and consult your tax advisor for help if needed. Check enclosed for $ - ------------------------------------------- If you are transferring or rolling over an existing Education IRA, check the appropriate box below for the relationship of the Student in Item 1 to the person who is the student in the existing Education IRA. The person in Item 1 is the: / / same person / / child or stepchild / / descendent of a child or stepchild / / sibling / / child of a sibling / / parent or stepparent / / grandparent / / spouse of one of the foregoing NOTE: Family member does not include spouse of beneficiary, nor can the transferer or the transferee be older than the age of 30. - -------------------------------------------------------------------------------- 5. INVESTMENTS Invest contributions to my Account as follows: MINIMUM INVESTMENT PER FUND $500. Oakmark Fund (110) % OR $ ----- ----- Oakmark Select Fund (808) % $ ----- ----- Oakmark Small Cap Fund http://www.oakmark.com/prospect/edu-ira/iraapp.htm 11/4/98 Education IRA Application Page 3 of 4 (809) % $ ----- ----- Oakmark Equity & Income Fund (810) % $ ----- ----- Oakmark International Fund (109) % $ ----- ----- Oakmark International Small Cap Fund (811) % $ ----- ----- Oakmark units of: Government Portfolio (111) % OR $ ----- ----- Tax Exempt Diversified Portfolio (60) % $ ----- ----- Short Duration Tax-Free Fund (61) % $ ----- ----- Must total 100% $ Total Investment ----- $5 Setup fee / / OR / / deduct enclosed $7 Annual fee* / / OR / / deduct enclosed * $7.00 PER NEW FUND ACCOUNT The undersigned acknowledges having sole responsibility for the foregoing investment choices and having received a current prospectus for each Fund selected. Please read the prospectus(es) of the Fund(s) selected before investing. TELEPHONE EXCHANGE Unless you check this box, you will be able to use the phone to make exchanges between your Oakmark IRAs with the same registration information. (Otherwise, exchanges must be made in writing.) / / I DO NOT WANT TELEPHONE EXCHANGE. By not checking this box, you authorize the Funds and their agents to act on instructions reasonably believed to be genuine. - --------------------------------------------------------------------------- 6. CERTIFICATIONS AND SIGNATURES If this is a Rollover Education IRA, the undersigned certifies that any assets transferred in kind are the same assets received in the distribution being rolled over; that no rollover into an Education IRA has been made within the one-year period immediately preceding this rollover; that such distribution was received within 60 days of making the rollover to the Account; and that the Student identified in Item 1 above IS EITHER THE PERSON FOR WHOSE BENEFIT THE PRIOR EDUCATION IRA WAS MAINTAINED OR A MEMBER OF SUCH PERSON'S FAMILY (WITHIN THE MEANING OF INTERNAL REVENUE CODE SECTION 529(e)(2)). If this is an Annual Contribution Education IRA, the undersigned certifies that the Student is less than http://www.oakmark.com/prospect/edu-ira/iraapp.htm 11/4/98 Education IRA Application Page 4 of 4 18 years old and that all contributions made on Student's behalf to this or any other Education IRAs do not exceed $500 in a single tax year. If this is a Transfer or Rollover of an existing Education IRA, the undersigned certifies that the Student is less than 30 years old and that the relationship indicated in Section 4 is correct, and that this relationship IS EITHER THE PERSON FOR WHOSE BENEFIT THE PRIOR EDUCATION IRA WAS MAINTAINED OR A MEMBER OF SUCH PERSON'S FAMILY (WITHIN THE MEANING OF INTERNAL REVENUE CODE SECTION 529(e)(2)) The undersigned acknowledges having received and read the "Education IRA Disclosure Statement" relating to this Account (including the Custodian's fee schedule), the Education Individual Retirement Custodial Account Agreement, and the "Instructions" pertaining to this Application and Adoption Agreement. The undersigned acknowledges receipt of the Custodial Account Agreement and Education IRA Disclosure Statement at least 7 days before the date of signature (as indicated below) and acknowledges that there is no further right of revocation. - --------------------------------------------------------------------------- Signature of Student Date (If Student has obtained the age of majority in his/her state of residence.) - --------------------------------------------------------------------------- Signature of Donor Date CUSTODIAN ACCEPTANCE. State Street Bank and Trust Company will accept appointment as Custodian of the Account. However, this Agreement is not binding upon the Custodian until the Student has received a statement of the transaction. Receipt by the Student of a confirmation of the purchase of the Fund shares indicated above will serve as notification of State Street Bank and Trust Company's acceptance of appointment as Custodian of the Account. STATE STREET BANK AND TRUST COMPANY, CUSTODIAN - --------------------------------------------------------------------------- By Date If Student is a minor under the laws of Student's state of residence, acceptance by the Custodian of the contribution to this Account is expressly conditioned upon the Parent's (identified above in Section 2) agreement to be responsible for all requirements of the Student, and to exercise the powers and duties of the Student, with respect to the operation of the Account. The undersigned parent/guardian acknowledges the previous statement and agrees with all requirements. Upon reaching the age of majority in the state in which the Student then resides, the Student may advise the Custodian in writing (accompanied by such supporting documentation as the Custodian may require) that he or she is assuming sole responsibility to exercise all powers and duties associated with the administration of the Account. Absent such written notice by Student, Custodian shall have no responsibility to acknowledge Student's exercise of such powers and duties of administration. - --------------------------------------------------------------------------- Signature of parent or guardian RETAIN A PHOTOCOPY OF THE COMPLETED AGREEMENT FOR YOUR RECORDS http://www.oakmark.com/prospect/edu-ira/iraapp.htm 11/4/98 EX-18 8 EXHIBIT 18 Exhibit 18 HARRIS ASSOCIATES INVESTMENT TRUST Plan Pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 Harris Associates Investment Trust (the "Trust") may offer different classes of shares of each series of the Trust pursuant to Rule 18f-3 under the Investment Company Act of 1940 (the "Act") under the following Plan. 1. The Plan encompasses two classes of shares of each series that may be offered as follows: (a) Class I shares to be sold and redeemed at net asset value. Class I shares are not subject to the payment of fees for retirement plan administration services. (b) Class II shares to be sold and redeemed at net asset value. Class II shares are subject to the payment of fees for retirement plan administration services at an annual rate of .25% of the average daily net assets attributable to such shares. (c) Class I shares of a series may be exchanged for Class I shares of another series, and Class II shares of a series may be exchanged for Class II shares of another series, or for shares of any money market mutual fund approved by the Board of Trustees for such exchange privilege, at relative net asset values, provided that after the exchange the value of the account in the class or fund into which the exchange is made meets the minimum initial investment requirement for such class or fund. Shares of each class may be redeemed at the option of the Trust if by reason of redemption the shareholder account falls below a minimum value from time to time determined by the Trustees (and set forth in the applicable prospectus), which minimum value may vary between the classes. Exchange privileges may be terminated or modified from time to time. (d) Shares of either class may be redeemed in kind subject to the requirements of Rule 18f-1 under the Act and subject to any further restriction or prohibition under any state blue sky law. 2. Income, realized and unrealized capital gains and losses, and expenses not allocated to a particular class as provided below, shall be allocated to each class on the basis of relative net assets. Fees for shareholder servicing provided with respect to Class I shares of any series shall be allocated to that series. Fees for shareholder servicing and retirement plan administration services provided with respect to Class II shares of any series shall be allocated to that class. 3. Each class shall vote separately with respect to any matter that separately affects that class or as required by applicable law. The shares of each class have one vote per share and a pro-rata fractional vote for a fraction of a share. EX-27.1 9 EXHIBIT 27.1
6 01 Oakmark Fund 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 6,573,947 6,936,386 50,257 37 0 6,986,680 0 0 15,003 15,003 0 6,156,112 206,455 0 77,854 0 375,273 0 314,719 6,923,958 130,489 47,672 0 83,680 94,481 1,258,928 (1,704,967) (351,558) 0 66,321 1,123,471 0 2,836,316 2,119,718 1,133,761 309,009 49,695 239,815 0 0 72,196 0 83,687 7,762,096 41.21 0.47 (1.73) 0.40 6.01 0 33.54 1.08 0 0
EX-27.2 10 EXHIBIT 27.2
6 02 Select Fund 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 1,222,500 1,231,273 4,102 8 159,033 1,394,417 4,837 0 161,685 166,523 0 1,149,817 73,252 0 1,702 0 67,603 0 8,773 1,227,894 10,403 5,736 110 14,299 1,949 69,415 (78,902) (7,539) 0 0 6,882 0 1,440,696 719,123 6,568 713,720 (247) 5,070 0 0 11,525 0 14,302 1,171,481 16.34 0.03 0.56 0 0.17 0 16.76 1.22 0 0
EX-27.3 11 EXHIBIT 27.3
6 03 Small Cap Fund 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 683,339 617,245 14,241 9 26,009 657,503 11,122 0 28,386 39,508 0 684,807 48,938 0 (6,921) 0 6,202 0 (66,094) 617,995 8,702 3,864 435 17,961 (4,960) 124,758 (374,056) (254,258) 0 0 164,814 0 416,818 1,049,792 156,646 (895,401) (1,960,639) 46,259 0 0 15,864 0 18,010 1,243,324 20.34 (0.12) (4.73) 0 2.86 0 12.63 1.45 0 0
EX-27.4 12 EXHIBIT 27.4
6 04 Equity & Income Fund 12-MOS SEP-30-1998 SEP-01-1997 SEP-30-1998 54,365 57,498 477 3 1,759 59,737 0 0 1,991 1,991 0 52,590 4,127 0 1,021 0 1,002 0 3,132 57,746 736 1,065 6 639 1,167 1,579 (2,326) 419 0 594 1,481 0 43,126 19,151 1,964 24,283 449 905 0 0 360 0 639 48,725 14.49 0.29 0.04 0.24 0.59 0 13.99 1.31 0 0
EX-27.5 13 EXHIBIT 27.5
6 05 International Fund 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 1,088,040 739,176 22,876 1,373 73,675 837,100 0 0 80,995 80,995 0 1,015,076 72,553 0 38,739 0 52,471 0 (350,181) 758,104 35,422 2,761 1,626 16,000 23,809 82,642 (504,765) (398,313) 0 46,461 231,084 0 482,976 961,777 263,415 (891,243) 61,390 355,497 0 0 12,623 0 16,106 1,233,474 18.77 0.41 (5.32) 0.58 2.86 0 10.42 1.32 0 0
EX-27.6 14 EXHIBIT 27.6
6 06 International Small Cap Fund 12-MOS SEP-30-1998 OCT-01-1997 SEP-30-1998 79,426 50,526 1,626 35 3,219 55,408 0 0 3,638 3,638 0 80,848 7,515 0 1,629 0 (1,635) 0 (29,070) 51,771 2,472 214 8 1,279 1,415 (259) (27,905) (26,749) 0 308 7,368 0 77,339 64,545 7,428 (14,202) 522 4,828 0 0 828 0 1,280 65,247 12.20 0.18 (4.09) 0.06 1.34 0 6.89 1.96 3 0
-----END PRIVACY-ENHANCED MESSAGE-----