-----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, FkVwJ//hmwmACdGn5+R1FpBSPWIW/Z41ECIwTn+TZumYmJjM9LVeTUfBccNubLNL Cu1fVFJGvJ0N4Zlv9u8qKA== 0001047469-99-001440.txt : 19990120 0001047469-99-001440.hdr.sgml : 19990120 ACCESSION NUMBER: 0001047469-99-001440 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990119 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: 497 SEC ACT: SEC FILE NUMBER: 033-38953 FILM NUMBER: 99507889 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 497 1 FORM 497 STATEMENT OF ADDITIONAL INFORMATION JANUARY 4, 1999 AS SUPPLEMENTED ON JANUARY 19, 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. . . . . . . . . . . . . . . . . . . . . 5 PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . 12 INVESTMENT ADVISER. . . . . . . . . . . . . . . . . . . . . . 15 TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . 18 PRINCIPAL SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . 19 PURCHASING AND REDEEMING SHARES . . . . . . . . . . . . . . . 20 ADDITIONAL TAX INFORMATION. . . . . . . . . . . . . . . . . . 22 TAXATION OF FOREIGN SHAREHOLDERS. . . . . . . . . . . . . . . 22 PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . 23 DECLARATION OF TRUST. . . . . . . . . . . . . . . . . . . . . 26 CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . 26 INDEPENDENT PUBLIC ACCOUNTANTS. . . . . . . . . . . . . . . . 26 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 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 or actual holding of portfolio securities, liquid assets of the Fund, having a value at least as great as the amount of the excess, if any, of the Fund's commitment under the forward contract over the value of the portfolio position being hedged, will be segregated on the books of the Fund and held by the Fund's custodian and marked to market daily, while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may 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 7 Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. 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, DELAYED-DELIVERY AND OTHER SECURITIES Each Fund may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time a Fund enters into the commitment, the securities may be delivered and paid for a month or more after 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. A Fund may also enter into a contract with a third party that provides for the sale of securities held by the Fund at a set price, with a contingent right for the Fund to receive additional proceeds from the purchaser upon the occurrence of designated future events, such as a tender offer for the securities of the subject company by the purchaser, and satisfaction of any applicable conditions. Under such an arrangement, the amount of contingent proceeds that the Fund will receive from the purchaser, if any, will generally not be determinable at the time such securities are sold. The Fund's rights under such an arrangement will not be secured and the Fund may not receive the contingent payment if the purchaser does not have the resources to make the payment. The Fund's rights under such an arrangement also generally will be illiquid and subject to the limitations on ownership of illiquid securities. 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 10 (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. SHORT SALES Each Fund may sell securities short against the box, that is: (1) enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns without additional consideration; and (2) enter into arrangements with the broker-dealers through which such securities are sold short to receive income with respect to the proceeds of short sales during the period the Fund's short positions remain open. A Fund may make short sales of securities only if at all times when a short position is open the Fund owns at least an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short. In a short sale against the box, a Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such 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. 11 OPTIONS Each Fund may purchase both call options and put options on securities. A call or put option is a contract that gives the Fund, in return for a premium paid upon purchase of the option, the right during the term of the option to buy from, or to sell to, the seller of the option the security underlying the option at a specified exercise price. The option is valued initially at the premium paid for the option. Thereafter, the value of the option is marked-to-market daily. It is expected that a Fund will not purchase a call option or a put option if the aggregate value of all call and put options held by the Fund would exceed 5% of the Fund's net assets. TEMPORARY STRATEGIES Each Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the adviser may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers, and most or all of International Fund's investments and International Small Cap Fund's investments may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, each Fund temporarily may hold cash (U.S. dollars, foreign currencies 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: n ERV = P(1+T) 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 12 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 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 13 Forbes Fortune Global Finance Investor's Business Daily Kiplinger's Personal Finance Los Angeles Times Money Mutual Fund Letter Mutual Funds Magazine Morningstar Newsweek The New York Times Pensions and Investments Personal Investor Smart Money Stanger Reports Time USA Today U.S. News and World Report The Wall Street Journal Worth A Fund may compare its performance to the Consumer Price Index (All Urban), a widely recognized measure of inflation. The performance of a Fund may also be compared to the Morgan Stanley EAFE (Europe, Australia and Far East) Index(*), a generally accepted benchmark for performance of major overseas markets, and to the following indexes or averages: Dow-Jones Industrial Average* Standard & Poor's 500 Stock Index* Standard & Poor's 400 Industrials Standard & Poor's Small Cap 600* Standard & Poor's Mid Cap 400* Russell 2000 Wilshire 5000 New York Stock Exchange Composite Index American Stock Exchange Composite Index NASDAQ Composite NASDAQ Industrials In addition, each of Oakmark Fund, Select Fund, Small Cap Fund and Equity and Income Fund may compare its performance to the following indexes and averages: Value Line Index; Lipper Capital Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds Average; Lipper Small Company Growth Fund Index; and Lehman Brothers Government/Corporate Bond Index. Each of International Fund and International Small Cap Fund may compare its performance to the following indexes and averages: Lipper International & Global Funds Average; Lipper International Fund Index; Lipper International Equity Funds Average; Micropal International Small Company Fund Index; Morgan Stanley Capital International World ex the U.S. Index*; Morningstar International Stock Average. 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% - ------------------------------------ (*) With dividends reinvested. 14 labeled three star, the next 22.5% labeled two star, and the bottom 10% one star. A high rating reflects either above-average returns or below-average risk or both. To illustrate the historical returns on various types of financial assets, the Funds may use historical data provided by Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains) very long-term (since 1926) total return data (including, for example, total return indexes, total return percentages, average annual total returns and standard deviations of such returns) for the following asset types: common stocks; small company stocks; long-term corporate bonds; long-term government bonds; intermediate-term government bonds; U.S. Treasury bills; and Consumer Price Index. INVESTMENT ADVISER The Funds' investment adviser, Harris Associates L.P. (the "Adviser"), furnishes continuing investment supervision to the Funds and is responsible for overall management of the Funds' business affairs pursuant to investment advisory agreements relating to the respective Funds (the "Agreements"). The Adviser furnishes office space, equipment and personnel to the Funds, and assumes the expenses of printing and distributing the Funds' prospectus and reports to prospective investors. Each Fund pays the cost of its custodial, stock transfer, dividend disbursing, bookkeeping, audit and legal services. Each Fund also pays other expenses such as the cost of proxy solicitations, printing and distributing notices and copies of the prospectus and shareholder reports furnished to existing shareholders, taxes, insurance premiums, the expenses of maintaining the registration of that Fund's shares under federal and state securities laws and the fees of trustees not affiliated with the Adviser. The Adviser has voluntarily agreed to reimburse 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.
TYPE OF YEAR ENDED ELEVEN MONTHS ENDED YEAR ENDED FUND PAYMENT SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 OCTOBER 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." The addresses of the trustees are as follows: Michael J. Friduss c/o MJ Friduss & Associates, Inc. 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 LaSalle Street, Suite 500 Chicago, Illinois 60602 Allan J. Reich c/o D'Ancona & Pflaum 30 North LaSalle 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. The Trust has a deferred compensation plan (the "Plan") that permits any trustee who is not an "interested person" of the Trust to elect to defer receipt of all or a portion of his or her compensation as a trustee for two or more years. The deferred compensation of a participating trustee is credited to a book reserve account of the Trust when the compensation would otherwise have been paid to the trustee. The value of the trustee's deferral account at any time is equal to the value that the account would have had if contributions to the account had been invested and reinvested in shares of one or more of the Oakmark Funds or the Goldman Sachs Institutional Liquid Assets Government Portfolio as designated by the trustee. At the time for commencing distributions from a trustee's deferral account, which is no later than when the trustee ceases to be a member of the board, the trustee may elect to receive distributions in a lump sum or over a period of five years. Each Fund's obligation to make distributions under the Plan is a general obligation of that Fund. No Fund will be liable for any other Fund's obligations to make distributions under the Plan. 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 18 PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND SHARES HELD - ---------------- ---- ------------- 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 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." The net asset value per share 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 II Shares outstanding. Securities traded on securities exchanges, or in the over-the-counter market in which transaction prices are reported on the NASDAQ National Market System, are valued at the last sales prices at the time of valuation or, lacking any reported sales on that day, at the most recent bid quotations. Other securities traded over-the-counter are also valued at the most recent bid quotations. Money market instruments having a maturity of 60 days or less from the valuation date are valued on an amortized cost basis. The values of securities of foreign issuers are generally based upon market quotations which, depending upon local convention or regulation, may be last sale price, last bid or asked price, or the mean between last bid and asked prices as of, in each case, the close of the appropriate exchange or other designated time. Securities for which quotations are not available and any other assets are valued at a fair value as determined in good faith by or under the direction of the board of trustees. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by 19 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 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 20 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 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 21 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. 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 22 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. 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, 1998 September 30, 1997 October 31, 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 Eleven Months Ended Year Ended Fund September 30, 1998 September 30, 1997 October 31, 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 small. Caa. Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. 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 -----END PRIVACY-ENHANCED MESSAGE-----