<PAGE>
Securities Act registration no. 33-38953
Investment Company Act file no. 811-06279
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
________________________________________________________________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 11 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13 [X]
________________________________________________________________________________
HARRIS ASSOCIATES INVESTMENT TRUST
(Registrant)
Two North La Salle Street, Suite 500
Chicago, Illinois 60602-3790
Telephone number 312/621-0600
________________________________________________________________________________
Victor A. Morgenstern Cameron S. Avery
Harris Associates L.P. Bell, Boyd & Lloyd
Two North La Salle Street, Suite 500 70 West Madison Street, #3300
Chicago, Illinois 60602 Chicago, Illinois 60602
(Agents for service)
________________________________________________________________________________
Amending Parts A, B and C and filing Exhibits
________________________________________________________________________________
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to rule 485(b)
___ on___________________________ pursuant to rule 485(b)
X 60 days after filing pursuant to rule 485(a)(1)
---
___ on___________________________ pursuant to rule 485(a)(1)
___ 75 days after filing pursuant to rule 485(a)(2)
___ on___________________________ pursuant to rule 485(a)(2)
Registrant has elected to register an indefinite number of its shares of
beneficial interest, without par value, of the series designated The Oakmark
Fund, The Oakmark Small Cap Fund, The Oakmark Balanced Fund (formerly designated
The Oakmark Growth and Income Fund), The Oakmark International Fund and The
Oakmark International Emerging Value Fund, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for its fiscal
period ended October 31, 1995 was filed on or about November 16, 1995.
________________________________________________________________________________
Page 1 of _____ sequential pages (including exhibits).
The exhibit index is on sequential page _____.
<PAGE>
HARRIS ASSOCIATES INVESTMENT TRUST
CROSS-REFERENCE SHEET PURSUANT TO RULE 495(A) OF REGULATION C
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION/*/
---- -----------------------
Part A (Prospectus)
-----------------------
<S> <C> <C>
1 (a) & (b) Front Cover
2 (a) Expenses
(b) & (c) Summary
3 (a) Financial Highlights
(b) Not Applicable
(c) Performance Information
(d) Financial Highlights
4 (a)(i) Other Information
(a)(ii)&(b) How the Funds Invest
(c) Risk Factors
5 (a) Management of the Funds
(b) Management of the Funds; Inside Back Cover; Expenses
(c) Management of the Funds
(d) Not applicable
(e) Inside Back Cover
(f) Expenses
(g) Management of the Funds
5 (a) Not applicable (the specified information is
included in registrant's 1994 annual reports to
shareholders)
6 (a) Other Information
(b) Not Applicable
(c)-(e) Other Information
(f) Distributions
(g) Taxes
7 How to Purchase Shares; Shareholder Services
(a) Not Applicable
(b) How to Purchase Shares; Net Asset Value
(c) Not Applicable
(d) Front cover; How to Purchase Shares
(e) & (f) Not Applicable
8 (a)-(d) How to Redeem Shares
9 Not Applicable
</TABLE>
- --------
/*/References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
2
<PAGE>
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION/*/
---- --------------------------------------------
Part B (Statement of Additional Information)
--------------------------------------------
<S> <C>
10 (a) & (b) Front Cover
11 Table of Contents
12 Not Applicable
13 (a) The Funds; How the Funds Invest
(c) Investment Restrictions
(d) Not applicable
14 (a) & (b) Part A - Management of the Funds; Trustees and Officers
(c) Not Applicable
15 (a) Not Applicable
(b) Principal Shareholders
(c) Trustees and Officers
16 (a) & (b) Part A - Management of the Funds;
Part B - Investment Adviser; Trustees and Officers
(c) Not Applicable
(d) Custodian
(e)-(g) Not Applicable
(h) Custodian; Independent Public Accountants
(i) Not Applicable
17 (a)-(d) Portfolio Transactions
(e) Not Applicable
18 (a) & (b) Not Applicable
19 (a)-(c) Purchasing and Redeeming Shares
20 Additional Tax Information; Taxation of Foreign
Shareholders
21 (a)-(c) Not Applicable
22 (a) Not Applicable
(b) Performance Information
23 Financial Statements
</TABLE>
- --------
/*/References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
3
<PAGE>
ITEM LOCATION OR CAPTION/*/
---- -----------------------------
Part C (Other Information)
--------------------------
24 Financial statements and exhibits
25 Persons controlled by or under common control with
registrant
26 Number of holders of securities
27 Indemnification
28 Business and other connections of investment adviser
29 Principal underwriters
30 Location of accounts and records
31 Management services
32 Undertakings
- --------------------------
/*/References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
4
<PAGE>
Draft 12/20/95
PROSPECTUS
February __, 1996
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE:
THE OAKMARK FUND LONG-TERM CAPITAL APPRECIATION
The Oakmark Fund invests primarily in equity
securities.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE:
THE OAKMARK LONG-TERM CAPITAL APPRECIATION
SMALL CAP FUND The Oakmark Small Cap Fund invests primarily in
equity securities of companies with
small market capitalizations.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE:
HIGH CURRENT INCOME AND
THE OAKMARK PRESERVATION AND GROWTH OF CAPITAL
BALANCED FUND The Oakmark Balanced Fund invests in a
diversified portfolio of equity and fixed-income
securities.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE:
THE OAKMARK LONG-TERM CAPITAL APPRECIATION
INTERNATIONAL FUND The Oakmark International Fund invests primarily in
equity securities of non-U.S. issuers.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE:
LONG-TERM CAPITAL APPRECIATION
THE OAKMARK The Oakmark International Emerging Value Fund
INTERNATIONAL EMERGING invests primarily in equity securities of
VALUE FUND non-U.S. issuers that have small market
capitalizations or that are located
in emerging markets.
- --------------------------------------------------------------------------------
NO LOAD -- NO SALES CHARGE
NO 12B-1 FEES
MINIMUM INVESTMENT TICKER SYMBOLS
Initial purchase - $1,000 Oakmark Fund - OAKMX
or $2,500 Small Cap Fund - OAKSX
(see "How to Purchase Balanced Fund - (not yet assigned)
Shares") International Fund-OAKIX
Subsequent investments - International Emerging Value Fund - (not yet
$100 assigned)
- --------------------------------------------------------------------------------
Each "Fund" is a series of Harris Associates Investment Trust. The Funds may
invest to a limited extent in high-yield, high-risk bonds and in other
securities that entail certain risks. See "Risk Factors."
This prospectus contains information you should know before investing. Please
retain it for future reference. A Statement of Additional Information regarding
the Funds dated the date of this prospectus has been filed with the Securities
and Exchange Commission and (together with any supplement to it) is incorporated
by reference. The Statement of Additional Information may be obtained at no
charge by writing or telephoning the Trust at its address or telephone number
shown inside the back cover.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
HARRIS ASSOCIATES INVESTMENT TRUST (the "Trust") provides investors an
opportunity to pool their money to achieve economies of scale and
diversification, and to take advantage of the professional investment expertise
of Harris Associates L.P. (the "Adviser").
The Trust currently issues shares in five series (collectively, the "Funds"
and generally, a "Fund"). Each series has distinct investment objectives and
policies, and a shareholder's interest is limited to the series in which he or
she owns shares. The five series are: The Oakmark Fund ("Oakmark Fund"), The
Oakmark Small Cap Fund ("Small Cap Fund"), The Oakmark Balanced Fund ("Balanced
Fund"), The Oakmark International Fund ("International Fund") and The Oakmark
International Emerging Value Fund ("International Emerging Fund"). Each is a
"no-load" fund, and there are no sales or 12b-1 charges. There are no
redemption fees except in the case of shares of Small Cap Fund or International
Emerging Fund held less than six months, for which there is a 2% redemption fee
payable to the Fund.
The Trust is designed for long-term investors, including those who wish to
use shares of one or more series as a funding vehicle for tax-deferred
retirement plans (including tax-qualified retirement plans and Individual
Retirement Account (IRA) plans), and not for investors who intend to liquidate
their investments after a short period of time. Only Balanced Fund is intended
to present a balanced investment program between growth and income.
The chief consideration in selecting equity securities for each Fund's
portfolio is the size of the discount of market price relative to the economic
value of the security as determined by the Adviser. The Trust's investment
philosophy is predicated on the belief that over time market price and value
converge and that investment in securities priced significantly below long-term
value presents the best opportunity to achieve each Fund's objective of long-
term capital appreciation.
OAKMARK FUND seeks long-term capital appreciation by investing primarily in
equity securities.
SMALL CAP FUND seeks long-term capital appreciation by investing primarily
in equity securities of companies with small market capitalizations.
BALANCED FUND seeks high current income and preservation and growth of
capital by investing in a diversified portfolio of equity and fixed-income
securities.
INTERNATIONAL FUND seeks long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers.
INTERNATIONAL EMERGING FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers that have
small market capitalizations or that are located in emerging markets.
Risks
The Funds are intended for long-term investors who can accept fluctuations
in value and other risks associated with seeking the investment objectives of
the respective Funds through investments in the types of securities in which the
Funds may invest. You should understand and consider carefully the risks
involved in a Fund before investing in that Fund. See "Risk Factors" for a more
detailed discussion.
Purchases
The minimum initial investment for Small Cap Fund and International
Emerging Fund is $1,000 and for each other Fund is $2,500 ($1,000 for an IRA,
UGMA or UTMA); additional investments must be at least $100. Shares may be
purchased by check, by bank wire, by electronic transfer or by exchange. See
"How to Purchase Shares."
Redemptions
6
<PAGE>
For information on redeeming Fund shares, including the special redemption
privileges, see "How to Redeem Shares."
Net Asset Value
The purchase and redemption price of a Fund's shares is the net asset value
per share. The net asset value is determined as of the close of regular session
trading on the New York Stock Exchange. See "Net Asset Value."
Adviser
Harris Associates L.P. (the "Adviser") provides management and investment
advisory services to the Funds. See "Management of the Funds."
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
OAKMARK,
BALANCED AND SMALL CAP AND
INTERNATIONAL INT'L EMERGING
FUNDS FUNDS
------------- --------------
<S> <C> <C>
Commission to purchase shares (sales
load).................................... None None
Commission to reinvest dividends.......... None None
Deferred sales load....................... None None
Redemption fees/(a)/...................... None 2%/(b)/
Fees to exchange shares/(c)/.............. None None
- -----------
</TABLE>
(a) If you request payment of redemption proceeds by wire, you must pay
the cost of the wire (currently $5).
(b) This fee, payable to the Fund, is imposed only if you redeem shares of the
Fund within six months after purchase (other than by reinvestment of
dividends or distributions), determined on a first-in, first-out
basis.
(c) There is no fee for an exchange between the Funds. There is a charge of $5
for an exchange from any Fund into Oakmark Units as described under "How to
Redeem Shares."
7
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
The following table is intended to help you understand the costs and
expenses that an investor in the Funds may bear directly or indirectly. For a
more complete explanation of the fees and expenses borne by the Funds, see the
discussions under the prospectus headings "How to Purchase Shares" and
"Management of the Funds", as well as the Statement of Additional Information
incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
INT'L
OAKMARK SMALL CAP BALANCED INT'L EMERGING
FUND FUND FUND FUND FUND
------- --------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Investment management fees (a)........... 1.00% 1.25% .75% 1.00% 1.25%
12b-1 fees............................... None None None None None
Other expenses (after
reimbursements of certain
expenses)(b)........................... .17 1.05 1.75 .40 1.25
---- ---- ---- ---- ----
Total Fund operating
expenses (after
reimbursement of
certain expenses)................. 1.17% 2.30% 2.50% 1.40% 2.50%
==== ==== ==== ==== ====
</TABLE>
- ---------
(a) See "Management of the Funds" for rates of fees at various asset
levels.
(b) Because Small Cap, Balanced and International Emerging Funds are newly
organized, their percentages shown for "Other Expenses" are estimates and,
in the case of International Emerging Fund, have been computed giving
effect to the Adviser's agreement to limit the Fund's ordinary operating
expenses. See "Management of the Funds." Absent that limitation, the
"Other Expenses" and "Total Fund Operating Expenses" of International
Emerging Fund would be estimated to be 2.55% and 3.80%, respectively.
The following example illustrates the expenses that you would pay on a
$1,000 investment in each Fund over various time periods assuming (1) a 5%
annual rate of return, (2) the operating expense percentages listed in the table
above remain the same through each of the periods, (3) reinvestment of all
dividends and capital gain distributions, and (4) redemption at the end of each
time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Oakmark Fund $12 $37 $ 64 $142
Small Cap Fund 23 72 123 264
Balanced Fund 25 78 133 284
International Fund 14 44 77 168
International Emerging Fund 25 78 133 284
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below reflect the results of the operations of Oakmark Fund and
International Fund for a share outstanding throughout the periods shown and have
been audited by Arthur Andersen LLP, independent public accountants. These
tables should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained from the Trust upon request without charge.
Small Cap Fund, Balanced Fund and International Emerging Fund did not commence
operations until November 1, 1995.
Oakmark Fund
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------ Period Ended
1995 1994 1993 1992 Oct. 31, 1991(a)
--------- ----------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 25.21 $ 24.18 $ 17.11 $12.10 $ 10.00
Income from investment operations:
Net investment income (loss)............. .30 .27 .17 (.03)(d) (.01)
Net gains or losses on securities
(both realized and unrealized)......... 4.66 1.76 7.15 5.04 2.11
-------- -------- -------- ------ --------
Total from investment operations......... 4.96 2.03 7.32 5.01 2.10
Less distributions:
Dividends (from net investment income) (.23) (.23) (.04) - -
Distributions (from capital gains) (1.47) (.77) (.21) - -
-------- -------- -------- ------ --------
Total distributions (1.70) (1.00) (.25) - -
-------- -------- -------- ------ --------
Net asset value, end of period $ 28.47 $ 25.21 $ 24.18 $17.11 $ 12.10
======== ======== ======== ====== ========
Total return 21.55% 8.77% 43.21% 41.40% 87.10%*
Ratios/supplemental data:
Net assets, end of period ($ million) $2.827.1 $1,677.3 $1,107.0 $114.7 $ 4.8
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets 1.17% 1.22% 1.32% 1.70% 2.50%(b)*
Ratio of net income (loss) to
average net assets 1.27% 1.19% .94% (.24)% (.66%)(c)*
Portfolio turnover rate 18% 29% 18% 34% 0%
- -----------
</TABLE>
* Ratios for the period have been determined on an annualized basis.
(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.
(d) Based on average month-end shares outstanding.
10
<PAGE>
<TABLE>
<CAPTION>
International Fund
Year Ended October 31,
---------------------------------------- Period Ended
1995 1994 1993 Oct. 31, 1992(a)
------- -------- ------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period..... $14.50 $ 14.09 $ 9.80 $ 10.00
Income from investment operations:
Net investment income.................... .30 .21 .06 .26
Net gains or losses on securities
(both realized and unrealized)......... (.77) .43 4.48 (.46)
------- -------- ------ -------
Total from investment operations......... (.47) .64 4.54 (.20)
Less distributions:
Dividends (from net investment income)... - (.08) (.25) -
Distributions (from capital gains)....... (1.06) (.15) - -
------- -------- ------ -------
Total distributions...................... (1.06) (.23) (.25) -
------- -------- ------ -------
Net asset value, end of period........... $12.97 $ 14.50 $14.09 $ 9.80
======= ======== ====== =======
Total return............................. (3.06)% 4.62% 47.49% (22.81)%*
Ratios/supplemental data:
Net assets, end of period ($ million).... $819.7 $1,286.0 $815.4 $ 23.5
Ratio of expenses to average net assets.. 1.40% 1.37% 1.26% 2.04%*
Ratio of net income (loss) to
Average net assets....................... 1.40% 1.44% 1.55% 37.02%*
Portfolio turnover rate.................. 27% 55% 21% 0%
</TABLE>
- -----------
* Ratios for the period have been determined on an annualized basis.
(a) From September 30, 1992, the date on which Fund shares were first offered
for sale to the public.
THE FUNDS
The mutual funds offered by this prospectus are OAKMARK FUND, SMALL CAP
FUND, BALANCED FUND, INTERNATIONAL FUND AND INTERNATIONAL EMERGING FUND. Each of
the Funds is a no-load, diversified "mutual fund." No Fund imposes any
commission or charge when shares are purchased, nor bears any 12b-1 charges.
The Funds are series of Harris Associates Investment Trust (the "Trust"),
which is authorized to issue shares in separate series. Each series is a
separate portfolio of securities and other assets, with its own investment
objective and policies.
Harris Associates L.P. (the "Adviser") provides investment advisory and
administrative services to the Funds.
HOW THE FUNDS INVEST
The chief consideration in the selection of equity securities for each Fund
is the size of the discount of market price relative to the economic value of
the security as determined by the Adviser. The Funds may also employ the
techniques described below under "Investment Techniques."
11
<PAGE>
OAKMARK FUND seeks long-term capital appreciation by investing primarily in
equity securities. Although income is considered in the selection of securities,
the Fund is not designed for investors whose primary investment objective is
income.
The Fund invests principally in securities of U.S. issuers. However, it may
invest up to 25% of its total assets (valued at the time of investment) in
securities of non-U.S. issuers, including foreign government obligations and
foreign equity and debt securities that are traded over-the-counter or on
foreign exchanges. There are no geographic limits on the Fund's foreign
investments, but the Fund does not expect to invest more than 5% of its assets
in securities in emerging markets. See "Risk Factors - International Investing"
below.
SMALL CAP FUND seeks long-term capital appreciation by investing primarily
in equity securities. Under normal market conditions, the Fund invests at least
65% of its total assets, taken at market value, in companies whose market
capitalization is less than $1 billion ("small cap companies") at the time of
purchase. A company's market capitalization is the total market value of its
outstanding common stock. Although income is considered in the selection of
securities, the Fund is not designed for investors whose primary investment
objective is income.
The Fund invests principally in securities of U.S. issuers. However, it may
invest up to 25% of its total assets (valued at the time of investment) in
securities of non-U.S. issuers, including foreign government obligations and
foreign equity and debt securities that are traded over-the-counter or on
foreign exchanges. There are no geographic limits on the Fund's foreign
investments, but the Fund does not expect to invest more than 5% of its assets
in securities in emerging markets. See "Risk Factors - International Investing"
below.
BALANCED FUND seeks high current income and preservation and growth of
capital by investing in a diversified portfolio of equity and fixed-income
securities. The Fund is intended to present a balanced investment program
between growth and income. It generally invests approximately 50-65% of its
total assets in equity securities, including securities convertible into equity
securities, 25-50% of its assets in U.S. Government securities and debt
securities rated at time of purchase within the two highest grades assigned by
Moody's Investors Service, Inc. ("Moody's") (Aaa or Aa) or by Standard & Poor's
Corporation ("S&P") (AAA or AA), and up to 20% in unrated or lower rated debt
securities (measured at market value at the time of investment).
The Fund invests principally in securities of U.S. issuers. However, it may
invest up to 10% of its total assets (valued at the time of investment) in
foreign securities, including foreign government obligations and foreign equity
and debt securities that are traded over-the-counter or on foreign exchanges.
The Fund has no geographic limits on its foreign investments, but the Fund does
not expect to invest more than 5% of its assets in securities in emerging
markets. See "Risk Factors - International Investing" below.
INTERNATIONAL FUND seeks long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers.
The Adviser considers the relative political and economic stability of the
issuer's home country in evaluating the potential rewards and risks of an
investment opportunity. The Fund may invest in securities traded in mature
markets (for example, Japan, Canada and the United Kingdom), in less developed
markets (Mexico and Thailand, for example), and in selected emerging markets
(such as Peru and India). Investments in securities of non-U.S. issuers,
especially those traded in less developed or emerging markets, present
additional risk. There are no limits on the Fund's geographic asset
distribution, but, to provide adequate diversification, the Fund ordinarily
invests in the securities markets of at least five countries outside the United
States. See "Risk Factors - International Investing" below.
12
<PAGE>
Some foreign governments have been engaged in programs of selling part or
all of their stakes in government owned or controlled enterprises
("privatizations"). The Adviser believes that privatizations may offer
opportunities for significant capital appreciation, and intends to invest assets
of the Fund in privatizations in appropriate circumstances. In certain of those
markets, the ability of foreign entities such as the Fund to participate in
privatizations may be limited by local law and/or the terms on which the Fund
may be permitted to participate may be less advantageous than those afforded
local investors. There can be no assurance that governments will continue to
sell companies currently owned or controlled by them or that privatization
programs will be successful.
The equity securities in which the Fund may invest include common and
preferred stocks and warrants or other similar rights and convertible
securities. The Fund may purchase securities of non-U.S. issuers directly or in
the form of American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), or other securities representing underlying shares of non-U.S. issuers.
Under normal market conditions, the Fund invests at least 65% of its total
assets, taken at market value, in securities of non-U.S. issuers.
INTERNATIONAL EMERGING FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers that have small
market capitalizations or that are located in emerging markets.
The Adviser considers the relative political and economic stability of the
issuer's home country, the ownership structure of the company, and the company's
accounting practices in evaluating the potential rewards and risks of an
investment opportunity. The Fund invests in securities traded in both developed
and emerging markets. In those markets considered developed (for example,
Germany, France and Japan), the Fund invests in small cap companies, generally
expected to have market capitalizations under $1 billion. In emerging markets
(such as Brazil, Indonesia, Korea and Argentina), the Fund considers companies
of any capitalization. Investments in securities of non-U.S. issuers,
especially those traded in less developed or emerging markets, present
additional risks. There are no limits on the Fund's geographic asset
distribution, but, to provide adequate diversification, the Fund ordinarily
invests in the securities markets of at least five countries outside the United
States. See "Risk Factors - International Investing" below.
Some foreign governments have been engaged in programs of selling part or
all of their stakes in government owned or controlled enterprises
("privatizations"). The Adviser believes that privatizations may offer
opportunities for significant capital appreciation, and intends to invest assets
of the Fund in privatizations in appropriate circumstances. In certain of those
markets, the ability of foreign entities such as the Fund to participate in
privatizations may be limited by local law and/or the terms on which the Fund
may be permitted to participate may be less advantageous than those afforded
local investors. There can be no assurance that governments will continue to
sell companies currently owned or controlled by them or that privatization
programs will be successful.
The equity securities in which the Fund may invest include common and
preferred stocks and warrants or other similar rights and convertible
securities. The Fund may purchase securities of non-U.S. issuers directly or in
the form of American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), Global Depositary Receipts (GDRs), or other securities representing
underlying shares of non-U.S. issuers. Under normal market conditions, the Fund
invests at least 65% of its total assets, taken at market value, in securities
of non-U.S. issuers.
___________________________
Under normal market conditions, each Fund expects to be substantially fully
invested in the types of securities described in the preceding paragraphs.
Within the limitations described in this prospectus, the percentages of Fund
assets invested in various types of securities will vary in accordance with the
judgment of the Adviser. To the extent that investments meeting the Fund's
criteria for investment are not
13
<PAGE>
available, or when the Adviser considers a temporary defensive posture
advisable, the Fund may invest without limitation in high-quality corporate debt
obligations of U.S. companies or U.S. government obligations, or may hold cash
or cash-equivalents.
In seeking to achieve its investment objective, each Fund ordinarily
invests on a long-term basis, but on occasion may also invest on a short-term
basis (for example, where short-term perceptions have created a significant gap
between price and value). Occasionally, securities purchased on a long-term
basis may be sold within 12 months after purchase in light of a change in the
circumstances of a particular company or industry or in general market or
economic conditions.
INVESTMENT TECHNIQUES
EQUITY SECURITIES. The equity securities in which each Fund may invest
include common and preferred stocks and warrants or other similar rights and
convertible securities. The chief consideration in the selection of equity
securities for each Fund is the size of the discount of market price relative to
the economic value of the security as determined by the Adviser. The Adviser's
investment philosophy for those investments is predicated on the belief that
over time market price and value converge and that investment in securities
priced significantly below long-term value presents the best opportunity to
achieve long-term capital appreciation.
The Adviser uses several qualitative and quantitative methods in analyzing
economic value, but considers the primary determinant of value to be the
enterprise's long-run ability to generate cash for its owners. Once the Adviser
has determined that a security is undervalued, the Adviser will consider it for
purchase by a Fund, taking into account the quality and motivation of the
management, the firm's market position within its industry and its degree of
pricing power. The Adviser believes that the risks of equity investing are
often reduced if management's interests are strongly aligned with the interests
of its stockholders.
DEBT SECURITIES. Each Fund may invest in debt securities of both
governmental and corporate issuers. Each of Oakmark Fund and Small Cap Fund may
invest up to 25% of its assets, Balanced Fund may invest up to 20% of its
assets, and International Fund and International Emerging Fund may invest up to
10% of its assets (valued at the time of investment), in debt securities that
are rated below investment grade. Lower-grade debt securities (commonly called
"junk bonds") are obligations of issuers rated BB or lower by S&P or Baa or
lower by Moody's. Lower-grade debt securities are considered speculative and
may be in poor standing or actually in default. Medium-grade debt securities
are those rated BBB by S&P or Baa by Moody's. Securities so rated are
considered to have speculative characteristics. See "Risk Factors." A
description of the ratings used by S&P and Moody's is included as an appendix to
the Statement of Additional Information.
SHORT SALES AGAINST THE BOX. Each Fund may sell short securities the Fund
owns or has the right to acquire without further consideration, a technique
called selling short "against the box." Short sales against the box may protect
the Fund against the risk of losses in the value of its portfolio securities
because any unrealized losses with respect to such securities should be wholly
or partially offset by a corresponding gain in the short position. However, any
potential gains in such securities should be wholly or partially offset by a
corresponding loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or otherwise, the
Adviser does not want to sell the security. The Trust does not currently expect
that more than 20% of any Fund's total assets would be involved in short sales
against the box. For a more complete explanation, please refer to the Statement
of Additional Information.
CURRENCY EXCHANGE TRANSACTIONS. Each Fund may engage in currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate for purchasing
or selling currency prevailing in the foreign exchange market or through a
forward currency exchange contract ("forward contract"). A forward contract is
an agreement to purchase or sell a specified currency at a specified future date
(or within a specified time period) and price set at the time of the contract.
Forward contracts are usually entered into
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with banks and broker-dealers, are not exchange-traded and are usually for less
than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which a Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The Funds' forward
currency transactions are limited to transaction hedging and portfolio hedging
involving either specific transactions or actual or anticipated portfolio
positions. Transaction hedging is the purchase or sale of a forward contract
with respect to a specific receivable or payable of a Fund accruing in
connection with the purchase or sale of portfolio securities. Portfolio hedging
is the use of a forward contract with respect to an actual or anticipated
portfolio security position denominated or quoted in a particular currency.
Each Fund may engage in portfolio hedging with respect to the currency of a
particular country in amounts approximating actual or anticipated positions in
securities denominated in such currency. When a Fund owns or anticipates owning
securities in countries whose currencies are linked, the Adviser may aggregate
such positions as to the currency hedged. Although forward contracts may be
used to protect a Fund from adverse currency movements, the use of such hedges
may reduce or eliminate the potentially positive effect of currency revaluations
on the Fund's total return.
OTHER INVESTMENT COMPANIES. Certain markets are closed in whole or in part
to equity investments by foreigners. A Fund may be able to invest in such
markets solely or primarily through governmentally authorized investment
vehicles or companies. Each Fund generally may invest up to 10% of its assets
in the aggregate in shares of other investment companies and up to 5% of its
assets in any one investment company, as long as no investment represents more
than 3% of the outstanding voting stock of the acquired investment company at
the time of investment.
Investment in another investment company may involve the payment of a
premium above the value of such issuers' portfolio securities, and is subject to
market availability. The Trust does not intend to invest in such vehicles or
funds unless, in the judgment of the Adviser, the potential benefits of the
investment justify the payment of any applicable premium or sales charge. As a
shareholder in an investment company, a Fund would bear its ratable share of
that investment company's expenses, including its advisory and administration
fees. At the same time the Fund would continue to pay its own management fees
and other expenses.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. Each Fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. There is a risk that the securities may not be
delivered or that they may decline in value before the settlement date.
PRIVATE PLACEMENTS. Each Fund may acquire securities in private
placements. Because an active trading market may not exist for such securities,
the sale of such securities may be subject to delay and additional costs. No
Fund will purchase such a security if more than 15% of the value of such Fund's
net assets would be invested in illiquid securities.
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend its portfolio
securities to broker-dealers and banks to the extent indicated in restriction 5
under "Restrictions on the Funds' Investment." Any such loan must be
continuously secured by collateral in cash or cash equivalents maintained on a
current basis in an amount at least equal to the market value of the securities
loaned by a Fund. The Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned, and would
also receive an additional return that may be in the form of a fixed fee or a
percentage of the collateral. The Fund would have the right to call the loan
and obtain the securities loaned at any time on notice of not more than five
business days. In the event of bankruptcy or other default of the borrower, the
Fund could experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible decline in
the value of the collateral or in the value of the securities loaned during the
period while the Fund seeks to enforce its rights thereto, (b) possible
subnormal levels of income and lack of access to income during this period, and
(c) expenses of enforcing its rights.
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CASH RESERVES. To meet liquidity needs or for temporary defensive
purposes, each Fund may hold cash in domestic and foreign currencies and may
invest in domestic and foreign money market securities.
RISK FACTORS
GENERAL. All investments, including those in mutual funds, have risks, and
no investment is suitable for all investors. Each Fund is intended for long-
term investors. Only Balanced Fund is intended to present a balanced investment
program between growth and income.
SMALL CAP COMPANIES. During some periods, the securities of small cap
companies, as a class, have performed better than the securities of large
companies, and in some periods they have performed worse. Stocks of small cap
companies tend to be more volatile and less liquid than stocks of large
companies. Small cap companies, as compared to larger companies, may have a
shorter history of operations, may not have as great an ability to raise
additional capital, may have a less diversified product line making them
susceptible to market pressure, and may have a smaller public market for their
shares.
INTERNATIONAL INVESTING. International Fund and International Emerging
Fund provide long-term investors with an opportunity to invest a portion of
their assets in a diversified portfolio of securities of non-U.S. issuers. Each
of the other Funds may invest up to 25% (or 10% in the case of Balanced Fund) of
its assets in securities of non-U.S. issuers. International investing allows
you to achieve greater diversification and to take advantage of changes in
foreign economies and market conditions. Many foreign economies have, from time
to time, grown faster than the U.S. economy, and the returns on investments in
these countries have exceeded those of similar U.S. investments, although there
can be no assurance that these conditions will continue.
You should understand and consider carefully the greater risks involved in
investing internationally. Investing in securities of non-U.S. issuers,
positions in which are generally denominated in foreign currencies, and
utilization of forward foreign currency exchange contracts involve both
opportunities and risks not typically associated with investing in U.S.
securities. These include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers and issuers of
securities; different accounting, auditing and financial reporting standards;
different settlement periods and trading practices; less liquidity and
frequently greater price volatility in foreign markets than in the United
States; imposition of foreign taxes; and sometimes less advantageous legal,
operational and financial protections applicable to foreign subcustodial
arrangements.
Although the Funds try to invest in companies and governments of countries
having stable political environments, there is the possibility of restriction of
foreign investment, expropriation of assets, or confiscatory taxation, seizure
or nationalization of foreign bank deposits or other assets, establishment of
exchange controls, the adoption of foreign government restrictions, or other
adverse political, social or diplomatic developments that could affect
investment in these nations. Economies in individual emerging markets may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rates of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments positions. Many
emerging market countries have experienced high rates of inflation for many
years, which has had and may continue to have very negative effects on the
economies and securities markets of those countries.
The securities markets of emerging countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. and other major
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited.
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Any Fund may invest in ADRs that are not sponsored by the issuer of the
underlying security. To the extent it does so, the Fund would probably bear its
proportionate share of the expenses of the depository and might have greater
difficulty in receiving copies of the issuer's shareholder communications than
would be the case with a sponsored ADR.
The cost of investing in securities of non-U.S. issuers is higher than the
cost of investing in U.S. securities. International Fund and International
Emerging Fund provide an efficient way for an individual to participate in
foreign markets, but their expenses, including advisory and custody fees, are
higher than for a typical domestic equity fund.
DEBT SECURITIES. As noted above, each Fund may invest to a limited extent
in debt securities that are rated below investment grade or, if unrated, are
considered by the Fund's investment adviser to be of comparable quality. A
decline in prevailing levels of interest rates generally increases the value of
debt securities in a Fund's portfolio, while an increase in rates usually
reduces the value of those securities. As a result, to the extent that a Fund
invests in debt securities, interest rate fluctuations will affect its net asset
value, but not the income it receives from its debt securities. In addition, if
the debt securities contain call, prepayment or redemption provisions, during a
period of declining interest rates, those securities are likely to be redeemed,
and the Fund would probably be unable to replace them with securities having as
great a yield.
Investment in medium- or lower-grade debt securities involves greater
investment risk, including the possibility of issuer default or bankruptcy. An
economic downturn could severely disrupt this market and adversely affect the
value of outstanding bonds and the ability of the issuers to repay principal and
interest. In addition, lower-quality bonds are less sensitive to interest rate
changes than higher-quality instruments and generally are more sensitive to
adverse economic changes or individual corporate developments. During a period
of adverse economic changes, including a period of rising interest rates,
issuers of such bonds may experience difficulty in servicing their principal and
interest payment obligations.
Furthermore, medium- and lower-grade debt securities tend to be less
marketable than higher-quality debt securities because the market for them is
less broad. The market for unrated debt securities is even narrower. During
periods of thin trading in these markets, the spread between bid and asked
prices is likely to increase significantly, and the Fund may have greater
difficulty selling its portfolio securities. The market value of these
securities and their liquidity may be affected by adverse publicity and investor
perceptions.
CHANGE IN OBJECTIVE. Each Fund's investment objective may be changed by
the board of trustees without shareholder approval. Shareholders would receive
at least 30 days' written notice of any change in a Fund's objective. If there
is a change in investment objective, you should consider whether the Fund
remains an appropriate investment in light of your then current financial
position and needs. There can be no assurance that any Fund will achieve its
investment objective.
RESTRICTIONS ON THE FUNDS' INVESTMENTS
No Fund will:
1. In regard to 75% of its assets, invest more than 5% of its assets
(valued at the time of investment) in securities of any one issuer, except in
U.S. government obligations;
2. Acquire securities of any one issuer which at the time of investment
(a) represent more than 10% of the voting securities of the issuer, or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Borrow money except from banks for temporary or emergency purposes in
amounts not exceeding 10% of the value of the Fund's assets at the time of
borrowing [the Fund will not purchase
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additional securities when its borrowings, less receivables from portfolio
securities sold, exceed 5% of total assets];
4. Issue any senior security except in connection with permitted
borrowings; or
5. Make loans, except that each Fund may invest in debt obligations,
invest in repurchase agreements/*/ and lend its portfolio securities [the Fund
will not lend securities having a value in excess of 33% of its assets (valued
at the time of any loan)].
These restrictions, except the bracketed portions and the footnote, are
"fundamental" and cannot be changed as to a Fund without the approval of a
"majority of the outstanding voting securities" of that Fund as defined in the
Investment Company Act of 1940. All of the Funds' investment restrictions,
including additional fundamental restrictions, are set forth in the Statement of
Additional Information.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer or by exchange. There are no sales commissions or
underwriting discounts. The minimum initial investment is $1,000 for Small Cap
and International Emerging Fund and $2,500 for the other Funds, except that the
minimum is $1,000 for (a) an investment in an Oakmark IRA account, (b) a gift or
transfer to a minor under a Uniform Gifts to Minors Act ("UGMA") or a Uniform
Transfers to Minors Act ("UTMA"), or (c) an investment through the Automatic
Investment Plan (see "Shareholder Services" below). Minimum subsequent
investments are $100, except for reinvestments of dividends and capital gain
distributions.
BY CHECK. To make an initial purchase of shares, complete and sign the
Share Purchase Application and mail it to the Trust's transfer agent, State
Street Bank and Trust Company, Attention: Oakmark Funds, P.O. Box 8510, Boston,
Massachusetts 02266-8510, together with a check for the total purchase amount
payable to State Street Bank and Trust Company.
You may make subsequent investments by submitting a check along with either
the stub from your Fund account confirmation statement or a note indicating the
amount of the purchase, your account number, and the name in which your account
is registered. Each individual check submitted for purchase must be at least
$100, and the Trust will not accept cash, drafts, third party checks, or checks
drawn on banks outside of the United States. If your order to purchase shares
of a Fund is canceled because your check does not clear, you will be responsible
for any resulting loss incurred by the Fund.
BY WIRE. You may also pay for shares by instructing your bank to wire
money to the Trust's custodian bank. Your bank may charge you a fee for sending
the wire. IF YOU ARE OPENING A NEW ACCOUNT BY WIRE TRANSFER, YOU MUST FIRST
TELEPHONE THE TRANSFER AGENT AT 1-800-626-9392 TO REQUEST AN ACCOUNT NUMBER AND
FURNISH YOUR SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER. Neither the
Funds nor the Trust will be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems.
BY ELECTRONIC TRANSFER. If you have an established Fund account with an
established electronic transfer privilege you may make subsequent investments by
an electronic transfer of funds from your bank account. Electronic transfer
allows you to make purchases at your request by calling 1-800-626-9392 or
- --------------------------
/*/ 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.
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at pre-scheduled intervals. See "Shareholder Services." Electronic transfer
purchases are subject to a $100 minimum and a $50,000 maximum. You may not open
a new account through electronic transfer. If your order to purchase shares of a
Fund is canceled because your electronic transfer does not clear, you will be
responsible for any resulting loss incurred by the Fund.
BY EXCHANGE. You may purchase shares of a Fund by exchange of shares from
the other Fund or by exchange of Service Units of GS Short Duration Tax-Free
Fund, a portfolio of Goldman Sachs Trust, or of ILA Service Units of Government
Portfolio or Tax-Exempt Portfolio, each a portfolio of Goldman Sachs-
Institutional Liquid Assets (such Service Units and ILA Service Units are
referred to as "Oakmark Units"), either by phone (if the Telephone Exchange
Privilege has been established on the account from which the exchange is being
made) or by mail. AN EXCHANGE TRANSACTION IS A SALE AND PURCHASE OF SHARES FOR
FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN CAPITAL GAIN OR LOSS. IF YOU
EXCHANGE SHARES OF SMALL CAP FUND OR INTERNATIONAL EMERGING FUND WITHIN SIX
MONTHS AFTER PURCHASE, YOU WILL BE SUBJECT TO A 2% REDEMPTION FEE PAYABLE TO THE
FUND. GENERALLY YOU MAY NOT MAKE MORE THAN SIX EXCHANGES FROM ANY FUND IN ANY
CALENDAR YEAR, AND THE TRUST MAY REFUSE REQUESTS FOR MORE FREQUENT EXCHANGES.
Restrictions apply and there is a charge (currently $5) for each exchange into
Oakmark Units; please review the information under "How to Redeem Shares -- By
Exchange."
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of a Fund's shares is
made at that Fund's net asset value (see "Net Asset Value") next determined as
follows:
A purchase BY CHECK OR WIRE TRANSFER is made at the net asset value
next determined after receipt by the Fund of the check or wire transfer of
funds in payment of the purchase.
A purchase BY ELECTRONIC TRANSFER is made at the net asset value
determined that day if the Trust's transfer agent receives your electronic
transfer investment order before 3 p.m. eastern time (or at least one hour
before the close of regular session trading on the New York Stock Exchange
if the Exchange closes before 4 p.m.). If the order is received later in
the day, the purchase is made at the net asset value determined on the next
business day.
PURCHASES THROUGH DEALERS. You may purchase or redeem shares of the Funds
through certain investment dealers, banks or other institutions. Any such
purchase or redemption generally will not be effective until the order or
request is received by the Trust's transfer agent; it is the responsibility of
the dealer to transmit your order or request promptly. These institutions may
impose charges for their services. Any such charges could constitute a
substantial portion of a smaller account, and may not be in your best interest.
You may purchase or redeem shares of the Funds directly from or with the Trust
without imposition of any charges other than those described in this prospectus.
GENERAL. The Trust cannot accept a purchase order specifying a particular
purchase date or price per share. Each purchase order for a Fund must be
accepted by an authorized officer of the Trust or its transfer agent and is not
binding until accepted and entered on the books of that Fund. Once your
purchase order has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept any purchase
order that it determines not to be in the best interest of the Trust or of a
Fund's shareholders. The Trust will not be responsible for any losses resulting
from unauthorized transactions initiated by telephone if it or its transfer
agent follows reasonable procedures designed to verify the identity of the
caller. Those procedures may include recording the call, requesting additional
information and sending written confirmation of telephone transactions. You
should verify the accuracy of telephone transactions immediately upon receipt of
your confirmation statement.
HOW TO REDEEM SHARES
BY MAIL. You may redeem all or any part of your shares of a Fund upon your
written request delivered to the Trust's transfer agent, State Street Bank and
Trust Company, Attention: Oakmark Funds, P.O. Box 8510, Boston, Massachusetts
02266-8510. Your redemption request must:
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(1) identify the Fund and give your account number;
(2) specify the number of shares or dollar amount to be redeemed; and
(3) be signed in ink by all owners exactly as their names appear on the
account.
Your request must also INCLUDE A SIGNATURE GUARANTEE if any of the following
situations applies:
. you wish to redeem more than $50,000 worth of shares;
. your account registration has been changed within the last 60 days;
. the redemption check is to be mailed to an address different from the
one on your account (record address);
. the redemption check is to be made payable to someone other than the
registered account owner; or
. you are instructing us to wire the proceeds to a bank account and have
not signed up for the telephone redemption privilege.
You should be able to obtain a signature guarantee from a bank, securities
broker-dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency or savings association, but not a notary public.
The signature guarantee must include an ink-stamped guarantee for each signature
on the redemption request and must include the name of the guarantor bank or
firm and an authorized signature.
Special rules apply to redemptions by corporations, trusts and
partnerships. In the case of a corporation, the request must be signed in the
name of the corporation by an officer whose title must be stated, and must be
accompanied by a bylaw provision or resolution of the board of directors,
certified within 60 days, authorizing the officer to so act. A redemption
request from a partnership or a trust must be signed in the name of the
partnership or trust by a general partner or a trustee and include a signature
guarantee. If the trustee is not named in the account registration, a
redemption request by a trust must also include evidence of the trustee's
appointment as such (e.g., a certified copy of the relevant portions of the
trust instrument). Under certain circumstances, before the shares can be
redeemed, additional documents may be required in order to verify the authority
of the person seeking to redeem.
BY EXCHANGE. You may redeem all or any portion of your shares of a Fund or
of Oakmark Units and use the proceeds to purchase shares of any of the other
Funds or Oakmark Units if your signed, properly completed Application is on
file. AN EXCHANGE TRANSACTION IS A SALE AND PURCHASE OF SHARES FOR FEDERAL
INCOME TAX PURPOSES AND MAY RESULT IN CAPITAL GAIN OR LOSS. IF YOU EXCHANGE
SHARES OF SMALL CAP FUND OR INTERNATIONAL EMERGING FUND WITHIN SIX MONTHS AFTER
PURCHASE, YOU WILL BE SUBJECT TO A 2% REDEMPTION FEE PAYABLE TO THE FUND.
GENERALLY YOU MAY NOT MAKE MORE THAN SIX EXCHANGES FROM ANY FUND IN ANY CALENDAR
YEAR, AND THE TRUST MAY REFUSE REQUESTS FOR MORE FREQUENT EXCHANGES. Before
exchanging into Oakmark Units, you should obtain the prospectus relating to the
Oakmark Units from the Adviser and read it carefully. The exchange privilege is
not an offering or recommendation of Oakmark Units. The registration of the
account to which you are making an exchange must be exactly the same as that of
the account from which the exchange is made and the amount you exchange must
meet any applicable minimum investment of the fund being purchased. An exchange
may be made by following the redemption procedure described above under "By
Mail" and indicating the fund to be purchased, except that a signature guarantee
normally is not required. See also the discussion below of the Telephone
Exchange Privilege. The Trust charges a fee (currently $5) for each exchange
into Oakmark Units.
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange and Telephone
Redemption Privileges will be established automatically when you open your
account unless you elect on your Application to decline these Privileges. Other
Privileges must be specifically elected. A signature guarantee may be required
to establish a Privilege after you have opened your account. Shares held
in
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<PAGE>
an IRA account may not be redeemed by telephone. YOU MAY NOT EXCHANGE OR REDEEM
SHARES BY CALLING THE TRUST. CALL THE TRANSFER AGENT AT 1-800-626-9392. YOUR
CALL WILL BE RECORDED.
TELEPHONE EXCHANGE PRIVILEGE -- You may use the Telephone Exchange
Privilege to exchange among shares of the Funds and Oakmark Units by
calling 1-800-626-9392. An exchange request received by telephone after 4
p.m. eastern time (or after the close of regular session trading on the New
York Stock Exchange if the Exchange closes before 4 p.m.) is deemed
received on the next business day. The Trust's general redemption policies
apply to redemptions by Telephone Exchange. See "General Redemption
Policies."
The Trust reserves the right at any time without prior notice to
suspend or terminate the use of the Telephone Exchange Privilege by any
person or class of persons. The Trust believes that use of the Telephone
Exchange Privilege by investors utilizing market-timing strategies
adversely affects the Funds. THEREFORE, THE TRUST GENERALLY WILL NOT HONOR
REQUESTS FOR TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, you may not make more than six exchanges from
any Fund in any calendar year. Although the Trust will attempt to give
prior notice of a suspension or termination of an exchange privilege when
it is reasonably able to do so, the suspension or termination may be
effective immediately, thereby preventing any uncompleted exchange. See
"How to Redeem Shares -- By Exchange."
During periods of volatile economic and market conditions, you may
have difficulty placing your exchange by telephone; you may wish to
consider placing your exchange by mail during such periods.
TELEPHONE REDEMPTION PRIVILEGE -- You may use the Telephone Redemption
Privilege to redeem shares having a value of up to $50,000 per day from
your account by calling 1-800-626-9392. The proceeds may be sent by check
to your registered address or you may request payment by electronic
transfer to a checking account previously designated by you at a bank that
is a member of the Automated Clearing House. REDEMPTIONS BY TELEPHONE ARE
SUBJECT TO A $50,000 MAXIMUM. A redemption request received by telephone
after 4 p.m. eastern time (or after the close of regular session trading on
the New York Stock Exchange if the Exchange closes before 4 p.m.) is deemed
received on the next business day. The Telephone Redemption Privilege is
not available to redeem shares held in an IRA account, and is not available
for 60 days after the Trust receives notice from you of a change of
address.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your redemption
order once your instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or price for
redemption or any special conditions. PLEASE TELEPHONE THE TRANSFER AGENT IF
YOU HAVE ANY QUESTIONS ABOUT REQUIREMENTS FOR A REDEMPTION BEFORE SUBMITTING
YOUR REQUEST. The Trust reserves the right to require a properly completed
Application before making payment for shares redeemed.
The price at which your redemption order will be executed is the net asset
value next determined after proper redemption instructions are received. See
"Net Asset Value." Because the redemption price you receive depends upon that
Fund's net asset value per share at the time of redemption, it may be more or
less than the price you originally paid for the shares and may result in a
realized capital gain or loss. In the case of Small Cap Fund or International
Emerging Fund, the Fund charges a 2% redemption fee on shares redeemed
(including by exchange) within six months after purchase (other than by
reinvestment of dividends or distributions), determined on a first-in, first-out
basis.
The Trust will generally mail payment for shares redeemed within seven days
after proper instructions are received. If you attempt to redeem shares within
15 days after they have been purchased by check or electronic transfer, the
Trust may delay payment of the redemption proceeds to you until it
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can verify that payment for the purchase of those shares has been (or will be)
collected. To reduce such delays, the Trust recommends that your purchase be
made by Federal funds wire through your bank. If you so request, the proceeds of
your redemption may be paid by wire, but the cost of the wire (currently $5)
will be deducted from the redemption proceeds.
Neither the Trust, its transfer agent, nor their respective officers,
trustees, directors, employees, or agents will be responsible for the
authenticity of instructions provided under the Special Redemption Privileges,
nor for any loss, liability, cost or expense for acting upon instructions
furnished thereunder if they reasonably believe that such instructions are
genuine. The Funds employ procedures reasonably designed to confirm that
instructions communicated by telephone under any Special Redemption Privilege
are genuine. Use of any Special Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem. In addition,
callers are asked to identify the account number and registration, and may be
required to provide other forms of identification. Written confirmations of
transactions are mailed promptly to the registered address; a legend on the
confirmation requests the shareholder to review the transactions and inform the
Fund immediately if there is a problem. If a Fund does not follow reasonable
procedures for protecting shareholders against loss on telephone transactions,
it may be liable for any losses due to unauthorized or fraudulent instructions.
The Trust reserves the right at any time without prior notice to suspend,
limit, modify or terminate any privilege or its use in any manner by any person
or class. The Trust also reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not have a value
of at least $1,000. A shareholder would be notified that the account is below
the minimum and allowed 30 days to bring the account value up to the minimum.
Shares in any account you maintain with a Fund may be redeemed to the
extent necessary to reimburse a Fund for any loss it sustains that is caused by
you (such as losses from uncollected checks and electronic transfers or any Fund
liability under the Internal Revenue Code provisions on backup withholding
relating to your account).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation statement
reflecting each of your purchases and redemptions of shares of a Fund, as well
as periodic statements detailing distributions made by that Fund. In addition,
the Trust will send you quarterly and annual reports showing Fund portfolio
holdings and will provide you annually with tax information.
IRA PLAN. The Trust has a master individual retirement account (IRA) plan
that allows you to invest on a tax-sheltered basis in the Funds or Oakmark Units
of the Government Portfolio of Goldman, Sachs Money Market Trust. The plan also
permits you to "roll over" or transfer to your Oakmark IRA a lump sum
distribution from a qualified pension or profit-sharing plan, thereby postponing
federal income tax on the distribution. If your employer has a Simplified
Employee Pension Plan (SEP), you may establish an IRA with the Fund to which
your employer may contribute, subject to special rules designed to avoid
discrimination.
SPECIAL WAYS TO INVEST OR REDEEM. In addition to the ways to purchase or
redeem shares described above, the New Account Purchase Application offers you
the following additional investment and redemption options:
AUTOMATIC INVESTMENTS -- purchase Fund shares each month with payment
by electronic transfer from your bank account ($1,000 minimum initial
investment; $100-50,000 per monthly transaction).
TELEPHONE INVESTMENTS -- purchase shares in an established Fund
account with an established electronic transfer privilege by placing a
telephone order and paying for them by electronic transfer from your bank
account ($100-50,000 per transaction).
22
<PAGE>
AUTOMATIC EXCHANGE -- automatically exchange (monthly, quarterly or
annually) a fixed dollar amount among any of the Funds of the Trust and
Oakmark Units ($100-50,000 per transaction), subject to the applicable
minimum investment requirements.
SYSTEMATIC WITHDRAWALS -- redeem a fixed dollar amount each month or
quarter and have the proceeds sent by check to you or deposited by
electronic transfer into your bank account (up to $50,000 per transaction).
You may establish any of these privileges by completing the Share Purchase
Application. If you have an established Fund account and want to add one of
these privileges, please call the Trust at 1-800-OAKMARK to obtain the necessary
form.
NET ASSET VALUE
The price per share for a purchase order or redemption request is the net
asset value next determined after receipt of the order.
The net asset value of a share of each Fund is determined by the Fund's
custodian, State Street Bank and Trust Company, as of the close of regular
session trading on the New York Stock Exchange (currently 3:00 p.m., Chicago
time) on any day on which that exchange is open for trading by dividing the
market value of that Fund's assets, less its liabilities, by the number of
shares outstanding. Trading in the portfolio securities of International Fund
or International Emerging Fund (and in any securities of non-U.S. issuers held
by any other Fund) takes place in various markets on days and at times other
than when the New York Stock Exchange is open for trading. Therefore, the
calculation of net asset value does not take place at the same time as the
prices of many of those portfolio securities are determined and the value of the
Funds' portfolios may change on days when the Funds are not open for business
and their shares may not be purchased or redeemed.
Price information can be obtained by calling the 24-Hour Net Asset Value
Hotline, 1-800-GROWOAK (1-800-476-9625).
DISTRIBUTIONS
Each Fund distributes to shareholders at least annually substantially all
net investment income and any net capital gains realized from sales of the
Fund's portfolio securities. All of your income dividends and capital gain
distributions will be reinvested in additional shares unless you elect to have
distributions paid by check. If any check from a Fund mailed to you is returned
as undeliverable or is not presented for payment within six months, the Trust
reserves the right to reinvest the check proceeds and future distributions in
additional Fund shares.
TAXES
Dividends from investment income and net short-term capital gains are
taxable as ordinary income. Distributions of long-term capital gains are
taxable as long-term capital gains regardless of the length of time you have
held your Fund shares. Distributions will be taxable to you whether received in
cash or reinvested in Fund shares.
You will be advised annually as to the source of your distributions for tax
purposes. If you are not subject to income taxation, you will not be required
to pay tax on amounts distributed to you.
If you purchase shares shortly before a record date for a distribution you
will, in effect, receive a return of a portion of your investment, but the
distribution will be taxable to you even if the net asset value of your shares
is reduced below your cost. However, for federal income tax purposes your
original cost would continue as your tax basis. If you redeem shares within six
months, any loss on the sale of those shares would be long-term capital loss to
the extent of any distributions of long-term capital gain that you have received
on those shares.
23
<PAGE>
Investment income received by a Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. If a Fund pays
nonrefundable taxes to foreign governments during the year, the taxes will
reduce that Fund's dividends but will still be included in your taxable income.
However, you may be able to claim an offsetting credit or deduction on your tax
return for your share of foreign taxes paid by the Fund.
If (a) you fail to (i) furnish your properly certified social security or
other tax identification number or (ii) certify that your tax identification
number is correct or that you are not subject to backup withholding due to the
underreporting of certain income, or (b) the Internal Revenue Service informs
the Trust that your tax identification number is incorrect, the Trust may be
required to withhold Federal income tax at a rate of 31% ("backup withholding")
from certain payments (including redemption proceeds) to you. These
certifications are contained in the New Account Purchase Application that you
should complete and return when you open an account. The Fund must promptly pay
to the IRS all amounts withheld. Therefore, it is usually not possible for the
Fund to reimburse you for amounts withheld. You may claim the amount withheld as
a credit on your Federal income tax return.
This discussion of U.S. and foreign taxation applies only to U.S.
shareholders and is not intended to be a full discussion of income tax laws and
their effect. You may wish to consult your own tax adviser.
MANAGEMENT OF THE FUNDS
The board of trustees of the Trust has overall responsibility for the
conduct of the affairs of the Funds and the Trust. The trustees serve indefinite
terms of unlimited duration. The trustees appoint their own successors, provided
that at least two-thirds of the trustees, after such appointment, have been
elected by shareholders. Shareholders may remove a trustee, with or without
cause, upon the declaration in writing or vote of two-thirds of the Trust's
outstanding shares. A trustee may be removed with or without cause upon the
written declaration of a majority of the trustees.
The Funds' investments and business affairs are managed by the Adviser,
Harris Associates L.P. The Adviser also serves as investment adviser to
individuals, trusts, retirement plans, endowments and foundations, and manages
numerous private partnerships.
The Adviser was organized in 1995 to succeed to the business of a previous
limited partnership, also named Harris Associates L.P. (the "Former Adviser"),
that, together with its predecessor, had advised and managed mutual funds since
1970. The Adviser, a limited partnership, is managed by its general partner,
Harris Associates, Inc. ("HAI"), a wholly-owned subsidiary of New England
Investment Companies, L.P. ("NEIC"). NEIC owns all of the limited partnership
interests in the Adviser. NEIC is a publicly traded limited partnership that
owns investment management firms and that is a subsidiary of New England Mutual
Life Insurance Company ("NEML"). NEML has agreed to merge into Metropolitan Life
Insurance Company ("MLI") in a transaction that is expected to be completed in
the spring of 1996 but that is subject to various regulatory approvals and
approval by policyholders of the respective companies. Upon completion of the
merger NEIC will become a subsidiary of MLI.
Subject to the overall authority of the board of trustees, the Adviser
furnishes continuous investment supervision and management to the Funds and also
furnishes office space, equipment and management personnel.
For its services 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.
The annual rates of fees as a percentage of each Fund's net assets are as
follows:
<TABLE>
<CAPTION>
FUND FEE
- ------------ ----------------------------------------------------------
<S> <C>
Balanced .75%
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
FUND FEE
- ------------ ----------------------------------------------------------
<S> <C>
Oakmark 1% up to $2.5 billion; .95% on the next $1.25 billion;
.90% on the next $1.25 billion; and .85% on net assets in
excess of $5 billion
International 1% up to $2.5 billion; .95% on the next $2.5 billion; and
.90% on net assets in excess of $5 billion
Small Cap and 1.25%
International
Emerging
</TABLE>
These rates of fees are higher than those paid by most mutual funds. The
advisory agreement for each Fund provides that the total annual expenses of the
Fund, exclusive of taxes, interest, extraordinary litigation expenses and
brokers' commissions and other charges relating to the purchase or sale of
securities but including fees paid to the Adviser, shall not exceed the limits,
if any, prescribed by any state in which shares of that Fund are qualified for
sale. The Adviser has agreed to reimburse each Fund for any such expenses in
excess of such limits by an offset to the monthly advisory fee. The Trust
believes that the most restrictive expense limitation of any state is 2.5% of
the first $30 million of a Fund's average net assets, 2% of the next $70 million
and 1.5% thereafter. In addition, the Adviser has voluntarily agreed to
reimburse each of Small Cap Fund, Balanced Fund and International Emerging Fund
to the extent that the Fund's annual ordinary operating expenses exceed 2.5% of
its average net assets through October 31, 1996, subject to earlier termination
by the Adviser on 30 days' notice to the Fund.
The Trust uses "Harris Associates" in its name and "Oakmark" in the names
of the Funds by license from the Adviser and would be required to stop using
those names if Harris Associates ceased to be the Adviser. The Adviser has the
right to use the names for another enterprise, including another investment
company.
The investment objective and policies of Oakmark Fund were developed by the
Adviser and by Robert J. Sanborn, C.F.A., the Fund's portfolio manager. Mr.
Sanborn joined the Adviser as a portfolio manager and analyst in 1988. Prior
thereto, he had been a portfolio manager/analyst with The State Teachers
Retirement System of Ohio. Mr. Sanborn holds an M.B.A. in Finance from the
University of Chicago (1983) and a B.A. in Economics from Dartmouth College
(1980).
The investment objective and policies of Small Cap Fund were developed by
the Adviser and by Steven J. Reid, C.F.A., the Fund's portfolio manager. Mr.
Reid joined the Adviser as an accountant in 1980 and has been an investment
analyst since 1985. He holds a B.A. in Business from Roosevelt University
(1979).
The investment objective and policies of Balanced Fund were developed by
the Adviser and by Clyde S. McGregor, C.F.A, the Fund's portfolio manager. Mr.
McGregor joined the Adviser as an analyst in 1981 and began managing portfolios
in 1986. He holds an M.B.A. in Finance from the University of Wisconsin -Madison
(1977) and a B.A. in Economics and Religion from Oberlin College (1974).
The investment objective and policies of International Fund were developed
by the Adviser and by David G. Herro, C.F.A., the Fund's portfolio manager. The
Fund is co-managed by Michael J. Welsh, C.P.A. Mr. Herro joined the Adviser in
1992 as a portfolio manager and analyst. Previously, he had been an
international portfolio manager for the State of Wisconsin Investment Board and
The Principal Financial Group. Mr. Herro holds an M.A. in Economics from the
University of Wisconsin - Milwaukee (1985) and a B.S. in Business and Economics
from the University of Wisconsin - Platteville (1986). Mr. Welsh joined the
adviser as an international analyst in 1992. Previously he had been a senior
associate, valuation services, with Coopers & Lybrand. Mr. Welsh holds an M.M.
in Finance from Northwestern University (1993) and a B.S. in Business and
Accounting from the University of Kansas (1985).
25
<PAGE>
The investment objective and policies of International Emerging Fund were
developed by the Adviser and by David G. Herro, the Fund's portfolio manager.
The Fund is co-managed by Adam Schor, C.F.A. Mr. Schor joined the Adviser as an
international analyst in 1993. Previously he had been an analyst with American
Family Insurance Group and the State of Wisconsin Investment Board. Mr. Schor
holds an M.S. in Finance from the University of Wisconsin - Madison (1993) and a
B.S. in Journalism and Economics from Northwestern University (1986).
Brokerage transactions for the Funds may be executed through Harris
Associates Securities L.P., a registered broker-dealer and an affiliate of the
Adviser.
26
<PAGE>
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal business
activities during the past five years are:
NAME, POSITION(S) WITH
TRUST AND AGE AT
DECEMBER 31, 1995 PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS/#/
- ---------------------- -------------------------------------------------
VICTOR A. MORGENSTERN* President, HAI, since 1992 and Vice President
Trustee and President, 53 prior thereto
CHRISTINE M. BUCHER Vice President--Tax, Hyatt Corporation (hotel
Trustee, 35 management) since 1995; Tax Manager, Coopers &
Lybrand (independent accountants), prior
thereto
MICHAEL J. FRIDUSS Principal, MJ Friduss & Associates
Trustee, 53 (telecommunications consultants), since 1993; Vice
President--Customer Service and Information
Technology, Ameritech Corporation
(telecommunications), 1992-1993; Vice President--
Customer Sales and Service, Michigan Bell Telephone
Company, prior thereto
THOMAS H. HAYDEN Executive Vice President and director, Bozell
Trustee, 44 Worldwide, Inc. (advertising and public relations),
since 1992, and Senior Vice President, prior
thereto
ALLAN J. REICH Senior Partner and Chair of Corporate/Securities
Trustee, 47 Practice Group, D'Ancona & Pflaum (attorneys),
since 1993; Senior Partner, McDermott, Will &
Emery (attorneys), prior thereto
BURTON W. RUDER President, The Academy Group (investments and
Trustee, 52 consulting)
PETER S. VOSS* Chairman and Chief Executive Officer, New England
Trustee, 49 Investment Companies, Inc. and New England
Investment Companies, L.P., since 1992; Group
Executive Vice President, Bank of America, N.A.,
1992; Executive Vice President, Security Pacific
Bank, prior thereto
GARY N. WILNER, M.D. Senior Attending Physician, Evanston Hospital, and
Trustee, 55 Medical Director - CardiaoPulmonary Wellness
Program, Evanston Hospital Corporation
ROBERT J. SANBORN Portfolio Manager and Analyst, HALP
Executive Vice President
and Portfolio Manager
(Oakmark Fund), 37
DAVID G. HERRO Portfolio Manager and Analyst, HALP, since 1992;
Vice President and Portfolio Manager - International Equities, State
Portfolio Manager of Wisconsin Investment Board, prior thereto
(International Fund and
International Emerging
Fund), 35
27
<PAGE>
NAME, POSITION(S) WITH
TRUST AND AGE AT
DECEMBER 31, 1995 PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS/#/
- ---------------------- -------------------------------------------------
CLYDE S. MCGREGOR Portfolio Manager and Analyst, HALP
Vice President and
Portfolio Manager
(Balanced Fund), 43
STEVEN J. REID Portfolio Manager and Analyst, HALP
Vice President and
Portfolio Manager (Small
Cap Fund), 39
ADAM SCHOR Portfolio Manager and Analyst, HALP, since 1993;
Assistant Vice President Analyst, American Family Insurance Group,
and Co-portfolio Manager 1992-1993; Analyst, State of Wisconsin Investment
(International Emerging Board, prior thereto
Fund), 31
MICHAEL J. WELSH Portfolio Manager and Analyst, HALP, since 1992;
Assistant Vice President Senior Associate, Valuation Services, Coopers &
and Co-portfolio Manager Lybrand, prior thereto
(International Fund), 32
LAUREN B. PITALIS Director of Mutual Fund Operations, HALP, since
Vice President-Shareholder 1992; Manager of Distribution Services, Mesirow
Operations and Assistant Financial, Inc., prior thereto
Secretary, 35
ANITA M. NAGLER Vice President, HAI, since 1994; General Counsel,
Secretary, 39 HALP, since 1993; Associate Regional
Administrator - Enforcement, Securities and
Exchange Commission, prior thereto
DONALD TERAO Secretary and Treasurer, HAI, since 1995;
Treasurer, 46 Controller, HALP, prior thereto
KRISTI L. ROWSELL Tax and Accounting Manager, HALP, since 1995; Vice
Assistant Treasurer, 29 President and Treasurer, Calamos Asset Management,
Inc., 1992-1995; Senior Tax Specialist, KPMG Peat
Marwick, prior thereto
- --------------------
# As used in this table, from and after September 29, 1995 "HALP" and "HAI"
refer to the Adviser and the general partner of the Adviser, respectively,
and prior to that date those terms refer to the Former Adviser and the
general partner of the Former Adviser, respectively.
* Messrs. Morgenstern and Voss are trustees who are "interested persons" (as
defined in the Investment Company Act) of the Trust by virtue of their
relationships with HALP.
PERFORMANCE INFORMATION
From time to time the Funds may quote total return figures in sales
material. "Total Return" for a period is the percentage change in value during
the period of an investment in Fund shares, including the value of shares
acquired through reinvestment of all dividends and capital gains distributions.
"Average Annual Total Return" is the average annual compound rate of change in
value represented by the Total Return for the period. All of these calculations
assume the reinvestment of dividends and distributions in additional shares of
the Fund. Income taxes are not taken into account.
28
<PAGE>
In advertising and sales literature, a Fund's performance may be compared
to market indexes and to the performance of other mutual funds. A Fund may also
publicize its comparative performance as computed in rankings or ratings
determined by independent services or publications including Lipper Analytical
Services, Inc., Morningstar, Inc. and others.
The performance of a Fund is a function of conditions in the securities
markets, portfolio management and operating expenses, and past results are not
necessarily indicative of future results. See "Investment Objectives" and
"Investment Restrictions." Performance information supplied by a Fund may not
provide a basis for comparison with other investments using different
reinvestment assumptions or time periods.
OTHER INFORMATION
The Funds are series of Harris Associates Investment Trust (the "Trust"),
an open-end, diversified management investment company. The Trust is a
Massachusetts business trust organized under an Agreement and Declaration of
Trust ("Declaration of Trust") dated February 1, 1991, which provides that each
shareholder shall be deemed to have agreed to be bound by the terms thereof.
The Declaration of Trust may be amended by a vote of either the Trust's
shareholders or its trustees. The Trust may issue an unlimited number of
shares, in one or more series, each with its own investment objective, policies
and restrictions, as the board of trustees may authorize. Any such series of
shares may be further divided, without shareholder approval, into two or more
classes of shares having such preferences or special or relative rights or
privileges as the trustees may determine. The Funds' shares are not currently
divided into classes. The Funds are the only series of the Trust currently
being offered. All shares issued will be fully paid and non-assessable and will
have no preemptive or conversion rights.
Each share of a series is entitled to participate pro rata in any dividends
and other distributions declared by the board of trustees with respect to that
series, and all shares of a series have equal rights in the event of liquidation
of that series.
Each share is entitled to one vote on each matter presented to
shareholders. As a business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for purposes such
as electing or removing trustees, changing fundamental policies, or approving an
investment advisory contract. On any matter submitted to a vote of
shareholders, shares are voted in the aggregate and not by individual series
except when required by the Investment Company Act of 1940 or other applicable
law, or when the board of trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of the unaffected
series are not entitled to vote on such matters. All shares of the Trust are
voted together in the election of trustees.
Inquiries regarding the Funds should be directed to the Trust at its
address or telephone number shown on the inside back cover.
29
<PAGE>
INVESTMENT ADVISER
Harris Associates L.P.
ADDRESS OF TRUST AND ADVISER
Two North LaSalle Street
Chicago, Illinois 60602-3790
1-800-OAKMARK
(1-800-625-6275)
24-HOUR NAV HOTLINE
1-800-GROWOAK
(1-800-476-9625)
TRANSFER AGENT, DIVIDEND
DISBURSING AGENT & CUSTODIAN
State Street Bank and Trust Company
Attention: Oakmark Funds
P.O. Box 8510
Boston, Massachusetts 02266-8510
1-800-626-9392
AUDITORS
Arthur Andersen LLP
Chicago, Illinois
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
30
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Highlights.................................................. 6
Shareholder Transaction Expenses............................ 7
Annual Fund Operating Expenses.............................. 8
Financial Highlights........................................ 9
The Funds................................................... 11
How the Funds Invest........................................ 11
Investment Techniques....................................... 14
Risk Factors................................................ 16
Restrictions on the Funds'
Investments................................................ 17
How to Purchase Shares...................................... 18
How to Redeem Shares........................................ 19
Shareholder Services........................................ 22
Net Asset Value............................................. 23
Distributions............................................... 23
Taxes....................................................... 23
Management of the Funds..................................... 24
Trustees and Officers....................................... 27
Performance Information..................................... 28
Other Information........................................... 29
-------------------------------------------------------------------------
\ QUESTIONS ABOUT YOUR ACCOUNT: \
\ If you have questions about your account, please call the Funds' \
\ transfer agent at 1-800-626-9392. \
-------------------------------------------------------------------------
-------------------------------------------------------------------------
\ 24-HOUR NET ASSET VALUE HOTLINE: \
\ To obtain the current net asset value per share of either Fund, \
\ please call 1-800-GROWOAK (1-800-476-9625). \
-------------------------------------------------------------------------
</TABLE>
<PAGE>
Draft 12/20/95
STATEMENT OF
ADDITIONAL INFORMATION
----------------------
FEBRUARY __, 1996
THE OAKMARK FAMILY OF FUNDS
No-Load Funds
Two North La Salle Street
Chicago, Illinois 60602-3790
Telephone 1-800-OAKMARK
(1-800-625-6275)
This Statement of Additional Information relates to The Oakmark Fund
("Oakmark Fund"), The Oakmark Small Cap Fund ("Small Cap Fund"), The
Oakmark Balanced Fund ("Balanced Fund"), The Oakmark International Fund
("International Fund") and The Oakmark International Emerging Value Fund
("International Emerging Fund"), each a series of Harris Associates
Investment Trust (the "Trust"). It is not a prospectus but provides
information that should be read in conjunction with the Funds' prospectus
dated the same date as this Statement of Additional Information and any
supplement thereto. The prospectus may be obtained from the Funds at no
charge by writing or telephoning the Funds at their address or telephone
number shown above.
---------------------------------------------------------------------
| |
| Table of Contents |
| <TABLE> |
| <CAPTION> |
| |
| <S> <C> |
| The Funds.............................................. 1 |
| Investment Restrictions................................ 1 |
| How the Funds Invest................................... 4 |
| Performance Information................................ 9 |
| Investment Adviser..................................... 12 |
| Trustees and Officers.................................. 13 |
| Principal Shareholders................................. 15 |
| Purchasing and Redeeming Shares........................ 15 |
| Additional Tax Information............................. 16 |
| Taxation of Foreign Shareholders....................... 17 |
| Portfolio Transactions................................. 17 |
| Declaration of Trust................................... 20 |
| Custodian.............................................. 20 |
| Independent Public Accountants......................... 20 |
| Financial Statements................................... 20 |
| Appendix -- Bond Ratings............................... 21 |
| |
| </TABLE> |
| |
----------------------------------------------------------------------
<PAGE>
THE FUNDS
OAKMARK FUND seeks long-term capital appreciation by investing
primarily in equity securities.
SMALL CAP FUND seeks long-term capital appreciation by investing
primarily in equity securities of companies with small market
capitalizations.
BALANCED FUND seeks high current income with regard for both
preservation and growth of capital by investing in a diversified portfolio
of equity and fixed-income securities.
INTERNATIONAL FUND seeks long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers.
INTERNATIONAL EMERGING FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers that have
small market capitalizations or that are located in emerging markets.
INVESTMENT RESTRICTIONS
In pursuing their respective investment objectives no Fund will:
1. In regard to 75% of its assets, invest more than 5% of its assets
(valued at the time of investment) in securities of any one issuer, except
in U.S. government obligations;
2. Acquire securities of any one issuer which at the time of
investment (a) represent more than 10% of the voting securities of the
issuer or (b) have a value greater than 10% of the value of the outstanding
securities of the issuer;
3. Invest more than 25% of its assets (valued at the time of
investment) in securities of companies in any one industry, except that
this restriction does not apply to investments in U.S. government
obligations;
4. Borrow money except from banks for temporary or emergency purposes
in amounts not exceeding 10% of the value of the Fund's assets at the time
of borrowing [the Fund will not purchase additional securities when its
borrowings, less receivables from portfolio securities sold, exceed 5% of
the value of the Fund's total assets];
5. Issue any senior security except in connection with permitted
borrowings;
6. Underwrite the distribution of securities of other issuers;
however the Fund may acquire "restricted" securities which, in the event of
a resale, might be required to be registered under the Securities Act of
1933 on the ground that the Fund could be regarded as an underwriter as
defined by that act with respect to such resale;/1/
/1/ In addition, each Fund must comply with certain state regulations that may
impose additional restrictions. Arkansas and Ohio regulations currently
prohibit investment of more than 10% of the Fund's assets in restricted
securities. See restriction 11.
1
<PAGE>
7. Make loans, but this restriction shall not prevent the Fund from
(a) investing in debt obligations, (b) investing in repurchase
agreements/2/, or (c) lending its portfolio securities [the Fund will not
lend securities having a value in excess of 33-1/3% of its assets (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;/3/
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;/4/
11. Invest more than (a) 5% of its total assets (valued at the time
of investment) in securities of issuers (other than issuers of federal
agency obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any predecessors or
unconditional guarantors, have been in continuous operation for less than
three years ("unseasoned issuers") or (b) more than 15% of its total assets
(valued at time of investment) in restricted securities and securities of
unseasoned issuers;/5/
12. Pledge, mortgage or hypothecate its assets, except for temporary
or emergency purposes and then to an extent not greater than 15% of its
assets at cost;
- ----------
/2/ A repurchase agreement involves a sale of securities to a Fund with the
concurrent agreement of the seller (bank or securities dealer) to
repurchase the securities at the same price plus an amount equal to an
agreed-upon interest rate within a specified time. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses. No Fund may invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid securities.
/3/ As long as shares of the Fund are qualified for sale in Texas, the Trust
will interpret "real estate" as including limited partnership interests,
but excluding readily marketable securities, including publicly traded
partnerships, of companies that invest in real estate.
/4/ 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. In order to comply with California law,
each Fund has undertaken that it will not acquire or retain securities of
any open-end investment company. 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.
/5/ As long as it is required to do so by the Ohio Division of Securities,
the Trust will consider a security eligible for resale pursuant to Rule
144A under the Securities Act of 1933 to be a restricted security.
2
<PAGE>
13. Make margin purchases or participate in a joint or on a joint or
several basis in any trading account in securities;
14. Invest in companies for the purpose of management or the exercise
of control;
15. Purchase or retain securities of a company if all of the
directors and officers of the Fund and of its investment adviser who
individually own beneficially more than 1/2% of the securities of the
company collectively own beneficially more than 5% of such securities;
16. Invest more than 15% of its assets (valued at the time of
investment) in illiquid securities, including repurchase agreements
maturing in more than seven days;
17. 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;
18. [Oakmark Fund, Small Cap Fund and Balanced 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 Emerging Fund only] Invest more than 10% of its net
assets (valued at the time of investment) in warrants valued at the lower
of cost or market, provided that warrants acquired in units or attached to
securities shall be deemed to be without value for purposes of this
restriction;
19. [Oakmark Fund and Small Cap 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)
[Balanced 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);/6/
20. 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;
21. Invest in options, 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.
- ----------
/6/ Although securities represented by American Depositary Receipts
("ADRs") are not subject to restriction 19, 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.
3
<PAGE>
Notwithstanding the foregoing investment restrictions, a Fund may
purchase securities pursuant to the exercise of subscription rights,
provided 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 Emerging Fund invest primarily in
securities of non-U.S. issuers, and the other Funds each may invest a minor
portion of their assets (up to 25% for Oakmark Fund and Small Cap Fund and
up to 10% for Balanced 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),
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 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. The Funds may invest
in both "sponsored" and "unsponsored" ADRs. In a sponsored ADR, the issuer
typically pays some or all of the expenses of the depository and agrees to
provide its regular shareholder communications to ADR holders. An
unsponsored ADR is created independently of the issuer of the underlying
security. The ADR 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
4
<PAGE>
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 Emerging Fund in
privatizations in appropriate circumstances. In certain of those markets,
the ability of foreign entities such as International Fund and
International Emerging Fund to participate in privatizations may be limited
by local law, and/or the terms on which such Funds may be permitted to
participate may be less advantageous than those afforded local investors.
There can be no assurance that governments will continue to sell companies
currently owned or controlled by them or that privatization programs will
be successful.
CURRENCY EXCHANGE TRANSACTIONS. Each Fund may enter into currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward
contract"). A forward contract is an agreement to purchase or sell a
specified currency at a specified future date (or within a specified time
period) and price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not exchange-traded
and are usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which a Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. A Fund's
currency transactions are limited to transaction hedging and portfolio
hedging involving either specific transactions or actual or anticipated
portfolio positions. Transaction hedging is the purchase or sale of a
forward contract with respect to specific receivables or payables of a Fund
accruing in connection with the purchase or sale of portfolio securities.
Portfolio hedging is the use of a forward contract with respect to an
actual or anticipated portfolio security position denominated or quoted in
a particular currency. When the Fund owns or anticipates owning securities
in countries whose currencies are linked, the Adviser may aggregate such
positions as to the currency hedged.
If a Fund enters into a forward contract hedging an anticipated
purchase of portfolio securities, liquid assets of the Fund, such as cash,
U.S. government securities or other liquid high grade debt obligations,
having a value at least as great as the commitment under the forward
contract will be segregated on the books of the Fund and held by the Fund's
custodian while the contract is outstanding.
At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to such
contract and make delivery of the currency, or it may retain the security
and either acquire the currency on the spot market or terminate its
contractual obligation to deliver the currency by purchasing an offsetting
contract with the same currency trader obligating it to purchase on the
same maturity date the same amount of the currency.
5
<PAGE>
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a forward contract.
Accordingly, it may be necessary for a Fund to purchase additional currency
on the spot market (and bear the expense of such purchase) if the market
value of the security is less than the amount of currency the Fund is
obligated to deliver and if a decision is made to sell the security and
make delivery of the currency. Conversely, it may be necessary to sell on
the spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of currency the
Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent
that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the currency. Should forward prices decline
during the period between the Fund's entering into a forward contract for
the sale of a currency and the date it enters into an offsetting contract
for the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices increase,
the Fund will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
A default on the contract would deprive the Fund of unrealized profits or
force the Fund to cover its commitments for purchase or sale of currency,
if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Such transactions also
preclude the opportunity for gain if the value of the hedged currency
should rise. Moreover, it may not be possible for the Fund to hedge
against a devaluation that is so generally anticipated that the Fund is not
able to contract to sell the currency at a price above the devaluation
level it anticipates. The cost to the Fund of engaging in currency
exchange transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market conditions. Since
currency exchange transactions are usually conducted on a principal basis,
no fees or commissions are involved.
DEBT SECURITIES
Each Fund may invest in debt securities, including lower-rated
securities (i.e., securities rated BB or lower by Standard & Poor's
Corporation ("S&P") or Ba or lower by Moody's Investor Services, Inc.
("Moody's"), commonly called "junk bonds") and securities that are not
rated. There are no restrictions as to the ratings of debt securities
acquired by a Fund or the portion of a Fund's assets that may be invested
in debt securities in a particular ratings category, except that
International Fund and International Emerging Fund will not invest more
than 10% of their respective total assets in securities rated below
investment grade, Balanced 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.
6
<PAGE>
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad.
The market for unrated debt securities is even narrower. During periods of
thin trading in these markets, the spread between bid and asked prices is
likely to increase significantly, and a Fund may have greater difficulty
selling its portfolio securities. See "Net Asset Value." The market value
of these securities and their liquidity may be affected by adverse
publicity and investor perceptions.
A description of the characteristics of bonds in each ratings category
is included in the appendix to this statement of additional information.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time a Fund enters into the commitment, the securities
may be delivered and paid for a month or more after the date of purchase,
when their value may have changed. A Fund makes such commitments only with
the intention of actually acquiring the securities, but may sell the
securities before settlement date if the adviser deems it advisable for
investment reasons. A Fund may utilize spot and forward foreign currency
exchange transactions to reduce the risk inherent in fluctuations in the
exchange rate between one currency and another when securities are
purchased or sold on a when-issued or delayed-delivered basis.
At the time a Fund enters into a binding obligation to purchase
securities on a when-issued basis, liquid assets of the Fund having a value
at least as great as the purchase price of the securities to be purchased
will be segregated on the books of the Fund and held by the custodian
throughout the period of the obligation. The use of these investment
strategies, as well as any borrowing by a Fund, may increase net asset
value fluctuation.
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.
In addition the Funds must comply with certain state regulations that may
impose more restrictive limitations.
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
7
<PAGE>
are liquid and thus not subject to the Fund's restriction of investing no
more than 15% of its assets in illiquid securities, although the Ohio
Division of Securities currently requires each Fund to limit its investment
in Rule 144A securities and securities of "unseasoned issuers" to 15% of
total assets. (See restriction 11 under "Investment Restrictions.") A
determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination the adviser will consider
the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the adviser could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, (4) and the
nature of the security and of market place trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics
of transfer). The liquidity of Rule 144A securities would be monitored and,
if as a result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required to assure
that the Fund does not invest more than 15% of its assets in illiquid
securities. Investing in Rule 144A securities could have the effect of
increasing the amount of a Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such
securities.
SHORT SALES
Each Fund may sell securities short against the box, that is: (1)
enter into short sales of securities that it currently owns or has the
right to acquire through the conversion or exchange of other securities
that it owns without additional consideration; and (2) enter into
arrangements with the broker-dealers through which such securities are sold
short to receive income with respect to the proceeds of short sales during
the period the Fund's short positions remain open. A Fund may make short
sales of securities only if at all times when a short position is open the
Fund owns at least an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short.
In a short sale against the box, a Fund does not deliver from its
portfolio the securities sold and does not receive immediately the proceeds
from the short sale. Instead, the Fund borrows the securities sold short
from a broker-dealer through which the short sale is executed, and the
broker-dealer delivers such securities, on behalf of the Fund, to the
purchaser of such 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.
8
<PAGE>
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.
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 Emerging Fund's investments may be made in
the United States and denominated in U.S. dollars. It is impossible to
predict whether, when or for how long a Fund will employ defensive
strategies.
In addition, pending investment of proceeds from new sales of Fund
shares or to meet ordinary daily cash needs, each Fund temporarily may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and
may invest any portion of its assets in money market instruments.
PERFORMANCE INFORMATION
From time to time the Funds may quote total return figures in sales
material. "Total Return" for a period is the percentage change in value
during the period of an investment in Fund shares, including the value of
shares acquired through reinvestment of all dividends and capital gains
distributions. "Average Annual Total Return" is the average annual
compounded rate of change in value represented by the Total Return for the
period.
Average Annual Total Return will be computed as follows:
ERV = P(1+T)n
Where: P = the amount of an assumed initial investment in Fund
shares
T = average annual total return
n = number of years from initial investment to the end
of the period
ERV = ending redeemable value of shares held at the end
of the period
9
<PAGE>
For example, Total Return and Average Annual Total Return on a $1,000
investment in each of Oakmark Fund and International Fund for the following
periods ended October 31, 1995 were:
<TABLE>
<CAPTION>
Total Average Annual
Return Total Return
------- ---------------
<S> <C> <C>
Oakmark Fund
One year............................... 21.55% 21.55%
Life of Fund (from August 5, 1991)..... 223.97 32.00
International Fund
One year............................... (3.06) (3.06)
Life of Fund (from September 30, 1992). 46.59 13.20
</TABLE>
Because they are newly organized, similar information does not exist for
Small Cap Fund, Balanced Fund or International Emerging Fund.
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 Global Finance Pensions and Investments
Business Week Investor's Daily Personal Investor
Changing Times Kiplinger's Personal Finance Smart Money
Chicago Tribune Los Angeles Times Stanger Reports
Chicago Sun-Times Money Time
Crain's Chicago Business Mutual Fund Letter USA Today
Consumer Reports Mutual Funds Magazine U.S. News and World
Consumer Digest Morningstar Report
Financial World Newsweek The Wall Street Journal
Forbes The New York Times Worth
Fortune
10
<PAGE>
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:
<TABLE>
<S> <C>
Dow-Jones Industrial Average Wilshire 5000
Standard & Poor's 500 Stock Index New York Stock Exchange Composite Index
Standard & Poor's 400 Industrials American Stock Exchange Composite Index
Standard & Poor's Small Cap 600 NASDAQ Composite
Standard & Poor's Mid Cap 400 NASDAQ Industrials
</TABLE>
In addition, each of Oakmark Fund, Small Cap Fund and Balanced 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; and Lipper Small Company Growth Fund Index. Each of
International Fund and International Emerging 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; Morgan Stanley Capital International World ex the U.S. Index;
Morningstar International Stock Average.
Lipper Indexes and Averages are calculated and published by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors the
performance of more than 1,000 funds. The Funds may also use comparative
performance as computed in a ranking by Lipper or category averages and rankings
provided by another independent service. Should Lipper or another service
reclassify a Fund to a different category or develop (and place a Fund into) a
new category, that Fund may compare its performance or ranking against other
funds in the newly assigned category, as published by the service. Each Fund may
also compare its performance or ranking against all funds tracked by Lipper or
another independent service, including Morningstar, Inc.
The Funds may cite their ratings, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on risk-
adjusted total return performance and is expressed in a star-rating format. The
risk-adjusted number is computed by subtracting a fund's risk score (which is a
function of the fund's monthly returns less the 3-month T-bill return) from the
fund's load-adjusted total return score. This numerical score is then translated
into rating categories, with the top 10% labeled five star, the next 22.5%
labeled four star, the next 35% labeled three star, the next 22.5% labeled two
star, and the bottom 10% one star. A high rating reflects either above-average
returns or below-average risk or both.
To illustrate the historical returns on various types of financial assets,
the Funds may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks; small company stocks; long-term corporate bonds; long-term government
bonds; intermediate-term government bonds; U.S. Treasury bills; and Consumer
Price Index.
11
<PAGE>
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 dated September 30, 1995
(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 Agreements provide that the total annual expenses of each Fund,
exclusive of taxes, interest and extraordinary litigation expenses, but
including fees paid to the Adviser, shall not exceed the limits imposed by the
securities regulations of any state in which the Fund's shares are qualified for
sale, and the Adviser has agreed to reimburse each Fund for any such expenses in
excess of such limits. The Advisor believes that currently the most restrictive
limits are 2.5% of the first $30 million of a Fund's average net assets, 2% of
the next $70 million, and 1.5% thereafter. Brokers' commissions and other
charges relating to the purchase or sale of securities are not regarded as
expenses for this purpose. Moreover, for purposes of calculating the expenses
subject to this limitation, the excess custodian costs attributable to
investments in foreign securities compared to the custodian costs which would
have been incurred had the investments been in domestic securities are excluded.
In addition, the Adviser has voluntarily agreed to reimburse each of Small Cap
Fund, Balanced Fund and International Emerging Fund to the extent that the
Fund's annual ordinary operating expenses exceed 2.5% of its average net assets
through October 31, 1996, subject to earlier termination by the Adviser on 30
days' notice to the Fund. For the purpose of determining whether a Fund is
entitled to any reduction in advisory fee or expense reimbursement, that Fund's
expenses are calculated daily and any reduction in fee or reimbursement is made
monthly.
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.
The annual rates of fees as a percentage of each Fund's net assets are as
follows:
<TABLE>
<CAPTION>
FUND FEE
---------------------- ----------------------------------------------
<S> <C>
Balanced .75%
Oakmark 1% up to $2.5 billion; .95% on the next $1.25
billion; .90% on the next $1.25 billion; and
.85% on net assets in excess of $5 billion
International 1% up to $2.5 billion; .95% on the next $2.5
billion; and .90% on net assets in excess of
$5 billion
Small Cap and 1.25%
International Emerging
</TABLE>
Oakmark Fund paid advisory fees of $21,215,738, $13,431,816 and $6,164,542
for the fiscal years ended October 31, 1995, 1994 and 1993, respectively.
International Fund paid advisory fees of $9,916,904, $13,080,028 and $2,151,162
for the fiscal years ended October 31,
12
<PAGE>
1995, 1994 and 1993, respectively. The other Funds did not commence operations
until November 1, 1995.
The Agreement for each Fund is for an initial term expiring September 30,
1996. 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 Agreement for each Fund will terminate automatically upon the
consummation of the anticipated merger of New England Mutual Life Insurance
Company (which controls the Adviser) into Metropolitan Life Insurance Company.
However, it is expected that concurrent with that merger the Trust will enter a
new investment advisory agreement for each Fund with the Adviser on terms
identical to the terms of the Fund's present Agreement except for a change in
the effective date of the new agreement and an initial term expiring September
30, 1997.
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, William C. Nygren, John Raitt, Neal Ryland,
Robert J. Sanborn and Peter S. Voss. Mr. Morgenstern is the president and chief
executive officer of Harris Associates, Inc.
TRUSTEES AND OFFICERS
Information on the trustees and officers of the Trust is included in the
Funds' prospectus under "Trustees and Officers." All of that information is
incorporated herein by reference.
The addresses of the trustees are as follows:
Christine M. Bucher c/o Hyatt Corporation
200 West Madison Street
Chicago, Illinois 60606
Michael J. Friduss c/o MJ Friduss & Associates
1555 Museum Drive
Highland Park, Illinois 60035
Thomas H. Hayden c/o Bozell Worldwide, Inc.
625 North Michigan Avenue
Chicago, Illinois 60611-3110
Victor A. Morgenstern c/o Harris Associates L.P.
Two North La Salle Street, Suite 500
Chicago, Illinois 60602
Allan J. Reich c/o D'Ancona & Pflaum
30 North La Salle Street, Suite 2900
Chicago, Illinois 60602
13
<PAGE>
Marv R. Rotter c/o Rotter & Associates
5 Revere Drive, Suite 400
Northbrook, Illinois 60062-1571
Burton W. Ruder c/o The Academy Group
707 Skokie Boulevard, Suite 410
Northbrook, Illinois 60062
Peter S. Voss c/o New England Investment Companies, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Gary N. Wilner, M.D. c/o Evanston Hospital
2650 Ridge Avenue
Evanston, Illinois 60201
Messrs. Morgenstern and Voss are trustees who are "interested persons" of
the Trust as defined in the 1940 Act. They and Dr. Wilner are members of the
executive committee, which has authority during intervals between meetings of
the board of trustees to exercise the powers of the board, with certain
exceptions.
At November 15, 1995, the trustees and officers as a group owned
beneficially less than one percent of the outstanding shares of each Fund.
The following table shows the compensation paid by the Trust in the fiscal
year ended October 31, 1995 to each trustee who was not an "interested person"
of the Trust:
AGGREGATE
COMPENSATION
NAME OF TRUSTEE FROM THE TRUST*
- --------------------------------------------------------------------------------
Christine M. Bucher $ 0
James W. Ford 18,500
Michael J. Friduss 0
Thomas H. Hayden 0
Allan J. Reich 17,500
Burton W. Ruder 0
Gary N. Wilner, M.D. 17,500
- --------------------------------------------------------------------------------
* The Trust is not part of a fund complex. Ms. Bucher and Messrs. Friduss,
Hayden and Ruder became trustees on September 29, 1995.
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.
14
<PAGE>
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
November 15, 1995 were Donald Terao, as Trustee of the Harris Associates L.P.
Profit Sharing Trust, who held 8.6% of the shares of Small Cap Fund, 8.5% of the
shares of Balanced Fund and 12.2% of the shares of International Emerging Fund;
Victor A. Morgenstern, who owned beneficially 6.3% of the shares of Small Cap
Fund and 15.4% of the shares of International Emerging Fund; Clyde and Joan
McGregor, who owned beneficially 22.7% of the shares of Balanced Fund; David G.
Herro, who owned 16.8% of the shares of International Emerging Fund, and
American National Bank & Trust Co. of Chicago, as Trustee of the Donald Levin
Revocable Trust, who owned 5.0% of the shares of International Emerging Fund.
The address of American National Bank & Trust Co. of Chicago is 33 North La
Salle Street, Chicago, Illinois 60690 and the address of the other named
beneficial holders is Two North La Salle Street, Chicago, Illinois 60602.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the Funds' prospectus under the
headings "How to Purchase Shares," "How to Redeem Shares," and "Shareholder
Services." All of that information is incorporated herein by reference.
The net asset value per share of each Fund is determined by the Trust's
custodian, State Street Bank and Trust Company. Securities traded on securities
exchanges, or in the over-the-counter market in which transaction prices are
reported on the NASDAQ National Market System, are valued at the last sales
prices at the time of valuation or, lacking any reported sales on that day, at
the most recent bid quotations. Other securities traded over-the-counter are
also valued at the most recent bid quotations. Money market instruments having a
maturity of 60 days or less from the valuation date are valued on an amortized
cost basis. The values of securities of foreign issuers are generally based upon
market quotations which, depending upon local convention or regulation, may be
last sale price, last bid or asked price, or the mean between last bid and asked
prices as of, in each case, the close of the appropriate exchange or other
designated time. Securities for which quotations are not available and any other
assets are valued at a fair value as determined in good faith by the board of
trustees. All assets and liabilities initially expressed in foreign currencies
are converted into U.S. dollars at the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by any major bank or dealer. If such
quotations are not available, the rate of exchange will be determined in
accordance with policies established in good faith by the Board.
The Funds' net asset values are determined only on days on which the New
York Stock Exchange is open for trading. The Exchange is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in 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 Exchange
will be closed on the preceding Friday or the following Monday, respectively.
Trading in the portfolio securities of International Fund or International
Emerging 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
15
<PAGE>
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 accounting and
shareholder servicing services provided by such a company with respect to Fund
shares held by that company for its customers, the company may charge a fee of
up to 0.35% of the annual average value of those accounts. Each Fund pays a
portion of those fees not to exceed the estimated fees that the Fund would pay
to its own transfer agent if the shares of the Fund held by such customers of
the company were registered directly in their names on the books of the Fund's
transfer agent. The balance of those fees are paid by the Adviser.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which it is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day
period for any one shareholder. Redemptions in excess of the above amounts will
normally be paid in cash, but may be paid wholly or partly by a distribution in
kind of marketable securities.
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem at net asset value the shares of any shareholder
whose account in any Fund has a value of less than the minimum amount specified
by the board of trustees, which currently is $1,000. Before such a redemption,
the shareholder will be notified that the account value is less than the minimum
and will be allowed at least 30 days to bring the value of the account up to the
minimum. The agreement and declaration of trust also authorizes the Trust to
redeem shares under certain other circumstances as may be specified by the board
of trustees.
In connection with the Exchange Plan, the Adviser acts as a Service
Organization for the Government Portfolio and the Tax-Exempt Diversified
Portfolio of Goldman Sachs Money Market Trust and the GS Short Duration Fund
Portfolio of Goldman Sachs Trust. For its services it receives fees at rates of
up to .50% of the average annual net assets of each account in those portfolios
established through the Exchange Plan, pursuant to 12b-1 plans adopted by those
investment companies.
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.
16
<PAGE>
INTERNATIONAL FUND AND INTERNATIONAL EMERGING FUND. Dividends and
distributions paid by International Fund and International Emerging 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 Emerging 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 Emerging 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 Emerging Fund (see discussion of "pass
through" of the foreign tax credit to U.S. shareholders), will be subject to
U.S. tax. For shareholders who are not engaged in a business in the U.S., this
tax would be imposed at the rate of 30% upon the gross amount of the dividend in
the absence of a Tax Treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains realized by these Funds
are not subject to tax unless the foreign shareholder is a nonresident alien
individual who was physically present in the U.S. during the tax year for more
than 182 days.
PORTFOLIO TRANSACTIONS
Portfolio transactions for each Fund are placed with those securities
brokers and dealers that the Adviser believes will provide the best value in
transaction and research services for that Fund, either in a particular
transaction or over a period of time. Subject to that standard, portfolio
transactions for each Fund may be executed through Harris Associates Securities
L.P. ("HASLP"), a registered broker-dealer and an affiliate of the Adviser.
17
<PAGE>
In valuing brokerage services, the Adviser makes a judgment as to which
brokers are capable of providing the most favorable net price (not necessarily
the lowest commission) and the best execution in a particular transaction. Best
execution connotes not only general competence and reliability of a broker, but
specific expertise and effort of a broker in overcoming the anticipated
difficulties in fulfilling the requirements of particular transactions, because
the problems of execution and the required skills and effort vary greatly among
transactions.
Although some transactions involve only brokerage services, many involve
research services as well. In valuing research services, the Adviser makes a
judgment of the usefulness of research and other information provided by a
broker to the Adviser in managing a Fund's investment portfolio. In some cases,
the information, e.g., data or recommendations concerning particular securities,
relates to the specific transaction placed with the broker, but for the greater
part the research consists of a wide variety of information concerning
companies, industries, investment strategy and economic, financial and political
conditions and prospects, useful to the Adviser in advising the Funds.
The Adviser is the principal source of information and advice to the Funds,
and is responsible for making and initiating the execution of the investment
decisions for each Fund. However, the board of trustees recognizes that it is
important for the Adviser, in performing its responsibilities to the Funds, to
continue to receive and evaluate the broad spectrum of economic and financial
information that many securities brokers have customarily furnished in
connection with brokerage transactions, and that in compensating brokers for
their services, it is in the interest of the Funds to take into account the
value of the information received for use in advising the Funds. Consequently,
the commission paid to brokers (other than HASLP) providing research services
may be greater than the amount of commission another broker would charge for the
same transaction. The extent, if any, to which the obtaining of such information
may reduce the expenses of the Adviser in providing management services to the
Funds is not determinable. In addition, it is understood by the board of
trustees that other clients of the Adviser might also benefit from the
information obtained for the Funds, in the same manner that the Funds might also
benefit from information obtained by the Adviser in performing services to
others.
HASLP may act as broker for a Fund in connection with the purchase or sale
of securities by or to the Fund if and to the extent permitted by procedures
adopted from time to time by the board of trustees of the Trust. The board of
trustees, including a majority of the trustees who are not "interested"
trustees, has determined that portfolio transactions for a Fund may be executed
through HASLP if, in the judgment of the Adviser, the use of HASLP is likely to
result in prices and execution at least as favorable to the Fund as those
available from other qualified brokers and if, in such transactions, HASLP
charges the Fund commission rates at least as favorable to the Fund as those
charged by HASLP to comparable unaffiliated customers in similar transactions.
The board of trustees has also adopted procedures that are reasonably designed
to provide that any commissions, fees or other remuneration paid to HASLP are
consistent with the foregoing standard. The Funds will not effect principal
transactions with HASLP. In executing transactions 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.
18
<PAGE>
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 Oakmark Fund and
International Fund are set forth in the prospectus under "Financial Highlights."
The portfolio turnover rate of each of Small Cap Fund, Balanced Fund and
International Emerging Fund is not expected to exceed 100%.
The following table shows the aggregate brokerage commissions (excluding
the gross underwriting spread on securities purchased in initial public
offerings) paid by each of Oakmark Fund and International Fund during the
periods indicated, as well as the aggregate commissions paid to affiliated
persons of the Trust. The other Funds did not commence operations until November
1, 1995.
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------------
1995 1994 1993
------------------- ----------------- -----------------
<S> <C> <C> <C>
Oakmark Fund
Aggregate commissions........... $2,100,849 (100%) $1,594,102 (100%) $1,307,780 (100%)
Commissions paid to affiliates.. 389,339 (18.5%) 244,055 ( 15%) 336,495 ( 26%)
International Fund
Aggregate commissions........... $2,609,780 (100%) $5,170,141 (100%) $2,336,588 (100%)
Commissions paid to affiliates.. 71,600 (2.7%) 6,980 (0.1%) -0-
</TABLE>
Of the aggregate brokerage commissions paid during the 1995 fiscal year,
Oakmark Fund and International Fund paid $2,098,694 and $2,609, respectively, to
brokers who furnished research services.
The brokerage commissions paid by Oakmark Fund to an affiliated person
during fiscal years 1995, 1994 and 1993 were paid in connection with
transactions aggregating 7.5%, 17% and 24%, respectively, of the aggregate
dollar amount of transactions involving the payment of brokerage commissions by
the Fund.
The brokerage commissions paid by International Fund to an affiliated
person during fiscal years 1995 and 1994 were paid in connection with
transactions aggregating 1.6% and 0.3%, respectively, of the aggregate dollar
amount of transactions involving the payment of brokerage commissions by the
Fund.
19
<PAGE>
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 Small Cap Fund and Balanced Fund is $2,500 per
month and the fee paid by International Emerging Fund is $3,000 per month, which
fees have been waived during the first six months of operations of each of the
Funds. 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.
FINANCIAL STATEMENTS
Copies of the annual reports for Oakmark Fund and International Fund for
the fiscal year ended October 31, 1995 accompany this Statement of Additional
Information. Those reports contain financial statements, notes thereto,
supplementary information entitled "Condensed Financial Information" and reports
of independent auditors, all of which (but no other part of the reports) are
incorporated herein by reference.
A copy of the Funds' Prospectus and additional copies of the reports to
shareholders of Oakmark Fund and International Fund may be obtained from the
Trust at no charge by writing to the Trust at the address shown on the cover
page of this statement of additional information, or by telephoning the number
shown on the cover page.
20
<PAGE>
APPENDIX -- BOND RATINGS
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the credit-worthiness
of an issuer. Consequently, the Adviser believes that the quality of debt
securities in which the Fund invests should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the rating services
from other sources which they consider reliable. Ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S:
AAA. Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
AA. Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in the Aaa bonds, fluctuation of protective elements may
be of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA. Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
other good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B. Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA. Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
21
<PAGE>
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.
22
<PAGE>
[LOGO OF THE OAKMARK FUND]
The Oakmark Family of Funds
The
Oakmark
Fund
ANNUAL
REPORT
----------------------
October 31, 1995
----------------------
The
Oakmark
International
Fund
MEMBER OF
================
NO LOAD
100% MUTUAL FUND
COUNCIL
================
No-Load Funds Managed by
Harris Associates L.P.
<PAGE>
[OAKMARK LOGO]
The Oakmark Family of Funds
<TABLE>
<CAPTION>
1995 Annual Report
Table of Contents
<S> <C>
Letter from the President..................... 1
The Oakmark Funds Summary..................... 2
The Oakmark Fund
Performance Chart.......................... 3
Letter from the Fund Manager............... 3
Financial Statements....................... 8
The Oakmark International Fund
Performance Chart.......................... 18
Letter from the Fund Manager............... 18
Financial Statements....................... 22
Report of Independent Public Accountants...... 36
Trustees and Officers......................... 37
Other Important Information................... 37
</TABLE>
Questions About Your Account?
Call 1-800-626-9392
<PAGE>
Fellow Shareholders:
We are pleased to present the combined annual reports for the Oakmark Family
of Funds. The current report contains the fiscal 1995 information for the
Oakmark and Oakmark International Funds. Subsequent annual reports will
include the newly launched Oakmark Small Cap, Balanced and International
Emerging Value Funds. These new Funds were available November 1, 1995.
For the fourth quarter ended October 31, 1995 and the year as a whole, the
U.S. stock market was the place to be. Oakmark Fund's returns continued to be
robust, up 4.9%* in the quarter, even without participation in the technology
sector. In contrast, the money flows out of foreign stocks created a
challenging environment in which the Oakmark International Fund lost (5.5)%*.
This decline has created some of the most compelling values we have witnessed
and the performance of Oakmark International in the month following the
quarter-end has us cautiously optimistic (up 3.2% from 10/31/95 to 11/29/95).
'Tis the season for holiday cheer and investment decisions! For those of you
thinking about your 1995 IRA contributions, remember these contributions can
be made until April 15, 1996.
From all of us at The Oakmark Family of Funds, we wish you a happy, healthy
and prosperous new year!
Sincerely,
LOGO
VICTOR A. MORGENSTERN
President
*The Oakmark Fund's average annual total return for the twelve months ended
September 30, 1995 and for the period August 5, 1991 (inception) through
September 30, 1995 was 23.2% and 33.1% respectively. The Oakmark
International Fund's average annual total return for the twelve months ended
September 30, 1995 and for the period September 30, 1992 (inception) through
September 30, 1995 was 1.5% and 15.8% respectively. The Funds' past
performance is no guarantee of future results. Share prices and investment
returns will vary, so you may have a gain or loss when you sell shares.
<PAGE>
THE OAKMARK FUNDS SUMMARY
ANNUALIZED PERFORMANCE FOR PERIOD ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
Since
3 mo. 6 mo. 1 Year 3 Years Inception
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Oakmark Fund 4.9 % 12.3% 21.55 % 23.70% 32.00%(1)
The Oakmark International Fund (5.5)% 1.8% (3.06)% 14.40% 13.20%(2)
</TABLE>
(1) Inception Date was August 5, 1991
(2) Inception Date was September 30, 1992
TOP FIVE HOLDINGS AND TOP FIVE INDUSTRIES AS OF OCTOBER 31, 1995
THE OAKMARK FUND
<TABLE>
<CAPTION>
Company % of Total Net Assets
- ------------------------------------------------------
<S> <C>
Phillip Morris Companies, Inc. 6.30%
Mellon Bank Corporation 6.04%
Lockheed Martin Corporation 5.67%
First USA, Inc. 4.30%
Anheuser-Busch Companies, Inc. 3.90%
<CAPTION>
Industry % of Fund
- ------------------------------------------------------
<S> <C>
Food & Beverage 16.10%
Other Consumer Goods & Services 11.30%
Broadcasting & Publishing 9.40%
Other Financial 8.80%
Aerospace & Defense 8.20%
</TABLE>
THE OAKMARK INTERNATIONAL FUND
<TABLE>
<CAPTION>
Company % of Total Net Assets
- --------------------------------------------------------
<S> <C>
Lion Nathan Limited (New Zealand) 5.00%
Kvaerner (Norway) 4.62%
AB Volvo (Sweden) 4.24%
YPF Sociedad Anonima (Argentina) 3.61%
Cordiant PLC (Great Britain) 3.59%
<CAPTION>
Industry % of Fund
- --------------------------------------------------------
<S> <C>
Banks 13.70%
Other Industrial Goods & Services 9.40%
Food 7.50%
Aerospace 7.40%
Transportation 5.80%
</TABLE>
Past performance is no guarantee of future performance.
2
<PAGE>
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION
(8/5/91) TO PRESENT (10/31/95) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX.
<TABLE>
[GRAPH APPEARS HERE]
<CAPTION>
Measurement Period
(Fiscal Year Covered) OAKMARK FUND S&P 500
- ---------------=----- ------------ -------
<S> <C> <C>
Measurement Pt-
08/05/91 $10,000 $10,000
10/31/91 $12,100 $10,201
$13,910 $10,719
$14,660 $10,946
$15,910 $11,279
10/31/92 $17,110 $11,216
$19,913 $11,857
$20,136 $11,957
$22,052 $12,276
10/31/93 $24,504 $12,892
$25,648 $13,372
$24,855 $12,593
$25,321 $12,896
10/31/94 $26,653 $13,401
$26,480 $13,444
$28,869 $14,803
$30,883 $16,263
10/31/95 $32,397 $16,931
</TABLE>
10/31/95 NAV $28.47
<TABLE>
<CAPTION>
Average Annual Total Return*
Through 10/31/95
---------------------------------
Total Return* Total Return* From Fund Inception
Last 3 mos. Last 6 mos. From 10/31/94 8/5/91
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
THE OAKMARK FUND 4.9% 12.3% 21.6% 32.0%
Standard & Poor's 500
Stock Index* 4.1% 14.4% 26.3% 13.2%
Dow-Jones Industrial
Average* 1.6% 11.4% 24.8% 14.4%
Value Line Composite
Index* (1.8)% 6.6% 10.1% 6.6%
</TABLE>
REPORT FROM ROBERT J. SANBORN, PORTFOLIO MANAGER
Dear Fellow Shareholders:
The Oakmark Fund's fiscal year ended October 31, 1995 was a good one. The
most significant macroeconomic factor in the strong performance of equities was
the dramatic decline in long-term interest rates, driven by continued low
levels of inflation. This is confirmed by the price action of the planet's two
most important commodities--gold and oil--both of which declined in price over
the year.
While our Fund generated large absolute returns, its performance lagged
behind that of the Standard and Poor's 500. (As Dickens wrote,
*Total return includes change in share prices and in each case included
reinvestment of any dividends and capital gain distributions. Each of the three
indexes or averages is an unmanaged group of stocks whose composition is
different from the Fund. The S&P 500 is a broad market-weighted average
dominated by blue-chip stocks. The Dow-Jones Average includes only 30 big
companies. The Value Line index is an unweighted average of more than 1,000
stocks. Past performance is no guarantee of future performance.
LOGO
3
<PAGE>
"It was the best of times, it was the worst of times.") This relative
underperformance is due to our Fund's lack of high technology holdings. These
sectors were among the best-performing in the market during the past year;
software, semiconductor, and biotechnology stocks were up an average of fifty-
five (!) percent in the past twelve months. As I indicated in my letter last
quarter, these stocks do not meet our investment criteria.
The companies in our portfolio generally experienced very good business
results in the past year. Of our top twenty holdings of a year ago, only one
had results that were significantly less than our expectations. Despite the
strong performance of our Fund, lower interest rates and the growth in
underlying value of our holdings lead me to conclude that the value in our
Fund is as good today as it was a year ago. As I have written before, we spend
our time monitoring and analyzing the businesses of which all of us are part
owners, not in trying to anticipate stock price changes.
Two large sectors--consumer brands and financial services-- constitute
almost half of our Fund's value. Our larger consumer brand stocks--Philip
Morris, Knight Ridder, Anheuser-Busch, Black & Decker, American Brands,
Heinz--are all very high-quality, high-return, high-barrier-to-entry
businesses with dominant market positions, very loyal end-users, and (to
varying degrees) tremendous international opportunities. These companies are
prime beneficiaries of the unfolding globalization of the economy. Yet, the
market continues to place valuations on them that do not sufficiently
differentiate them from more average companies in more competitive businesses.
Our large financial services holdings--First USA, Mellon, Torchmark, and
AMBAC--have strong niche businesses and benefit from the ongoing consolidation
of the financial services industry. We believe that this consolidation is a
win/win proposition for the buyers and sellers (a dynamic we have experienced
in our defense industry investments). Yet, they each sell at modest valuations
at steep discounts to their underlying value.
We continue to frame, and will always frame, the investment process as
buying an ownership piece of a business for the long term, not as buying
merely a piece of paper for the short term. We sold only one of our ten
largest holdings of a year ago. Eli Lilly reached our estimate of value and we
sold the stock. Trading is expensive--there are commissions, price impacts,
and capital gains taxes--and we attempt to minimize our trading activity. Our
Fund's turnover is one-seventh that of the typical equity fund. I believe that
the largest edge we have is our long-term investment time-frame.
4
<PAGE>
What's ahead for 1996? While we do not base any of our investment decisions
on predicting macroeconomic variables, let me cite two that are positive for
the equity market. The first is the all-time high level of merger and
acquisition activity. Many public companies continue to be acquired at
substantial premium to public market prices. The globalization of the economy
and the efficacy of technology within companies will continue to drive this
process. The second factor is the political revolution that is in its early
stages in the USA. There is broad consensus that our federal government is too
big, too inefficient, and too expensive. The inevitable downsizing of the
government--more than 40 percent of our GDP is spent by local, state, and
federal governments!-- should result in lower interest rates in the medium
term (which will have a positive impact on equity valuations). In the long
term, a rationalization of our tax system, perhaps in the form of a flat tax
regime, will unleash the tremendous potential of our economy. This process
will have a very significant impact on all aspects of our economy.
I believe that we at Harris Associates have a time-tested investment
philosophy, great people, and a nonbureaucratic culture. These attributes
should allow us to continue to add value. We remain focused on generating
results that will continue to allow you (and us!!) to realize your financial
goals.
On a personal note, I cannot believe we are in our fifth year. On behalf of
everyone at Harris Associates, I thank you for your support. Managing your
hard-earned money remains a great challenge and a great honor.
A PRIMER ON GOODWILL
As I write this, we are in the midst of the season of goodwill to all
people. Yet, in the financial world, goodwill has a far different meaning.
Goodwill usually results when a company acquires another company at a price
greater than the acquiree's book value. Book value is a balance sheet item
that represents the retained book earnings of a company. It has little
relation to the true economic value of a company and, therefore is a number we
ignore.
Goodwill affects the income statement through the accounting process of
amortization. Amortization refers to the gradual write-downs of the goodwill,
generally over forty years. The word amortization itself is derived from the
Latin word for death, and means to "kill off the goodwill." This amortization
reduces reported earnings for the entire time
5
<PAGE>
period. However, it is important to recognize that it is a non-cash reduction
in earnings that has no effect on the intrinsic value of a company.
Let me give an example from one of our holdings, Philip Morris (MO). As of
12/30/94, MO had goodwill totalling $19.7 billion, which represented over 37
percent of its total book assets. Most of this was incurred through its
purchase of Kraft in 1988. This goodwill resulted in the amortization of $600
million in the year 1994, which reduced reported earnings per share (EPS) by
$0.58 (compared to total net EPS of $5.45). Yet, MO can use this $600 million
to make an acquisition, repurchase its own shares, or do any number of things
to grow shareholder value.
A patient shareholder is probably by now muttering. "What's with this
goodwill, why is he boring me with this stuff?" Well, seven of our ten largest
holdings have meaningful amounts of goodwill that reduce reported EPS. In our
view, the market tends to ignore the economic value of the goodwill. For
instance, a leading Wall Street brokerage firm recently issued a report on MO
that concludes that MO should sell at its historical relative P/E ratio of 75
percent of the market. This, of course, ignores the fact that MO's earnings
are artificially reduced by the amortization charge.
We evaluate our investments, and all potential investments, as if we were
buying the entire business. Thus, we tend to regard some financial parameters
(i.e., cash flow) more highly than others regarded more highly by the
investment community (i.e., reported EPS). Since we firmly believe that market
price and value ultimately converge, our approach is intellectually coherent
and, we believe, gives us an edge.
BILLY JOHNSON UPDATE
An E-mailing shareholder from California writes, "Who the heck is Billy
"White Shoes" Johnson?" Well, he was a wide receiver for the Houston Oilers
and was an early pioneer of in-your-face touchdown celebrations. Some of you
may remember my allusion to Johnson in last quarter's letter. I wrote that,
when my prediction on the likely under-performance of high technology stocks
comes to fruition, I will do some similar in-your-face crowing.
Well, as I write this on November 28, Netscape (NSCP) is trading at $138, up
more than 75 percent from just last quarter. So, Billy is bruised, but he
knows that we are early in the first quarter, and all that matters is who wins
the game.
6
<PAGE>
I had the pleasure of making a presentation recently with a very nice guy
who manages a pure technology hedge fund. His fund was up over 80 percent this
year. He gave very compelling background on the growth of the Internet and how
useful technology is, and so forth. Then, some curmudgeon in the crowd,
(perhaps a shareholder of The Oakmark Fund), broke the balloon, and asked
about the "ridiculous" valuations of these stocks. The manager's sole
justification was that technology currently represents "only" thirteen percent
of the value of the Standard & Poor's 500, and he saw no reason why it could
not get as high as thirty percent. After all, the energy sector got that high
in 1980.
Shareholders, that is not an intellectually coherent investment approach. If
that is the best reason to own technology stocks, Billy will be celebrating
soon.
OAK LEAF CLUSTER
We award the Oak Leaf Cluster to that individual whose input into our Fund
had the greatest positive impact on performance. This year the coveted honor
goes to our very own John Raitt for his work on the defense stocks. Since
these stocks go back to the early days of the Fund, it represents sort of a
Lifetime Achievement Award. Lockheed Martin has more than doubled from our
cost and McDonnell Douglas has appreciated more than 67 percent.
Congratulations, John! On behalf of all shareholders, we like you, we like
you!
ROBERT J. SANBORN
Portfolio Manager
harjs @aol.com
November 28, 1995
7
<PAGE>
THE OAKMARK FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995
<TABLE>
<CAPTION>
Shares Held Common Stocks Market Value
- -------------------------------------------------------------------
COMMON STOCKS--93.1%
FOOD & BEVERAGE--16.1%
<C> <S> <C>
2,106,500 Philip Morris Companies Inc. $ 177,999,250
1,669,100 Anheuser-Busch Companies, Inc. 110,160,600
1,619,100 H.J. Heinz Company 75,288,150
1,420,800 Nabisco Holdings Corp. 38,184,000
1,571,900 Interstate Bakeries 33,599,362
430,000 The Quaker Oats Company 14,673,750
200,000 International Dairy Queen, Inc. (a) 4,250,000
--------------
454,155,112
APPAREL--.3%
388,500 K-Swiss Inc. 4,419,188
620,600 J. Baker Inc. 3,568,450
--------------
7,987,638
RETAIL--4.4%
2,920,000 Federated Department Stores, Inc. (a) 74,095,000
1,600,000 Zale Corporation (a) 23,600,000
1,000,000 Carson Pirie Scott & Co. (a) 16,875,000
600,000 Cole National Corporation (a) 7,350,000
777,500 Best Products Co., Inc. (a) 3,838,906
53,800 Rex Stores Corporation (a) 914,600
--------------
126,673,506
OTHER CONSUMER GOODS & SERVICES--11.3%
1,982,800 American Brands, Inc. 85,012,550
2,437,900 The Black & Decker Corporation 82,583,861
477,700 The Clorox Company 34,274,975
957,500 Whitman Corporation 20,346,875
440,200 First Brands Corporation 20,139,150
583,800 GC Companies, Inc. (a) 18,827,550
400,000 Stanhome Inc. 12,200,000
750,000 Arctco Inc. 8,437,500
575,000 JUNO Lighting Inc. 8,337,500
601,500 Justin Industries, Inc. 6,015,000
281,500 Rollins, Inc. 5,911,500
395,000 Mikasa, Inc. (a) 5,135,000
257,600 Paragon Trade Brands, Inc. (a) 4,089,400
100,000 Alberto-Culver Company 2,700,000
225,525 Rauch Industries, Inc. 2,227,059
51,500 Polaroid 2,201,625
107,000 Armor All 1,765,500
304,000 Drypers Corporation (a) 798,000
--------------
321,003,045
OIL--.4%
270,000 Murphy Oil Corporation 10,226,250
BANKS--6.1%
3,406,550 Mellon Bank Corporation 170,753,319
340,000 River Bank America (a) 2,465,000
--------------
173,218,319
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
THE OAKMARK FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
Shares Held Common Stocks Market Value
- --------------------------------------------------------------------------
INSURANCE--6.5%
<C> <S> <C>
2,496,400 Torchmark Corporation $ 103,600,600
984,700 American Financial Group, Inc. 27,571,600
928,200 Old Republic International 26,569,725
501,300 Acordia, Inc. 13,785,750
331,930 MAIC Holdings, Inc. (a) 10,123,865
85,000 Meridian Insurance Group 1,168,750
--------------
182,820,290
OTHER FINANCIAL--8.8%
2,640,500 First USA, Inc. 121,463,000
2,194,900 AMBAC Inc. 92,460,163
620,000 Capital One Financial Corporation 15,190,000
204,400 Fund American Enterprises Holdings, Inc. (a) 14,103,600
330,000 Duff & Phelps Corporation 3,588,750
102,200 White River Corporation (a) 3,551,450
--------------
250,356,963
BROADCASTING & PUBLISHING--9.4%
6,329,179 Tele-Communications, Inc. Class A (a) 107,596,043
1,715,400 Knight-Ridder, Inc. 95,204,700
1,432,294 TCI Communications, Inc. (a) 35,270,240
400,000 Gannett 21,750,000
500,000 Adelphia Communications Corp. (a) 4,375,000
200,000 Jones Intercable, Inc. (a) 2,500,000
--------------
266,695,983
COMPUTER SYSTEMS--.5%
1,014,000 Control Data Systems, Inc. (a) 13,435,500
210,000 InaCom Corporation (a) 2,100,000
--------------
15,535,500
PHARMACEUTICAL--3.1%
975,000 American Home Products Corporation 86,409,375
MANAGED CARE SERVICES--3.4%
1,740,000 Foundation Health Corporation (a) 73,732,500
420,000 Physicians Health Services, Inc. (a) 13,965,000
500,000 Laboratory Corporation of America Holdings 4,250,000
270,000 Right CHOICE Managed Care, Inc. (a) 3,442,500
--------------
95,390,000
MEDICAL PRODUCTS--2.4%
648,900 Sybron Corporation (a) 27,578,250
502,000 St. Jude Medical, Inc. (a) 26,731,500
550,000 Spacelabs Medical, Inc. (a) 14,162,500
--------------
68,472,250
AEROSPACE & DEFENSE--8.2%
2,351,750 Lockheed Martin Corporation 160,212,969
610,000 McDonnell Douglas Corporation 49,867,500
779,600 Logicon, Inc. 17,833,350
54,200 Alliant Techsystems, Inc. (a) 2,520,300
--------------
230,434,119
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
THE OAKMARK FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
Shares Held Common Stocks Market Value
- -----------------------------------------------------------------------
FURNITURE & TEXTILES--0%
<C> <S> <C>
363,000 Forstmann & Company, Inc. (a) $ 113,438
MACHINERY AND METAL PROCESSING--.1%
237,500 Encore Wire Corporation (a) 2,493,750
OTHER INDUSTRIAL GOODS & SERVICES--4.6%
1,699,700 The Geon Company 42,280,038
508,000 Great Lakes Chemical Corporation 34,099,500
550,000 OM Group, Inc. 15,950,000
191,200 Bandag, Incorporated Class A 9,536,100
554,200 SPX Corporation 8,590,100
190,000 USG Corp. (a) 5,533,750
170,000 UCAR International Inc. (a) 4,845,000
175,000 American Home Star Corporation (a) 2,800,000
182,600 Amtrol Inc. 2,784,650
60,200 Exide 2,641,275
50,000 Griffon Corporation (a) 418,750
71,300 Detrex Corporation (a) 409,975
-------------
129,889,138
COMMERCIAL REAL ESTATE--1.0%
1,957,200 Host Marriott Corporation (a) 24,220,350
585,700 Catellus Development Corporation (a) 3,221,350
-------------
27,441,700
FOREIGN SECURITIES--6.5%
2,650,000 DeBeers Consolidated Mines Limited ADR (b) 72,875,000
3,276,500 YPF Sociedad Anonima (b) 56,110,062
888,200 Telefonos de Mexico, S.A. de C.V. (b) 24,425,500
547,700 EVC International NV 17,182,881
697,500 Scitex Corporation Limited 12,119,063
-------------
182,712,506
TOTAL COMMON STOCKS (COST: $2,133,912,975) 2,632,028,882
</TABLE>
COMMERCIAL PAPER--7.1%
<TABLE>
<S> <C>
American Express Credit Corp., 5.70% due 11/22/95 6,000,000
American Express Credit Corp., 5.70% due 11/24/95 5,000,000
American Express Credit Corp., 5.70% due 11/30/95 8,000,000
American Express Credit Corp., 5.70% due 12/13/95 5,000,000
Ford Motor Credit Corp., 5.70% due 11/01/95 5,000,000
Ford Motor Credit Corp., 5.71% due 11/01/95 4,000,000
Ford Motor Credit Corp., 5.76% due 11/02/95 6,000,000
Ford Motor Credit Corp., 5.70% due 11/03/95 8,000,000
Ford Motor Credit Corp., 5.69% due 11/13/95 9,000,000
Ford Motor Credit Corp., 5.70% due 11/17/95 5,000,000
Ford Motor Credit Corp., 5.70% due 11/20/95 6,000,000
Ford Motor Credit Corp., 5.69% due 11/21/95 2,000,000
Ford Motor Credit Corp., 5.70% due 11/27/95 10,000,000
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
THE OAKMARK FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
COMMERCIAL PAPER--7.1% (CONT.)
<TABLE>
<S> <C> <C>
Ford Motor Credit Corp., 5.70% due 11/28/95 $ 4,000,000
Ford Motor Credit Corp., 5.70% due 11/29/95 4,000,000
Ford Motor Credit Corp., 5.70% due 12/01/95 7,000,000
Ford Motor Credit Corp., 5.70% due 12/04/95 7,000,000
Ford Motor Credit Corp., 5.70% due 12/05/95 10,000,000
Ford Motor Credit Corp., 5.70% due 12/06/95 3,000,000
Ford Motor Credit Corp., 5.70% due 12/07/95 6,000,000
Ford Motor Credit Corp., 5.70% due 12/08/95 6,000,000
Ford Motor Credit Corp., 5.70% due 12/11/95 6,000,000
Ford Motor Credit Corp., 5.71% due 12/12/95 4,000,000
General Electric Capital Corp., 5.68% due 11/02/95 7,000,000
General Electric Capital Corp., 5.65% due 11/06/95 5,000,000
General Electric Capital Corp., 5.67% due 11/07/95 7,000,000
General Electric Capital Corp., 5.67% due 11/08/95 9,000,000
General Electric Capital Corp., 5.67% due 11/09/95 6,000,000
General Electric Capital Corp., 5.67% due 11/10/95 10,000,000
General Electric Capital Corp., 5.70% due 11/14/95 7,000,000
General Electric Capital Corp., 5.70% due 11/15/95 6,000,000
General Electric Capital Corp., 5.71% due 11/16/95 4,000,000
General Electric Capital Corp., 5.70% due 12/13/95 4,000,000
--------------
TOTAL COMMERCIAL PAPER (Cost: $201,000,000) 201,000,000
--------------
Total Investments--100.2% (Cost: $2,334,912,975) 2,833,028,882
Other liabilities, less other assets (.2)% (5,959,863)
--------------
TOTAL NET ASSETS--100% $2,827,069,019
==============
</TABLE>
- -----------
Notes:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) At October 31, 1995, net unrealized appreciation of $498,115,907 for
federal income tax purposes consisted of gross unrealized appreciation of
$553,289,304 and gross unrealized depreciation of $55,173,397. Cost for
federal income tax purposes was $2,334,912,975.
See accompanying notes to financial statements.
11
<PAGE>
THE OAKMARK FUND
STATEMENT OF ASSETS AND LIABILITIES--OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost: $2,334,912,975) $2,833,028,882
Cash 545,778
Receivable for:
Securities Sold 4,853,140
Fund Shares Sold 5,749,257
Dividends and Interest 4,713,433 15,315,830
----------
Other Assets 28,583
--------------
2,848,919,073
LIABILITIES AND NET ASSETS
Payable for:
Securities Purchased 18,076,273
Fund shares redeemed 900,361
Due to Adviser 2,377,099
Other 496,321
----------
Total liabilities 21,850,054
--------------
Net assets applicable to Fund shares outstanding $2,827,069,019
==============
Fund Shares Outstanding 99,284,171
==============
PRICING OF SHARES
Net asset value per share $28.47
==============
ANALYSIS OF NET ASSETS
Paid in Capital $2,218,201,560
Accumulated undistributed net realized gain on sale
of investments and foreign currency transactions 87,367,855
Net unrealized appreciation of investments 498,115,907
Accumulated undistributed net investment income 23,383,697
--------------
Net assets applicable to Fund shares outstanding $2,827,069,019
==============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE OAKMARK FUND
STATEMENT OF OPERATIONS--OCTOBER 31, 1995
<TABLE>
<CAPTION>
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income:
Dividends (net of withholding of $354,146) $ 42,140,243
Interest 10,886,088
------------
Total investment income 53,026,331
------------
Expenses:
Investment advisory fee 21,215,738
Transfer and dividend disbursing agent fees and expenses 3,144,790
Custodian and accounting fees and expenses 268,307
Legal fees and expenses 70,564
Audit fees and expenses 27,850
Trustees fees and expenses 29,837
Registration and blue sky expenses 165,178
Reports to shareholders 334,371
Amortization of organization cost 34,675
Other--net 162,098
------------
Total expenses 25,453,408
------------
Net investment income 27,572,923
Net realized and unrealized gain on investments
Net realized gain on sale of investments 87,157,237
Net realized gain (loss) on foreign currency transactions (37,102)
Net change in unrealized appreciation 320,305,458
------------
Net realized and unrealized gain on investments 407,425,593
------------
Net increase in net assets resulting from operations $434,998,516
============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
THE OAKMARK FUND
STATEMENT OF CHANGES IN NET ASSETS--OCTOBER 31, 1995
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
From Operations:
Net investment income $ 27,572,923 $ 16,288,352
Net realized gain on sale of investments 87,157,237 96,029,651
Net realized gain (loss) on foreign cur-
rency transactions (37,102) --
Net change in unrealized appreciation 320,305,458 386,607
-------------- --------------
Net increase in net assets from operations 434,998,516 112,704,610
Distributions to shareholders from:
Net investment income (per share $.231 in
Fiscal Year 1995 and $.23 in Fiscal Year
1994) (15,107,181) (10,879,838)
Net realized short-term gain (per share
$.7277 in Fiscal Year 1995 and $.41 in
Fiscal Year 1994) (47,575,398) (19,428,508)
Net realized long-term gain (per share
$.7411 in Fiscal Year 1995 and $.36 in
Fiscal Year 1994) (48,452,482) (17,059,178)
-------------- --------------
(111,135,061) (47,367,524)
From Fund share transactions:
Reinvestment of dividends and capital gains
distributions 106,504,973 45,046,719
Proceeds from shares sold 1,384,343,262 1,168,751,822
Payments for shares redeemed (664,894,744) (708,888,845)
-------------- --------------
Net increase in net assets from Fund share
transactions 825,953,491 504,909,696
-------------- --------------
Total increase in net assets 1,149,816,946 570,246,782
Net assets:
Beginning of period 1,677,252,073 1,107,005,291
-------------- --------------
End of period (including undistributed net
investment income of $23,383,697 and
$10,917,955, respectively) $2,827,069,019 $1,677,252,073
============== ==============
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
HARRIS ASSOCIATES INVESTMENT TRUST
THE OAKMARK FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of The Oakmark Fund
("the Fund"), a series of the Harris Associates Investment Trust (a
Massachusetts business trust).
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.
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 closing 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.
Federal income taxes, dividends and distributions to shareholders--
No provision is made for Federal income taxes since the Fund elects to be
taxed as a "regulated investment company" and make such distributions to its
shareholders as to be relieved of all Federal income taxes under provisions of
current Federal tax law.
2. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Harris Associates L.P.
(Adviser). For management services and facilities furnished, the Fund pays the
Adviser monthly fees at the annual rate of 1% of the first $2.5 billion of net
assets, .95% on the next $2.5 billion of
15
<PAGE>
net assets and .90% of the net assets of the fund in excess of $5 billion as
determined at the end of each preceding calendar month. The investment
advisory agreement of the Fund provides that the Adviser will reimburse the
Fund to the extent that its annual expenses, excluding certain expenses,
exceed the applicable limits prescribed by any state in which the Fund's
shares are offered for sale.
In connection with the organization of the Fund, expenses of approximately
$146,500 were advanced to the Fund by the Adviser. These expenses are being
reimbursed to the Adviser and amortized by the Fund on a straight line basis
through July, 1996.
The Fund's initial shareholder has agreed that, if any of the initial shares
are redeemed during the first 60 months of the Fund's operations, the proceeds
of redemption will be reduced by the pro rata share of the unamortized
expenses as of the date of redemption, to the extent the Fund is obligated to
reimburse such expenses to the Adviser. The pro rata share by which the
redemption proceeds shall be reduced shall be derived by dividing the number
of original shares redeemed by the total number of original shares outstanding
at the time of redemption.
Certain officers and trustees of the Fund are also executives and employees
of the Adviser. The Fund makes no direct payments to its officers who are
affiliated with the Adviser. The Fund paid trustees fees of $29,837 in 1995
and $16,000 in 1994 to trustees of the Fund not affiliated with the Adviser.
During the periods ended October 31, 1995 and October 31, 1994 the Fund
incurred brokerage commissions of $2,100,849 and $2,286,161, respectively, of
which $389,339 and $244,055 were paid to an affiliate of the Adviser.
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):
<TABLE>
<CAPTION>
Year ended Year ended
October 31, 1995 October 31, 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Shares issued in reinvestment of dividend
and capital gain distributions 4,782 1,948
Shares sold 54,044 48,461
Less shares redeemed (26,065) (29,668)
------- -------
Net increase in shares outstanding 32,761 20,741
======= =======
</TABLE>
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
Year ended Year ended
October 31, 1995 October 31, 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Investment securities (excluding short term
securities) in thousands:
Purchases $1,085,381 $733,331
Proceeds from sales 359,990 366,527
</TABLE>
16
<PAGE>
THE OAKMARK FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year ended October 31, Period ended
1995 1994 1993 1992 Oct. 31, 1991(a)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 25.21 $ 24.18 $ 17.11 $ 12.10 $10.00
Income From Investment
Operations:
Net Investment Income
(Loss) 0.30 0.27 0.17 (0.03)(d) (0.01)
Net Gains or Losses on
Securities (both
realized and
unrealized) 4.66 1.76 7.15 5.04 2.11
-------- -------- -------- ------- -------
Total From Investment
Operations 4.96 2.03 7.32 5.01 2.10
Less Distributions:
Dividends (from net
investment income) (0.23) (0.23) (0.04) -- --
Distributions (from
capital gains) (1.47) (0.77) (0.21) -- --
-------- -------- -------- ------- -------
Total Distributions (1.70) (1.00) (0.25) -- --
Net Asset Value, End of
Period $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10
======== ======== ======== ======= =======
Total Return 21.55% 8.77% 43.21% 41.40% 87.10%*
Ratios/Supplemental
Data:
Net Assets, End of
Period ($ million) $2,827.1 $1,677.3 $1,107.0 $ 114.7 $ 4.8
Ratio of Expenses to
Average Net Assets 1.17% 1.22% 1.32% 1.70% 2.50%(b)*
Ratio of Net Income
(Loss) to Average Net
Assets 1.27% 1.19% 0.94% (0.24)% (0.66)%(c)*
Portfolio Turnover Rate 18% 29% 18% 34% 0%
</TABLE>
- -----------
*Ratios for the period have been determined on an annualized basis.
(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.
(d) Based on average month-end shares outstanding.
17
<PAGE>
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS
INCEPTION (9/30/92) TO PRESENT (10/31/95)
AS COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX.
<TABLE>
[GRAPH APPEARS HERE]
<CAPTION>
Measurement Period THE OAKMARK M.S. WORLD
(Fiscal Year Covered) INTERNATIONAL EX U.S. INDEX
- ------------------- ------------- ---------
<S> <C> <C>
Measurement Pt-
09/30/92 $10,000 $10,000
10/31/92 $ 9,800 $ 9,505
$10,833 $ 9,621
$12,105 $11,764
$12,607 $12,233
10/31/93 $14,454 $12,981
$16,487 $13,786
$15,382 $13,664
$15,194 $13,899
10/31/94 $15,121 $14,265
$13,698 $13,124
$14,399 $14,437
$15,506 $14,911
10/31/95 $14,659 $14,248
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return*
Through 10/31/95
----------------------------
Total Return* Total Return* From Inception
Last 3 mos. Last 6 mos. From 10/31/94 9/30/92
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
OAKMARK INTERNATIONAL (5.5)% 1.8% (3.1)% 13.2%
Morgan Stanley World ex
U.S.* (4.5)% (1.3)% (0.1)% 12.2%
Morgan Stanley EAFE* (4.6)% (1.6)% (0.4)% 12.3%
Lipper Analytical
International
Fund Average* (2.1)% 4.7% (0.6)% 12.6%
</TABLE>
10/31/95 NAV $12.97
REPORT FROM DAVID G. HERRO, PORTFOLIO MANAGER
Dear Fellow Shareholders:
A large ship that carries cargo across the ocean will no doubt encounter many
types of conditions on its journey; anything from clear skies and still water
to the occasional storm at sea. But to an experienced crew with a good ship,
the weather really doesn't make much difference. They've made the trip many
times before and always deliver the goods to port.
*Total return includes change in share prices and in each case included
reinvestment of any dividends and capital gain distributions. Each of the three
indexes or averages is an unmanaged group of stocks whose composition is
different from the Fund. The Morgan Stanley World ex U.S. Index includes 19
country sub-indexes. The Morgan Stanley EAFE Free Index refers to Europe, Asia
and the Far East and includes 18 country sub-indexes. The Lipper International
Fund Average includes 106 mutual funds that invest in securities whose primary
markets are outside the United States. Past performance is no guarantee of
future performance.
LOGO
18
<PAGE>
In many ways the Oakmark International Fund is experiencing this type of
journey. The past year has been turbulent, to say the least. Most foreign
markets have been weak since the peso crisis of last year, and our Fund has
not escaped the consequences. On a relative basis it's been particularly
difficult to compete against the booming U.S. market. But our results are
positive, and as I write this (December 1, 1995) our Fund is now up 7.25%*
since January 1, 1995.
THE GLOBAL PICTURE
The Fund's performance in recent months can be traced to three factors:
geographic exposure, industry focus and global money flows. First, the Fund's
Latin American investments (particularly Mexico) have significantly
underperformed. These markets continue to be buffeted by currency and
political speculation. Second, investors concerned with the declining rate of
worldwide industrial growth, have avoided many of the cyclical companies we
find extremely undervalued. Lastly, the flow of investment funds is running
against us. We have heard from the large global brokerage firms that there
continues to be strong flows of money into the U.S. market and out of foreign
markets, generally causing downturns and price volatility in the foreign
markets.
So, like our ocean freighter analogy, while we have hit some rough water and
our speed has slowed, we continue to proceed toward our destination. The most
recent weeks indicate we may see smoother water ahead.
I remain extremely optimistic about the prospects for both the Fund and
foreign makets. The companies we own are strong and diverse, and most
importantly, they are selling at bargain basement prices. Consider the
following:
TELEMEX (4% OF THE PORTFOLIO)
CURRENT SITUATION: Down 13.5% in the four weeks through October 31, 1995 yet
up 21.5% for the month of November.
REASON FOR OPTIMISM: Telemex will generate more than $1 billion (U.S.
dollars) a year in free cash with just a trace of debt. The company has been
actively buying back stock and has proposed buying even more. All of this has
occurred during a harsh recession in Mexico. The stock sells at a price less
than 10 times earnings and long-term prospects are bright.
19
<PAGE>
VOLVO (4% OF THE PORTFOLIO)
CURRENT SITUATION: Down 12% in the four weeks through October 31, 1995, and
down 9% for the month of November.
REASON FOR OPTIMISM: The company has recognized its problems, replaced
management and is attacking costs. With planned asset sales, by 1997 half of
the current share price will be in cash on the balance sheet. Management has
pledged to use this cash to bolster shareholder value. On an adjusted basis,
the stock sells at just 3 times earnings.
ASIA PULP AND PAPER (3% OF THE PORTFOLIO)
CURRENT SITUATION: Down 15.4% in the four weeks through October 31, 1995,
yet up 1.2% for the month of November. The stock was down due to fears of
weaker pulp prices. The fears are overdone! There is little new pulp capacity
on the horizon, and thus prices will soon stabilize. The company is one of the
world's lowest cost producers and is located in the world's fastest growing
region.
REASON FOR OPTIMISM: It's clear that fears of paper and pulp prices
collapsing have been overdone. These prices are supply driven and there is
little new capacity coming on stream. The company sells at 4 times normal
earnings and below book value.
These are just few examples in overseas markets where current share prices
do not come close to reflecting true value. This is the nature of equity
market investment; over short periods of time price and value seldom match. We
believe patient investors will be rewarded, because over the longer term share
prices tend to reflect value. Just as storms at sea eventually subside, value
and price converge.
TRAVELLER'S LOG...AUSTRALASIA
In my last quarterly letter I briefly mentioned the differences between the
Australian and New Zealand economies. They can be as opposite as night and
day, yet they share some similarities as well. For example, both countries
seem to be keenly aware of good corporate governance and have responsible,
owner-oriented managements. However, the macroeconomic environment of the two
countries are quite distinctive.
NEW ZEALAND
MACRO: During the past 10 years New Zealand has completely deregulated and
embraced just about every free market reform imaginable. The results are
stunning: huge budget surpluses, surging productivity, very low unemployment,
strong economic growth and low inflation.
20
<PAGE>
MICRO: We have been able to find a number of examples of strong, competitive
companies, though most have proven to be too small for the Fund. Our lone New
Zealand position is LION NATHAN, which brews Steinlager and other drinks
brands. Lion has close to 50% of the Australasian beer market and is a
franchisee for both Pepsi and Gatorade. In addition, the company has opened up
brewing operations in China that already are profitable. Lion has wisely used
its free cash flow to pay down debt, increase dividends and make intelligent
investments.
AUSTRALIA
MACRO: The country has archaic collective bargaining agreements and is not
as open as it should be. As one might predict, Australia has lagged behind New
Zealand in productivity and employment growth while suffering a higher rate of
inflation. They are still running huge "normalized" budget deficits as well.
MICRO: Despite the macro picture, we have found good values in Australia.
PIONEER INTERNATIONAL is an excellent example of an extremely well-run, global
company. Pioneer has global building materials businesses (concrete,
aggregates, cement, etc.) that are well positioned for the continuing boom in
global infrastructure development. On top of this, they have prudently used
cash to pay down debt and expand their global franchises to the fast growing
regions of the world.
Ideally, over time Australia will adopt policies similar to New Zealand,
adding a positive new element to the Australasian economic environment!
DAVID G. HERRO
Portfolio Manager
OAKIX @aol.com
72242. [email protected]
December 1, 1995
21
<PAGE>
THE OAKMARK INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995
<TABLE>
<CAPTION>
Shares Held Description Market Value
- -------------------------------------------------------------------------------
COMMON STOCKS--94.5%
CONSUMER NON-DURABLES--4.4%
<C> <S> <C> <C>
90,210,000 Yue Yuen Industrial
(Holdings) Limited (Hong Athletic Footwear
Kong) Manufacturing $ 23,626,790
61,533 Chargeurs S.A. (France) Entertainment & Wool
Production Holding
Company 12,658,676
------------
36,285,466
FOOD--7.5%
18,069,300 Lion Nathan Limited (New
Zealand) New Zealand Brewer 41,031,350
4,939,000 Leong Hup Holdings Berhad
(Malaysia) Major Poultry Operation
in Malaysia and KFC
Operator 7,463,896
3,300,265 Burns, Philp & Company
Limited (Australia) Yeast and Spices 7,390,904
36,970 Lotte Chilsung Beverage
(Korea) Manufacturer of Soft
Drinks, Juices, & Sport
Drinks 5,314,906
------------
61,201,056
HOUSEHOLD PRODUCTS--3.5%
2,017,853 Reckitt & Colman PLC
(Great Britain) Household Cleaners and
Air Fresheners 21,470,594
3,430,600 London International Group
PLC (Great Britain) Latex Products 7,105,274
------------
28,575,868
RETAIL--4.9%
24,995,000 Giordano Holdings Limited
(Hong Kong) East Asian Clothing
Retailer & Manufacturer 20,689,887
462,900 Macintosh (Netherlands) Non-Food Specialty
Retailer 13,495,627
16,702,189 Alparagatas Sociedad
Anonima Industrial Y
Comercial (Argentina) Textiles 5,928,684
------------
40,114,198
TELECOMMUNICATIONS--5.4%
1,049,700 Telefonos de Mexico, S.A.
de C.V. Telephone Company in
(Mexico) (b) Mexico 28,866,750
935,500 Call Net Enterprises, Inc.
Common (Canada) (a) Telecommunications 7,855,184
944,300 Call Net Enterprises, Inc.
Class B (Canada) (a) Telecommunications 7,752,872
------------
44,474,806
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
THE OAKMARK INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
Shares Held Description Market Value
- -------------------------------------------------------------------------------
TRANSPORTATION--5.8%
<C> <S> <C> <C>
1,544,000 AB Volvo (Sweden) Automobiles $ 34,760,112
3,548,033 CIADEA S.A.
(Argentina) (a) Assembler and
Distributor of
Automobiles 12,949,026
-------------
47,709,138
OIL AND NATURAL GAS--4.0%
1,730,500 YPF Sociedad Anonima
(Argentina) (b) Oil Exploration,
Production and
Marketing 29,634,813
55,609 Total S.A. (France) Oil Production and
Refining 3,436,543
-------------
33,071,356
ELECTRIC--2.7%
4,760,230 Union Electrica Fenosa
S.A. (Spain) Spanish Electric Utility 22,152,396
BANKS--13.7%
1,512,850 Svenska Handelsbanken
(Sweden) Large Swedish Bank 26,540,828
5,209,175 Banco de Galicia Y Buenos
Aires (Argentina) Argentinian Bank 24,584,848
145,100 Banco Popular Espanol
(Spain) Large Spanish Bank 23,050,993
1,455,400 Banco Espirito Santo E
Comercial de Lisboa,
S.A. (Portugal) Portuguese Bank 21,381,306
34,885,000 Grupo Financiero
Bancomer, S.A. De C.V. Large Mexican Financial
(GFB)--B (Mexico) (a) Group 9,008,898
326,080 Banco Espirito Santo E
Comercial de Lisboa,
S.A. Rights (Portugal) Portuguese Bank 4,790,447
6,129,630 Grupo Financiero
Bancomer, S.A. De C.V. Large Mexican Financial
(GFB)--L (Mexico) (a) Group 1,419,493
185,715 Banco Frances del Rio de
la Plata S.A.
(Argentina) Argentinian Bank 1,350,014
-------------
112,126,827
INVESTMENT COMPANIES--0.5%
6,000,000 The Central European
Growth Fund PLC (Great
Britain) Diversified, Closed-End
Fund Investing in
Central Europe 3,747,036
COMPUTER SYSTEMS--3.0%
1,414,500 Scitex Corporation
Limited (Israel) (b) Color Pre-Press Systems 24,576,938
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
THE OAKMARK INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
Shares Held Description Market Value
- -------------------------------------------------------------------------------
MARKETING SERVICES--3.6%
<C> <S> <C> <C>
21,654,328 Cordiant PLC (Great
Britain) (a) Advertising Agency
Holding Company $ 29,443,039
AEROSPACE--7.4%
2,344,666 British Aerospace Public
Limited Company Defense and Civil
(Great Britain) Aviation 26,282,501
7,548,737 Rolls-Royce Public Limited
Company (Great
Britain) Jet Engines 18,379,534
6,248,000 Hong Kong Aircraft
Engineering Company
Limited (Hong Kong) Commercial Aircraft
Overhaul and
Maintenance 16,081,224
------------
60,743,259
COMPONENTS--1.7%
6,685,000 Varitronix International
Holdings Limited
(Hong Kong) Liquid Crystal Displays 12,753,178
1,840,000 Chen Hsong Holdings
Limited (Hong Kong) Plastic Injection
Moulding Machines 1,070,916
------------
13,824,094
FORESTRY PRODUCTS--5.2%
2,355,000 Asia Pulp & Paper Company
Ltd (a) (Indonesia)
Paper & Packaging
Products in Asia 24,138,750
360,700 Mo och Domsjo AB (Sweden) Paper, Pulp & Timber 18,359,275
144,000 Empaques Ponderosa, S.A.
(Mexico) (a) Boxboard 303,158
------------
42,801,183
MACHINERY AND METAL PROCESSING--1.9%
115,849 Strafor Facom (France) Metal Processing, Office
Equipment, Mining Tools 13,977,405
6,180,000 Lochpe-Maxion (Brazil) Agricultural Machinery &
Automotive Parts 1,927,572
------------
15,904,977
MINING AND BUILDING MATERIALS--3.0%
9,854,423 Pioneer International Concrete Products,
(Australia) Aggregates 24,170,660
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
THE OAKMARK INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS--OCTOBER 31, 1995 (CONTINUED)
<TABLE>
<CAPTION>
Shares Held Description Market Value
- --------------------------------------------------------------------------------
OTHER INDUSTRIAL GOODS AND SERVICES--9.4%
<C> <S> <C> <C>
21,596,600,000 Usiminas (Brazil) Steel Production $ 20,208,921
643,200 EVC International NV
(Netherlands) Western European PVC
Manufacturer 20,178,984
1,466,000 Avesta Sheffield
(Sweden) Stainless Steel 14,459,989
65,400 ECCO Travail Temporaire
(France) European Temporary
Employment Services 10,137,461
700,966 Tung-Ho Steel Enterprise
Corp. (Taiwan) (a)
Taiwanese Manufacturer
of Steel Bars and H-
Beams 7,184,902
14,040,000 Lamex Holdings Limited
(Hong Kong)
Hong Kong's Largest
Office Furniture
Supplier 3,141,508
60,000 Groupe Legris Industries
(France) Europe's Leading Crane
Manufacturer 1,742,295
------------
77,054,060
SHIPBUILDING--4.6%
951,610 Kvaerner (Norway) Shipbuilding and 37,899,354
Engineering
REAL ESTATE AND CONSTRUCTION--2.3%
127,332 Hollandsche Beton Groep
nv (Netherlands) Construction 19,207,134
------------
TOTAL COMMON STOCKS (COST: $868,131,191) 775,082,845
COMMERCIAL PAPER--3.0%
Ford Motor Credit Corp., 5.72% due 11/02/95 1,500,000
Ford Motor Credit Corp., 5.73% due 11/02/95 5,000,000
Ford Motor Credit Corp., 5.75% due 11/02/95 5,000,000
Ford Motor Credit Corp., 5.76% due 11/02/95 3,000,000
General Electric Capital Credit Corp., 5.69% due 11/01/95 8,000,000
General Electric Capital Credit Corp., 5.73% due 11/03/95 2,000,000
------------
TOTAL COMMERCIAL PAPER (COST: $24,500,000) 24,500,000
------------
Total Investments--97.5% (Cost: $892,631,191) 799,582,845
Foreign currencies--0.0% (Cost: $322,067) 321,211
Other assets, less other liabilities--2.5% (c) 19,827,486
------------
TOTAL NET ASSETS --100% $819,731,542
============
</TABLE>
- -----------
Notes:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) Includes portfolio and transaction hedges.
(d) At October 31, 1995, net unrealized depreciation of $93,049,202 for
federal income tax purposes consisted of gross unrealized appreciation of
$69,234,440 and gross unrealized depreciation of $162,283,642. Cost for
federal income tax purposes was $892,953,258.
See accompanying notes to financial statements.
25
<PAGE>
THE OAKMARK INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
COUNTRY DIVERSIFICATION--OCTOBER 31, 1995
<TABLE>
<CAPTION>
% of Fund
Net
Country Assets
- ---------------------------------------------------------------
<S> <C>
ARGENTINA 9.1%
Alparagatas Sociedad Anonima Industrial Y Comercial
Banco de Galicia y Buenos Aires
Banco Frances del Rio de la Plata S.A.
CIADEA S.A.
YPF Sociedad Anonima
AUSTRALIA 3.9%
Burns, Philp & Company Limited
Pioneer International
BRAZIL 2.7%
lochpe-Maxion
Usiminas
CANADA 1.9%
Call Net Enterprises Inc. Class B
Call Net Enterprises Inc. Common
CENTRAL EUROPE 0.5%
The Central European Growth Fund PLC
FRANCE 5.1%
Chargeurs S.A.
Ecco S.A
Groupe Legris Industries
Strafor Facom
Total S.A.
GREAT BRITAIN 12.5%
British Aerospace Public Limited Company
Cordiant PLC
London International Group PLC
Reckitt & Colman PLC
Rolls Royce Public Limited Company
HONG KONG 9.4%
Chen Hsong Holdings Limited
Giordan Holdings Limited
Hong Kong Aircraft Engineering Company Limited
Lamex Holdings Limited
Varitronix International Holdings Limited
Yue Yuen Industrial (Holdings) Limited
INDONESIA 2.9%
Asia Pulp & Paper Company Ltd
ISRAEL 3.0%
Scitex Corporation Limited
KOREA 0.6%
Lotte Chilsung Beverage
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
THE OAKMARK INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
COUNTRY DIVERSIFICATION--OCTOBER 31, 1995
<TABLE>
<CAPTION>
% of Fund
Net
Country Assets
- -------------------------------------------------------------
<S> <C>
MALAYSIA 0.9%
Leong Hup Holdings Berhad
MEXICO 4.8%
Empaques Ponderosa, S.A.
Grupo Financiero Bancomer, S.A. De C.V. (GFB)-B
Grupo Financiero Bancomer, S.A. De C.V. (GFB)-L
Telefonos de Mexico, S.A. de C.V.
NETHERLANDS 6.5%
EVC International NV
Hollandsche Beton Groep nv
Macintosh
NEW ZEALAND 5.0%
Lion Nathan Limited
NORWAY 4.6%
Kvaerner
PORTUGAL 3.2%
Banco Espirito Santo E. Comercial de Lisboa, S.A.
SPAIN 5.5%
Banco Popular Espanol
Union Electrica Fenosa S.A.
SWEDEN 11.5%
Avesta Sheffield
Mo och Domsjo AB
Svenska Handelsbanken
Volvo AB
TAIWAN 0.9%
Tung-Ho Steel Enterprise Corp.
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
THE OAKMARK INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES--OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost: $892,631,191) $799,582,845
Cash 399,986
Foreign currency, at value (cost: $322,067) 321,211
Receivable for:
Forward foreign currency contracts $ 969,909
Securities sold 29,020,934
Fund shares sold 662,786
Dividends and interest 3,379,012
-----------
Total receivables 34,032,641
Other assets 21,533
------------
Total assets $834,358,216
LIABILITIES AND NET ASSETS
Payable for:
Securities purchased $ 2,374,806
Fund shares redeemed 1,884,706
Forward foreign currency contracts 9,103,567
Due to adviser 769,279
Other 494,316
-----------
Total liabilities 14,626,674
------------
Net assets applicable to Fund shares outstanding $819,731,542
============
Fund shares outstanding 63,224,193
============
PRICING OF SHARES
Net asset value per share $12.97
============
ANALYSIS OF NET ASSETS
Paid in Capital $862,870,293
Accumulated undistributed net realized gain on sale
of investments, forward contracts and foreign cur-
rency transactions 26,425,139
Net unrealized depreciation of investments and for-
eign currencies (93,049,202)
Net unrealized depreciation of foreign currency
portfolio hedges (8,062,429)
Net unrealized appreciation--other 169,294
Accumulated undistributed net investment income 31,378,447
------------
Net assets applicable to Fund shares outstanding $819,731,542
============
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
THE OAKMARK INTERNATIONAL FUND
STATEMENT OF OPERATIONS--OCTOBER 31, 1995
<TABLE>
<CAPTION>
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income:
Dividends $ 28,937,627
Interest 2,162,084
Foreign taxes withheld (3,686,997)
-------------
Total investment income 27,412,714
Expenses:
Investment advisory fee 9,916,904
Transfer and dividend disbursing agent fees and expenses 1,455,154
Custodian and accounting fees and expenses 1,273,334
Legal fees and expenses 48,041
Audit fees and expenses 37,848
Trustees fees and expenses 18,580
Registration and blue sky expenses 136,505
Reports to shareholders 311,789
Amortization of organization cost 9,490
Other--net 461,762
-------------
Total expenses 13,669,407
-------------
Net investment income 13,743,307
Net realized and unrealized gain (loss) on investments
Net realized gain on sale of investments 62,822,164
Net realized loss on foreign currency transactions (26,735,730)
Net change in unrealized appreciation (depreciation) of:
Investments and foreign currency transactions (120,637,092)
Forward foreign currency contracts 17,767,564
Other foreign currency transactions (20,391)
-------------
Net realized and unrealized gain (loss) on investments,
forward contracts and foreign currency transactions (66,803,485)
-------------
Net decrease in net assets resulting from operations $ (53,060,178)
=============
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
THE OAKMARK INTERNATIONAL FUND
STATEMENT OF CHANGES IN NET ASSETS--OCTOBER 31, 1995
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
From Operations:
Net investment income $ 13,743,307 $ 18,774,576
Net realized gain on sale of investments 62,822,164 117,306,013
Net realized gain (loss) on foreign cur-
rency trasactions (26,735,730) (39,262,860)
Net change in unrealized appreciation (de-
preciation) of investments and foreign
currencies (120,637,092) (58,275,156)
Net change in unrealized appreciation (de-
preciation) of forward foreign currency
contracts 17,767,564 (27,201,474)
Net change in unrealized appreciation (de-
preciation) - other (20,391) 145,115
-------------- ---------------
Net increase in net assets from operations (53,060,178) 11,486,214
Distributions to shareholders from:
Net investment income (per share $.08 in
fiscal 1994) 0 (5,086,447)
Net realized short-term gain (per share
$.6863 in fiscal year 1995 and $.15 in
fiscal year 1994) (56,722,392) (10,445,839)
Net realized long-term gain (per share
$.3725 in fiscal year 1995) (30,791,949) 0
-------------- ---------------
(87,514,341) (15,532,286)
From Fund share transactions:
Reinvestment of dividends and capital gains
distributions 81,810,540 15,134,825
Proceeds from shares sold 312,101,705 1,562,821,681
Payments for shares redeemed (719,598,750) (1,103,291,079)
-------------- ---------------
Net increase (decrease) in net assets from
Fund share transactions (325,686,505) 474,665,427
-------------- ---------------
Total increase in net assets (466,261,024) 470,619,355
Net assets:
Beginning of period 1,285,992,566 815,373,211
-------------- ---------------
End of period (including undistributed net
investment income of $31,378,447 and
$17,635,140, respectively) $ 819,731,542 $ 1,285,992,566
============== ===============
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
HARRIS ASSOCIATES INVESTMENT TRUST
THE OAKMARK INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of The Oakmark
International Fund ("the Fund"), a series of the Harris Associates Investment
Trust (a Massachusetts business trust).
Security valuation--
Investments are stated at current market value. The values of portfolio
securities 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 the Board of Trustees. If such quotations
are not available, the rate of exchange will be determined in accordance with
policies established in good faith by the Board. 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.
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 Fund does 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 gain 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
Fund's 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.
31
<PAGE>
Net unrealized appreciation--other includes the following components:
<TABLE>
<S> <C>
Unrealized appreciation on open securities purchases $ 517
Unrealized appreciation on open securities sales 38,079
Unrealized depreciation on transaction hedge purchases (2,445)
Unrealized depreciation on transaction hedge sales (68,784)
Unrealized appreciation on dividends and dividend reclaim
receivable 202,332
Other--net (405)
--------
$169,294
========
</TABLE>
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 on each day the New York Stock
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 October 31, 1995, the Fund had entered into forward foreign currency
contracts under which it is obligated to exchange currencies at specified
future dates. The Fund's currency transactions are limited to transaction
hedging and portfolio hedging involving either specific transactions or
portfolio positions.
The contractual amounts of forward foreign exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. Risks arise from the
possible inability of counterparties to meet the terms of their contracts and
from movements in currency values. The Fund had the following outstanding
contracts at October 31, 1995:
32
<PAGE>
Portfolio Hedges:
<TABLE>
<CAPTION>
Unrealized
U.S. Appreciation
Dollar Settlement (Depreciation)
Foreign Currency Proceeds Date at October 31, 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1,000,000,000 Spanish Pesetas 8,063,216 December 1995 $ (89,487)
1,000,000,000 Spanish Pesetas 8,165,932 January 1996 31,264
2,153,250,000 Spanish Pesetas 17,733,899 February 1996 265,712
1,191,800,000 Spanish Pesetas 9,541,270 February 1996 (116,501)
45,000,000 French Francs 9,410,682 February 1996 224,305
40,534,000 French Francs 8,210,249 February 1996 (63,100)
49,760,000 French Francs 10,000,000 March 1996 (150,518)
18,794,637 Pounds Sterling 29,883,473 January 1996 220,735
12,738,854 Pounds Sterling 19,899,364 March 1996 (177,727)
9,458,000 Netherlands Guilders 5,939,462 February 1996 (89,230)
47,574,000 Netherlands Guilders 30,000,000 March 1996 (380,552)
15,152,000 Netherlands Guilders 9,589,873 April 1996 (97,772)
108,870,000 Norwegian Kroner 17,693,808 November 1995 207,151
156,370,000 Swedish Krona 21,279,173 November 1995 (2,252,006)
78,810,000 Swedish Krona 10,691,901 December 1995 (1,142,003)
198,987,500 Swedish Krona 26,992,336 December 1995 (2,858,049)
113,595,000 Swedish Krona 15,421,531 January 1996 (1,594,651)
-----------
Net unrealized depreciation $(8,062,429)
===========
</TABLE>
Transaction Hedges:
Purchases:
<TABLE>
<CAPTION>
Unrealized
Appreciation
U.S. Foreign Currency Settlement (Depreciation)
Dollar Proceeds Date at October 31, 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
$801,711 5,307,605 Swedish Krona November 1995 $(2,445)
-------
Net unrealized depreciation $(2,445)
=======
</TABLE>
Sales:
<TABLE>
<CAPTION>
Unrealized
U.S. Appreciation
Dollar Settlement (Depreciation)
Foreign Currency Proceeds Date at October 31, 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
10,117,320 Australian Dollars $7,642,577 November 1995 $(64,096)
299,023 Brazilian Real 310,835 November 1995 (64)
760,805,389 Spanish Pesetas 6,243,277 November 1995 9,978
9,936,431 French Francs 2,027,222 November 1995 (4,726)
4,664,594 Pounds Sterling 7,358,753 November 1995 (16,100)
521,523 Netherlands Guilders 331,990 November 1995 1,452
2,802,469 New Zealand Dollar 1,845,397 November 1995 (4,540)
149,849,449 Portuguese Escudo 1,014,923 November 1995 5,088
16,494,258 Swedish Krona 2,488,075 November 1995 4,224
--------
Net unrealized depreciation $(68,784)
========
</TABLE>
At October 31, 1995, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
Federal income taxes, dividends and distributions to shareholders--
No provision is made for federal income taxes since the Fund elected to be
taxed as a "regulated investment company" and makes
33
<PAGE>
such distributions to its shareholders as to be relieved of all federal income
taxes under provisions of current federal tax law.
2. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Harris Associates L.P.
(Adviser). For management services and facilities furnished, the Fund pays the
Adviser monthly fees at the annual rate of 1% of the first $2.5 billion of net
assets, .95% on the next $2.5 billion of net assets and .90% of the net assets
of the Fund in excess of $5 billion as determined at the end of each preceding
calendar month. The investment advisory agreement of the Fund provides that
the Adviser will reimburse the Fund to the extent that its annual expenses,
excluding certain expenses, exceed the applicable limits prescribed by any
state in which the Fund's shares are offered for sale.
In connection with the organization of the Fund, expenses of approximately
$47,000 have been advanced to the Fund by the Adviser. These expenses are
being reimbursed to the Adviser by the Fund on a straight line basis through
September, 1997.
Certain officers and trustees of the Fund are also executives and employees
of the Adviser. The Fund makes no direct payments to its officers who are
affiliated with the Adviser. The Fund paid trustees fees of $18,580 in 1995
and $15,000 in 1994 to trustees not affiliated with the Adviser.
During the period ended October 31, 1995, the Fund incurred broker
commissions of $2,609,780, of which $71,600 were paid to an affiliate of the
Adviser.
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):
<TABLE>
<CAPTION>
Year ended Year ended
October 31, 1995 October 31, 1994
- ----------------------------------------------------------
<S> <C> <C>
Shares sold 24,062 104,988
Shares issued in rein-
vestment of dividends 6,472 1,091
Less shares redeemed (56,012) (75,240)
------- -------
Net (decrease) increase
in shares outstanding (25,478) 30,839
======= =======
</TABLE>
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
Year ended Year ended
October 31, 1995 October 31, 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Investment securities (excluding short term
securities) in thousands:
Purchases $251,353 $1,121,268
Proceeds from sales 671,180 682,450
======== ==========
</TABLE>
34
<PAGE>
THE OAKMARK INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year ended October 31, Period ended
1995 1994 1993 Oct. 31, 1992(a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PE-
RIOD $14.50 $14.09 $ 9.80 $10.00
Income From Investment Operations:
Net Investment Income (Loss) 0.30 0.21 0.06 0.26
Net Gains or Losses on Securities
(both realized and unrealized) (0.77) 0.43 4.48 (0.46)
------ -------- ------ ------
Total From Investment Operations (0.47) 0.64 4.54 (0.20)
Less Distributions
Dividends (from net investment
income) -- (0.08) (0.25) --
Distributions (from capital
gains) (1.06) (0.15) -- --
------ -------- ------ ------
Total Distributions (1.06) (0.23) (0.25) --
------ -------- ------ ------
Net Asset Value, End of Period $12.97 $14.50 $14.09 $ 9.80
====== ======== ====== ======
Total Return (3.06)% 4.62% 47.49% (22.81)%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($mil-
lion) $819.7 $1,286.0 $815.4 $23.5
Ratio of Expenses to Average Net
Assets 1.40% 1.37% 1.26% 2.04%*
Ratio of Net Income (Loss) to Av-
erage Net Assets 1.40% 1.44% 1.55% 37.02%*
Portfolio Turnover Rate 27% 55% 21% 0%
</TABLE>
- -----------
*Ratios for the period have been determined on an annualized basis.
(a) From September 30, 1992, the date on which Fund shares were first offered
for sale to the public.
35
<PAGE>
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 and Oakmark International Fund (each a series of Harris
Associates Investment Trust), including the schedules of investments, as of
October 31, 1995, 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 October 31, 1995, 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 and Oakmark International Fund of the Harris Associates
Investment Trust as of October 31, 1995, the results of their operations, the
changes in their net assets and the financial highlights for the periods
indicated thereon in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
December 5, 1995
36
<PAGE>
THE OAKMARK FUNDS' ANNUAL REPORT
OCTOBER 31, 1995
TRUSTEES AND OFFICERS
TRUSTEES
Christine M. Bucher Allan J. Reich
James W. Ford Burton W. Ruder
Michael J. Friduss Peter S. Voss
Thomas H. Hayden Gary Wilner, M.D.
OFFICERS
Victor A. Morgenstern--President
Robert J. Sanborn--Executive Vice President
David G. Herro--Vice President
Clyde S. McGregor--Vice President
Steven J. Reid--Vice President
Adam Schor--Assistant Vice President
Michael J. Welsh--Assistant Vice President
Donald Terao--Treasurer
Anita M. Nagler--Secretary
Lauren B. Pitalis--Vice President--Shareholder Operations and Assistant
Secretary
Kristi L. Rowsell--Assistant Treasurer
OTHER INFORMATION
TRANSFER AGENT
State Street Bank and Trust Company
Attention: The Oakmark Family of Funds
P.O. Box 8510
Boston, Massachusetts 02266-8510
1-800-626-9392
INVESTMENT ADVISER
Harris Associates L.P.
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co.
Chicago, Illinois
ADDRESS OF FUND AND ADVISER
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
1-800-OAKMARK (1-800-625-6275)
24-HOUR NAV INFORMATION
1-800-GROWOAK (1-800-476-9625)
This report, including the audited financial statements contained herein, is
submitted for the general information of the shareholders of the Funds. The
report is not authorized for distribution to prospective investors in the
Funds unless it is accompanied or preceded by a currently effective prospectus
of the Funds. No sales charge to the shareholder or to the new investor is
made in offering the shares of the Funds.
37
<PAGE>
[LOGO OF THE OAKMARK FUND]
Harris Associates L.P.
2 North LaSalle Street
Chicago, IL 60602
1-800-OAKMARK
<PAGE>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial statements:
---------------------
(1) Financial Statements included in Parts A and B of this
amendment:
None.
(2) Financial Statements included in Part C of this amendment:
(i) The Oakmark Fund (incorporated by reference to the
following portions of Registrant's Annual Report - October 31,
1995 relating to The Oakmark Fund):
- Schedule of Investments at October 31, 1995
- Statement of Assets and Liabilities at October 31, 1995
- Statement of Operations for the year ended October 31,
1995
- Statement of Changes in Net Assets for each of the years
ended October 31, 1995 and October 31, 1994
- Notes to financial statements
(ii) The Oakmark International Fund (incorporated by
reference to the following portions of Registrant's Annual
Report-October 31, 1995 relating to The Oakmark International
Fund):
- Schedule of Investments at October 31, 1995
- Statement of Assets and Liabilities at October 31, 1995
- Statement of Operations for the year ended October 31,
1995
- Statement of Changes in Net Assets for each of the
years ended October 31, 1995 and October 31, 1994
- Notes to financial statements
Schedule I for each Fund has been omitted as the required
information is presented in the Schedules of Investments at
October 31, 1994. Schedules II, III, IV, V, VI and VII for each
Fund are omitted as the required information is not present.
1
<PAGE>
<TABLE>
<CAPTION>
(b) Exhibits:
---------
<S> <C>
Note: As used herein, "Registration Statement" refers to this registration statement under the Securities
Act of 1933, no. 33-38953. "Pre-effective Amendment" refers to a pre-effective amendment to the
Registration Statement, and "Post-effective Amendment" refers to a post-effective amendment to the
Registration Statement.
1 Agreement and declaration of trust (exhibit 1 to the Registration Statement*)
2 Bylaws as amended through September 21, 1993 (exhibit 2 to Post-effective Amendment no. 5*)
3 None
4 The registrant no longer issues share certificates. The form of share certificate formerly used for
the series designated The Oakmark Fund was filed as Exhibit 4 to Pre-effective Amendment no. 2.*
5.1(a) Investment advisory agreement for The Oakmark Fund dated September 30, 1995 (exhibit 5.1 to
Post-effective Amendment no. 10*)
5.1(b) Form of investment advisory agreement for The Oakmark Fund dated ___________, 1996
5.2(a) Investment advisory agreement for The Oakmark International Fund dated September 30, 1995 (exhibit 5.2
to Post-effective Amendment no. 10*)
5.2(b) Form of investment advisory agreement for The Oakmark International Fund dated ___________, 1996
5.3(a) Investment advisory agreement for The Oakmark Small Cap Fund dated September 30, 1995 (exhibit 5.3 to
Post-effective Amendment no. 10*)
5.3(b) Form of investment advisory agreement for The Oakmark Small Cap Fund dated ___________, 1996
5.4(a) Investment advisory agreement for The Oakmark Balanced Fund dated September 30, 1995 (exhibit 5.4 to
Post-effective Amendment no. 10*)
5.4(b) Form of investment advisory agreement for The Oakmark Balanced Fund dated ___________, 1996
5.5(a) Investment advisory agreement for The Oakmark International Emerging Value Fund dated September 30,
1995 (exhibit 5.5 to Post-effective Amendment no. 10*)
5.5(b) Form of investment advisory agreement for The Oakmark International Emerging Value Fund dated
___________, 1996
</TABLE>
2
<PAGE>
6 None
7 None
8.1 Custody agreement with State Street Bank and Trust Company dated
July 10, 1991 (exhibit 8 to Pre-effective Amendment no. 2*)
8.2 Special custody account agreement (short sales) dated September 24,
1991 (exhibit 8.1 to Pre-effective Amendment no. 1*)
8.3 Form of letter agreement applying custody agreement (exhibit 8.1) to
The Oakmark International Fund (exhibit 8.2 to Post-effective
Amendment no. 2*)
8.4 Form of letter agreement applying custody agreement (exhibit 8.1)
and transfer agency agreement to The Oakmark Small Cap Fund, The
Oakmark Balanced Fund and The Oakmark International Emerging Value
Fund (exhibit 8.4 to Post-effective Amendment no. 10*)
9 None
10.1 Opinion of Ropes & Gray dated July 11, 1991 - The Oakmark Fund
(exhibit 10 to Pre-effective Amendment no. 2*)
10.2 Opinion of Bell, Boyd & Lloyd dated July 23, 1992 - The Oakmark
International Fund (exhibit 10.1 to Post-effective Amendment no. 2*)
10.3 Opinion of Ropes & Gray dated September 20, 1995 - The Oakmark
International Fund, The Oakmark Small Cap Fund, The Oakmark Balanced
Fund and The Oakmark International Emerging Value Fund (exhibit 10.3
to Post-effective Amendment no. 10*)
10.4 Opinion of Bell, Boyd & Lloyd dated September 20, 1995 - The Oakmark
Small Cap Fund, The Oakmark Balanced Fund and The Oakmark
International Emerging Value Fund (exhibit 10.4 to Post-effective
Amendment no. 10*)
11 Consent of independent public accountants
12 None
13.1 Organizational expense agreement for The Oakmark Fund dated July 31,
1991 (exhibit 13.2 to Post-effective Amendment no. 5*)
13.2 Organizational expense agreement for The Oakmark International Fund
dated September 15, 1992 (exhibit 13.3 to Post-effective Amendment
no. 5*)
13.3 Organizational expense agreement for The Oakmark Small Cap Fund, The
Oakmark Balanced Fund and The Oakmark International Emerging Value
Fund dated July 6, 1995 (exhibit 13.3 to Post-effective Amendment
no. 10*)
3
<PAGE>
13.4 Form of subscription agreement (exhibit 13.1 to Registration
Statement*)
14.1 The Oakmark Funds IRA Plan booklet, revised September 30, 1995
(exhibit 14.1 to Post-effective Amendment no. 10*)
14.2 Form of IRA application and adoption agreement, revised September
30, 1995 (exhibit 14.2 to Post-effective Amendment no. 10*)
15 None
16 Schedule for computation of performance quotations (exhibit 16 to
Post-effective Amendment no. 4*)
17 Financial data schedule
18.1 Form of new account purchase application, revised September 30, 1995
(exhibit 18.1 to Post-effective Amendment no. 10*)
18.2 Shareholder services form, revised September 30, 1995 (exhibit 18.2
to Post-effective Amendment no. 10*)
____________________
* Incorporated by reference
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The registrant does not consider that there are any persons directly
or indirectly controlling, controlled by, or under common control with, the
registrant within the meaning of this item. The information in the
prospectus under the caption "Management of the Fund" and in the Statement
of Additional Information under the caption "Investment Adviser" and
"Trustees and Officers" is incorporated by reference.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 30, 1995, the respective series of the Trust had the
following numbers of shareholders of record: The Oakmark Fund, 151,003;
The Oakmark Small Cap Fund, 2,372; The Oakmark Balanced Fund, 472; The
Oakmark International Fund, 50,328; The Oakmark International Emerging
Value Fund, 703.
ITEM 27. INDEMNIFICATION
Article VIII of the agreement and declaration of trust of registrant
(exhibit 1 to this registration statement, which is incorporated herein by
reference) provides that registrant shall provide certain indemnification
of its trustees and officers. In accordance with Section 17(h) of the
Investment Company Act, that provision shall not protect any person against
any liability to the registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
negligence or reckless disregard of the duties involved in the conduct of
his office.
4
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a trustee,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The registrant, its trustees and officers, Harris Associates L.P.
("HALP") (the investment adviser to registrant) and certain affiliated
persons of HALP and affiliated persons of such persons are insured under a
policy of insurance maintained by registrant and HALP, within the limits
and subject to the limitations of the policy, against certain expenses in
connection with the defense of actions, suits or proceedings, and certain
liabilities that might be imposed as a result of such actions, suits or
proceedings, to which they are parties by reason of being or having been
such trustees, directors or officers. The policy expressly excludes
coverage for any trustee or officer whose personal dishonesty, fraudulent
breach of trust, lack of good faith, or intention to deceive or defraud has
been finally adjudicated or may be established or who willfully fails to
act prudently.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The information in the prospectus under the caption "Management of the
Funds" is incorporated by reference. Neither the Adviser nor its general
partner has at any time during the past two years been engaged in any other
business, profession, vocation or employment of a substantial nature either
for its own account or in the capacity of director, officer, employee,
partner or trustee, except that the Adviser is a registered commodity
trading adviser and commodity pool operator and its general partner is also
the general partner of a securities broker-dealer firm.
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Mr. Victor A. Morgenstern
Harris Associates L.P., Suite 500
Two North La Salle Street
Chicago, Illinois 60602
ITEM 31. MANAGEMENT SERVICES
None
5
<PAGE>
ITEM 32. UNDERTAKINGS
------------
(a) Not applicable
(b) Registrant undertakes to file, within four to six months after
September 30, 1995 (the date of effectiveness of a post-effective
amendment containing a prospectus and statement of additional
information for Registrants' three new series, The Oakmark Small
Cap Fund, The Oakmark Balanced Fund and The Oakmark International
Emerging Value Fund) a further post-effective amendment
containing financial statements of those Funds, which need not be
audited.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the latest annual report(s) to
shareholders of Registrant.
(d) Registrant undertakes, if required to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a
meeting of shareholders for the purpose of voting upon the
question of removal of a director or directors and to assist in
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it has duly
caused this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois
on December 21, 1995.
HARRIS ASSOCIATES INVESTMENT TRUST
By /s/ Victor A. Morgenstern, President
------------------------------------
Victor A. Morgenstern, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Christine M. Maki Trustee )
------------------------- )
Christine M. Maki )
)
)
/s/ Michael J. Friduss Trustee )
------------------------- )
Michael J. Friduss )
)
)
/s/ Thomas H. Hayden Trustee )
------------------------- )
Thomas H. Hayden )
)
)
/s/ Victor A. Morgenstern Trustee and President )
------------------------- (chief executive officer) )
Victor A. Morgenstern )
)
) December 21, 1995
/s/ Allan J. Reich Trustee )
------------------------- )
Allan J. Reich )
)
)
/s/ Burton W. Ruder Trustee )
------------------------- )
Burton W. Ruder )
)
)
/s/ Peter S. Voss Trustee )
------------------------- )
Peter S. Voss )
)
)
/s/ Gary Wilner Trustee )
------------------------- )
Gary Wilner )
)
)
/s/ Donald Terao Treasurer (principal )
------------------------- accounting officer) )
Donald Terao )
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential
Exhibit Page
- ------------- ----------------------------------------------------------------------------------------------------------------
<S> <C>
5.1(b) Form of investment advisory agreement for The Oakmark Fund dated __________, 1996
5.2(b) Form of investment advisory agreement for The Oakmark International Fund dated __________, 1996
5.3(b) Form of investment advisory agreement for The Oakmark Small Cap Fund dated ____________, 1996
5.4(b) Form of investment advisory agreement for The Oakmark Balanced Fund dated __________, 1996
5.5(b) Form of investment advisory agreement for The Oakmark International Emerging Value Fund dated ____________, 1996
11 Consent of independent public accountants
27 Financial data schedule
</TABLE>
<PAGE>
EXHIBIT 5.1(b)
INVESTMENT ADVISORY AGREEMENT
FOR
THE OAKMARK FUND
HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "1940 Act") as an open-
end diversified management investment company (the "Trust"), and HARRIS
ASSOCIATES L.P., a Delaware limited partnership registered under the Investment
Advisers Act of 1940 as an investment adviser (the "Adviser"), agree as follows:
1. APPOINTMENT OF ADVISER. The Trust appoints the Adviser to act as
manager and investment adviser to The Oakmark Fund (the "Fund"), a series of the
Trust, for the period and on the terms herein set forth. The Adviser accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. SERVICES OF ADVISER.
(a) The Adviser shall manage the investment and reinvestment of the
assets of the Fund, subject to the supervision of the board of trustees of the
Trust, for the period and on the terms set forth in this agreement. The Adviser
shall give due consideration to the investment policies and restrictions and the
other statements concerning the Fund in the Trust's Agreement and Declaration of
Trust, bylaws and registration statements under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code
applicable to the Trust as a regulated investment company. The Adviser shall be
deemed for all purposes to be an independent contractor and not an agent of the
Trust or the Fund, and unless otherwise expressly provided or authorized, shall
have no authority to act or represent the Trust or the Fund in any way.
(b) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with brokers or dealers
selected by the Adviser, although the Fund will pay the actual brokerage
commissions on portfolio transactions in accordance with Paragraph 4. In
executing portfolio transactions and selecting brokers or dealers, the Adviser
will use its best efforts to seek on behalf of the Fund the best overall terms
available for any transaction. The Adviser shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
(c) To the extent contemplated by the Trust's registration statement
under the 1933 Act, in evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Adviser
may also consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which the Adviser or an affiliate of the Adviser
exercises investment discretion. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and subject to seeking the
most favorable combination of net price and execution available, the Adviser may
consider sales of shares of the Fund as a factor in the selection of broker-
dealers to execute portfolio transactions for the Fund. The Adviser is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Adviser determines
in good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of that particular transaction or in terms of all of the accounts over
which investment discretion is so exercised.
<PAGE>
3. SERVICES OTHER THAN AS ADVISER. The Adviser (or an affiliate of the
Adviser) may act as broker for the Trust in connection with the purchase or sale
of securities by or to the Trust if and to the extent permitted by procedures
adopted from time to time by the board of trustees of the Trust. Such brokerage
services are not within the scope of the duties of the Adviser under this
agreement, and, within the limits permitted by law and the trustees, the Adviser
(or an affiliate of the Adviser) may receive brokerage commissions, fees or
other remuneration from the Trust for such services in addition to its fee for
services as Adviser. Within the limits permitted by law, the Adviser may receive
compensation from the Trust for other services performed by or for the Trust
which are not within the scope of the duties of the Adviser under this
agreement.
4. EXPENSES TO BE PAID BY ADVISER. The Adviser shall furnish to the Trust,
at its own expense, such office space and all office facilities, equipment and
personnel necessary to render the services set forth in paragraph 2 above. The
Adviser shall also assume and pay all expenses incurred by it related to the
placement of securities orders, and all expenses of marketing shares of the
Trust.
5. EXPENSES TO BE PAID BY THE TRUST. The Trust shall pay all expenses not
expressly assumed by the Adviser, including but not limited to: all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents, fund
accounting agents, registrars and its dividend disbursing and redemption agents,
if any; all charges of legal counsel and of independent auditors; all
compensation of trustees other than those affiliated with the Adviser and all
expenses incurred in connection with their services to the Trust; all costs of
borrowing money; all expenses of publication of notices and reports to its
shareholders and to governmental bodies or regulatory agencies; all expenses of
proxy solicitations of the Trust or its board of trustees with respect to the
Fund; all expenses of shareholder meetings; all expenses of typesetting of the
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; all taxes and fees
payable to federal, state or other governmental agencies, domestic or foreign;
all stamp or other transfer taxes; all expenses of printing and mailing
certificates for shares of the Trust; all expenses of bond and insurance
coverage required by law or deemed advisable by the Trust's board of trustees;
all expenses of maintaining the registration of shares of the Trust under the
1933 Act and of qualifying and maintaining qualification of shares of the Trust
under the securities laws of such United States jurisdictions as the Trust may
from time to time reasonably designate and all expenses of maintaining the
registration of the Trust under the 1940 Act; and all fees, dues and other
expenses related to membership of the Trust in any trade association or other
investment company organization. In addition to the payment of expenses, the
Trust shall also pay all brokers' commissions and other charges relating to the
purchase and sale of portfolio securities.
6. COMPENSATION OF ADVISER. For the services to be rendered and the
charges and expenses to be assumed and to be paid by the Adviser hereunder, the
Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the
Fund's net assets as of the last business day of the preceding month, at the
annual rate of 1.00% on the first $2.5 billion of net assets, .95% on the next
$1.25 billion, .90% on the next $1.25 billion of net assets and .85% on net
assets in excess of $5 billion. The fee for a month shall be paid as soon as
practicable after the last day of that month. The fee payable hereunder shall be
reduced proportionately during any month in which this agreement is not in
effect for the entire month.
7. LIMITATION OF EXPENSES OF THE FUND. The total expenses of the Fund,
exclusive of taxes, interest and extraordinary litigation expenses, but
including fees paid to the Adviser, shall not in any fiscal year of the Trust
exceed the most restrictive limits prescribed by any state in which Fund shares
are then being offered for sale, and the Adviser agrees to reimburse the Fund
for any sums expended for such expenses in excess of that amount. Brokers'
commissions and other charges relating to the purchase and sale of portfolio
securities shall not be regarded as expenses.
2
<PAGE>
8. SERVICES OF ADVISER NOT EXCLUSIVE. The services of the Adviser to the
Trust hereunder are not exclusive, and the Adviser shall be free to render
similar services to others so long as its services under this agreement are not
impaired by such other activities.
9. LIABILITY OF ADVISER. The Adviser shall not be liable to the Trust or
its shareholders for any loss suffered by the Trust or its shareholders from or
as a consequence of any act or omission of the Adviser, or of any of the
partners, employees or agents of the Adviser, in connection with or pursuant to
this agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or by
reason of reckless disregard by the Adviser of its obligations and duties under
this agreement.
10. LIABILITY OF TRUST. The obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but shall bind only the assets and property
of the Trust as provided in the Agreement and Declaration of Trust of the Trust.
11. USE OF ADVISER'S NAME. The Trust may use the name "Harris Associates
Investment Trust," or any other name derived from the name "Harris Associates,"
and the name "Oakmark" only for so long as this agreement or any extension,
renewal or amendment hereof remains in effect, including any similar agreement
with any organization which shall have succeeded to the business of the Adviser
as investment adviser. At such time as this agreement or any extension, renewal
or amendment hereof, or such other similar agreement shall no longer be in
effect, the Trust will (by amendment of its Agreement and Declaration of Trust,
if necessary) cease to use any name derived from the name "Harris Associates,"
any name similar thereto or any other name indicating that it is advised by or
otherwise connected with the Adviser, or with any organization which shall have
succeeded to the Adviser's business as investment adviser, and shall cease to
use the name "Oakmark" or any name derived from the name "Oakmark." The consent
of the Adviser to the use of such names by the Trust shall not prevent the
Adviser's permitting any other enterprise, including another investment company,
to use such name or names.
12. DURATION AND RENEWAL.
(a) Unless terminated as provided in section 13, this agreement shall
continue in effect until September 30, 1997, and thereafter from year to year
only so long as such continuance is specifically approved at least annually (a)
by a majority of those trustees who are not interested persons of the Trust or
of the Adviser, voting in person at a meeting called for the purpose of voting
on such approval, and (b) by either the board of trustees of the Trust or a vote
of the holders of a majority of the outstanding shares of the Fund (which term
as used throughout this agreement shall be construed in accordance with the
definition of "vote of a majority of the outstanding voting securities of a
company" in section 2(a)(42) of the 1940 Act).
(b) Any approval of this agreement by the holders of a majority of the
outstanding shares of the Fund shall be effective to continue this agreement
notwithstanding that it has not been approved by the vote of a majority of the
outstanding shares of the Trust, unless such approval shall be required by any
other applicable law or otherwise.
13. TERMINATION. This agreement may be terminated at any time, without
payment of any penalty, by the board of trustees of the Trust, or by a vote of
the holders of a majority of the outstanding shares of the Fund, upon 60 days'
written notice to the Adviser. This agreement may be terminated by the Adviser
at any time upon 60 days' written notice to the Trust. This agreement shall
terminate automatically in the event of its assignment (as defined in section
2(a)(4) of the 1940 Act).
3
<PAGE>
14. AMENDMENT. This agreement may not be amended without the affirmative
vote (a) of a majority of those trustees who are not "interested persons" (as
defined in Section 2(a)(19) of the 1940 Act) of the Trust and (b) of the holders
of a majority of the outstanding shares of the Fund.
Dated:
HARRIS ASSOCIATES INVESTMENT TRUST
By:
----------------------------------
HARRIS ASSOCIATES L.P.
by Harris Associates, Inc.
its General Partner
By:
----------------------------------
4
<PAGE>
EXHIBIT 5.2(b)
INVESTMENT ADVISORY AGREEMENT
FOR
THE OAKMARK INTERNATIONAL FUND
HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "1940 Act") as an open-
end diversified management investment company (the "Trust"), and HARRIS
ASSOCIATES L.P., a Delaware limited partnership registered under the Investment
Advisers Act of 1940 as an investment adviser (the "Adviser"), agree as follows:
1. APPOINTMENT OF ADVISER. The Trust appoints the Adviser to act as
manager and investment adviser to The Oakmark International Fund (the "Fund"), a
series of the Trust, for the period and on the terms herein set forth. The
Adviser accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. SERVICES OF ADVISER.
(a) The Adviser shall manage the investment and reinvestment of the
assets of the Fund, subject to the supervision of the board of trustees of the
Trust, for the period and on the terms set forth in this agreement. The Adviser
shall give due consideration to the investment policies and restrictions and the
other statements concerning the Fund in the Trust's Agreement and Declaration of
Trust, bylaws and registration statements under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code
applicable to the Trust as a regulated investment company. The Adviser shall be
deemed for all purposes to be an independent contractor and not an agent of the
Trust or the Fund, and unless otherwise expressly provided or authorized, shall
have no authority to act or represent the Trust or the Fund in any way.
(b) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with brokers or dealers
selected by the Adviser, although the Fund will pay the actual brokerage
commissions on portfolio transactions in accordance with Paragraph 4. In
executing portfolio transactions and selecting brokers or dealers, the Adviser
will use its best efforts to seek on behalf of the Fund the best overall terms
available for any transaction. The Adviser shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
(c) To the extent contemplated by the Trust's registration statement
under the 1933 Act, in evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Adviser
may also consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which the Adviser or an affiliate of the Adviser
exercises investment discretion. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and subject to seeking the
most favorable combination of net price and execution available, the Adviser may
consider sales of shares of the Fund as a factor in the selection of broker-
dealers to execute portfolio transactions for the Fund. The Adviser is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Adviser determines
in good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of that particular transaction or in terms of all of the accounts over
which investment discretion is so exercised.
<PAGE>
3. SERVICES OTHER THAN AS ADVISER. The Adviser (or an affiliate of the
Adviser) may act as broker for the Trust in connection with the purchase or sale
of securities by or to the Trust if and to the extent permitted by procedures
adopted from time to time by the board of trustees of the Trust. Such brokerage
services are not within the scope of the duties of the Adviser under this
agreement, and, within the limits permitted by law and the trustees, the Adviser
(or an affiliate of the Adviser) may receive brokerage commissions, fees or
other remuneration from the Trust for such services in addition to its fee for
services as Adviser. Within the limits permitted by law, the Adviser may
receive compensation from the Trust for other services performed by or for the
Trust which are not within the scope of the duties of the Adviser under this
agreement.
4. EXPENSES TO BE PAID BY ADVISER. The Adviser shall furnish to the
Trust, at its own expense, such office space and all office facilities,
equipment and personnel necessary to render the services set forth in paragraph
2 above. The Adviser shall also assume and pay all expenses incurred by it
related to the placement of securities orders, and all expenses of marketing
shares of the Trust.
5. EXPENSES TO BE PAID BY THE TRUST. The Trust shall pay all expenses not
expressly assumed by the Adviser, including but not limited to: all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents, fund
accounting agents, registrars and its dividend disbursing and redemption agents,
if any; all charges of legal counsel and of independent auditors; all
compensation of trustees other than those affiliated with the Adviser and all
expenses incurred in connection with their services to the Trust; all costs of
borrowing money; all expenses of publication of notices and reports to its
shareholders and to governmental bodies or regulatory agencies; all expenses of
proxy solicitations of the Trust or its board of trustees with respect to the
Fund; all expenses of shareholder meetings; all expenses of typesetting of the
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; all taxes and fees
payable to federal, state or other governmental agencies, domestic or foreign;
all stamp or other transfer taxes; all expenses of printing and mailing
certificates for shares of the Trust; all expenses of bond and insurance
coverage required by law or deemed advisable by the Trust's board of trustees;
all expenses of maintaining the registration of shares of the Trust under the
1933 Act and of qualifying and maintaining qualification of shares of the Trust
under the securities laws of such United States jurisdictions as the Trust may
from time to time reasonably designate and all expenses of maintaining the
registration of the Trust under the 1940 Act; and all fees, dues and other
expenses related to membership of the Trust in any trade association or other
investment company organization. In addition to the payment of expenses, the
Trust shall also pay all brokers' commissions and other charges relating to the
purchase and sale of portfolio securities.
6. COMPENSATION OF ADVISER. For the services to be rendered and the
charges and expenses to be assumed and to be paid by the Adviser hereunder, the
Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the
Fund's net assets as of the last business day of the preceding month, at the
annual rate of 1.00% on the first $2.5 billion of net assets, .95% on the next
$2.5 billion of net assets, and .90% on net assets in excess of $5 billion. The
fee for a month shall be paid as soon as practicable after the last day of that
month. The fee payable hereunder shall be reduced proportionately during any
month in which this agreement is not in effect for the entire month.
7. LIMITATION OF EXPENSES OF THE FUND. The total expenses of the Fund,
exclusive of taxes, interest and extraordinary litigation expenses, but
including fees paid to the Adviser, shall not in any fiscal year of the Trust
exceed the most restrictive limits prescribed by any state in which Fund shares
are then being offered for sale, and the Adviser agrees to reimburse the Fund
for any sums expended for such expenses in excess of that amount. Brokers'
commissions and other charges relating to the purchase and sale of portfolio
securities shall not be regarded as expenses.
2
<PAGE>
8. SERVICES OF ADVISER NOT EXCLUSIVE. The services of the Adviser to the
Trust hereunder are not exclusive, and the Adviser shall be free to render
similar services to others so long as its services under this agreement are not
impaired by such other activities.
9. LIABILITY OF ADVISER. The Adviser shall not be liable to the Trust or
its shareholders for any loss suffered by the Trust or its shareholders from or
as a consequence of any act or omission of the Adviser, or of any of the
partners, employees or agents of the Adviser, in connection with or pursuant to
this agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or by
reason of reckless disregard by the Adviser of its obligations and duties under
this agreement.
10. LIABILITY OF TRUST. The obligations of the Trust hereunder shall not
be binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but shall bind only the assets and property
of the Trust as provided in the Agreement and Declaration of Trust of the Trust.
11. USE OF ADVISER'S NAME. The Trust may use the name "Harris Associates
Investment Trust," or any other name derived from the name "Harris Associates,"
and the name "Oakmark" only for so long as this agreement or any extension,
renewal or amendment hereof remains in effect, including any similar agreement
with any organization which shall have succeeded to the business of the Adviser
as investment adviser. At such time as this agreement or any extension, renewal
or amendment hereof, or such other similar agreement shall no longer be in
effect, the Trust will (by amendment of its Agreement and Declaration of Trust,
if necessary) cease to use any name derived from the name "Harris Associates,"
any name similar thereto or any other name indicating that it is advised by or
otherwise connected with the Adviser, or with any organization which shall have
succeeded to the Adviser's business as investment adviser, and shall cease to
use the name "Oakmark" or any name derived from the name "Oakmark." The consent
of the Adviser to the use of such names by the Trust shall not prevent the
Adviser's permitting any other enterprise, including another investment company,
to use such name or names.
12. DURATION AND RENEWAL.
(a) Unless terminated as provided in section 13, this agreement shall
continue in effect until September 30, 1997, and thereafter from year to year
only so long as such continuance is specifically approved at least annually (a)
by a majority of those trustees who are not interested persons of the Trust or
of the Adviser, voting in person at a meeting called for the purpose of voting
on such approval, and (b) by either the board of trustees of the Trust or a vote
of the holders of a majority of the outstanding shares of the Fund (which term
as used throughout this agreement shall be construed in accordance with the
definition of "vote of a majority of the outstanding voting securities of a
company" in section 2(a)(42) of the 1940 Act).
(b) Any approval of this agreement by the holders of a majority of the
outstanding shares of the Fund shall be effective to continue this agreement
notwithstanding that it has not been approved by the vote of a majority of the
outstanding shares of the Trust, unless such approval shall be required by any
other applicable law or otherwise.
13. TERMINATION. This agreement may be terminated at any time, without
payment of any penalty, by the board of trustees of the Trust, or by a vote of
the holders of a majority of the outstanding shares of the Fund, upon 60 days'
written notice to the Adviser. This agreement may be terminated by the Adviser
at any time upon 60 days' written notice to the Trust. This agreement shall
terminate automatically in the event of its assignment (as defined in section
2(a)(4) of the 1940 Act).
3
<PAGE>
14. AMENDMENT. This agreement may not be amended without the affirmative
vote (a) of a majority of those trustees who are not "interested persons" (as
defined in Section 2(a)(19) of the 1940 Act) of the Trust and (b) of the holders
of a majority of the outstanding shares of the Fund.
Dated:
HARRIS ASSOCIATES INVESTMENT TRUST
By:
________________________________________
HARRIS ASSOCIATES L.P.
by Harris Associates, Inc.
its General Partner
By:
_________________________________________
4
<PAGE>
EXHIBIT 5.3(b)
INVESTMENT ADVISORY AGREEMENT
FOR
THE OAKMARK SMALL CAP FUND
HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "1940 Act") as an open-
end diversified management investment company (the "Trust"), and HARRIS
ASSOCIATES L.P., a Delaware limited partnership registered under the Investment
Advisers Act of 1940 as an investment adviser (the "Adviser"), agree as follows:
1. APPOINTMENT OF ADVISER. The Trust appoints the Adviser to act as
manager and investment adviser to The Oakmark Small Cap Fund (the "Fund"), a
series of the Trust, for the period and on the terms herein set forth. The
Adviser accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. SERVICES OF ADVISER.
(a) The Adviser shall manage the investment and reinvestment of the
assets of the Fund, subject to the supervision of the board of trustees of the
Trust, for the period and on the terms set forth in this agreement. The Adviser
shall give due consideration to the investment policies and restrictions and the
other statements concerning the Fund in the Trust's Agreement and Declaration of
Trust, bylaws and registration statements under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code
applicable to the Trust as a regulated investment company. The Adviser shall be
deemed for all purposes to be an independent contractor and not an agent of the
Trust or the Fund, and unless otherwise expressly provided or authorized, shall
have no authority to act or represent the Trust or the Fund in any way.
(b) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with brokers or dealers
selected by the Adviser, although the Fund will pay the actual brokerage
commissions on portfolio transactions in accordance with Paragraph 4. In
executing portfolio transactions and selecting brokers or dealers, the Adviser
will use its best efforts to seek on behalf of the Fund the best overall terms
available for any transaction. The Adviser shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
(c) To the extent contemplated by the Trust's registration statement
under the 1933 Act, in evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Adviser
may also consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which the Adviser or an affiliate of the Adviser
exercises investment discretion. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and subject to seeking the
most favorable combination of net price and execution available, the Adviser may
consider sales of shares of the Fund as a factor in the selection of broker-
dealers to execute portfolio transactions for the Fund. The Adviser is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Adviser determines
in good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of that particular transaction or in terms of all of the accounts over
which investment discretion is so exercised.
<PAGE>
3. SERVICES OTHER THAN AS ADVISER. The Adviser (or an affiliate of the
Adviser) may act as broker for the Trust in connection with the purchase or sale
of securities by or to the Trust if and to the extent permitted by procedures
adopted from time to time by the board of trustees of the Trust. Such brokerage
services are not within the scope of the duties of the Adviser under this
agreement, and, within the limits permitted by law and the trustees, the Adviser
(or an affiliate of the Adviser) may receive brokerage commissions, fees or
other remuneration from the Trust for such services in addition to its fee for
services as Adviser. Within the limits permitted by law, the Adviser may
receive compensation from the Trust for other services performed by or for the
Trust which are not within the scope of the duties of the Adviser under this
agreement.
4. EXPENSES TO BE PAID BY ADVISER. The Adviser shall furnish to the
Trust, at its own expense, such office space and all office facilities,
equipment and personnel necessary to render the services set forth in paragraph
2 above. The Adviser shall also assume and pay all expenses incurred by it
related to the placement of securities orders, and all expenses of marketing
shares of the Trust.
5. EXPENSES TO BE PAID BY THE TRUST. The Trust shall pay all expenses not
expressly assumed by the Adviser, including but not limited to: all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents, fund
accounting agents, registrars and its dividend disbursing and redemption agents,
if any; all charges of legal counsel and of independent auditors; all
compensation of trustees other than those affiliated with the Adviser and all
expenses incurred in connection with their services to the Trust; all costs of
borrowing money; all expenses of publication of notices and reports to its
shareholders and to governmental bodies or regulatory agencies; all expenses of
proxy solicitations of the Trust or its board of trustees with respect to the
Fund; all expenses of shareholder meetings; all expenses of typesetting of the
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; all taxes and fees
payable to federal, state or other governmental agencies, domestic or foreign;
all stamp or other transfer taxes; all expenses of printing and mailing
certificates for shares of the Trust; all expenses of bond and insurance
coverage required by law or deemed advisable by the Trust's board of trustees;
all expenses of maintaining the registration of shares of the Trust under the
1933 Act and of qualifying and maintaining qualification of shares of the Trust
under the securities laws of such United States jurisdictions as the Trust may
from time to time reasonably designate and all expenses of maintaining the
registration of the Trust under the 1940 Act; and all fees, dues and other
expenses related to membership of the Trust in any trade association or other
investment company organization. In addition to the payment of expenses, the
Trust shall also pay all brokers' commissions and other charges relating to the
purchase and sale of portfolio securities.
6. COMPENSATION OF ADVISER. For the services to be rendered and the
charges and expenses to be assumed and to be paid by the Adviser hereunder, the
Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the
Fund's net assets as of the last business day of the preceding month, at the
annual rate of 1.25% of net assets. The fee for a month shall be paid as soon
as practicable after the last day of that month. The fee payable hereunder
shall be reduced proportionately during any month in which this agreement is not
in effect for the entire month.
7. LIMITATION OF EXPENSES OF THE FUND. The total expenses of the Fund,
exclusive of taxes, interest and extraordinary litigation expenses, but
including fees paid to the Adviser, shall not in any fiscal year of the Trust
exceed the most restrictive limits prescribed by any state in which Fund shares
are then being offered for sale, and the Adviser agrees to reimburse the Fund
for any sums expended for such expenses in excess of that amount. Brokers'
commissions and other charges relating to the purchase and sale of portfolio
securities shall not be regarded as expenses.
2
<PAGE>
8. SERVICES OF ADVISER NOT EXCLUSIVE. The services of the Adviser to the
Trust hereunder are not exclusive, and the Adviser shall be free to render
similar services to others so long as its services under this agreement are not
impaired by such other activities.
9. LIABILITY OF ADVISER. The Adviser shall not be liable to the Trust or
its shareholders for any loss suffered by the Trust or its shareholders from or
as a consequence of any act or omission of the Adviser, or of any of the
partners, employees or agents of the Adviser, in connection with or pursuant to
this agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or by
reason of reckless disregard by the Adviser of its obligations and duties under
this agreement.
10. LIABILITY OF TRUST. The obligations of the Trust hereunder shall not
be binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but shall bind only the assets and property
of the Trust as provided in the Agreement and Declaration of Trust of the Trust.
11. USE OF ADVISER'S NAME. The Trust may use the name "Harris Associates
Investment Trust," or any other name derived from the name "Harris Associates,"
and the name "Oakmark" only for so long as this agreement or any extension,
renewal or amendment hereof remains in effect, including any similar agreement
with any organization which shall have succeeded to the business of the Adviser
as investment adviser. At such time as this agreement or any extension, renewal
or amendment hereof, or such other similar agreement shall no longer be in
effect, the Trust will (by amendment of its Agreement and Declaration of Trust,
if necessary) cease to use any name derived from the name "Harris Associates,"
any name similar thereto or any other name indicating that it is advised by or
otherwise connected with the Adviser, or with any organization which shall have
succeeded to the Adviser's business as investment adviser, and shall cease to
use the name "Oakmark" or any name derived from the name "Oakmark." The consent
of the Adviser to the use of such names by the Trust shall not prevent the
Adviser's permitting any other enterprise, including another investment company,
to use such name or names.
12. DURATION AND RENEWAL.
(a) Unless terminated as provided in section 13, this agreement shall
continue in effect until September 30, 1997, and thereafter from year to year
only so long as such continuance is specifically approved at least annually (a)
by a majority of those trustees who are not interested persons of the Trust or
of the Adviser, voting in person at a meeting called for the purpose of voting
on such approval, and (b) by either the board of trustees of the Trust or a vote
of the holders of a majority of the outstanding shares of the Fund (which term
as used throughout this agreement shall be construed in accordance with the
definition of "vote of a majority of the outstanding voting securities of a
company" in section 2(a)(42) of the 1940 Act).
(b) Any approval of this agreement by the holders of a majority of the
outstanding shares of the Fund shall be effective to continue this agreement
notwithstanding that it has not been approved by the vote of a majority of the
outstanding shares of the Trust, unless such approval shall be required by any
other applicable law or otherwise.
13. TERMINATION. This agreement may be terminated at any time, without
payment of any penalty, by the board of trustees of the Trust, or by a vote of
the holders of a majority of the outstanding shares of the Fund, upon 60 days'
written notice to the Adviser. This agreement may be terminated by the Adviser
at any time upon 60 days' written notice to the Trust. This agreement shall
terminate automatically in the event of its assignment (as defined in section
2(a)(4) of the 1940 Act).
3
<PAGE>
14. AMENDMENT. This agreement may not be amended without the affirmative
vote (a) of a majority of those trustees who are not "interested persons" (as
defined in Section 2(a)(19) of the 1940 Act) of the Trust and (b) of the holders
of a majority of the outstanding shares of the Fund.
Dated:
HARRIS ASSOCIATES INVESTMENT TRUST
By:___________________________________
HARRIS ASSOCIATES L.P.
by Harris Associates, Inc.
its General Partner
By:___________________________________
4
<PAGE>
EXHIBIT 5.4(b)
INVESTMENT ADVISORY AGREEMENT
FOR
THE OAKMARK BALANCED FUND
HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "1940 Act") as an open-
end diversified management investment company (the "Trust"), and HARRIS
ASSOCIATES L.P., a Delaware limited partnership registered under the Investment
Advisers Act of 1940 as an investment adviser (the "Adviser"), agree as follows:
1. APPOINTMENT OF ADVISER. The Trust appoints the Adviser to act as
manager and investment adviser to The Oakmark Balanced Fund (the "Fund"), a
series of the Trust, for the period and on the terms herein set forth. The
Adviser accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. SERVICES OF ADVISER.
(a) The Adviser shall manage the investment and reinvestment of the
assets of the Fund, subject to the supervision of the board of trustees of the
Trust, for the period and on the terms set forth in this agreement. The Adviser
shall give due consideration to the investment policies and restrictions and the
other statements concerning the Fund in the Trust's Agreement and Declaration of
Trust, bylaws and registration statements under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code
applicable to the Trust as a regulated investment company. The Adviser shall be
deemed for all purposes to be an independent contractor and not an agent of the
Trust or the Fund, and unless otherwise expressly provided or authorized, shall
have no authority to act or represent the Trust or the Fund in any way.
(b) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with brokers or dealers
selected by the Adviser, although the Fund will pay the actual brokerage
commissions on portfolio transactions in accordance with Paragraph 4. In
executing portfolio transactions and selecting brokers or dealers, the Adviser
will use its best efforts to seek on behalf of the Fund the best overall terms
available for any transaction. The Adviser shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
(c) To the extent contemplated by the Trust's registration statement
under the 1933 Act, in evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Adviser
may also consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which the Adviser or an affiliate of the Adviser
exercises investment discretion. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and subject to seeking the
most favorable combination of net price and execution available, the Adviser may
consider sales of shares of the Fund as a factor in the selection of broker-
dealers to execute portfolio transactions for the Fund. The Adviser is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Adviser determines
in good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of that particular transaction or in terms of all of the accounts over
which investment discretion is so exercised.
<PAGE>
3. SERVICES OTHER THAN AS ADVISER. The Adviser (or an affiliate of the
Adviser) may act as broker for the Trust in connection with the purchase or sale
of securities by or to the Trust if and to the extent permitted by procedures
adopted from time to time by the board of trustees of the Trust. Such brokerage
services are not within the scope of the duties of the Adviser under this
agreement, and, within the limits permitted by law and the trustees, the Adviser
(or an affiliate of the Adviser) may receive brokerage commissions, fees or
other remuneration from the Trust for such services in addition to its fee for
services as Adviser. Within the limits permitted by law, the Adviser may
receive compensation from the Trust for other services performed by or for the
Trust which are not within the scope of the duties of the Adviser under this
agreement.
4. EXPENSES TO BE PAID BY ADVISER. The Adviser shall furnish to the
Trust, at its own expense, such office space and all office facilities,
equipment and personnel necessary to render the services set forth in paragraph
2 above. The Adviser shall also assume and pay all expenses incurred by it
related to the placement of securities orders, and all expenses of marketing
shares of the Trust.
5. EXPENSES TO BE PAID BY THE TRUST. The Trust shall pay all expenses not
expressly assumed by the Adviser, including but not limited to: all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents, fund
accounting agents, registrars and its dividend disbursing and redemption agents,
if any; all charges of legal counsel and of independent auditors; all
compensation of trustees other than those affiliated with the Adviser and all
expenses incurred in connection with their services to the Trust; all costs of
borrowing money; all expenses of publication of notices and reports to its
shareholders and to governmental bodies or regulatory agencies; all expenses of
proxy solicitations of the Trust or its board of trustees with respect to the
Fund; all expenses of shareholder meetings; all expenses of typesetting of the
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; all taxes and fees
payable to federal, state or other governmental agencies, domestic or foreign;
all stamp or other transfer taxes; all expenses of printing and mailing
certificates for shares of the Trust; all expenses of bond and insurance
coverage required by law or deemed advisable by the Trust's board of trustees;
all expenses of maintaining the registration of shares of the Trust under the
1933 Act and of qualifying and maintaining qualification of shares of the Trust
under the securities laws of such United States jurisdictions as the Trust may
from time to time reasonably designate and all expenses of maintaining the
registration of the Trust under the 1940 Act; and all fees, dues and other
expenses related to membership of the Trust in any trade association or other
investment company organization. In addition to the payment of expenses, the
Trust shall also pay all brokers' commissions and other charges relating to the
purchase and sale of portfolio securities.
6. COMPENSATION OF ADVISER. For the services to be rendered and the
charges and expenses to be assumed and to be paid by the Adviser hereunder, the
Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the
Fund's net assets as of the last business day of the preceding month, at the
annual rate of .75% of net assets. The fee for a month shall be paid as soon as
practicable after the last day of that month. The fee payable hereunder shall
be reduced proportionately during any month in which this agreement is not in
effect for the entire month.
7. LIMITATION OF EXPENSES OF THE FUND. The total expenses of the Fund,
exclusive of taxes, interest and extraordinary litigation expenses, but
including fees paid to the Adviser, shall not in any fiscal year of the Trust
exceed the most restrictive limits prescribed by any state in which Fund shares
are then being offered for sale, and the Adviser agrees to reimburse the Fund
for any sums expended for such expenses in excess of that amount. Brokers'
commissions and other charges relating to the purchase and sale of portfolio
securities shall not be regarded as expenses.
2
<PAGE>
8. SERVICES OF ADVISER NOT EXCLUSIVE. The services of the Adviser to the
Trust hereunder are not exclusive, and the Adviser shall be free to render
similar services to others so long as its services under this agreement are not
impaired by such other activities.
9. LIABILITY OF ADVISER. The Adviser shall not be liable to the Trust or
its shareholders for any loss suffered by the Trust or its shareholders from or
as a consequence of any act or omission of the Adviser, or of any of the
partners, employees or agents of the Adviser, in connection with or pursuant to
this agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or by
reason of reckless disregard by the Adviser of its obligations and duties under
this agreement.
10. LIABILITY OF TRUST. The obligations of the Trust hereunder shall not
be binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but shall bind only the assets and property
of the Trust as provided in the Agreement and Declaration of Trust of the Trust.
11. USE OF ADVISER'S NAME. The Trust may use the name "Harris Associates
Investment Trust," or any other name derived from the name "Harris Associates,"
and the name "Oakmark" only for so long as this agreement or any extension,
renewal or amendment hereof remains in effect, including any similar agreement
with any organization which shall have succeeded to the business of the Adviser
as investment adviser. At such time as this agreement or any extension, renewal
or amendment hereof, or such other similar agreement shall no longer be in
effect, the Trust will (by amendment of its Agreement and Declaration of Trust,
if necessary) cease to use any name derived from the name "Harris Associates,"
any name similar thereto or any other name indicating that it is advised by or
otherwise connected with the Adviser, or with any organization which shall have
succeeded to the Adviser's business as investment adviser, and shall cease to
use the name "Oakmark" or any name derived from the name "Oakmark." The consent
of the Adviser to the use of such names by the Trust shall not prevent the
Adviser's permitting any other enterprise, including another investment company,
to use such name or names.
12. DURATION AND RENEWAL.
(a) Unless terminated as provided in section 13, this agreement shall
continue in effect until September 30, 1997, and thereafter from year to year
only so long as such continuance is specifically approved at least annually (a)
by a majority of those trustees who are not interested persons of the Trust or
of the Adviser, voting in person at a meeting called for the purpose of voting
on such approval, and (b) by either the board of trustees of the Trust or a vote
of the holders of a majority of the outstanding shares of the Fund (which term
as used throughout this agreement shall be construed in accordance with the
definition of "vote of a majority of the outstanding voting securities of a
company" in section 2(a)(42) of the 1940 Act).
(b) Any approval of this agreement by the holders of a majority of the
outstanding shares of the Fund shall be effective to continue this agreement
notwithstanding that it has not been approved by the vote of a majority of the
outstanding shares of the Trust, unless such approval shall be required by any
other applicable law or otherwise.
13. TERMINATION. This agreement may be terminated at any time, without
payment of any penalty, by the board of trustees of the Trust, or by a vote of
the holders of a majority of the outstanding shares of the Fund, upon 60 days'
written notice to the Adviser. This agreement may be terminated by the Adviser
at any time upon 60 days' written notice to the Trust. This agreement shall
terminate automatically in the event of its assignment (as defined in section
2(a)(4) of the 1940 Act).
3
<PAGE>
14. AMENDMENT. This agreement may not be amended without the affirmative
vote (a) of a majority of those trustees who are not "interested persons" (as
defined in Section 2(a)(19) of the 1940 Act) of the Trust and (b) of the holders
of a majority of the outstanding shares of the Fund.
Dated:
HARRIS ASSOCIATES INVESTMENT TRUST
By:____________________________________
HARRIS ASSOCIATES L.P.
by Harris Associates, Inc.
its General Partner
By:______________________________________
4
<PAGE>
EXHIBIT 5.5(b)
INVESTMENT ADVISORY AGREEMENT
FOR
THE OAKMARK INTERNATIONAL EMERGING VALUE FUND
HARRIS ASSOCIATES INVESTMENT TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "1940 Act") as an open-
end diversified management investment company (the "Trust"), and HARRIS
ASSOCIATES L.P., a Delaware limited partnership registered under the Investment
Advisers Act of 1940 as an investment adviser (the "Adviser"), agree as follows:
1. APPOINTMENT OF ADVISER. The Trust appoints the Adviser to act as
manager and investment adviser to The Oakmark International Emerging Value Fund
(the "Fund"), a series of the Trust, for the period and on the terms herein set
forth. The Adviser accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2. SERVICES OF ADVISER.
(a) The Adviser shall manage the investment and reinvestment of the
assets of the Fund, subject to the supervision of the board of trustees of the
Trust, for the period and on the terms set forth in this agreement. The Adviser
shall give due consideration to the investment policies and restrictions and the
other statements concerning the Fund in the Trust's Agreement and Declaration of
Trust, bylaws and registration statements under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code
applicable to the Trust as a regulated investment company. The Adviser shall be
deemed for all purposes to be an independent contractor and not an agent of the
Trust or the Fund, and unless otherwise expressly provided or authorized, shall
have no authority to act or represent the Trust or the Fund in any way.
(b) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with brokers or dealers
selected by the Adviser, although the Fund will pay the actual brokerage
commissions on portfolio transactions in accordance with Paragraph 4. In
executing portfolio transactions and selecting brokers or dealers, the Adviser
will use its best efforts to seek on behalf of the Fund the best overall terms
available for any transaction. The Adviser shall consider all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
(c) To the extent contemplated by the Trust's registration statement
under the 1933 Act, in evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Adviser
may also consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which the Adviser or an affiliate of the Adviser
exercises investment discretion. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and subject to seeking the
most favorable combination of net price and execution available, the Adviser may
consider sales of shares of the Fund as a factor in the selection of broker-
dealers to execute portfolio transactions for the Fund. The Adviser is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Adviser determines
in good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of that particular transaction or in terms of all of the accounts over
which investment discretion is so exercised.
<PAGE>
3. SERVICES OTHER THAN AS ADVISER. The Adviser (or an affiliate of the
Adviser) may act as broker for the Trust in connection with the purchase or sale
of securities by or to the Trust if and to the extent permitted by procedures
adopted from time to time by the board of trustees of the Trust. Such brokerage
services are not within the scope of the duties of the Adviser under this
agreement, and, within the limits permitted by law and the trustees, the Adviser
(or an affiliate of the Adviser) may receive brokerage commissions, fees or
other remuneration from the Trust for such services in addition to its fee for
services as Adviser. Within the limits permitted by law, the Adviser may
receive compensation from the Trust for other services performed by or for the
Trust which are not within the scope of the duties of the Adviser under this
agreement.
4. EXPENSES TO BE PAID BY ADVISER. The Adviser shall furnish to the
Trust, at its own expense, such office space and all office facilities,
equipment and personnel necessary to render the services set forth in paragraph
2 above. The Adviser shall also assume and pay all expenses incurred by it
related to the placement of securities orders, and all expenses of marketing
shares of the Trust.
5. EXPENSES TO BE PAID BY THE TRUST. The Trust shall pay all expenses not
expressly assumed by the Adviser, including but not limited to: all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents, fund
accounting agents, registrars and its dividend disbursing and redemption agents,
if any; all charges of legal counsel and of independent auditors; all
compensation of trustees other than those affiliated with the Adviser and all
expenses incurred in connection with their services to the Trust; all costs of
borrowing money; all expenses of publication of notices and reports to its
shareholders and to governmental bodies or regulatory agencies; all expenses of
proxy solicitations of the Trust or its board of trustees with respect to the
Fund; all expenses of shareholder meetings; all expenses of typesetting of the
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; all taxes and fees
payable to federal, state or other governmental agencies, domestic or foreign;
all stamp or other transfer taxes; all expenses of printing and mailing
certificates for shares of the Trust; all expenses of bond and insurance
coverage required by law or deemed advisable by the Trust's board of trustees;
all expenses of maintaining the registration of shares of the Trust under the
1933 Act and of qualifying and maintaining qualification of shares of the Trust
under the securities laws of such United States jurisdictions as the Trust may
from time to time reasonably designate and all expenses of maintaining the
registration of the Trust under the 1940 Act; and all fees, dues and other
expenses related to membership of the Trust in any trade association or other
investment company organization. In addition to the payment of expenses, the
Trust shall also pay all brokers' commissions and other charges relating to the
purchase and sale of portfolio securities.
6. COMPENSATION OF ADVISER. For the services to be rendered and the
charges and expenses to be assumed and to be paid by the Adviser hereunder, the
Trust shall pay out of Fund assets to the Adviser a monthly fee, based on the
Fund's net assets as of the last business day of the preceding month, at the
annual rate of 1.25% of net assets. The fee for a month shall be paid as soon
as practicable after the last day of that month. The fee payable hereunder
shall be reduced proportionately during any month in which this agreement is not
in effect for the entire month.
7. LIMITATION OF EXPENSES OF THE FUND. The total expenses of the Fund,
exclusive of taxes, interest and extraordinary litigation expenses, but
including fees paid to the Adviser, shall not in any fiscal year of the Trust
exceed the most restrictive limits prescribed by any state in which Fund shares
are then being offered for sale, and the Adviser agrees to reimburse the Fund
for any sums expended for such expenses in excess of that amount. Brokers'
commissions and other charges relating to the purchase and sale of portfolio
securities shall not be regarded as expenses.
2
<PAGE>
8. SERVICES OF ADVISER NOT EXCLUSIVE. The services of the Adviser to the
Trust hereunder are not exclusive, and the Adviser shall be free to render
similar services to others so long as its services under this agreement are not
impaired by such other activities.
9. LIABILITY OF ADVISER. The Adviser shall not be liable to the Trust or
its shareholders for any loss suffered by the Trust or its shareholders from or
as a consequence of any act or omission of the Adviser, or of any of the
partners, employees or agents of the Adviser, in connection with or pursuant to
this agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or by
reason of reckless disregard by the Adviser of its obligations and duties under
this agreement.
10. LIABILITY OF TRUST. The obligations of the Trust hereunder shall not
be binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but shall bind only the assets and property
of the Trust as provided in the Agreement and Declaration of Trust of the Trust.
11. USE OF ADVISER'S NAME. The Trust may use the name "Harris Associates
Investment Trust," or any other name derived from the name "Harris Associates,"
and the name "Oakmark" only for so long as this agreement or any extension,
renewal or amendment hereof remains in effect, including any similar agreement
with any organization which shall have succeeded to the business of the Adviser
as investment adviser. At such time as this agreement or any extension, renewal
or amendment hereof, or such other similar agreement shall no longer be in
effect, the Trust will (by amendment of its Agreement and Declaration of Trust,
if necessary) cease to use any name derived from the name "Harris Associates,"
any name similar thereto or any other name indicating that it is advised by or
otherwise connected with the Adviser, or with any organization which shall have
succeeded to the Adviser's business as investment adviser, and shall cease to
use the name "Oakmark" or any name derived from the name "Oakmark." The consent
of the Adviser to the use of such names by the Trust shall not prevent the
Adviser's permitting any other enterprise, including another investment company,
to use such name or names.
12. DURATION AND RENEWAL.
(a) Unless terminated as provided in section 13, this agreement shall
continue in effect until September 30, 1997, and thereafter from year to year
only so long as such continuance is specifically approved at least annually (a)
by a majority of those trustees who are not interested persons of the Trust or
of the Adviser, voting in person at a meeting called for the purpose of voting
on such approval, and (b) by either the board of trustees of the Trust or a vote
of the holders of a majority of the outstanding shares of the Fund (which term
as used throughout this agreement shall be construed in accordance with the
definition of "vote of a majority of the outstanding voting securities of a
company" in section 2(a)(42) of the 1940 Act).
(b) Any approval of this agreement by the holders of a majority of the
outstanding shares of the Fund shall be effective to continue this agreement
notwithstanding that it has not been approved by the vote of a majority of the
outstanding shares of the Trust, unless such approval shall be required by any
other applicable law or otherwise.
13. TERMINATION. This agreement may be terminated at any time, without
payment of any penalty, by the board of trustees of the Trust, or by a vote of
the holders of a majority of the outstanding shares of the Fund, upon 60 days'
written notice to the Adviser. This agreement may be terminated by the Adviser
at any time upon 60 days' written notice to the Trust. This agreement shall
terminate automatically in the event of its assignment (as defined in section
2(a)(4) of the 1940 Act).
3
<PAGE>
14. AMENDMENT. This agreement may not be amended without the affirmative
vote (a) of a majority of those trustees who are not "interested persons" (as
defined in Section 2(a)(19) of the 1940 Act) of the Trust and (b) of the holders
of a majority of the outstanding shares of the Fund.
Dated:
HARRIS ASSOCIATES INVESTMENT TRUST
By:______________________________________
HARRIS ASSOCIATES L.P.
by Harris Associates, Inc.
its General Partner
By:______________________________________
4
<PAGE>
Exhibit 11
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated December 5, 1995, and to all references to our firm included in or made
part of this Registration Statement on Form N-1A of the Harris Associates
Investment Trust (comprising the Oakmark Fund and the Oakmark International
Fund).
/s/ Arthur Andersen LLP
Chicago, Illinois,
December 19, 1995
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<MULTIPLIER> 1,000
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