<PAGE>
ANNUAL REPORT
October 31, 1996
The Oakmark
Fund
The Oakmark
Small Cap Fund
The Oakmark
Balanced Fund
The Oakmark
International Fund
The Oakmark
International
Emerging
Value Fund
MEMBER OF
===================
NO-LOAD
100% MUTUAL FUND
COUNCIL
===================
Managed by
HARRIS
ASSOCIATES L.P.
OAKMARK
<PAGE>
THE OAKMARK FAMILY OF FUNDS
1996 Annual Report
---------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
LETTER FROM THE PRESIDENT........................... 1
THE OAKMARK FAMILY OF FUNDS SUMMARY................. 2
THE OAKMARK FUND
Performance Information............................ 4
Letter from the Portfolio Manager.................. 4
Schedule of Investments............................ 7
THE OAKMARK SMALL CAP FUND
Performance Information........................... 11
Letter from the Portfolio Manager................. 11
Schedule of Investments........................... 13
THE OAKMARK BALANCED FUND
Performance Information........................... 16
Letter from the Portfolio Manager................. 16
Schedule of Investments........................... 18
THE OAKMARK INTERNATIONAL FUND
Performance Information........................... 21
Letter from the Portfolio Managers................ 21
International Diversification Chart............... 23
Schedule of Investments........................... 24
THE OAKMARK INT'L EMERGING VALUE FUND
Performance Information........................... 28
Letter from the Portfolio Managers................ 28
International Diversification Chart............... 30
Schedule of Investments........................... 31
FINANCIAL STATEMENTS............................... 34
TRUSTEES AND OFFICERS.............................. 49
</TABLE>
FOR MORE INFORMATION:
Please call 1-800-OAKMARK (1-800-625-6275).
24-HOUR NET ASSET VALUE HOTLINE:
To obtain the current net asset value of a Fund,
please call 1-800-GROWOAK (1-800-476-9625).
<PAGE>
Letter from the President . . .
- --------------------------------------------------------------------------------
[PHOTO OF VICTOR A. MORGENSTERN APPEARS HERE]
Fellow Shareholders:
We are pleased to present the annual report for The Oakmark Family of
Funds. For our fiscal year-end October 31, 1996, our Family was five-strong and
as I write this, we have just launched our newest member, The Oakmark Select
Fund, a non-diversified equity fund. We passed several important milestones this
year. The Oakmark Fund had its fifth birthday and notably is the top-performing
fund (out of 250) in the Lipper growth fund category for the five years ended
October 31, 1996.
The Oakmark Small Cap Fund, The Oakmark Balanced Fund and The Oakmark
International Emerging Value Fund had their first birthdays, with Small Cap and
International Emerging Value significantly outperforming their respective
benchmarks. We have built our six-fund family very carefully, and we believe we
are well along in meeting our long-term goal: being the best value-oriented fund
family.
Each of our Funds employs the same value-oriented investment philosophy
applied across both the domestic and international spectrum. Also, each Fund
uses the resources of the entire Harris Associates research team. All of our
analysts are generalists and apply the same value philosophy to their work. The
reports that follow highlight some of the Fund managers' selections in creating
their respective portfolios.
We have redesigned our annual report this year to make it more readable and
user-friendly. We are mindful of its overall size and, therefore, used a self-
mailer to reduce costs. Kudos to Jeani Meola, Ann Regan and our outside
consultant (and logo designer), Jude Mahler, for the new look. As always, your
comments and suggestions for improvement are solicited.
Thank you for your support and best wishes for a healthy, happy and
prosperous new year!
/s/ Victor A. Morgenstern
Victor A. Morgenstern,
President
[LOGO OF OAKMARK FAMILY OF FUNDS]
1
<PAGE>
The Oakmark Family of Funds
Summary Information*
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Performance for Period Ended The Oakmark Fund The Oakmark
October 31, 1996 Small Cap Fund
===========================================================================================================
<S> <C> <C> <C> <C>
3 Months 7.6% 11.5%
- -----------------------------------------------------------------------------------------------------------
6 Months 3.9% 8.3%
- -----------------------------------------------------------------------------------------------------------
Performance for:
1 Year 18.1% 31.9%
- -----------------------------------------------------------------------------------------------------------
3 Years 16.0%** N/A
- -----------------------------------------------------------------------------------------------------------
5 Years 25.8%** N/A
- -----------------------------------------------------------------------------------------------------------
Since inception 29.2%** 31.9%
Value of $10,000 $38,252 $13,190
from inception date 08/05/91 11/01/95
===========================================================================================================
Top Five Holdings as of
October 31, 1996
Company and % of Total Net Assets Philip Morris Co. 6.3% US Industries, Inc. New 5.7%
Mellon Bank Corp. 6.0% SPX Corp. 5.5%
First USA, Inc. 5.2% Catellus Dev. Corp. 5.3%
Dun & Bradstreet 4.8% First Brands Corp. 4.1%
Knight Ridder, Inc. 4.1% Premark International, Inc. 4.1%
===========================================================================================================
Top Five Industries as of
October 31, 1996
Industries and % of Total Net Assets Food & Beverage 17.7% Other Industrial Goods
& Services 16.9%
Broadcasting & Machinery & Metal
Publishing 13.3% Processing 12.8%
Other Consumer Goods Banks 10.7%
& Services 12.5%
Other Financial 10.3% Insurance 9.1%
Insurance 6.4% Broadcasting & Publishing 8.9%
</TABLE>
*The Oakmark Fund's average annual total returns for the twelve months
ended September 30, 1996 and for the period August 5, 1991 (inception)
through September 30, 1996 were 15.5% and 29.5%, respectively. The Oakmark
Small Cap Fund's total return for November 1, 1995 (inception) through
September 30, 1996 was 32.5%.
The Oakmark Balanced Fund's total return for November 1, 1995 (inception)
through September 30, 1996 was 11.1%.
**Annualized.
2 The Oakmark Family of Funds
<PAGE>
<TABLE>
<CAPTION>
The Oakmark The Oakmark The Oakmark Int'l
Balanced Fund International Fund Emerging Value Fund
<S> <C> <C>
5.9% 3.8% 3.4%
6.2% .8% .6%
12.9% 24.9% 14.1%
N/A 8.2%** N/A
N/A N/A N/A
12.9% 16.0%** 14.1%
$11,290 $18,309 $11,410
11/01/95 09/30/92 11/01/95
- -----------------------------------------------------------------------------------------------------------------
US Industries, Inc. New 4.7% National Australia Bank 4.8% Sanford Limited 4.5%
Premark International, Inc. 3.4% AB Volvo 4.5% Parbury Limited 4.1%
Lee Enterprises, Inc. 3.3% Cordiant PLC 4.3% Cordiant PLC 3.8%
Mellon Bank Corp. 3.2% Usiminas 3.7% Solution 6 Holdings Ltd. 3.7%
McDonnell Douglas Corp. 3.2% Telefonica 3.5% Yip's Hang Cheung
(Holdings) Limited 3.7%
- -----------------------------------------------------------------------------------------------------------------
Government & Agency Banks 13.7% Other Industrial Goods
Securities 27.4% & Services 17.9%
Other Consumer Goods Telecommunications 11.3% Mining & Building
& Services 20.9% Materials 8.2%
Other Industrial Goods Food 10.2% Other Consumer Goods
& Services 8.1% & Services 7.8%
Other Financial 6.2% Steel 8.9% Components 6.3%
Broadcasting & Publishing 5.8% Aerospace 6.2% Broadcasting & Publishing 6.0%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Oakmark International Fund's average annual total returns for the twelve
months ended September 30, 1996 and for the period September 30, 1992
(inception) through September 30, 1996 were 18.3% and 16.4%, respectively. The
Oakmark International Emerging Value Fund's total return for November 1, 1995
(inception) through September 30, 1996 was 15.9%. The Funds' past performances
are no guarantee of future results. Share prices and investment returns will
vary, so you may have a gain or loss when you sell shares.
The Oakmark Family of Funds 3
<PAGE>
The Oakmark Fund
Report from Robert J. Sanborn, Portfolio Manager
[PHOTO OF ROBERT J. SANBORN APPEARS HERE]
Annual Portfolio Update
The Oakmark Fund's fiscal year ended October 31, 1996 was eerily reminiscent of
our 1995 fiscal year. As Yogi Berra might say, "It's deja vu all over again." A
very similar macroeconomic environment--slow, steady growth; continued low
inflation, with the price of gold down again; long-term interest rates down
again--provided a good context for equities. As in fiscal 1995, your Fund
generated strong absolute returns but lagged those of the Standard & Poor's 500.
More than half of this relative gap is attributable to our investments in cable
companies. Increased competition and very heavy required capital expenditures
have combined to retard value growth in this industry. Our estimate of the
underlying value of Tele-Communications Inc. (TCOMA), for example, has been
stagnant for a few years. This is contrary to our expectations of a few years
ago, and explains the disappointing stock performance. Like my weekly hoops game
at the 'Y' where you call your own fouls, this has been my bad.
While these stocks have been poor performers of late, this does not mean that we
are sick of them, or embarrassed by them, or need to sell them to gain
perspective. Our long-time shareholders know that investments in this industry
have been very kind to us over the long term. At current prices, we find our
cable holdings--TCOMA, U.S. West Media Group, and TCI Liberty Media--extremely
undervalued.
In general, as in fiscal 1995, the rest of our holdings' businesses performed at
least as well as our expectations. In fact, the discount to underlying value in
the portfolio is greater today than a year ago.
While we, as always, make our investments one by one, two sectors--consumer non-
durable companies (Philip Morris, Knight Ridder, Black & Decker, Heinz,
Anheuser-Busch, and American Brands, et. al.) and financial services (First USA,
Mellon, Torchmark, and Ambac, et. al.)--comprise almost one-half and one-quarter
The value of a $10,000 investment in The Oakmark Fund from its inception
(8/5/91) to present (10/31/96) as compared to the Standard & Poor's 500 Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return*
10/31/96 NAV $32.39 Through 10/31/96
----------------------------
From Fund
Total Return Inception
Last 3 mos. From 10/31/95 8/5/91
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE OAKMARK FUND 7.6% 18.1% 29.2%
Standard & Poor's 500 Stock Index* 10.9% 24.1% 15.2%
Dow-Jones Industrial Average* 9.7% 29.8% 17.3%
Value Line Composite Index* 7.5% 12.5% 7.7%
</TABLE>
*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.
4 The Oakmark Fund
<PAGE>
of the value of your Fund, respectively.
At the risk of repetition, I want to comment briefly on our consumer holdings.
These companies are well above-average, with high barriers to entry, dominant
market shares, loyal customers, and good international prospects. These
characteristics tend to produce well-above-average returns on assets and very
high free cash flow, which many of our holdings are using to repurchase their
own shares. Still, the market is not yet rewarding these above-average
businesses with the above-average valuations they deserve.
It is common for us to agree on the facts with market participants, yet reach
different investment conclusions. It reminds me of the scene in Annie Hall in
which Alvie Singer and Annie are having sessions with their respective
psychoanalysts. In the scene, each character states that the couple's love life
is a source of frustration. The analysts ask each how often they make love. "Oh,
all the time," answers Annie; "Hardly ever," responds Alvie. Then in unison they
each add, "Three times a week."
So it is with our consumer stocks. Yet, rather than waste any time trying to
anticipate when the market will value these stocks appropriately, we patiently
wait for price and value to converge. In the meantime, the superior value growth
that we expect these holdings to produce should benefit your Fund. In fact, we
continue to find additional candidates for investment in this sector.
Your Fund continues its high concentration and low portfolio turnover. Our
twenty largest holdings comprise over 70 percent of our value, up from 67
percent last year. Our five largest holdings comprise over 26 percent of our
holdings. As I have stated before, we believe in putting our absolute best ideas
in your Fund, and have no interest in becoming a closet index fund. I
characterize our portfolio as diversified without being overdiversified.
We are long-term investors who buy ownership pieces of companies for the long
term. Given that our holdings have produced strong business results, yet below-
average stock price performance, it should be no surprise that our portfolio
turnover was quite low last year. In fact, we sold only one (Federated
Department Stores) of our twenty largest holdings last year. However, we sold
several other holdings--Clorox, Interstate Bakeries, Zale, and St. Jude Medical,
et. al.--as they approached our estimate of value.
Professional investors too often mistake trading activity for investment
activity. The correct level of trading is that which optimizes returns. This
reminds me of a scene from another movie, Amadeus. The young Mozart is playing a
new composition for Salieri and the King. Finishing, he seeks the King's
approval. After offering tepid enthusiasm, the King adds, "There are too many
notes." Of cour
se, Mozart knows that the work has the exact number of notes to
convey what he is trying to communicate. No more, no less. So it is with our
trading.
We are fortunate to have the services of Harris Associates' crack trading team--
Connie Twomey, Tony Sinople, newlywed John Tansey, and Betsy Burns. We could not
have a more reliable, professional, and experienced group implementing our
philosophy. (And, except for John, no one even vaguely resembles any character
on Lifetime TV's "Traders".)
What is ahead for 1997? On the one hand, anecdotal evidence indicates a frothy
market; on the other hand, I like our quality portfolio a lot, and would much
prefer owning it than cash over the next five years. As the curtain falls on
another year, I want to thank you again for your support and confidence over the
past five-plus years.
The Crash of 1987 Revisited
A little over nine years ago, on October 19, 1987, the most singular day of my
investment career occurred. On "Black Monday," the Dow dropped 508 points, a
decline of 22.6 percent, the biggest one-day drop in history. In fact, the drop
was actually worse than that, since the more-liquid S&P 500 futures index
declined by over 29 percent that day. By contrast, the worst single-day
percentage decline in the 1929 market crash was "only" 12.8 percent.
At the time, I was working for a large pension fund in Columbus, Ohio. Some
colleagues, other investment friends and I met at a tavern to lick our wounds.
As I recall, the consensus was that we had all seen it coming (of course), that
the Crash would have profound negative effects on the economy and the market,
and also on our careers.
The consensus was wrong.
Next year, there will be a lot of tenth anniversary observations about The
The Oakmark Fund 5
<PAGE>
Crash of 1987. Let's beat them all by a year, and ask ourselves, what was the
cause of the Crash and what is its legacy? And, what can we learn from it?
Many explanations for THE cause have been offered: a confrontation between Iran
and the US, an SEC ruling that would chill the corporate acquisition market, an
increase in inflationary expectations. These are all unsatisfactory, however. In
my estimation, the biggest cause of the Crash was complacency on the part of
institutional investors who had convinced themselves that they had protected
their portfolios from any significant downside. This delusion was fostered by
the growing use of something called "dynamic hedging," or, more commonly,
"portfolio insurance."
Portfolio insurance was based on the beguiling notion that it's better to own
more stocks when the market is going up than when it's going down. An investor
would simply buy more stocks in a rising market and sell stocks in a declining
market. (Some of you may recognize the "stop-loss" trading technique in this
strategy. You are correct-but "dynamic hedging" sounded a lot better and more
sophisticated when the purveyors of portfolio insurance made their sales calls.)
One of the problems with portfolio insurance was that it required orderly,
liquid markets to implement. Another problem was that it required participants
to sell more and more stock into declining markets, thus exacerbating any price
weakness. The SEC concluded that the relatively small $200 million of portfolios
being managed with portfolio insurance at the market peak of 1987 mushroomed to
as high as $90 billion after the Crash.
The Crash had little to no effect on the economy, and did not scare individual
investors away from the stock market. The greatest growth in individual
participation in the US equity market occurred after the Crash. If one had
bought the Dow after the Crash, and held until today, he would have earned about
17.5 percent annually. If one had bought the day BEFORE the Crash, he would
still have earned over 14.5 percent. The key investment decision has never been
when to buy equities, but rather to allocate the majority of your long-term
assets to equities.
The importance of a long-term investment time-horizon is the most crucial lesson
from the Crash of 1987. Stocks in the US have significantly outperformed bonds,
cash, and inflation over the past 70 years. For example, from 1926 to 1996,
stocks have generated annual returns of 10 percent, vs. 5 percent for bonds, 3
percent for cash, and 3 percent for inflation. The longer one's holding period,
the more compelling the case for stocks. In the years 1926 to 1995, for example,
stocks have outperformed bonds 61 percent of the years; however, as the holding
period rises to 5, 10, and 20 years, stocks outperform 77%, 89%, and 98%,
respectively.
While there is, of course, no assurance that these relationships will persist, I
suspect they will. There is evidence of froth in today's market: record issuance
of IPOs, dramatic growth in mutual fund and personal investing media coverage,
record attendance at the Schwab advisors' conference. Nevertheless, I have no
intention of trying to time the market, and I am very comfortable with the
absolute and relative value of our holdings. Prepare yourself for the occasional
Crash, and regard it as part of the price for growing your wealth in the long
run.
/S/ Robert J. Sanborn
Robert J. Sanborn
Portfolio Manager
[email protected]
November 6, 1996
6 The Oakmark Fund
<PAGE>
The Oakmark Fund
Schedule of Investments-October 31, 1996
<TABLE>
<CAPTION>
Shares Held Market Value
- ------------------------------------------------------------------------
<S> <C> <C>
Common Stocks-94.6%
Food & Beverage-17.7%
Philip Morris Companies Inc. 2,670,400 $ 247,345,800
H.J. Heinz Company 4,007,250 142,257,375
Anheuser-Busch Companies Inc. 3,538,200 136,220,700
Nabisco Holdings Corp. 2,422,100 90,223,225
CPC International 843,100 66,499,513
Ralston Purina Group 189,900 12,557,137
--------------
695,103,750
Retail-1.7%
The Kroger Company 954,600 $ 42,599,025
Carson Pirie Scott & Co. (a) 1,000,000 24,875,000
Cole National Corporation (a) 20,000 472,500
--------------
67,946,525
Telecommunications-3.9%
U.S. West Media Group 9,918,400 $ 154,975,000
Other Consumer Goods & Services-12.5%
The Black & Decker Corporation 3,810,400 $ 142,413,700
Polaroid 2,922,600 118,730,625
American Brands, Inc. 2,435,500 116,295,125
First Brands Corporation 940,400 26,683,850
Whitman Corporation 957,500 23,219,375
Brunswick Corporation 779,700 18,322,950
GC Companies, Inc. (a) 500,000 16,937,500
JUNO Lighting Inc. 885,000 13,772,813
Arctic Cat, Inc. 957,500 8,976,562
Justin Industries, Inc. 601,500 6,165,375
--------------
491,517,875
Banks-6.0%
Mellon Bank Corporation 3,606,550 $ 234,876,569
River Bank America (a) 340,000 3,060,000
--------------
237,936,569
Insurance-6.4%
Torchmark Corporation 3,296,200 $ 159,453,675
Old Republic International 2,108,620 52,188,345
American Financial Group, Inc. 684,700 24,563,613
Acordia, Inc. 501,300 14,287,050
--------------
250,492,683
Other Financial-10.3%
FirstUSA, Inc. 3,548,000 $ 204,010,000
AMBAC Inc. 2,194,900 137,181,250
Federal National Mortgage Association 1,184,500 46,343,563
Fund American Enterprises Holdings, Inc. 204,400 18,319,350
--------------
405,854,163
</TABLE>
See accompanying notes to financial statements.
The Oakmark Fund 7
<PAGE>
The Oakmark Fund
Schedule of Investments-October 31, 1996 cont.
<TABLE>
<CAPTION>
Shares Held Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks-94.6% (cont.)
Broadcasting & Publishing-13.3%
Dun & Bradstreet Corporation 3,256,200 $ 188,452,575
Knight-Ridder, Inc. 4,348,800 162,536,400
Tele-Communications, Inc. Class A (a) 9,179,179 114,166,038
TCI Communications, Inc. (a) 2,113,494 54,422,470
AC Nielson Corporation 311,700 4,792,387
--------------
524,369,870
Pharmaceutical-2.7%
American Home Products Corporation 1,720,600 $ 105,386,750
Managed Care Services-1.6%
Foundation Health Corporation (a) 1,813,700 $ 54,184,288
Physicians Health Services, Inc. (a) 420,000 7,035,000
Right CHOICE Managed Care, Inc. (a) 270,000 2,666,250
--------------
63,885,538
Medical Products-1.0%
Sybron Corporation (a) 1,297,800 $ 37,798,425
Aerospace & Defense-5.3%
Lockheed Martin Corporation 1,287,210 $ 115,366,196
McDonnell Douglas Corporation 1,220,000 66,490,000
Logicon, Inc. 654,800 27,092,350
--------------
208,948,546
Other Industrial Goods & Services-5.4%
James River Corporation 2,839,100 $ 89,431,650
Bandag Incorporated, Class A 1,014,300 47,164,950
SPX Corporation 880,400 24,981,350
The Geon Company 912,100 17,899,963
USG Corporation (a) 590,000 17,405,000
UCAR International Inc. (a) 253,000 9,898,625
Premark International, Inc. 186,200 3,886,925
Bandag Incorporated 26,300 1,249,250
--------------
211,917,713
Commercial Real Estate-1.0%
Host Marriott Corporation (a) 2,291,700 $ 35,234,888
Catellus Development Corporation (a) 585,700 5,783,787
--------------
41,018,675
Foreign Securities-5.8%
DeBeers Consolidated Mines Ltd. ADR (b) 3,135,000 $ 92,482,500
YPF Sociedad Anonima (b) 3,276,500 74,540,375
Unilever NV 297,000 45,403,875
EVC International NV 547,700 15,139,465
--------------
227,566,215
Total Common Stocks (Cost: $2,936,176,488) 3,724,718,297
</TABLE>
See accompanying notes to financial statements.
8 The Oakmark Fund
<PAGE>
The Oakmark Fund
Schedule of Investments-October 31, 1996 cont.
<TABLE>
<CAPTION>
Shares Held/
Principal Value Market Value
- --------------------------------------------------------------------------
<S> <C> <C>
Common Stocks Sold Short-0.0%
Broadcasting &Publishing
Cognizant Corporation (65,800) $ (2,056,250)
--------------
Total Common Stocks Sold Short (Proceeds: $2,062,103) (2,056,250)
Short-Term Investments-5.0%
Commercial Paper-4.7%
American Express Credit Corporation,
5.30% due 11/5/1996 $25,000,000 $ 25,000,000
Ford Motor Credit Corporation,
5.35% due 11/4/1996 25,000,000 25,000,000
Ford Motor Credit Corporation,
5.26% due 11/4/1996 25,000,000 25,000,000
Ford Motor Credit Corporation,
5.37% due 11/4/1996 50,000,000 50,000,000
General Electric Capital Corporation,
5.65% due 11/1/1996 10,000,000 10,000,000
General Electric Capital Corporation,
5.65% due 11/1/1996 50,000,000 50,000,000
--------------
Total Commercial Paper 185,000,000
Repurchase Agreements-0.3%
State Street Repurchase Agreement,
5.55% due 11/1/1996 Collateralized
by US Treasury Securities $12,061,000 $ 12,061,000
--------------
Total Repurchase Agreements 12,061,000
Total Short-Term Investments (Cost: $197,061,000) 197,061,000
Total Investments (Cost $3,131,175,385)-99.6% $3,919,723,047
Other assets, less other liabilities-0.4% 14,212,613
--------------
Total Net Assets-100% $3,933,935,660
==============
</TABLE>
See accompanying notes to financial statements.
The Oakmark Fund 9
<PAGE>
The Oakmark Fund
Schedule of Investments-October 31, 1996 cont.
- ---------------------------------------------
Notes:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) At October 31, 1996, net unrealized appreciation of $788,547,662 for
federal income tax purposes consisted of gross unrealized appreciation of
$878,790,727 and gross unrealized depreciation of $90,243,065.
Each of the following companies is considered affiliated because the Fund owns
greater than 5% of the outstanding voting shares of the company.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMBAC, Inc. 6.27% GC Companies, Inc. 6.4%
Bandag Inc. Class A 8.75% Polaroid Corporation 6.3%
Carson Pirie Scott & Co 5.96% SPX Corporation 6.19%
First USA, Inc. 5.92%
</TABLE>
The aggregate cost and value of investments in these companies at October 31,
1996 was $424,717,809 and $573,880,675 respectively, which represents 14.6% of
the total net assets. During the year ended October 31, 1996, dividends received
from these companies was $3,642,783.
See accompanying notes to financial statements.
10 The Oakmark Fund
<PAGE>
The Oakmark Small Cap Fund
Report from Steven J. Reid, Portfolio Manager
[PHOTO OF STEVEN J. REID APPEARS HERE]
Trick or Treat!!!
On Halloween, October 31, 1996, your Fund completed its first fiscal year of
operation. It was truly an outstanding year. We as shareholders were treated to
gains of 31.9% for the year and 11.5% for the fourth quarter. Our results were
significantly better than the relevant indices.
As the Fund's fiscal year ended, so did the beautiful fall weather in the
Midwest. The abrupt change in temperatures for Halloween was a frosty surprise
for many trick-or-treaters. As one of the many thousands who were able to
participate in this year's quest for candy, the change in weather was a very
mean trick.
What Happened
I have been asked numerous times to explain the results of The Oakmark Small Cap
Fund. My one word answer is philosophy. We at Harris Associates and The Oakmark
Funds wholeheartedly embrace a value-oriented investment philosophy. Over the
long term our philosophy of investing has rewarded our shareholders. However, it
would be remiss on my part not to acknowledge the unique performance of several
of the Fund's holdings and highlight some of the characteristics we look for in
our investment process.
Catellus Development Corporation, SPX Corporation, and U.S. Industries, Inc. are
the Fund's three largest holdings. All of these companies have performed well
and have earned their place at the top of the heap in the portfolio. In
particular, SPX Corp. stands out as a shining example of what we look for when
we invest in a stock for your Fund. Henry Berghoef sourced this idea, and our
hats are off to you Henry!
SPX Corporation is a long-established Muskegon, Michigan-based company that
operates a group of very fine businesses. The company had lost focus in the last
several years, and as a result its performance and stock price had deteriorated
significantly. SPX came to our attention when it was announced that a new
management team would be brought in to revitalize the company.
The Value of a $10,000 Investment in
The Oakmark Small Cap Fund
from its Inception (11/1/95) to Present (10/31/96)
as compared to the Russell 2000
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Total Return*
10/31/96 NAV $13.19 Through 10/31/96
Total Return From Fund Inception
Last 3 mos.. 11/1/95
- ------------------------------------------------------------------
<S> <C> <C>
The Oakmark Small Cap Fund 11.5% 31.9%
Lipper Small Co. Growth* 8.6% 17.1%
Russell 2000* 7.8% 15.0%
S&P 600* 9.8% 19.3%
</TABLE>
*Total return includes change in share prices and in each case includes
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 Lipper Small Company Growth Fund Index is comprised
of 30 Small Cap Funds. The Russell 2000 Index measures the performance of
smaller companies, and represents approximately 10% of the total value of
publicly traded companies in the U.S. The S&P 600 Index measures the performance
of selected U.S. stocks with a small market capitalization. Past performance is
no guarantee of future results.
The Oakmark Small Cap Fund 11
<PAGE>
Soon after that John Blystone was selected as the new President and Chief
Executive Officer. John's mission was two-fold. First, he needed to reshape the
culture of the company. This meant providing proper incentives related to the
performance of the individual business units and giving employees at all levels
the opportunity and responsibility to improve results. Second, it required
rationalizing several aspects of the business. As John told us, "I probably have
to grow by shrinking." After careful analysis, management decided that several
business units would be sold to repay debt that the company had incurred over
the years, thus allowing management to focus on the core remaining businesses.
It is worth noting that while all of this was taking place Wall Street remained
skeptical. This provided the opportunity for us to purchase shares at an
attractive valuation for your Fund. Both the performance of the operating
businesses of SPX and shares of the stock have improved. We still see tremendous
potential and have noted that Wall Street has begun to catch on. In the
meantime, we wish John and his management team continued success.
Outlook
As you may know, we don't make forecasts regarding the stock market, the
economy, or interest rates. We adhere to a bottom-up approach to investing.
Every security is researched and evaluated on its own merit. In a recent issue
of a major financial periodical they listed their 100 most attractive small
company investments. I was pleased to see, and take comfort in knowing, that not
one of our holdings in the Fund was a part of this list. We still see excellent
opportunities for investing and are elated that other people are not seeing what
we do.
Once again, I would like to thank everyone involved, especially our
shareholders, for your support of The Oakmark Small Cap Fund.
/s/ Steven J. Reid
Steven J. Reid
Portfolio Manager
[email protected]
October 31, 1996
12 The Oakmark Small Cap Fund
<PAGE>
THE OAKMARK SMALL CAP FUND
Schedule of Investments--October 31, 1996
<TABLE>
<CAPTION>
Shares Held Market Value
- -----------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--94.9%
Food & Beverage-3.8%
GoodMark Foods, Inc. 258,500 $ 4,459,125
Ralcorp Holdings, Inc. (a) 186,500 3,916,500
-----------
8,375,625
Retail--6.4%
Cole National Corporation (a) 325,000 $ 7,678,125
Carson Pirie Scott & Co. (a) 175,000 4,353,125
Rex Stores Corporation (a) 200,000 1,900,000
-----------
13,931,250
Other Consumer Goods & Services--5.9%
First Brands Corporation 315,000 $ 8,938,125
Justin Industries, Inc. 207,400 2,125,850
Triarc Companies, Inc. (a) 150,000 1,762,500
-----------
12,826,475
Banks--10.7%
Peoples Bank of Bridgeport Connecticut 300,000 $ 7,725,000
Harbor Federal Savings Bank 160,000 5,060,000
Texas Regional Bancshares, Inc. 145,000 4,676,250
Northwest Savings Bank 215,000 2,687,500
Pocahontas Federal Savings & Loan Association 140,000 1,995,000
Savings Bank of Finger Lakes 86,500 1,167,750
-----------
23,311,500
Insurance--9.1%
Renaissance Holdings, Ltd 260,000 $ 7,572,500
Chartwell Re Corporation 257,000 6,521,375
Highlands Insurance Group, Inc. (a) 294,200 5,810,450
-----------
19,904,325
Other Financial--3.4%
Duff & Phelps Credit Rating Company 251,500 $ 5,564,438
First USA Paymentech Inc. 50,000 1,850,000
-----------
7,414,438
Broadcasting & Publishing--8.9%
Granite Broadcasting Corporation 500,000 $ 5,750,000
Cablevision Systems Corporation (a) 175,000 5,446,875
Lee Enterprises, Incorporated 184,300 4,215,862
Central Newspapers, Class A. 100,000 4,025,000
-----------
19,437,737
Computer Systems--1.9%
Imation Corporation (a) 150,000 $ 4,106,250
Managed Care Services--1.5%
Healthcare Services Group, Inc. 355,000 $ 3,416,875
</TABLE>
See accompanying notes to financial statements.
THE OAKMARK SMALL CAP FUND 13
<PAGE>
THE OAKMARK SMALL CAP FUND
Schedule of Investments--October 31, 1996 cont.
<TABLE>
<CAPTION>
Shares Held/
Principal Value Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--94.9% (cont.)
Machinery and Metal Processing--12.8%
Gardner Denver Machinery Incorporated 237,500 $ 7,481,250
Kysor Industrial Corporation 175,800 5,120,175
The Carbide/Graphite Group 292,000 4,763,250
Sudbury, Inc. 350,000 3,937,500
Northwest Pipe Company 200,000 3,450,000
Matthews International Corporation 105,000 3,110,625
------------
27,862,800
Other Industrial Goods & Services--16.9%
SPX Corporation 420,000 $ 11,917,500
Premark International, Inc. 425,000 8,871,875
Zurn Industries, Inc. 250,000 6,281,250
MagneTek, Inc. (a) 500,000 5,562,500
Dal-Tile International Inc. (a) 250,000 4,375,000
------------
37,008,125
Commercial Real Estate--7.9%
Catellus Development Corporation (a) 1,175,000 $ 11,603,125
Innkeepers USA Trust 255,000 2,996,250
Castle & Cooke, Inc. (a) 170,000 2,613,750
------------
17,213,125
Diversified Conglomerates--5.7%
U.S. Industries, Inc. New (a) 460,000 $ 12,420,000
TOTAL COMMON STOCKS (COST: $187,590,109) 207,228,525
Corporate Bonds--1.7%
Harrah's Jazz Bonds, 14.25% due 11/15/2001 (c) $6,700,000 $ 3,768,750
TOTAL CORPORATE BONDS (Cost: $3,304,413) 3,768,750
Short-Term Investments--2.7%
Commercial Paper--2.3%
American Express Credit Corporation,
5.30% due 11/5/1996 $1,000,000 $ 1,000,000
Ford Motor Credit Corporation,
5.37% due 11/4/1996 2,000,000 2,000,000
General Electric Capital Corporation,
5.65% due 11/1/1996 2,000,000 2,000,000
------------
TOTAL COMMERCIAL PAPER 5,000,000
</TABLE>
See accompanying notes to financial statements.
14 THE OAKMARK SMALL CAP FUND
<PAGE>
The Oakmark Small Cap Fund
Schedule of Investments--October 31, 1996 cont.
<TABLE>
<CAPTION>
Repurchase Agreements--0.4% Principal Value Market Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
State Street Repurchase Agreement,
5.55% due 11/1/1996 Collateralized
US Treasury Securities........................... $845,000 $ 845,000
------------
Total Repurchase Agreements...................... 845,000
Total Short-Term Investments (Cost: $5,845,000).. 5,845,000
Total Investments (Cost $196,739,522)--99.3%..... 216,842,275
Other assets, less other liabilities--.7%........ 1,578,132
------------
Total Net Assets--100%........................... $218,420,407
============
</TABLE>
- -----------------------------------------
Notes:
(a) Non-income producing security.
(b) At October 31, 1996, net unrealized appreciation of $20,102,753 for federal
income tax purposes consisted of gross unrealized appreciation of $24,650,766
and gross unrealized depreciation of $4,548,013.
(c) This bond is currently in default and the Fund is no longer accruing
interest.
- -----------------------------------------
At October 31, 1996, the Fund owned 8.7% of Pocohontas Federal Savings & Loan
Association and 5.8% of Granite Broadcasting. Companies in which the Fund owns
greater than 5% are considered affiliated to the Fund. The purchase cost was
$8,438,933, market value was $7,745,000 and represents 3.5% of the total net
assets. Dividends earned during the year ended October 31, 1996 were $68,880.
THE OAKMARK SMALL CAP FUND 15
<PAGE>
The Oakmark Balanced Fund
Report from Clyde S. McGregor, Portfolio Manager
----------------------------------------------------------------------------
[PHOTO OF CLYDE S. MCGREGOR APPEARS HERE]
Fiscal Year-End Review
The Oakmark Balanced Fund is now a one-year old, and I would like to thank my
fellow shareholders for their support as well as their insightful questions and
comments in the inaugural year. While not without nervous moments, the year was
a successful beginning for the Fund. Oakmark Balanced returned 12.9% for the
fiscal year, 5.9% for the fourth fiscal quarter. One of our goals for the
Balanced Fund is to produce returns that are more consistent and less volatile
than those exhibited by funds which invest only in stocks. Given that goal, I am
particularly pleased that in the Fund's first year of existence each quarter
produced a positive result.
Deals/Acquisitions
Recently, announcements of large acquisitions and mergers have dominated the
financial news. Deals such as the bidding war for Conrail or the MCI/British
Telecom merger get most of the media coverage, but they are merely
representative of the high level of activity. Shareholders sometimes assume that
we invest with the expectation that our holdings will be taken over. While our
portfolios do occasionally experience such pleasant surprises, they benefit more
from our ability to derive useful valuation tools from publicly announced
transactions.
For example, in September, A.H. Belo announced that it would acquire the
Providence Journal Company. While we did not own shares in either Belo or
Providence Journal, we studied the transaction for what it might tell us about
the value of Lee Enterprises, your Fund's third largest equity holding.
Providence and Lee both own newspapers and television stations. If we look at
the pricing of the media properties in the Providence acquisition and apply
similar valuations to Lee's properties, we find that Lee's current market price
is approximately one-half of the company's value to a possible purchaser.
- --------------------------------------------------------------------------------
The value of a $10,000 investment in The Oakmark Balanced Fund from its
inception (11/1/95) to present (10/31/96) as compared to the Lipper Balanced
Fund Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Total Return*
10/31/96 NAV $11.29 Through 10/31/96
Total Return From Fund Inception
Last 3 mos. 11/1/95
- --------------------------------------------------------------------------------
<S> <C> <C>
The Oakmark Balanced Fund 5.9% 12.9%
Lipper Balanced Fund Index* 7.4% 14.5%
Lehman Govt./Corp. Bond* 3.9% 5.4%
S&P 500* 10.9% 24.1%
</TABLE>
*Total return includes change in share prices and in each case includes
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 Lipper Balanced Fund Index Composite is comprised
of 30 Balanced Funds. The Lehman Govt./Corp. Bond Index includes the Lehman
Government and Lehman Corporate indices. The S&P 500 is a broad market-weighted
average dominated by blue-chip stocks. Past performance is no guarantee of
future results.
16 The Oakmark Balanced Fund
<PAGE>
We own Lee Enterprises shares not in anticipation of the company's acquisition
but because we have determined that the company has irreplaceable media
properties, a strong balance sheet, and a management team which is both
competent and shareholder-oriented. We expect that this combination of assets
and management will produce substantial growth in business value over time. An
acquisition of the company would be at best a mixed blessing.
Implicit in corporate transactions like the Providence Journal acquisition are
clues to understanding the economics of a business and how consolidation can add
to value. We will continue to study mergers and acquisitions because they offer
an insightful look into how people in an industry value companies.
Corporate Restructuring
In corporate America today it seems that everything is in flux. Mergers and
acquisitions receive the lion's share of media attention, but companies which
restructure their operations are even more common. Restructured companies have
been a fertile source of investment ideas for Harris Associates since our
establishment more than 20 years ago. We have found that companies which
restructure are often mispriced in the stock market. At the same time, the
restructuring often better aligns the interests of management with their
shareholders.
Many of the companies in which your Fund has invested have significantly changed
their composition in the last two years. For example, Premark International spun
off its Tupperware division, US Industries was itself spun off from its English
parent, Associates First Capital was partially divested by Ford Motor, and Dun &
Bradstreet split itself into three parts in November. In each of these
restructured companies we have discovered undervaluation as well as new
management focus, incentive, and initiative.
We expect the high level of corporate restructuring which we observe today to
continue. If so, we know where we will find many of our ideas in the future.
Mighty Oaks Awards
My partner Robert Sanborn created the Oak Leaf Cluster Award for the person who
contributes an idea which has the greatest positive impact on The Oakmark Fund.
Believing this to be a good idea, I have considered a variety of titles for an
award specific to the Balanced Fund. (The Balance Beam Award? This sounds like a
leftover from the Olympics, and I would never be confused with a gymnast.)
I finally settled on the Mighty Oaks Award because that is the name of our
firm's softball team. For the award, I will give the recipients t-shirts that
are already made up for the team (as a value investor, I am always looking for
ways to minimize costs).
This year we have two winners, one for fixed income and one for stocks. In my
last quarterly report I wrote at some length about Everen Capital Preferred,
which Bill Nygren, our Director of Research and manager of the new Select Fund,
recommended for The Balanced Fund. In view of this holding's 38% return to the
Fund, Bill is the winner of the first fixed income award.
On the equity side, the winner is Steve Reid (the manager of the Small Cap
Fund). Steve's recommendation of US Industries achieved an 80% return for the
Fund. Mentioned above in the section on restructuring, US Industries is a fine
example of how an unwanted business unit can generate newfound profitability
once separated from its corporate parent.
My best wishes for a happy holiday season and a prosperous 1997 accompany this
report. Please write or E-mail me with your questions or comments.
/s/ Clyde S. McGregor
Clyde S. McGregor
Portfolio Manager
[email protected]
November 5, 1996
The Oakmark Balanced Fund 17
<PAGE>
The Oakmark Balanced Fund
Schedule of Investments--October 31, 1996
<TABLE>
<CAPTION>
Shares Held Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Equity and Equivalents--57.1%
Food & Beverage--5.2%
Philip Morris Companies, Inc..................... 3,900 $ 361,238
H.J. Heinz Company............................... 10,150 360,325
----------
721,563
Retail--2.7%
The Kroger Company............................... 8,500 $ 379,312
Other Consumer Goods & Services--20.9%
Armstrong World Industries, Inc.................. 6,500 $ 433,875
Promus Hotel Corporation......................... 13,400 425,450
JUNO Lighting Inc................................ 26,800 417,075
Arctic Cat, Inc.................................. 44,200 414,375
National Presto Industries, Inc.................. 11,000 412,500
Polaroid Corporation............................. 10,000 406,250
The Black & Decker Corporation................... 9,900 370,013
----------
2,879,538
Banks--3.2%
Mellon Bank Corporation.......................... 6,700 $ 436,337
Other Financial--6.2%
Associates First Capital Corporation............. 10,000 $ 433,750
First USA, Inc................................... 7,300 419,750
----------
853,500
Broadcasting & Publishing--5.8%
Lee Enterprises, Incorporated.................... 20,100 $ 459,788
Dun & Bradstreet Corporation..................... 6,000 347,250
----------
807,038
Aerospace & Defense--3.2%
McDonnell Douglas Corporation.................... 8,000 $ 436,000
Other Industrial Goods & Services--8.1%
U.S. Industries, Inc. (a)........................ 24,000 $ 648,000
Premark International, Inc....................... 22,500 469,687
----------
1,117,687
Commercial Real Estate--1.8%
Catellus Development Corp.
$ 247,115
Total Equity and Equivalents (cost: $7,001,071).. 7,878,090
</TABLE>
See accompanying notes to financial statements.
18 The Oakmark Balanced Fund
<PAGE>
The Oakmark Balanced Fund
Schedule of Investments--October 31, 1996 cont.
<TABLE>
<CAPTION>
Shares Held/ Market Value
Principal Value
- -------------------------------------------------------------------------
<S> <C> <C>
Fixed Income--39.3%
Preferred Stocks--1.7%
Broadcasting & Cable TV--1.7%
Tele-Communications, Inc.
Preferred Junior Class B, 6% 3,900 $ 236,925
Total Preferred Stock (Cost: $257,263) 236,925
Corporate Bonds--Value 10.2%
Retail--1.1%
The Vons Companies, Inc.
9.625% due 4/1/2002 $150,000 $ 157,500
Building Materials & Construction--1.2%
USG Corporation
9.25% due 9/15/2001
Senior Notes Series B $150,000 $ 159,938
Utilities--1.2%
Midland Funding Corp.
11.75% due 7/23/2005 $150,000 $ 163,500
Other Industrial Goods & Services--3.3%
UCAR Global Enterprise Inc.
12% due 1/15/2005
Senior Subordinate $250,000 $ 288,125
SPX Corp. 11.75% due 6/1/2002 $150,000 162,750
----------
450,875
Aerospace & Automotive--1.1%
Coltec Industries, Inc.
9.75% due 1/1/2000 $150,000 $ 155,812
Other Consumer Goods & Services--2.3%
Samsonite Corp.
11.125% due 7/15/2005 $300,000 $ 319,500
Total Corporate Bonds (Cost: $1,400,924) 1,407,125
</TABLE>
See accompanying notes to financial statements.
The Oakmark Balanced Fund 19
<PAGE>
The Oakmark Balanced Fund
Schedule of Investments--October 31, 1996 cont.
<TABLE>
<CAPTION>
Principal Value Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Fixed Income--39.3% (cont.)
Government & Agency Securities--27.4%
United States Treasury Notes,
7.875% due 8/15/2001 $ 200,000 $ 214,656
United States Treasury Notes,
6.375% due 8/15/2002 700,000 708,071
United States Treasury Notes,
7.125% due 9/30/1999 1,100,000 1,134,914
United States Treasury Notes,
8.5% due 5/15/1997 800,000 813,216
United States Treasury Notes,
6.625% due 7/31/2001 600,000 612,864
Federal Home Loan Bank,
6.405% due 4/10/2001
Consolidated Bond 300,000 301,734
-----------
3,785,455
Total Government & Agency Securities
(Cost: $3,744,619) 3,785,455
Total Fixed Income (cost: $5,402,806) 5,429,505
Short-Term Investments--6.2%
Commercial Paper--6.2%
American Express Credit Corporation,
5.30% due 11/15/1996 $ 250,000 $ 250,000
Ford Motor Credit Corporation,
5.37% due 11/4/1996 250,000 250,000
General Electric Capital Corporation,
5.65% due 11/1/1996 350,000 350,000
-----------
850,000
Total Commercial Paper (Cost: $850,000) 850,000
Total Investments (Cost: $13,253,877)--102.6% $14,157,595
Other liabilities, less other assets--(2.6%) (358,669)
-----------
Total Net Assets--100% $13,798,926
===========
</TABLE>
- ----------------------
Notes:
(a) Non- income producing security.
(b) At October 31, 1996, net unrealized appreciation of $903,718 for federal
income tax purposes consisted of gross unrealized appreciation of $1,008,877
and gross unrealized depreciation of $105,159.
See accompanying notes to financial statements.
20 The Oakmark Balanced Fund
<PAGE>
The Oakmark International Fund
Report from David G. Herro and Michael J. Welsh, Portfolio Managers
[PHOTO OF DAVID G. HERRO APPEARS HERE]
[PHOTO OF MICHAEL J. WELSH APPEARS HERE]
Fellow shareholders:
Our fiscal year ends with your Fund up 24.9%! This performance compares very
favorably to other international funds as represented by the Lipper
International Index and to all the recognized international indices. For
example, over the same period the Lipper International and Morgan Stanley World-
ex US indices were up only 12.7% and 11.2%, respectively.
While the performance of the Fund for the last twelve months has been
outstanding, we are more heartened by our long-term performance. The Oakmark
International Fund has returned 16.0% on an annualized basis since inception,
while the Lipper International and Morgan Stanley World-ex US have returned
12.6% and 11.9%, respectively, over the same period.
Performance Analysis
For our fourth annual report (really our fifth, but our first fiscal year was
only a little over a month), let's look at those companies that helped and hurt
us the most over the last twelve months. These are the stocks that had the
biggest absolute dollar impact (as opposed to the biggest percentage movers) on
the Fund's performance.
The Winners...
Rolls-Royce and British Aerospace performed exceptionally well, up 65% and 64%,
respectively. Rolls was rewarded by the market for receiving a rash of new
orders for its new Trent aircraft engines from Boeing and Airbus. British
Aerospace continued its remarkable run as investors continued to recognize its
preeminence in the consolidating European defense industry. We have owned
British Aerospace since the
The value of a $10,000 investment in The Oakmark International Fund from its
inception (9/30/92) to present (10/31/96) as compared to the Morgan Stanley
World ex U.S. Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return*
10/31/96 NAV $14.92 Through 10/31/96
----------------------------
Total Return From From Inception
Last 3 mos. 10/31/95 9/30/92
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oakmark International 3.8% 24.9% 16.0%
Morgan Stanley World ex U.S.* 2.4% 11.2% 11.9%
Morgan Stanley EAFE* 1.8% 10.5% 11.8%
Lipper Analytical International Fund
Average* 3.4% 12.7% 12.6%
</TABLE>
*Total return includes change in share prices and in each case includes
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 results.
The Oakmark International Fund 21
<PAGE>
Fund's inception and it clearly has been one of our single best ideas.
Chargeurs, prompted by a lack of market understanding of its assets, pioneered
the idea of the de-merger in France. The company split itself into two entities
to unlock value which had been hidden by its former holding company structure.
The shares were up 59% for the fiscal year.
Telefonica de Espana was up 52% over the last twelve months. With Telefonica,
the market began to recognize the value of some of its assets in Latin America
and the gains in efficiency that management has made over the past several years
in Spain.
Cordiant, another long-term holding, came storming back in 1996 with a new
chairman and a renewed sense of purpose. Cordiant's shares were up 20% for the
fiscal year and the company remains substantially undervalued compared to other
advertising firms of similar size and quality.
and the...
Losers were fewer and of smaller portfolio impact. The Israeli company Scitex,
which comprised 2% of the portfolio in January, had the biggest negative impact
on the portfolio, with its shares dropping 43%. Initially, we were attracted to
Scitex for its cheap valuation and market leader position which we thought
compensated for other weaknesses. They didn't.
EVC International (down 5%) and Asia Pulp and Paper (down 4%) felt the pain of
lower commodity prices. We still are very happy with these investments on
a long-term horizon. EVC remains extremely cheap on trend earnings, sits at
2/3rds of book value (and at 25% of replacement cost), has solid shareholder-
oriented management, and yields 6.4%. Asia Pulp, with its Indonesian production
base, remains one of the world's lowest cost producers, is moving up the value-
added chain in terms of products, and is located in the fastest growing area of
consumption in the world.
Although the share price is down 31% from where we first starting buying, it is
still too early to judge the success of our investment in Technology Resources,
a Malaysian cellular operator. Our loss in Kvaerner (down 10%) was due in part
to company management spending more time looking to buy new businesses rather
than running the ones they already had. The result was recurring earnings
disappointments in its core operations. We have since sold our entire position.
Going Forward
We had an excellent fiscal year 1996 and we remain optimistic about overseas
markets going forward. Valuations in many cases are very attractive and we
continue to find excellent opportunities.
Our continued optimism is reflected in the substantial changes from last year in
our top twenty holdings. Seven of the top twenty are new positions: National
Australia Bank, Telefonica de Espana, Guinness, Saurer, Bezeq, Pakhoed, and
Kyocera. As you know, we believe in structuring our portfolio with fewer
positions so that our best ideas can have a more meaningful impact on the Fund's
net asset value. The presence of many new names in the top twenty holdings
reflects our optimism in finding substantial new opportunities for The Oakmark
International Fund.
/s/ David G. Herro
David G. Herro
/s/ Michael J. Welsh
Michael J. Welsh
Portfolio Managers
[email protected]
[email protected]
October 31, 1996
22 The Oakmark International Fund
<PAGE>
The Oakmark International Fund
International Diversification--October 31, 1996
[PIE CHART OF THE OAKMARK INTERNATIONAL FUND, INTERNATIONAL DIVERSIFICATION
OCTOBER 31, 1996 APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Europe 51.8%
Pacific Rim 25.2%
Latin America 13.9%
Other Countries 3.9%
% of Fund % of Fund
Net Assets Net Assets
- ---------------------------- ----------------------------
<S> <C> <C> <C>
[_] Europe 51.8% [_] Pacific Rim 25.2%
Great Britain 14.5% Australia 6.8%
Sweden 13.5% Hong Kong 6.3%
Netherlands 5.1% New Zealand 2.9%
Spain 5.1% Indonesia 2.7%
France 3.9% Korea 2.4%
Portugal 3.4% Japan 1.9%
Switzerland 2.5% Malaysia 1.9%
Italy 1.9% Taiwan 0.3%
Finland 1.4%
Germany 0.5%
[_] Latin America 13.9% [_] Other Countries 3.9%
Argentina 5.7% Israel 3.1%
Mexico 4.5% Canada 0.8%
Brazil 3.7%
</TABLE>
The Oakmark International Fund 23
<PAGE>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments--October 31, 1996
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks--94.9%
Consumer Non-durables--3.7%
Yue Yuen Industrial Athletic Footwear Manufacturing
(Holdings) Limited
(Hong Kong) 81,328,000 $ 24,191,614
Chargeurs International Entertainment & Wool
S.A. (France) Production Holding Company 334,324 14,517,345
BYC Company (Korea) Textile Manufacturer 31,230 3,628,539
Pacific Corporation (Korea) Cosmetics and Household
Goods Manufacturer 35,820 641,617
------------
42,979,115
Food--10.2%
Guinness PLC (Great Britain) Distiller & Brewer 5,595,000 $ 40,204,956
Lion Nathan Limited Brewer
(New Zealand) 12,113,200 31,279,222
Parmalat Finanziaria S.p.A. Dairy Products
(Italy) 15,440,000 22,137,113
Leong Hup Holdings Major Poultry Operation
Berhad (Malaysia) and KFC Operator 8,214,666 9,233,980
Lotte Confectionery (Korea) Confectionary Manufacturer 56,000 8,370,348
Lotte Chilsung Manufacturer of Soft Drinks,
Beverage (Korea) Juices, & Sport Drinks 44,770 5,797,749
Daehan Flour Mills Food Processing
Co., Ltd. (Korea) 31,770 2,307,050
------------
119,330,418
Household Products--1.9%
Reckitt & Colman PLC Household Cleaners and
(Great Britain) Air Fresheners 1,950,853 $ 22,496,409
Retail-2.3%
Giordano Holdings East Asian Clothing Retailer
Limited (Hong Kong) & Manufacturer 12,361,000 $ 12,469,388
Alparagatas Sociedad Textiles
Anonima Industrial Y
Comercial (Argentina) 17,430,294 11,505,145
Macintosh (Netherlands) Non-Food Specialty Retailer 140,950 3,322,920
------------
27,297,453
Telecommunications--11.3%
Telefonica (Spain) Telecommunications 2,050,500 $ 41,140,170
Telefonos de Mexico, Telephone Company
S.A. de C.V. (Mexico) (b) 1,295,100 39,500,550
Bezeq (Israel) Telephone Company 11,654,271 28,451,074
Technology Resources Telecommunications
Industries Berhad (Malaysia) 5,520,000 13,218,286
Call Net Enterprises, Inc. Telecommunications
Common (Canada) (a) 899,600 9,733,025
------------
$132,043,105
</TABLE>
See accompanying notes to financial statements.
24 The Oakmark International Fund
<PAGE>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments--October 31, 1996 cont.
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)--94.9%
Transportation--5.8%
AB Volvo (Sweden) Automobiles 2,534,600 $ 52,613,851
CIADEA S.A. (Argentina) (a) Assembler and Distributor
of Automobiles 3,517,246 15,758,839
----------
68,372,690
Oil and Natural Gas--3.4%
YPF Sociedad Anonima Oil Exploration, Production
(Argentina) (b) and Marketing 1,756,200 $ 39,953,550
Banks--13.7%
National Australia Bank Largest Australian Bank
Limited (Australia) 5,145,000 $ 56,482,443
Banco Espirito Santo E Portuguese Bank
Comercial de Lisboa,
S.A. (Portugal) 2,275,480 39,993,735
Svenska Handelsbanken Largest Swedish Bank
(Sweden) 1,268,850 31,259,592
Banco Popular Espanol Fourth-largest Spanish Bank
(Spain) 100,093 19,132,946
Grupo Financiero Large Mexican Financial
Bancomer, S.A. De C.V. Group
(GFB)-B (Mexico) (a) 26,635,000 11,300,199
Grupo Financiero Large Mexican Financial
Bancomer, S.A. De C.V. Group
(GFB) - L (Mexico) (a) 6,129,630 2,097,230
-----------
160,266,145
Other Financial--0.2%
Sedgwick Group plc Insurance Broker,
(Great Britain) Financial Services 1,150,000 $ 2,330,322
Broadcasting & Publishing--2.0%
Pathe (France) Television & Film 88,233 $ 23,799,180
Computer Systems--0.2%
Scitex Corporation Limited Color Pre-Press Systems
(Israel) (b) 179,300 $ 1,770,588
Marketing Services--4.3%
Cordiant PLC Advertising Agency
(Great Britain) (a) Holding Company 30,408,656 $ 50,730,587
Aerospace--6.2%
Rolls-Royce Public Limited Jet Engines
Company (Great Britain) 7,566,479 $ 31,219,115
British Aerospace Public Defense and Civil Aviation
Limited Company
(Great Britain) 1,209,666 22,927,345
Hong Kong Aircraft Commercial Aircraft Overhaul
Engineering Company and Maintenance
Limited (Hong Kong) 7,504,400 19,119,614
----------
73,266,074
</TABLE>
See accompanying notes to financial statements.
The Oakmark International Fund 25
<PAGE>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments--October 31, 1996 cont.
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)--94.9%
Chemicals--4.8%
Royal Pakhoed N.V. Petroleum Products, Chemical
(Netherlands) Handling 943,383 $29,357,354
EVC International NV Western European PVC
(Netherlands) Manufacturer 989,165 27,342,393
----------
56,699,747
Components--3.0%
Kyocera Corporation Electric Components
(Japan) 334,000 $22,031,004
Varitronix International Liquid Crystal Displays
Holdings Limited
(Hong Kong) 7,177,000 13,087,569
----------
35,118,573
Forestry Products--4.2%
Asia Pulp & Paper Company Paper & Packaging Products
Ltd (Indonesia) (a) 3,210,600 $31,704,675
Mo och Domsjo AB (Sweden) Paper, Pulp & Timber 624,500 17,189,729
----------
48,894,404
Machinery and Metal Processing--2.6%
Saurer Ltd. (Switzerland) Textile Machinery 70,000 $29,406,645
Iochpe-Maxion SA (Brazil) Agricultural Machinery &
Automotive Parts 7,880,000 759,315
----------
30,165,960
Mining and Building Material--2.7%
Pioneer International Concrete Products, Aggregates
(Australia) 8,530,923 $22,720,277
Keumkang Ltd. (Korea) Building Materials 126,980 7,007,913
Fletcher Challenge Ltd. Building Materials & Services
(New Zealand) 835,104 2,245,062
----------
31,973,252
Other Industrial Goods and Services--3.0%
Kone Corporation (Finland) Elevators 161,870 $15,990,685
Groupe Legris Industries Europe's Leading Crane
(France) Manufacturer 195,097 7,590,180
Buderus AG (Germany) German Industrial
Manufacturing 14,000 6,332,541
Lamex Holdings Limited Hong Kong's Largest Office
(Hong Kong) Furniture Supplier 14,040,000 4,948,010
----------
34,861,416
Steel--8.9%
Usiminas (Brazil) Steel Production 41,063,700,000 $43,166,046
Avesta Sheffield (Sweden) Stainless Steel 3,575,000 35,882,111
Svenskt Stal AB, Series A Steel
(Sweden) 1,410,000 20,584,881
Tung-Ho Steel Enterprise Manufacturer of
Corp. (Taiwan) (a) Steel Bars and H-Beams 374,000 3,570,466
See accompanying notes to financial statements.
</TABLE>
26 The Oakmark International Fund
<PAGE>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments-October 31, 1996 cont.
<TABLE>
<CAPTION>
Shares Held/
Description Principal Value Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks (cont.)--94.9%
Svenskt Stal AB, Series B Steel
(Sweden) 65,200 $ 946,911
--------------
104,150,415
Diversified Conglomerates--0.5%
Koor Industries Limited Israeli Holding Company
(Israel) 378,200 $ 6,571,224
TOTAL COMMON STOCKS (COST: $1,029,710,841) 1,113,070,627
Short-Term Investments--5.3%
Commercial Paper--5.1%
American Express Credit Corporation,
5.30% due 11/5/1996 $10,000,000 $ 10,000,000
Ford Motor Credit Corp., 5.35% due 11/4/1996 10,000,000 10,000,000
Ford Motor Credit Corp., 5.37% due 11/4/1996 20,000,000 20,000,000
General Electric Capital Corp., 5.65% due 11/1/1996 20,000,000 20,000,000
TOTAL COMMERCIAL PAPER 60,000,000
Repurchase Agreements--0.2%
State Street Repurchase Agreement, 5.55% due 11/1/1996 $ 2,412,000 $ 2,412,000
Collateralized by US Treasury Securities
TOTAL REPURCHASE AGREEMENTS 2,412,000
TOTAL SHORT-TERM INVESTMENTS (COST: $62,412,000) 62,412,000
Total Investments - (Cost $1,092,122,841) - 100.2% $1,175,482,627
Foreign currencies - (Cost $7,407,430) - .6% 7,380,858
Other liabilities, less other assets - (.8%)(c) (10,096,291)
--------------
TOTAL NET ASSETS - 100% $1,172,767,194
==============
</TABLE>
- -------------------------------------------
Notes: (a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) Includes portfolio and transaction hedges.
(d) At October 31, 1996, net unrealized appreciation of $83,359,786
for federal income tax purposes consisted of gross unrealized
appreciation of $155,931,431 and gross unrealized depreciation of
$72,571,645.
The following companies are considered affiliated because the Fund
owns greater than 5% of the outstanding voting shares of the
company:
<TABLE>
<CAPTION>
<S> <C> <S> <C>
Alparagatas Sociedad Anomia Industrial Y. 6.49% EVC International NV 6.76%
BYC Company 5.00% Lamex Holdings Limited 5.01%
Call Net Enterprises, Inc. Common 5.18% Leong Hup Holdings Berhad 5.43%
Cordiant PLC 6.85%
</TABLE>
The aggregate cost and value of investments in these companies at October 31,
1996 was $123,905,187 and $117,121,679, respectively, which represents 10.0% of
the total net assets. During the year ended October 31, 1996, dividends received
from these companies was $1,779,766.
See accompanying notes to financial statements.
THE OAKMARK INTERNATIONAL FUND 27
<PAGE>
THE OAKMARK INT'L EMERGING VALUE FUND
Report from David Herro and Adam Schor, Portfolio Managers
[PHOTO OF DAVID HERRO APPEARS HERE] [PHOTO OF ADAM SCHOR APPEARS HERE]
- --------------------------------------------------------------------------------
The value of a $10,000 investment in The Oakmark International Emerging Value
Fund from its inception (11/1/95) to present (10/31/96) as compared to the
Morgan Stanley World ex U.S. index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C>
Total Return*
10/31/96 NAV $11.41 Through 10/31/96
Total Return From Fund Inception
Last 3 Months 11/1/95
- --------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK INT'L EMERGING VALUE FUND 3.4% 14.1%
Morgan Stanley World ex U.S.* 2.4% 11.2%
Lipper Analytical International Fund
Average* 3.4% 12.7%
Lipper Emerging Market Fund Index* 1.3% 9.6%
</TABLE>
*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 Lipper International Fund Average includes 106 mutual
funds that invest in securities whose primary markets are outside the United
States. The Lipper Emerging Market Fund Index is comprised of 10 Emerging Market
Funds. Past performance is no guarantee of future results.
ROOKIE SEASON
IN REVIEW
We are happy with our first fiscal year which ended October 31, 1996. The Fund
was up 14.1%. We outpaced our benchmarks including the Morgan Stanley World ex
U.S which was up 11.2%. In addition, Lipper Analytical Services, Inc., ranked
the Fund fifth among 339 international funds, making it one of the top
performers from January through October, 1996.
The international markets were fairly quiet this year, especially compared to
the thunderous stampede of the U.S. market. While the average international fund
was up 9.56% and most markets were up for the last twelve months, the
international markets lacked the surge that we expected. Some markets rallied:
Hungary almost doubled; several Latin American countries increased by 50%. And
some markets went in the other direction: Thailand and India each fell more than
20%. Investors, who in 1993 loved emerging markets and in 1995 hated them,
seemed to be indifferent in 1996. Emerging markets, on average, were up 4.3%
during this rather lackluster period.
In the stock market, nothing moves in a straight line. Our Fund surged and
paused, retrenched and surged again in its initial year. It's interesting to
note that relatively few trading days, perhaps fewer than 20, accounted for the
difference in our Fund and an average international fund. Market timers should
take note. You would have needed to be extremely lucky to have made more than an
investor who merely bought and held our Fund.
HOME RUNS
This Fund picks stocks, not countries. Our top performing shares, when you
combine movement in the share price with the size of the holding in our
portfolio, were examples of small companies that are undervalued by the market.
28 THE OAKMARK INTERNATIONAL EMERGING VALUE FUND
<PAGE>
Our biggest contributor was NICE SYSTEMS. Nice produces the leading digital
telephone recording system. When our traders call the traders on Wall Street to
execute a trade, the conversation very well may be recorded on a system produced
by Israeli-based Nice. If there is ever a need to retrieve the recording, you
just push a couple buttons, as you would to retrieve a document off your hard
drive.
Nice was a fast growing company moving into profitability in a quickly developed
market. Being value investors does not preclude us from buying companies growing
quickly. It means that we buy stocks trading at a discount to their economic
values. We did that with Nice, buying at $10 and selling at $27, when our target
was passed.
We have mentioned in previous fund reports PT POLYSINDO EKA PERKASA, an
Indonesian textile company that we like because of its expansion and vertical
integration. The textile business is generally a lousy business, unless you are
a low-cost producer and located in one of the fastest growing markets in the
world. Polysindo scores on both counts. We bought the company at about 800
(after adjusting for a rights issue). At the time, we were looking at the
increase in profits that we expect will occur in 1997 when Polysindo's planned
expansion comes on line. The myopic market was looking at ho-hum 1996 results.
We still hold Polysindo, currently trading at about 1250.
Meanwhile, two names we share with Oakmark International paid us back for our
patience. We acquired initial positions in CORDIANT and CIADEA while their
prices were weak. Cordiant, a global advertising agency based in England,
rallied during our fiscal year. The company has new management that is focused
on increasing profitability and shareholder value, a trait not found two years
ago. Ciadea, an Argentine car maker, rallied as the Argentine economy showed
signs of recovery. The stock pulled back in the last few months. We sold most of
our holding when the price passed our sell target.
Rounding out our list of top five contributors was EGIS PHARMACEUTICALS, which
soared more than 200% this year. The Hungarian drug company was a large position
for us early in the year. When the Hungarian market got hot later this year, we
were already there when investors discovered this gem trading at six times
earnings and growing 15% per year. We have sold most of the position now that it
has reached our target.
Egis demonstrated our basic tenet of investing. It is impossible to determine
when a stock adjusts to reflect the value of the business but when it does, it
happens quickly. It's like riding a train. You want to be there before it moves
and not try to catch it while it's moving.
GROUND OUTS
We relish the big hits, of course, but we missed a couple of times too during
the year. We were stung in Brazil when the government intervened in BANCO
NACIONAL. Investigators found fraud used to deceive auditors and investors about
the health of the bank. Shareholders suffered. Two technology stocks also hurt
us. The stock price of TOWER SEMICONDUCTOR in Israel dropped 50% in 1996 when it
lost a major customer during the slowdown in the semiconductor industry. Since
our year end, Tower has climbed back a bit and has paid a special dividend equal
to 20% of its stock price. The stock is trading just above the cash on the
balance sheet -- and we think it's still undervalued. We continue to hold Tower
in the portfolio. We calculated that sound card and CD-ROM maker AZTECH SYSTEMS
would go up. It didn't. Inventory problems and price pressure in the fast
changing CD-ROM business depressed profitability and the stock price. We
adjusted our evaluation of the prospects and the business and sold the stock
when it bounced to our new lowered sell target.
'TWEENERS
In between the Nices and Nacionals were a host of stocks that provided steady
but less glamorous appreciation. We continue to hold stocks we think are priced
below their values without trying to time the moves. The stocks we sold hit
their targets and more attractive names replaced them. We have high expectations
for the years to come. We hope this first year has laid a solid foundation for
our future for us as a fund and yours as a shareholder.
/s/ David Herro
David Herro
/s/ Adam Schor
Adam Schor
Portfolio Managers
[email protected]
[email protected]
November 5, 1996
The Oakmark International Emerging Value Fund 29
<PAGE>
The Oakmark Int'l Emerging Value Fund
International Diversification--October 31, 1996
[PIE CHART OF THE OAKMARK INTERNATIONAL EMERGING VALUE FUND,
INTERNATIONAL DIVERSIFICATION, OCTOBER 31, 1996 APPEARS HERE]
Pacific Rim 45.0%
Europe 35.3%
Latin America 11.8%
Other Countries 4.4%
% of Fund
Net Assets
- ------------------------------------------------
[_] EUROPE 35.3%
Ireland 7.7%
Great Britain 7.1%
Netherlands 4.6%
France 3.6%
Sweden 3.4%
Spain 2.3%
Germany 2.1%
Italy 2.1%
Hungary 1.7%
Switzerland 0.7%
[_] LATIN AMERICA 11.8%
Argentina 6.4%
Mexico 5.4%
[_] PACIFIC RIM 45.0%
Australia 10.6%
Indonesia 8.0%
Korea 7.2%
New Zealand 6.6%
Hong Kong 6.3%
Japan 3.2%
Singapore 3.1%
[_] OTHER COUNTRIES 4.4%
Israel 1.9%
Canada 1.7%
India 0.8%
30 The Oakmark International Emerging Value Fund
<PAGE>
The Oakmark Int'l Emerging Value Fund
Schedule of Investments-October 31, 1996
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks-96.3%
Consumer Non-Durables-3.6%
PT Polysindo EKA Perkasa Integrated Textile Manufacturer
(Indonesia) 2,652,000 $1,423,174
Food-5.4%
Grupo Herdez, SA de CV Manufacturer and Distributor of
(Mexico) Bottled and Canned Food 3,674,000 $1,234,190
Chosun Brewery (Korea) Brewer 14,410 383,685
Daehan Flour Mills Co., Ltd. Food Processing
(Korea) 4,500 326,777
Soproni Sorgy AR RT Brewer
(Hungary) 13,155 194,720
----------
2,139,372
Household Products-5.5%
WMF (Germany) Tableware and Kitchenware 4,500 $ 820,126
N.V. Koninklijke Sphinx Bathroom Products
Gustavsberg (Netherlands) 54,159 743,741
Enix Corporation (Japan) Manufactures home-use electronic
appliances, computer 26,000 632,559
----------
2,196,426
Retail-3.1%
Alparagatas Sociedad Anonima Textiles and Footwear
Industrial Y Comercial
(Argentina) 1,885,000 $1,244,224
Other Consumer Goods & Services-7.8%
Vardon PLC (United Kingdom) Bingo Parlors 915,000 $1,317,993
Fyffes (Ireland) Distributor of Fresh Fruit,
Flowers and Produce in Europe 578,133 950,846
PT Steady Safe (Indonesia) Taxi Company 862,500 833,137
----------
3,101,976
Pharmaceutical-1.2%
Egis Gygogyszergyar (Hungary) Pharmaceutical Company 7,600 $ 468,810
Telecommunications-2.3%
Telefonos de Mexico, Telephone Company
S.A. de C.V. (Mexico) (b) 29,950 $ 913,475
Transportation-1.0%
CIADEA S.A. (Argentina) (a) Assembler and Distributor
of Automobiles 84,975 $ 380,726
Oil and Natural Gas-2.3%
YPF Sociedad Anonima Exploration, Production
(Argentina) (b) and Marketing 40,500 $ 921,375
Banks-2.5%
Anglo Irish Bank Corporation Bank
plc (Ireland) 860,000 $1,008,305
See accompanying notes to financial statements.
</TABLE>
The Oakmark International Emerging Value Fund 31
<PAGE>
The Oakmark Int'l Emerging Value Fund
Schedule of Investments-October 31, 1996 cont.
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks-96.3% (cont.)
Other Financial-1.3%
HIH Winterthur International Insurance and Reinsurance
Holdings Ltd. (Australia) Broker 9,243 $ 22,492
JCG Holdings Ltd. (Hong Kong) Investment Holding Company 518,000 482,347
----------
504,839
Computer Systems-5.3%
Aztech (Singapore) Design and Produce Multimedia
Computing Products 1,675,000 $ 594,604
Solution 6 Holdings Design Computer Systems
Limited (Australia) Consultants 1,382,500 1,490,330
----------
2,084,934
Marketing Services-3.8%
Cordiant PLC Global Advertising Agency
(United Kingdom) (a) 910,000 $1,518,148
Broadcasting & Publishing-6.0%
Moffat Communications Owner and Operator of Television
Limited (Canada) Stations and Cable Systems 46,700 $ 662,066
Woong Jim Publishing Co. (Korea) Publisher 23,045 1,436,390
Zee Telefilms, B Shares (India) Broadcasting and TV 85,900 301,372
----------
2,399,828
Chemicals-2.8%
EVC International NV Western European PVC
(Netherlands) Manufacturer 39,600 $1,094,619
Components-6.3%
Tower Semiconductor Ltd. (Israel) Semiconductors 108,400 $ 758,800
Barlo Group PLC (Ireland) Manufacturer of Radiators and
Industrial Plastics 1,605,000 1,097,704
Pentex Schweizer Circuits Manufacturer and Marketer of
Limited (Singapore) Printed Circuit Boards 546,000 643,493
----------
2,499,997
Forestry Products-2.3%
Asia Pulp & Paper Company Paper & Packaging
Ltd (Indonesia)(a) Products in Asia 94,000 $ 928,250
Machinery and Metal Processing-2.8%
Groupe Fives-Lille (France) Builder of Heavy Machinery 3,125 $ 283,007
Steel & Tube Holdings Ltd. Produces and Distributes Steel
(New Zealand) 150,500 832,621
----------
1,115,628
Mining and Building Materials-8.2%
Groupo Uralita (Spain) Manufacturers of Building
Products and Chemicals 117,100 $ 917,748
Asia Cement Mfg. Co. (Korea) Large Cement Manufacturer 22,550 717,779
See accompanying notes to financial statements.
</TABLE>
32 The Oakmark International Emerging Value Fund
<PAGE>
The Oakmark Int'l Emerging Value Fund
Schedule of Investments-October 31, 1996 cont.
<TABLE>
<CAPTION>
Shares Held/
Description Principal Value Market Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks-96.3% (cont.)
Mining and Building Materials-continued
Parbury Limited (Australia) Manufactures Building Products 3,174,277 $ 1,635,447
-----------
3,270,974
Other Industrial Goods and Services-17.9%
BT Industries AB (Sweden) Fork Lifts & Transportation
Equipment 78,000 $ 1,340,390
Sanford Limited (New Zealand) Owns and Manages Fisheries 936,400 1,788,666
Wattyl (Australia) Paint Company 277,926 1,053,017
SwissLog Holding AG Logistics Services
(Switzerland) 1,045 280,265
Fukuda Denshi Co., Ltd. (Japan) Medical Products Manufacturer
and Distributor 29,000 634,228
TechTronic Industries Company Manufactures Electric
Limited (Hong Kong) Hand Tools 3,850,000 542,730
Yip's Hang Cheung (Holdings) Paint Company
Limited (Hong Kong) 10,090,000 1,474,574
-----------
7,113,870
Production Equipment-4.9%
Danieli & Company (Italy) Steel Mini-Mills Equipment 260,300 $ 827,057
The NSC Group (France) Wool Textile Manufacturer 8,977 1,139,574
-----------
1,966,631
Total Common Stocks (Cost: $38,001,263) 38,295,581
Short-Term Investments-3.9%
Commercial Paper-3.2%
American Express Credit Corporation,
5.30% due 11/5/1996 250,000 $ 250,000
Ford Motor Credit Corp., 5.37% due 11/4/1996 500,000 500,000
General Electric Capital Corp., 5.65% due 11/1/1996 500,000 500,000
-----------
Total Commercial Paper 1,250,000
Repurchase Agreements-0.7%
State Street Repurchase Agreement, 5.55% due 11/1/1996 269,000 $ 269,000
Total Short-Term Investments (Cost: $1,519,000) 1,519,000
Total Investments (Cost: $39,520,263) - 100.2% $39,814,581
Foreign currencies (Cost: $335,539) - .8%.. 337,614
Other liabilities, less other assets - (1.0%)(c) (400,154)
-----------
Total Net Assets - 100% $39,752,041
===========
</TABLE>
- ---------------------
Notes:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) Includes transaction hedges.
(d) At October 31, 1996, net unrealized appreciation of $294,318 for federal
income tax purposes consisted of gross unrealized appreciation of $3,159,068
and gross depreciation of $2,864,750.
The Oakmark International Emerging Value Fund 33
<PAGE>
The Oakmark Family of Funds
Statement of Assets and Liabilities-October 31, 1996
<TABLE>
<CAPTION>
The Oakmark Fund The Oakmark
Small Cap Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at value $3,921,779,297 (cost: $3,133,237,488) $ 216,842,275 (cost: $196,739,522)
Cash 843 945
Foreign currency, at value 0 0
Receivable for:
Forward foreign currency contracts 0 0
Securities sold 25,477,664 1,153,092
Fund shares sold 3,182,096 1,005,698
Dividends and interest 4,783,234 153,665
Expense reimbursement 0 0
-------------- --------------
Total receivables 33,442,994 2,312,455
Other assets 5,657 14,299
-------------- --------------
Total assets $3,955,228,791 $ 219,169,974
============== ==============
Liabilities and Net Assets
Securities sold, not yet purchased, at value $ 2,056,250 (proceeds: $2,062,103) $ 0
Payable for:
Securities purchased 8,666,525 140,505
Fund shares redeemed 5,783,091 214,453
Due to adviser 3,224,222 205,533
Forward foreign currency contracts 0 0
Other 1,563,043 189,076
-------------- --------------
Total liabilities 21,293,131 749,567
-------------- --------------
Net assets applicable to fund shares outstanding $3,933,935,660 $ 218,420,407
============== ==============
Fund shares outstanding 121,452,592 16,553,945
============== ==============
Pricing of Shares
Net asset value per share $ 32.39 $ 13.19
============== ==============
Analysis of Net Assets
Paid in capital $2,883,530,157 $ 198,837,145
Accumulated undistributed net realized gain (loss)
on sale of investments, forward contracts and
foreign currency exchange transactions 226,361,549 (243,291)
Net unrealized appreciation of investments 788,547,662 20,102,753
Net unrealized depreciation of foreign currency
portfolio hedges 0 0
Net unrealized appreciation - other 0 0
Accumulated undistributed net investment income (loss) 35,496,292 (276,200)
-------------- --------------
Net assets applicable to Fund shares outstanding $3,933,935,660 $ 218,420,407
============== ==============
</TABLE>
34 The Oakmark Family of Funds
<PAGE>
<TABLE>
<CAPTION>
<S>
The Oakmark The Oakmark Int'l
The Oakmark International Emerging Value
Balanced Fund Fund Fund
<C> <C> <C>
$14,157,595 (cost: $13,253,877) $1,175,482,627 (cost: $1,092,122,841) $39,814,581 (cost: $39,520,263)
594 439 498
0 7,380,858 (cost: $7,407,430) 337,614 (cost: $335,539)
0 741,937 86
0 2,623,708 168,485
34,800 1,691,832 111,078
107,501 2,005,064 291,013
11,060 0 35,441
- ----------- ------------- -----------
153,361 7,062,541 606,103
14,277 9,476 14,403
- ----------- -------------- -----------
$14,325,827 $1,189,935,941 $40,773,199
=========== ============== ===========
$ 0 $ 0 $ 0
451,600 10,396,988 827,277
0 1,187,134 4,089
32,377 1,003,619 81,097
0 3,783,399 177
42,924 797,607 108,518
- ----------- -------------- -----------
526,901 17,168,747 1,021,158
- ----------- -------------- -----------
$13,798,926 $1,172,767,194 $39,752,041
=========== ============== ===========
1,222,137 78,606,944 3,482,519
=========== ============== ===========
$ 11.29 $ 14.92 $ 11.41
=========== ============== ===========
$12,607,741 $1,080,224,970 $38,042,778
161,939 (33,901,942) 1,259,557
903,718 83,333,214 296,393
0 (2,896,488) 0
0 (194,131) (1,788)
125,528 46,201,571 155,101
- ----------- -------------- -----------
$13,798,926 $1,172,767,194 $39,752,041
=========== ============== ===========
</TABLE>
See accompanying notes to financial statements.
The Oakmark Family of Funds #35
<PAGE>
The Oakmark Family of Funds
Statement of Operations--October 31, 1996
--------------------------------------------------------------
<TABLE>
<CAPTION>
The Oakmark
The Oakmark Fund Small Cap Fund
<S> <C> <C>
Investment Income:
Dividends $ 69,135,177 $ 930,817
Interest 15,845,858 302,068
Securities lending income 0 19,400
Foreign taxes withheld 0 0
------------ -----------
Total investment income 84,981,035 1,252,285
Expenses:
Investment advisory fee 36,082,925 956,809
Transfer and dividend disbursing agent fees 4,398,544 250,126
Custodian and accounting fees 439,430 36,616
Legal expenses 46,842 10,970
Audit expenses 17,176 21,034
Trustees fees 69,705 13,688
Registration and blue sky expenses 573,243 181,799
Reports to shareholders 836,558 26,164
Insurance expense 58,501 3,671
Organization expense 23,768 1,457
Other--net 881,263 26,469
------------ -----------
Total expenses 43,427,955 1,528,803
Expense offset arrangements (15,263) (318)
Expense reimbursement 0 0
------------ -----------
Net expenses 43,412,692 1,528,485
------------- -----------
Net investment income (loss) 41,568,343 (276,200)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions:
Net realized gain (loss) on investments 226,166,113 (243,291)
Net realized (loss) on foreign currency
transactions (12,777) 0
Net change in unrealized appreciation
of investments and foreign currencies 290,431,755 20,102,753
Net change in appreciation (depreciation) of
forward currency exchange contracts 0 0
Net change in (depreciation)--other 0 0
------------ -----------
Net realized and unrealized gain on investments
and foreign currency transactions 516,585,091 19,859,462
------------ -----------
Net increase (decrease) in net assets resulting
from operations $558,153,434 $19,583,262
============ ===========
</TABLE>
36 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
The Oakmark The Oakmark The Oakmark Int'l
Balanced Fund International Emerging Value
Fund Fund
------------- ------------- -----------------
<S> <C> <C> <C>
$ 118,500 $ 29,460,152 $ 744,076
261,357 1,708,929 70,932
3,897 376,919 5,649
0 (3,243,211) (70,675)
---------- ------------ ----------
383,754 28,302,789 749,982
69,005 10,113,272 258,427
45,412 1,298,501 93,991
23,552 1,306,439 103,589
10,285 19,589 10,288
20,075 22,047 24,187
12,749 28,936 12,970
83,142 14,675 112,215
3,694 215,584 9,933
961 0 1,678
1,457 9,516 1,457
2,364 457,287 5,966
---------- ------------ ----------
272,696 13,485,846 634,701
(225) (6,181) (4,379)
(14,245) 0 (35,441)
---------- ------------ ----------
258,226 13,479,665 594,881
---------- ------------ ----------
125,528 14,823,124 155,101
161,939 2,806,950 1,284,213
0 (1,017,660) (24,656)
903,718 176,382,416 296,393
0 5,165,941 0
0 (363,425) (1,788)
---------- ------------ ----------
1,065,657 182,974,222 1,554,162
---------- ------------ ----------
$1,191,185 $197,797,346 $1,709,263
========== ============ ==========
</TABLE>
See accompanying notes to financial statements.
THE OAKMARK FAMILY OF FUNDS 37
<PAGE>
THE OAKMARK FAMILY OF FUNDS
<TABLE>
<CAPTION>
Statement of Changes in Net Assets--October 31, 1996
--------------------------------------------------------------------------------------------------------------------
THE THE
THE OAKMARK FUND OAKMARK OAKMARK
SMALL CAP BALANCED
FUND FUND
---------------------------------------- ------------------ ------------------
Year Ended Year Ended Year Ended Year Ended
October 31, 1996 October 31, 1995 October 31, 1996 October 31, 1996
- ----------------------------------------------------------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 41,568,343 $ 27,572,923 $ (276,200) $ 125,528
Net realized gain on sale of investments 226,166,113 87,157,237 (243,291) 161,939
Net realized gain (loss) on foreign currency
transactions (12,777) (37,102) 0 0
Net change in unrealized appreciation 290,431,755 320,305,458 20,102,753 903,718
--------------- -------------- ------------ -----------
Net increase in net assets from operations 558,153,434 434,998,516 19,583,262 1,191,185
Distributions to shareholders from (Oakmark
Fund only):
Net investment income (per share $.2841 in
Fiscal Year 1996 and $.231 in Fiscal Year 1995) (29,455,748) (15,107,180) 0 0
Net realized short-term gain (per share $.042 in
Fiscal Year 1996 and $.7277 in Fiscal Year 1995) (4,354,309) (47,575,398) 0 0
Net realized long-term gain (per share $.7987 in
Fiscal Year 1996 and $.7411 in Fiscal Year 1995) (82,805,333) (48,452,482) 0 0
--------------- -------------- ------------ -----------
Total distributions to shareholders (116,615,390) (111,135,060) 0 0
From Fund share transactions:
Reinvestment of dividends and capital gains
distributions 110,976,647 106,504,973 0 0
Proceeds from shares sold 1,810,842,079 1,384,343,262 224,762,208 15,231,573
Payments for shares redeemed, net of fees (1,256,490,130) (664,894,744) (25,925,063) (2,623,832)
--------------- -------------- ------------ -----------
Net increase in net assets from Fund share
transactions 665,328,596 825,953,491 198,837,145 12,607,741
--------------- -------------- ------------ -----------
Total increase in net assets 1,106,866,640 1,149,816,947 218,420,407 13,798,926
Net assets:
Beginning of period 2,827,069,020 1,677,252,073 0 0
--------------- -------------- ------------ -----------
End of period $ 3,933,935,660 $2,827,069,020 $218,420,407 $13,798,926
=============== ============== ============ ===========
Undistributed net investment Income (loss) $ 35,496,292 $ 23,383,697 $ (276,200) $ 125,528
=============== ============== ============ ===========
</TABLE>
38 The Oakmark Family Of Funds
<PAGE>
<TABLE>
<CAPTION>
THE OAKMARK INT'L
INTERNATIONAL EMERGING
FUND VALUE
FUND
Year Ended Year Ended Year Ended
October 31, 1996 October 31, 1995 October 31, 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 14,823,124 $ 13,743,307 $ 155,101
Net realized gain (loss) on investments 2,806,950 62,822,164 1,284,213
Net realized gain (loss) on foreign currency
transactions (1,017,660) (26,735,730) (24,656)
Net change in unrealized appreciation (depreciation)
of investments and foreign currencies 176,382,416 (120,637,092) 296,393
Net change in unrealized appreciation (depreciation)
of forward currency exchange contracts 5,165,941 17,767,564 0
Net change in unrealized appreciation (depreciation)
--other (363,425) (20,391) (1,788)
-------------- -------------- ----------------
Net increase (decrease) in net assets resulting
from operations 197,797,346 (53,060,178) 1,709,263
Distribution to shareholders from (International Fund only):
Net investment income 0 0 0
Net realized short-term gain (per share $.5020
in fiscal 1996 and $.6863 in fiscal 1995) (29,886,815) (56,722,392) 0
Net realized long-term gain (per share $.5413
in fiscal 1996 and $.3725 in fiscal 1995) (32,229,556) (30,791,949) 0
-------------- -------------- ----------------
Total distributions to shareholders (62,116,371) (87,514,341) 0
From Fund share transactions:
Proceeds from shares sold 563,952,538 312,101,705 43,181,467
Reinvestment of dividends 57,852,161 81,810,540
Payments for shares redeemed (404,450,022) (719,598,750) (5,138,689)
-------------- -------------- ----------------
Net increase in net assets from Fund share
transactions 217,354,677 (325,686,505) 38,042,778
-------------- -------------- ----------------
Total increase (decrease) in net assets 353,035,652 (466,261,024) 39,752,041
Net assets:
Beginning of period 819,731,542 1,285,992,566 0
-------------- -------------- ----------------
End of period $1,172,767,194 $ 819,731,542 $ 39,752,041
============== ============== ================
Undistributed net investment income $ 46,201,571 $ 31,378,447 $ 155,101
============== ============== ================
See accompanying notes to financial statements.
The Oakmark Family Of Funds 39
</TABLE>
<PAGE>
The Oakmark Family of Funds
Notes to Financial Statements
1. Significant Accounting Policies
The following are the significant accounting policies of The Oakmark Fund
("Oakmark"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Balanced Fund
("Balanced"), The Oakmark International Fund ("International"), and The Oakmark
International Emerging Value Fund ("Int'l Emerging Value"), collectively
referred to as "the Funds," each a series of the Harris Associates Investment
Trust (a Massachusetts business trust). These policies are in conformity with
generally accepted accounting principles ("GAAP"). The presentation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates and assumptions.
Security valuation--
Investments are stated at current value. Securities traded on securities
exchanges and securities traded on the NASDAQ National Market are valued at the
last sales price on the day of valuation, or if lacking any reported sales that
day, at the most recent bid quotation. Over-the-counter securities not so traded
are valued at the most recent bid quotation. Money market instruments having a
maturity of 60 days or less from the date of valuation are valued on an
amortized cost basis which approximates market value. Securities for which
quotations are not readily available are valued at a fair value as determined by
the Trustees.
Foreign currency translations--
Values of instruments and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars using the mean of the bid and offer
prices of such currencies at the time of valuation. Purchases and sales of
investments and dividend and interest income are converted at the prevailing
rate of exchange on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized gain or loss from investments.
Net realized gains on foreign currency transactions arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Funds' books,
and the U.S. dollar equivalent of the amounts actually received or paid, and the
realized gains or losses resulting from the portfolio and transaction hedges.
<TABLE>
<CAPTION>
At October 31, 1996, only the International and Int'l Emerging Value funds had
foreign currency transactions. "Net unrealized depreciation--other," includes
the following components:
<S> <C> <C>
Int'l Emerging
International Value
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation)
on open securities purchases & sales (net) $ (81,972) $ (2,268)
Unrealized appreciation (depreciation)
on transaction hedge purchases 82,950 (90)
Unrealized appreciation (depreciation)
on dividends and dividend reclaims
receivable 38,457 592
Unrealized depreciation on transaction
hedge sales (227,924) (1)
Other--net (5,642) (21)
--------- -------
Net Unrealized Depreciation--other $ (194,131) $ (1,788)
========= =======
</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 daily as of the close of regular trading on
the New York Stock Exchange on each day the Exchange is open for trading by
dividing the total value of the Fund's investments and other assets, less
liabilities, by the number of Fund shares outstanding.
Forward foreign currency contracts--
At October 31, 1996, International and Int'l Emerging Value had entered into
forward foreign currency contracts under which they are obligated to exchange
currencies at specified future dates. The Funds' currency transactions are
limited to transaction hedging and portfolio hedging involving either specific
transactions or portfolio positions.
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 the contracts and from movements in
currency values. The International Fund had the following outstanding contracts
at October 31, 1996:
40 The Oakmark Family of Funds
<PAGE>
<TABLE>
<CAPTION>
Portfolio Hedges:
Unrealized
Appreciation
US Dollar Settlement (Depreciation) at
Proceeds Foreign Currency Date October 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$15,000,000 18,490,500 Swiss Francs May 1997 $ 101,883
10,039,417 1,273,500,000 Spanish Pesetas February 1997 95,801
9,377,606 1,191,800,000 Spanish Pesetas February 1997 75,970
14,792,659 1,894,200,000 Spanish Pesetas March 1997 22,744
8,022,563 40,534,000 French Francs February 1997 44,907
9,822,345 49,760,000 French Francs March 1997 11,115
10,000,000 50,525,000 French Francs May 1997 19,802
14,611,830 9,400,000 Pounds Sterling January 1997 (660,679)
5,084,856 3,276,325 Pounds Sterling March 1997 (232,032)
19,872,612 12,738,854 Pounds Sterling March 1997 (797,212)
15,000,000 9,217,157 Pounds Sterling May 1997 54,262
5,742,562 9,458,000 Netherlands Guilders February 1997 126,366
28,419,355 47,574,000 Netherlands Guilders March 1997 103,773
20,000,000 137,110,000 Swedish Krona November 1996 (853,888)
11,710,601 78,810,000 Swedish Krona December 1996 (281,801)
29,866,792 198,987,500 Swedish Krona December 1996 (423,883)
16,996,843 113,595,000 Swedish Krona January 1997 (303,616)
------------
$ (2,896,488)
============
Transaction Hedges:
Foreign Currency Purchases
Unrealized
Appreciation
Settlement (Depreciation) at
US Dollar Foreign Currency Proceeds Date October 31, 1996
- --------------------------------------------------------------------------------------------
$ 1,591,033 2,406,914 German Deutsche Marks November 1996 $ (1,681)
141,497 722,342 French Francs November 1996 (208)
399,654 247,725 Pounds Sterling November 1996 3,544
498,701 309,656 Pounds Sterling November 1996 5,296
101,184 61,932 Pounds Sterling November 1996 (384)
507,907 312,174 Pounds Sterling November 1996 189
10,149,797 65,250,000 Norwegian Krone November 1996 76,194
-------------
$ 82,950
=============
Foreign Currency Sales
Unrealized
Appreciation
US Dollar Settlement (Depreciation) at
Proceeds Foreign Currency Date October 31, 1996
- --------------------------------------------------------------------------------------------
$ 3,136,185 2,483,859 Australian Dollars November 1996 $ (2,021)
47,892 18,952 Malaysian Ringgit November 1996 (4)
201,693 118,965 Netherlands Guilder November 1996 91
65,250,000 10,000,000 Norwegian Krone November 1996 (225,990)
----------
$ (227,924)
==========
</TABLE>
The Oakmark Family of Funds 41
<PAGE>
Notes to Financial Statements (continued)
-----------------------------------------------------------------------------
The Int'l Emerging Value Fund had the following outstanding transaction
hedges on purchases of securities:
Foreign Currency Purchases
<TABLE>
<CAPTION>
Unrealized
Appreciation
Settlement (Depreciation) at
US Dollar Foreign Currency Proceeds Date October 31, 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$36,223 84,326,640 Indonesian Rupiah November 1996 $ (20)
55,886 6,370,420 Japanese Yen November 1996 66
48,650 5,538,788 Japanese Yen November 1996 (2)
98,074 11,150,968 Japanese Yen November 1996 (134)
-----
$ (90)
=====
Foreign Currency Sales
Unrealized
Appreciation
US Dollar Settlement (Depreciation) at
Proceeds Foreign Currency Date October 31, 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$57,341 80,736 Singapore Dollar November 1996 $ 20
56,699 84,116 Singapore Dollar November 1996 (21)
-----
$ (1)
=====
</TABLE>
At October 31, 1996, International and Int'l Emerging Value Funds each 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 Funds elect to be
taxed as "regulated investment companies" and make such distributions to
their shareholders as to be relieved of all Federal income taxes under
provisions of current Federal tax law.
2. Transactions with Affiliates
Each Fund has an investment advisory agreement with Harris Associates L.P.
("the Adviser"). For management services and facilities furnished, the
Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays
1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion
of net assets, .90% on the next $1.25 billion of net assets and .85% on the
excess of $5 billion of net assets. International pays 1% on the first $2.5
billion of net assets, .95% on the next $2.5 billion of net assets and .90%
on the excess of $5 billion of net assets as determined at the end of each
calendar month. Small Cap pays 1.25% of net assets, Balanced pays .75% of
net assets and Int'l Emerging Value pays 1.25% of net assets. Each monthly
fee is calculated on the total net assets as determined at the end of the
preceding calendar month. 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.
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, 1997, subject to earlier termination by the Adviser on
30 days' notice to the Fund. For the year ended October 31, 1996, the
Adviser has reimbursed $14,245 of expenses for Balanced and $35,441 for
Int'l Emerging Value.
In connection with the organization of the Funds, expenses of approximately
$146,500 and $47,000 were advanced to Oakmark and International and
approximately $7,283 each to Small Cap, Balanced and Int'l Emerging Value
by the Adviser. These expenses are being amortized on a straight line basis
through September, 1997 for International and October, 2000 for Small Cap,
Balanced and Int'l Emerging Value. Oakmark has fully amortized all
organization expenses at October 31, 1996. Registration expenses of
approximately $56,751, $56,811 and $56,726 were advanced to Small Cap,
Balanced and Int'l Emerging Value, respectively, by the Adviser.
Registration expenses have been fully amortized at October, 1996.
During the year ended October 31, 1996, the Funds incurred brokerage
commissions of $2,863,961, $2,804,611, $404,602, $19,797 and $198,847 of
which $1,192,641, $82,872, $132,729, $14,487 and $6,128 were paid by
Oakmark, International, Small Cap, Balanced and Int'l Emerging Value,
respectively, to an affiliate of the Adviser.
42 The Oakmark Family of Funds
<PAGE>
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 October 31, 1996
--------------------------------------------------
Int'l
Small Emerging
Oakmark Cap Balanced Int'l Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold 59,070 18,656 1,466 39,590 3,943
Shares issued in reinvest-
ment of dividends 3,733 0 0 4,757 0
Less shares redeemed (40,632) (2,102) (244) (28,966) (460)
-------- ------- ------ -------- ------
Net increase in shares
outstanding 22,171 16,554 1,222 15,381 3,483
======== ======= ====== ======== ======
Year Ended October 31, 1995
----------------------------
Oakmark International
- -------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 54,044 24,062
Shares issued in reinvestment of dividends 4,782 6,472
Less shares redeemed (26,065) (56,012)
------- -------
Net increase in shares outstanding 32,761 (25,478)
======= =======
</TABLE>
Small Cap and Int'l Emerging Value withheld $156,963 and $34,552, respectively,
in redemption fees for shares redeemed within six months of purchase.
4. Investment transactions
Transactions in investment securities (excluding short-term securities) were as
follows (in thousands):
<TABLE>
<CAPTION>
Int'l
Small Emerging
Oakmark Cap Balanced Int'l Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $1,382,109 $212,132 $18,686 $567,709 $43,027
Proceeds from sales 808,074 20,995 6,430 408,936 6,310
</TABLE>
The market values (in thousands) of securities on loan to broker-dealers at
October 31, 1996 are shown below. Security loans are required to be secured at
all times by collateral at least equal to the market value of securities loaned.
The Funds receive income from lending securities by investing the collateral and
continue to earn income on the loaned securities. Security loans are subject to
the risk of failure by the borrower to return the loaned securities in which
case the Funds could incur a loss.
<TABLE>
<CAPTION>
Int'l
Small Emerging
Oakmark Cap Balanced Int'l Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Value of
Securities Loaned n/a $ 9,794 $1,079 $149,521 $3,566
Collateral (Cash and U.S.
Treasuries) n/a 10,440 1,120 164,784 3,805
</TABLE>
5. Shareholder Meeting (Unaudited)
On January 30, 1996 the Funds held a meeting of shareholders to approve or
disapprove a new investment advisory agreement for each Fund with the Adviser
with the same terms as the Funds' prior advisory agreements. For shareholders of
Oakmark only, approval was requested to amend Oakmark's fundamental investment
restrictions and permit investments in repurchase agreements and lending of
portfolio securities. A tabulation of results is shown below.
<TABLE>
<CAPTION>
Int'l
Small Emerging
(in thousands) Oakmark Cap Balanced Int'l Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Agreement
For 73,642 372 38,262 475
Against 1,441 11 1 573 6
Abstentions 1,977 26 1 715 5
Repurchase Agreements
For 51,570
Against 4,304
Abstentions 2,240
Broker non-votes 18,946
Securities Lending
For 49,663
Against or withheld 5,985
Abstentions 2,467
Broker non-votes 18,946
</TABLE>
The Oakmark Family Of Funds 43
<PAGE>
The Oakmark Fund
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Year Ended October 31, Period Ended
----------------------------------------------------------- October 31,
1996 1995 1994 1993 1992 1991 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 $10.00
Income From Investment Operations:
Net Investment Income (Loss) 0.34 0.30 0.27 0.17 (0.03) (0.01)
Net Gains or Losses on Securities
(both realized and unrealized) 4.70 4.66 1.76 7.15 5.04 2.11
-------- -------- -------- -------- ------ ------
Total From Investment Operations: 5.04 4.96 2.03 7.32 5.01 2.10
Less Distributions:
Dividends (from net investment income) (0.28) (0.23) (0.23) (0.04) 0.00 0.00
Distributions (from capital gains) (0.84) (1.47) (0.77) (0.21) 0.00 0.00
-------- -------- -------- -------- ------ ------
Total Distributions (1.12) (1.70) (1.00) (0.25) 0.00 0.00
-------- -------- -------- -------- ------ ------
Net Asset Value, End of Period $ 32.39 $ 28.47 $ 25.21 $ 24.18 $17.11 $12.10
======== ======== ======== ======== ====== ======
Total Return 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $3,933.9 $2,827.1 $1,677.3 $1,107.0 $114.7 $ 4.8
Ratio of Expenses to Average Net Assets 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)*
Ratio of Net Income (Loss) to Average Net Assets 1.13% 1.27% 1.19% 0.94% -0.24% -0.66%(c)*
Portfolio Turnover Rate 23.7% 18.0% 29.3% 18.0% 34.0% 0.0%
Average Commission Rate Paid(d) $ 0.0530
</TABLE>
- ------------------------
*Ratios 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) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
44 The Oakmark Fund
<PAGE>
THE OAKMARK SMALL CAP AND BALANCED FUNDS
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
<S> <C> <C>
Small Cap Fund Balanced Fund
Year Ended October 31, 1996 Year Ended October 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.00 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.02) 0.10
Net Gains or Losses on Securities
(both realized and unrealized) 3.21 1.19
------- -------
Total From Investment Operations: 3.19 1.29
Less Distributions:
Dividends (from net investment income) 0.00 0.00
Distributions (from capital gains) 0.00 0.00
------- -------
Total Distributions 0.00 0.00
------- -------
Net Asset Value, End of Period $ 13.19 $ 11.29
======= =======
Total Return 31.94% 12.91%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 218.4 $ 13.8
Ratio of Expenses to Average Net Assets 1.61% 2.50% (a)
Ratio of Net Income (Loss)
to Average Net Assets (0.29)% 1.21% (a)
Portfolio Turnover Rate 23.15% 66.35%
Average Commission Rate Paid $0.0520 $0.0581
</TABLE>
- --------------------------------------
a) If the Fund had paid all of its expenses and there had been no expense
reimbursement by the Adviser, the ratio of expenses to average net assets
would have been 2.64% and the ratio of net income (loss) to average net
assets would have been 1.08%.
The Oakmark Small Cap and Balanced Funds 45
<PAGE>
THE OAKMARK INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Year Ended October 31, Period Ended
----------------------------------------------- October 31,
1996 1995 1994 1993 1992(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.97 $14.50 $ 14.09 $ 9.80 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) 0.09 0.30 0.21 0.06 0.26
Net Gains or Losses on Securities
(both realized and unrealized) 2.90 (0.77) 0.43 4.48 (0.46)
-------- ------ -------- ------ --------
Total From Investment Operations: 2.99 (0.47) 0.64 4.54 (0.20)
Less Distributions:
Dividends (from net investment income) 0.00 0.00 (0.08) (0.25) -
Distributions (from capital gains) (1.04) (1.06) (0.15) (0.0) -
-------- ------ -------- ------ --------
Total Distributions (1.04) (1.06) (0.23) (0.25) -
-------- ------ -------- ------ --------
Net Asset Value, End of Period $ 14.92 $12.97 $ 14.50 $14.09 $ 9.80
======== ====== ======== ====== ========
Total Return 24.90% (3.06%) 4.62% 47.49% (22.81%)
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $1,172.8 $819.7 $1,286.0 $815.4 $ 23.5
Ratio of Expenses to Average Net Assets 1.32% 1.40% 1.37% 1.26% 2.04%*
Ratio of Net Income (Loss) to Average Net Assets 1.45% 1.40% 1.44% 1.55% 37.02%*
Portfolio Turnover Rate 42% 26% 55% 21% 0%
Average Commission Rate Paid(b) $ 0.0158
</TABLE>
- --------------------------------------
* Ratios 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.
(b) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
46 The Oakmark International Fund
<PAGE>
The Oakmark Int'l Emerging Value Fund
Financial Highlights
For a share outstanding throughout the period
<TABLE>
<CAPTION>
<S> <C>
Year Ended October 31, 1996
Net Asset Value, Beginning of Period................ $ 10.00
Income From Investment Operations:
Net Investment Income (Loss)...................... 0.04
Net Gains or Losses on Securities
(both realized and unrealized).................... 1.37
-------
Total From Investment Operations:................... 1.41
Less Distributions:
Dividends (from net investment income).............. 0.00
Distributions (from capital gains).................. 0.00
-------
Total Distributions................................. 0.00
-------
Net Asset Value, End of Period...................... $ 11.41
=======
Total Return........................................ 14.15%
Ratios/Supplemental Data:
Net Assets, End of Period ($million).............. $ 39.8
Ratio of Expenses to Average Net Assets........... 2.50% (a)
Ratio of Net Income (Loss) to Average Net Assets.. 0.65% (a)
Portfolio Turnover Rate........................... 27.44%
Average Commission Rate Paid...................... $0.0036
(a) If the Fund had paid all of its expenses and there had been no expense
reimbursement by the Adviser, the ratio of expenses to average net assets
would have been 2.65% and the ratio of net income (loss) to average net
assets would have been .50%.
</TABLE>
The Oakmark International Emerging Value Fund 47
<PAGE>
The Oakmark Family Of Funds
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Harris
Associates Investment Trust:
We have audited the accompanying statements of assets and liabilities of
The Oakmark Fund, The Oakmark Small Cap Fund, The Oakmark Balanced Fund, The
Oakmark International Fund, and The Oakmark International Emerging Value Fund
(each a series of Harris Associates Investment Trust), including the schedules
of investments on pages 7-10, 13-15, 18-20, 24-27, and 31-33, as of October 31,
1996, 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, 1996, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmation from brokers,
and when replies were not received, we carried out alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
The Oakmark Fund, The Oakmark Small Cap Fund, The Oakmark Balanced Fund, The
Oakmark International Fund, and The Oakmark International Emerging Value Fund of
the Harris Associates Investment Trust as of October 31, 1996, 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 6, 1996
48 The Oakmark Family of Funds
<PAGE>
THE OAKMARK FAMILY Of FUNDS
Trustees and Officers
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Trustees Other Information
Michael J. Friduss
Thomas H. Hayden Transfer Agent
Christine M. Maki State Street Bank and Trust Company
Victor A. Morgenstern Attention: The Oakmark Family of Funds
Allan J. Reich P.O. Box 8510
Marv Rotter Boston, Massachusetts 02266-8510
Burton W. Ruder
Peter S. Voss Investment Adviser
Gary Wilner, M.D. Harris Associates L.P.
Officers Legal Counsel
Victor A. Morgenstern--President Bell, Boyd & Lloyd
Robert J. Sanborn--Executive Vice President Chicago, Illinois
David G. Herro--Vice President
Clyde S. McGregor--Vice President Independent Public Accountants
William C. Nygren--Vice President Arthur Andersen LLP
Steven J. Reid--Vice President Chicago, Illinois
Adam Schor--Assistant Vice President
Michael J. Welsh--Assistant Vice President Address of Fund and Adviser
Donald Terao--Treasurer Two North LaSalle Street, Suite 500
Anita M. Nagler--Secretary Chicago, Illinois 60602
Ann W. Regan--Vice President-- 1-800-OAKMARK (1-800-625-6275)
Shareholder Operations and Assistant Secretary
Kristi L. Rowsell--Assistant Treasurer 24-hour NAV hotline
1-800-GROWOAK (1-800-476-9625)
</TABLE>
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.
<PAGE>
[LOGO OAKKMARK ]
[FAMILY OF FUNDS]
HARRIS ASSOCIATES L.P.
2 NORTH LASALLE STREET
CHICAGO, IL 60602-3790
