<PAGE>
SEMI-ANNUAL REPORT
April 30, 1997 The Oakmark
Fund
The Oakmark
Select Fund
The Oakmark
Small Cap Fund
The Oakmark
Balanced Fund
The Oakmark
International Fund
The Oakmark
International
Small Cap Fund
MEMBER OF
- ----------------
100% NO-LOAD
MUTUAL FUND
COUNCIL
- ----------------
Managed by
Harris
Associates L.P.
OAKMARK
<PAGE>
The Oakmark Family of Funds
1997 Semi-Annual Report
----------------------------------------------------------------------
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.............................. 6
The Oakmark Select Fund
Performance Information.............................. 9
Letter from the Portfolio Manager.................... 9
Schedule of Investments.............................. 11
The Oakmark Small Cap Fund
Performance Information.............................. 13
Letter from the Portfolio Manager.................... 13
Schedule of Investments.............................. 15
The Oakmark Balanced Fund
Performance Information.............................. 18
Letter from the Portfolio Manager.................... 18
Schedule of Investments.............................. 20
The Oakmark International Fund
Performance Information.............................. 23
Letter from the Portfolio Managers................... 23
International Diversification Chart.................. 25
Schedule of Investments.............................. 26
The Oakmark Int'l Small Cap Fund
Performance Information.............................. 31
Letter from the Portfolio Managers................... 31
International Diversification Chart.................. 33
Schedule of Investments.............................. 34
Financial Statements.................................. 38
Trustees and Officers................................. 61
For More Information:
Please call 1-800-OAKMARK (1-800-625-6275) or access our Web site at
www.oakmark.com
24-Hour Net Asset Value Hotline and Web Site:
To obtain the current net asset value of a Fund, please call
1-800-GROWOAK (1-800-476-9625) or access our Web site at
www.oakmark.
com
<PAGE>
Letter from the President . . .
- --------------------------------------------------------------------------------
Fellow Shareholders,
I am pleased to present the semiannual report for The Oakmark Family of Funds.
This past quarter was one which generally rewarded the patient investor. The
individual fund results, as well as the portfolio managers' commentaries, are
presented in the following sections of this report.
Market Timing
As value investors, we firmly believe that over time security prices and
underlying company values converge. Experience has taught us that while the time
frame for this convergence is very uncertain, inevitably patience is rewarded.
But what is the potential cost of not being patient and "staying the course"
during volatile periods? As a long-term investor, the short-term decision to
"temporarily" get out of the market requires two correct decisions.
[PHOTO HERE]
The first relates to identifying the right time to sell, with its attendant
costs and tax implications; and, the second relates to choosing the right time
to buy back in. Several years ago the folks at the University of Michigan looked
at one of the best bull market periods, 1982-1987, and did a piece on "The
Penalty for Missing the Market" which is summarized in the following table:
The Penalty for Missing the Market
(1982-1987 Bull Market)*
- --------------------------------------------------------------------------------
Period of Investment S&P 500 Annualized Return
- -------------------- -------------------------
Full 1,276 Trading Days 26.3%
Less the 10 Best Days 18.3
Less the 20 Best Days 13.1
*Aug 12, 1982-Aug 25, 1987
Similarly, we tested the performance of The Oakmark Fund for the period since
inception, August, 1991 through April 30, 1997. The results presented below are
remarkably similar to the University of Michigan study.
The Potential Penalty for Trading In and Out of
The Oakmark Fund
- --------------------------------------------------------------------------------
The Oakmark Fund Annualized Total
- ---------------- ---------- -----
Full 1,447 Trading Days 29.6% 342%
Less the 10 Best Days 18.7 167
Less the 20 Best Days 14.8 121
Both of the above studies show that a significant part of the long-term result
may be affected by being out of the investment for a very short period. The
elimination of less than 2 percent of the trading days reduced the cumulative
return by nearly 65%!
While no one expects to be unlucky enough to miss all these days, the
potential penalty for missing just a few is very high. As we have learned from
recent experience, there will be times when increased market volatility will
test your resolve to be long-term investors. Once you have made the appropriate
asset allocation to stocks and own a fund you have confidence in (hopefully one
of The Oakmark Family!), don't sabotage the potential return by short-term
trading.
In our ongoing efforts to upgrade our level of service and reduce costs, we
have created our own Web site, www.oakmark.com. The Funds' prospectus,
application, quarterly report, and daily net asset values are available on the
site. We have also enhanced our audio response system and are enclosing a
brochure that describes its use, including all the new features.
Thanks for your support and confidence in us. Very truly yours,
/s/ Victor A. Morgenstern
Victor A. Morgenstern
1
<PAGE>
The Oakmark Family of Funds
Summary Information*
<TABLE>
<CAPTION>
<S> <C> <C>
Performance for Period Ended The Oakmark The Oakmark
April 30, 1997 Fund Select
Fund
---------------------------------------------------------------------------------------------------------------
3 Months 2.5% -2.0%
6 Months 15.5% 22.5%
Performance for:
1 Year 20.0% N/A
3 Years 21.1%** N/A
5 Years 24.7%** N/A
Since inception 29.6%** 22.5%
Value of $10,000 $44,197 $12,250
from inception date 08/05/91 11/01/96
---------------------------------------------------------------------------------------------------------------
Top Five Holdings Philip Morris U.S. Industries, Inc. 16.1%
as of April 30, 1997 Companies, Inc. 7.2%
Tele-Communications,
Company and % of Total Net Assets First USA, Inc. 7.0% Liberty Media,
Class A 15.4%
Mellon Bank Corp. 6.1%
USG Corporation 6.1%
The Black & Decker
Corp. 4.8% Partner ReLtd. 5.9%
Polaroid Corporation 4.0% Polaroid Corporation 5.1%
---------------------------------------------------------------------------------------------------------------
Top Five Industries Food & Beverage 17.0% Diversified
as of April 30, 1997 Conglomerates 16.1%
Other Consumer
Industries and % of Total Net Assets Goods & Services 14.0% TV Programming 15.4%
Broadcasting & Broadcasting &
Publishing 12.6% Cable TV 13.1%
Other Financial 12.3% Other Consumer
Goods & Services 8.7%
Foreign Securities 6.5%
Publishing 7.8%
</TABLE>
*The Oakmark Fund's average annual total returns for the twelve months ended
March 31, 1997 and for the period August 5, 1991 (inception) through March
31, 1997 were 16.7% and 29.1%, respectively. The Oakmark Select Fund's total
return for November 1, 1996 (inception) through March 31, 1997 was 21.4%. The
Oakmark Small Cap Fund's average annual total returns for the twelve months
ended March 31, 1997 and for the period November 1, 1995 (inception) through
March 31, 1997 were 32.8% and 34.5%, respectively. The Oakmark Balanced
Fund's average annual total returns for the twelve months ended March 31,
1997 and for the period November 1, 1995 (inception) through March 31, 1997
were 15.7% and 14.8%, respectively.
2 The Oakmark Family of Funds
<PAGE>
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP BALANCED INTERNATIONAL INT'L SMALL CAP
FUND FUND FUND FUND
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
-0.1% 1.4% 6.2% 0.1%
- -------------------------------------------------------------------------------------------------------------------------------
15.0% 10.1% 15.5% 6.5%
- -------------------------------------------------------------------------------------------------------------------------------
24.6% 16.9% 16.4% 7.2%
- -------------------------------------------------------------------------------------------------------------------------------
N/A N/A 11.2%** N/A
- -------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
32.1%** 15.6%** 17.8%** 13.9%**
$15,170 $12,429 $21,149 $12,152
11/01/95 11/01/95 09/30/92 11/01/95
- -------------------------------------------------------------------------------------------------------------------------------
SPX Corp. 7.4% U.S. Industries, Inc. 4.3% Cordiant plc 4.6% Enix Corporation 3.9%
U.S. Industries, Inc. 6.4% Premark International, Guinness plc 4.3% JCG Holdings Ltd. 3.8%
Inc. 3.8%
Catellus Dev. Corp. 5.0% AB Volvo 4.0% Cordiant plc 3.6%
Old Republic
People's Bank of International Corp. 3.6% Telefonos de Mexico, Sanford Ltd. 3.6%
Bridgeport, CT 4.8% S.A. 3.9%
First USA, Inc. 3.5% Vardon plc 3.3%
Cablevision Systems Nestle SA 3.3%
Corp. 3.3% Borg-Warner
Automotive, Inc. 3.1%
- -------------------------------------------------------------------------------------------------------------------------------
Other Industrial Government & Food & Beverage 15.9% Other Industrial
Goods & Services 17.4% Agency Securities 26.6% Goods & Services 13.4%
Telecommunications 12.6% Other Consumer
Broadcasting & Other Consumer Goods Goods & Services 11.7%
Publishing 10.4% & Services 13.8% Banks 12.0%
Food & Beverage 8.9%
Insurance 9.7% Broadcasting & Steel 5.7%
Publishing 7.8% Household Products 7.1%
Machinery & Other Industrial
Metal Processing 8.9% Insurance 6.6% Goods & Services 5.5% Other Financial 6.1%
Commercial Other Financial 6.0%
Real Estate 7.4%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Oakmark International Fund's average annual total returns for the twelve
months ended March 31, 1997 and for the period September 30, 1992 (inception)
through March 31, 1997 were 23.2% and 17.9%, respectively. The Oakmark
International Small Cap Fund's average annual total returns for the twelve
months ended March 31, 1997 and for the period November 1, 1995 (inception)
through March 31, 1997 were 10.1% and 14.3%, respectively. 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.
**Annualized.
The Oakmark Family of Funds 3
<PAGE>
THE OAKMARK FUND
Report from Robert J. Sanborn, Portfolio Manager
-------------------------------------------------------------------------
[PHOTO APPEARS HERE]
As we reach the mid-point of your Fund's fiscal year, it is my custom to review
the portfolio and assess how we're doing. Our results year-to-date are doubly
satisfactory: on an absolute basis, your Fund returned 15.5 percent, about a
percentage point more than the Standard & Poor's 500.
These are benign times in which to invest in equities, particularly those of
larger-capitalization US companies. (The smaller cap stocks have continued to
lag behind their big cap brethren.) Inflation remains subdued (both the price of
gold and oil declined in the six-month period), US business is super-competitive
globally, and Boomers continue to allocate more of their assets to equities.
I would inject a cautionary note, however. In the six months between October 31,
1996 and now, the yield on the US government 30-year bond has risen from 6.7
percent to 6.9 percent. All things equal, this decoupling of the performance of
US stocks and bonds means that bonds are now tougher competition. Just as
consumers alter their buying patterns in response to changing relative prices,
so do investors.
This does not mean that we prefer bonds to stocks. It does mean that generally
valuation for the overall market has deteriorated in the past six months. The
real value of a business is dependent on the level of long-term interest rates.
With interest rates up a bit (and, of course, bond prices down) and stock prices
up a lot, the stock market is not as attractive as it was. Some of our holdings
have attained our estimates of value, and we have sold them. Our cash level is
at an all-time high. Again, this does not mean that we "don't like the market."
It does mean that we are having a tougher time finding individual holdings that
meet our criteria.
We have not made major changes to your Fund. Any prospective holding must
dominate our current holdings; we never shuffle our investments merely for the
sake of change. Our current twenty largest holdings were all substantial
holdings in October. We have increased our investments in Black & Decker and
Polaroid as the market over-reacted to some short-term developments. In general,
your Fund remains heavily invested in high-quality businesses, particularly
consumer brands
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The value of a $10,000 investment in The Oakmark Fund from its inception
(8/5/91) to present (4/30/97) as compared to the Standard & Poor's 500 index
[GRAPH APPEARS HERE]
<S> <C> <C>
The Oakmark Fund S & P 500
- ----------------------------------------------
8/91 $10,000 $10,000
- ----------------------------------------------
1/92 $13,910 $10,719
- ----------------------------------------------
1/93 $19,913 $11,857
- ----------------------------------------------
1/94 $25,648 $13,372
- ----------------------------------------------
1/95 $26,480 $13,444
- ----------------------------------------------
1/96 $36,091 $17,213
- ----------------------------------------------
1/97 $43,112 $23,512
- ----------------------------------------------
4/97 $44,197 $24,070
- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
4/30/97 NAV $35.02
Average Annual Total Return*
Through 4/30/97
----------------------------
Total Return From Fund Inception
Last 3 mos. 8/5/91
- ----------------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK FUND 2.5% 29.6%
Standard & Poor's 500 w/inc Stock Index** 2.4% 16.5%
Dow Jones Industrial Average w/inc** 3.4% 18.9%
Value Line Composite Index** -2.6% 8.0%
</TABLE>
*Total return includes change in share prices and in each case, except for the
Value Line Index, includes reinvestment of any dividends, interest 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>
and financial services. In fact, I consider seventeen of our twenty largest
holdings as being structurally superior businesses.
Your Fund remains concentrated, with the twenty largest holdings constituting
over 75 percent of our holdings. The five largest constitute 33 percent of our
holdings. We believe that attractive investment opportunities are scarce, and we
believe most mutual funds (let alone most mutual fund investors!) are overly
diversified and offer scant chance to outperform an index fund over the
long term.
Much of the media treats the equity market as if it were a casino or a sporting
event. I find it amusing to tune into one of the ubiquitous market shows on a
big up or down day; the corresponding gleeful or funereal tone is a hoot.
People, do not let all the noise out there deter you from what you are trying to
accomplish with your investment in The Oakmark Fund, and that is increasing your
spending power in the long run.
Value vs. Momentum Investing, With a Guest Appearance from Billy "White Shoes"
Johnson
I have received many letters from you asking the differences between value and
momentum investing. In brief, value investing: good; momentum investing: bad.
Seriously, these two philosophies frame the investment process quite
differently. At the risk of oversimplification, the major difference is that
value investors like ourselves focus on price, and what you are getting for that
price. Momentum investors tend to focus on those companies with the fastest
growth rates--period. At conferences at which I have attended, I have heard many
momentum fund managers state, "In the WXYZ Fund, we aim to own the best,
fastest-growing companies in America."
The appeal of value investing to all of us at The Oakmark Funds is that it has
the happy characteristic of being simpatico with how people conduct virtually
all their economic and financial affairs. If price did not matter, most cars on
the road would be Ferraris or BMWs. But--alas!--price does matter, and car
shoppers, thinking like value investors, frame their car purchases with respect
to budgets and alternatives. Similarly, when entire businesses are bought, the
buyer always is relating to what one is getting relative to what one is paying.
A relative indifference to valuation introduces a significant risk element, in
the form of added volatility, to a portfolio. Of the 250-plus funds with five-
year records in the Lipper Growth (for growth in capital) category, The Oakmark
Fund has the highest total return for the five years ending April 30, 1997. The
runner-up is a large, well-known momentum fund. However, the two funds are quite
different when it comes to risk.
For the 21 calendar quarters ending March 31, 1997, The Oakmark Fund had two
negative-return quarters; the momentum fund, let's call it WXYZ Fund, had six.
The range of The Oakmark Fund's returns ran from -4.2 percent to +15.5 percent;
the range of WXYZ's returns was -19.8 percent to +42.2 percent.
Momentum funds tend to trade a lot, which is expensive and tax-inefficient. WXYZ
Fund's turnover for the years 1992-6 is as follows: 115%, 209, 94, 119, and 45;
The Oakmark Fund's turnover for those same years: 34%, 18, 29, 18, 19. In simple
terms, the WXYZ momentum fund turns over its portfolio every ten months, whereas
The Oakmark Fund turns over our portfolio every five years!
What does this have to do with Billy "White Shoes" Johnson? Well, those of you
who read these carefully may remember that he first appeared in our July 31,
1995 quarterly. In that letter, I discussed the overheated IPO market,
especially for technology issues. I mentioned a few recent IPOs that had soared
on the first day of trading, and explained why we in The Oakmark Fund avoided
earning this sort of "easy" money. ARCSYS (now called Avant!) went public at
$13, soared to $26 on the first day, got as high as $51, and now trades at $21.
Oak Technology went public at $14, ran to $21 on day one, got as high as $29,
and now trades at $9. Netscape came public at $14, traded to $38 on day one, got
as high as $87, and now trades at $30.
I said at the time that this sector was very vulnerable, and if I were proved
right, I would do a victory dance ala' Billy, the seminal genius of end-zone
celebrations while a receiver for the Houston Oilers. At the risk of flouting
the investment gods, this fund manager is now doing the "Billy." (Count
yourselves fortunate that your eyes do not have to witness this spectacle.) Many
of the momentum funds like WXYZ own these sorts of stocks, and are down 20
percent or more year-to-date. It was a little frustrating not making the "easy"
money in 1995 and 1996, but it sure is gratifying keeping the "hard-earned"
money in 1997.
/s/ Robert J. Sanborn
Robert J. Sanborn
Portfolio Manager
[email protected]*
May 9, 1997
*Please note my new e-mail address.
The Oakmark Fund 5
<PAGE>
The Oakmark Fund
Schedule of Investments--April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Held Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--86.5%
Food & Beverage--17.0%
Philip Morris Companies Inc. 8,911,200 $ 350,878,500
H.J. Heinz Company 4,007,250 166,300,875
Anheuser-Busch Companies Inc. 3,538,200 151,700,325
Nabisco Holdings Corporation 2,422,100 92,948,087
CPC International, Inc. 843,100 69,661,138
--------------
831,488,925
Retail--0.6%
Carson Pirie Scott & Company (a) (d) 1,000,000 $ 29,750,000
Other Consumer Goods & Services--14.0%
The Black & Decker Corporation (d) 6,947,200 $ 232,731,200
Polaroid Corporation (d) 4,062,400 197,026,400
American Brands, Inc. 2,435,500 130,908,125
Brunswick Corporation 1,100,000 31,075,000
First Brands Corporation 1,070,400 27,161,400
Whitman Corporation 957,500 22,142,187
GC Companies, Inc. (a) (d) 397,000 15,929,625
Juno Lighting, Incorporated 885,000 13,717,500
Arctic Cat, Inc. 957,500 9,575,000
Justin Industries 601,500 6,691,688
--------------
686,958,125
Banks--6.1%
Mellon Bank Corporation 3,606,550 $ 299,794,469
Insurance--2.2%
Old Republic International Corporation 2,748,620 $ 77,648,515
American Financial Group, Inc. 684,700 23,878,912
Acordia, Inc. 154,500 4,886,063
--------------
106,413,490
Other Financial--12.3%
First USA, Inc. (d) 7,096,000 $ 341,495,000
AMBAC, Inc. (d) 2,194,900 142,119,775
Fannie Mae 2,532,500 104,149,062
Fund American Enterprises Inc. 168,500 16,828,938
--------------
604,592,775
Broadcasting & Publishing--12.6%
Knight-Ridder, Inc. 4,534,600 $ 176,282,575
Dun & Bradstreet Corporation 5,976,000 147,159,000
Tele-Communications, Inc., Class A (a) 10,379,179 143,362,410
ACNielsen Corporation (d) 4,764,000 71,460,000
Tele-Communications, Liberty Media,
Class A (a) 3,657,741 68,811,253
TCI Satellite Entertainment, Inc., Class A (a) 1,217,917 9,134,377
--------------
616,209,615
</TABLE>
See accompanying notes to financial statements.
6 The Oakmark Fund
<PAGE>
- --------------------------------------------------------------------------------
THE OAKMARK FUND
SCHEDULE OF INVESTMENTS-APRIL 30, 1997 (UNAUDITED) CONT.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Held Market Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--86.5% (cont.)
Telecommunications--3.5%
U.S. West Media Group (a) 10,020,800 $ 172,858,800
Managed Care Services--1.3%
Foundation Health Systems, Inc. (a) 2,357,810 $ 63,660,870
Medical Products--1.1%
Sybron International Corporation (a) 1,567,800 $ 52,129,350
Aerospace & Defense--4.1%
Lockheed Martin Corporation 1,125,000 $ 100,687,500
McDonnell Douglas Corporation 1,220,000 72,437,500
Logicon, Inc. 654,800 26,028,300
--------------
199,153,300
Other Industrial Goods & Services--5.0%
James River Corporation of Virginia 3,094,100 $ 92,436,237
SPX Corporation (d) 967,900 52,871,538
Bandag Incorporated, Class A (a) 1,104,100 50,236,550
The Geon Company 971,600 21,253,750
UCAR International, Inc. (a) 303,500 12,747,000
Premark International, Inc. 328,400 8,045,800
W.R. Grace & Company 122,800 6,385,600
--------------
243,976,475
Commercial Real Estate--0.2%
Catellus Development Corporation (a) 341,300 $ 5,034,175
Host Marriott Corp. (a) 200,000 3,475,000
--------------
8,509,175
Foreign Securities--6.5%
DeBeers Consolidated Mines Limited ADR (b) 3,246,000 $ 116,805,281
Unilever NV (b) 476,000 93,415,000
YPF Sociedad Anonima (b) 3,276,500 90,513,313
European Vinyls Corporation International N. V 547,700 15,686,321
--------------
316,419,915
Total Common Stocks (Cost: $3,012,435,009) 4,231,915,284
</TABLE>
The Oakmark Fund 7
See accompanying notes to financial statements.
<PAGE>
THE OAKMARK FUND
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Principal Value Market Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments--13.3%
U.S. Government Bills--1.0%
United States Treasury Bills,
5.36% due 9/18/1997 $ 25,000,000 $ 24,478,889
United States Treasury Bills,
5.40% due 10/16/1997 25,000,000 24,369,416
--------------
Total U.S. Government Bills (Cost: $48,848,305) 48,848,305
Commercial Paper--11.5%
American Express Credit Corp.,
5.34%--5.54% due 5/2--6/9/97 $180,000,000 $ 180,000,000
Ford Motor Credit Corp.,
5.41%--5.57% due 5/2--6/17/97 190,000,000 190,000,000
General Electric Capital Corporation,
5.42%--5.65% due 5/1--6/20/97 195,000,000 195,000,000
--------------
Total Commercial Paper (Cost: $565,000,000) 565,000,000
Repurchase Agreements--0.8%
State Street Repurchase Agreement,
5.37% due 5/1/1997 $ 38,793,000 $ 38,793,000
--------------
Total Repurchase Agreements (Cost: $38,793,000) 38,793,000
Total Short Term Investments (Cost: $652,641,305) 652,641,305
Total Investments (Cost $3,665,076,314)--99.8% (c) 4,884,556,589
Foreign currencies (Cost $482,705)--0.0% 477,899
Other assets in excess of other liabilities--0.2% 9,973,589
--------------
Total Net Assets--100% $4,895,008,077
==============
</TABLE>
-----------------------------------------------
Notes:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) At April 30, 1997, net unrealized appreciation of
$1,219,475,468 for federal income tax purposes consisted of
gross unrealized appreciation of $1,264,288,669 and gross
unrealized depreciation of $44,813,201.
(d) See footnote number five to the financial statements regarding
transactions in securities of affiliated issuers.
See accompanying notes to financial statements.
8 THE OAKMARK FUND
<PAGE>
The Oakmark Select Fund
Report from Bill Nygren, Portfolio Manager
-------------------------------------------------------------------------
[PHOTO APPEARS HERE]
The accompanying chart of stock market indices shows that during the three
months ended April 30, the recent trend continued of very large stocks
outperforming average-sized stocks. The Oakmark Select Fund was down 2.0% for
the quarter. That compares poorly to the 2.4% gain in the S&P 500, but is
consistent with losses realized in broader indices. For the six months since
your Fund's inception, its gain of 22.5% compares very favorably to all the
indices. Again, I'd like to caution against focusing on short-term performance
numbers. As the period of time gets shorter, the numbers become more random. Our
goal is exceptional long-term performance. That "long term" will include "short
terms" that are exceptional and "short terms" that are disappointing. Don't get
distracted by the short terms. As a well known political figure says, "Keep your
eyes on the prize!"
When you compare this quarter's portfolio with last quarter's, you'll notice
quite a change. Three stocks that previously accounted for 27% of the portfolio
have been sold. You should now be asking, "Why is this Fund that preaches long-
term value-investing experiencing such rapid turnover?"
We buy stocks when they are selling at large discounts to our estimate of
intrinsic value. When we buy a stock, we expect to hold it for several years. We
set our sell targets based on intrinsic value and expect both value and our
targets to move upward as time goes on. We sell stocks for two basic reasons.
Our preferred reason to sell is when the stock price increases and we no longer
feel the stock is inexpensive relative to its value. The less pleasant reason is
when we make mistakes. If new information causes us to lower our estimate of
intrinsic value, a stock that has gone down could also be fully valued and would
also be sold.
The good news is that the portfolio changes last quarter in The Oakmark Select
Fund were caused by successful stock performance. As you may recall, stock
prices for two of our holdings, First USA and McDonnell Douglas, rose in
response to takeover proposals. Despite thinking these acquisitions are good
strategic moves, in my judgement, the acquirers' stocks are not selling at as
large a discount to intrinsic value as are the other stocks we own. Therefore,
both stocks were sold.
- --------------------------------------------------------------------------------
Results from Fund Inception (11/1/96)
through 4/30/97
<TABLE>
<CAPTION>
4/30/97 NAV $12.25 Total Return*
Through 4/30/97
-------------------
Total Return From Fund Inception
Last 3 mos. 11/1/96
- --------------------------------------------------------------------------------
<S> <C> <C>
The Oakmark Select Fund -2.0% 22.5%
Standard & Poor's 500 w/inc Stock Index** 2.4% 14.7%
Standard & Poor's MidCap 400 w/inc Index** -2.6% 6.9%
Value Line Composite Index** -2.6% 5.2%
</TABLE>
*Total return includes change in share prices and in each case, except for the
Value Line Index, includes reinvestment of any dividends, interest 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 S&P 400 consists of 400 domestic
stocks chosen for market size, liquidity, and industry group representation. The
Value Line Index is an unweighted average of more than 1,000 stocks. Past
performance is no guarantee of future performance.
- --------------------------------------------------------------------------------
The Oakmark Select Fund 9
<PAGE>
Our third sale was SPX Corp. When SPX was purchased in November, it represented
4% of our portfolio. SPX quickly appreciated to a price where I was unwilling to
purchase more shares. By March, SPX represented under 1% of the portfolio and it
was sold for a gain of 65%. As you know, The Oakmark Select Fund is very
concentrated. If a stock position is too small to be meaningful, and we are
unwilling to add to it, it will be sold. Despite last quarter's high turnover,
you should be confident that we are consistently applying our long-term value
philosophy.
On the buy side, US Industries is now your Fund's largest holding. US Industries
is a collection of US-based businesses that was spun off from Hanson PLC two
years ago. One of its largest and best-known businesses is Jacuzzi. In February,
US Industries Chairman and CEO, David Clarke, visited our office. In addition to
those titles, David is also a large shareholder of this company. One of his
comments captures what we mean by investing with owner-oriented managements. In
discussing how he invests US Industries' money, David said "Acquisitions need to
be significantly more attractive than share repurchase or why would we even do
it? I'd rather buy what we know best, our own stock". In a world where many
managers make acquisitions just to get bigger, it's refreshing to hear David's
common-sense approach. You should take great comfort that when US Industries
makes an acquisition, they expect it to lead to a higher share price.
Just as we look for "owner-oriented" managements, you should look for "owner-
oriented" fund managers. I am both the portfolio manager and a shareholder
of The Oakmark Select Fund. As with you, I will measure our long term success
only by our share price. Thank you again for your support.
/s/ Bill Nygren
- ----------------
Bill Nygren
Portfolio Manager
[email protected]
May 2, 1997
10 The Oakmark Select Fund
<PAGE>
The Oakmark Select Fund
Schedule of Investments--April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Held Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--93.6%
Other Consumer Goods & Services-- 8.7%
Polaroid Corporation 206,000 $ 9,991,000
Brunswick Corporation 255,900 7,229,175
------------
17,220,175
Banks--4.7%
People's Bank of Bridgeport, Connecticut 309,000 $ 9,270,000
Insurance--5.9%
PartnerRe Ltd. 348,000 $ 11,701,500
Broadcasting & Cable TV--13.1%
TCI Satellite Entertainment, Inc., Class A (a) 1,235,000 $ 9,262,500
Cablevision Systems Corporation (a) 271,100 8,539,650
U.S. West Media Group (a) 469,000 8,090,250
------------
25,892,400
TV Programming--15.4%
Tele-Communications, Liberty Media,
Class A (a) 1,614,500 $ 30,372,781
Publishing--7.8%
ACNielsen Corporation 560,700 $ 8,410,500
Dun & Bradstreet Corporation 287,000 7,067,375
------------
15,477,875
Data Storage--3.9%
Imation Corporation (a) 327,000 $ 7,725,375
Building Materials & Construction--6.1%
USG Corporation (a) 351,000 $ 12,021,750
Oil & Natural Gas--7.0%
Union Texas Petroleum Holdings, Inc. 425,000 $ 8,021,875
Titan Exploration, Inc. (a) 780,000 5,850,000
------------
13,871,875
Other Industrial Goods & Services--4.9%
Premark International, Inc. 395,000 $ 9,677,500
Diversified Conglomerates--16.1%
U.S. Industries, Inc. (a) 880,200 $ 31,797,225
Total Common Stocks (Cost: $188,329,947) 185,028,456
</TABLE>
See accompanying notes to financial statements.
The Oakmark Select Fund 11
<PAGE>
THE OAKMARK SELECT FUND
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Principal Value Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments--5.3%
Commercial Paper--4.6%
Ford Motor Credit Corp.,
5.46% due 5/12/1997 2,000,000 $ 2,000,000
American Express Credit Corp.,
5.49% due 5/1/1997 2,000,000 2,000,000
General Electric Capital Corporation,
5.65% due 5/1/1997 5,000,000 5,000,000
------------
Total Commercial Paper (Cost: $9,000,000) 9,000,000
Repurchase Agreements--0.7%
State Street Repurchase Agreement, 5.37% due
5/1/1997 1,421,000 $ 1,421,000
------------
Total Repurchase Agreements (Cost: $1,421,000) 1,421,000
Total Short-Term Investments (Cost: $10,421,000) 10,421,000
Total Investments (Cost $198,750,947)--98.9%(b) $195,449,456
Other assets in excess of other liabilities--1.1% 2,153,232
------------
Total Net Assets $197,602,688
============
</TABLE>
- ---------------------------------------------
Notes:
(a) Non-income producing security.
(b) At April 30, 1997, net unrealized depreciation of $3,301,491 for federal
income tax purposes consisted of gross unrealized appreciation of
$4,362,670 and gross unrealized depreciation of $7,664,161.
See accompanying notes to financial statements.
12 The Oakmark Select Fund
<PAGE>
The Oakmark Small Cap Fund
Report from Steven J. Reid, Portfolio Manager
-------------------------------------------------------------------------
[PHOTO APPEARS HERE]
Intermission
April 30, 1997 marked the half way point of The Oakmark Small Cap Fund's fiscal
year. For the six month period, your Fund gained 15.0%. This is substantially
better than the relevant indices. The Fund's second fiscal quarter ended with a
$0.01 decline in the net asset value; this equated to a loss of 0.07%. The
indices to which your Fund is compared declined considerably more.
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in
The Oakmark Small Cap Fund
from its Inception (11/1/95) to Present (4/30/97)
as compared to the Russell 2000
<TABLE>
<CAPTION>
Oakmark Small Cap Fund Russell 2000
- ---------------------------------------------------
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,180 $10,646
4/96 $12,180 $11,756
7/96 $11,830 $10,667
10/96 $13,190 $11,496
1/97 $15,180 $12,471
4/97 $15,170 $11,848
</TABLE>
4/30/97 NAV $15.17
<TABLE>
<CAPTION>
Average Annual Total Return*
Through 4/30/97
----------------------------
Total Return From Fund Inception
Last 3 mos. 11/1/95
- -----------------------------------------------------------------------------------
<S> <C> <C>
The Oakmark Small Cap Fund -0.1% 32.1%
Lipper Small Co. Growth** -12.2% 4.9%
Russell 2000 w/inc** -6.8% 12.0%
S&P Small Cap 600 w/inc** -6.0% 14.6%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends, interest 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.
Several significant events occurred that explain recent results. On the positive
side, Kysor Industrial Corp. was acquired by Scotsman Industries Inc., also a
holding of your Fund, for $43 per share in cash. Our only regret is that
Scotsman did not offer the option of receiving their shares in lieu of cash. SPX
Corp., your Fund's largest holding, announced that they would repurchase up to
18% of their outstanding shares in a Dutch Auction at prices up to $56 per
share. Triarc Companies, Inc. announced several transactions that are expected
to increase the value of the company over the long term.
On a less than positive note, we were not exempt from the overall market
decline. Financial companies were generally hit the hardest as a group. Several
of our holdings did not or were not expected to produce the near-term results on
which other investors focus so closely. As long-term investors, we see these
situations as opportunities and we can and do try to take advantage of them.
The Value of Long-Term Investing
During the quarter it seemed that a lot happened, but very little changed. The
Fund rose to an all-time high in early March and promptly gave up those gains
and then some before returning to virtually where we were at the end of January.
Why did this happen? Well no one knows for sure, but it appears that Wall Street
became obsessed with several short-term events--the Fed's decision to raise
interest rates and anticipation of second quarter earnings, coupled with the
fear of companies not meeting expectations. Last, many investors became
concerned over the possibility of an overall market correction. I am pleased to
be able to say that the overall operating results and prospects of the
The Oakmark Small Cap Fund 13
<PAGE>
companies in which we have invested continue to be quite good. The only
significant changes we saw were in the price of their shares.
Our perspective as long-term investors is to focus on investing in individual
companies. While the overall level of interest rates will affect economic
activity and the valuation of companies, the recent increase in rates is
relatively unimportant for the companies in which we have invested. We look at
the goods or services our companies provide and the long-term prospects for
them. In fact, we do not attempt to predict the direction, or magnitude of
change in interest rates or the stock market. I realized long ago that many of
the well known pundits of prediction had very poor batting averages over the
long term. Thus, we happily accept that the risk of not being invested is far
greater than attempting to invest based on predictions of macro outcomes over
the long term.
I was particularly amused by an article in the Wall Street Journal regarding the
superior share price performance of small companies vs. large companies. The
article referred to this as the "small-cap effect" and offered that a recent
study showed that $1 invested in small companies at the end of 1926 would be
worth $3990 at the end of 1996. Whereas, $1 invested in large companies would
only be worth $1370 over the same period. Several experts were interviewed to
garner their views on the subject. One particularly vocal opponent contended
that if one were to eliminate the 9 year period from the end of 1974 through the
end of 1983, the returns from small companies since 1926 were inferior to those
of large companies.
Several thoughts come to mind. First, the data might not be reliable. It is very
likely that small companies in 1926 either don't exist anymore or are large
companies now. After all, large companies are small companies that grew up.
Second, data manipulation is a dangerous thing. The elimination of 9 years from
a 70 year study seems statistically significant. Such that I am willing to
predict that if we eliminate the economies of China and India, global economic
development will not be as robust as once estimated. What we can take away from
this data is the importance of investing for the long term, or in other words,
being there--not to mention the very desirable returns of equity investing over
the long term.
What Would A Rational Business Person Pay To Own This?
This is the question we ask ourselves when valuing the companies in which we
invest. I mentioned earlier that Triarc Companies Inc., the producer of Royal
Crown and Mistic Brands beverages and the franchisor of Arby's restaurants, made
several strategic changes to their business mix. Of particular interest was the
purchase of Snapple. Snapple was acquired by Quaker Oats in late 1994 for $1.7
bil. At the time, we did not understand the rationale for the price Quaker paid.
It was a time when ready-to-drink teas were experiencing tremendous growth and
the brand commanded a premium. In March of this year, our friends at Triarc
bought Snapple for $300 mil. The important point is that Triarc's managers think
like owners (which they are), so they waited until the price was right. This
kind of patience pays off for all of us.
Weather
Having used up my allotment of one prediction per letter, I will forgo any
thoughts on the weather. I will share with you that one of our readers, and a
graduate student in meteorology, is particularly interested in my prediction of
snow for the Midwest in May. Earlier this week, parts of Michigan and Wisconsin
received more than 8 inches of snow. I feel relieved not to have predicted the
once-in-100-year flooding.
Once again, I would like to thank everyone involved, especially our
shareholders, for your support.
/s/ Steven J. Reid
Steven J. Reid
Portfolio Manager
[email protected]
May 14, 1997
14 The Oakmark Small Cap Fund
<PAGE>
The Oakmark Small Cap Fund
Schedule of Investments--April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Held Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--93.4%
Food & Beverage--6.6%
Triarc Companies, Inc. (a) 1,000,000 $ 18,625,000
Ralcorp Holdings, Inc. (a) 1,200,000 12,300,000
International Multifoods Corporation 351,200 8,736,100
GoodMark Foods, Inc. 91,900 1,183,213
------------
40,844,313
Retail--5.3%
Carson Pirie Scott & Company (a) 511,500 $ 15,217,125
Zale Corporation (a) 523,900 9,692,150
Cole National Corporation (a) 254,700 8,405,100
------------
33,314,375
Other Consumer Goods & Services--5.7%
Scotsman Industries, Inc. (d) 662,100 $ 16,883,550
First Brands Corporation 600,000 15,225,000
Justin Industries 207,400 2,307,325
GC Companies, Inc. (a) 30,200 1,211,775
------------
35,627,650
Banks--7.0%
People's Bank of Bridgeport, Connecticut 1,000,000 $ 30,000,000
Harbor Federal Savings Bank 160,000 5,880,000
Northwest Savings Bank 260,000 3,835,000
Pocahontas Federal Savings and
Loan Association (d) 140,000 2,485,000
Savings Bank of the Finger Lakes 94,000 1,386,500
Fidelity Bancshares, Inc. (a) 5,700 108,300
------------
43,694,800
Insurance--9.7%
RenaissanceRe Holdings Limited 504,500 $ 18,666,500
Highlands Insurance Group, Inc. (a) (d) 900,000 15,862,500
Chartwell Re Corporation (d) 500,000 12,750,000
PXRE Corporation 385,000 9,769,375
Danielson Holding Corporation (a) 452,400 3,053,700
------------
60,102,075
Other Financial--1.2%
Duff & Phelps Credit Rating Company (d) 296,800 $ 7,753,900
Broadcasting & Publishing--10.4%
Cablevision Systems Corporation (a) 650,000 $ 20,475,000
TCI Satellite Entertainment, Inc., Class A (a) 2,250,000 16,875,000
Lee Enterprises, Inc. 500,000 12,312,500
Central Newspapers, Inc., Class A 180,000 9,697,500
Granite Broadcasting Corporation (a) (d) 625,000 5,156,250
------------
64,516,250
</TABLE>
See accompanying notes to financial statements.
The Oakmark Small Cap Fund 15
<PAGE>
The Oakmark Small Cap Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Shares Held/
Principal Value Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--93.4% (cont.)
Data Storage--0.6%
Imation Corporation (a) 150,000 $ 3,543,750
Aerospace & Defense--3.0%
Logicon, Inc. 281,900 $ 11,205,525
Tracor, Inc. (a) 350,000 7,612,500
------------
18,818,025
Machinery & Metal Processing--8.9%
Gardner Denver Machinery, Inc. (a) (d) 850,000 $ 19,337,500
The Carbide/Graphite Group, Inc. (a) (d) 800,000 18,100,000
Matthews International Corporation, Class A 308,500 9,023,625
Northwest Pipe Company (a) (d) 500,000 8,000,000
Graco, Inc. 41,200 973,350
------------
55,434,475
Building Materials & Construction--1.4%
NVR Inc. (a) (d) 700,000 $ 8,925,000
Oil & Natural Gas--2.4%
Titan Exploration, Inc. (a) (d) 1,956,400 $ 14,673,000
Other Industrial Goods & Services--17.4%
SPX Corporation (d) 844,100 $ 46,108,962
MagneTek, Inc. (a) 1,050,000 17,587,500
Essex International, Inc. (a) 648,300 11,669,400
Zurn Industries, Inc. 450,000 11,137,500
Binks Manufacturing Company (d) 206,000 8,368,750
Premark International, Inc. 225,000 5,512,500
Columbus McKinnon Corporation 260,000 4,712,500
Dal-Tile International Inc. (a) 248,400 3,229,200
------------
108,326,312
Commercial Real Estate--7.4%
Catellus Development Corporation (a) 2,090,500 $ 30,834,875
Castle & Cooke, Inc. (a) (d) 1,125,000 15,468,750
------------
46,303,625
Diversified Conglomerates--6.4%
U.S. Industries, Inc. (a) 1,100,000 $ 39,737,500
Total Common Stocks (Cost: $546,472,851) 581,615,050
</TABLE>
See accompanying notes to financial statements.
16 The Oakmark Small Cap Fund
<PAGE>
The Oakmark Small Cap Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Principal Value Market Value
- --------------------------------------------------------------------------------
Corporate Bonds--0.5%
<S> <C> <C>
Recreation & Entertainment--0.5%
Harrah's Jazz Bonds, 14.25%
due 11/15/2001 (c) 6,700,000 $ 2,881,000
Total Corporate Bonds (Cost: $3,304,413) 2,881,000
Commercial Paper--5.1%
American Express Credit Corp., 5.49%
due 5/1/1997 2,000,000 $ 2,000,000
American Express Credit Corp., 5.48%
due 5/5/1997 2,000,000 2,000,000
American Express Credit Corp., 5.49%
due 5/6/1997 5,000,000 5,000,000
Ford Motor Credit Corp., 5.46%
due 5/12/1997 2,000,000 2,000,000
Ford Motor Credit Corp., 5.48%
due 5/20/1997 2,000,000 2,000,000
Ford Motor Credit Corp., 5.55%
due 6/10/1997 2,000,000 2,000,000
Ford Motor Credit Corp., 5.55%
due 6/13/1997 2,000,000 2,000,000
General Electric Capital Corporation, 5.65%
due 5/1/1997 15,000,000 15,000,000
Total Commercial Paper (Cost: $32,000,000) 32,000,000
Repurchase Agreements--0.9%
State Street Repurchase Agreement, 5.37%
due 5/1/1997 5,525,000 $ 5,525,000
Total Repurchase Agreements (Cost: $5,525,000) 5,525,000
Total Short-Term Investments (Cost: $37,525,000) 37,525,000
Total Investments (Cost $587,302,264)--99.9% (b) 622,021,050
Other assets in excess of other liabilities--.1% 819,349
------------
Total Net Assets $622,840,399
============
</TABLE>
- -------------------------------------
Notes:
(a) Non-income producing security.
(b) At April 30, 1997, net unrealized appreciation of $34,718,766 for federal
income tax purposes consisted of gross unrealized appreciation of
$61,140,703 and gross unrealized depreciation of $26,421,937.
(c) This bond is currently in default and the fund is no longer accruing
interest.
(d) See footnote number five to the financial statements regarding transactions
of securities of affiliated issuers.
See accompanying notes to financial statements.
The Oakmark Small Cap Fund 17
<PAGE>
The Oakmark Balanced Fund
Report from Clyde S. McGregor, Portfolio Manager
-------------------------------------------------------------------------
The value of a $10,000 investment in The Oakmark Balanced Fund from its
inception (11/1/95) to present (4/30/97) as compared to the Lipper Balanced Fund
Index
<TABLE>
<CAPTION>
Lipper Balanced Fund Index The Oakmark Balanced Fund $12,244
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,642 $10,290
4/96 $10,778 $10,630
7/96 $10,665 $10,660
10/96 $11,449 $11,290
1/97 $12,197 $12,255
4/97 $12,244 $12,429
</TABLE>
4/30/97 NAV $12.16
<TABLE>
<CAPTION>
Average Annual Total Return*
Through 4/30/97
----------------------------
Total Return From Fund Inception
Last 3 mos. 11/1/95
- ----------------------------------------------------------------------------
<S> <C> <C>
The Oakmark Balanced Fund 1.4% 15.6%
Lipper Balanced Fund Index** 0.4% 14.5%
Lehman Govt./Corp. Bond** 0.5% 4.5%
S&P 500 w/inc** 2.4% 26.5%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends, interest and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
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.
[PHOTO APPEARS HERE]
Quarter Review
The second fiscal quarter demonstrated the value of our balanced approach in a
difficult period. Your Fund returned 1.4%. Both stocks and bonds were profitable
despite the fact that in March the Federal Reserve raised its target interest
rate for Fed Funds for the first time in two years.
We are pleased that the Fund extended its record of positive returns in each
quarter since inception. Balanced funds are not immune to market swings, but
they do reduce volatility of returns. Part of this lower volatility is an
outcome of owning different kinds of assets, and part results from a greater
proportion of return coming from income (which is more certain) and less from
appreciation (which is less certain). In the current environment where stock
prices are at record highs and Alan Greenspan is putting upward pressure on
interest rates, The Balanced Fund speaks to the needs of long-term investors
seeking growth, income, and capital preservation.
I would also like to take this opportunity to point out that the Fund's expenses
are now capped at 1.5% per annum. The Fund's returns have been quite competitive
within the universe of similar funds (11th place out of 290 for the 52 weeks
ended April 3) despite an above average expense ratio. This handicap departed as
of March 1.
Market Outlook
At Harris Associates we do not attempt to forecast the economy, nor do we
develop our portfolios based on some understanding of the investing environment.
We build our portfolios from the bottom up selecting only securities which we
determine to be significantly undervalued regardless of the macro picture. As
manager of The Oakmark Balanced Fund, however, I am committing assets to several
different asset classes, so it is important that I have a point of view about
the overall context.
Federal Reserve policy is always one of the key factors creating the investing
environment, but given the March rate hike, Fed policy has taken on even
18 The Oakmark Balanced Fund
<PAGE>
greater importance. The Fed last began to tighten money in 1994, eventually
raising rates six times during the year. These actions had a dramatic impact on
the bond market in 1994, which suffered its worst year since the 1920's. The
bond market's weakness also made it impossible for stocks to make any headway
despite a respectable increase in corporate profits.
I do not believe that 1997 is setting up to be a close copy of 1994. Economic
conditions are quite different:
1. Interest rates began this cycle much higher across the entire yield curve
than they were at the beginning of 1994. Real rates (interest rates after
subtracting the rate of inflation) are at historically high levels.
2. Price indices for industrial commodities are falling today, but in 1994 they
were showing increases. Corporate managers continue to complain that they
have no ability to increase prices.
3. Gold's price is particularly weak. In the 1994 cycle it rose more than 10%.
4. The dollar is quite strong relative to other currencies.
5. The Federal budget deficit has shrunk considerably over the last three years
even without a balanced budget agreement. In fact, the Treasury will actually
pay down approximately $65 billion in outstanding debt this calendar quarter.
Aside from these fundamental indicators, I also see a vital difference in the
structure of the markets. Today, the kind of aggressive speculation in the bond
market which was present at the beginning of 1994 is not evident. In 1992 and
1993 large amounts of speculative capital had been devoted to the "carry trade"
(borrowing short term and investing in intermediate term Treasury notes). When
short rates began to rise, the economics underlying these highly leveraged bets
began to turn unfavorable, and the resulting rush for the exits greatly
intensified the bond market's pain.
I believe that Fed Chair Greenspan defines his role in terms of smoothing out US
economic activity and stamping out speculation wherever it may be found.
Greenspan has studied the Japanese experience of the last decade where
speculation in several asset classes was not damped but was often unwittingly
aided. Having brought reality back to the bond market in 1994, he is seeking to
prevent a speculative blowoff in stocks now. He spoke first of "irrational
exuberance" in December, reiterated his warning in February, and, equity
investors still not listening, he acted in March. Having observed the recent
strong recovery in the markets, he will probably do so again.
Given this interest rate backdrop, I look for the markets in 1997 to be choppy
and erratic, but I do not expect a great bear market in bonds as in 1994 or a
stock market collapse as in 1987.
Bond Calls and
Tender Offers
Our strategy when investing in corporate bonds and preferred stocks is to
identify issues from companies which are enjoying material improvement in their
financial condition. Ideally, we will invest in such issues before the bond
rating agencies and other investors have recognized this improvement.
One problem with this approach is that the issuing concerns sometimes experience
more rapid improvement than we might prefer. The result is often an early bond
call or a tender offer.
In the second fiscal quarter a tender offer for one bond, a partial call of
another, and a complete call of a third related to the unexpected takeover of
the issuer caused your Fund's commitment to corporate fixed income investments
to shrink. I am aggressively seeking replacement issues. I will not, however,
compromise our standards because we have become "underweighted" in this area.
In the fixed income market, yield spreads between issues of higher and lower
quality move around over time. I perceive current spreads to be inadequate,
reflecting considerable optimism about our nation's economy. I, too, believe
that the economy is in fine shape, but I will not invest The Fund's assets based
on that assumption. When we can again find issues that meet our standards of
improving financial condition combined with attractive pricing, I will rebuild
this segment of the portfolio.
As always, I welcome your questions or comments. For all of you internet com-
municators, please note my new address for e-mail.
/s/ Clyde S. McGregor
Clyde S. McGregor
Portfolio Manager
[email protected]
May 6, 1997
The Oakmark Balanced Fund 19
<PAGE>
The Oakmark Balanced Fund
Schedule of Investments--April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Held Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
Equity and Equivalents--52.9%
Food & Beverage--2.9%
Philip Morris Companies Inc. 14,700 $ 578,813
Other Consumer Goods & Services--13.8%
Borg-Warner Automotive, Inc. 15,000 $ 630,000
Juno Lighting, Incorporated 38,300 593,650
Armstrong World Industries, Inc. 8,900 585,175
National Presto Industries, Inc. 14,000 511,000
Promus Hotel Corporation (a) 13,400 472,350
-----------
2,792,175
Banks--2.8%
Mellon Bank Corporation 6,700 $ 556,938
Insurance--6.6%
Old Republic International Corporation 25,500 $ 720,375
PartnerRe Ltd. 18,200 611,975
-----------
1,332,350
Other Financial--6.0%
First USA, Inc. 14,600 $ 702,625
Associates First Capital Corporation, Class A 10,000 512,500
-----------
1,215,125
Broadcasting & Publishing--7.8%
Tele-Communications, Liberty Media, Class A (a) 29,000 $ 545,562
Lee Enterprises, Inc. 21,400 526,975
Dun & Bradstreet Corporation 20,000 492,500
-----------
1,565,037
Aerospace & Defense--2.4%
McDonnell Douglas Corporation 8,000 $ 475,000
Other Industrial Goods & Services--3.8%
Premark International, Inc. 31,500 $ 771,750
Commercial Real Estate--2.5%
Catellus Development Corporation (a) 34,728 $ 512,238
Diversified Conglomerates--4.3%
U.S. Industries, Inc. (a) 24,000 $ 867,000
Total Equity and Equivalents (Cost: $8,780,740) 10,666,426
</TABLE>
See accompanying notes to financial statements.
20 The Oakmark Balanced Fund
<PAGE>
The Oakmark Balanced Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Shares Held/
Principal Value Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
Fixed Income--33.6%
Preferred Stock--1.9%
Broadcasting & Cable TV--1.9%
Tele-Communications, Inc.,
Preferred Junior Class B, 6% 5,800 $ 382,800
Total Preferred Stock (Cost: $379,100) 382,800
Corporate Bonds--5.1%
Other Consumer Goods & Services--1.1%
Samsonite Corporation, 11.125%
due 7/15/2005, Senior Subordinated Note
Series B 200,000 $ 222,250
Aerospace & Automotive--0.8%
Coltec Industries, Inc., 9.75% due 4/1/2000 150,000 $ 160,500
Building Materials & Construction--0.8%
USG Corporation, 9.25% due 9/15/2001,
Senior Notes Series B 150,000 $ 157,313
Utilities--0.8%
Midland Funding Corporation, 11.75%
due 7/23/2005 150,000 $ 162,562
Other Industrial Goods & Services--1.6%
UCAR Global Enterprises Inc., 12.00%
due 1/15/2005, Senior Subordinated Note 300,000 $ 336,750
Total Corporate Bonds (Cost: $1,030,811) 1,039,375
Government and Agency Securities--26.6%
U.S. Government Bonds--25.1%
United States Treasury Notes, 7.125%
due 9/30/1999 2,400,000 $ 2,440,824
United States Treasury Notes, 7.50%
due 5/15/2002 1,500,000 1,559,970
United States Treasury Notes, 7.875%
due 11/15/2004 1,000,000 1,067,980
-----------
5,068,774
</TABLE>
See accompanying notes to financial statements.
The Oakmark Balanced Fund 21
<PAGE>
The Oakmark Balanced Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Principal Value Market Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
Fixed Income--33.6% (cont.)
U.S. Government Agencies--1.5%
Federal Home Loan Bank, 6.405% due 4/10/2001,
Consolidated Bond 300,000 $ 296,451
Total Government and Agency Securities
(Cost: $5,346,469) 5,365,225
Total Fixed Income (Cost: $6,756,380) 6,787,400
Short Term Investments--14.2%
Commercial Paper--10.7%
Ford Motor Credit Corp., 5.41%-5.51%
due 5/1-5/20/1997 800,000 $ 800,000
American Express Credit Corp., 5.45%-5.53%
due 5/5-6/9/1997 550,000 550,000
General Electric Capital Corporation,
5.42%-5.65% due 5/1-6/13/1997 800,000 800,000
Total Commercial Paper (Cost: $2,150,000) 2,150,000
Repurchase Agreements--3.5%
State Street Repurchase Agreement, 5.37%
due 5/1/1997 711,000 $ 711,000
Total Repurchase Agreements (Cost: $711,000) 711,000
Total Short Term Investments (Cost: $2,861,000) 2,861,000
Total Investments (Cost $18,398,120)--100.7%(b) $20,314,826
Other liabilities in excess of other assets--(.7%) (150,541)
-----------
Total Net Assets $20,164,285
===========
</TABLE>
- ----------------------
Notes:
(a) Non-income producing security.
(b) At April 30, 1997, net unrealized appreciation of $1,916,706 for federal
income tax purposes consisted of gross unrealized appreciation of
$2,080,600 and gross unrealized depreciation of $163,894.
See accompanying notes to financial statements.
22 The Oakmark Balanced Fund
<PAGE>
The Oakmark International Fund
Report from David G. Herro and Michael J. Welsh, Portfolio Managers
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
The value of a $10,000 investment in The Oakmark International Fund from its
inception (9/30/92) to present (4/30/97) as compared to the Morgan Stanley World
ex U.S. Index
<TABLE>
<CAPTION>
[GRAPH GOES HERE]
OAKMARK M.S. WORLD
INTERNATIONAL
<S> <C> <C>
8/91 $10,000 $10,000
- ----------------------------------------------------------------
10/91 $12,100 $10,201
- ----------------------------------------------------------------
1/92 $13,910 $10,719
- ----------------------------------------------------------------
4/92 $14,660 $10,946
- ----------------------------------------------------------------
7/92 $15,910 $11,279
- ----------------------------------------------------------------
10/92 $17,110 $11,216
- ----------------------------------------------------------------
1/94 $19,913 $11,857
- ----------------------------------------------------------------
4/94 $24,855 $13,372
- ----------------------------------------------------------------
7/94 $25,321 $12,896
- ----------------------------------------------------------------
10/94 $26,653 $13,401
- ----------------------------------------------------------------
1/95 $26,653 $13,444
- ----------------------------------------------------------------
4/95 $28,869 $14,803
- ----------------------------------------------------------------
7/95 $30,863 $16,263
- ----------------------------------------------------------------
10/95 $32,397 $16,931
- ----------------------------------------------------------------
1/96 $36,091 $17,213
- ----------------------------------------------------------------
4/96 $36,823 $19,239
- ----------------------------------------------------------------
7/96 $35,559 $18,933
- ----------------------------------------------------------------
10/96 $38,252 $20,989
- ----------------------------------------------------------------
1/97 $43,112 $23,512
- ----------------------------------------------------------------
4/97 $44,197 $24,070
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return*
4/30/97 NAV $17.05 Through 4/30/97
----------------------------
Total Return From Inception
Last 3 mos. 9/30/92
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Oakmark International 6.2% 17.8%
Morgan Stanley World ex U.S. w/inc** 2.2% 11.0%
Morgan Stanley EAFE w/inc** 2.5% 10.8%
Lipper Analytical International Fund
Average** 2.8% 13.3%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends, interest and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
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.
Fellow shareholders:
Your Fund continues to deliver significant results. Our second quarter return of
6.2% compares favorably to the Morgan Stanley EAFE index return of 2.5%. More
importantly, your Fund has achieved an annualized return of 17.8% since
inception. This compares to a 10.8% return for EAFE and a 13.3% return for the
Lipper average of diversified international funds. We continue to find excellent
long-term investment opportunities overseas and believe that the long-term
prospects of international markets are extremely attractive.
TO ANSWER A FEW QUESTIONS...
On occasion we like to use this space to directly address recent commonly asked
questions about the Fund.
Q. What is the reason for the Fund's strong performance?
A. We believe we have done well because of our disciplined approach to value
investing. Discipline to us means doing thorough research, visiting countless
companies, keeping composure in weak markets and buying stocks that are out of
favor for short-term reasons.
Q. Why not invest in Russia?
A. Though Russia appears to offer value for long-term holders, at this time
there is not the legal or regulatory framework in place to protect foreign
investors. While the market's potential reward could be large, constantly
changing laws and taxes, lax (non-existing) corporate governance procedures and
the strong influence of organized crime stand in the way of realizing this
reward.
THE OAKMARK INTERNATIONAL FUND 23
<PAGE>
Q. What will happen to Hong Kong after June 30th?
A. One can only speculate as to what changes face Hong Kong as its sovereignty
changes from British to PRC. However, confidence remains strong and long-term
benefits will most likely overpower the short-term transitional strains. The
real key is the strength of the Hong Kong people and their ability to adapt to
change. They are excellent businesspeople for the most part and we feel they
will be able to aptly respond to the change. At the same time, China is a huge
investor in Hong Kong, so it is in China's own financial interest not to rock
the boat. Finally, southern China, itself, has also been a capitalist hotbed of
economic growth. There is a good possibility that, over time, the rest of China
will become more like Hong Kong and the South than the reverse.
Q. How do you come up with stock ideas?
A. We spend the majority of our analytical time searching for companies that
meet our value criteria. One recurring place we look for candidates is among
companies hitting new lows or that have underperformed their respective stock
markets. We also give extra attention to searching for ideas in markets that
have been weak. If a company looks interesting from a quantitative standpoint,
we then like to meet management and gather other qualitative information about
the company. If, after all of this, we decide the company represents good value
and is managed by people committed to building value, we will put the stock on
our buy list.
Q. Where are your favorite areas to invest?
A. We don't have any favorite "areas." We base our investment selection only on
companies. It does not matter to us where a company is located or in what
industry it does business (although we require proper legal and regulatory
protection, as mentioned above with Russia). We seek only companies that are
inexpensively priced (the lowest price for the amount of cashflow generation)
and that are managed by people who allocate the company's surplus capital in a
way beneficial to owners.
Q. Are you still hedging currency? What impact does the dollar's rise have on
the Fund's performance?
A. We are still partially hedged, but are slowly unwinding our currency hedges.
Our policy has always been to use currency hedging defensively. We hedge only
when we believe that a wide divergence between the U.S. dollar and the local
currency presents an undue currency risk for the Fund in holding an equity
position. With the recent appreciation of the dollar, most of this unsustainable
divergence has been erased.
There are two ways the dollar's rise impacts your Fund's performance--one short
term and one long term. In the short run, as the dollar increases and foreign
currencies fall, your Fund's net asset value drops to reflect this. However, if
your Fund is partially hedged, some of this "loss" would be offset through the
increased value of the hedges. In the longer term, foreign stocks usually do
better in weak home currency environments as many compete against U.S. companies
and many have U.S. dollar or dollar-linked revenues that become larger when
translated back into their local currency.
In the long term, we generally feel a strong dollar is a net positive for those
who invest internationally. It is probably one of the reasons why both the
European and Japanese stock markets appear to have awakened.
Q. Still underweight in Japan...why?
A. Remember that we invest in companies only if we see value and managers who
care about shareholders' interests. Though we have found some companies in Japan
that fit our criteria, it has been difficult to find them. The big problem is
usually a lack of management commitment to building shareholder value.
Things appear to be getting better in terms of greater shareholder orientation
in Japan. Driven by deregulation in financial services and widening pension
shortfalls, even domestic financial institutions are starting to put pressure on
company managements to enhance returns. And surprisingly, a few dozen companies
have started share buyback programs (we own one of them in Oakmark
International, Amway Japan) as a way of returning surplus capital to the owners.
Hopefully, this is the beginning of a trend which will result in victory for the
much beleaguered shareholders of Japanese companies.
That's it for now. Hope this answered some of the questions you had regarding
The Oakmark International Fund. And, as always, you can e-mail us at the
addresses listed below.
/s/ David G. Herro
David G. Herro
Portfolio Manager
[email protected]
/s/ Michael J. Welsh
Michael J. Welsh
Co-Portfolio Manager
[email protected]
24 THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
International Diversification--April 30, 1997
[PIE GRAPH GOES HERE]
Europe
Pacific Rim
Latin America
Other Countries
% of Fund % of Fund
Net Assets Net Assets
- --------------------------------- ------------------------------
[_] Europe 46.3% [_] Pacific Rim 25.9%
Great Britain 19.3% Hong Kong 8.1%
Sweden 7.7% Australia 5.1%
France 6.0% New Zealand 3.8%
Switzerland 3.3% Indonesia 3.2%
Spain 2.9% Japan 2.0%
Portugal 2.8% Korea 1.8%
Netherlands 2.2% Malaysia 1.6%
Finland 1.3% Thailand 0.3%
Germany 0.5% Taiwan 0.0%
Italy 0.3%
[_] Latin America 15.8% [_] Other Countries 3.6%
Brazil 6.0% Israel 3.6%
Argentina 5.1%
Mexico 4.7%
25
<PAGE>
<TABLE>
<CAPTION>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments--April 30, 1997 (Unaudited)
Description Shares Held Market Value
<S> <C> <C> <C>
Common Stocks--91.6%
Consumer Non-durables--4.8%
Chargeurs International Wool Production Holding Company
Sa (France), (a) (e) 569,169 $ 33,644,017
Yue Yuen Industrial Athletic Footwear Manufacturing
Holdings (Hong Kong) 15,165,600 33,477,281
BYC Co. Ltd. (Korea) (e) Textile Manufacturer 31,230 3,781,211
-----------
70,902,509
Food & Beverage--15.9%
Guinness plc Distiller & Brewer
(Great Britain) 7,745,000 $ 64,018,639
Nestle SA (Switzerland) Producer of Foods & Drinks 40,900 49,664,880
Lion Nathan Limited New Zealand Brewer
(New Zealand) 18,073,200 43,475,913
Quilmes Industrial SA Brewer
(Argentina) 2,902,300 32,288,087
Pernod Ricard (France) Manufactures Wines, Spirits,
& Fruit Juices 495,937 25,482,996
Tate & Lyle PLC Sugar Producer & Distributor
(Great Britain) 1,175,000 8,750,608
Lotte Confectionery Confectionary Manufacturer
Company (Korea) 61,000 8,411,435
Lotte Chilsung Beverage Manufacturer of Soft Drinks,
Company (Korea) Juices, & Sport Drinks 44,770 4,692,819
-----------
236,785,377
Household Products--4.2%
Reckitt & Colman plc Household Cleaners
(Great Britain) & Air Fresheners 2,485,229 $ 33,733,862
Amway Japan Limited Marketing of Household Products
(Japan) 888,900 27,100,823
Amway Japan Limited Marketing of Household Products
ADR (Japan), (b) 149,400 2,259,675
------------
63,094,360
Retail--1.0%
Giordano International East Asian Clothing Retailer
Limited (Hong Kong) & Manufacturer 26,853,000 $ 14,559,169
Other Consumer Goods & Services--0.0%
Heiwa Corp (Japan) Pachinko Machine Manufacturer 31,000 $ 410,289
Sankyo Company Ltd. (Japan) Pachinko Machine Manufacturer 16,900 390,097
------------
800,386
Telecommunications--12.6%
Telefonos de Mexico SA, Telephone Company in Mexico
(Mexico), (b) 1,415,100 $ 58,372,875
Bezeq (Israel) Telephone Company 13,629,271 34,563,662
Telefonica de Espana (Spain) Spanish Telecommunications 1,000,500 25,627,526
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks--91.6% (cont.)
Telecommunications--continued
Technology Resources Telecommunications
Industries Berhad (Malaysia) 12,770,000 $ 23,395,731
Asia Satellite Telecommunications
Telecommunications
Holdings Ltd.
(Hong Kong), (a) 826,500 21,282,375
Telecomunicacoes Telecommunications
Brasileiras S/A (Brazil) 173,100,000 18,636,530
Stet Societa' Finanziaria Telecommunications
Telefonica S.p.A. (Italy) 1,100,000 5,200,695
---------------
187,079,394
Transportation--4.0%
AB Volvo (Sweden) Automobiles and Trucks 2,384,600 $ 60,035,247
Oil & Natural Gas--2.9%
YPF Sociedad Anonima Oil Exploration, Production
(Argentina), (b) and Marketing 1,556,200 $ 42,990,025
Banks--12.0%
National Australia Bank Ltd. Largest Australian Bank
(Australia) 3,380,651 $ 46,268,755
Banco Espirito Santo e Portuguese Bank
Comercial de Lisboa
SA (Portugal) 2,085,480 41,085,815
Uniao de Bancos Brasileiros Major Brazilian Bank
SA (Brazil) 583,825,000 21,568,862
Compagnie Financiere de French Financial Services Group
Paribas (France) 336,000 21,191,056
Svenska Handelsbanken, Large Swedish Bank
Class A (Sweden) 684,650 18,851,505
Banco Popular Espanol Large Spanish Bank
SA (Spain) 85,093 18,042,358
Grupo Financiero Bancomer, Large Mexican Financial Group
S.A. de C.V. (GFB)-B
(Mexico), (a) 26,635,000 9,317,977
Grupo Financiero Bancomer, Large Mexican Financial Group
S.A. de C.V.- L
(Mexico), (a) 6,129,630 1,835,842
---------------
178,162,170
Other Financial--2.6%
Sedgwick Group plc Insurance Broker, Financial Services 19,275,000 $ 39,049,838
(Great Britain)
See accompanying notes to financial statements.
THE OAKMARK INTERNATIONAL FUND 27
</TABLE>
<PAGE>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks--91.6% (cont.)
Marketing Services--4.6%
Cordiant plc
(Great Britain), (a) (e) Global Advertising Agency 32,538,656 $ 68,557,946
Aerospace--3.6%
Rolls-Royce plc (Great Britain) Jet Engines 6,966,479 $ 27,380,408
Hong Kong Aircraft Commercial Aircraft Overhaul
Engineering Company Ltd. & Maintenance
(Hong Kong) 9,122,600 26,379,170
-------------
53,759,578
Chemicals--3.1%
European Vinyls Corporation Western European PVC
International N.V. Manufacturer
(Netherlands) (e) 1,154,165 $ 33,055,693
Fernz Corporation Ltd. Agricultural & Industrial
(New Zealand) Chemical Producer 3,973,000 13,358,094
-------------
46,413,787
Components--1.4%
Varitronix International Liquid Crystal Displays
Limited (Hong Kong) (e) 14,977,000 $ 20,880,604
Forestry Products--3.2%
Asia Pulp & Paper Paper & Packaging Products in Asia
Company Ltd
(Indonesia), (a) (b) 3,535,600 $ 47,288,650
Mining and Building Materials--3.0%
Pioneer International Concrete Products, Aggregates
(Australia) 8,870,923 $ 29,193,867
Keumkang Ltd. (Korea) Building Materials 240,980 10,698,215
Siam City Cement Public Cement Producer
Company Limited, Foreign
Shares (Thailand) 801,900 3,745,116
Siam City Cement Public Cement Producer
Company Limited, Local
Shares (Thailand) 204,700 956,011
-------------
44,593,209
Other Industrial Goods & Services--5.5%
Tomkins plc Industrial Management Company
(Great Britain) 10,600,000 $ 45,784,441
Kone Corporation (Finland) Elevators 161,870 19,080,515
Legris Industries (France) Europe's Leading Crane Manufacturer 195,097 9,092,159
Buderus AG (Germany), (a) Industrial Manufacturing Firm 15,450 7,244,139
-------------
81,201,254
</TABLE>
See accompanying notes to financial statements.
28 THE OAKMARK INTERNATIONAL FUND
<PAGE>
The Oakmark International Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Shares Held/
Description Principal Value Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks--91.6% (cont.)
Steel--5.7%
Usiminas (Brazil), (a) Steel Production 41,063,700,000 $ 48,650,928
Avesta Sheffield AB (Sweden) Stainless Steel 3,575,000 35,546,292
Tung-Ho Steel Enterprise Taiwanese Manufacturer of
Corp. (Taiwan), (a) Steel Bars & H-Beams 34,000 451,918
--------------
84,649,138
Diversified Conglomerates--1.5%
Koor Industries Limited, Israeli Holding Company
ADR (Israel), (a) (b) 1,058,600 $ 18,393,175
Lamex Holdings Ltd. Hong Kong's Largest Office
(Hong Kong) (e) Furniture Supplier 14,040,000 3,670,174
Koor Industries Limited Israeli Holding Company
(Israel), (a) 5,660 488,307
--------------
22,551,656
Total Common Stocks (Cost: $1,219,970,092) 1,363,354,297
Short Term Investments--7.8%
U.S. Government Bills--0.3%
United States Treasury Bills, 5.47% due 10/16/1997 5,000,000 $ 4,872,367
Commercial Paper--6.7%
American Express Credit Corp.,
5.46-5.54% due 5/7-5/22/1997 25,000,000 $ 25,000,000
Ford Motor Credit Corp., 5.48-
5.55% due 5/12-6/13/1997 30,000,000 30,000,000
General Electric Capital Corporation,
5.49-5.65% due 5/1-6/20/1997 45,000,000 45,000,000
--------------
Total Commercial Paper 100,000,000
</TABLE>
See accompanying notes to financial statements.
THE OAKMARK INTERNATIONAL FUND 29
<PAGE>
THE OAKMARK INTERNATIONAL FUND
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Principal Value Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
Short Term Investments--7.8% (cont.)
<S> <C> <C>
Repurchase Agreements--0.8%
State Street Repurchase Agreement, 5.37% due 5/1/1997 11,391,000 $ 11,391,000
Total Repurchase Agreements 11,391,000
Total Short-Term Investments (Cost: $116,263,367) 116,263,367
Total Investments (Cost $1,336,233,459)-99.4% (d) $1,479,617,664
Foreign Currencies (Cost $5,092,823)-.3% (d) 5,070,077
Other assets in excess of other liabilities-.3% 3,795,512
--------------
Total Net Assets--100% $1,488,483,253
==============
</TABLE>
- -----------------------------------------------------------
Notes:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) Includes portfolio and transaction hedges.
(d) At April 30, 1997, net unrealized appreciation of $143,361,460 for federal
income tax purposes consisted of gross unrealized appreciation of
$201,449,089 and gross unrealized depreciation of $58,087,629.
(e) See footnote number five to the financial statements regarding transactions
in securities of affiliated issuers.
See accompanying notes to financial statements.
30 THE OAKMARK INTERNATIONAL FUND
<PAGE>
The Oakmark Int'l Small Cap Fund
Report from David G. Herro and Michael J. Welsh, Portfolio Managers
[PHOTOS APPEAR HERE]
The value of a $10,000 investment in The Oakmark International Small Cap Fund
from its inception (11/1/95) to present (4/30/97) as compared to the Morgan
Stanley World ex U.S. index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
The Oakmark International M.S. World ex
Small Cap Fund $12,152 U.S. Index $11,310
------------------------- ------------------
<S> <C> <C>
10/95 $10,000 $10,000
1/96 10,530 10,747
4/96 11,340 11,331
7/96 11,040 10,858
10/96 11,410 11,120
1/97 12,142 11,062
4/97 12,152 11,310
</TABLE>
4/30/97 NAV $11.70
<TABLE>
Average Annual Total Return*
Through 4/30/97
----------------------------
Total Return From Inception
Last 3 mos. 11/1/95
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Oakmark Int'l Small Cap Fund 0.1% 13.9%
Morgan Stanley World ex U.S. w/inc** 2.2% 8.6%
Lipper Analytical International Fund Average** 2.8% 14.5%
Micropal Int'l Small Co Fund Index -0.1% 11.8%
</TABLE>
* Total return includes change in share prices and in each case includes
reinvestment of any dividends, interest and capital gain distributions.
** Each of the three indexes or averages is an unmanaged group of stocks or
funds 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 Micropal Int'l Small Co Fund Index
sector average is an unweighted index comprised of all funds within the
International Small Company Fund sector. Past performance is no guarantee of
future results.
Fellow Shareholders:
We are pleased to announce that Michael Welsh, co-portfolio manager of The
Oakmark International Fund, has succeeded Adam Schor as the co-manager of this
Fund. This coincides with Adam's leaving Harris Associates to pursue new
opportunities. We want to thank Adam for his valuable contribution to The
Oakmark Family of Funds.
Since your Fund's inception, it has returned on an annualized basis 13.9%. This
quarter, your Fund was up 0.1% as compared to 2.2% for the Morgan Stanley World
ex U.S. and 2.8% for the Lipper Analytical International Fund Index.
We're happy with the record of this Fund. But, this year, some shareholders have
asked us why it is lagging The Oakmark International Fund.
There is no one answer. Each Fund invests in different types of stocks. This
Fund focuses on small companies while Oakmark International tends to buy medium
and large-sized firms. Recently, larger international companies have performed
better than the smaller names. This happens from time to time, and we don't get
concerned about any short-term deviation in performance. The season is young and
both Funds have good stocks. (We introduce a new one below.)
As we have said before, our portfolio of small companies consists of well
managed businesses at unbelievable prices. As more capital goes overseas and
stock investing becomes more global, these values will not remain undiscovered.
Small companies in general can be great opportunities. Being small makes
THE OAKMARK INTERNATIONAL SMALL CAP FUND 31
<PAGE>
growth easier. Sometimes it takes just one new contract for a small company to
dramatically increase sales and profits. Small firms are often more flexible and
so can act more quickly than their larger counterparts. They can be more
innovative and nimble and can take advantage of niches. They can be more
responsive to changing customer needs or market conditions. Sometimes the best
industry for a small firm is one with a few large established players. These
behemoths are often predictable, slow to react and too fixed in tradition to
recognize a new competitor.
We believe in the fundamentals of our firms and certainly the values. Over time,
that's all that matters. We are confident that our portfolio of stocks will
produce the returns they should.
Let's look at a new addition to our portfolio.
One of our largest positions is Enix, a major developer of game software in
Japan. Enix offers everything we like to see before investing in a company. We
often mention our difficulty in finding appropriate investment opportunities in
Japan. Here's an exception and an example of how we focus on companies, not
countries.
Management runs the business well. Enix is one of Nintendo's most important
software suppliers, giving Enix the chance for good profitability on titles. The
company recently increased its revenue potential by developing software for Sony
PlayStation, the game platform with the largest installed base in Japan. Enix's
entertainment publishing business also provides high returns and diminishes
somewhat the cyclical nature of the game software business.
Management focuses on increasing the equity value of the firm. Enix's management
spends money wisely and focuses on return on capital. Part of the reason for
this focus is that company president and founder Yasuhiro Fukushima and his
family own more than 60% of the firm. After Japanese regulations changed, Enix
was one of the first companies to announce a buy back program.
The underlying business is highly cash generative. Software development and
publishing produce excellent free cash flow. The revenues of the game business
are cyclical because of the delays between new game introductions, yet Enix's
flexible cost structure (and its other publishing businesses) allows it to
generate excess cash even in the tough years.
Enix's stock is cheap. We calculate that we're paying less than five times
normal operating profit and less than one times revenue for a high return
business whose managers are on our side. A cheap price. Despite using some cash
to buy back six percent of its shares, Enix still has one-third of its market
capitalization as cash in the bank.
/s/ David G. Herro
David G. Herro
Portfolio Manager
[email protected]
/s/ Michael J. Welsh
Michael J. Welsh
Co-Portfolio Manager
[email protected]
32 THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
The Oakmark Int'l Small Cap Fund
International Diversification--April 30, 1997
[PIE CHART APPEARS HERE]
Pacific Rim
Europe
Latin America
Other Countries
<TABLE>
<CAPTION>
% of Fund % of Fund
Net Assets Net Assets
- ---------------------------------- ---------------------------------------
<S> <C> <C> <C>
[_] Europe 31.7% [_] Pacific Rim 49.0%
Great Britain 9.1% Hong Kong 11.7%
Ireland 5.4% New Zealand 8.5%
France 5.0% Indonesia 7.7%
Germany 4.6% Australia 6.6%
Netherlands 2.5% Japan 6.3%
Italy 2.3% Korea 5.5%
Spain 2.3% Singapore 1.2%
Turkey 0.4% Philippines 1.2%
Austria 0.1% Thailand 0.3%
[_] Latin America 2.9% [_] Other Countries 7.5%
Mexico 2.9% Israel 5.4%
Canada 1.7%
India 0.4%
</TABLE>
The Oakmark International Small Cap Fund 33
<PAGE>
The Oakmark Int'l Small Cap Fund
Schedule of Investments--April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Description Shares Held Market Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks--91.1%
Consumer Non-Durables--5.3%
PT Polysindo Eka Perkasa Integrated Textile Manufacturer
(Indonesia) 2,652,000 $ 1,473,333
Designer Textiles (NZ) Limited Manufactures Knit Fabrics
(New Zealand) (e) 2,835,000 1,277,470
Altinyildiz Mensucat ve Textile Manufacturer
Konfeksiyon Fabrikalari A.S.
(Turkey) 1,800,000 242,292
-----------
2,993,095
Food & Beverage--8.9%
Grupo Herdez S.A., Class B Manufacturer and Distributor
(Mexico) of Bottled and Canned Food 4,024,000 $ 1,671,075
Taittinger (France) Producer of Wine & Spirits 4,533 1,596,821
DB Group Ltd. (New Zealand) Producer of Beer, Wine, & Liquor 483,750 754,550
Alaska Milk Corporation Milk Producer
(Philippines), (a) 7,200,000 649,829
Chosun Brewery Company Korean Brewer
(Korea) 14,410 379,636
-----------
5,051,911
Household Products--7.1%
Enix Corporation (Japan) Entertainment Software 115,100 $ 2,203,435
WMF (Germany) Tableware and Kitchenware 10,000 1,674,558
N. V. Koninklijke Sphinx Bathroom Products
Gustavsberg (Netherlands), (a) 15,159 146,276
-----------
4,024,269
Retail--0.6%
Daimon (Japan) Liquor Retailer & Distributor 49,200 $ 354,654
Other Consumer Goods & Services--11.7%
Vardon plc (Great Britain) Bingo Clubs 915,000 $ 1,853,728
Innovative International Auto Parts & Equipment
Holdings (Hong Kong) 3,530,000 1,526,560
PT Steady Safe (Indonesia) Transportation 1,374,500 1,343,390
Fyffes plc (Ireland) Distributor of Fresh Fruit,
Flowers and Produce in Europe 678,133 967,017
CeWe Color Holding AG Photo Equipment & Supplies
(Germany) 4,100 944,624
-----------
6,635,319
Telecommunications--2.5%
Tadiran Ltd. (Israel), (a) Telecommunication Equipment 53,984 $ 1,421,570
Banks--1.9%
Anglo Irish Bank Corporation Irish Bank
plc (Ireland) 860,000 $ 1,071,450
</TABLE>
See accompanying notes to financial statements.
34 The Oakmark International Small Cap Fund
<PAGE>
The Oakmark Int'l Small Cap Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks--91.1% (cont.)
Other Financial-6.1%
JCG Holdings Ltd. Investment Holding Company
(Hong Kong) 2,704,000 $ 2,164,178
Lambert Fenchurch Group plc Insurance Broker
(Great Britain) 695,000 1,244,692
HIH Winterhur International Insurance and Reinsurance Broker
Holdings Ltd. (Australia) 9,243 21,552
--------------
3,430,422
Computer Systems-2.4%
Solution 6 Holdings Ld. Design Computer Systems/
(Australia), (a) (e) Consultants 3,437,500 $ 1,340,365
Marketing Services-3.6%
Cordiant plc, (Great Britain) (a) Global Advertising Agency 970,000 $ 2,043,760
Broadcasting & Publishing-4.7%
Woong Jin Publishing Company Publisher
(Korea) 23,736 $ 1,543,372
Moffat Communications Owner and Operator of Television
Limited (Canada) Stations and Cable Systems 45,500 700,250
Zee Telefilms Ltd. (India) Broadcasting & TV 85,900 223,429
Matichon Public Company Newspaper Publisher
Limited (Thailand) 70,400 194,040
--------------
2,661,091
Chemicals-2.3%
European Vinyls Corporation Western European PVC
International N.V. Manufacturer
(Netherlands) 44,600 $ 1,277,360
Components-5.9%
Tower Semiconductor Ltd. Semiconductors
(Israel), (a) (b) 132,300 $ 1,653,750
Barlo Group plc, (Ireland) Manufacturer of Radiators
and Industrial Plastics 1,605,000 1,011,858
Pentex-Schweizer Circuits Ltd. Manufacturer and Marketer
(Singapore) of Printed Circuit Boards 546,000 675,192
--------------
3,340,800
Forestry Products-3.2%
Asia Pulp & Paper Company Ltd. Paper & Packaging
(Indonesia), (a) (b) Products in Asia 114,000 $ 1,524,750
Harmac Pacific, Inc. Pulp Producer
(Canada), (a) 25,700 255,712
--------------
1,780,462
</TABLE>
See accompanying notes to financial statements.
The Oakmark International Small Cap Fund 35
<PAGE>
The Oakmark Int'l Small Cap Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Description Shares Held Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks--91.1% (cont.)
Machinery & Metal Processing-1.3%
Steel & Tube Holdings Ltd. Produces and Distributes Steel
(New Zealand) 150,500 $ 751,196
Mining And Building Materials-5.7%
Uralita, SA (Spain) Manufacturers of Building
Products and Chemicals 153,100 $ 1,272,299
Asia Cement Manufacturing Large Cement Manufacturer
Company Ltd. (Korea) 36,150 1,175,280
Parbury Limited (Australia) Manufactures Building Products 1,327,032 755,466
--------------
3,203,045
Other Industrial Goods & Services-13.4%
Sanford Ltd. (New Zealand) Owns and Manages Fisheries 1,030,040 $ 2,035,088
Wattyl Limited, (Australia) Paint Company 349,091 1,619,817
Yip's Hang Cheung Ltd. Paint Company
(Hong Kong) 12,614,000 1,612,065
Techtronic Industries Company Manufactures Electric Hand Tools
(Hong Kong) 7,740,000 1,308,901
Fukuda Denshi (Japan) Medical Products Manufacturer
and Distributor 52,000 991,373
VAE Eisenbahnsysteme AG Manufactures Rail-Related Products
(Austria) 400 38,711
--------------
7,605,955
Production Equipment-4.5%
Danieli & Company (Italy) Steel Mini-Mills Equipment 360,300 $ 1,296,274
NSC Groupe (France) Manufacturer of Textile Equipment 9,830 1,242,961
--------------
2,539,235
Total Common Stocks (Cost: $50,632,715) 51,525,959
</TABLE>
See accompanying notes to financial statements.
36 The Oakmark International Small Cap Fund
<PAGE>
The Oakmark Int'l Small Cap Fund
Schedule of Investments--April 30, 1997 (Unaudited) cont.
<TABLE>
<CAPTION>
Principal Value Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Short Term Investments--3.1%
Commercial Paper--2.5%
American Express Credit Corporation, 5.50-5.53% due 5/7/-6/9/1997 650,000 $ 650,000
Ford Motor Credit Corp., 5.46-5.55% due 5/12-6/6/1997 500,000 500,000
General Electric Capital Corporation, 5.45% due 5/5/1997 250,000 250,000
----------
1,400,000
Repurchase Agreements--0.6%
State Street Repurchase Agreement, 5.37% due 5/1/1997 329,000 $ 329,000
Total Repurchase Agreements 329,000
Total Short Term Investments (Cost: $1,729,000) 1,729,000
Total Investments (Cost: $52,361,715)--94.2% (d) $53,254,959
Foreign Currencies (Proceeds: $297,574)--.5% (d) 296,653
Other assets in excess of other liabilities--5.3% 3,008,446
-----------
Total Net Assets--100% $56,560,058
===========
</TABLE>
- ----------------------------------------------
Notes:
(a) Non-income producing security.
(b) Represents an American Depositary Receipt.
(c) Includes transaction hedges.
(d) At April 30, 1997, net unrealized appreciation of $892,323 for federal
income tax purposes consisted of gross unrealized appreciation of
$5,191,641 and gross depreciation of $4,299,318.
(e) See footnote number five to the financial statements regarding transactions
in securities of affiliated issuers.
See accompanying notes to financial statements.
The Oakmark International Small Cap Fund 37
<PAGE>
The Oakmark Family of Funds
Statement of Assets and Liabilities--April 30,1997 (Unaudited)
<TABLE>
<CAPTION>
The Oakmark The Oakmark
Fund Select
Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments, at value $4,884,556,589 (cost:$3,665,076,314) $ 195,449,456 (cost: $198,750,947)
Cash 2,361,753 875
Foreign currency, at value 477,899 (cost: $482,705) 0
Receivable for:
Forward foreign currency contracts 0 0
Securities sold 8,647,936 0
Fund shares sold 16,327,079 3,020,893
Dividends and interest 8,133,924 105,907
Expense reimbursement 0 0
-------------- -------------
Total receivables 33,108,939 3,126,800
Other assets 0 37,440
-------------- -------------
Total assets $4,920,505,180 $ 198,614,571
============== =============
Liabilities and Net Assets
Payable for:
Securities purchased 18,377,253 498,999
Fund shares redeemed 2,222,471 146,228
Due to adviser 3,728,789 167,061
Forward foreign currency contracts 0 0
Other 1,168,590 199,595
-------------- -------------
Total liabilities 25,497,103 1,011,883
-------------- -------------
Net assets applicable to fund shares outstanding $4,895,008,077 $ 197,602,688
============== =============
Fund shares outstanding 139,781,152 16,135,055
============== =============
Pricing of Shares
Net asset value per share $ 35.02 $ 12.25
============== =============
Analysis of Net Assets
Paid in capital $3,499,224,395 $ 195,473,640
Accumulated undistributed net realized gain
on sale of investments, forward contracts and
foreign currency exchange transactions 156,941,679 5,633,992
Net unrealized appreciation/depreciation of investments 1,219,475,468 (3,301,491)
Net unrealized appreciation of foreign currency
portfolio hedges 0 0
Net unrealized appreciation--other 0 0
Accumulated undistributed net investment
income (loss) 19,366,535 (203,453)
-------------- -------------
Net assets applicable to Fund shares outstanding $4,895,008,077 $ 197,602,688
============== =============
</TABLE>
38 The Oakmark Family of Funds
<PAGE>
<TABLE>
<CAPTION>
The Oakmark The Oakmark The Oakmark
Small Cap Balanced International
Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$622,021,050 (cost: $587,302,264) $20,314,826 (cost: $18,398,120) $1,479,617,664 (cost: $1,336,233,459)
863 390 154
0 0 5,070,077 (cost: $5,092,823)
0 0 13,349,190
17,424 0 7,135,027
8,075,394 75,950 10,923,306
361,542 139,364 7,414,915
0 6,100 0
- ------------ ----------- --------------
8,454,360 221,414 38,822,438
5,103 5,103 3,688
- ------------ ----------- --------------
$630,481,376 $20,541,733 $1,523,514,021
============ =========== ==============
6,219,520 325,068 31,620,184
465,065 1,481 771,488
656,983 12,833 1,172,172
0 0 124,591
299,409 38,066 1,342,333
- ------------ ----------- --------------
7,640,977 377,448 35,030,768
- ------------ ----------- --------------
$622,840,399 $20,164,285 $1,488,483,253
============ =========== ==============
41,063,312 1,658,346 87,278,812
============ =========== ==============
$ 15.17 $ 12.16 $ 17.05
============ =========== ==============
$570,738,711 $17,891,490 $1,224,972,152
18,268,189 132,261 60,388,114
34,718,786 1,916,705 143,361,460
0 0 13,291,009
0 0 (138,008)
(885,287) 223,829 46,608,526
- ------------ ----------- --------------
$622,840,399 $20,164,285 $1,488,483,253
============ =========== ==============
The Oakmark
Int'l Small Cap
Fund
- --------------------------------
$53,254,959 (cost: $52,361,715)
385
296,653 (cost: $297,574)
303
3,430,390
390,018
75,085
0
-----------
3,895,796
5,103
-----------
$57,452,896
===========
740,059
16,483
57,356
2,001
76,939
-----------
892,838
-----------
$56,560,058
===========
4,833,387
===========
$ 11.70
$53,685,530
1,992,796
892,323
0
(4,417)
(6,174)
-----------
$56,560,058
===========
</TABLE>
See accompanying notes to financial statements
The Oakmark Family of Funds 39
<PAGE>
The Oakmark Family of Funds
Statement of Operations--April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
The Oakmark The Oakmark
Fund Select
Fund
- ------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends $ 38,786,131 $ 337,622
Interest Income 10,996,923 197,112
Securities lending income 0 4,001
Foreign taxes withheld (106,561) 0
------------ -----------
Total investment income 49,676,493 538,735
Expenses:
Investment advisory fee 21,119,623 447,345
Transfer and dividend disbursing agent fees 1,579,924 75,989
Reports to shareholders 391,379 5,504
Custodian and accounting fees 256,285 18,385
Registration and blue sky expenses 184,360 130,657
Legal fees 23,007 8,940
Audit fees 8,437 9,804
Trustees fees 53,513 9,702
Amortization of organization cost 0 354
Other 666,240 36,268
------------ -----------
Total expenses 24,282,768 742,948
Expense offset arrangements (11,354) (760)
Expense reimbursement 0 0
------------ -----------
Net expenses 24,271,414 742,188
------------ -----------
Net investment income (loss) 25,405,079 (203,453)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions:
Net realized gain on investments 156,689,717 5,633,992
Net realized gain (loss) on foreign currency
transactions 2,143 0
Net change in unrealized appreciation (depreciation)
of investments and foreign currencies 430,927,806 (3,301,491)
Net change in appreciation of forward currency
exchange contracts 0 0
Net change in appreciation (depreciation)--other 0 0
Net realized and unrealized gain on investments
and foreign currency transactions 587,619,666 2,332,501
------------ -----------
Net increase in net assets resulting from operations $613,024,745 $2,129,048
============ ==========
</TABLE>
40 The Oakmark Family of Funds
<PAGE>
<TABLE>
<CAPTION>
The Oakmark The Oakmark The Oakmark The Oakmark
Small Cap Balanced International Int'l Small Cap
Fund Fund Fund Fund
- -----------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,620,777 $ 139,463 $ 20,403,305 $ 580,566
845,849 230,271 1,927,671 56,964
45,224 3,690 506,988 14,607
0 0 (1,859,189) (50,505)
----------- ---------- ------------ ----------
2,511,850 373,424 20,978,775 601,632
2,509,799 61,548 6,324,716 300,539
205,210 26,328 485,088 45,134
39,537 1,688 158,074 7,177
51,046 20,265 736,644 67,556
169,329 21,358 59,888 24,017
7,805 4,879 8,454 4,941
8,194 8,937 12,394 11,373
16,286 12,403 23,147 12,871
722 722 4,706 722
122,795 2,363 284,263 9,685
----------- ---------- ------------ ----------
3,130,723 160,491 8,097,374 484,015
(9,785) (135) (3,479) (325)
0 (33,700) 0 0
----------- ---------- ------------ ----------
3,120,938 126,656 8,093,895 483,690
----------- ---------- ------------ ----------
(609,088) 246,768 12,884,880 117,942
18,511,480 132,510 86,831,881 2,062,598
0 0 7,458,175 (44,245)
14,616,034 1,012,987 60,028,246 595,930
0 0 16,187,497 0
0 0 56,122 (2,629)
33,127,514 1,145,497 170,561,921 2,611,654
----------- ---------- ------------ ----------
$32,518,426 $1,392,265 $183,446,801 $2,729,596
=========== ========== ============ ==========
</TABLE>
See accompanying notes to financial statements.
The Oakmark Family of Funds 41
<PAGE>
THE OAKMARK FAMILY OF FUNDS
Statement of Changes in Net Assets--April 30, 1997
<TABLE>
<CAPTION>
The Oakmark Fund
Period Ended Year Ended
April 30, 1997 October 31, 1996
(Unaudited)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 25,405,079 $ 41,568,343
Net realized gain on sale of investments 156,689,717 226,166,113
Net realized gain (loss) on foreign currency
transactions 2,143 (12,777)
Net change in unrealized appreciation 430,927,806 290,431,755
-------------- ---------------
Net increase in net assets from operations 613,024,745 558,153,434
From distributions to shareholders:
Net investment income (per share $.3441 in
Fiscal Year 1997 and $.2841 in Fiscal Year 1996) (41,659,891) (29,455,748)
Net realized short-term gain (per share $.1152 in
Fiscal Year 1997 and $.042 in Fiscal Year 1996) (13,947,126) (4,354,309)
Net realized long-term gain (per share $1.7514 in
Fiscal Year 1997 and $.7987 in Fiscal Year 1996) (212,039,549) (82,805,333)
-------------- ---------------
Total distributions to shareholders (267,646,566) (116,615,390)
From Fund share transactions:
Proceeds from shares sold 902,938,915 1,810,842,079
Reinvestment of dividends and capital gains
distributions 256,259,031 110,976,647
Payments for shares redeemed (543,503,708) (1,256,490,130)
-------------- ---------------
Net increase in net assets from Fund share
transactions 615,694,238 665,328,596
-------------- ---------------
Total increase in net assets 961,072,417 1,106,866,640
Net assets:
Beginning of period 3,933,935,660 2,827,069,020
-------------- ---------------
End of period (including undistributed net
investment income of $19,366,535 for 1997
and $35,496,292 for 1996) $4,895,008,077 $ 3,933,935,660
============== ===============
</TABLE>
See accompanying notes to financial statements.
42 The Oakmark Family Of Funds
<PAGE>
<TABLE>
<CAPTION>
The Oakmark
Select Fund
Period Ended
April 30, 1997
(Unaudited)
- -------------------------------------------------------------------------
<S> <C>
From Operations:
Net investment income (loss) $ (203,453)
Net realized gain on sale of investments 5,633,992
Net change in unrealized appreciation (3,301,491)
-------------
Net increase in net assets from operations 2,129,048
From distributions to shareholders:
Net investment income 0
Net realized short-term gain 0
Net realized long-term gain 0
-------------
Total distributions to shareholders 0
From Fund share transactions:
Proceeds from shares sold 255,598,337
Reinvestment of dividends and capital gains
distributions 0
Payments for shares redeemed (60,124,697)
-------------
Net increase in net assets from Fund share
transactions 195,473,640
-------------
Total increase in net assets 197,602,688
Net assets:
Beginning of period 0
-------------
End of period (including undistributed net invest-
ment loss of $203,453) $ 197,602,688
=============
</TABLE>
See accompanying notes to financial statements.
The Oakmark Family Of Funds 43
<PAGE>
The Oakmark Family Of Funds
Statement of Changes in Net Assets--April 30, 1997 (Continued)
<TABLE>
<CAPTION>
The Oakmark
Small Cap Fund
Period Ended Year Ended
April 30, 1997 October 31, 1996
(Unaudited)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Operations:
Net investment loss $ (609,088) $ (276,200)
Net realized gain (loss) on sale of investments 18,511,480 (243,291)
Net realized gain (loss) on foreign currency
transactions 0 0
Net change in unrealized appreciation 14,616,034 20,102,753
------------- ------------
Net increase in net assets from operations 32,518,426 19,583,262
From distributions to shareholders:
Net investment income 0 0
Net realized short-term gain 0 0
Net realized long-term gain 0 0
------------- ------------
Total distributions to shareholders 0 0
From Fund share transactions:
Proceeds from shares sold 568,723,911 224,762,208
Reinvestment of dividends and capital gains
distributions 0 0
Payments for shares redeemed, net of fees (196,822,345) (25,925,063)
------------- ------------
Net increase in net assets from Fund share
transactions 371,901,566 198,837,145
------------- ------------
Total increase in net assets 404,419,992 218,420,407
Net assets:
Beginning of period 218,420,407 0
------------- ------------
End of period (including undistributed net invest-
ment loss of $885,287 for 1997 and $276,200
for 1996) $ 622,840,399 $ 218,420,407
============= =============
</TABLE>
See accompanying notes to financial statements.
44 The Oakmark Family Of Funds
<PAGE>
<TABLE>
<CAPTION>
The Oakmark
Balanced Fund
Period Ended Year Ended
April 30, 1997 October 31, 1996
(Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
From Operations:
Net investment income $ 246,768 $ 125,528
Net realized gain on sale of investments 132,510 161,939
Net realized gain (loss) on foreign currency
transactions 0 0
Net change in unrealized appreciation 1,012,987 903,718
----------- ----------
Net increase in net assets from operations 1,392,265 1,191,185
From distributions to shareholders:
Net investment income (per share $.1202 in
Fiscal Year 1997) (1,148,467) 0
Net realized short-term gain (per share $.1311 in
Fiscal Year 1997) (162,188) 0
Net realized long-term gain 0 0
----------- ----------
Total distributions to shareholders (310,655) 0
From Fund share transactions:
Proceeds from shares sold 10,588,780 15,231,573
Reinvestment of dividends and capital gains
distributions 288,062 0
Payments for shares redeemed, net of fees (5,593,093) (2,623,832)
----------- ----------
Net increase in net assets from Fund share
transactions 5,283,749 12,607,741
----------- ----------
Total increase in net assets 6,365,359 13,798,926
Net assets:
Beginning of period 13,798,925 0
----------- ----------
End of period (including undistributed net invest-
ment income of $233,829 for 1997 and $125,528
for 1996) $20,164,285 $13,798,926
=========== ===========
</TABLE>
See accompanying notes to financial statements.
The Oakmark Family Of Funds 45
<PAGE>
The Oakmark Family of Funds
Statement of Changes in Net Assets--April 30, 1997 (continued)
<TABLE>
<CAPTION>
The Oakmark
International
Fund
Period Ended Year Ended
April 30, 1997 October 31, 1996
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Operations:
Net investment income $ 12,884,880 $ 14,823,124
Net realized gain on sale of investments 86,831,881 2,806,950
Net realized gain (loss) on foreign currency
transactions 7,458,175 (1,017,660)
Net change in unrealized appreciation
of investments 60,028,246 176,382,416
Net change in unrealized appreciation
of forward currency exchange contracts 16,187,497 5,165,941
Net change in unrealized appreciation--other 56,122 (363,425)
-------------- --------------
Net increase in net assets from operations 183,446,801 197,797,346
From distributions to shareholders:
Net investment income (per share $1.1617 in Fiscal Year 1997) (12,477,926) 0
Net realized short-term gain (per share $.0000
in Fiscal Year 1997 and $.5020 in Fiscal Year 1996) 0 (29,886,815)
Net realized long-term gain (per share $.0000
in Fiscal Year 1996 and $.5413 in Fiscal Year 1996) 0 (32,229,556)
Total distributions to shareholders (12,477,926) (62,116,371)
-------------- --------------
From Fund share transactions:
Proceeds from shares sold 325,777,624 563,952,538
Reinvestment of dividends and capital gains
distributions 11,889,126 57,852,161
Payments for shares redeemed (192,919,566) (404,450,022)
-------------- --------------
Net increase in net assets from Fund share
transactions 144,747,184 217,354,677
-------------- --------------
Total increase in net assets 315,716,059 $ 353,035,652
Net assets:
Beginning of period $1,172,767,194 $ 819,731,542
-------------- --------------
End of period (including undistributed net
investment income of $46,608,526 for 1997 and
$46,201,571 for 1996) $1,488,483,253 $1,172,767,194
============== ==============
</TABLE>
See accompanying notes to financial statements.
46 The Oakmark Family Of Funds
<PAGE>
<TABLE>
<CAPTION>
The Oakmark
International
Small Cap Fund
Period Ended Year Ended
April 30, 1997 October 31, 1996
(Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Operations:
Net investment income $ 117,942 $ 155,101
Net realized gain on sale of investments 2,062,598 1,284,213
Net realized loss on foreign currency
transactions (44,245) (35,656)
Net change in unrealized appreciation
of investments and foreign currencies 595,930 296,393
Net change in unrealized appreciation
of forward currency exchange contracts 0 0
Net change in unrealized appreciation (depreciation)
--other (2,629) (1,789)
----------- ------------
Net increase in net assets resulting
from operations 2,729,596 1,709,263
From distributions to shareholders:
Net investment income ($.08 in fiscal year ended 1997) (279,216) 0
Net realized short-term gain ($.36 in fiscal year ended 1997) (1,285,114) 0
Net realized long-term gain 0 0
----------- ------------
Total distributions to shareholders (1,564,330) 0
From Fund share transactions:
Proceeds from shares sold 27,618,561 43,181,467
Reinvestment of dividends 1,523,967 0
Payments for shares redeemed, net of fees (13,499,777) (5,138,689)
----------- ------------
Net increase in net assets from Fund share
transactions 15,642,751 38,042,778
----------- ------------
Total increase in net assets 16,808,017 39,752,041
Net assets:
Beginning of period $ 39,752,041 $ 0
============ ============
End of period (Including undistributed net investment income
(loss) of ($6,174) in 1997 and $155,101 in 1996) $ 56,560,058 $ 39,752,041
============ ============
</TABLE>
See accompanying notes to financial statements.
The Oakmark Family Of Funds 47
<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 Select Fund ("Select"), The Oakmark Small Cap Fund
("Small Cap"), The Oakmark Balanced Fund ("Balanced"), The Oakmark
International Fund ("International"), and The Oakmark International Small Cap
Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a
series of the Harris Associates Investment Trust (a Massachusetts business
trust). The International Small Cap Fund was named The Oakmark International
Emerging Value Fund prior to March 1, 1997. These accounting policies are in
conformity with generally accepted accounting principles ("GAAP"). The
presentation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.
Security valuation--
Investments are stated at current value. Securities traded on securities
exchanges and securities traded on the NASDAQ National Market are valued at the
last sales price on the day of valuation, or if lacking any reported sales that
day, at the most recent bid quotation. Over-the-counter securities not so traded
are valued at the most recent bid quotation. Money market instruments having a
maturity of 60 days or less from the date of valuation are valued on an
amortized cost basis which approximates market value. Securities for which
quotations are not readily available are valued at a fair value as determined by
the Trustees.
Foreign currency translations--
Values of investments and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars using the mean of the bid and offer
prices of such currencies at the time of valuation. Purchases and sales of
investments and dividend and interest income are converted at the prevailing
rate of exchange on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized gain or loss from investments.
Net realized gains on foreign currency transactions arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Funds' books,
and the U.S. dollar equivalent of the amounts actually received or paid, and the
realized gains or losses resulting from the portfolio and transaction hedges.
At April 30, 1997, only the International and Int'l Small Cap Funds had foreign
currency transactions. Net unrealized depreciation--other includes the following
components:
<TABLE>
<CAPTION>
Int'l Small
International Cap
- -------------------------------------------------------------------------------
<S> <C> <C>
Unrealized depreciation on dividends
and dividend reclaims receivable $(113,606) $ (2,387)
Unrealized appreciation (depreciation)
on open securities purchases and sales 29,307 (368)
Unrealized depreciation on transaction
hedge purchases and sales (66,410) (1,697)
Other--net 12,701 35
--------- --------
Net Unrealized Depreciation--Other $(138,008) $ (4,417)
- -------------------------------------------------------------------------------
</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 April 30, 1997, International and Int'l Small Cap had entered into forward
foreign currency contracts under which it is 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 their contracts and from movements in
currency values.
48 The Oakmark Family of Funds
<PAGE>
The International Fund had the following outstanding contracts at April 30,
1997:
<TABLE>
<CAPTION>
Portfolio Hedges:
Unrealized
Appreciation
US Dollars Settlement (Depreciation) at
Purchased Foreign Currency Sold Date April 30, 1997
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 8,697,411 50,525,000 French Francs May 1997 $1,302,589
7,500,000 4,576,938 Pounds Sterling May 1997 82,802
15,030,417 9,217,157 Pounds Sterling May 1997 (30,417)
15,260,430 9,400,000 Pounds Sterling July 1997 48,868
20,673,886 12,738,854 Pounds Sterling September 1997 81,147
30,000,000 18,426,387 Pounds Sterling October 1997 224,360
20,000,000 12,383,901 Pounds Sterling November 1997 (8,338)
14,977,879 9,217,156 Pounds Sterling November 1997 85,965
10,000,000 65,855,000 Swedish Krona May 1997 1,602,577
11,718,088 78,810,000 Swedish Krona June 1997 1,657,959
29,355,683 198,987,500 Swedish Krona June 1997 3,937,165
16,436,840 113,595,000 Swedish Krona July 1997 1,910,627
12,604,294 18,490,500 Swiss Francs May 1997 2,395,705
----------
13,291,009
==========
Transaction Hedges: Foreign Currency Purchases
Unrealized
Appreciation
US Dollars Settlement (Depreciation) at
Sold Foreign Currency Purchased Date April 30, 1997
- ---------------------------------------------------------------------------------------
$ 1,184,042 6,841,393 French Francs May 1997 $ (11,868)
813,375 4,727,741 French Francs May 1997 (3,345)
724,986 4,217,603 French Francs May 1997 (2,360)
4,062,526 2,497,864 Pounds Sterling May 1997 (14,124)
1,878,783 1,156,744 Pounds Sterling May 1997 (3,996)
1,849,012 1,138,414 Pounds Sterling May 1997 (3,933)
1,182,142 76,980 Pounds Sterling May 1997 (3,893)
1,120,039 688,788 Pounds Sterling May 1997 (3,688)
756,578 463,220 Pounds Sterling May 1997 (5,815)
941,206 579,025 Pounds Sterling May 1997 (2,753)
342,315 2,651,568 Hong Kong Dollar May 1997 (22)
5,222,875 8,932,422,400 Italian Lira May 1997 (5,872)
872,135 109,522,720 Japanese Yen May 1997 (9,310)
401,729 50,939,296 Japanese Yen May 1997 (427)
386,138 48,962,244 Japanese Yen May 1997 (411)
488,013 1,218,569 Malaysian Ringgit May 1997 (2,682)
753,868 1,885,046 Malaysian Ringgit May 1997 (3,093)
528,360 1,324,915 Malaysian Ringgit May 1997 (673)
792,556 1,988,918 Malaysian Ringgit May 1997 (410)
634,754 914,630 New Zealand Dollar May 1997 (694)
32,733 47,275 New Zealand Dollar May 1997 40
1,046,884 1,505,874 New Zealand Dollar May 1997 (2,950)
1,939,700 2,792,945 New Zealand Dollar May 1997 (3,517)
----------
$ (85,796)
==========
</TABLE>
THE OAKMARK FAMILY OF FUNDS 49
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Foreign Currency Sales
Unrealized
US Dollars Settlement Appreciation at
Purchased Foreign Currency Sold Date April 30, 1997
--------------------------------------------------------------------------
<C> <S> <C> <C>
$3,089,068 1,899,328 Pounds Sterling May 1997 $ 10,740
4,065,346 2,502,984 Pounds Sterling May 1997 8,646
----------
$ 19,386
==========
</TABLE>
The Int'l Small Cap Fund had the following outstanding transaction hedges on
purchases of securities:
<TABLE>
<CAPTION>
Foreign Currency Purchases
Unrealized
US Dollars Settlement (Depreciation) at
Sold Foreign Currency Purchased Date April 30, 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
$ 59,970 76,659 Australian Dollars May 1997 (189)
78,589 457,738 French Francs May 1997 (162)
355,344 218,519 Pounds Sterling May 1997 (1,170)
28,663 3,628,820 Japanese Yen May 1997 (75)
140,781 19,032,186,344 Turkish Lira May 1997 (405)
-------
$(2,001)
=======
Foreign Currency Sales
Unrealized
US Dollars Settlement Appreciation at
Purchased Foreign Currency Sold Date April 30, 1997
----------------------------------------------------------------------------
$120,662 234,494 Netherlands Guilders May 1997 303
</TABLE>
At April 30, 1997, International and Int'l Small Cap 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.
(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. Select pays 1% of
net assets, Small Cap pays 1.25% of net assets, Balanced pays .75% of net assets
and Int'l Small Cap pays 1.25% of net assets. Each fee is calculated on the
total net assets as determined at the end of each preceding calendar month.
Effective March 1, 1997, the Adviser has agreed to reimburse the Funds to the
extent that annual expenses, excluding certain expenses, exceed 1.5% of total
net assets for domestic funds and 2% for international funds. For the six months
ended April 30, 1997, the Adviser has waived $33,700 of expenses for Balanced.
In connection with the organization of the Funds, expenses of approximately
$146,500 and $47,000 were advanced to Oakmark and International, approximately
$7,283 each to Small Cap, Balanced and Int'l Small Cap, and $3,500 to Select by
the Adviser. These expenses are being amortized on a straight line basis through
September, 1997 for International, October, 2000 for Small Cap, Balanced and
Int'l Small Cap, and October, 2001 for Select. Oakmark has fully amortized all
organization expenses. Registration expenses of approximately $62,282, $56,751,
$56,811 and $56,726 were advanced to Select, Small Cap, Balanced and Int'l Small
Cap, respectively, by the Adviser. Registration expenses have been fully
amortized for all funds except Select.
50 THE OAKMARK FAMILY OF FUNDS
<PAGE>
During the six months ended April 30, 1997, the Funds incurred brokerage
commissions of $1,495,863, $408,573, $884,336, $10,489, $2,658,116 and $143,426
of which $489,509, $247,921, $262,533, $7,009, $732, and $732 were paid by
Oakmark, Select, Small Cap, Balanced, International and Int'l Small Cap,
respectively, to an affiliate of the Adviser.
3. Fund share transactions
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect to the following number of shares (in thousands):
<TABLE>
<CAPTION>
Period Ended April 30, 1997
-------------------------------------------------------------
Int'l
Small Small
Oakmark Select Cap Balanced Int'l Cap
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 26,406 21,077 37,457 882 19,961 2,379
Shares issued in
reinvestment
of dividends 7,958 0 0 25 792 135
Less shares
redeemed (16,035) (4,942) (12,948) (471) (12,081) (1,163)
-------- -------- -------- ----- -------- -------
Net increase in
shares outstanding 18,329 16,135 24,509 436 8,672 1,351
======== ======== ======== ===== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31, 1996
---------------------------------------------------
Int'l
Small Small
Oakmark Cap Balanced Int'l Cap
- -----------------------------------------------------------------------------------
<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
======== ======= ===== ======= =====
</TABLE>
4. Investment transactions
Transactions in investment securities (excluding short term securities) were as
follows (in thousands):
<TABLE>
<CAPTION>
Int'l
Small Small
Oakmark Select Cap Balanced Int'l Cap
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases $496,048 $232,982 $442,515 $ 10,976 $477,537 $26,409
Proceeds from
sales 574,417 50,286 102,144 7,953 374,109 15,840
- ---------------------------------------------------------------------------------------------
</TABLE>
The market values (in thousands) of securities on loan to broker-dealers at
April 30, 1997 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. The Oakmark Fund does not lend securities.
<TABLE>
<CAPTION>
Int'l
Small Small
Select Cap Balanced Int'l Cap
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Value of
Securities Loaned $28,825 $66,833 $1,792 $263,182 $3,822
Collateral
(Cash and U.S. Treasuries) 29,842 70,331 1,834 276,078 4,008
- ------------------------------------------------------------------------------------------
</TABLE>
5. Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of a Fund's transactions
in the securities of these issuers during the six months ended April 30, 1997 is
set forth below:
Summary of Transactions with Affiliated Companies
The Oakmark Fund
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMBAC Inc. $ -- $ -- $ 724,317 $ 142,119,775
ACNielsen Corporation 53,012,045 -- -- 71,460,000
The Black & Decker
Corporation 99,457,501 -- 1,327,104 232,731,200
Carson Pirie Scott
& Co. -- -- -- 29,750,000
First USA, Inc. -- -- 851,520 341,495,000
GC Companies, Inc. -- 3,470,984 -- 15,929,625
Polaroid 47,422,336 -- 1,084,380 197,026,400
SPX Corporation 2,541,875 -- 184,830 52,871,538
- --------------------------------------------------------------------------------------
TOTALS $202,433,757 $3,470,984 $4,172,151 $1,083,383,538
- --------------------------------------------------------------------------------------
The Oakmark Family of Funds 51
</TABLE>
<PAGE>
Notes to Financial Statements (continued)
------------------------------------------------------------------
Summary of Transactions with Affiliated Companies
The Oakmark Small Cap Fund
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Binks Manufacturing $ 8,186,731 $ -- $ $ 8,368,750
Castle & Cooke, Inc. 15,253,217 82,277 -- 15,468,750
The Carbide/Graphite
Group 11,684,094 1,338,080 -- 18,100,000
Chartwell Re
Corporation 8,318,229 1,612,626 27,000 12,750,000
Duff & Phelps Credit
Rating Company 1,118,438 -- 16,005 7,753,900
Gardner Denver
Machinery
Incorporated 8,679,193 -- -- 19,337,500
Granite Broadcasting
Corporation 1,364,703 -- -- 5,516,250
Highlands Insurance
Group, Inc. 14,137,406 1,631,001 -- 15,862,500
NVR, Inc. 9,822,312 1,323,089 -- 8,925,000
Northwest Pipe
Company 4,900,750 -- -- 8,000,000
Pocahontas Federal
Savings & Loan
Association -- -- 60,900 2,485,000
Scotsman Industries,
Inc. 17,455,659 234,367 18,298 16,883,550
SPX Corporation 22,712,788 5,209,409 123,500 46,108,963
Titan Exploration, Inc. 22,836,175 -- -- 14,673,000
- ----------------------------------------------------------------------------
TOTALS $146,469,695 $11,430,849 $245,703 $200,233,162
- ----------------------------------------------------------------------------
</TABLE>
Summary of Transactions with Affiliated Companies
The Oakmark International Fund
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BYC Company $ -- $ -- $ 21,901 $ 3,781,211
Chargeurs Inter-
national Sa 11,479,091 -- -- 33,644,017
Cordiant plc 6,518,121 4,256,573 -- 68,557,946
EVC International
NV 5,066,737 -- 946,695 33,055,693
Lamex Holdings
Limited -- -- 157,892 3,670,174
Varitronix Inter-
national Holdings
Limited 12,550,909 -- -- 20,880,604
- -------------------------------------------------------------------------
TOTALS $35,614,858 $4,256,573 $1,126,488 $163,589,645
- -------------------------------------------------------------------------
</TABLE>
Summary of Transactions with Affiliated Companies
The Oakmark International Small Cap Fund
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Designer Texiltes
(NZ) Limited $ 1,705,701 $ -- $ -- $1,277,470
Solution 6 Holdings
Limited 1,569,845 $ -- -- 1,340,365
- --------------------------------------------------------------------------
TOTALS $ 3,275,546 $ -- $ -- $2,617,835
- --------------------------------------------------------------------------
</TABLE>
52 The Oakmark Familty of Funds
<PAGE>
The Oakmark Fund
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Period Ended Year Ended Period Ended
April 30, 1997 1996 1995 1994 1993 1992 Oct. 31, 1991(a)
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 $10.00
Income From Investment Operations:
Net Investment Income (Loss) 0.19 0.34 0.30 0.27 0.17 (0.03) (0.01)
Net Gains or Losses on Securities (both
realized and unrealized) 4.65 4.70 4.66 1.76 7.15 5.04 2.11
-------- -------- -------- -------- -------- ------ ------
Total From Investment Operations: 4.84 5.04 4.96 2.03 7.32 5.01 2.10
-------- -------- -------- -------- -------- ------ ------
Less Distributions:
Dividends (from net investment income) (0.34) (0.28) (0.23) (0.23) (0.04) -- --
Distributions (from capital gains) (1.87) (0.84) (1.47) (0.77) (0.21) -- --
-------- -------- -------- -------- -------- ------ ------
Total Distributions (2.21) (1.12) (1.70) (1.00) (0.25) -- --
Net Asset Value, End of Period $ 35.02 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $17.11 $12.10
======== ======== ======== ======== ======== ====== ======
Total Return 15.54% 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%(d)
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $4,895.0 $3,933.9 $2,827.1 $1,677.3 $1,107.0 $114.7 $4.8
Ratio of Expenses to Average Net Assets (d) 1.10% 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)
Ratio of Net Income (Loss) to Average
Net Assets (d) 1.15% 1.13% 1.27% 1.19% 0.94% (0.24%) (0.66%)(c)
Portfolio Turnover Rate 14.4% 23.7% 18.0% 29.3% 18.0% 34.0% 0.0%
Average Commission Rate Paid $ 0.0524 $ 0.0530
</TABLE>
- -----------------------------------------------------------
(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) Data has been annualized.
THE OAKMARK FAMILY OF FUNDS 53
<PAGE>
The Oakmark Select Fund
Financial Highlights
<TABLE>
<CAPTION>
For a share outstanding throughout the period
Period Ended
April 30, 1997
- -----------------------------------------------------------------
(Unaudited)
<S> <C>
Net Asset Value, Beginning of Period $10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.01)
Net Gains or Losses on Securities (both
realized and unrealized) 2.26
------
Total From Investment Operations: 2.25
------
Less Distributions:
Dividends (from net investments income) 0.00
Distributions (from capital gains) 0.00
------
Total Distributions 0.00
Net Asset Value, End of Period $12.25
======
Total Return 22.50%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $197.60
Ratio of Expenses to Average net Assets (a) 1.22%
Ratio of Net Income (Loss) to Average Net Assets (a) -0.33%
Portfolio Turnover Rate 42.62%
Average Commission Rate Paid $0.0567
</TABLE>
- --------------------------------
(a) Ratios have been annualized.
54 THE OAKMARK FAMILY OF FUNDS
<PAGE>
The Oakmark Small Cap Fund
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Period Ended Year Ended
April 30, 1997 Oct. 31, 1996
------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning $ 13.19 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.00) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) 1.98 3.21
------- -------
Total From Investment Operations: 1.98 3.19
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 $ 15.17 $ 13.19
======= =======
Total Return 15.01% 31.94%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 622.8 $ 218.4
Ratio of Expenses to Average Net
Assets (a) 1.45% 1.61%
Ratio of Net Income (Loss) to Average
Net Assets (a) (.25%) (.29%)
Portfolio Turnover Rate 25.06% 23.15%
Average Commission Rate Paid $0.0480 $0.0520
</TABLE>
- ----------------
(a) Ratios have been annualized.
The Oakmark Family of Funds 55
<PAGE>
The Oakmark Balanced Fund
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Period Ended Year Ended
April 30, 1997 Oct. 31, 1996
-------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period $ 11.29 $ 10.00
Income From Investment Operations:
Net Investment Income 0.15 0.10
Net Gains or Losses on Securities (both
realized and unrealized) 0.97 1.19
------- -------
Total From Investment Operations: 1.12 1.29
Less Distributions:
Dividends (from net investment income) (0.12) 0.00
Distributions (from capital gains) (0.13) 0.00
------- -------
Total Distributions (0.25) 0.00
Net Asset Value, End of Period $ 12.16 $ 11.29
======= =======
Total Return 10.09% 12.91%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 20.16 $ 13.8
Ratio of Expenses to Average Net
Assets (a) 1.50% 2.50%
Ratio of Net Income to Average Net
Assets (a) 2.91% 1.21%
Portfolio Turnover Rate 51.21% 66.35%
Average Commission Rate Paid $0.0589 $0.0581
</TABLE>
- ----------------
(a) If the fund paid all of its expenses and there had been no expense
reimbursement by the investment adviser, for the period ended April 30,
1997 and the year ended October 31, 1996, the ratios of expenses to average
net assets would have been 1.89% and 2.64% respectively, and the ratios of
net income to average net assets would have been 2.52% and 1.08%
respectively.
56 The Oakmark Family of Funds
<PAGE>
The Oakmark International Fund
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Year Ended October 31,
Period Ended --------------------------------------------------------------
April 30, 1997 1996 1995 1994 1993 1992(a)
- ---------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00
Income From Investment Operations:
Net Investment Income 0.11 0.09 0.30 0.21 0.06 0.26
Net Gains or Losses on Securities
(both realized and unrealized) 2.18 2.90 (0.77) 0.43 4.48 (0.46)
-------- -------- ------- -------- -------- --------
Total From Investment Operations: 2.29 2.99 (0.47) 0.64 4.54 (0.2)
Less Distributions:
Dividends (from net investment income) (0.16) 0.00 0.00 (.08) (.25) --
Distributions (from capital gains) 0.00 (1.04) (1.06) (0.15) -- --
-------- -------- ------- -------- -------- --------
Total Distributions (0.16) (1.04) (1.06) (0.23) (.25) --
-------- -------- ------- -------- -------- --------
Net Asset Value, End of Period $ 17.05 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80
======== ======== ======= ======== ======== ========
Total Return 15.51% 24.90% (3.06%) 4.62% 47.49% (22.81%)
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $1,488.5 $1,172.8 $819.7 $1,286.0 $ 815.4 $ 23.5
Ratio of Expenses to Average Net Assets (b) 1.25% 1.32% 1.40% 1.37% 1.26% 2.04
Ratio of Net Income to Average Net Assets (b) 1.99% 1.45% 1.40% 1.44% 1.55% 37.02%
Portfolio Turnover Rate 31% 42% 26% 55% 21% 0
Average Commission Rate Paid $ 0.0031 $ 0.0158
- ----------------------------------------------------------------------------------------------------------------------------------
(a) From September 30, 1992, the date on which Fund shares were first offered
for sale to the public.
(b) Ratios have been annualized.
The Oakmark Family of Funds 57
</TABLE>
<PAGE>
The Oakmark Int'l Small Cap Fund
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Period Ended Year Ended
April 30, 1997 Oct. 31, 1996
- ------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Net Asset Value, Beginning of Period $ 11.41 $ 10.00
Income From Investment Operations:
Net Investment Income 0.03 0.04
Net Gains or Losses on Securities (both
realized and unrealized) 0.70 1.37
------- -------
Total From Investment Operations: 0.73 1.41
Less Distributions:
Dividends (from net investment income) (0.08) 0.00
Distributions (from capital gains) (0.36) 0.00
------- -------
Total Distributions (0.44) 0.00
Net Asset Value, End of Period $ 11.70 $ 11.41
======= =======
Total Return 6.51% 14.15%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 56.56 $ 39.8
Ratio of Expenses to Average Net Assets 1.96% 2.50% (a)
Ratio of Net Income to Average Net Assets 0.48% 0.65% (a)
Portfolio Turnover Rate 33.70% 27.44%
Average Commission Rate Paid $0.0039 $0.0036
- ---------------------------------------------
</TABLE>
(a) If the fund paid all of its expenses and there had been no expense
reimbursement by the investment adviser, for the year ended October 31,
1996, the ratio of expenses to average net assets would have been 2.65% and
the ratio of net income to average net assets would have been .50%.
58 The Oakmark Family of Funds
<PAGE>
[Logo of Oakmark Family of Funds]
The Oakmark Family of Funds 59
<PAGE>
[Logo of Oakmark Family of Funds]
60 The Oakmark Family of Funds
<PAGE>
The Oakmark Family Of Funds
Trustees and Officers
Trustees
Michael J. Friduss
Thomas H. Hayden
Christine M. Maki
Victor A. Morgenstern
Allan J. Reich
Marv Rotter
Burton W. Ruder
Peter S. Voss
Gary Wilner, M.D.
Officers
Victor A. Morgenstern--President
Robert J. Sanborn--Executive Vice President
David G. Herro--Vice President
Clyde S. McGregor--Vice President
William C. Nygren--Vice President
Steven J. Reid--Vice President
Michael J. Welsh--Assistant Vice President
Donald Terao--Treasurer
Anita M. Nagler--Secretary
Ann W. Regan--Vice President--
Shareholder Operations and Assistant Secretary
Kristi L. Rowsell--Assistant Treasurer
Other Information
Transfer Agent
State Street Bank and Trust Company
Attention: The Oakmark Family of Funds
P.O. Box 8510
Boston, Massachusetts 02266-8510
Investment Adviser
Harris Associates L.P.
Legal Counsel
Bell, Boyd & Lloyd
Chicago, Illinois
Independent Public Accountants
Arthur Andersen LLP
Chicago, Illinois
Address of Funds and Adviser
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
1-800-OAKMARK (1-800-625-6275)
24-hour NAV hotline
1-800-GROWOAK (1-800-476-9625)
Web site
www.oakmark.com
This report, including the unaudited 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 of Oakmark Family of Funds]
HARRIS ASSOCIATES L.P.
2 NORTH LASALLE STREET
CHICAGO, IL 60602-3790
