1. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
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 Pricing Committee appointed by the Board of Trustees.
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 March 31, 1999, only the International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:
|
|
International |
Int'l Small Cap |
|
Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable |
$(777,048) |
$343 |
|
Unrealized appreciation (depreciation) on open securities purchases and sales |
51,704 |
(5,558) |
|
Unrealized appreciation (depreciation) on transaction hedge purchases and sales |
(36,832) |
5,373 |
|
Unrealized appreciation (depreciation) on tax expense payable |
112,281 |
(77) |
|
Net Unrealized Appreciation (Depreciation) - Other |
$(649,895) |
$81 |
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.
At March 31, 1999, International and Int'l Small Cap had entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions.
The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movements in currency values.
The International Fund had the following outstanding contracts at March 31, 1999:
|
US Dollars Proceeds |
Foreign Currency Sold |
Settlement Date |
Unrealized |
|
$31,080,000 |
18,500,000 Pound Sterling |
April 1999 |
$1,219,666 |
|
8,073,500 |
5,000,000 Pound Sterling |
April 1999 |
364,500 |
|
37,444,500 |
22,500,000 Pound Sterling |
May 1999 |
1,130,046 |
|
29,682,000 |
18,000,000 Pound Sterling |
May 1999 |
631,702 |
|
18,883,917 |
2,236,800,000 Japanese Yen |
April 1999 |
2,164,356 |
|
25,000,000 |
2,760,500,000 Japanese Yen |
July 1999 |
1,386,672 |
|
20,000,000 |
2,174,400,000 Japanese Yen |
July 1999 |
1,397,649 |
|
|
|
|
$8,294,591 |
|
US Dollars Sold |
Foreign Currency Purchased |
Settlement Date |
Unrealized |
|
$351,681 |
326,568 Euro Currency |
April 1999 |
$1,420 |
|
20,760 |
19,278 Euro Currency |
April 1999 |
84 |
|
619,303 |
577,546 Euro Currency |
April 1999 |
5,169 |
|
275,322 |
169,680 Pound Sterling |
April 1999 |
(1,374) |
|
993,543 |
612,315 Pound Sterling |
April 1999 |
(4,960) |
|
2,189,018 |
1,349,413 Pound Sterling |
April 1999 |
(10,391) |
|
696,023 |
5,797,872 Swedish Krona |
April 1999 |
9,915 |
|
|
|
|
$(137) |
|
US Dollars Purchased |
Foreign Currency Sold |
Settlement Date |
Unrealized |
|
$109,392 |
101,694 Euro Currency |
April 1999 |
$(564) |
|
2,011,239 |
1,239,516 Pound Sterling |
April 1999 |
10,041 |
|
216,778 |
133,632 Pound Sterling |
April 1999 |
1,030 |
|
954,782 |
591,614 Pound Sterling |
April 1999 |
(378) |
|
119,589 |
74,101 Pound Sterling |
April 1999 |
(47) |
|
167,354 |
103,792 Pound Sterling |
April 1999 |
(218) |
|
1,170,244 |
726,544 Pound Sterling |
April 1999 |
(2,761) |
|
117,742 |
73,100 Pound Sterling |
April 1999 |
(278) |
|
117,742 |
73,100 Pound Sterling |
April 1999 |
(278) |
|
1,170,244 |
726,544 Pound Sterling |
April 1999 |
(2,761) |
|
2,714,650 |
325,988,720 Japanese Yen |
April 1999 |
(38,285) |
|
974,438 |
115,441,653 Japanese Yen |
April 1999 |
(453) |
|
1,114,624 |
1,927,408 Singapore Dollar |
April 1999 |
(1,743) |
|
|
|
|
$(36,695) |
The Int'l Small Cap Fund had the following outstanding contracts at March 31, 1999:
|
US Dollars Proceeds |
Foreign Currency Purchased |
Settlement Date |
Unrealized |
|
$1,250,000 |
1,728,125 Brazilian Real |
April 1999 |
$261,935 |
|
7,389,000 |
4,500,000 Pound Sterling |
May 1999 |
126,203 |
|
2,500,000 |
281,487,500 Japanese Yen |
June 1999 |
98,592 |
|
1,500,000 |
165,630,000 Japanese Yen |
July 1999 |
83,200 |
|
2,000,000 |
217,440,000 Japanese Yen |
July 1999 |
139,765 |
|
3,157,241 |
335,520,000 Japanese Yen |
July 1999 |
284,473 |
|
|
|
|
$994,168 |
|
US Dollars Sold |
Foreign Currency Purchased |
Settlement Date |
Unrealized |
|
$494,211 |
747,000 Canadian Dollar |
April 1999 |
$655 |
|
85,677 |
79,692 Euro Currency |
April 1999 |
490 |
|
25,883 |
24,034 Euro Currency |
April 1999 |
105 |
|
486,871 |
453,030 Euro Currency |
April 1999 |
2,967 |
|
18,040 |
16,817 Euro Currency |
April 1999 |
144 |
|
10,894 |
10,090 Euro Currency |
April 1999 |
16 |
|
751,135 |
694,530 Euro Currency |
April 1999 |
(174) |
|
47,148 |
43,666 Euro Currency |
April 1999 |
65 |
|
293,189 |
272,271 Euro Currency |
April 1999 |
1,203 |
|
565,496 |
523,075 Euro Currency |
April 1999 |
78 |
|
235,232 |
145,008 Pound Sterling |
April 1999 |
(1,117) |
|
176,332 |
109,261 Pound Sterling |
April 1999 |
70 |
|
176,172 |
109,261 Pound Sterling |
April 1999 |
229 |
|
288,312 |
178,743 Pound Sterling |
April 1999 |
268 |
|
176,456 |
109,261 Pound Sterling |
April 1999 |
(55) |
|
294,862 |
183,065 Pound Sterling |
April 1999 |
696 |
|
5,844 |
45,287 Hong Kong Dollar |
April 1999 |
(1) |
|
54,618 |
423,233 Hong Kong Dollar |
April 1999 |
(3) |
|
10,400 |
80,591 Hong Kong Dollar |
April 1999 |
(1) |
|
1,652 |
63,861 Philippine Peso |
April 1999 |
(4) |
|
8,581 |
331,228 Philippine Peso |
April 1999 |
(33) |
|
358,443 |
618,673 Singapore Dollar |
April 1999 |
(104) |
|
|
|
|
$5,494 |
|
US Dollars Purchased |
Foreign Currency Sold |
Settlement Date |
Unrealized |
|
$260,927 |
30,912,052 Japanese Yen |
April 1999 |
$(121) |
At March 31, 1999, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts.
Each Fund except The Oakmark Fund may lend portfolio securities to broker-dealers and banks. As of December 31, 1998, the Funds are not participating in a securities lending program and any securities previously loaned to borrowers have been returned.
No provision is made for Federal income taxes since the Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law.
The Funds have two unsecured lines of credit with a syndication of banks. One line of credit is a committed line of $350 million and the other is an uncommitted line of $250 million. Borrowings under this arrangement bear interest at .50% above the Federal Funds Effective Rate. As of March 31, 1999, there were no outstanding borrowings.
2. TRANSACTIONS WITH AFFILIATES
Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets and .85% on the next $5 billion of net assets and .80% on the excess of $10 billion of net assets. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets and .90% on the excess of $5 billion of net assets. Select pays 1% on the first $1 billion and .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million, .80% on the next $2.5 million of net assets and .75% on the excess of $5 billion of net assets. Small Cap pays 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1% on the excess of $2.5 billion. Equity and Income pays .75% of net assets and Int'l Small Cap pays 1.25% of net assets. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% for domestic funds and 2.0% for international funds.
In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International, approximately $7,283 each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to Select by the Adviser. These expenses are being amortized on a straight line basis through October, 2000 for Small Cap, Equity and Income and Int'l Small Cap, and October, 2001 for Select. Oakmark and International have fully amortized all organization expenses.
During the six months ended March 31, 1999, the Funds incurred brokerage commissions of $2,188,897, $1,524,368, $1,507,906, $46,533, $1,383,915 and $172,048 of which $1,151,089, $552,563, $125,452, $24,154, $0 and $0 were paid by Oakmark, Select, Small Cap, Equity and Income, International and Int'l Small Cap, respectively, to an affiliate of the Adviser.
The Funds' Trustees may participate in a Deferred Compensation Plan which may be terminated at any time. The obligations of the Plan are paid solely out of the assets of the Funds.
3. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following number of shares (in thousands):
|
Six Months Ended March 31, 1999 |
||||||
|
Oakmark |
Select |
Small Cap |
Equity & Income |
International |
Int'l Small Cap |
|
|
Shares sold |
14,515 |
17,430 |
12,530 |
948 |
9,040 |
5,375 |
|
Shares issued in reinvestment of dividends |
10,299 |
2,852 |
298 |
112 |
6,003 |
178 |
|
Less shares redeemed |
(70,366) |
(18,773) |
(25,722) |
(1,182) |
(28,794) |
(3,639) |
|
Net increase (decrease) in shares outstanding |
(45,552) |
1,509 |
12,894 |
122 |
(13,751) |
1,914 |
|
Year Ended September 30, 1998 |
||||||
|
Oakmark |
Select |
Small Cap |
Equity & Income |
International |
Int'l Small Cap |
|
|
Shares sold |
68,340 |
81,093 |
22,121 |
3,014 |
34,513 |
8,604 |
|
Shares issued in reinvestment of dividends |
30,513 |
410 |
9,667 |
149 |
20,108 |
786 |
|
Less shares redeemed |
(52,910) |
(39,717) |
(57,261) |
(1,344) |
(69,820) |
(7,284) |
|
Net increase (decrease) in shares outstanding |
45,943 |
41,786 |
(25,473) |
1,819 |
15,199 |
2,106 |
4. INVESTMENT TRANSACTIONS
Transactions in investment securities (excluding short term securities) were as follows (in thousands):
|
|
Oakmark |
Select |
Small |
Equity & |
International |
Int'l Small |
|
Purchases |
$597,681 |
$767,113 |
$243,319 |
$18,455 |
$125,192 |
$30,213 |
|
Proceeds from sales |
2,018,060 |
$725,705 |
$391,058 |
$18,242 |
$325,130 |
$18,502 |
5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the six months ended March 31, 1999 is set forth below:
|
Affiliates |
Purchases |
Sales |
Dividend |
Market |
|
AC Nielsen Corporation |
— |
— |
— |
$129,223,500 |
|
Brunswick Corporation |
— |
— |
$1,820,200 |
138,790,250 |
|
Eaton Corporation |
$95,898,237 |
— |
187,976 |
298,841,400 |
|
GC Companies, Inc. |
— |
— |
— |
12,480,688 |
|
H & R Block, Inc. |
— |
$42,048,416 |
3,695,325 |
320,515,562 |
|
Juno Lighting, Inc. |
— |
— |
217,000 |
24,344,688 |
|
Knight Ridder, Inc. |
13,380,889 |
47,492,369 |
2,840,700 |
313,305,000 |
|
Polaroid Corporation |
— |
421,331 |
1,361,970 |
90,830,963 |
|
R. H. Donnelley Corporation |
— |
423,736 |
367,196 |
32,005,951 |
|
The Black & Decker Corporation |
— |
79,705,558 |
1,860,840 |
379,192,500 |
|
The Dun & Bradstreet Corporation |
— |
36,083,438 |
3,828,409 |
335,202,750 |
|
Totals |
109,279,126 |
206,174,848 |
16,179,616 |
2,074,733,252 |
|
Affiliates |
Purchases |
Sales |
Dividend |
Market |
|
USG Corporation |
$45,557,754 |
$13,554,188 |
$541,720 |
$172,948,800 |
|
US Industries Inc. |
22,691,449 |
2,682,483 |
788,770 |
140,770,750 |
|
Totals |
68,249,203 |
16,236,671 |
1,330,490 |
313,719,550 |
|
Affiliates |
Purchases |
Sales |
Dividend |
Market |
|
Ascent Entertainment Group, Inc. |
— |
— |
— |
$16,406,250 |
|
Barry (R.G.) Corporation |
$683,865 |
— |
— |
7,875,000 |
|
Binks Sames Corporation |
— |
— |
— |
4,625,000 |
|
Columbus McKinnon Corporation |
1,112,813 |
$5,257,106 |
$116,725 |
14,087,500 |
|
Duff & Phelps Credit Rating Co. |
— |
— |
21,000 |
18,331,250 |
|
Finger Lakes Financial Corp. |
— |
— |
22,560 |
2,138,500 |
|
Northwest Pipe Company |
— |
1,677,942 |
— |
6,600,000 |
|
Ugly Duckling Corporation |
366,408 |
— |
— |
9,679,687 |
|
Totals |
2,163,086 |
6,935,048 |
160,285 |
79,743,187 |
|
Affiliates |
Purchases |
Sales |
Dividend |
Market |
|
Banco Latinoamericano de Exportaciones, S.A. Class E |
$3,380,362 |
$6,440,554 |
$1,380,960 |
$32,112,600 |
|
Chargeurs SA |
3,107,014 |
1,481,640 |
388,650 |
29,827,225 |
|
Cordiant Communications Group plc |
— |
10,160,631 |
— |
46,017,088 |
|
Dongah Tire Industry Company |
— |
— |
140,181 |
5,841,156 |
|
European Vinyls Corporation International NV |
— |
1,883,143 |
— |
6,927,060 |
|
Fernz Corporation Limited |
— |
14,034,949 |
458,024 |
26,607,215 |
|
Fila Holding S.p.A. |
691,130 |
— |
— |
21,860,850 |
|
Giordano International Limited |
— |
— |
— |
21,463,269 |
|
Keumkang Ltd. |
— |
1,555,011 |
307,101 |
13,255,868 |
|
Lotte Chilsung Beverage Company |
— |
— |
36,291 |
5,212,714 |
|
Tae Young Corporation |
— |
4,233,806 |
2,624,590 |
12,530,670 |
|
Usinas Siderugicas de Minas Gerais S.A., Preferred Class A |
— |
— |
— |
11,064,586 |
|
Totals |
7,178,506 |
39,789,734 |
5,335,797 |
232,720,301 |
|
Affiliates |
Purchases |
Sales |
Dividend |
Market |
|
Designer Textiles (NZ) Limited |
— |
— |
$18,615 |
$490,778 |
|
Matichon Public Company Limited, Foreign Shares |
— |
— |
— |
2,402,378 |
|
Parbury Limited |
$255,279 |
— |
131,268 |
2,222,642 |
|
Royal Doulton plc |
2,589,134 |
— |
205,506 |
4,461,831 |
|
Solution 6 Holdings Limited |
— |
$1,672,006 |
— |
4,584,707 |
|
Solution 6 Holdings Limited Rights |
0 |
0 |
0 |
421,044 |
|
Yip's Hang Cheung Ltd. |
281,712 |
— |
73,565 |
1,544,714 |
|
Totals |
3,126,125 |
1,672,006 |
428,954 |
16,128,094 |