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Andrew T. Gillies is Director of Communications at the Center for Audit Quality, an affiliate of the American Institute of CPAs, in Washington, DC. Based in Washington since 2002, he has also worked in editorial and communications roles at the Investment Company Institute, the World Bank, Forbes, and Vault.com. His policy-themed writing has focused on aerospace and defense, energy and environment, transportation, and financial services.

Monday, July 22, 2002

Wish Upon a Star

Oakmark Funds, a chicago-based unit of Harris Associates that oversees $15 billion in assets, calls value investing its cornerstone. With the Nasdaq down 70% from its March 2000 high, the technology sector has drawn Oakmark's attention. On its shopping list: Israeli stocks carried on U.S. exchanges.

Why look for a stock pick from a place like the Middle East? Robert Taylor, an investment analyst with Oakmark's $1.5 billion (assets) International Fund, points to as good a reason as any: low taxes. Under Israel's "approved enterprise" program, Israeli firms spending certain amounts of money locally on research and capital expenditures get their tax bill chopped by up to two-thirds.

Its favorable tax environment helps explain why Israel, a country with a population of just 6.4 million, attracted more venture funding ($3.3 billion) last year than Italy ($2.7 billion), Korea ($1.6 billion)and Taiwan ($1.1 billion), according to PricewaterhouseCoopers.

The tax rate of Check Point Software Technologies, a maker of encryption software for computer networks, is just one example. In its latest fiscal year, ended last December, Check Point's effective tax rate was 15.6%, up slightly from 14.4% in 2000, but still well under the standard Israeli tax rate of 36%.

Christopher D. Alderson, head of emerging-market equities with T. Rowe Price, likes Check Point's 95% gross margins and $500 million in cash and equivalents. "That's pretty extraordinary for a company that's only been going seven years," he says.

Full story (reg. required) at Forbes.com