<PAGE>
SEMI-ANNUAL REPORT
MARCH 31, 1998 THE OAKMARK [BOX]
FUND
THE OAKMARK [BOX]
SELECT FUND
THE OAKMARK [BOX]
SMALL CAP FUND
THE OAKMARK [BOX]
EQUITY AND
INCOME FUND
THE OAKMARK [BOX]
INTERNATIONAL
FUND
[LOGO] THE OAKMARK [BOX]
INTERNATIONAL
MANAGED BY SMALL CAP FUND
HARRIS
ASSOCIATES L.P.
[GRAPHIC]
OAKMARK
<PAGE>
THE OAKMARK FAMILY OF FUNDS
1998 SEMI-ANNUAL REPORT
........................................................................
<TABLE>
<S> <C>
LETTER FROM THE CHAIRMAN AND PRESIDENT...................... 1
THE OAKMARK FAMILY OF FUNDS SUMMARY......................... 2
THE OAKMARK FUND
Letter from the Portfolio Manager......................... 4
Schedule of Investments................................... 7
THE OAKMARK SELECT FUND
Letter from the Portfolio Manager......................... 10
Schedule of Investments................................... 12
THE OAKMARK SMALL CAP FUND
Letter from the Portfolio Manager......................... 14
Schedule of Investments................................... 16
THE OAKMARK EQUITY AND INCOME FUND
Letter from the Portfolio Manager......................... 19
Schedule of Investments................................... 21
THE OAKMARK INTERNATIONAL FUND
Letter from the Portfolio Manager......................... 25
International Diversification Chart....................... 27
Schedule of Investments................................... 28
THE OAKMARK INT'L SMALL CAP FUND
Letter from the Portfolio Manager......................... 33
International Diversification Chart....................... 35
Schedule of Investments................................... 36
FINANCIAL STATEMENTS
Statement of Assets and Liabilities....................... 40
Statement of Operations................................... 42
Statement of Changes in Net Assets........................ 44
Notes to Financial Statements............................. 50
TRUSTEES AND OFFICERS....................................... 63
</TABLE>
FOR MORE INFORMATION
Access our web site at www.oakmark.com to obtain a prospectus, an application
or periodic reports, or call 1-800-OAKMARK (1-800-625-6275).
WEB SITE AND 24-HOUR NET ASSET VALUE HOTLINE
Access our web site at www.oakmark.com to obtain the current net asset value of
a fund, or call 1-800-GROWOAK (1-800-476-9625).
<PAGE>
LETTER FROM THE CHAIRMAN AND PRESIDENT...
........................................................................
FELLOW SHAREHOLDERS:
WE ARE PLEASED TO PRESENT THE SEMI-ANNUAL REPORT FOR THE OAKMARK FAMILY
OF FUNDS. WITH ALL OF OUR FUNDS INCREASING IN VALUE, OUR LONG-TERM GOAL OF
PROVIDING ATTRACTIVE RETURNS CONTINUES TO BE ACHIEVED. MORE IMPORTANT, WE
REMAIN CONVINCED THAT OUR FUNDS SINGULARLY AND COLLECTIVELY CONTINUE TO BE
WELL-POSITIONED TO HELP OUR SHAREHOLDERS MEET THEIR FINANCIAL GOALS.
[PHOTO]
AS INVESTORS, WE FEEL STRONGLY THAT OUR SHAREHOLDERS WILL BE BEST SERVED BY
LONG-TERM COMMITMENTS TO OUR FUNDS. WE BELIEVE THAT THE KEYS TO MAINTAINING
YOUR TRUST AND INVESTMENT IN OUR FUNDS ARE: INVESTMENT PHILOSOPHY, ATTRACTIVE
LONG-TERM RETURNS AND INVESTOR SERVICE. THROUGH THE YEARS, WE ARE CONFIDENT
THAT OUR SHAREHOLDERS HAVE BENEFITED FROM OUR DISCIPLINED INVESTMENT
PHILOSOPHY AND THE RETURNS THAT HAVE BEEN GENERATED. IN THE INVESTOR SERVICE
AREA, WHILE OUR SHAREHOLDERS SEEM TO BE PLEASED, WE THINK IT IS A GOOD IDEA
TO EXPLORE SOME POTENTIAL CHANGES.
OUR FOCUS ON THIS AREA IS NOT NEW. IN THE LAST YEAR WE HAVE STRENGTHENED
OUR WEBSITE, ENHANCED OUR AUTOMATED PHONE SYSTEM AND STREAMLINED OUR
MAILINGS. INCLUDED IN THIS PACKAGE ARE TWO ITEMS WHICH MAY BE OF INTEREST TO
YOU. FIRST, WE ARE INTRODUCING "PAYROLL DEDUCTION" WHICH ENABLES YOU TO
INVEST IN THE OAKMARK FUNDS DIRECTLY THROUGH YOUR EMPLOYER. THIS OPTION
ALLOWS YOU TO DEDUCT YOUR INVESTMENT DIRECTLY FROM YOUR PAYCHECK. A PAYROLL
DEDUCTION FORM IS ENCLOSED. THE SECOND ITEM ENCLOSED IS A BROCHURE FOR OUR
NEWLY-NAMED AUTOMATED PHONE SYSTEM, "OAK LINK." THIS BROCHURE PROVIDES
SHORTCUTS THROUGH THE SYSTEM FOR FASTER, MORE EFFICIENT SERVICE.
OUR PROGRESS HAS BEEN NOTEWORTHY, BUT WE ARE NOT DONE. TO THIS END, OVER
THE NEXT SEVERAL MONTHS WE WILL BE ASKING A NUMBER OF YOU FOR SUGGESTIONS
ABOUT BROADENING OUR SERVICE. WE INTEND TO FOCUS ON REPORTING PRACTICES AND
INFORMATION FLOWS BUT WE WILL BE OPEN TO OTHER IDEAS. WE HAVE A STRONG
SERVICE ORIENTATION AND WHEN THE PROJECT IS COMPLETED, IT WILL BE EVEN BETTER.
AS ALWAYS, WE REMAIN COMMITTED TO HELPING YOU MEET YOUR LONG-TERM GOALS.
THANKS FOR YOUR SUPPORT AND CONFIDENCE IN US.
VERY TRULY YOURS,
/s/ Victor Morgenstern
VICTOR MORGENSTERN
CHAIRMAN
/s/ Robert M. Levy
ROBERT M. LEVY
PRESIDENT
1
<PAGE>
THE OAKMARK FAMILY OF FUNDS
SUMMARY INFORMATION
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK
PERFORMANCE FOR PERIOD ENDED FUND SELECT
MARCH 31, 1998 FUND
<S> <C> <C>
- ----------------------------------------------------------------------------------------
3 MONTHS 10.0% 13.4%
........................................................................................
6 MONTHS 14.4% 22.9%
........................................................................................
1 YEAR 40.2% 65.4%
........................................................................................
AVERAGE ANNUAL TOTAL RETURN
FOR:
3 YEAR 27.7% N/A
........................................................................................
5 YEAR 23.2% N/A
........................................................................................
SINCE INCEPTION 30.7% 63.7%
VALUE OF $10,000 $59,517 $20,078
FROM INCEPTION DATE (8/5/91) (11/1/96)
- ----------------------------------------------------------------------------------------
TOP FIVE HOLDINGS Phillip Morris U.S. Industries,
AS OF MARCH 31, 1998 Companies, Inc. 6.7% Inc. 12.6%
Banc One Cablevision Systems
Corporation 6.5% Corporation 9.8%
COMPANY AND % OF TOTAL NET Mattel, Inc. 5.6% USG Corporation 9.3%
ASSETS Nike, Inc. 5.4% Tele-Communications
The Black & Decker Liberty Media, Class
Corporation 4.9% A 8.8%
PartnerRe Ltd. 7.8%
- ----------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Food & Beverage 16.9% Diversified
AS OF MARCH 31, 1998 Other Consumer Goods & Conglomerates 12.6%
Services 16.1% Building Materials &
Banks 9.7% Construction 11.6%
INDUSTRIES AND % OF TOTAL NET Publishing 8.1% Broadcasting & Cable
ASSETS Other Financial 8.1% TV 9.8%
Other Consumer Goods &
Services 9.0%
TV Programming 8.8%
</TABLE>
2 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
.................................................................................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL
FUND INCOME FUND FUND SMALL CAP FUND
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
3 MONTHS 7.1% 8.7% 14.4% 18.5%
..................................................................................................................................
6 MONTHS 6.8% 9.6% -1.2% -9.8%
..................................................................................................................................
1 YEAR 42.8% 33.6% 9.7% -5.4%
..................................................................................................................................
AVERAGE ANNUAL TOTAL RETURN
FOR:
3 YEAR N/A N/A 19.2% N/A
..................................................................................................................................
5 YEAR N/A N/A 14.1% N/A
..................................................................................................................................
SINCE INCEPTION 37.9% 22.2% 16.3% 5.7%
VALUE OF $10,000 $21,732 $16,233 $22,994 $11,429
FROM INCEPTION DATE (11/1/95) (11/1/95) (9/30/92) (11/1/95)
- ----------------------------------------------------------------------------------------------------------------------------------
TOP FIVE HOLDINGS People's Bank of U.S. Industries, Tomkins plc 5.5% Elevadores Atlas,
AS OF MARCH 31, 1998 Bridgeport, CT 8.0% Inc. 4.7% Sedgwick Group SA 4.7%
Cablevision Systems Catellus Development plc 4.4% JCG Holdings Ltd. 4.4%
Corporation 7.7% Corporation 4.6% Quilmes Lambert Fenchurch
COMPANY AND % OF TOTAL NET U.S. Industries, Chrysler Industrial SA 4.1% Group plc 4.4%
ASSETS Inc. 7.4% Corporation 4.4% USIMINAS 4.0% Cewe Color
RenaissanceRe Holdings Electronic Data Lion Nathan Holdings AG 4.3%
Ltd 5.3% Systems Corp. 3.4% Limited 3.9% Cordiant
Catellus Development Tele-Communications, Communications
Corporation 5.2% Liberty Media Group plc 4.3%
Class A 3.4%
- ----------------------------------------------------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Other Industrial Goods U.S. Government Food & Beverage 18.4% Other Industrial Goods
AS OF MARCH 31, 1998 & Services 15.0% Bonds 25.1% Other Industrial Goods & Services 10.7%
Insurance 12.7% Banks 9.3% & Services 10.3% Other Financial 10.4%
Banks 10.6% Automotive 7.7% Banks 7.7% Other Consumer
INDUSTRIES AND % OF TOTAL NET Broadcasting & Cable Insurance 5.7% Marketing Goods & Services 8.0%
ASSETS TV 9.8% Publishing 5.0% Services 7.0% Marketing Services 7.4%
Other Consumer Goods & Consumer Food & Beverage 7.1%
Services 9.6% Non-Durables 5.5%
</TABLE>
THE OAKMARK FAMILY OF FUNDS 3
<PAGE>
THE OAKMARK FUND
REPORT FROM ROBERT J. SANBORN, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION
(8/5/91) TO PRESENT (3/31/98)
AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK
FUND S & P 500
----------- ---------
<S> <C> <C>
8/91 $10,000 $10,000
10/91 $12,100 $10,202
1/92 $13,910 $10,707
4/92 $14,660 $10,947
7/92 $15,910 $11,279
10/92 $17,110 $11,217
1/93 $19,913 $11,836
4/93 $20,136 $11,957
7/93 $22,052 $12,260
10/93 $24,504 $12,896
1/94 $25,648 $13,357
4/94 $24,855 $12,590
7/94 $25,321 $12,890
10/94 $26,653 $13,384
1/95 $26,480 $13,433
4/95 $28,846 $14,781
7/95 $30,883 $16,248
10/95 $32,397 $16,916
1/96 $36,091 $18,608
4/96 $36,823 $19,242
7/96 $35,559 $18,934
10/96 $38,252 $20,988
1/97 $43,112 $23,510
4/97 $44,197 $24,073
7/97 $51,606 $28,797
9/97 $52,009 $28,668
12/97 $54,132 $29,494
3/98 $59,517 $33,663
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN*
THROUGH 3/31/98
TOTAL RETURN FROM FUND INCEPTION
3/31/98 NAV $44.43 LAST 3 MOS. 8/5/91
<S> <C> <C>
- ------------------------------------------------------------------
THE OAKMARK FUND 10.0% 30.7%
Standard & Poor's 500 Stock
Index w/inc** 14.0% 20.0%
Dow Jones Industrial Average
w/ inc** 11.7% 20.4%
Value Line Composite Index** 10.0% 11.5%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks whose
composition is different from the Fund. The 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 results.
PORTFOLIO UPDATE
As we once again reach the mid-point of our fiscal year, it is my custom to
review the portfolio and assess how we are doing. The temptation is to copy last
year's semi-annual letter--that is how similar the environment is. On an
absolute basis, your Fund has returned 10%, a few points behind the returns of
the Standard & Poor's 500. While I (and you!) would love to "beat the market"
all the time--an impossible goal-- my attitude towards the year to date is the
same as that of movie mogul Samuel Goldwyn after viewing one of his studio's
releases: "I was very pleasantly disappointed."
These remain the most benign of times in which to own US stocks. During the last
six months, long-term interest rates continued their decline, from 6.5 percent
at the end of September to under 6.0 percent today. Even the Asian economic
crisis has a beneficial impact in dampening any inflationary pressures. As I
have written many times, the direction of inflation is the most important
determinant of the direction of the prices of financial assets. Earnings
continue strong, consumer confidence is at an all-time high, and so on. We're
going to the moon, Alice!
The continued appreciation of stock prices in the past year presents us with a
problem, however. Our cash level is at twelve percent, our typical holding is
closer to our sell target than our buy target, and we are having increasing
difficulty finding holdings that meet our criteria. Buyers of entire companies
apparently agree, as the dollar percentage of acquisitions done for stock (as
opposed to cash) doubled in 1997 over 1996. Corporate chieftains are more
comfortable trading one possibly over-valued stock for another.
Over the past six months, we have made some fairly substantial changes to our
portfolio. U.S. West Media Group attained our price target (90 percent of our
estimate of value) and we have sold it. We have trimmed our other cable
holdings, also. Our weighting in this industry has declined from 9.2 percent to
less than 2.0 percent over the past six
4 THE OAKMARK FUND
<PAGE>
.............................................................................
months. I should note that when we were last buying these holdings,
psychology towards the group was extremely negative--between re-regulation,
satellites, and other competitive threats, its future to Wall Street appeared
bleak. However, the consensus has done a complete turn and is now extremely
positive. While we are not overt contrarians--specifically selling the hot
stocks and buying the cold ones--we are closet contrarians, in that positive
psychology towards a stock tends to drive it towards our sell target and
negative psychology tends to drive a stock towards our buy target.
As an example of the latter, we have increased our investments in Lockheed
Martin and Boeing during the first half of the fiscal year, as short-term
problems pushed both stocks to attractive valuation levels. Also, I have made
large commitments to two franchise businesses, Mattel (now our third-largest
holding), and Nike (discussed in last quarter's letter, and our fourth-largest
position). While controversial to be sure, I regard both as very good
businesses, with strong managements, and at attractive prices for the long term
(buckle up for short-term turbulence, though!).
While it is enticing to extrapolate the last few years of huge returns, we need
to tell you that it is not possible to sustain them over the long term. With the
"easy money" available in stocks, many investors forget about the downside. As
value investors, we always focus on the downside. YOUR task is to review your
entire portfolio and to assess whether it meets your risk/return parameters.
Also, remind yourself that the money you have invested in equity investments
such as The Oakmark Fund should: 1) not be needed for at least five years, and
2) can decline by, say, 30 percent at any given time without its affecting your
lifestyle. It is far better to do this now than to do it when a decline does
occur.
MEDIA POTPOURRI
I have read many articles over the last few months that highlight how we at The
Oakmark Funds do things differently from so many of our competitors. Thus, I
will summarize a few--without using names so as to protect the innocent--and
give a brief response to each.
- - Many of you have read about the group of sweet, mature women from small-town
Illinois whose investment club seemingly generated huge, market-beating
returns. A shrewd marketing campaign made them into a veritable multi-media
industry. You, too, can beat the market using the ladies' tried-and-true
methods!! Well, a reporter verifying the group's claims discovered that the
actual annual returns of the ladies for the ten years ending 1993 was not 23.4
percent, but a market-trailing 9.1 percent. Once again, the lesson is: if it
SEEMS too good to be true, it probably is.
TO PUT IT INTO PERSPECTIVE, $100 INVESTED FOR THE TEN YEARS WOULD HAVE GENERATED
$239 FOR THE LADIES, $313 FOR THE DOW, AND $819 IF THE LADIES HAD ACTUALLY
EARNED WHAT THEY CLAIMED. AS AGENT 86 MAXWELL SMART USED TO SAY, "MISSED IT BY
THAAAAAAT MUCH."
- - An advertisement in the "New York Times" has the following headline: "X Fund
Managers Plan To Manage The Fund For At Least Five Years-- Would Invest Own
Money In Fund." In the news-article-style ad, one of the partners of X Fund's
management company states that reports that he and his partner are looking to
sell the company are true, and "...[I]n connection with any possible
transaction, as a measure of our confidence in the future prospects of the X
Fund, we would invest a significant amount of our own money in the Fund."
WHERE TO BEGIN? IN THIS AGE OF "PRESERVE WIGGLE ROOM," THE KEY WORD ABOVE IS
"WOULD." WOULD???? DOES THIS MEAN THAT THEY "WOULD NOT" INVEST IN THE FUND IF
THE COMPANY IS NOT SOLD AND "DO NOT" CURRENTLY? HERE AT THE OAKMARK FUNDS, WE
SEEK OUT OWNER-ORIENTED MANAGEMENTS WHO OWN THEIR OWN STOCK AND ARE MOTIVATED TO
GROW ITS VALUE. IN TURN, WE ASSUME OUR SHAREHOLDERS EXPECT THE SAME OF US. EVERY
FUND MANAGER OF THE OAKMARK FUNDS HAS A LARGE AMOUNT INVESTED IN HIS FUND, AND
FIRMWIDE OWNERSHIP OF OUR FUNDS IS VERY SUBSTANTIAL AND HAS BEEN FROM DAY ONE.
- - There was a "Wall Street Journal" article about a "onetime star manager" at a
fund company (whose parent is a holding of your Fund!). Apparently, the star's
recent performance has been weak and the fund company has, according to a
company spokesperson, "taken a number of steps to improve performance."
According to the spokesperson, these "steps" included selling some "riskier"
stocks and "shifting to stocks with better short-term performance."
THE PORTFOLIO MANAGERS OF THE OAKMARK FUNDS ARE NOT JUDGED ON SHORT-TERM
PERFORMANCE. WE ARE NOT REQUIRED TO BUY
THE OAKMARK FUND 5
<PAGE>
........................................................................
STOCKS WITH "BETTER NEAR-TERM PROSPECTS." WE ALL KNOW THAT STOCKS WITH THESE
PROSPECTS ARE GENERALLY PRICED TO REFLECT THESE POSITIVES. WHEN MARKETING
IMPERATIVES TRUMP THE INVESTING SIDE, THAT'S A SORRY DAY.
AND A LESSON IN RATIONAL EXPECTATIONS
Do you remember George Carlin's Hippy Dippy Weatherman? He would make the
earth-shattering prediction that, say, in Chicago, it would get warm in the
summer and then get cold in the winter. Well, duh.
I think of him when I get letters questioning our controversial holdings. Your
Fund has several holdings whose problems and challenges tend to earn mention in
newspapers and other general interest publications. The letters go like this:
"Why do we own Stock Y? Everyone knows Y is having a lot of problems right now.
Why don't you buy stocks with better prospects?"
Rational expectations refers to many economic or financial situations in which
the outcome depends significantly upon what people EXPECT to happen. As an
absurd example, take those TV ads for commodities that go like this: "As we
enter the winter heating season, we expect demand for fuel to increase. This
should cause heating oil prices to rise. A leveraged bet on this could yield
$100,000 on an initial investment of $5,000." Now, I assume some people say:
Wow, that sounds easy, I'm going to invest everything I've got in that.
Now, back to the hippy-dippy weatherman. When everyone knows something--i.e., it
gets cold in the winter--the opportunity for systematic profit potential
disappears. In recurrent situations, the future tends to unfold pretty similarly
compared to the past, and people adjust their forecasts to this reality. The
concept of rational expectations asserts that outcomes do not differ
systematically from expectations, and stems from the standard economic
assumption that people act in ways that maximize their utility (or, happiness).
Rational expectations play a key role in the theory of hyperinflation, efficient
markets theory (which holds that stock prices reflect all public information),
the permanent income hypothesis (which argues that people base their consumption
not only on their income but on their expectations of future income), and in the
design of macroeconomic policy.
Now, back to the letters. When general interest publications reveal "problems"
at a company, they have long been known in the professional investment
community. (Wags often assert that when "Business Week" proclaims a problem,
it's time to bet the other way). By the time you have read about them, we have
long since factored them into our expectations. It does not mean that we won't
ever be wrong, but that our analysis was educated.
/s/ Robert J. Sanborn
ROBERT J. SANBORN
Portfolio Manager
[email protected]
April 3, 1998
6 THE OAKMARK FUND
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--88.3%
FOOD & BEVERAGE--16.9%
Philip Morris Companies Inc. 14,310,700 $ 596,577,306
Anheuser-Busch Companies Inc. 9,205,400 426,325,087
H.J. Heinz Company 4,007,250 233,923,219
Nabisco Holdings Corporation 3,572,100 167,442,187
Gallaher Group Plc (a)(b) 3,835,500 82,942,688
--------------
1,507,210,487
APPAREL--5.4%
Nike, Inc., Class B 10,957,100 $ 484,851,675
RETAIL--2.2%
American Stores Company 7,491,100 $ 194,768,600
OTHER CONSUMER GOODS & SERVICES--16.1%
Mattel, Inc. 12,614,400 $ 499,845,600
The Black & Decker Corporation (c) 8,267,000 438,667,687
Polaroid Corporation (c) 4,552,400 200,305,600
Brunswick Corporation 3,578,800 124,810,650
Fortune Brands, Inc. 2,645,500 105,489,312
First Brands Corporation 1,070,400 26,693,100
Juno Lighting, Inc. (c) 1,085,000 22,920,625
GC Companies, Inc. (a)(c) 397,000 20,768,063
--------------
1,439,500,637
BANKS--9.7%
Banc One Corporation 9,100,548 $ 575,609,661
Mellon Bank Corporation 4,589,200 291,414,200
--------------
867,023,861
INSURANCE--1.4%
Old Republic International Corporation 2,748,620 $ 121,798,224
OTHER FINANCIAL--8.1%
Ambac Financial Group, Inc. (c) 4,389,800 $ 256,528,938
Washington Mutual, Inc. 3,300,000 236,671,875
Fannie Mae 3,557,500 225,011,875
--------------
718,212,688
BROADCASTING & CABLE TV--0.5%
Tele-Communications, Inc., Class A (a) 1,450,000 $ 45,085,938
TV PROGRAMMING--1.3%
Tele-Communications, Liberty Media, Class A
(a) 3,411,611 $ 117,274,128
</TABLE>
THE OAKMARK FUND 7
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--88.3% (CONT.)
PUBLISHING--8.1%
Dun & Bradstreet Corporation (c) 9,741,300 $ 333,030,694
Knight-Ridder, Inc. (c) 4,650,000 259,818,750
ACNielsen Corporation (a)(c) 4,764,000 125,948,250
--------------
718,797,694
MEDICAL CENTERS--4.9%
Columbia/HCA Healthcare Corporation 13,601,000 $ 438,632,250
MANAGED CARE SERVICES--0.6%
Foundation Health Systems, Inc. (a) 1,908,000 $ 52,589,250
MEDICAL PRODUCTS--0.9%
Sybron International Corporation (a) 3,135,600 $ 81,917,550
AUTOMOTIVE--0.5%
Chrysler Corporation 1,178,700 $ 48,989,719
AEROSPACE & DEFENSE--6.9%
Lockheed Martin Corporation 3,625,000 $ 407,812,500
The Boeing Company 3,938,000 205,268,250
--------------
613,080,750
OTHER INDUSTRIAL GOODS & SERVICES--1.7%
SPX Corporation (a)(c) 875,200 $ 66,788,700
Bandag Incorporated, Class A (a) 1,104,100 58,862,331
The Geon Company 971,600 21,739,550
--------------
147,390,581
FOREIGN SECURITIES--3.1%
DeBeers Centenary AG (b) 6,546,000 $ 143,602,875
Unilever NV (b) 1,904,000 130,662,000
--------------
274,264,875
TOTAL COMMON STOCKS (COST: $5,479,573,759) 7,871,388,907
SHORT TERM INVESTMENTS--15.9%
GOVERNMENT AND AGENCY SECURITIES--5.6%
U.S. GOVERNMENT AGENCIES--2.3%
Federal Farm Credit Bank, 5.46% due
7/1/1998 $200,000,000 $ 199,892,000
U.S. GOVERNMENT BILLS--3.3%
United States Treasury Bills, 4.98%-5.21%
due 4/2/1998-8/13/1998 $300,000,000 $ 297,664,714
--------------
TOTAL GOVERNMENT AND AGENCY SECURITIES
(COST: $497,656,840) 497,556,714
</TABLE>
8 THE OAKMARK FUND
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--15.9% (CONT.)
COMMERCIAL PAPER--8.7%
American Express Credit Corp., 5.50%-5.54%
due 4/3/1998-4/29/1998 $220,000,000 $ 220,000,000
Ford Motor Credit Corp., 5.49%-5.54% due
4/2/1998-4/28/1998 260,000,000 260,000,000
General Electric Capital Corporation,
5.52%-6.02% due 4/1/1998-4/27/1998 300,000,000 300,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $780,000,000) 780,000,000
REPURCHASE AGREEMENTS--1.6%
State Street Repurchase Agreement, 5.75%
due 4/1/1998 $140,535,000 $ 140,535,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $140,535,000) 140,535,000
TOTAL SHORT TERM INVESTMENTS (COST: $1,418,191,840) 1,418,091,714
Total Investments (Cost $6,897,765,599)--104.2% (d) $9,289,480,621
Other Liabilities In Excess Of Other Assets--(4.2)% (371,088,908)
--------------
TOTAL NET ASSETS--100% $8,918,391,713
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) See footnote number five in the Notes to Financial Statements regarding
transactions in affiliated issuers.
(d) At March 31, 1998, net unrealized appreciation of $2,391,715,022, for
federal income tax purposes consisted of gross unrealized appreciation of
$2,406,539,553 and gross depreciation of $14,824,531.
THE OAKMARK FUND 9
<PAGE>
THE OAKMARK SELECT FUND
REPORT FROM BILL NYGREN, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION
(11/1/96) TO PRESENT (3/31/98) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK
SELECT FUND S & P 500
----------- ---------
<S> <C> <C>
10/96 $10,000 $10,000
1/97 $12,500 $11,202
4/97 $12,250 $11,470
7/97 $15,290 $13,721
9/97 $16,340 $13,659
12/97 $17,704 $14,053
3/98 $20,078 $16,021
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 3/31/98
TOTAL RETURN FROM FUND INCEPTION
3/31/98 NAV $19.87 LAST 3 MOS. 11/1/96
<S> <C> <C>
- --------------------------------------------------------------------------------
THE OAKMARK SELECT FUND 13.4% 63.7%
Standard & Poor's 500 Stock
Index w/inc** 14.0% 39.6%
Standard & Poor's MidCap 400
Index w/ inc** 11.0% 36.5%
Value Line Composite Index** 10.0% 26.9%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks whose
composition is different from the Fund. The 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 results.
UP, UP AND AWAY
The Oakmark Select Fund increased in value by 13.4% in the quarter ended March
31. That increase nicely exceeded the 11% gain in the S&P 400, the midcap index
that compares most closely to our portfolio, but slightly trailed the increase
in the S&P 500. Our six-month increase of 22.9% was well above the market,
regardless of which index one chooses. Strong gains achieved by cable TV stocks
again helped our performance.
Your Fund has now doubled in value since its inception 17 months ago! Although
our entire research department is very proud of this record, we are certainly
aware that these results have been possible only with the aid of an unbelievably
powerful tailwind. In the last 25 years, the market's quarterly return exceeded
10% about once every ten quarters. Over the life of The Oakmark Select Fund, the
market return has reached double-digit levels in three out of six quarters, five
times the historical frequency. The strength of this market has been truly
amazing!
Stocks rallied further last month after Warren Buffett stated his opinion that
stocks were not generally overvalued as long as interest rates remained low and
businesses continued to earn exceptionally high returns on equity. Investors saw
the positive "stocks not overvalued" rather than focusing on the risk of a
change in our near-perfect economic environment. As stock prices and, therefore,
risk levels keep rising, you need to remember that we are not market timers. We
doubt that anyone is very good at predicting market moves, but we KNOW we are
not. Since we will always find stocks that look inexpensive RELATIVE to prices
paid for similar businesses, the Select Fund will remain fully invested. That
means that the Fund's cash levels will almost always be low, a single-digit
percentage. It also means that when the market goes down, if the Fund goes down
less, we will view that outcome as consistent with our goal of achieving
excellent long-term returns.
Since we stay fully invested, it is our shareholders' responsibility to make
sure their personal exposure to the stock market is appropriate for their
individual situations. Although we do not advocate market timing, it is
important to remember that when stock prices go up more than other asset prices
do, the percentage of one's net-
10 THE OAKMARK SELECT FUND
<PAGE>
........................................................................
worth exposed to stocks increases. Something I ask myself after a stock has
risen is, "would I buy more if it declined in price by 20%?" If the answer is
not a strong yes, I'll usually reduce the position size. I encourage all of our
shareholders to review their various investments and make sure the amount
invested in the stock market is still appropriate for their circumstances--only
then can you take advantage of a market decline by buying more.
KNOW YOUR MANAGER!!
We see ads almost daily for services promising to make us better investors: "Now
you can trade like a pro!" "Make money no matter which way the Dow goes!"
"Discover tomorrow's winners today!" But the one that really caught my eye this
quarter was the following offer for an astrological review of your portfolio.
The astrologer claims: "I HAVE THE EXPERTISE TO GIVE YOU AN ASTROLOGICAL
EVALUATION OF [your] STOCKS, AND OF THE MARKET AS A WHOLE. WHEN YOUR EXPERTISE
AND MINE ARE BROUGHT TOGETHER, WE FORM A FILTER THAT ELIMINATES LOSERS AND
ALLOWS ONLY WINNING STOCKS TO ENTER YOUR PORTFOLIO."
These services prey on investors who aren't committed to a sound investment
philosophy. When the inevitable periods of poor performance arrive, the services
promise a quick-fix. What should concern you about this is that the astrological
stock selection service claimed that its subscribers include "well-known fund
managers." It is imperative that investors know the investment philosophy of
their fund managers. Hot performers come and go, but understanding how managers
make decisions creates the confidence to follow a successful, long-term
investment approach. Since you will not find us relying on the stars to
construct our portfolios, let me share with you our approach.
Like all the funds in The Oakmark Family, The Oakmark Select Fund is a long-term
value investor. We have an outstanding team of analysts who search for companies
that sell at large discounts to intrinsic value. To us, a company's intrinsic
value is the price a knowledgeable buyer would pay to acquire the entire
business. Stocks are not just pieces of paper, they are fractional interests in
businesses. Next, we look for companies that have values that grow with time.
That means not only looking for growing sales and operating income, but
identifying free cash flow that can be invested in the business, used to pay
dividends, repurchase shares, pay down debt and so on. Lastly, we want
managements that are owner-oriented. That means that through their economic
incentives (share ownership, options, bonuses) we are assured that management's
interests align with outside shareholders. When we find these companies, we buy
them and patiently wait for their value to be recognized by others. When
companies with growing values and owner-oriented managements are available at
discounts to their true value, we do not have to predict WHEN the market will
recognize that value, because the longer it takes, the greater will be our
ultimate reward. Over time, we'll make our share of mistakes, but it will not be
because of how Jupiter aligned with Mars!
A BENEFICIAL PURCHASE
During the quarter, your Fund added one new position, Beneficial Corporation.
Because it was an unusual buy for us, I want to explain it. Beneficial is a
consumer-finance company whose stock performance lagged behind its peers. We had
been evaluating Beneficial for some time: quite confident of its undervaluation,
less certain of management's owner-orientation. In February, Beneficial
announced the sale of its Canadian operation at a price that was well above our
estimate. The price they received showed us that Beneficial was more undervalued
than we realized, but equally important, the willingness to sell off non-core
assets to strategic buyers showed management's owner-orientation. Their focus
was not on maximizing size, it was on maximizing their value.
Unfortunately for us, almost simultaneously, Beneficial announced they were
considering sale of the entire company. Beneficial stock immediately rose in
price from $82 to $110. Normally, you will not find us buying stocks after a
possible sale is announced because the stock price is usually quite close to
estimated business value. In this case, however, we felt our valuation of
Beneficial had been more thorough than other analysts and felt strongly that
Beneficial was worth an absolute minimum of $120 and was quite possibly worth in
excess of $150. Despite its price increase, Beneficial met all our criteria. We
look forward to watching the bids come in and congratulate Beneficial management
for realizing that their share price could be maximized only by finding a
strategic partner.
Thank you for your continuing support.
/s/ Bill Nygren
BILL NYGREN
Portfolio Manager
[email protected]
April 2, 1998
P.S. On April 7, Household International announced an agreement to purchase
Beneficial for stock valued at $150. (After the announcement, a decline in
Household stock decreased the offer to $144.) Congratulations to our Jim Benson
for his outstanding analysis of this company.
THE OAKMARK SELECT FUND 11
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--94.3%
OTHER CONSUMER GOODS & SERVICES--9.0%
Ralston Purina Group 581,000 $ 61,586,000
Brunswick Corporation 1,034,900 36,092,137
Polaroid Corporation 815,900 35,899,600
--------------
133,577,737
BANKS--3.8%
People's Bank of Bridgeport, Connecticut 1,496,000 $ 56,801,250
INSURANCE--7.8%
PartnerRe Ltd. 2,356,100 $ 115,743,413
OTHER FINANCIAL--3.5%
Beneficial Corporation 420,000 $ 52,211,250
BROADCASTING & CABLE TV--9.8%
Cablevision Systems Corporation (a) 2,210,200 $ 145,320,650
TV PROGRAMMING--8.8%
Tele-Communications, Liberty Media, Class A
(a) 3,803,550 $ 130,747,031
PUBLISHING--6.1%
Dun & Bradstreet Corporation 1,570,500 $ 53,691,469
ACNielsen Corporation (a) 1,425,100 37,676,081
--------------
91,367,550
MEDICAL PRODUCTS--4.5%
Amgen, Inc. (a) 1,110,000 $ 67,571,250
AEROSPACE & DEFENSE--3.8%
Lockheed Martin Corporation 505,900 $ 56,913,750
BUILDING MATERIALS & CONSTRUCTION--11.6%
USG Corporation (a)(c) 2,540,200 $ 137,647,087
Armstrong World Industries, Inc. 404,700 35,031,844
--------------
172,678,931
OIL & NATURAL GAS--2.5%
Union Texas Petroleum Holdings, Inc. 1,670,100 $ 36,950,963
OTHER INDUSTRIAL GOODS & SERVICES--6.1%
Premark International, Inc. 1,538,600 $ 50,966,125
General Signal Corporation 836,200 39,092,350
--------------
90,058,475
DIVERSIFIED CONGLOMERATES--12.6%
U.S. Industries, Inc. (c) 6,220,000 $ 186,988,750
</TABLE>
12 THE OAKMARK SELECT FUND
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--94.3% (CONT.)
FOREIGN SECURITIES--4.4%
Gucci Group (b) 1,380,700 $ 65,583,250
--------------
TOTAL COMMON STOCKS (COST: $1,088,223,426) 1,402,514,250
SHORT TERM INVESTMENTS--6.4%
U.S. GOVERNMENT BILLS--2.0%
United States Treasury Bills, 5.01%-5.21%
due 4/2/1998-7/16/1998 $30,000,000 $ 29,815,644
--------------
TOTAL U.S. GOVERNMENT BILLS (COST: $29,814,319) 29,815,644
COMMERCIAL PAPER--3.1%
American Express Credit Corp., 5.53%-5.55%
due 4/3/1998-4/7/1998 $10,000,000 $ 10,000,000
Ford Motor Credit Corp., 5.54%-5.57% due
4/2/1998-4/6/1998 10,000,000 10,000,000
General Electric Capital Corporation, 6.02%
due 4/1/1998 25,000,000 25,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $45,000,000) 45,000,000
REPURCHASE AGREEMENTS--1.3%
State Street Repurchase Agreement, 5.75%
due 4/1/1998 $19,467,000 $ 19,467,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $19,467,000) 19,467,000
TOTAL SHORT TERM INVESTMENTS (COST: $94,281,319) 94,282,644
TOTAL INVESTMENTS (COST $1,182,504,745)--100.7% (D) $1,496,796,894
Other Liabilities In Excess Of Other Assets--(0.7)% (9,932,893)
--------------
TOTAL NET ASSETS--100% $1,486,864,001
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) See footnote number five in the Notes to Financial Statements regarding
transactions in affiliated issuers.
(d) At March 31, 1998, net unrealized appreciation of $314,292,149, for federal
income tax purposes consisted of gross unrealized appreciation of
$315,843,337 and gross depreciation of $1,551,188.
THE OAKMARK SELECT FUND 13
<PAGE>
THE OAKMARK SMALL CAP FUND
REPORT FROM STEVEN J. REID, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (3/31/98) AS COMPARED TO THE RUSSELL 2000 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK
SMALL CAP FUND RUSSELL 2000
-------------- ------------
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,180 $10,684
4/96 $12,180 $11,841
7/96 $11,830 $10,772
10/96 $13,190 $11,661
1/97 $15,180 $12,708
4/97 $15,170 $11,848
7/97 $18,730 $14,369
9/97 $20,340 $15,774
12/97 $20,290 $15,245
3/98 $21,732 $16,779
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 3/31/98
TOTAL RETURN FROM FUND INCEPTION
3/31/98 NAV $20.80 LAST 3 MOS. 11/1/95
<S> <C> <C>
- --------------------------------------------------------------------------------
THE OAKMARK SMALL CAP FUND 7.1% 37.9%
Lipper Small Cap Fund Index** 10.7% 19.0%
Russell 2000 w/ inc** 10.1% 23.9%
S&P Small Cap 600 w/inc** 11.1% 27.2%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
whose composition is different from the Fund. The Lipper Small Cap 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 small market capitalization. Past performance is no
guarantee of future results.
HALFTIME
The Oakmark Small Cap Fund's second fiscal quarter ended on March 31, 1998.
During the quarter the Fund gained 7.1%, closing at an all-time high. For the
second quarter the Fund's investment results did not match those of the
relevant indices. Although The Oakmark Small Cap Fund has significantly
outperformed the relevant indices since its inception, the short-term results
are a minor disappointment. I have received numerous inquiries regarding the
Fund's recent relative performance. Quite honestly, a 7% return in three
months is a desirable outcome. As investors, we should focus on long-term
results, but human nature tends to not let us forget about what happened
yesterday, what's happening today, or what might happen tomorrow.
Returns in the small cap universe were dominated by growth stocks as opposed to
value stocks during the quarter. A precise definition of a growth stock, as well
as a value stock, cannot be "written in stone." Let it suffice that the indices'
returns were driven by technology and health care stocks, areas in which your
Fund has very little exposure. This lack of exposure is a function of our
investment philosophy. We have not found value in these areas. It is worth
noting the time line of this quarter's performance was composed of three parts.
During January, the Fund declined 4.5%, by the end of February performance was
almost break-even, and in March all of the gains were made.
Another concern of many shareholders is what changes are being made in the way
the Fund is managed. The answer is none. Our mandate is to be consistent with
our investment philosophy and not deviate from it. Over time we believe our
value-oriented style of investing will produce the results we seek to meet our
investment objectives. We are encouraged by the investment opportunities
available in the marketplace.
14 THE OAKMARK SMALL CAP FUND
<PAGE>
........................................................................
FIRST HALF HIGHLIGHTS
During the quarter there were several positive events. Zurn Industries Inc.
(ZRN) and U.S. Industries Inc. (USI), both holdings of your Fund, agreed to
merge in a tax-free exchange of stock. ZRN, a producer of plumbing fixtures and
supplies will be combined with USI's well known division, Jacuzzi. While we are
certainly pleased by the 50% appreciation of our ZRN shares, the merged
businesses are an equally exciting event. We, as well as management, believe
that the combined companies will have greater presence in the marketplace and
the opportunity to generate increased revenues and income. This combination
could best be described as a situation where one plus one does not equal two,
but probably at least two and one-half. We are confident that management can
truly add value to this situation. Since payment for the purchase will be in the
form of USI shares, our ownership of USI will increase.
Another bright spot in the quarter was the 37% gain in the shares of
Cablevision Systems Corporation (CVC). This is the second time in the last
year that CVC has been one of the top-performing stocks in The Oakmark Small
Cap Fund. It was also about one year ago that Wall Street viewed CVC as if it
were on the verge of bankruptcy. Since then there have been several
transactions confirming the value of cable TV systems and programming.
Management has also taken steps that highlight and increase the value of the
company.
KUDOS
What do R.G. Barry Corporation, Campbell Soup Company, and Whirlpool
Corporation have in common? All three were named Vendor of the Year by
Wal-Mart International. Although not a household name, many of R.G. Barry's
slipper brand names such as EZ feet, Dearfoams and Angel Treads are widely
known by consumers. Our congratulations go out to Barry's management team led
by Chairman Gordon Zacks on being named Soft-Lines Vendor of the Year by the
largest retailer in the world. Over the past few years Barry has demonstrated
significant growth in sales and profits as they expanded into new markets and
improved manufacturing efficiency. Despite Barry's success with slippers, the
company is relatively unknown by Wall Street. This lack of visibility has
allowed us to purchase these shares at a significant discount to the typical
valuation that other consumer products companies sell for in the stock
market. In addition, Barry has been developing several innovative new thermal
retention products that are designed to keep products at constant
temperatures without the need of an external power supply. As an example, the
company has developed a pizza container that allows for the home delivery of
fresh, hot pizza. Current products in the market only insulate the pizza.
Barry's product, because it provides heat, is able to offer a superior
delivery system. While not yet widely used we hope over the next year or two
to highlight the benefits from Barry's success with these products. At the
current valuation of the shares of R.G. Barry we have not paid a premium for
these products.
OUTLOOK
Despite the recent El Nino-like volatility of The Oakmark Small Cap Fund, we
continue to see very attractive investment opportunities in small cap stocks.
There continues to be a broad divergence in valuation between large and small
cap stocks with the shares of small companies trading at significant discounts
to their larger brethren.
Once again, I would like to thank everyone involved, especially our
shareholders, for your support of The Oakmark Small Cap Fund.
Go Bulls!
/s/ Steven J. Reid
STEVEN J. REID
Portfolio Manager
[email protected]
April 3, 1998
THE OAKMARK SMALL CAP FUND 15
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--95.1%
FOOD & BEVERAGE--6.3%
Ralcorp Holdings, Inc. (a)(b) 2,500,000 $ 51,875,000
International Multifoods Corporation (b) 1,000,000 29,937,500
M & F Worldwide Corp. (a) 917,600 8,315,750
--------------
90,128,250
RETAIL--4.7%
Cole National Corporation (a)(b) 1,250,000 $ 48,281,250
Ugly Duckling Corporation (a)(b) 1,750,000 18,921,875
--------------
67,203,125
OTHER CONSUMER GOODS & SERVICES--9.6%
Triarc Companies, Inc. (a)(b) 1,600,000 $ 42,000,000
Scotsman Industries, Inc. (b) 1,000,000 28,750,000
First Brands Corporation 1,000,000 24,937,500
GC Companies, Inc. (a) 300,000 15,693,750
Barry (R.G.) Corporation (a)(b) 800,000 11,000,000
P.H. Glatfelter Company 420,900 7,602,506
Libbey, Inc. 190,000 7,077,500
--------------
137,061,256
BANKS--10.6%
People's Bank of Bridgeport, Connecticut 3,000,000 $ 113,906,250
BankAtlantic Bancorp, Inc., Class A 1,125,001 15,398,451
Northwest Bancorp Inc. 550,000 9,246,875
PennFed Financial Services, Inc. 260,000 4,712,500
Pocahontas Federal Savings and Loan
Association (b) 100,000 4,475,000
Savings Bank of the Finger Lakes (b) 188,000 3,666,000
--------------
151,405,076
INSURANCE--12.7%
RenaissanceRe Holdings Limited. (b) 1,500,000 $ 75,000,000
Financial Security Assurance Holdings Ltd. 900,000 49,162,500
Highlands Insurance Group, Inc. (a)(b) 1,150,000 30,906,250
PXRE Corporation (b) 750,000 23,250,000
Chartwell Re Corporation 110,000 3,726,250
--------------
182,045,000
OTHER FINANCIAL--1.0%
Duff & Phelps Credit Rating Co. (b) 296,800 $ 14,951,300
BROADCASTING & CABLE TV--9.8%
Cablevision Systems Corporation (a) 1,669,400 $ 109,763,050
Ascent Entertainment Group, Inc. (a)(b) 2,000,000 20,625,000
Granite Broadcasting Corporation (a)(b) 800,000 9,250,000
--------------
139,638,050
PUBLISHING--1.1%
Lee Enterprises, Inc. 450,000 $ 15,103,125
</TABLE>
16 THE OAKMARK SMALL CAP FUND
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--95.1% (CONT.)
TELECOMMUNICATIONS--0.2%
ROHN Industries, Inc. 500,000 $ 2,812,500
AUTOMOTIVE--2.1%
Stoneridge, Inc. (a)(b) 1,500,000 $ 30,000,000
AEROSPACE & DEFENSE--2.8%
Tracor, Inc. (a) 1,250,000 $ 40,078,125
MACHINERY & METAL PROCESSING--4.3%
The Carbide/Graphite Group, Inc. (a)(b) 815,000 $ 24,450,000
DT Industries, Inc. 472,000 18,113,000
Northwest Pipe Company (a)(b) 600,000 13,050,000
Wolverine Tube, Inc. (a) 140,800 5,649,600
--------------
61,262,600
OIL & NATURAL GAS--2.0%
Titan Exploration, Inc. (a)(b) 3,000,000 $ 24,375,000
Nuevo Energy Company (a) 100,000 3,581,250
--------------
27,956,250
OTHER INDUSTRIAL GOODS & SERVICES--15.0%
SPX Corporation (a)(b) 700,000 $ 53,418,750
MagneTek, Inc. (a)(b) 2,500,000 47,031,250
Ferro Corporation 961,500 28,244,062
Columbus McKinnon Corporation (b) 876,900 24,114,750
Gardner Denver Machinery, Inc. (a) 750,000 22,218,750
Zurn Industries, Inc. 312,500 14,804,688
Binks Sames Corporation (b) 247,000 11,979,500
Standard Motor Products, Inc. 600,000 11,512,500
Binks Sames Corporation, Restricted Shares(b) 28,000 1,195,040
--------------
214,519,290
COMMERCIAL REAL ESTATE--5.5%
Catellus Development Corporation (a) 4,000,000 $ 74,250,000
Wellsford Real Properties Inc. (a) 341,500 4,951,750
--------------
79,201,750
DIVERSIFIED CONGLOMERATES--7.4%
U.S. Industries, Inc. 3,500,000 $ 105,218,750
--------------
TOTAL COMMON STOCKS (COST: $1,012,013,842) 1,358,584,447
</TABLE>
THE OAKMARK SMALL CAP FUND 17
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--5.2%
U.S. GOVERNMENT BILLS--0.7%
United States Treasury Bills, 5.02% due
4/2/1998 $10,000,000 $ 9,998,606
--------------
TOTAL U.S. GOVERNMENT BILLS (COST: $9,998,606) 9,998,606
COMMERCIAL PAPER--3.5%
American Express Credit Corp., 5.52%-5.53%
due 4/2/1998-4/9/1998 $15,000,000 $ 15,000,000
Ford Motor Credit Corp., 5.53%-5.54% due
4/3/1998-4/7/1998 15,000,000 15,000,000
General Electric Capital Corporation, 6.02%
due 4/1/1998 20,000,000 20,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $50,000,000) 50,000,000
REPURCHASE AGREEMENTS--1.0%
State Street Repurchase Agreement, 5.75%
due 4/1/1998 $15,244,000 $ 15,244,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $15,244,000) 15,244,000
TOTAL SHORT TERM INVESTMENTS (COST: $75,242,606) 75,242,606
Total Investments (Cost $1,087,256,448)--100.3% (c) $1,433,827,053
Other Liabilities In Excess Of Other Assets--(0.3)% (4,865,029)
--------------
TOTAL NET ASSETS--100% $1,428,962,024
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) See footnote number five in the Notes to Financial Statements regarding
transactions in affiliated issuers.
(c) At March 31, 1998, net unrealized appreciation of $346,570,605, for federal
income tax purposes consisted of gross unrealized appreciation of
$360,943,813 and gross depreciation of $14,373,208.
18 THE OAKMARK SMALL CAP FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
REPORT FROM CLYDE S. MCGREGOR, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (3/31/98) AS COMPARED TO THE LIPPER BALANCED FUND
INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK LIPPER BALANCED
EQUITY & INCOME FUND FUND INDEX
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,290 $10,662
4/96 $10,630 $10,778
7/96 $10,660 $10,665
10/96 $11,290 $11,449
1/97 $12,255 $12,197
4/97 $12,429 $12,244
7/97 $14,289 $13,909
9/97 $14,810 $14,005
12/97 $14,941 $14,209
3/98 $16,233 $15,331
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 3/31/98
TOTAL RETURN FROM FUND INCEPTION
3/31/98 NAV $14.95 LAST 3 MOS. 11/1/95
<S> <C> <C>
- --------------------------------------------------------------------------------
THE OAKMARK EQUITY & INCOME
FUND 8.7% 22.2%
Lipper Balanced Fund Index** 7.9% 19.3%
Lehman Govt./ Corp. Bond** 1.5% 7.2%
S&P 500 w/ inc** 14.0% 32.9%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks 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.
QUARTER UPDATE
I am pleased to report that your Fund earned 8.7% in the January through March
quarter. This quarter was the third best in the Fund's history, exceeded only by
last year's second and third calendar quarters. Virtually all of this splendid
outcome originated in the equity segment of the portfolio. Fixed income prices
ended the quarter unchanged, meaning that the segment's only contribution to
return was income. It has been uncommon in the 1990's for stock prices to march
ahead without the aid of declining interest rates. In the first quarter,
however, it would appear that equity investors regained the confidence that the
fourth quarter's Asian market meltdown had shaken while fixed income investors
fretted about the strength of the US economy. Highlights in the Fund in the
quarter included Liberty Media, Banc One, Borg-Warner Automotive, Juno Lighting,
and Old Republic International, all of which returned more than 20%.
DIFFERENCES II
For the last 20 years my position as an investment manager has required me to
make presentations to trustees, board members, and every other kind of
fiduciary that exists. Recently it became my privilege to sit on the other
side of the table as I joined the investment committee of a charitable
organization. In March, as part of my duties on that committee, I interviewed
the principal manager of US common stocks for the charity. The investing
process which the manager articulated for his organization is similar to the
one in which I was trained at my first employer. His team divides the
investing universe into industry groups, decides which groups should be
emphasized, and then selects the most attractive 2 or 3 stocks from each
industry. This firm's analysts become specialists in narrowly defined niches,
and their job is to determine correctly which stocks will do the best within
the area which they cover. The consulting community generally refers to this
style as "core."
THE OAKMARK EQUITY AND INCOME FUND 19
<PAGE>
........................................................................
Our methodology is quite different. We build our portfolios from the bottom up
based on finding value on a security by security basis. Our analysts are all
generalists who are merely charged with the responsibility of discovering
undervaluation. The search for value does not begin with preconceived ideas of
which industries might be fertile to exploit. Rather, the search begins with an
insight as to how we might look at a business or an industry from a different
perspective and thereby gain an edge in terms of valuing the associated
securities. If we do not have that insight, if we cannot get our arms around a
company and develop a firm understanding of its value, we will not invest in
that company no matter how attractive its characteristics.
Our approach often results in industries not being represented in the Fund.
Usually technology issues are absent because we are uncomfortable valuing
companies in businesses which can be obsolete tomorrow. It can also be the case
that our analysis tells us that undervaluation is not to be found in a specific
industry. This sometimes leads to questions relating to the issue of
diversification.
I believe that diversification is both overrated and misunderstood. The academic
community argues that most benefits of diversification are achieved by the time
an equity portfolio has 8-10 holdings. As the asset listing on the next four
pages depicts, our process develops a portfolio with holdings in a wide variety
of industries even though I have not built the portfolio with that intent.
The securities markets exist to provide price information for intangible assets.
The market periodically misprices securities. Our tactical mission is to exploit
these mistakes wherever and whenever they occur.
QUIET PERIOD
Last year one of your Fund's holdings (General Signal) announced that it would
have a "quiet period" while company leadership worked out plans for
restructuring. The just completed quarter was a quiet period for your Fund, but
in a different manner. The Fund ended the quarter with the same 23 equity issues
with which it began the quarter. I added to many of the holdings as cash came
into the Fund, but I did not initiate or eliminate any equity positions.
Many years ago one of our firm's founding partners said to me that in our
business sometimes the hardest thing to do is to do nothing. And, in fact, many
mutual funds demonstrate this by reporting turnover ratios (measures of how many
times in a 12-month period the dollars in the portfolio are "turning over" from
one security to another) which exceed one or even two.
In The Oakmark Equity and Income Fund I strive to keep equity turnover low. Low
turnover generally implies low capital gains distributions, something which the
Fund's taxable investors will appreciate. But perhaps more importantly, I
believe that having a long-term investing horizon provides us with an edge. When
I invest in a company's stock, I know that our analysis has measured a gap
between the price of the shares and their fundamental value. Our analysis,
however, is unable to determine when that gap will close. So, when you observe
the Fund in a quiet period, understand that this is a normal outcome of our
investing process.
As always, please e-mail me with your questions or comments.
[SIGNATURE]
CLYDE S. MCGREGOR
Portfolio Manager
[email protected]
April 3, 1998
20 THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
EQUITY AND EQUIVALENTS--59.4%
FOOD & BEVERAGE--1.6%
Philip Morris Companies Inc. 20,000 $ 833,750
OFFICE EQUIPMENT--2.2%
Lexmark International Group, Inc., Class A
(a) 26,000 $ 1,173,250
OTHER CONSUMER GOODS & SERVICES--3.8%
Juno Lighting, Inc. 61,300 $ 1,294,962
National Presto Industries, Inc. 17,000 732,063
--------------
2,027,025
BANKS--4.4%
Banc One Corporation 23,674 $ 1,497,380
Mellon Bank Corporation 13,400 850,900
--------------
2,348,280
INSURANCE--5.7%
PartnerRe Ltd. 32,500 $ 1,596,562
Old Republic International Corporation 33,000 1,462,313
--------------
3,058,875
TV PROGRAMMING--3.4%
Tele-Communications, Liberty Media, Class A
(a) 52,800 $ 1,815,000
PUBLISHING--5.0%
Dun & Bradstreet Corporation 45,000 $ 1,538,437
Lee Enterprises, Inc. 33,900 1,137,769
--------------
2,676,206
COMPUTER SERVICES--3.4%
Electronic Data Systems Corporation 40,000 $ 1,835,000
DATA STORAGE--3.2%
Imation Corp. (a) 92,200 $ 1,705,700
AUTOMOTIVE--7.7%
Chrysler Corporation 56,000 $ 2,327,500
Borg-Warner Automotive, Inc. 15,000 961,875
Lear Corporation (a) 15,000 845,625
--------------
4,135,000
AEROSPACE & DEFENSE--2.5%
The Boeing Company 25,800 $ 1,344,825
MACHINERY & METAL PROCESSING--2.0%
General Signal Corporation 23,000 $ 1,075,250
BUILDING MATERIALS & CONSTRUCTION--1.6%
Armstrong World Industries, Inc. 9,600 $ 831,000
</TABLE>
THE OAKMARK EQUITY AND INCOME FUND 21
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
EQUITY AND EQUIVALENTS--59.4% (CONT.)
OTHER INDUSTRIAL GOODS & SERVICES--2.0%
Premark International, Inc. 31,500 $ 1,043,438
COMMERCIAL REAL ESTATE--4.6%
Catellus Development Corporation (a) 132,728 $ 2,463,763
DIVERSIFIED CONGLOMERATES--4.7%
U.S. Industries, Inc. 84,250 $ 2,532,766
FOREIGN SECURITIES--1.6%
DeBeers Centenary AG (b) 40,000 $ 877,500
TOTAL EQUITY AND EQUIVALENTS (COST: $23,467,531) 31,776,628
FIXED INCOME--34.5%
PREFERRED STOCK--5.7%
BANKS--4.9%
PennFirst Capital Trust 1, Preferred,
8.625% 70,000 $ 726,250
BBC Capital Trust 1, Preferred, 9.50% 28,000 724,500
Pennfed Capital Trust, Preferred, 8.90% 27,500 701,250
RBI Capital Trust I, Preferred, 9.10% 42,500 451,562
--------------
2,603,562
OTHER FINANCIAL--0.8%
Fidelity Capital Trust I, Preferred, 8.375% 43,500 $ 445,875
TOTAL PREFERRED STOCK (COST: $2,970,738) 3,049,437
CORPORATE BONDS--3.1%
OTHER CONSUMER GOODS & SERVICES--0.4%
Samsonite Corp., 11.125% due 7/15/2005,
Senior Subordinated Note Series B $200,000 $ 231,500
AEROSPACE & AUTOMOTIVE--0.4%
Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 159,375
Coltec Industries, Inc., 9.75% due
11/1/1999 25,000 26,406
--------------
185,781
BUILDING MATERIALS & CONSTRUCTION--0.3%
USG Corporation, 9.25% due 9/15/2001,
Senior Notes Series B $150,000 $ 162,938
</TABLE>
22 THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME--34.5% (CONT.)
UTILITIES--0.3%
Midland Funding Corporation, 11.75% due
7/23/2005 $150,000 $ 176,438
OTHER INDUSTRIAL GOODS & SERVICES--1.7%
Scotsman Industries, Inc., 8.625% due
12/15/2007, Senior Subordinated Note $565,000 $ 574,181
UCAR Global Enterprises Inc., 12.00% due
1/15/2005, Senior Subordinated Note 300,000 336,750
--------------
910,931
TOTAL CORPORATE BONDS (COST: $1,611,530) 1,667,588
GOVERNMENT AND AGENCY SECURITIES--25.7%
U.S. GOVERNMENT BONDS--25.1%
United States Treasury Notes, 7.50% due
5/15/2002 $5,000,000 $ 5,326,650
United States Treasury Notes, 7.875% due
11/15/2004 3,750,000 4,187,550
United States Treasury Notes, 7.125% due
9/30/1999 3,800,000 3,881,548
--------------
13,395,748
U.S. GOVERNMENT AGENCIES--0.6%
Federal Home Loan Bank, 6.405% due
4/10/2001, Consolidated Bond $300,000 $ 304,797
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $13,502,564) 13,700,545
TOTAL FIXED INCOME (COST: $18,084,832) 18,417,570
</TABLE>
THE OAKMARK EQUITY AND INCOME FUND 23
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--7.0%
COMMERCIAL PAPER--5.6%
American Express Credit Corp., 5.52% due
4/2/1998-4/3/1998 $1,000,000 $ 1,000,000
Ford Motor Credit Corp., 5.54% due 4/6/1998 500,000 500,000
General Electric Capital Corporation, 6.02%
due 4/1/1998 1,500,000 1,500,000
--------------
TOTAL COMMERCIAL PAPER (COST: $3,000,000) 3,000,000
REPURCHASE AGREEMENTS--1.4%
State Street Repurchase Agreement, 5.75%
due 4/1/1998 $729,000 $ 729,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $729,000) 729,000
TOTAL SHORT TERM INVESTMENTS (COST: $3,729,000) 3,729,000
Total Investments (Cost $45,281,363)--100.9% (c) $ 53,923,198
Other Liabilities In Excess Of Other Assets--(0.9)% (468,113 )
--------------
TOTAL NET ASSETS--100% $ 53,455,085
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) At March 31, 1998, net unrealized appreciation of $8,641,836, for federal
income tax purposes consisted of gross unrealized appreciation of $8,862,701
and gross depreciation of $220,865.
24 THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
........................................................................
[PHOTO] [PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS
INCEPTION (9/30/92) TO PRESENT (3/31/98) COMPARED TO THE MORGAN STANLEY WORLD
EX U.S. INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK M.S. WORLD EX
INTERNATIONAL FUND U.S. INDEX
<S> <C> <C>
9/92 $10,000 $10,000
10/92 $9,800 $9,505
1/93 $10,833 $9,621
4/93 $12,105 $11,764
7/93 $12,608 $12,233
10/93 $14,454 $12,981
1/94 $16,488 $13,786
4/94 $15,382 $13,664
7/94 $15,195 $13,899
10/94 $15,122 $14,265
1/95 $13,698 $13,124
4/95 $14,399 $14,437
7/95 $15,507 $14,911
10/95 $14,659 $14,248
1/96 $16,248 $15,312
4/96 $18,162 $16,144
7/96 $17,635 $15,471
10/96 $18,310 $15,843
1/97 $19,909 $15,761
4/97 $21,149 $16,144
7/97 $22,960 $18,426
9/97 $23,283 $18,027
12/97 $20,097 $16,637
3/98 $22,994 $19,083
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 3/31/98
TOTAL RETURN FROM FUND INCEPTION
3/31/98 NAV $14.68 LAST 3 MOS. 9/30/92
<S> <C> <C>
- --------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL FUND 14.4% 16.3%
Morgan Stanley World ex U.S.
w/inc.** 14.7% 12.5%
Morgan Stanley EAFE w/ inc** 14.7% 12.3%
Lipper Analytical
International Fund Index** 14.9% 14.6%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks whose
composition is different from the Fund. The Morgan Stanley World ex U.S. Index
includes 19 country sub-indexes. The Morgan Stanley EAFE Free Index refers to
Europe, Asia and the Far East and includes 18 country sub-indexes. The Lipper
International Fund Index includes 30 mutual funds that invest in securities
whose primary markets are outside the United States. Past performance is no
guarantee of future results.
FELLOW SHAREHOLDERS:
The quarter ended March 31, 1998 has been one marked by a rebound in
international markets. This resulted in a strong gain of 14.4% for your Fund.
More important, your Fund has generated an average annual rate of return of
16.3% since its inception. This compares quite favorably with returns for this
same period of 12.3% and 14.6% for the EAFE and Lipper International indices,
respectively. It is important to point out that our returns since inception
confirm the benefits of maintaining a long-term value approach in overseas
markets. Going forward, we continue to believe that the foreign markets are
attractively priced and we are extremely comfortable with how your portfolio is
positioned in terms of future appreciation potential.
CHINA WILL TAKE ASIA HIGHER
Though the world has been exclusively preoccupied with recent events in greater
East Asia, it has missed the historical change that is occurring in China.
Progressive reformer Zhu Rongji has now replaced party hardliner Li Peng as
Prime Minister. Head of State is still Jiang Zemin. Zhu has been in the
government as economic czar and was formerly mayor of Shanghai. He is known for
his stands against corruption and bureaucracy as well as his adherence to free
market economic policies.
Though he has only recently been elected to his new position, he has entered the
scene in dramatic fashion, promising to slice the bureaucracy in half,
representing four million jobs. He has also vowed to reform and privatize the
state-owned industries that have
THE OAKMARK INTERNATIONAL FUND 25
<PAGE>
........................................................................
been holding China back and to implement new plans to stabilize and
strengthen the banking system. More positive yet, listening to his economic
philosophy, he sounds more like Adam Smith than even some Western leaders.
The importance of sound leadership in China cannot be overestimated. China is a
nation of nearly 1.3 billion people and has potential to be one of the world's
largest economies. On the microeconomic side, its people have a strong work
ethic and entrepreneurial drive. They are educated and have a strong family
structure. Unencumbered, there is no telling what they will be able to
accomplish in terms of economic advancement. We believe the current government
will facilitate rather than impede this advancement.
The strength of China will assist the rest of Asia. Given recent very positive
political developments throughout the region, we are convinced that the stage is
set for a strong recovery. With the exception of political laggards Indonesia
and Japan, Asia is ready to resume growth on a more healthy and sustainable
basis.
CURRENCY CONCERNS
One of the biggest areas of concern about China for many Wall Street strategists
is the currency. They argue that because much of Asia has devalued, the renminbi
and the Hong Kong dollar are next. While a devaluation is possible, we believe
it is unlikely and also believe at current prices investors are more than
compensated for devaluation risk by the extremely cheap valuations of companies
in Hong Kong.
The strength of a nation's currency is ultimately dependent on supply and
demand. From the supply side, China's responsible monetary policy (as designed
by new Prime Minister Zhu Rongji when he was Finance Minister) is keeping money
supply growth at a reasonable rate. On the demand side, China is still running a
sizeable trade surplus and is still attracting a great deal of foreign direct
investment. While the growth of both have slowed, they are still hugely positive
and mean continuing demand for the renminbi. Finally, China has over $140
billion in foreign reserves, an amount which ranks second in the world behind
only Japan.
AND NOW FOR THE STOCKS....
Your Fund is extremely well positioned to take advantage of what we see are
improving conditions in East Asia, especially given the weakness in share prices
since the summer of 1997. We are finding very reasonably priced, well-run
businesses that will benefit over time from economic events. Examples in our
portfolio include: hotel companies MANDARIN and HONG KONG AND SHANGHAI HOTEL
CORP (Peninsula), airline and aero engine maintenance company HAECO, and pan
Asian clothing retailer GIORDANO. Each are leaders in their respective fields,
have sound managements and are attractively priced. All are down substantially
from their highs. Along with our investments in Malaysia and Korea, we firmly
believe these companies in Asia will be strong contributors to the growth in the
Fund's net asset value over the next five years.
AND, A WORD ABOUT A BLAST FROM THE PAST
A few years back, there was a change in the board chairman at Saatchi &
Saatchi Plc. Though this change caused some initial instability and weakness
in the share price, things have dramatically changed for the better over the
past few years. First, the holding company was renamed Cordiant Plc.
Secondly, new management was put in place that is very focused on building
the VALUE of the business rather than just the SIZE. Then, in December last
year, in a move designed to unlock shareholder value, the holding company
split into its two major advertising groups, Saatchi & Saatchi Advertising
and Bates Worldwide. Bates has kept the name Cordiant while Saatchi & Saatchi
was relisted as such. Both have been doing extremely well from a business
perspective and their share prices on the stock exchange have reflected the
change as well. In fact, Saatchi & Saatchi is up year-to-date a stunning 45%!
We feel that the share prices of both (which remain large positions in the
Fund) have a long way to go.
/s/ David Herro
DAVID HERRO
Portfolio Manager
[email protected]
/s/ Michael J. Welsh
MICHAEL J. WELSH
Co-Portfolio Manager
[email protected]
April 2, 1998
26 THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--MARCH 31, 1998
........................................................................
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
PACIFIC RIM 25.4%
EUROPE 52.2%
LATIN AMERICA 17.4%
</TABLE>
<TABLE>
<CAPTION>
% OF FUND
NET
ASSETS
-------------------------------
<S> <C> <C>
EUROPE 52.2%
Great Britain 25.5%
France 8.7%
Italy 5.7%
Switzerland 3.9%
Sweden 3.7%
Netherlands 3.1%
Finland 1.2%
Germany 0.2%
Spain 0.2%
LATIN AMERICA 17.4%
Brazil 10.2%
Argentina 4.1%
Panama 3.1%
<CAPTION>
% OF FUND
NET
ASSETS
-------------------------------
<S> <C> <C>
PACIFIC RIM 25.4%
Hong Kong 6.8%
New Zealand 6.7%
Japan 3.6%
Korea 3.0%
Malaysia 1.9%
Singapore 1.7%
Australia 1.3%
Thailand 0.4%
</TABLE>
THE OAKMARK INTERNATIONAL FUND 27
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--95.0%
CONSUMER NON-DURABLES--5.5%
Fila Holding S.p.A. (Italy), (b)(e) Athletic Footwear Manufacturing 2,294,500 $ 53,777,344
Gucci Group (Netherlands), (b) Luxury Goods 325,000 15,437,500
Yue Yuen Industrial Holdings (Hong Athletic Footwear Manufacturing
Kong) 3,245,600 6,324,664
BYC Co. Ltd. (Korea), (e) Textile Manufacturer 33,540 1,549,863
--------------
77,089,371
FOOD & BEVERAGE--18.4%
Quilmes Industrial SA (Argentina), Brewer
(b)(e) 5,082,800 $ 58,134,525
Lion Nathan Limited (New Zealand) Brewer 21,462,700 55,283,949
Tate & Lyle PLC (Great Britain) Sugar Producer & Distributor 5,242,700 45,899,910
Pernod Ricard (France) Manufactures Wines, Spirits, & Fruit 602,579 40,933,563
Juices
Montedison S.p.A. (Italy) Agro-industrial & Agricultural Services 17,486,000 25,754,202
Nestle SA (Switzerland) Producer of Foods & Drinks 8,440 16,127,071
Lotte Chilsung Beverage Company Manufacturer of Soft Drinks, Juices, &
(Korea), (e) Sport Drinks 123,000 6,216,606
Lotte Confectionery Company (Korea) Confection Manufacturer 65,270 5,937,921
Bongrain SA (France) Dairy Procucts 8,812 4,493,089
--------------
258,780,836
HOUSEHOLD PRODUCTS--2.1%
Amway Japan Limited (Japan) Marketing of Household Products 1,866,700 $ 28,023,268
Amway Japan Limited (Japan), (b) Marketing of Household Products 152,400 1,228,725
--------------
29,251,993
RETAIL--1.2%
Giordano International Limited (Hong East Asian Clothing Retailer &
Kong), (e) Manufacturer 67,299,000 $ 17,283,322
</TABLE>
28 THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.0% (CONT.)
OTHER CONSUMER GOODS & SERVICES--4.5%
Mandarin Oriental International Hotel Management
Limited (Singapore) 29,039,000 $ 23,231,200
Sankyo Company, Ltd. (Japan) Pachinko Machine Manufacturer 1,172,800 21,567,723
The Hongkong and Shanghai Hotels, Hotel Operator
Limited (Hong Kong) 23,233,000 19,039,019
--------------
63,837,942
TELECOMMUNICATIONS--3.8%
Technology Resources Industries Telecommunications
Berhad (Malaysia) 22,810,000 $ 25,997,150
Telecomunicacoes Brasileiras S.A. Telecommunications
(Brazil) 223,100,000 23,055,629
SK Telecom Co. Ltd. (Korea) Telecommunications 10,395 4,045,419
--------------
53,098,198
TRANSPORTATION--3.7%
Volvo AB, Class B (Sweden) Automobiles and Trucks 1,642,600 $ 52,284,623
TRANSPORTATION SERVICES--2.8%
Danzas Holding AG (Switzerland), (a) Freight Distributor 149,950 $ 38,852,247
BANKS--7.7%
Banco Latinoamericano de Multinational Bank
Exportaciones, S.A., Class E
(Panama), (b)(e) 1,148,600 $ 43,216,075
Uniao de Bancos Brasileiros S.A. Major Brazilian Bank
(Brazil), (c) 1,155,000 41,868,750
Uniao de Bancos Brasileiros Major Brazilian Bank
S.A.-units (Brazil) 291,912,500 21,001,268
Banco Popular Espanol SA (Spain) Large Spanish Bank 25,972 2,522,389
--------------
108,608,482
OTHER FINANCIAL--4.4%
Sedgwick Group plc (Great Britain) Insurance Broker, Financial Services 22,985,000 $ 61,370,595
</TABLE>
THE OAKMARK INTERNATIONAL FUND 29
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.0% (CONT.)
MARKETING SERVICES--7.0%
Saatchi & Saatchi plc (Great Britain), Advertising Services
(a)(e) 20,297,578 $ 54,025,212
Cordiant Communications Group plc Advertising Services
(Great Britain), (e) 21,497,578 44,263,911
--------------
98,289,123
BROADCASTING & PUBLISHING--1.6%
Europe 1 Communication (France) Television Production 74,020 $ 19,682,930
Woongjin Publishing Company (Korea), Publisher
(e) 148,410 3,182,511
--------------
22,865,441
AEROSPACE--5.1%
Rolls-Royce plc (Great Britain) Jet Engines 11,218,552 $ 52,254,893
Hong Kong Aircraft Engineering Company Commercial Aircraft Overhaul &
Ltd. (Hong Kong), (e) Maintenance 10,208,900 19,762,221
--------------
72,017,114
CHEMICALS--4.8%
Fernz Corporation Limited (New Agricultural & Industrial Chemical
Zealand), (e) Producer 14,044,900 $ 38,816,595
European Vinyls Corporation PVC Manufacturer
International N.V. (Netherlands),
(e) 1,367,785 28,209,192
--------------
67,025,787
COMPONENTS--2.2%
Varitronix International Limited (Hong Liquid Crystal Displays
Kong), (e) 15,538,000 $ 31,181,073
MACHINERY & METAL PROCESSING--0.2%
The Rauma Group (Finland) Pulp Machinery 155,000 $ 2,871,163
MINING AND BUILDING MATERIALS--2.3%
Pioneer International Limited Concrete Products, Aggregates
(Australia) 6,585,176 $ 18,944,708
Keumkang Ltd. (Korea), (e) Building Materials 470,660 6,898,482
Siam City Cement Public Company Cement Producer
Limited (Thailand) 2,082,349 5,556,459
</TABLE>
30 THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.0% (CONT.)
MINING AND BUILDING MATERIALS--2.3% (CONT.)
Asia Cement Manufacturing Company Ltd. Cement Producer
(Korea) 40,350 $ 407,870
--------------
31,807,519
OTHER INDUSTRIAL GOODS & SERVICES--10.3%
Tomkins plc (Great Britain) Industrial Management Company 12,595,000 $ 76,798,502
Chargeurs SA (France), (e) Wool Production Holding Company 614,249 39,744,066
Kone Corporation, Class B (Finland) Elevators 103,870 14,060,362
Groupe Legris Industries SA (France) European Crane Manufacturer 217,815 9,489,318
Buderus AG (Germany), (a) Industrial Manufacturing Firm 7,600 3,418,778
Dongah Tire Industry Tire Manufacturer
Company (Korea),(a) 35,000 1,490,975
--------------
145,002,001
STEEL--4.1%
USIMINAS (Brazil), (a)(e) Steel Production 7,011,370 $ 56,732,281
Pohang Iron & Steel Manufactures Steel Products
Company Ltd. (Korea) 14,000 626,715
--------------
57,358,996
DIVERSIFIED CONGLOMERATES--3.3%
Securicor plc (Great Britain) Diversified Consumer Services Company 3,550,500 $ 24,249,613
Tae Young Corporation (Korea), (e) Heavy Construction 560,480 11,978,490
Compagnie Generale des Eaux (France) Industrial Services 50,000 8,116,176
Lamex Holdings Ltd. (Hong Kong), (e) Office Furniture Supplier 14,040,000 1,793,774
--------------
46,138,053
TOTAL COMMON STOCKS (COST: $1,275,806,431) 1,335,013,879
</TABLE>
THE OAKMARK INTERNATIONAL FUND 31
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--4.6%
COMMERCIAL PAPER--3.6%
American Express Credit Corp., 5.52%-5.53% due 4/13/1998-4/17/1998 $20,000,000 $ 20,000,000
Ford Motor Credit Corp., 5.53% due 4/3/1998-4/14/1998 10,000,000 10,000,000
General Electric Capital Corporation, 6.02% due 4/1/1998 20,000,000 20,000,000
--------------
50,000,000
REPURCHASE AGREEMENTS--1.0%
State Street Repurchase Agreement, 5.75% due 4/1/1998 $14,052,000 $ 14,052,000
TOTAL SHORT TERM INVESTMENTS (COST: $64,052,000) 64,052,000
Total Investments (Cost $1,339,858,431)--99.6% (f) $1,399,065,879
Foreign Currencies (Proceeds $1,158,033)--0.1% 1,149,513
Other Assets In Excess Of Other Liabilities--0.3% (d) 4,322,769
--------------
TOTAL NET ASSETS--100% $1,404,538,161
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents a Global Depository Receipt.
(d) Includes portfolio and transaction hedges.
(e) See footnote number five in the Notes to Financial Statements regarding
transactions in affiliated issuers.
(f) At March 31, 1998, net unrealized appreciation of $59,198,928, for federal
income tax purposes consisted of gross unrealized appreciation of
$217,932,134 and gross depreciation of $158,733,206.
32 THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
........................................................................
[PHOTO] [PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND
FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/98) AS COMPARED TO THE MORGAN
STANLEY WORLD EX U.S. INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK INTERNATIONAL M.S. WORLD EX
SMALL CAP FUND U.S. INDEX
<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
7/97 $13,253 $12,933
9/97 $12,672 $12,652
12/97 $9,642 $11,677
3/98 $11,429 $13,394
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 3/31/98
TOTAL RETURN FROM FUND INCEPTION
3/31/98 NAV $9.59 LAST 3 MOS. 11/1/95
<S> <C> <C>
- --------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL
SMALL CAP FUND 18.5% 5.7%
Morgan Stanley World ex U.S.
w/inc.** 14.7% 12.9%
Lipper Analytical
International Small Cap Fund
Average** 18.0% 14.3%
Micropal International Small
Co. Fund Index** 17.2% 13.6%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of indexes 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 Small Cap
Fund Average includes 48 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:
For the second fiscal quarter ended March 31, 1998, The International Small Cap
Fund achieved its best ever quarterly return of 18.5%. This compares favorably
with returns of 14.7% for the Morgan Stanley World ex-U.S. index and 17.2% for
the Micropal International Small Cap Index.
World equity markets have bounced back strongly from a difficult ending in 1997.
European markets have been especially buoyant, though a stronger dollar has
trimmed some of the gains for US investors. In addition, the bombed out markets
of emerging Asia have started the year strongly. This is especially true of
Korea and Thailand, which were both up over 40% in US dollars.
Conversely, the Japanese equity market continues its dramatic underperformance
of the rest of the world's developed markets. The equity markets, especially for
small capitalization companies, continue to be sold down due to near-universal
negative sentiment and to frustration with the paralysis of the country's
politicians. While the short term remains uncertain, we believe that Japanese
small caps currently are at some of the cheapest valuations in the world.
In summary, although many overseas markets have performed well recently, we
still see excellent value opportunities throughout the world, and remain
especially excited by the prospects for the companies in your portfolio.
THE OAKMARK INTERNATIONAL SMALL CAP FUND 33
<PAGE>
........................................................................
LONG-TERM INVESTING
As you know, we invest the Fund's assets using a disciplined, long-term value
approach. One of the many advantages of this approach is the ability to
capitalize on the market's fixation with short run factors. Consistently,
history has shown that the best investment opportunities arrive when the
situation looks the most bleak (or, as John Templeton calls it, "at the point of
maximum pessimism"). While many will pay lip service to this concept, very few
investors have the discipline to implement it.
In our last quarterly letter we described in great detail the specific company
investments which had the biggest impact on the Fund's net asset value for the
calendar year 1997. The five stocks with the largest negative impacts were all
in Asia and each one experienced huge downward price volatility in the fourth
quarter. As prices continued to plunge, we continued to buy as market prices
reflected larger and larger discounts to underlying intrinsic value.
Now, three months later, the picture has changed dramatically for 1997's five
worst performers. These companies-- Woonjin Publishing (Korea), Hite Brewery
(Korea), Matichon (Thailand), Daimon (Japan), and JCG Holdings (Hong Kong)--were
up an impressive 60% on average for the quarter. And from their fourth quarter
lows, their share prices were up nearly 100% on average in US dollar terms.
In times of panic like the fourth quarter of 1997 in Asia, great investment
opportunities emerge. As stock pickers, our job is to evaluate all the
opportunities markets around the world have to offer, and to invest in those
which meet our demanding value criteria. This is exactly the philosophy we used
in the fourth quarter when many investors decided they simply wanted out of Asia
regardless of price.
ASIA THREE MONTHS LATER
Make no mistake, neither the flow of negative news nor the short-term volatility
in Asia are over. It appears, however, that at least the panic selling in the
markets and the currencies has ended. There has even been an increasing trickle
of positive news, mainly political in nature. The new leadership in Thailand and
Korea have shown very encouraging signs of jettisoning the discredited ways of
the past, freeing up their economies and implementing IMF reforms. Developments
in China have also been positive, as we detail in this quarter's letter for The
Oakmark International Fund.
Conversely, politicians and the entrenched bureaucracy in Japan seem intent
on continuing to play Nero, fiddling while their economy and financial system
burn. Their time to dither appears to be running out and the positive changes
we are seeing in the corporate sector (closer attention to returns, share
buybacks, restructuring) should eventually translate into changes in the way
the country is governed. Regardless, even considering pessimistic scenarios,
the Fund's investments in Japan trade at significant discounts to underlying
business value.
While most Asian markets have snapped back from the lows, we are still very
excited about the values we are finding for The Oakmark International Small Cap
Fund. Your Fund's investments in the region represent 45% of the total portfolio
and are composed of 8.1% in Hong Kong, 7.3% in South Korea, 11.5% in Japan,
13.1% in Australia and New Zealand, 2.7% in Thailand, and 1.9% in the
Philippines. These businesses all trade at significant discounts to business
value and are run by shareholder-oriented managements.
[SIGNATURE]
DAVID G. HERRO
Portfolio Manager
[email protected]
[SIGNATURE]
MICHAEL J. WELSH
Co-Portfolio Manager
[email protected]
April 2, 1998
34 THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--MARCH 31, 1998
........................................................................
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
PACIFIC RIM 44.6%
EUROPE 35.1%
LATIN AMERICA 5.4%
OTHER COUNTRIES 2.6%
</TABLE>
<TABLE>
<CAPTION>
% OF FUND
NET
ASSETS
-------------------------------
<S> <C> <C>
PACIFIC RIM 44.6%
Japan 11.5%
Hong Kong 8.1%
Korea 7.3%
New Zealand 6.9%
Australia 6.2%
Thailand 2.7%
Philippines 1.9%
LATIN AMERICA 5.4%
Brazil 4.7%
Panama 0.7%
<CAPTION>
% OF FUND
NET
ASSETS
-------------------------------
<S> <C> <C>
EUROPE 35.1%
Great Britain 19.2%
Germany 5.6%
Italy 3.1%
France 3.1%
Netherlands 2.8%
Turkey 1.3%
OTHER 2.6%
Canada 2.6%
</TABLE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND 35
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--87.7%
CONSUMER NON-DURABLES--0.8% Knit Fabrics
Designer Textiles (NZ)
Limited (New
Zealand), (d) 2,960,000 $ 736,263
FOOD & BEVERAGE--7.1%
Matthew Clark plc (Great Britain) Spirits & Drinks 984,000 $ 3,483,859
Alaska Milk Corporation Milk Producer
(Philippines), (a) 28,587,000 1,639,991
Hite Brewery Company (Korea) Brewer 110,010 1,008,756
--------------
6,132,606
HOUSEHOLD PRODUCTS--2.6%
WMF (Germany) Tableware and Kitchenware 7,032 $ 1,121,592
Eczacibasi Yapi Gerecleri Sanayi ve Ceramic Bath Products
Ticaret A.S. (Turkey), (a) 55,531,200 1,096,394
--------------
2,217,986
RETAIL--6.9%
Somerfield plc (Great Britain) Food Retailer 341,000 $ 2,040,730
Daimon (Japan), (d) Liquor Retailer & Distributor 577,200 1,646,358
Paris Miki Inc. (Japan) Optical Supplies Retailer 67,800 961,846
Giordano International Limited East Asian Clothing Retailer &
(Hong Kong) Manufacturer 3,210,000 824,373
Jusco Stores (Hong Kong) Co.,
Limited (Hong Kong) Department Stores 2,906,000 555,038
--------------
6,028,345
OTHER CONSUMER GOODS & SERVICES--8.0%
CeWe Color Holding AG (Germany) Photo Equipment & Supplies 14,850 $ 3,733,476
Sanford Limited (New Zealand) Fisheries 1,604,940 2,350,896
Vardon plc (Great Britain) Bingo Clubs 285,000 889,772
--------------
6,974,144
TELECOMMUNICATIONS--0.4%
SK Telecom Co. Ltd. (Korea) Telecommunications 803 $ 312,503
PHARMACEUTICAL--3.1%
Recordati (Italy) Pharmaceuticals 224,500 $ 2,715,428
</TABLE>
36 THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--87.7% (CONT.)
BANKS--1.0%
Banco Latinoamericano de Multinational Bank
Exportaciones, S.A., Class E
(Panama), (b) 15,300 $ 575,662
Shinhan Bank (Korea) Commercial Bank 47,765 249,686
Kookmin Bank (Korea) Commercial Bank 6,985 52,957
Kookmin Bank Rights (Korea) Commercial Bank 6,985 4,427
--------------
882,732
INVESTMENT COMPANIES--0.9%
Direct Capital Partners Limited Investment Fund for Unlisted
(New Zealand) New Zealand Companies 2,237,000 $ 741,901
OTHER FINANCIAL--10.4%
JCG Holdings Ltd. (Hong Kong) Investment Holding Company 7,508,000 $ 3,851,474
Lambert Fenchurch Group plc (Great Insurance Broker
Britain) 2,031,000 3,824,878
Ichiyoshi Securities (Japan) Stock Broker 915,000 1,311,803
--------------
8,988,155
COMPUTER SOFTWARE--4.7%
Enix Corporation (Japan) Entertainment Software 130,200 $ 2,853,698
Koei (Japan) Computer Software 165,500 1,254,682
--------------
4,108,380
COMPUTER SYSTEMS--2.7%
Solution 6 Holdings Limited Systems Design & Consulting
(Australia), (a)(d) 4,050,893 $ 2,303,990
MARKETING SERVICES--7.4%
Cordiant Communications Group plc Advertising Services
(Great Britain) 1,808,500 $ 3,723,735
Saatchi & Saatchi plc (Great
Britain), (a) Advertising Services
1,022,500 2,721,545
--------------
6,445,280
BROADCASTING & PUBLISHING--5.9%
Woongjin Publishing Company (Korea), Publisher
(d) 130,216 $ 2,792,358
Matichon Public Company Limited, Newspaper Publisher
Foreign Shares (Thailand), (d) 1,468,100 2,238,526
Matichon Public Company Limited Newspaper Publisher
(Thailand), (d) 70,400 72,010
--------------
5,102,894
</TABLE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND 37
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--87.7% (CONT.)
CHEMICALS--2.8%
European Vinyls Corporation PVC Manufacturer
International N.V. (Netherlands) 117,100 $ 2,415,070
MACHINERY & METAL PROCESSING--0.7%
Denyo Co., Ltd. (Japan) Welding Machines & Power Generators 114,000 $ 581,873
MINING AND BUILDING MATERIALS--4.0%
Parbury Limited (Australia), (d) Building Products 11,019,712 $ 3,097,351
Asia Cement Manufacturing Company Cement Producer
(Korea) Ltd. 36,150 365,415
--------------
3,462,766
OTHER INDUSTRIAL GOODS & SERVICES--10.7%
Elevadores Atlas, SA (Brazil) Elevators 279,200 $ 4,051,715
Yip's Hang Cheung Ltd. (Hong Kong) Paint & Solvents 23,218,000 1,558,094
Nishio Rent All Company (Japan) Construction Equipment Rental 159,200 1,422,015
Dongah Tire Industry Company (Korea), Tire Manufacturer
(a) 29,900 1,273,719
Groupe Legris Industries SA (France) European Crane Manufacturer 17,400 758,048
Lamex Holdings Ltd. (Hong Kong) Office Furniture Supplier 2,110,000 269,577
--------------
9,333,168
PRODUCTION EQUIPMENT--4.8%
Skyjack Inc. (Canada), (a) Producer of Elevating Platforms & Lifts 118,700 $ 2,215,912
NSC Groupe (France) Manufacturer of Textile Equipment 14,895 1,970,779
--------------
4,186,691
STEEL--2.8%
Steel & Tube Holdings Ltd. (New Produces and Distributes Steel
Zealand) 2,242,400 $ 2,169,102
Pohang Iron & Steel Company Ltd. Manufactures Steel Products
(Korea) 6,580 294,556
--------------
2,463,658
TOTAL COMMON STOCKS (COST: $83,833,573) 76,133,833
</TABLE>
38 THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--9.2%
COMMERCIAL PAPER--6.9%
American Express Credit Corporation, 5.53%-5.59% due 4/1/1998-4/8/1998 $2,000,000 $ 2,000,000
Ford Motor Credit Corp., 5.55%-5.57% due 4/3/1998-4/6/1998 1,500,000 1,500,000
General Electric Capital Corporation, 6.02% due 4/1/1998 2,500,000 2,500,000
--------------
6,000,000
REPURCHASE AGREEMENTS--2.3%
State Street Repurchase Agreement, 5.75% due 4/1/1998 $2,001,000 $ 2,001,000
TOTAL SHORT TERM INVESTMENTS (COST: $8,001,000) 8,001,000
Total Investments (Cost $91,834,573)--96.9% (e) $ 84,134,833
Foreign Currencies (Proceeds $11,921)--0.0% 11,921
Other Assets In Excess Of Other Liabilities--3.1% (c) 2,694,844
--------------
TOTAL NET ASSETS--100% $ 86,841,598
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Includes transaction hedges.
(d) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(e) At March 31, 1998, net unrealized depreciation of $7,699,659, for
federal income tax purposes consisted of gross unrealized
appreciation of $6,775,502 and gross depreciation of $14,475,161.
THE OAKMARK INTERNATIONAL SMALL CAP FUND 39
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF ASSETS AND LIABILITIES--MARCH 31, 1998
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
THE OAKMARK SELECT
FUND FUND
<S> <C> <C>
- ------------------------------------------------------------------------------
ASSETS
Investments, at value $9,289,480,621 $1,496,796,894
(cost: $1,087,256,448) (cost: $1,182,504,745)
Cash 909 803
Foreign currency, at value 0 0
Collateral for securities
loaned, at value 0 103,024,970
Receivable for:
Forward foreign currency
contracts 0 0
Securities sold 19,773,233 0
Fund shares sold 16,606,899 13,245,891
Dividends and interest 21,443,125 486,690
-------------------- --------------------
Total receivables 57,823,257 13,732,581
Other assets 0 2,540
-------------------- --------------------
Total assets $9,347,304,787 $1,613,557,788
-------------------- --------------------
-------------------- --------------------
..............................................................................
LIABILITIES AND NET ASSETS
Payable for:
Collateral for securities
loaned, at value $ 0 $ 103,024,970
Securities purchased 411,535,249 21,317,645
Fund shares redeemed 8,269,287 747,878
Due to adviser 6,459,053 1,057,798
Forward foreign currency
contracts 0 0
Other 2,649,485 545,496
-------------------- --------------------
Total liabilities 428,913,074 126,693,787
-------------------- --------------------
Net assets applicable to
fund shares outstanding $8,918,391,713 $1,486,864,001
-------------------- --------------------
-------------------- --------------------
Fund shares outstanding 200,715,978 74,843,827
-------------------- --------------------
-------------------- --------------------
..............................................................................
PRICE OF SHARES
Net asset value per share $ 44.43 $ 19.87
-------------------- --------------------
-------------------- --------------------
..............................................................................
ANALYSIS OF NET ASSETS
Paid in capital $5,950,210,580 $1,163,238,683
Accumulated undistributed
net realized gain on sale
of investments, forward
contracts and foreign
currency exchange
transactions 544,826,405 8,487,779
Net unrealized
appreciation/depreciation
of investments 2,391,715,022 314,292,149
Net unrealized depreciation
of foreign currency
portfolio hedges 0 0
Net unrealized
appreciation/depreciation--other 0 0
Accumulated undistributed
net investment income
(loss) 31,639,706 845,390
-------------------- --------------------
Net assets applicable to
Fund shares outstanding $8,918,391,713 $1,486,864,001
-------------------- --------------------
-------------------- --------------------
</TABLE>
40 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
..............................................................................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL
FUND INCOME FUND FUND SMALL CAP FUND
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value $1,433,827,053 $53,923,198 $1,399,065,879 $84,134,833
(cost: $1,087,256,448) (cost: $45,281,363) (cost: $1,339,858,431) (cost: $91,834,573)
Cash 695 527 3,904,143 632
Foreign currency, at value 0 0 1,149,513 12,003
Collateral for securities
loaned, at value 144,533,644 3,367,985 149,912,019 1,328,000
Receivable for:
Forward foreign currency
contracts 0 0 177,070 0
Securities sold 1,228,978 0 1,739,065 840,463
Fund shares sold 1,557,114 245,748 3,194,865 2,242,296
Dividends and interest 786,560 380,748 8,294,468 613,293
-------------------- -------------------- -------------------- --------------------
Total receivables 3,572,652 626,496 13,405,468 3,696,052
Other assets 3,766 3,766 0 3,767
-------------------- -------------------- -------------------- --------------------
Total assets $1,581,937,810 $57,921,972 $1,567,437,022 $89,175,287
-------------------- -------------------- -------------------- --------------------
-------------------- -------------------- -------------------- --------------------
..............................................................................................................................
LIABILITIES AND NET ASSETS
Payable for:
Collateral for securities
loaned, at value $ 144,533,644 $ 3,367,985 $ 149,912,019 $ 1,328,000
Securities purchased 3,242,413 971,764 8,567,044 721,276
Fund shares redeemed 3,319,014 49,183 1,237,053 68,558
Due to adviser 1,420,886 29,602 1,101,882 76,402
Forward foreign currency
contracts 0 0 1,250,165 5,968
Other 459,829 48,353 830,698 133,485
-------------------- -------------------- -------------------- --------------------
Total liabilities 152,975,786 4,466,887 162,898,861 2,333,689
-------------------- -------------------- -------------------- --------------------
Net assets applicable to
fund shares outstanding $ 1,428,962,024 $ 53,455,085 $ 1,404,538,161 $ 86,841,598
-------------------- -------------------- -------------------- --------------------
-------------------- -------------------- -------------------- --------------------
Fund shares outstanding 68,713,861 3,576,587 95,692,819 9,059,700
-------------------- -------------------- -------------------- --------------------
-------------------- -------------------- -------------------- --------------------
..............................................................................................................................
PRICE OF SHARES
Net asset value per share $ 20.80 $ 14.95 $ 14.68 $ 9.59
-------------------- -------------------- -------------------- --------------------
-------------------- -------------------- -------------------- --------------------
..............................................................................................................................
ANALYSIS OF NET ASSETS
Paid in capital $ 1,053,623,090 $ 44,331,604 $ 1,307,485,365 $ 93,771,374
Accumulated undistributed
net realized gain on sale
of investments, forward
contracts and foreign
currency exchange
transactions 33,564,804 114,832 15,096,240 110,463
Net unrealized
appreciation/depreciation
of investments 346,570,605 8,641,836 59,198,928 (7,699,659)
Net unrealized depreciation
of foreign currency
portfolio hedges 0 0 (1,041,815) 0
Net unrealized
appreciation/depreciation--other 0 0 (57,810) 7,037
Accumulated undistributed
net investment income
(loss) (4,796,475) 366,813 23,857,253 652,383
-------------------- -------------------- -------------------- --------------------
Net assets applicable to
Fund shares outstanding $ 1,428,962,024 $ 53,455,085 $ 1,404,538,161 $ 86,841,598
-------------------- -------------------- -------------------- --------------------
-------------------- -------------------- -------------------- --------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 41
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF OPERATIONS--MARCH 31, 1998
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
THE OAKMARK SELECT
FUND FUND
<S> <C> <C>
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 62,534,109 $ 4,204,811
Interest Income 25,585,555 2,306,096
Securities lending income 0 27,365
Foreign taxes withheld (1,025,061) 0
-------------------- --------------------
Total investment income 87,094,603 6,538,272
..............................................................................
EXPENSES:
Investment advisory fee 33,717,852 4,349,918
Transfer and dividend
disbursing agent fees 1,903,507 381,831
Other shareholder servicing
fees 1,430,693 284,566
Reports to shareholders 773,063 78,084
Custody and accounting fees 409,676 77,842
Registration and blue sky
expenses 347,857 233,976
Trustees fees 23,028 7,306
Legal fees 24,443 6,212
Audit fees 11,783 9,290
Other 191,351 18,777
-------------------- --------------------
Total expenses 38,833,253 5,447,802
Expense offset
arrangements (4,367) (1,806)
-------------------- --------------------
Net expenses 38,828,886 5,445,996
-------------------- --------------------
..............................................................................
NET INVESTMENT INCOME (LOSS): 48,265,717 1,092,276
..............................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
and foreign currency
transactions:
Net realized gain on
investments 633,222,207 10,299,431
Net realized loss on
foreign currency
transactions (8,898) 0
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies 372,029,008 226,616,982
Net change in appreciation
(depreciation) of forward
currency exchange
contracts 0 0
Net change in appreciation
(depreciation)--other 0 0
-------------------- --------------------
..............................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS: 1,005,242,317 236,916,413
-------------------- --------------------
..............................................................................
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 1,053,508,034 $ 238,008,689
-------------------- --------------------
-------------------- --------------------
</TABLE>
42 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
..............................................................................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL
FUND INCOME FUND FUND SMALL CAP FUND
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $4,819,061 $331,902 $15,720,184 $1,007,674
Interest Income 2,107,212 442,370 1,472,442 110,067
Securities lending income 203,283 3,059 1,087,514 4,814
Foreign taxes withheld 0 0 (852,866) (98,308)
----------- ---------- ------------ -----------
Total investment income 7,129,556 777,331 17,427,274 1,024,247
..............................................................................................................................
EXPENSES:
Investment advisory fee 8,829,969 147,225 6,775,248 377,130
Transfer and dividend
disbursing agent fees 445,863 39,877 472,479 46,434
Other shareholder servicing
fees 396,980 4,461 297,504 11,466
Reports to shareholders 159,128 7,562 188,510 15,159
Custody and accounting fees 101,028 23,996 690,517 88,054
Registration and blue sky
expenses 18,861 18,356 20,156 15,640
Trustees fees 9,248 4,707 6,894 4,597
Legal fees 8,889 4,602 8,031 5,441
Audit fees 9,690 9,590 13,180 12,083
Other 33,613 5,005 99,564 10,057
----------- ---------- ------------ -----------
Total expenses 10,013,269 265,381 8,572,083 586,061
Expense offset
arrangements (47,877) (64) (72,897) (279)
----------- ---------- ------------ -----------
Net expenses 9,965,392 265,317 8,499,186 585,782
----------- ---------- ------------ -----------
..............................................................................................................................
NET INVESTMENT INCOME (LOSS): (2,835,836) 512,014 8,928,088 438,465
..............................................................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on
investments 49,515,599 691,349 47,920,883 1,592,506
Net realized loss on
foreign currency
transactions 0 0 (2,651,824) (106,249)
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies 38,608,650 3,183,600 (94,851,410) (6,531,506)
Net change in appreciation
(depreciation) of forward
currency exchange
contracts 0 0 (1,603,281) (5,968)
Net change in appreciation
(depreciation)--other 0 0 (29,929) 9,536
----------- ---------- ------------ -----------
..............................................................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS: 88,124,249 3,874,949 (51,215,561) (5,041,681)
----------- ---------- ------------ -----------
..............................................................................................................................
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $85,288,413 $4,386,963 $(42,287,473) $(4,603,216)
----------- ---------- ------------ -----------
----------- ---------- ------------ -----------
</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--MARCH 31, 1998
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK FUND
--------------------------------------------
SIX MONTHS ENDED ELEVEN MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 48,265,717 $55,858,346
Net realized gain on sale
of investments 633,222,207 239,442,987
Net realized loss on
foreign currency
transactions (8,898) (2,673)
Net change in unrealized
appreciation 372,029,008 1,231,138,352
-------------- --------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 1,053,508,034 1,526,437,012
..............................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM:*
Net investment income (66,320,892) (41,659,757)
Net realized short-term
gain (25,210,568) (13,947,126)
Net realized long-term gain (302,991,525) (212,039,549)
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (394,522,985) (267,646,432)
..............................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 1,885,741,953 2,107,074,877
Reinvestment of dividends
and capital gain
distributions 376,564,699 256,384,877
Payments for shares
redeemed (617,848,616) (941,237,366)
-------------- --------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 1,644,458,036 1,422,222,388
-------------- --------------
..............................................................................
TOTAL INCREASE IN NET ASSETS 2,303,443,085 2,681,012,968
NET ASSETS:
Beginning of period 6,614,948,628 3,933,935,660
-------------- --------------
End of period $8,918,391,713 $6,614,948,628
-------------- --------------
-------------- --------------
Undistributed net
investment income $ 31,639,706 $ 49,694,881
-------------- --------------
-------------- --------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0.3996 0.3441
Net realized short-term
gain 0.1519 0.1152
Net realized long-term gain 1.8256 1.7514
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 2.3771 $ 2.2107
-------------- --------------
-------------- --------------
</TABLE>
44 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
..............................................................................
THE OAKMARK
SELECT FUND
--------------------------------------------
SIX MONTHS ENDED ELEVEN MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income
(loss) $ 1,092,276 $ (246,886)
Net realized gain on sale
of investments 10,299,431 5,070,435
Net change in unrealized
appreciation 226,616,982 87,675,167
-------------- --------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 238,008,689 92,498,716
..............................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM:*
Net investment income 0 0
Net realized short-term
gain (6,882,086) 0
Net realized long-term gain 0 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (6,882,086) 0
..............................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 960,911,310 571,117,746
Reinvestment of dividends
and capital gain
distributions 6,562,085 --
Payments for shares
redeemed (225,910,569) (149,441,890)
-------------- --------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 741,562,826 421,675,856
-------------- --------------
..............................................................................
TOTAL INCREASE IN NET ASSETS 972,689,429 514,174,572
NET ASSETS:
Beginning of period 514,174,572 0
-------------- --------------
End of period $1,486,864,001 $ 514,174,572
-------------- --------------
-------------- --------------
Undistributed net
investment income (loss) $ 845,390 $ (246,886)
-------------- --------------
-------------- --------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0 0
Net realized short-term
gain 0.1678 0
Net realized long-term gain 0 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 0.1678 $ 0
-------------- --------------
-------------- --------------
</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--MARCH 31, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
SMALL CAP FUND
--------------------------------------------
SIX MONTHS ENDED ELEVEN MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (2,835,836) $ (1,684,439)
Net realized gain on sale
of investments 49,515,599 46,501,798
Net change in unrealized
appreciation 38,608,650 287,859,202
-------------- --------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 85,288,413 332,676,561
..............................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM:*
Net investment income 0 0
Net realized short-term
gain (35,041,338) 0
Net realized long-term gain (27,167,964) 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (62,209,302) 0
..............................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 316,443,701 1,289,718,462
Reinvestment of dividends
and capital gain
distributions 58,840,098 0
Payments for shares
redeemed (482,796,526) (327,419,790)
-------------- --------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM FUND
SHARE TRANSACTIONS (107,512,727) 962,298,672
-------------- --------------
..............................................................................
TOTAL INCREASE (DECREASE) IN
NET ASSETS (84,433,616) 1,294,975,233
NET ASSETS:
Beginning of period 1,513,395,640 218,420,407
-------------- --------------
End of period $1,428,962,024 $1,513,395,640
-------------- --------------
-------------- --------------
Undistributed net
investment loss $ (4,796,475) $ (1,960,639)
-------------- --------------
-------------- --------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0 0
Net realized short-term
gain 0.4738 0
Net realized long-term gain 0.3674 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 0.8412 $ 0
</TABLE>
46 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
..............................................................................
THE OAKMARK
EQUITY AND INCOME FUND
--------------------------------------------
SIX MONTHS ENDED ELEVEN MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 512,014 $ 471,744
Net realized gain on sale
of investments 691,349 904,824
Net change in unrealized
appreciation 3,183,600 4,554,518
-------------- --------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 4,386,963 5,931,086
..............................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM:*
Net investment income (594,007) (148,466)
Net realized short-term
gain (882,071) (162,188)
Net realized long-term gain (599,021) 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (2,075,099) (310,654)
..............................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 23,850,818 24,903,007
Reinvestment of dividends
and capital gain
distributions 1,964,129 288,850
Payments for shares
redeemed (8,134,239) (11,148,702)
-------------- --------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 17,680,708 14,043,155
-------------- --------------
..............................................................................
TOTAL INCREASE IN NET ASSETS 19,992,572 19,663,587
NET ASSETS:
Beginning of period 33,462,513 13,798,926
-------------- --------------
End of period $ 53,455,085 $ 33,462,513
-------------- --------------
-------------- --------------
Undistributed net
investment income $ 366,813 $ 448,806
-------------- --------------
-------------- --------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0.2359 0.1202
Net realized short-term
gain 0.3503 0.1311
Net realized long-term gain 0.2379 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 0.8241 $ 0.2513
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 47
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
INTERNATIONAL FUND
--------------------------------------------
SIX MONTHS ENDED ELEVEN MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 8,928,088 $ 27,666,383
Net realized gain on sale
of investments 47,920,883 217,090,057
Net realized gain (loss) on
foreign currency
transactions (2,651,824) 17,724,883
Net change in unrealized
appreciation
(depreciation) (94,851,410) 70,717,122
Net change in unrealized
appreciation
(depreciation) of forward
currency exchange
contracts (1,603,281) 3,426,674
Net change in unrealized
appreciation
(depreciation)--other (29,929) 197,532
-------------- --------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS (42,287,473) 336,822,651
..............................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM:*
Net investment income (46,460,844) (12,477,945)
Net realized short-term
gain (57,985,562) 0
Net realized long-term gain (173,100,255) 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (277,546,661) (12,477,945)
..............................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 355,734,693 710,447,882
Reinvestment of dividends
and capital gain
distributions 263,407,668 11,903,359
Payments for shares
redeemed (542,117,597) (572,115,610)
-------------- --------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 77,024,764 150,235,631
-------------- --------------
..............................................................................
TOTAL INCREASE (DECREASE) IN
NET ASSETS (242,809,370) 474,580,337
NET ASSETS:
Beginning of period 1,647,347,531 1,172,767,194
-------------- --------------
End of period $1,404,538,161 $1,647,347,531
-------------- --------------
-------------- --------------
Undistributed net
investment income $ 23,857,253 $ 61,390,009
-------------- --------------
-------------- --------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0.5758 0.1617
Net realized short-term
gain 0.7186 0
Net realized long-term gain 2.1453 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 3.4397 $ 0.1617
</TABLE>
48 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
..............................................................................
THE OAKMARK INTERNATIONAL
SMALL CAP FUND
--------------------------------------------
SIX MONTHS ENDED ELEVEN MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 438,465 $ 646,048
Net realized gain on sale
of investments 1,592,506 6,250,624
Net realized loss on
foreign currency
transactions (106,249) (232,740)
Net change in unrealized
depreciation (6,531,506) (1,464,546)
Net change in unrealized
appreciation
(depreciation) of forward
currency exchange
contracts (5,968) 0
Net change in unrealized
appreciation--other 9,536 5,257
-------------- --------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS (4,603,216) 5,204,643
..............................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM:*
Net investment income (308,015) (279,216)
Net realized short-term
gain (3,477,982) (1,285,114)
Net realized long-term gain (3,890,139) 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (7,676,136) (1,564,330)
..............................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 53,050,486 63,012,100
Reinvestment of dividends
and capital gain
distributions 7,422,967 1,523,977
Payments for shares
redeemed (27,325,303) (41,955,631)
-------------- --------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 33,148,150 22,580,446
-------------- --------------
..............................................................................
TOTAL INCREASE IN NET ASSETS 20,868,798 26,220,759
NET ASSETS:
Beginning of period 65,972,800 39,752,041
-------------- --------------
End of period $ 86,841,598 $ 65,972,800
-------------- --------------
-------------- --------------
Undistributed net
investment income $ 652,383 $ 521,933
-------------- --------------
-------------- --------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0.0559 0.0777
Net realized short-term
gain .6312 0.3581
Net realized long-term gain 0.7060 0
-------------- --------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 1.3931 $ 0.4358
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 49
<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 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.
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. 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 March 31, 1998, only the International and Int'l Small Cap Funds had foreign
currency transactions. Net unrealized appreciation (depreciation)-other includes
the following components:
<TABLE>
<CAPTION>
INTERNATIONAL
SMALL
INTERNATIONAL CAP
<S> <C> <C>
- -----------------------------------------------------------------
Unrealized appreciation
(depreciation) on dividends
and dividend reclaims
receivable $(60,285) $7,851
Unrealized appreciation on
open securities purchases
and sales 33,755 5,154
Unrealized depreciation on
transaction hedge purchases
and sales (31,280) (5,968)
-------- --------
Net Unrealized Appreciation
(Depreciation) - other $(57,810) $7,037
-------- --------
-------- --------
</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 March 31, 1998, 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.
50 THE OAKMARK FAMILY OF FUNDS
<PAGE>
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, 1998:
PORTFOLIO HEDGES:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
(DEPRECIATION) AT
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 1998
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
$30,025,500 18,500,000 Pound Sterling April 1998 $ (902,886)
37,361,250 22,500,000 Pound Sterling May 1998 (235,499)
14,980,500 9,000,000 Pound Sterling May 1998 (56,265)
15,012,000 9,000,000 Pound Sterling May 1998 (24,112)
15,080,400 9,000,000 Pound Sterling May 1998 46,875
14,828,880 8,800,000 Pound Sterling May 1998 130,072
-----------
$(1,041,815)
-----------
-----------
</TABLE>
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
<TABLE>
<CAPTION>
UNREALIZED
DEPRECIATION AT
US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 1998
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
$ 35,727 197,788 Finnish Markka April 1998 $ (499)
95,419 12,286,165 Japanese Yen April 1998 (3,198)
192,814 265,312,100 South Korean Won April 1998 (1,253)
1,201,669 2,126,848 New Zealand Dollar April 1998 (26,054)
95,926 173,307 New Zealand Dollar April 1998 (130)
-------
$(31,134)
-------
-------
</TABLE>
FOREIGN CURRENCY SALES:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
(DEPRECIATION) AT
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 1998
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
$ 340,517 203,343 Pound Sterling April 1998 $ 122
1,398,401 2,549,775,158 Italian Lira April 1998 (268)
-------
$ (146)
-------
-------
</TABLE>
THE OAKMARK FAMILY OF FUNDS 51
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
The Int'l Small Cap Fund had the following outstanding transaction hedges:
FOREIGN CURRENCY PURCHASES:
<TABLE>
<CAPTION>
UNREALIZED DEPRECIATION
US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE AT MARCH 31, 1998
<C> <S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
$ 35,227 52,515 Australian Dollar April 1998 $ (496)
29,085 43,169 Australian Dollar April 1998 (535)
2,874 4,328 Australian Dollar April 1998 (12)
25,614 38,698 Australian Dollar April 1998 (21)
5,128 9,476 Deutsche Mark April 1998 (5)
210,443 125,675 Pounds Sterling April 1998 (63)
6,924 53,634 Hong Kong Dollar April 1998 (2)
1,914 14,823 Hong Kong Dollar April 1998 (1)
30,314 3,903,264 Japanese Yen April 1998 (1,016)
85,639 11,145,888 Japanese Yen April 1998 (1,977)
25,710 3,423,557 Japanese Yen April 1998 (13)
172,068 310,872 New Zealand April 1998 (233)
12,029 453,980 Philippine Peso April 1998 (82)
24,488 911,444 Philippine Peso April 1998 (503)
38,917 1,451,210 Philippine Peso April 1998 (727)
20,713 782,339 Philippine Peso April 1998 (125)
------
$(5,811)
------
------
</TABLE>
FOREIGN CURRENCY SALES:
<TABLE>
<CAPTION>
UNREALIZED DEPRECIATION
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE AT MARCH 31, 1998
<C> <S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
$217,520 396,606,600 Italian Lira April 1998 $ (37)
622,787 1,135,558,115 Italian Lira April 1998 (120)
-----
$(157)
-----
-----
</TABLE>
At March 31, 1998, International and Int'l Small Cap Funds each had sufficient
cash and/or securities to cover any commitments under these contracts.
SECURITIES LENDING--
Each Fund except The Oakmark Fund may lend portfolio securities to broker-
dealers and banks.
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 market values (in thousands) of securities on loan to broker-dealers
at March 31, 1998 are shown below.
<TABLE>
<CAPTION>
INT'L
SMALL EQUITY & SMALL
SELECT CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Market Value of Securities
Loaned $100,074 $140,279 $3,253 $143,433 $1,254
Collateral (Cash and U.S.
Treasuries) 103,025 144,534 3,368 149,912 1,328
</TABLE>
52 THE OAKMARK FAMILY OF FUNDS
<PAGE>
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. 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 and .80%
on the excess of $2.5 million 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 through
January 3, 1999 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. Registration expenses of approximately
$62,282, $56,751, $56,811 and $56,726 were advanced to Select, Small Cap, Equity
and Income and Int'l Small Cap, respectively, by the Adviser. Registration
expenses have been fully amortized for all funds.
During the six months ended March 31, 1998, the Funds incurred brokerage
commissions of $4,183,063, $905,263, $813,752, $23,504, $2,081,900 and $244,965
of which $754,519, $304,147, $80,328, $15,556, $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.
3. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in the Statement of Changes in Net
Assets are in respect of the following number of shares (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------------------
EQUITY & INT'L SMALL
OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Shares sold 45,359 56,025 16,231 1,703 25,100 5,841
Shares issued in reinvestment of
dividends 9,728 410 3,133 149 20,108 786
Less shares redeemed (14,896) (13,057) (25,068) (584) (37,257) (2,976)
------- ------- --------- -------- ------ -----
Net increase (decrease) in shares
outstanding 40,191 43,378 (5,704) 1,268 7,951 3,651
------- ------- --------- -------- ------ -----
------- ------- --------- -------- ------ -----
</TABLE>
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------
EQUITY & INT'L SMALL
OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Shares sold 57,274 42,531 78,065 1,941 41,290 5,229
Shares issued in reinvestment of
dividends 7,961 0 0 25 793 135
Less shares redeemed (26,163) (11,065) (20,201) (879) (32,948) (3,438)
------- ------- --------- -------- ------ -----
Net increase in shares outstanding 39,072 31,466 57,864 1,087 9,135 1,926
------- ------- --------- -------- ------ -----
------- ------- --------- -------- ------ -----
</TABLE>
THE OAKMARK FAMILY OF FUNDS 53
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
4. INVESTMENT TRANSACTIONS
Transactions in investment securities (excluding short term securities) were as
follows (in thousands):
<TABLE>
<CAPTION>
INT'L
EQUITY & SMALL
OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Purchases $2,302,458 $725,844 $197,956 $17,310 $254,391 $ 39,688
Proceeds from sales 1,317,117 35,817 321,357 3,420 422,432 20,230
</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 the Fund's
transactions in the securities of these issuers during the six months ended
March 31, 1998 is set forth below:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK FUND
<TABLE>
<CAPTION>
MARKET
PURCHASES SALES DIVIDEND VALUE
AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
ACNielsen Corporation - $ - - $ 125,948,250
Ambac Financial Group, Inc. - - $ 790,164 256,528,938
The Black & Decker Corporation $ 46,677,053 - 1,915,080 438,667,687
Dun & Bradstreet Corporation 92,554,603 - 3,335,552 333,030,694
GC Companies, Inc. - - - 20,768,063
Juno Lighting, Inc. - - 195,300 22,920,625
Knight Ridder, Inc. - - 1,860,000 259,818,750
Polaroid Corporation 11,171,805 - 1,365,720 200,305,600
SPX Corporation - - - 66,788,700
------------ --- ------------- -----------------
Totals 150,403,461 - 9,461,816 1,724,777,307
</TABLE>
54 THE OAKMARK FAMILY OF FUNDS
<PAGE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK SELECT FUND
<TABLE>
<CAPTION>
MARKET
PURCHASES SALES DIVIDEND VALUE
AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
USG Corporation $ 81,163,762 - - $137,647,087
US Industries Inc. 99,803,998 - $ 479,440 186,988,750
------------ --- ----------- ---------------
Totals 180,967,760 - 479,440 324,635,837
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK SMALL CAP FUND
<TABLE>
<CAPTION>
MARKET
PURCHASES SALES DIVIDEND VALUE
AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Ascent Entertainment Group, Inc. $ 3,794,484 $ 6,255,329 - $ 20,625,000
Binks Sames Corporation 1,078,125 - $ 24,700 13,174,540
The Carbide/Graphite Group, Inc. 446,250 - - 24,450,000
Cole National Corporation 9,549,025 - - 48,281,250
Columbus McKinnon Corporation 1,859,814 - 113,701 24,114,750
Duff & Phelps Credit Rating Company - - 17,808 14,951,300
Granite Broadcasting Corporation - - - 9,250,000
Highlands Insurance Group, Inc. 1,378,000 - - 30,906,250
International Multifoods Corporation 2,045,420 2,700,261 416,980 29,937,500
MagneTek, Inc. 2,076,960 - - 47,031,250
Northwest Pipe Company 1,520,000 - - 13,050,000
Pocahontas Federal Savings and Loan
Assn. - 1,748,504 54,000 4,475,000
PXRE Corporation - 13,457,697 572,750 23,250,000
Ralcorp Holdings, Inc. - 8,420,479 - 51,875,000
RenaissanceRe Holdings 9,657,585 6,255,329 812,500 75,000,000
Barry (R.G.) Corporation 2,693,179 - - 11,000,000
Savings Bank of the Finger Lakes - - 18,800 3,666,000
Scotsman Industries, Inc. - 1,197,045 51,038 28,750,000
SPX Corporation - 12,897,570 - 53,418,750
Stoneridge, Inc. 29,973,979 - - 30,000,000
Titan Exploration, Inc. 1,179,168 824,504 - 24,375,000
Triarc Companies, Inc. 1,959,905 3,672,971 - 42,000,000
Ugly Duckling Corporation 15,549,929 - - 18,921,875
----------- ----------- ---------- ---------------
Totals 84,761,823 57,429,689 2,082,277 642,503,465
</TABLE>
THE OAKMARK FAMILY OF FUNDS 55
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK INTERNATIONAL FUND
<TABLE>
<CAPTION>
MARKET
PURCHASES SALES DIVIDEND VALUE
AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Banco Latinoamericano de Exportaciones,
S.A.
Class E $ 28,457,211 - $ 849,888 $43,216,075
BYC Co. Ltd. - $ 329,484 9,894 1,549,863
Chargeurs International Sa - 3,923,390 - 39,744,066
Cordiant Communications Group plc 6,022,173 - - 44,263,911
European Vinyls Corporation Intl. N.V. - 639,518 - 28,209,192
Fernz Corporation Limited 6,460,313 - 735,821 38,816,595
Fila Holding S.p.A. 15,424,202 - - 53,777,344
Giordano International Limited 8,253,910 - - 17,283,322
Hong Kong Aircraft Engineering Company
Ltd. 1,270,809 - - 19,762,221
Keumkang Ltd. 1,916,646 - 159,292 6,898,482
Lamex Holdings Ltd. - - 181,184 1,793,774
Lotte Chilsung 3,009,525 - 17,504 6,216,606
Quilmes Industrial SA 3,791,703 6,032,846 - 58,134,525
Saatchi & Saatchi plc - - - 54,025,212
Tae Young Corporation 12,839,562 - 88,024 11,978,490
USIMINAS 10,583,452 - 3,460,482 56,732,281
Varitronix International Limited 481,148 - 374,426 31,181,073
Woongjin Publishing Company 2,936,743 - 34,695 3,182,511
------------ ----------- ---------- ---------------
Totals 101,447,397 10,925,238 5,911,210 516,765,543
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
MARKET
PURCHASES SALES DIVIDEND VALUE
AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Daimon $ 515,519 - $ 30,252 $ 1,646,358
Designer Textiles (NZ) Limited - - 39,131 736,263
Matichon Public Company Limited 50,018 - - 2,238,526
Parbury Limited 2,870,863 - 65,550 3,097,351
Solution 6 Holdings Ltd. 368,718 - - 2,303,990
Woongjin Publishing Company 2,650,542 - 46,998 2,792,358
---------- --- ----------- ---------------
Totals 6,455,660 - 181,931 12,814,846
</TABLE>
56 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
.................................................................................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS YEAR ENDED OCTOBER 31,
ENDED ENDED -------------------------------------------------------------
MARCH 31, 1998 SEPTEMBER 30, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10
Income From Investment
Operations:
Net Investment Income
(Loss) 0.25 0.36 0.34 0.30 0.27 0.17 (0.03)(d)
Net Gains or Losses on
Securities (both
realized and unrealized) 5.35 10.67 4.70 4.66 1.76 7.15 5.04
------------ ---------- ---------- --------- --------- --------- -------
Total From Investment
Operations: 5.60 11.03 5.04 4.96 2.03 7.32 5.01
Less Distributions:
Dividends (from net
investment income) (0.40) (0.34) (0.28) (0.23) (0.23) (0.04) --
Distributions (from capital
gains) (1.98) (1.87) (0.84) (1.47) (0.77) (0.21) --
------------ ---------- ---------- --------- --------- --------- -------
Total Distributions (2.38) (2.21) (1.12) (1.70) (1.00) (0.25) --
------------ ---------- ---------- --------- --------- --------- -------
Net Asset Value, End of Period $ 44.43 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11
------------ ---------- ---------- --------- --------- --------- -------
------------ ---------- ---------- --------- --------- --------- -------
Total Return 14.43% 39.24%* 18.07% 21.55% 8.77% 43.21% 41.40%
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $ 8,918.4 $6,614.9 $ 3,933.9 $ 2,827.1 $1,677.3 $1,107.0 $ 114.7
Ratio of Expenses to
Average Net Assets 1.03% 1.08%* 1.18% 1.17% 1.22% 1.32% 1.70%
Ratio of Net Income (Loss)
to Average Net Assets 1.29% 1.19%* 1.13% 1.27% 1.19% 0.94% (0.24)%
Portfolio Turnover Rate 19.93% 17.3% 23.7% 18.0% 29.3% 18.0% 34.0%
Average Brokerage
Commission Paid $0.0568 $0.0537 $0.0530 n/a n/a n/a n/a
<CAPTION>
PERIOD
OCTOBER 31,
1991(a)
<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) 2.11
-------
Total From Investment
Operations: 2.10
Less Distributions:
Dividends (from net
investment income) --
Distributions (from capital
gains) --
-------
Total Distributions --
-------
Net Asset Value, End of Period $ 12.10
-------
-------
Total Return 87.10%*
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $ 4.8
Ratio of Expenses to
Average Net Assets 2.50%(b)*
Ratio of Net Income (Loss)
to Average Net Assets (0.66)%(b)*
Portfolio Turnover Rate 0.0%
Average Brokerage
Commission Paid n/a
</TABLE>
*Data has been annualized.
(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% and the
annualized ratio of net income (loss) to average net assets would have been
(3.08%).
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
................................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
<S> <C> <C>
- ---------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 16.34 $10.00
Income From Investment
Operations:
Net Investment Income
(Loss) 0.02 (0.01)
Net Gains or Losses on
Securities (both realized
and unrealized) 3.68 6.35
------ --------
Total From Investment
Operations: 3.70 6.34
Less Distributions:
Dividends (from net
investment income) 0.00 0.00
Distributions (from capital
gains) (0.17) 0.00
------ --------
Total Distributions (0.17) 0.00
------ --------
Net Asset Value, End of Period $ 19.87 $ 16.34
------ --------
------ --------
Total Return 22.88% 69.16%*
Ratios/Supplemental Data:
Net Assets, End of Period
($million) $1,486.86 $ 514.17
Ratio of Expenses to
Average Net Assets 1.13% 1.12%*
Ratio of Net Income (Loss)
to Average Net Assets 0.23% (0.11)%*
Portfolio Turnover Rate 4.04% 36.93%
Average Commission Rate
Paid $0.0567 $0.0573
</TABLE>
*Data has been annualized.
58 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK SMALL CAP FUND
- -----------------------------------------------------------------
FINANCIAL HIGHLIGHTS
.................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS YEAR ENDED
ENDED ENDED OCTOBER 31,
MARCH 31, 1998 SEPTEMBER 30, 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 20.34 $ 13.19 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) (0.04) (0.01) (0.02)
Net Gains or Losses on
Securities (both realized
and unrealized) 1.34 7.16 3.21
--------- -------- --------
Total From Investment
Operations: 1.30 7.15 3.19
Less Distributions:
Dividends (from net
investment income) 0.00 0.00 0.00
Distributions (from capital
gains) (0.84) 0.00 0.00
--------- -------- --------
Total Distributions (0.84) 0.00 0.00
--------- -------- --------
Net Asset Value, End of Period $ 20.80 $ 20.34 $ 13.19
--------- -------- --------
--------- -------- --------
Total Return 6.84% 59.14%* 31.94%
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $1,429.0 $1,513.4 $ 218.4
Ratio of Expenses to
Average Net Assets 1.39% 1.37%* 1.61%
Ratio of Net Income (Loss)
to Average Net Assets (0.39)% (0.25)%* (0.29)%
Portfolio Turnover Rate 14.51% 26.88% 23.15%
Average Commission Rate
Paid $0.0523 $0.0482 $0.0520
</TABLE>
*Data has been annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- ----------------------------------------------------------------
FINANCIAL HIGHLIGHTS
................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30, OCTOBER 21,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $14.49 $ 11.29 $10.00
Income From Investment
Operations:
Net Investment Income 0.15 0.21 0.10
Net Gains or Losses on
Securities (both realized
and unrealized) 1.14 3.24 1.19
------ -------- --------
Total From Investment
Operations: 1.29 3.45 1.29
Less Distributions:
Dividends (from net
investment income) (0.24) (0.12) 0.00
Distributions (from capital
gains) (0.59) (0.13) 0.00
------ -------- --------
Total Distributions (0.83) (0.25) 0.00
------ -------- --------
Net Asset Value, End of Period $14.95 $ 14.49 $11.29
------ -------- --------
------ -------- --------
Total Return 9.61% 34.01%* 12.91%
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $53.5 $ 33.46 $ 13.8
Ratio of Expenses to
Average Net Assets 1.29% 1.50%*(a) 2.50%(a)
Ratio of Net Income (Loss)
to Average Net Assets 2.48% 2.38%*(a) 1.21%(a)
Portfolio Turnover Rate 8.77% 53.10% 66.35%
Average Commission Rate
Paid $0.0594 $0.0554 $0.0581
</TABLE>
*Data has been annualized.
(a) If the fund had paid all of its expenses and there had been no expense
reimbursement by the investment adviser for the period ended September 30,
1997, and the year ended October 31, 1996, the ratios of expenses to average
net assets would have been 1.70%* and 2.64% respectively, and the ratios of
net income to average net assets would have been 2.18% and 1.08%
respectively.
60 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
..................................................................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS YEAR ENDED OCTOBER 31, PERIOD ENDED
ENDED ENDED ------------------------------------------- OCTOBER 31,
MARCH31, 1998 SEPTEMBER 30, 1997 1996 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $18.77 $14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $10.00
Income From Investment
Operations:
Net Investment Income 0.13 0.27 0.09 0.30 0.21 0.06 0.26
Net Gains or Losses on
Securities (both
realized and unrealized) (0.78) 3.74 2.90 (0.77) 0.43 4.48 (0.46)
-------- -------- --------- --------- --------- --------- --------
Total From Investment
Operations: (0.65) 4.01 2.99 (0.47) 0.64 4.54 (0.2)
Less Distributions:
Dividends (from net
investment income) (0.58) (0.16) 0.00 0.00 (0.08) (0.25) --
Distributions (from capital
gains) (2.86) 0.00 (1.04) (1.06) (0.15) -- --
-------- -------- --------- --------- --------- --------- --------
Total Distributions (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) --
-------- -------- --------- --------- --------- --------- --------
Net Asset Value, End of Period $14.68 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80
-------- -------- --------- --------- --------- --------- --------
-------- -------- --------- --------- --------- --------- --------
Total Return (1.24)% 29.63%* 24.90% (3.06)% 4.62% 47.49% (22.81)%*
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $86.8 $1,647.3 $1,172.8 $ 819.7 $1,286.0 $ 815.4 $23.5
Ratio of Expenses to
Average Net Assets 1.26% 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%*
Ratio of Net Income (Loss)
to Average Net Assets 1.31% 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%*
Portfolio Turnover Rate 19.68% 61% 42% 26% 55% 21% 0%
Average Commission Rate
Paid $0.0109 $0.0052 $0.0158 n/a n/a n/a n/a
</TABLE>
*Data has been annualized.
(a) From September 30, 1992, the date on which Fund shares were first offered
for sale to the public.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 61
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
..................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30, OCTOBER 21,
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $12.20 $11.41 $10.00
Income From Investment
Operations:
Net Investment Income 0.03 0.13 0.04
Net Gains or Losses on
Securities (both
realized and unrealized) (1.25) 1.10 1.37
-------- -------- --------
Total From Investment
Operations: (1.22) 1.23 1.41
Less Distributions:
Dividends (from net
investment income) (0.05) (0.08) 0.00
Distributions (from capital
gains) (1.34) (0.36) 0.00
-------- -------- --------
Total Distributions (1.39) (0.44) 0.00
-------- -------- --------
Net Asset Value, End of Period $9.59 $12.20 $11.41
-------- -------- --------
-------- -------- --------
Total Return (9.81)% 12.07%* 14.15%
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $86.84 $65.97 $39.8
Ratio of Expenses to
Average Net Assets 1.83% 1.93%* 2.50%(a)
Ratio of Net Income (Loss)
to Average Net Assets 1.37% 1.23%* 0.65%(a)
Portfolio Turnover Rate 34.35% 62.63% 27.44%
Average Commission Rate
Paid $0.0032 $0.0025 $0.0036
</TABLE>
*Data has been annualized.
(a) If the fund had paid all of its expenses and there had been no expense
reimbursement by the investment advisor, the ratio of expenses to average
net assets would have been 2.65% and the ratio of net income (loss) to
average net assets would have been .50%.
62 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--CHAIRMAN
Robert M. Levy--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--VICE PRESIDENT
Donald Terao--VICE PRESIDENT--FINANCE
Anita M. Nagler--SECRETARY
Ann W. Regan--VICE PRESIDENT--
SHAREHOLDER OPERATIONS AND ASSISTANT SECRETARY
Kristi L. Rowsell--TREASURER
OTHER INFORMATION
INVESTMENT ADVISER
Harris Associates L.P.
Two North LaSalle Street
Chicago, Illinois 60602-3790
TRANSFER AGENT
State Street Bank and Trust Company
Attention: The Oakmark Family of Funds
P.O. Box 8510
Boston, Massachusetts 02266-8510
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
FOR MORE INFORMATION:
Please call 1-800-OAKMARK
(1-800-625-6275)
WEBSITE
www.oakmark.com
24-HOUR NAV HOTLINE
1-800-GROWOAK (1-800-476-9625)
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]
THE OAKMARK FAMILY OF FUNDS 63
<PAGE>
[LOGO]
64 THE OAKMARK FAMILY OF FUNDS
<PAGE>
[LOGO]
OAKMARK
FAMILY OF FUNDS
P.O BOX 8510
BOSTON, MA 02266-8510
