<PAGE>
SEMI-ANNUAL REPORT
JUNE 30, 1999 THE OAKMARK
FUND
THE OAKMARK
SELECT FUND
THE OAKMARK
[LOGO] SMALL CAP FUND
THE OAKMARK
EQUITY AND
INCOME FUND
THE OAKMARK
INTERNATIONAL FUND
THE OAKMARK
INTERNATIONAL
SMALL CAP FUND
MEMBER OF
- --------------------
- --------------------
100% NO-LOAD
MUTUAL FUND
COUNCIL
- --------------------
- --------------------
MANAGED BY
HARRIS ASSOCIATES L.P.
OAKMARK
<PAGE>
THE OAKMARK FAMILY OF FUNDS
1999 THIRD QUARTER 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................................... 6
THE OAKMARK SELECT FUND
Letter from the Portfolio Manager......................... 9
Schedule of Investments................................... 11
THE OAKMARK SMALL CAP FUND
Letter from the Portfolio Manager......................... 13
Schedule of Investments................................... 15
THE OAKMARK EQUITY AND INCOME FUND
Letter from the Portfolio Manager......................... 18
Schedule of Investments................................... 20
THE OAKMARK INTERNATIONAL FUND
Letter from the Portfolio Managers........................ 23
International Diversification Chart....................... 25
Schedule of Investments................................... 26
THE OAKMARK INT'L SMALL CAP FUND
Letter from the Portfolio Managers........................ 30
International Diversification Chart....................... 32
Schedule of Investments................................... 33
TRUSTEES AND OFFICERS....................................... 37
</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) or (617) 483-5000.
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).
TO COMMENT ON SHAREHOLDER SERVICES
E-mail us at [email protected].
<PAGE>
LETTER FROM THE CHAIRMAN AND PRESIDENT...
........................................................................
DEAR FELLOW SHAREHOLDERS:
WE ARE PLEASED TO PRESENT THE THIRD QUARTER REPORT FOR THE OAKMARK FAMILY OF
FUNDS. FOR THE QUARTER, OUR UNWAVERING CONFIDENCE IN OUR INVESTMENT PHILOSOPHY
AND PROCESS WAS REWARDED WITH STRONG ABSOLUTE AND RELATIVE RETURNS IN OUR MUTUAL
FUNDS. MORE IMPORTANTLY, ALL OF OUR MUTUAL FUND MANAGERS CONTINUE TO BE
ENTHUSIASTIC ABOUT THE CURRENT HOLDINGS IN THEIR FUNDS. THIS CONFIRMS OUR
FEELING THAT THE VALUE "COMEBACK" MAY BE SUSTAINABLE.
[PHOTO]
AS ALWAYS, WE MAKE EVERY EFFORT TO CAPITALIZE ON INVESTMENT OPPORTUNITIES.
OUR INVESTMENT PROFESSIONALS, BOTH ANALYSTS AND PORTFOLIO MANAGERS, HAVE
PRESENTED COMPELLING EVIDENCE OF THE ATTRACTIVE OPPORTUNITIES AVAILABLE IN THE
VALUE SECTOR. THIS THEME IS CONSISTENT IN BOTH THE DOMESTIC AND INTERNATIONAL
MARKETS. IN ORDER TO BENEFIT FURTHER FROM THESE INVESTMENT OPPORTUNITIES, WE ARE
PLEASED TO ANNOUNCE THAT WE ARE STARTING A NEW MUTUAL FUND--THE OAKMARK GLOBAL
FUND. IT WILL UTILIZE THE SAME DISCIPLINED VALUE APPROACH USED IN ALL OF OUR
MUTUAL FUNDS AND WILL PROVIDE A SINGLE VEHICLE FOR THOSE WHO WANT THE BENEFITS
OF OUR GLOBAL ASSET ALLOCATION.
THE FUND IS DESIGNED TO CAPITALIZE ON OUR VALUE INVESTING PHILOSOPHY
REGARDLESS OF THE LOCATION OF THE UNDERLYING CORPORATION. MICHAEL WELSH,
CO-MANAGER OF OUR INTERNATIONAL FUNDS, AND GREG JACKSON, A SENIOR DOMESTIC
RESEARCH ANALYST, WILL CO-MANAGE THE FUND. THEY ARE ENTHUSIASTIC AND
EXPERIENCED, AND PLAN TO MAKE SUBSTANTIAL PERSONAL INVESTMENTS IN THE FUND. THE
GLOBAL FUND WILL BE MORE CONCENTRATED (40-50 STOCKS) THAN MOST OTHER FUNDS IN
ITS CATEGORY. THIS WILL MAXIMIZE THE IMPACT OUR STOCK SELECTION ABILITY HAS ON
THE PORTFOLIO WITHOUT SACRIFICING THE BENEFIT OF DIVERSIFICATION. JUST AS
COMPANIES COMPETE IN A GLOBAL MARKETPLACE, INVESTMENT IDEAS ON A GLOBAL BASIS
WILL COMPETE HEAD-TO-HEAD TO BE INCLUDED IN THIS PORTFOLIO.
IN THE NEAR FUTURE WE WILL ADD REDEMPTION FEES TO OUR SPECIALTY FUNDS TO
SEVERELY REDUCE THE NEGATIVE IMPACT ASSOCIATED WITH SHORT TERM TRADERS AS
SHAREHOLDERS IN OUR FUNDS. THE FEE WILL BE 2% ON REDEMPTIONS THAT ARE MADE IN
LESS THAN 90 DAYS FROM THE DATE OF PURCHASE. THE PROCEEDS OF THE REDEMPTION
CHARGE ARE RETAINED BY THE FUND FOR THE BENEFIT OF THE LONG-TERM INVESTORS. IT
WILL BE INSTITUTED ON THE FOLLOWING FUNDS: SMALL CAP, SELECT, INTERNATIONAL,
INTERNATIONAL SMALL CAP AND THE NEW GLOBAL FUND. PLEASE READ BILL NYGREN'S
ENCLOSED REPORT ON THE SELECT FUND WHICH DESCRIBES WHY THIS IS A POSITIVE FOR
OUR LONG-TERM SHAREHOLDERS.
IN AN EFFORT TO INCREASE FEEDBACK REGARDING SHAREHOLDER SERVICING, WE HAVE
ADDED A NEW E-MAIL ADDRESS: [email protected]. PLEASE USE THIS ADDRESS
TO COMMENT ON OUR INVESTOR SERVICES.
OUR Y2K PREPARATION CONTINUES TO BE ON SCHEDULE AND WE REMAIN CONFIDENT THAT
WE ARE PREPARED FOR THIS EVENT.
THIS QUARTER ANSWERED SOME OF THE SKEPTICS ABOUT OUR VALUE APPROACH. WE
CONTINUE TO BELIEVE THAT PRICE AND VALUATION DO MATTER AND WE ARE CONFIDENT THAT
OUR FUNDS ARE WELL POSITIONED TO TAKE ADVANTAGE OF THE OPPORTUNITIES THE MARKET
IS PRESENTING.
/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
JUNE 30, 1999 FUND
<S> <C> <C>
------------------------ ------------------------
- ----------------------------------------------------------------------------------------
3 MONTHS 11.5% 7.5%
........................................................................................
6 MONTHS 11.0% 19.0%
........................................................................................
1 YEAR 7.6% 19.7%
........................................................................................
AVERAGE ANNUAL TOTAL RETURN
FOR:
3 YEAR 18.3% N/A
........................................................................................
5 YEAR 20.1% N/A
........................................................................................
SINCE INCEPTION 26.0% 40.0%
VALUE OF $10,000 $62,332 $24,482
FROM INCEPTION DATE (8/5/91) (11/1/96)
- ----------------------------------------------------------------------------------------
TOP FIVE HOLDINGS Philip Morris USG Corporation 10.7%
AS OF JUNE 30, 1999 Companies Inc. 7.5% Washington
COMPANY AND % OF TOTAL NET The Black & Decker Mutual, Inc. 10.3%
ASSESTS Corporation 5.9% U.S. Industries,
Nike, Inc., Class B 5.8% Inc. 8.0%
Mattel, Inc. 5.6% First Data
The Boeing Company 5.6% Corporation 7.0%
Thermo Electron
Corporation 5.1%
- ----------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Other Consumer Computer Services 19.0%
AS OF JUNE 30, 1999 Goods & Services 17.8% Banks & Thrifts 13.1%
INDUSTRIES AND % OF TOTAL NET Aerospace & Building Materials &
ASSETS Defense 10.1% Construction 10.7%
Food & Beverage 9.2% Diversified
Banks & Thrifts 9.1% Conglomerates 8.0%
Information Machinery & Industrial
Services 7.7% Processing 5.1%
</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 13.3% 9.9% 21.0% 16.8%
..................................................................................................................................
6 Months 3.3% 9.9% 37.7% 45.5%
..................................................................................................................................
1 Year (11.1%) 13.1% 27.0% 54.8%
..................................................................................................................................
Average Annual Total Return
for:
3 Year 13.4% 18.7% 11.9% 9.8%
..................................................................................................................................
5 Year N/A N/A 12.4% N/A
..................................................................................................................................
Since inception 17.8% 18.2% 15.0% 12.3%
Value of $10,000 $18,205 $18,457 $25,728 $15,317
from inception date (11/1/95) (11/1/95) (9/30/92) (11/1/95)
- ----------------------------------------------------------------------------------------------------------------------------------
TOP FIVE HOLDINGS Symantec Imation Corp. 5.4% Cordiant Royal Doulton plc 5.4%
AS OF JUNE 30, 1999 Corporation 4.8% The Reynolds and Communications Carpetright plc 5.3%
COMPANY AND % OF TOTAL NET SPX Corporation 3.9% Reynolds Company, Group plc 4.8% JCG Holdings Ltd. 4.5%
ASSESTS Department 56, Class A 4.0% Tomkins plc 4.6% Wassall PLC 4.1%
Inc. 3.8% First Data Citizen Watch Co. 4.2% House of Fraser
Duff & Phelps Credit Corporation 3.8% Giordano International Plc 4.0%
Rating Co. 3.8% Lear Corporation 3.5% Limited 4.2%
Catellus Development Amli Residential Somerfield plc 4.2%
Corporation 3.7% Properties
Trust 3.5%
- ----------------------------------------------------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Other Industrial U.S. Government Other Industrial Retail 13.3%
AS OF JUNE 30, 1999 Goods & Bonds 24.7% Goods & Diversified
INDUSTRIES AND % OF TOTAL NET Services 12.7% Computer Services 14.4% Conglomerates 10.4%
ASSETS Retail 10.9% Services 14.1% Retail 8.4% Production
Banks & Thrifts 9.6% Real Estate 9.8% Consumer Equipment 8.6%
Food & Beverage 7.5% Banks & Thrifts 8.9% Non-Durables 7.8% Other Financial 7.4%
Insurance 7.3% Data Storage 5.4% Banks 7.8% Other Industrial
Marketing Goods &
Services 6.7% Services 6.6%
</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 (6/30/99)
AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
[LOGO]
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN*
THROUGH 6/30/99
TOTAL RETURN FROM FUND INCEPTION
6/30/99 NAV $39.76 LAST 3 MOS. 8/5/91
<S> <C> <C>
- ------------------------------------------------------------------
THE OAKMARK FUND 11.5% 26.0%
Standard & Poor's 500 Stock
Index w/inc** 7.1% 20.2%
Dow Jones Industrial Average
w/inc** 12.5% 20.6%
Value Line Composite Index** 13.8% 8.7%
</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
We have always viewed the investment process as a continuum. Nevertheless, here
at the mid-point of the calendar year, it is a good time to discuss our Fund.
The year began with the US 30-year bond yielding about 5.3%, and it now yields
about 6.3%. Despite this, both The Oakmark Fund and the Stan-dard & Poor's 500
have returned in excess of ten percent year-to-date. Consequently, in general,
opportunities are not as ample as they were at the beginning of the year and
surely not as ample as about a year ago, when anxiety over the global
economy--particularly Russia and Southeast Asia--drove stock prices to
attractive levels. Thus, since we are having a marginally tougher time finding
individual securities selling at significant discounts to value, cash in The
Oakmark Fund is now at around ten percent of assets. As I have stated before, we
are never, ever market-timers; however, we will only hold stocks in the Fund
that offer satisfactory risk-adjusted expected returns.
During calendar year 1999, I have made only minor adjustments to our Fund. I
have eliminated a couple of large holdings as they attained our sell targets
(typically 90% of our estimate of underlying value). Generally, I have not found
compelling reasons to make major changes in our portfolio.
I remain quite confident of our Fund's relative attractiveness compared to the
Standard & Poor's 500. While the superior performance your Fund generated in the
past quarter is gratifying, I continue to believe that its holdings are as
undervalued to the broader market as they have EVER been. The growth stocks that
dominate the S&P 500 continue to remain extremely overvalued and we continue to
avoid them.
I also remain quite confident that the Internet stocks, which now have a market
value over one trillion dollars (!!), remain in mega-bubble mode. Recent
articles outlining the huge Internet successes of noted investor (and would-be
money manager!) Barbra Streisand are typical of the illusion of quick and easy
wealth that continues to entice investors (and has enticed investors for
centuries). The spate of IPOs in this sector continues at a torrid pace. Just
last week, eleven of the fourteen biggest IPOs were Internet companies. As long
4
THE OAKMARK FUND
<PAGE>
........................................................................
as investors continue to view these deals as "easy money," sellers and their
friendly underwriters will continue to provide them. Watching CNBC, I note a
growing chorus of individual investors clamoring for "their fair share" of IPOs.
Of course, the fact that over time IPOs have proven to be below-average
performers does not enter into investors' calculus at this time.
Looking into the future, I can envision a flood of lawsuits down the line that
will make today's euphoria a very hazy memory. I can even envision legislators
enacting "The Internet Investors' Security Act of 1999" in response to all the
sad tales of family savings having been squandered by day-trading Internet
stocks. After all, as Mrs. Ned Flanders always cries out on "The Simpsons,"
"What about the children?"--this is the perfect way to advance any governmental
program in this age.
So, as we sit here in the middle of summer, I am very confident that our Fund
will prove its value, especially relative to the broader market. In general, the
companies that comprise your portfolio are performing well in a brutally
competitive landscape.
/S/ ROBERT SANBORN
ROBERT SANBORN
Portfolio Manager
[email protected]
July 7, 1999
THE OAKMARK
BOOK CLUB
Another summer has rolled around and it is time again for another installment of
The Oakmark Book Club. Here are the books that I have read that I recommend for
those interested in investing, finance, business, and economics:
DEVIL TAKE THE HINDMOST: A HISTORY OF FINANCIAL SPECULATION, BY EDWARD
CHANCELLOR (FARRAR, STRAUS AND GIROUX, 1999): a fascinating look at financial
manias throughout history, from tulip mania in 1630s Holland to the Internet
bubble of 1999; common to all is a deeply popular yearning for (financial)
freedom to counter the dull rationalism of economic systems; all day traders
should read this book before it is too late.
THE AGE OF SPIRITUAL MACHINES: WHEN COMPUTERS EXCEED HUMAN INTELLIGENCE, BY RAY
KURZWEIL (VIKING, 1999): What will happen when computers are smarter than human
beings? By 2020, Kurzweil forecasts, a $1,000 desktop PC will have computing
power equal to a human brain; by 2060, the same desktop PC will have the
computational power of every human brain on earth. Ultimately, the merging of
human beings and computers will produce, he soberly forecasts, a golden age on
earth.
MORGAN: AMERICAN FINANCIER, BY JEAN STROUSE (RANDOM HOUSE, 1999): an exhaustive,
highly readable biography of one of the most significant figures in American
finance.
THE LEXUS AND THE OLIVE TREE, THOMAS FRIEDMAN (FARRAR STRAUS & GIROUX, 1999): a
broad, anecdotal look at the globalization of the economy; the Lexus of the
title represents the material and technological marvels after which most of the
world lusts, and the olive tree symbolizes the Arab-Israeli conflict and other
conflicts that prevent their populations from fully entering the global economy.
ALEXANDER HAMILTON, AMERICAN, BY RICHARD BROOKHISER, (FREE PRESS, 1999): a
concise assessment of the nation's first Secretary of the Treasury and advocate
of the national economic system.
THE FUTURE AND ITS ENEMIES, BY VIRGINIA POSTREL (FREE PRESS, 1998): a
libertarian manifesto that paints a battle between stasists, generally elites
who want to control change, and dynamists, who embrace a future formed by an
infinite number of individual decisions made privately; she convincingly argues
that if we embrace the future while respecting individual liberty, the future is
bright!
NUMBERED ACCOUNT, BY CHRISTOPHER REICH (DELACORTE PRESS, 1998): in a weak
field--financial thrillers--this is a satisfactory beach book set in the
rarified world of Swiss banking.
THE OAKMARK FUND
5
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--90.0%
FOOD & BEVERAGE--9.2%
Philip Morris Companies Inc. 11,110,700 $ 446,511,256
Nabisco Holdings Corporation, Class A 2,372,100 102,593,325
--------------
549,104,581
APPAREL--5.8%
Nike, Inc., Class B 5,432,100 $ 343,919,831
RETAIL--0.2%
GC Companies, Inc. (a) 331,400 $ 11,847,550
HARDWARE--7.3%
The Black & Decker Corporation 5,563,700 $ 351,208,562
The Stanley Works 2,524,900 81,270,219
--------------
432,478,781
OTHER CONSUMER GOODS & SERVICES--17.8%
Mattel, Inc. 12,614,400 $ 333,493,200
H&R Block, Inc. 6,465,500 323,275,000
Brunswick Corporation 7,280,800 202,952,300
Fortune Brands, Inc. 4,861,100 201,128,012
--------------
1,060,848,512
BANKS & THRIFTS--9.1%
Bank One Corporation 4,600,548 $ 274,020,140
Washington Mutual, Inc. 7,480,000 264,605,000
--------------
538,625,140
INSURANCE--1.2%
Old Republic International Corporation 4,122,930 $ 71,378,226
PUBLISHING--5.7%
Knight Ridder, Inc. 5,966,100 $ 327,762,619
R. H. Donnelley Corporation 665,000 13,009,062
--------------
340,771,681
INFORMATION SERVICES--7.7%
The Dun & Bradstreet Corporation 8,901,300 $ 315,439,819
ACNielsen Corporation (a) 4,764,000 144,111,000
--------------
459,550,819
COMPUTER SERVICES--2.4%
First Data Corporation 2,873,200 $ 140,607,225
MEDICAL CENTERS--3.8%
Columbia/HCA Healthcare Corporation 9,901,000 $ 225,866,563
MEDICAL PRODUCTS--1.4%
Sybron International Corporation (a) 2,935,600 $ 80,912,475
</TABLE>
6
THE OAKMARK FUND
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--90.0% (CONT.)
AEROSPACE & DEFENSE--10.1%
The Boeing Company 7,499,400 $ 331,379,738
Lockheed Martin Corporation 7,250,000 270,062,500
--------------
601,442,238
MACHINERY & INDUSTRIAL PROCESSING--7.3%
Eaton Corporation 2,679,600 $ 246,523,200
Cooper Industries, Inc. 3,558,400 185,036,800
--------------
431,560,000
BUILDING MATERIALS & CONSTRUCTION--0.0%
Juno Lighting, Inc. 64,015 $ 1,216,285
OTHER INDUSTRIAL GOODS & SERVICES--1.0%
The Geon Company 971,600 $ 31,334,100
Bandag Incorporated, Class A 1,104,100 31,052,813
--------------
62,386,913
TOTAL COMMON STOCKS (COST: $4,412,075,065) 5,352,516,820
SHORT TERM INVESTMENTS--9.1%
U.S. GOVERNMENT BILLS--0.8%
United States Treasury Bills, 4.51%-4.52%
due 10/7/1999-10/14/1999 50,000,000 $ 49,345,210
--------------
TOTAL U.S. GOVERNMENT BILLS (COST: $49,386,042) 49,345,210
COMMERCIAL PAPER--6.8%
American Express Credit Corp., 4.83%-4.95%
due 7/1/1999-7/9/1999 140,000,000 $ 140,000,000
Ford Motor Credit Corp., 4.86%-5.26% due
7/6/1999-7/19/1999 120,000,000 120,000,000
General Electric Capital Corporation,
4.96%-5.70% due 7/1/1999-8/5/1999 140,000,000 140,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $400,000,000) 400,000,000
</TABLE>
THE OAKMARK FUND
7
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--9.1% (CONT.)
REPURCHASE AGREEMENTS--1.5%
State Street Repurchase Agreement, 4.75%
due 7/1/1999 90,297,000 $ 90,297,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $90,297,000) 90,297,000
TOTAL SHORT TERM INVESTMENTS (COST: $539,683,042) 539,642,210
Total Investments (Cost $4,951,758,107)--99.1% $5,892,159,030
Other Assets In Excess Of Other Liabilities--0.9% 52,810,956
--------------
TOTAL NET ASSETS--100% $5,944,969,986
--------------
--------------
</TABLE>
(a) Non-income producing security.
8
THE OAKMARK FUND
<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
(6/30/99) 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
6/98 $20,462 $16,551
9/98 $16,936 $14,904
12/98 $20,575 $18,078
3/99 $22,766 $18,979
6/99 $24,482 $20,317
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 6/30/99
TOTAL RETURN FROM FUND INCEPTION
6/30/99 NAV $23.25 LAST 3 MOS. 11/1/96
<S> <C> <C>
- ------------------------------------------------------------------------------
THE OAKMARK SELECT FUND 7.5% 40.0%
Standard & Poor's 500 Stock
Index w/inc** 7.1% 30.5%
Standard & Poor's MidCap 400
Index w/ inc** 14.2% 24.2%
Value Line Composite Index** 13.8% 10.5%
</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 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.
The Oakmark Select Fund increased in value 7.5% for the quarter ended June 30.
As shown in the chart below, that gain slightly exceeded the gain in the S&P
500, but trailed the S&P Midcap 400 Index, which I consider a better benchmark
for your fund. For the nine month fiscal year-to-date, your fund has increased
in value by 44.6% versus gains of 37.0% for the S&P Midcap and 36.3% for the S&P
500.
Although Austin Powers would say, "Yeah, baby!," I would caution, as I have in
past quarters, that both the absolute returns and the amount by which your fund
outperformed the indices are historically unusual and are unsustainable. Over
long periods of time, the stock market has achieved returns of only a few
percentage points above long-term bonds, and top performing funds have been only
a couple of percentage points above the market. With long-term interest rates of
6%, investors should expect that only the best performing funds would achieve
double-digit long-term annual returns.
A STERLING IDEA
The quarter just ended was a quiet one for your portfolio. Unlike last quarter,
when I wrote about the unusually high turnover, this quarter saw just one change
in the portfolio. As expected, US Filter shares were tendered, and we used the
cash to add a new investment, Sterling Commerce (SE-$25). Sterling is a leading
global provider of software and services for business-to-business electronic
commerce, both on and off the Internet. Sterling stock has declined this year,
(including a very sharp decline today, which we are using to increase our
holdings) due to a small earnings shortfall as their customers are deferring new
software installations until next year because MIS departments are pre-occupied
with Y2K issues. We view most of this disappointment as a short-term issue and
we have not significantly decreased our estimate of Sterling's intrinsic
business value.
As of year-end, 482 of the Fortune 500 companies were Sterling customers. This
existing customer base gives Sterling an important competitive advantage because
the easiest way to communicate with a business whose computers already use
Sterling software is to also use Sterling software. With its
THE OAKMARK SELECT FUND
9
<PAGE>
........................................................................
entrenched leadership position, Sterling stands to benefit from the continued
rapid growth in business-to-business e-commerce. Most experts expect that
Internet-based business-to-business e-commerce will be a much larger market than
the retail e-commerce business that the stock market has priced so high. Unlike
most Internet-related companies, not only is Sterling already profitable, but it
sells at a low-teens multiple based on our estimate of next year's earnings,
about half the multiple of the S&P 500; this, despite a 25% earnings growth rate
and a cash-rich balance sheet. Some might say that Sterling sounds more like a
"growth stock" than a "value stock." Clearly, Sterling's business
characteristics appear quite similar to the rapid growth companies that
generally are priced too high for us. People sometimes assume that as value
investors we dislike growth. The truth is, we love growth, we just don't like
paying for it! Sometimes a growth company does sell at a value price, and it
doesn't get any better than that.
REDEMPTION FEES
The Oakmark Select Fund (as well as the other specialized funds in the Oakmark
Family) has decided to impose a redemption fee. Effective August 16, when newly
issued shares (it doesn't apply to shares you already own) are sold within 90
days of purchase, 2% of the proceeds will be paid back to the fund in the form
of a redemption fee. Shares held longer than 90 days will not be charged any
fee. I'd like to explain why this should please you. Your first thought is
probably about the old joke concerning the world's three biggest lies: The check
is in the mail; I'm from the government and I'm here to help; and We increased
fund fees for your benefit! So, I'd like you to consider that when a new
investor buys and sells shares in your fund, there are several costs to the
fund. First, there are direct administrative costs to process the transactions
and send statements. Second, when we use newly invested money to buy stocks and
when we raise cash for departing shareholders by selling stocks, there are
commission costs and possibly market impact costs because you can't always trade
at the last sale price. Finally, there are tax consequences to our sales of
stocks in the Fund because, typically, the stocks we want to sell are the ones
that have gone up and their sale triggers a capital gain.
In a perfect world, where long-term investors hold all of the fund's shares,
trading costs are not a big number, and are fairly shared by all holders. But in
the real world, the 80/20 rule applies, in this case, over 80% of the trading
activity is caused by less than 20% of our holders. In the real world, long-term
holders of mutual funds unfairly share in the excessive costs caused by the
in-and-out traders. That is why the Oakmark Family has always discouraged
short-term traders from buying any of our funds, and in fact, has barred
numerous active traders from investing in our fund family.
However, the number of short-term traders in specialty mutual funds continues to
grow and, despite our best efforts, they do trade our funds. These traders, who
often stay in the fund for only a day or two, exploit trading strategies where
each trade has a high probability of success, but produces a very small return.
Examples include buying an international fund on days the US market is up,
buying small-cap funds on days when big caps rally in the afternoon, or buying a
concentrated fund on days it is up. (The Oakmark Select Fund's NAV has been 20%
more likely to go up following an up day than following a down day.) Any single
trade has an expected return of just a fraction of a percent and, in fact,
wouldn't be profitable if the trader was directly buying stocks because trading
costs would exceed the strategy's return. But in funds where shareholders pay no
transaction costs, some active traders (who, using multiple funds, can be
in-and-out over 50 times a year) can make high returns at the expense of
long-term investors.
We believe the most effective way to prevent this exploitation of our loyal
shareholders is to charge an appropriate fee to short-term traders which, in
effect, reimburses the fund for the costs they create. By charging 2% of assets
to traders who redeem shares purchased less than 90 days ago, we will prevent
their potentially damaging effects on your Fund's performance.
To our long-term shareholders, I would like to add: this fee does not apply to
shares you already own and will not apply to shares you receive from reinvesting
your dividends. The fee will, however, apply to newly purchased shares, so as
we've always told you, don't buy if you expect to sell within 90 days! To the
short-term traders who expect to sell in less than 90 days, our Fund should no
longer be attractive to you. But, if you do continue to trade with us, our
long-term holders will no longer be penalized by your activity and will, in
fact, almost certainly benefit.
Thank you for your continuing support.
Sincerely,
/S/ WILLIAM NYGREN
Portfolio Manager
[email protected]
July 7, 1999
10
THE OAKMARK SELECT FUND
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--93.8%
APPAREL--4.3%
Liz Claiborne, Inc. 2,166,600 $ 79,080,900
RETAIL--4.0%
Gucci Group (b) 1,060,000 $ 74,200,000
OTHER CONSUMER GOODS & SERVICES--4.3%
Ralston Purina Group 2,622,600 $ 79,825,388
BANKS & THRIFTS--13.1%
Washington Mutual, Inc. 5,351,500 $ 189,309,312
People's Bank of Bridgeport, Connecticut 1,658,400 50,477,550
--------------
239,786,862
INSURANCE--4.9%
PartnerRe Ltd. (c) 2,382,300 $ 89,038,463
PUBLISHING--3.7%
The Times Mirror Company, Class A 1,146,300 $ 67,918,275
INFORMATION SERVICES--5.0%
The Dun & Bradstreet Corporation 2,568,600 $ 91,024,762
COMPUTER SERVICES--19.0%
First Data Corporation 2,605,000 $ 127,482,187
The Reynolds and Reynolds Company, Class A 3,875,000 90,335,938
Electronic Data Systems Corporation 1,360,900 76,975,906
Sterling Commerce, Inc. (a) 1,475,000 53,837,500
--------------
348,631,531
MACHINERY & INDUSTRIAL PROCESSING--5.1%
Thermo Electron Corporation (a) 4,693,500 $ 94,163,344
BUILDING MATERIALS & CONSTRUCTION--10.7%
USG Corporation 3,499,900 $ 195,994,400
OIL FIELD SERVICES & EQUIPMENT--5.0%
Weatherford International, Inc. (a) 2,495,800 $ 91,408,675
OTHER INDUSTRIAL GOODS & SERVICES--3.9%
Premark International, Inc. 1,915,600 $ 71,835,000
REAL ESTATE--2.8%
Host Marriott Corporation 4,348,663 $ 51,640,373
</TABLE>
THE OAKMARK SELECT FUND
11
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.8% (CONT.)
DIVERSIFIED CONGLOMERATES--8.0%
U.S. Industries, Inc. 8,649,000 $ 147,033,000
--------------
TOTAL COMMON STOCKS (COST: $1,528,048,456) 1,721,580,973
OTHER ASSETS--0.0%
RETAIL--0.0%
Gucci Group Contingencies 1,781,125 $ 445,282
--------------
TOTAL OTHER ASSETS (COST: $0) 445,282
SHORT TERM INVESTMENTS--6.4%
U.S. GOVERNMENT BILLS--1.4%
United States Treasury Bills, 4.45% due
7/29/1999 25,000,000 $ 24,913,472
--------------
TOTAL U.S. GOVERNMENT BILLS (COST: $24,913,472) 24,913,472
COMMERCIAL PAPER--3.8%
American Express Credit Corp., 4.86%-4.92%
due 7/6/1999 20,000,000 $ 20,000,000
Ford Motor Credit Corp., 4.86%-5.06%
due 7/8/1999-7/12/1999 20,000,000 20,000,000
General Electric Capital Corporation,
5.02%-5.70% due 7/1/1999-8/5/1999 30,000,000 30,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $70,000,000) 70,000,000
REPURCHASE AGREEMENTS--1.2%
State Street Repurchase Agreement, 4.75%
due 7/1/1999 21,195,000 $ 21,195,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $21,195,000) 21,195,000
TOTAL SHORT TERM INVESTMENTS (COST: $116,108,472) $ 116,108,472
Total Investments (Cost
$1,644,156,928)--100.2% $1,838,134,727
Other Liabilities In Excess Of Other Assets--(0.2)% (3,300,817)
--------------
TOTAL NET ASSETS--100% $1,834,833,910
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents foreign domiciled corporation.
12
THE OAKMARK SELECT FUND
<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 (6/30/99)
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
6/98 $20,467 $15,997
9/98 $14,976 $12,774
12/98 $17,620 $14,857
3/99 $16,069 $14,051
6/99 $18,205 $16,237
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
TOTAL RETURN* THROUGH 6/30/99
RETURN FROM FUND INCEPTION
6/30/99 NAV $15.26 LAST 3 MOS. 11/1/95
- ----------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK SMALL CAP FUND 13.3% 17.8%
Lipper Small Cap Fund Index** 14.7% 11.5%
Russell 2000 w/ inc** 15.6% 14.1%
S&P Small Cap 600 w/inc** 15.4% 15.0%
</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.
NEWS FROM THE FRONT
It seems difficult to recall the last time small cap stocks outperformed large
cap stocks in a given quarter. Yet, believe it or not, it happened in the
quarter ended June 30, 1999. During the quarter, The Oakmark Small Cap Fund
appreciated 13.3% versus the S&P 500's advance of 7.1%. This quarter's gain
increases the fiscal year return for the nine months to 21.6%. Although it may
seem as if the returns from large cap stocks have been greater than those of
small cap stocks, various studies have shown this not to be true over the long
term. One's memory becomes very short when the disparity in returns becomes
tilted from one asset class to another. We tend to forget the early part of the
Nineties or the ten year period from 1974-1983 when small cap stocks
outperformed. We remain convinced that ownership in small cap companies presents
very attractive investment opportunities.
Our conviction and commitment to small cap stock investing is based on the
following investment characteristics. Small cap stocks are attractive on both an
absolute and relative basis. By that we mean that on an absolute basis we view
the value of the purchase of shares in a company as being worthy of owning the
entire company at the current price. Furthermore, we see much more compelling
value in small cap stocks relative to large cap stocks. We are encouraged by the
fact that the economic backdrop for companies both large and small is quite
strong, particularly as various international market economies resume their
growth. Perhaps the most attractive attribute of small cap stocks is that small
cap companies remain ignored. These stocks are often the orphans of Wall Street.
"Unknown," "underfollowed," and, in some cases, "unwanted" are terms that
describe the level of focus on many of our investments in the Fund. It is this
inefficiency that we try to exploit in creating our portfolio of investments.
In the last quarterly report, I highlighted a number of new additions to
THE OAKMARK SMALL CAP FUND
13
<PAGE>
........................................................................
the portfolio. Several of these companies have already performed quite well.
However, in one case, Fruit of the Loom (FTL), we reassessed the fundamentals
and concept for the investment and eliminated the position from the portfolio. I
want to thank Greg Jackson, co-manager of our soon-to-be launched Oakmark Global
Fund, for his objective insights into FTL. The decision to sell a stock is one
of the more difficult tasks of portfolio management. Greg's assessment of the
situation will serve him well managing the new Fund.
On a more positive note, during the quarter we had 15 stocks appreciate 20% or
more. The largest gains came from Sequent Computer Systems, Inc. (SQNT), UCAR
International, Inc. (UCR), SPX Corporation (SPW), and Symantec Corporation
(SYMC). These four holdings had gains of 50% or more. The current quarter is off
to a good start. On July 2, Scotsman Industries, Inc. (SCT) agreed to be
acquired by Berisford Plc for $33 per share in cash. This appears to be a very
logical business combination, and we wish management of both companies the best
of good fortune going forward.
OUTLOOK
We are pleased with the recent performance of small cap value stocks. Is this a
trend? It is far too soon to tell. We will know that with 20/20 hindsight when
we look in the rear view mirror some months or years down the road. We are
encouraged by the fundamental results and attractive valuations of the companies
we own. We do believe that further consolidation and merger activity will
continue.
Once again, I would like to thank everyone involved, especially our
shareholders, for your support of The Oakmark Small Cap Fund.
/S/ STEVEN J. REID
STEVEN J. REID
Portfolio Manager
[email protected]
July 8, 1999
14
THE OAKMARK SMALL CAP FUND
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--98.1%
FOOD & BEVERAGE--7.5%
Del Monte Foods Company (a) 1,000,000 $ 16,750,000
International Multifoods Corporation 400,000 9,025,000
Ralcorp Holdings, Inc. (a) 500,000 8,031,250
M & F Worldwide Corp. (a) 750,000 5,953,125
--------------
39,759,375
APPAREL--2.6%
Reebok International Ltd. (a) 750,000 $ 13,968,750
RETAIL--10.9%
Department 56, Inc. (a) 750,000 $ 20,156,250
The Great Atlantic & Pacific Tea Company,
Inc. 400,000 13,525,000
Ugly Duckling Corporation (a) 1,750,000 12,687,500
Michaels Stores, Inc. (a) 376,300 11,524,187
--------------
57,892,937
OTHER CONSUMER GOODS & SERVICES--4.7%
Libbey, Inc. 300,000 $ 8,700,000
Barry (R.G.) Corporation (a) 900,000 7,425,000
Scotsman Industries, Inc. 250,000 5,390,625
Harman International Industries,
Incorporated 75,000 3,300,000
--------------
24,815,625
BANKS & THRIFTS--9.6%
Golden State Bancorp Inc. (a) 750,000 $ 16,500,000
People's Bank of Bridgeport, Connecticut 500,000 15,218,750
BankAtlantic Bancorp, Inc., Class A 1,000,001 7,250,007
Northwest Bancorp Inc. 590,000 5,900,000
PennFed Financial Services, Inc. 260,000 4,095,000
Finger Lakes Financial Corp. 188,000 2,068,000
--------------
51,031,757
INSURANCE--7.3%
The PMI Group, Inc. 300,000 $ 18,843,750
The MONY Group Inc. (a) 500,000 16,312,500
American Heritage Life Investment
Corporation 149,400 3,660,300
--------------
38,816,550
OTHER FINANCIAL--6.7%
Duff & Phelps Credit Rating Co. 300,000 $ 20,062,500
ARM Financial Group, Inc., Class A 1,830,000 15,555,000
--------------
35,617,500
COMPUTER SERVICES--4.8%
Symantec Corporation (a) 1,000,000 $ 25,500,000
</TABLE>
THE OAKMARK SMALL CAP FUND
15
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--98.1% (CONT.)
COMPUTER SYSTEMS--5.9%
Sequent Computer Systems, Inc. (a) 1,000,000 $ 17,750,000
Micron Electronics, Inc. (a) 1,325,000 13,332,813
--------------
31,082,813
MANAGED CARE SERVICES--3.1%
First Health Group Corp. (a) 750,000 $ 16,171,875
AUTOMOTIVE--6.9%
SPX Corporation (a) 250,000 $ 20,875,000
Standard Motor Products, Inc. 500,000 12,250,000
Stoneridge, Inc. (a) 268,600 3,626,100
--------------
36,751,100
TRANSPORTATION SERVICES--2.3%
Teekay Shipping Corporation (b) 700,000 $ 12,337,500
MACHINERY & INDUSTRIAL PROCESSING--2.7%
Graco, Inc. 250,000 $ 7,343,750
Northwest Pipe Company (a) 400,000 6,650,000
Wolverine Tube, Inc. (a) 2,500 62,813
--------------
14,056,563
OTHER INDUSTRIAL GOODS & SERVICES--12.7%
H.B. Fuller Company 250,000 $ 17,093,750
Columbus McKinnon Corporation 600,000 14,400,000
MagneTek, Inc. (a) 1,350,000 14,259,375
Ferro Corporation 500,000 13,750,000
Sames Corporation 250,000 4,968,750
UCAR International, Inc. (a) 100,000 2,525,000
--------------
66,996,875
REAL ESTATE--7.2%
Catellus Development Corporation (a) 1,250,000 $ 19,375,000
Prime Hospitality Corp. (a) 1,000,000 12,000,000
Trammell Crow Company (a) 400,000 6,575,000
--------------
37,950,000
DIVERSIFIED CONGLOMERATES--3.2%
U.S. Industries, Inc. 1,000,000 $ 17,000,000
--------------
TOTAL COMMON STOCKS (COST: $476,778,904) 519,749,220
</TABLE>
16
THE OAKMARK SMALL CAP FUND
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--2.1%
COMMERCIAL PAPER--1.3%
Ford Motor Credit Corp., 5.25% due 7/6/1999 2,000,000 $ 2,000,000
General Electric Capital Corporation, 5.70%
due 7/1/1999 5,000,000 5,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $7,000,000) 7,000,000
REPURCHASE AGREEMENTS--0.8%
State Street Repurchase Agreement, 4.75%
due 7/1/1999 4,437,000 $ 4,437,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $4,437,000) 4,437,000
TOTAL SHORT TERM INVESTMENTS (COST: $11,437,000) 11,437,000
Total Investments (Cost $488,215,904)--100.2% $ 531,186,220
Other Liabilities In Excess Of Other Assets--(0.2)% (1,237,929)
--------------
TOTAL NET ASSETS--100% $ 529,948,291
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
THE OAKMARK SMALL CAP FUND
17
<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
(6/30/99) 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 $14,243
3/98 $16,233 $15,370
6/98 $16,320 $15,599
9/98 $15,191 $14,701
12/98 $16,792 $16,392
3/99 $16,792 $16,655
6/99 $18,457 $17,402
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
TOTAL RETURN* THROUGH 6/30/99
RETURN LAST FROM FUND INCEPTION
6/30/99 NAV $16.52 3 MOS. 11/1/95
- ----------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK EQUITY & INCOME
FUND 9.9% 18.2%
Lipper Balanced Fund Index** 4.5% 16.3%
Lehman Govt./ Corp. Bond** -1.1% 6.2%
S&P 500 w/ inc** 7.1% 28.7%
</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.
CHANGED FOR THE BETTER!
In my previous letter I wrote about how the stock market's odd character in the
March quarter had produced a 0.0% rate of return for the Fund. I am happy to
report that the outcome for the June quarter was decidedly more attractive: a
gain of 9.9%. Relative results were strong as well.
Improvement in the Fund's returns began in the second week of April. The first
three months of 1999 saw 98% of investor cash flow in equity mutual funds go to
growth funds oriented to large company stocks, but in April these flows of funds
began to spread out more evenly across investing categories. As well, the Wall
Street Journal reported in June that managers of growth funds had begun to
purchase stocks from a broader universe rather than merely throwing more cash at
Microsoft or GE. One consequence of the market's action in this cycle has been
that the most popular stocks have developed exceedingly large market
capitalizations. This means that a shift of a small percentage of the funds
invested in the largest growth stocks can have a significant effect on
previously unpopular sectors.
The US stock market in the 1990's has already surprised investors many times by
breaking historic patterns. One such rule is that the stock market does not
change its internal character without first suffering through a bear market. If
in time we know that the market's change in April began a period where value
investing and smaller stocks were favored, it would mean that another rule had
bitten the dust. No one would be happier than we fund managers for the Oakmark
group.
DID YOU KNOW THAT YOU OWN A TECH FUND?
Well, not really, but as of the end of the June quarter 19% of the total
portfolio was invested in technology issues. Perhaps more surprisingly, this
represented over 30% of the equities alone. At Harris Associates, we have often
been asked why we do not own tech stocks. Our
18
THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
........................................................................
answer has always been that we have nothing against technology PER SE, we just
wish to own stocks (in any sector) on our terms. Over the last few quarters our
analysts have identified an unusual number of attractively priced names in the
tech sector, even while the best known stocks in the group were soaring to
unprecedented heights. Each of the companies in which I have invested in this
area has its own story and its reasons for having become quite cheaply priced.
But, in every case the stock came to our attention after it had experienced a
substantial price decline based on reasons which we believe were both transitory
and irrelevant to the fundamental intrinsic value of the business.
The first one to enter the portfolio was Imation, a spin-off from 3M. Imation
suffered persistent earnings shortfalls after being spun, knocking the stock off
of most investors' play lists. I was able to acquire a position for the Fund at
a discount to Imation's $18/share book value. Last year, the company sold its
medical imaging businesses (25% of total corporate sales) to Eastman Kodak for
cash equal to 50% of the company's total enterprise value. This valuation gave
us great encouragement because we estimated the value of the remaining
businesses to be similar on a price/sales basis. To our surprise, the stock
declined on this announcement. In the June quarter, however, Imation became a
star performer, enjoying a 50%+ price increase. In June, the company sold its
remaining imaging businesses, further intensifying the company's focus on data
storage. Imation has repurchased 6% of its shares this year and has an open
authorization to repurchase an additional 19%.
Second to join the tech mix was Electronic Data Systems. Once separated from
General Motors, EDS had earnings and management issues, which resulted in poor
price performance. Since our purchase, the EDS Board has hired a new CEO who has
already made a meaningful impact on the company's inefficient cost structure.
The combination of EDS's position in the information technology outsourcing
business with the company's changing corporate culture make us optimistic.
First Data is the largest merchant processor for credit card transactions and is
the owner of Western Union. Again, a short-term earnings shortfall resulted in a
dramatic price decline, at which point we pounced. The stock has earned the
highest percentage return in the Fund for the calendar year to date.
Reynolds & Reynolds (REY) is best known as a business forms company, but REY
derives the majority of its profits from selling business information systems to
auto dealers. We estimate REY to be worth far more than its current price based
on the value of its core operations. REY also owns 50% of Carpoint, a joint
venture with Microsoft. This is an Internet business that helps consumers and
auto dealers get together. Similar businesses have traded in the public market
for prices that impute a $5+/share value to REY for Carpoint. I love getting
something like this for free.
Last is Sterling Commerce, perhaps most clearly a tech company. Sterling's
electronic data interchange software helps make it possible for companies such
as Wal-Mart to keep their inventories as low as possible and thereby increase
their returns on invested capital. The company's growth rate has slowed from
phenomenal to merely wonderful, resulting in wholesale dumping by aggressive
growth managers.
I have often written that I will own value wherever I can find it. The Fund's
current tech exposure should make that point clear. Please feel free to e-mail
me with your comments, questions, or ideas for quarterly reports.
/S/ CLYDE S. MCGREGOR
CLYDE S. MCGREGOR
Portfolio Manager
[email protected]
July 6, 1999
THE OAKMARK EQUITY AND INCOME FUND
19
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
EQUITY AND EQUIVALENTS--60.9%
FOOD & BEVERAGE--2.7%
UST Inc. 60,000 $ 1,755,000
BANKS & THRIFTS--4.4%
Washington Mutual, Inc. 40,000 $ 1,415,000
Bank One Corporation 23,674 1,410,083
--------------
2,825,083
INSURANCE--2.9%
IPC Holdings, Ltd. 50,000 $ 1,000,000
PartnerRe Ltd. (b) 23,000 859,625
--------------
1,859,625
OTHER FINANCIAL--2.2%
Heller Financial, Inc. 50,000 $ 1,390,625
PUBLISHING--2.1%
Lee Enterprises, Inc. 43,900 $ 1,338,950
INFORMATION SERVICES--2.9%
The Dun & Bradstreet Corporation 51,500 $ 1,825,031
COMPUTER SERVICES--14.1%
The Reynolds and Reynolds Company, Class A 110,200 $ 2,569,038
First Data Corporation 50,000 2,446,875
Sterling Commerce, Inc. (a) 60,000 2,190,000
Electronic Data Systems Corporation 32,500 1,838,281
--------------
9,044,194
DATA STORAGE--5.4%
Imation Corp. (a) 140,000 $ 3,473,750
MEDICAL PRODUCTS--2.9%
Sybron International Corporation (a) 68,000 $ 1,874,250
AUTOMOTIVE--3.5%
Lear Corporation (a) 45,000 $ 2,238,750
AGRICULTURAL EQUIPMENT--1.4%
Alamo Group Inc. 100,000 $ 875,000
BUILDING MATERIALS & CONSTRUCTION--0.1%
Juno Lighting, Inc. 4,720 $ 89,680
OTHER INDUSTRIAL GOODS & SERVICES--3.3%
Premark International, Inc. 56,500 $ 2,118,750
</TABLE>
20
THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
EQUITY AND EQUIVALENTS--60.9% (CONT.)
REAL ESTATE--9.8%
Amli Residential Properties Trust 100,000 $ 2,237,500
Legacy Hotels Real Estate Investment Trust
(b) 350,000 2,056,027
Catellus Development Corporation (a) 128,728 1,995,284
--------------
6,288,811
DIVERSIFIED CONGLOMERATES--1.3%
U.S. Industries, Inc. 50,000 $ 850,000
CONVERTIBLE PREFERRED STOCK--1.9%
TELECOMMUNICATIONS--1.9%
Metromedia International Group, Inc.,
Convertible Preferred, 7.25% 35,000 $ 1,220,625
--------------
TOTAL CONVERTIBLE PREFERRED STOCK (COST: $1,206,487) 1,220,625
TOTAL EQUITY AND EQUIVALENTS (COST: $30,984,962) 39,068,124
FIXED INCOME--35.0%
PREFERRED STOCK--5.3%
BANKS & THRIFTS--4.5%
Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 680,625
BBC Capital Trust I, Preferred, 9.50% 28,000 679,000
PennFirst Capital Trust I, Preferred,
8.625% 70,000 673,750
RBI Capital Trust I, Preferred, 9.10% 42,500 414,375
Fidelity Capital Trust I, Preferred, 8.375% 43,500 413,250
--------------
2,861,000
TELECOMMUNICATIONS--0.8%
MediaOne Finance Trust III, Preferred,
9.04% 20,000 $ 535,000
TOTAL PREFERRED STOCK (COST: $3,470,738) 3,396,000
CORPORATE BONDS--4.5%
RETAIL--1.0%
Ugly Duckling Corporation, 12.00% due
10/15/2003, Subordinated Debenture 650,000 $ 617,500
AEROSPACE & AUTOMOTIVE--0.3%
Coltec Industries, Inc., 9.75% due 4/1/2000 150,000 $ 153,188
Coltec Industries, Inc., 9.75% due
11/1/1999 25,000 25,531
--------------
178,719
BUILDING MATERIALS & CONSTRUCTION--1.4%
Juno Lighting Inc., 11.875% due 7/1/2009,
Senior Subordinated Note (c) 750,000 $ 755,625
USG Corporation, 9.25% due 9/15/2001,
Senior Notes Series B 150,000 158,625
--------------
914,250
</TABLE>
THE OAKMARK EQUITY AND INCOME FUND
21
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME--35.0% (CONT.)
UTILITIES--0.3%
Midland Funding Corporation, 11.75%
due 7/23/2005 200,000 $ 221,500
OTHER INDUSTRIAL GOODS & SERVICES--1.5%
Scotsman Industries, Inc., 8.625% due
12/15/2007, Senior Subordinated Note 615,000 $ 614,231
UCAR Global Enterprises Inc., 12.00% due
1/15/2005, Senior Subordinated Note 300,000 316,875
--------------
931,106
TOTAL CORPORATE BONDS (COST: $2,743,755) 2,863,075
GOVERNMENT AND AGENCY SECURITIES--25.2%
U.S. GOVERNMENT BONDS--24.7%
United States Treasury Notes, 7.50% due
5/15/2002 6,500,000 $ 6,807,060
United States Treasury Notes, 7.875% due
11/15/2004 4,750,000 5,177,642
United States Treasury Notes, 6.25% due
2/15/2007 2,000,000 2,037,380
United States Treasury Notes, 6.875% due
5/15/2006 1,750,000 1,841,963
--------------
15,864,045
U.S. GOVERNMENT AGENCIES--0.5%
Federal Home Loan Bank, 6.405% due
4/10/2001, Consolidated Bond 300,000 $ 302,937
--------------
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $16,327,588) 16,166,982
TOTAL FIXED INCOME (COST: $22,542,081) 22,426,057
SHORT TERM INVESTMENTS--0.3%
REPURCHASE AGREEMENTS--0.3%
State Street Repurchase Agreement, 4.75%
due 7/1/1999 184,000 $ 184,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $184,000) 184,000
TOTAL SHORT TERM INVESTMENTS (COST: $184,000) 184,000
Total Investments (Cost $53,711,043)--96.2% $ 61,678,181
Other Assets In Excess Of Other Liabilities--3.8% 2,407,222
--------------
TOTAL NET ASSETS--100% $ 64,085,403
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
(c) Restricted security.
22
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 (6/30/99) 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 $16,114
7/97 $22,960 $18,426
9/97 $23,283 $18,027
12/97 $20,097 $16,637
3/98 $22,994 $19,083
6/98 $20,253 $19,233
9/98 $16,322 $16,404
12/98 $18,688 $19,759
3/99 $21,258 $20,070
6/99 $25,728 $20,650
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN* THROUGH 6/30/99
TOTAL RETURN FROM FUND INCEPTION
6/30/99 NAV $15.02 LAST 3 MOS. 9/30/92
- ------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK INTERNATIONAL FUND 21.0% 15.0%
Morgan Stanley World ex U.S.
w/inc.** 2.9% 11.3%
Morgan Stanley EAFE w/ inc** 2.5% 11.3%
Lipper Analytical
International Fund Index** 5.6% 12.5%
</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 or funds
whose composition is different from the Fund. The Morgan Stanley World ex U.S.
Index includes 19 country sub-indexes. The Morgan Stanley EAFE Free Index refers
to Europe, Asia and the Far East and includes 18 country sub-indexes. The Lipper
International Fund 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 Oakmark International Fund had an outstanding past quarter achieving an
increase of 21.0%. This compares favorably to an increase of 2.5% in the Morgan
Stanley EAFE Index and an increase of 5.5% in Lipper Analytical International
Fund Index. More importantly, since inception on September 30, 1992 the Fund has
generated an annualized total return of 15.0%, compared to an annualized total
return of 11.3% in the EAFE Index and an annualized total return of 12.5% in the
Lipper International Index.
"FUND FLOW REVERSION"
Although we spend 99% of our time analyzing stocks, we must mention an important
macro-trend that has had a significant impact on international performance over
the last two years:
An article in the June 9, 1999 edition of FINANCIAL TIMES highlighted the fact
that US retail investors have become "less internationally minded." According to
statistics obtained from the INVESTMENT COMPANY INSTITUTE, from 1996 to 1998 net
new international equity investment declined from approximately 21% of new
mutual fund investment to approximately 3% of new mutual fund investment. During
this same time horizon, international equity holdings declined from
approximately 17% of equity fund holdings to approximately 13% of equity fund
holdings. Excess capital that was not deployed abroad found a home in our
domestic market, fueling the appreciation in US equity prices.
However, the unusually high returns achieved in the US will not continue
THE OAKMARK INTERNATIONAL FUND
23
<PAGE>
........................................................................
indefinitely and funds will eventually return to the international arena. In
most of these foreign markets, the combination of a limited number of large-cap
securities, thinner market liquidity, and larger capital inflows should have a
magnifying effect on security prices. This "fund flow impact" has already been
witnessed in some international markets which had been decimated by currency
turmoil, adding to the performance of the Fund during the second quarter.
HOW DID IT HELP? WELL...
Price volatility in the last year and a half, exacerbated by the large capital
out flows from international markets discussed above, presented the Fund with
unique opportunities to purchase high quality stocks at extremely cheap
valuations. In times of economic distress, it is particularly important to find
businesses with capable and focused management teams, strong market positions,
solid balance sheets, and an ability to adapt quickly to a fluid environment.
The Fund's effort and patience were rewarded in the last year as share prices
began to re-converge with the intrinsic value of the underlying businesses.
THE BIG WINNERS WERE...
GIORDANO, a Hong Kong retailer that was highlighted in our last quarterly
report, continued its strong performance in the second quarter. The company's
management team relied on its liquid balance sheet to weather the severe
downturn in the retail environment. In the second quarter of this year,
profitability has improved following a significant cost-cutting initiative, cash
flow has increased following a concerted effort to cut working capital and
Giordano's Korean operations' net income has posted strong growth following a
turn around in the local economy. Many investors who sat on the sidelines
waiting for the stock's momentum to return missed Giordano's 129% appreciation
in US dollar terms in the second quarter of this year.
South Korea was decimated by the Asian currency crisis, with the market
declining 76% in US dollar terms from a recent peak in June of 1997. As a
result, the country was forced to relax its foreign ownership restrictions to
facilitate the inflow of foreign capital. The Fund, having been minimally
invested in the country for some time, seized the opportunity to selectively add
to its South Korean holdings at fire sale prices. Again, we sought companies
with strong balance sheets and a historical track record of intelligent asset
allocation decisions. We did not want companies engaged in fifty different
operations; we wanted focused businesses with focused management. This "quality"
discipline and long-term orientation reaped huge rewards for the Fund in the
second quarter. On average, the Fund's eight Korean positions increased 81% in
US dollar terms over the quarter.
FIRST PACIFIC GROUP, an Asian holding company, increased 42% in US dollar terms
in the second quarter. In the midst of the currency crisis, this business was
trading at 50% of its net asset value, with 90% of the value in cash and listed
securities. Management boasted a stellar track record--the last seven large
investments each generated in excess of a 19% annualized return. Interestingly
enough, First Pacific has employed a similar strategy to that of the Fund--it
sold fully valued non-Asian assets and reinvested the proceeds in the Asian
region. As the Asian markets rebounded, so did First Pacific's stock.
IS THERE MORE TO COME?
The Fund has found tremendous value in Latin America, mostly as a result of the
same contagion that erupted in Asia. The Fund owns two large banks in the
region, UNIBANCO and BLADEX. Both of these companies are extremely conservative,
cost-conscious operators that generate above-average returns and trade at or
near book value. We've also found value in the "baby" telephone companies in
Brazil. Many of the fixed-line and cellular operators trade at one-half the
value of their international peers despite having world-renowned management and
significantly better growth prospects. As often occurs, we are once again
awaiting the outside world to realize the latent value in these businesses.
WE REMAIN CONFIDENT
While Asia and Latin America provide excellent illustrations of how the Fund
deploys its resources, this same process of assessing companies is applied
throughout the world. We are always looking for the hardest-hit companies with
the best, most shareholder-oriented management teams--no matter where they are
located outside the US. It was not too long ago that market strategists
trumpeted the claim "value is dead in the world." The first half of 1999
disproved this theory and we remain extremely bullish about the Fund's
prospects.
/S/ DAVID HERRO
DAVID HERRO
Portfolio Manager
[email protected]
/S/ MICHAEL WELSH
MICHAEL WELSH
Portfolio Manager
[email protected]
July 2, 1999
24
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--JUNE 30, 1999
........................................................................
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
% OF FUND NET ASSETS
<S> <C>
EUROPE 47.5%
Great Britain 22.7%
*Finland 7.1%
*France 5.7%
*Italy 3.4%
*Netherlands 3.3%
Sweden 3.0%
*Germany 1.6%
Norway 0.6%
Switzerland 0.1%
LATIN AMERICA 14.7%
Brazil 7.5%
Argentina 3.8%
Panama 3.4%
PACIFIC RIM 30.2%
Japan 8.2%
Hong Kong 7.5%
Korea 6.8%
Singapore 4.6%
New Zealand 3.1%
*Euro currency countries comprise 21.1% of the
Fund.
</TABLE>
THE OAKMARK INTERNATIONAL FUND
25
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--92.4%
CONSUMER NON-DURABLES--7.8%
Citizen Watch Co. (Japan) Watch Manufacturer and Retailer 4,476,000 $ 38,850,954
Fila Holding S.p.A. (Italy), (b) Athletic Footwear Manufacturing 2,649,800 31,300,763
The Swatch Group AG (Switzerland) Watch Manufacturer 2,000 1,345,251
--------------
71,496,968
FOOD & BEVERAGE--5.5%
Quilmes Industrial SA (Argentina), (b) Brewer 2,795,000 $ 34,588,125
Lotte Chilsung Beverage Company Manufacturer of Soft Drinks, Juices, &
(Korea) Sport Drinks 98,000 10,329,157
Lotte Confectionery Company (Korea) Confection Manufacturer 37,270 5,892,363
--------------
50,809,645
RETAIL--8.4%
Giordano International Limited (Hong East Asian Clothing Retailer &
Kong) Manufacturer 54,254,000 $ 38,460,160
Somerfield plc (Great Britain) Food Retailer 8,145,000 38,194,713
--------------
76,654,873
HOUSEHOLD PRODUCTS--2.4%
Hunter Douglas N.V. (Netherlands) Manufacturer of Window Coverings 652,700 $ 22,405,438
OTHER CONSUMER GOODS & SERVICES--6.3%
Canon, Inc. (Japan) Office and Video Equipment 1,159,000 $ 33,341,489
Mandarin Oriental International Hotel Management
Limited (Singapore) 28,039,000 24,674,320
--------------
58,015,809
BANKS--7.8%
Uniao de Bancos Brasileiros S.A. Major Brazilian Bank
(Brazil), (c) 1,406,900 $ 33,853,531
Banco Latinoamericano de Multinational Bank
Exportaciones, S.A., Class E
(Panama), (b) 1,177,800 31,506,150
United Overseas Bank Ltd., Foreign Commercial Banking
Shares (Singapore) 843,000 5,894,066
--------------
71,253,747
INSURANCE--0.0%
IPC Holdings, Ltd. (Bermuda) Reinsurance Provider 1,000 $ 20,000
</TABLE>
26
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--92.4% (CONT.)
MARKETING SERVICES--6.7%
Cordiant Communications Group plc Advertising Services
(Great Britain) 15,822,578 $ 43,770,303
Saatchi & Saatchi plc (Great Britain) Advertising Services 5,239,497 17,632,450
--------------
61,402,753
BROADCASTING & PUBLISHING--1.9%
Singapore Press Holdings Ltd., Newspaper Publisher
(Singapore) 671,000 $ 11,551,293
Schibsted ASA (Norway) Newspaper Publisher 500,100 5,616,249
--------------
17,167,542
TELECOMMUNICATIONS--5.5%
SK Telecom Co. Ltd. (Korea) Telecommunications 10,706 $ 14,336,328
Telesp Celular Participacoes S.A. Telecommunications
(Brazil) 2,485,400,000 13,335,950
Telesp Participacoes S.A. (Brazil) Telecommunications 611,100,000 7,866,122
Embratel Participacoes S.A. (Brazil), Telecommunications
(a) 526,100,000 3,922,350
Tele Centro Sul Participacoes S.A. Telecommunications
(Brazil) 730,700,000 3,858,823
Tele Sudeste Celular Participacoes Telecommunications
S.A. (Brazil) 1,351,100,000 3,739,277
Telemig Celular Participacoes S.A. Telecommunications
(Brazil), (a) 1,915,700,000 2,153,201
SK Telecom Co. Ltd. Rights (Korea) Telecommunications 2,456 1,258,236
--------------
50,470,287
MEDICAL PRODUCTS--3.0%
Getinge Industrier AB (Sweden) Medical Instruments Manufacturer 1,834,300 $ 27,117,994
AEROSPACE--1.7%
Rolls-Royce plc (Great Britain) Jet Engines 3,588,552 $ 15,201,726
OIL & NATURAL GAS--1.6%
ISIS (France), (a) Oil Services 208,250 $ 14,705,208
</TABLE>
THE OAKMARK INTERNATIONAL FUND
27
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--92.4% (CONT.)
CHEMICALS--4.3%
Fernz Corporation Limited (New Agricultural & Industrial Chemical
Zealand) Producer 9,826,454 $ 28,406,291
European Vinyls Corporation PVC Manufacturer
International N.V. (Netherlands) 928,199 7,846,040
Nagase & Co., Ltd. (Japan) Chemical Wholesaler 579,000 2,752,129
--------------
39,004,460
COMPONENTS--4.6%
Varitronix International Limited (Hong Liquid Crystal Displays
Kong) 9,588,000 $ 19,958,008
IMI plc (Great Britain) Components Manufacturer 3,430,000 13,894,804
Morgan Crucible Company plc (Great Crucible & Components Manufacturer
Britain) 1,950,000 8,314,326
--------------
42,167,138
MACHINERY & METAL PROCESSING--5.5%
Rauma Oyj (Finland) Pulp Machinery 2,945,343 $ 34,916,387
Outokumpu Oyj (Finland) Metal Producer 1,385,000 15,562,231
--------------
50,478,618
MINING AND BUILDING MATERIALS--2.5%
Keumkang Ltd. (Korea) Building Materials 365,460 $ 23,048,449
OTHER INDUSTRIAL GOODS & SERVICES--14.4%
Tomkins plc (Great Britain) Industrial Management Company 9,602,640 $ 41,737,973
Chargeurs SA (France) Wool Production Holding Company 667,438 37,153,546
Charter plc (Great Britain) Welding Products Manufacturer 2,806,014 16,320,798
Buderus AG (Germany), (a) Industrial Manufacturing Firm 37,320 14,965,348
Kone Corporation, Class B (Finland) Elevators 112,930 14,086,084
Dongah Tire Industry Company (Korea) Tire Manufacturer 166,290 7,743,440
--------------
132,007,189
</TABLE>
28
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
DESCRIPTION PAR VALUE MARKET VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--92.4% (CONT.)
DIVERSIFIED CONGLOMERATES--2.5%
Berisford plc (Great Britain) Diversified Operations 3,270,700 $ 12,424,615
First Pacific Company Ltd. (Hong Kong) Diversified Operations 11,966,000 10,179,105
--------------
22,603,720
--------------
TOTAL COMMON STOCKS (COST: $817,953,493) 846,031,564
SHORT TERM INVESTMENTS--6.7%
COMMERCIAL PAPER--5.4%
American Express Credit Corp., 4.84%-5.00% due 7/6/1999-7/8/1999
20,000,000 $ 20,000,000
Ford Motor Credit Corp., 4.85%-4.86% due 7/2/1999-7/12/1999
15,000,000 15,000,000
General Electric Capital Corporation, 5.02%-5.70% due 7/1/1999-8/5/1999
15,000,000 15,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $50,000,000) 50,000,000
REPURCHASE AGREEMENTS--1.3%
State Street Repurchase Agreement, 4.75% due 7/1/1999 11,905,000 $ 11,905,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $11,905,000) 11,905,000
TOTAL SHORT TERM INVESTMENTS (COST: $61,905,000) 61,905,000
Total Investments (Cost $879,858,493)--99.1% $ 907,936,564
Foreign Currencies (Proceeds $4,578,259)--0.5% 4,564,921
Other Assets In Excess Of Other Liabilities--0.4% 3,445,075
--------------
TOTAL NET ASSETS--100% $ 915,946,560
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents a Global Depository Receipt.
THE OAKMARK INTERNATIONAL FUND
29
<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 (6/30/99) 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
6/98 $9,892 $13,499
9/98 $8,211 $11,513
12/98 $10,529 $13,868
3/99 $13,118 $14,086
6/99 $15,317 $14,493
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN* THROUGH 6/30/99
TOTAL RETURN FROM FUND INCEPTION
6/30/99 NAV $12.54 LAST 3 MOS. 11/1/95
- ------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK INTERNATIONAL
SMALL CAP FUND 16.8% 12.3%
Morgan Stanley World ex U.S.
w/inc.** 2.9% 10.7%
Lipper Analytical
International Small Cap Fund
Average** 13.0% 13.4%
Micropal Equity International
Small Cap Index** 12.8% 13.3%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of 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 69 mutual funds that invest in securities whose primary
markets are outside the United States. The Micropal Equity International Small
Cap Index 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,
The Oakmark International Small Cap Fund was up 16.8% in the past quarter, and
is up 45.5% since the beginning of the calendar year. The quarterly return
compares very favorably with the 13% increase of the Lipper International Small
Cap Fund Average and the 9.2% rise in the Morgan Stanley World-ex U.S. index.
More importantly, your Fund's annualized return since inception is up 12.3%
compared to increases of 13.4% and 10.7% for the Lipper and Morgan Stanley
indices.
Nine months ago we wrote in our quarterly letter: "We strongly assert that
current prices of this Fund's underlying investments do not come close to
reflecting their true fundamental value. Over time, value and price have always
converged and we have no reason to believe it won't happen again this time."
Happily, some of that gap between price and value has closed pretty quickly.
While it has been an extraordinary period of return for the Fund since we wrote
that statement--up 86.5% assuming reinvested dividends--we continue to believe
the companies in the portfolio represent terrific value at current prices. We
have sold those companies that have reached full value and are redeploying the
cash in attractive opportunities, in both new and existing ideas.
PORTFOLIO CHANGES
The largest change in geographic weighting in the Fund that you will notice from
last quarter is Japan--it has dropped from almost 13% of total assets at the end
of March to around 4% currently. This is strictly a function
30
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
........................................................................
of our stocks hitting their sell targets, and is a reflection of the tremendous
run Japanese small caps have had this year. The Japan small cap market
indices--the TOPIX, the JASDAQ, and the Nikkei OTC--are all up between 70% and
90% so far in 1999.
In selling our fully-valued Japanese investments, we sold the last share of one
of our favorite ideas of the past few years, the software developer Enix
Corporation. As we highlighted in a prior quarterly, Enix represented everything
we love in a company: high return business, tremendous free cash flow
generation, significant insider ownership, and a management team that is
excellent from an operational and capital allocation standpoint. Enix was also
one of the first Japanese companies to ever announce and, surprisingly, complete
a significant share buyback program.
Shareholders of the Fund have benefited handsomely from the efforts of one of
our analysts, Rob Taylor, who knew Enix like the back of his hand long before
other investors and brokers got on the bandwagon. Melancholy sometimes
accompanies the selling of a company like Enix, but we must remain disciplined
in selling when the market price fully reflects underlying business value. This
happened with Enix during the quarter.
VOLATILITY IS GOOD FOR LONG TERM INVESTORS
This is a point we keep making in our correspondence with you, but it deserves
to be repeated, especially given the period of volatility the Fund has recently
gone through. We firmly believe that long-term risk represents the possibility
of permanent loss of capital, either from overpaying for or misanalyzing a
business in which you invest.
Volatility, on the other hand, is simply a measure of the degree of short-term
fluctuation in market sentiment. For us, greater volatility creates larger and
more frequent discrepancies between current share prices and long-term business
value. The Fund has benefited in the past from taking advantage of incidents of
shortsighted maximum pessimism, most recently in emerging markets. We do not
believe that risk is suddenly greater because there have been huge price
declines in a given market.
Without this periodic volatility created by panic sellers, we would not be given
these opportunities to buy good companies at fire-sale prices. These buying
opportunities translate into long-term investment performance for the long-term
investor. Some recent examples from the last 12 months include:
- - We purchased Giordano International in Hong Kong for the Fund for as little as
HK$0.94 cents/share and sold the position during the quarter for over HK$4.00;
- - We purchased Elevadores Atlas in Brazil for the Fund for as little as
BR11.50/share and sold the position during the quarter for over BR24.00; and
- - We purchased Hite Brewery in South Korea for the Fund for as little as
KW7,200/share and its current share price is over KW40,000/share.
Value investors with a long-term investment horizon should welcome short-term
volatility for the bargains they create!
THANK YOU FOR YOUR SUPPORT
We want to again thank all of you, our shareholders, for your confidence and
support.
/S/ DAVID HERRO
DAVID HERRO
Portfolio Manager
[email protected]
/S/ MICHAEL WELSH
MICHAEL WELSH
Portfolio Manager
[email protected]
July 2, 1999
THE OAKMARK INTERNATIONAL SMALL CAP FUND
31
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--JUNE 30, 1999
........................................................................
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
% OF FUND NET ASSETS
<S> <C> <C> <C>
EUROPE 46.4%
Great Britain 25.5%
*France 11.3%
*Germany 6.5%
*Italy 1.4%
*Portugal 0.6%
*Finland 0.5%
Poland 0.5%
Sweden 0.1%
PACIFIC RIM 35.6%
Hong Kong 7.6%
New Zealand 6.3%
Australia 6.0%
Japan 4.4%
Singapore 3.3%
Korea 3.1%
Thailand 2.8%
Philippines 2.1%
OTHER 3.1%
Canada 3.1%
*Euro currency countries comprise 20.3% of the
Fund.
</TABLE>
32
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
COMMON STOCKS--85.1%
CONSUMER NON-DURABLES--6.5%
Royal Doulton plc (Great Tableware and Giftware
Britain) 3,720,000 $ 7,827,974
Kingmaker Footwear Holdings Athletic Footwear Manufacturer
(Hong Kong) 8,040,000 1,077,720
Designer Textiles (NZ) Knit Fabrics
Limited (New Zealand) 2,960,000 517,167
--------------
9,422,861
FOOD & BEVERAGE--3.5%
Alaska Milk Corporation Milk Producer
(Philippines), (a) 42,214,000 $ 2,995,474
Hite Brewery Company (Korea) Brewer 58,961 2,047,717
--------------
5,043,191
RETAIL--13.3%
Carpetright plc (Great Carpet Retailer
Britain) 1,215,000 $ 7,593,547
House Of Fraser Plc (Great Department Store
Britain) 4,205,000 5,766,475
Dylex Limited (Canada), (a) Specialty Retail Operator 1,970,000 4,455,077
Jusco Stores (Hong Kong) Department Stores
Co., Limited (Hong Kong) 6,888,000 710,231
Moebel Walther AG (Germany) Home Furnishings Retailer 24,800 378,363
Denny's Japan Co., Ltd. Restaurant Chain
(Japan) 16,000 372,985
--------------
19,276,678
OFFICE EQUIPMENT--0.8%
Neopost SA (France), (a) Mailroom Equipment Supplier 50,000 $ 1,159,706
OTHER CONSUMER GOODS & SERVICES--4.0%
CeWe Color Holding AG Photo Equipment & Supplies
(Germany) 17,634 $ 3,690,137
Sanford Limited (New Fisheries
Zealand) 834,134 1,943,182
Shaw Brothers (Hong Kong) Media and Entertainment
Ltd. (Hong Kong) Services 270,000 184,441
--------------
5,817,760
INSURANCE--6.4%
Lambert Fenchurch Group plc Insurance Broker
(Great Britain) 4,166,000 $ 5,515,994
Reinsurance Australia Reinsurance Company
Corporation Limited
(Australia) 4,485,000 3,735,659
--------------
9,251,653
</TABLE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
33
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--85.1% (CONT.)
OTHER FINANCIAL--7.4%
JCG Holdings Ltd. (Hong Investment Holding Company
Kong) 13,574,000 $ 6,473,307
Ichiyoshi Securities (Japan) Stock Broker 1,233,000 4,229,933
--------------
10,703,240
COMPUTER SOFTWARE--1.2%
Koei Co., Ltd. (Japan) Computer Software 93,500 $ 1,762,255
COMPUTER SYSTEMS--1.9%
Solution 6 Holdings Limited Systems Design & Consulting
(Australia), (a) 1,166,443 $ 2,698,770
BROADCASTING & PUBLISHING--2.9%
Matichon Public Company Newspaper Publisher
Limited, Foreign Shares
(Thailand) 2,039,500 $ 4,037,519
VLT AB, Class B (Sweden) Newspaper Publisher 9,500 95,123
--------------
4,132,642
TELECOMMUNICATIONS--0.8%
SK Telecom Co. Ltd. (Korea) Telecommunications 827 $ 1,107,430
SK Telecom Co. Ltd. Rights Telecommunications
(Korea) 189 96,827
--------------
1,204,257
PHARMACEUTICALS--1.4%
Recordati (Italy) Pharmaceuticals 423,000 $ 1,957,863
TRANSPORTATION SERVICES--1.5%
Mainfreight Limited (New Logistics Services
Zealand) 2,733,351 $ 2,243,118
OIL & NATURAL GAS--2.6%
ISIS (France), (a) Oil Services 53,165 $ 3,754,153
MINING AND BUILDING MATERIALS--3.2%
Parbury Limited (Australia) Building Products 12,517,553 $ 2,316,924
Fletcher Challenge Building Building Materials
(New Zealand) Manufacturer 935,000 1,361,349
Semapa-Sociedade de Cement Manufacturer
Investimento e Gestao,
SGPS, SA (Portugal) 59,452 919,291
--------------
4,597,564
</TABLE>
34
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--85.1% (CONT.)
OTHER INDUSTRIAL GOODS & SERVICES--6.6%
GFI Industries SA (France) Industrial Fastener 99,000 $ 2,898,339
Manufacturer
Yip's Hang Cheung Ltd. (Hong Paint & Solvent Manufacturer
Kong) 35,472,000 2,514,577
Chargeurs SA (France) Wool Production Holding 26,750 1,489,063
Company
Dongah Tire Industry Company Tire Manufacturer
(Korea) 26,900 1,252,622
Polifarb Cieszyn-Wroclaw Paint & Varnish Manufacturer
S.A. (Poland) 347,983 673,544
Vaisala OY (Finland) Atmospheric Observation 8,950 659,667
Equipment
--------------
9,487,812
PRODUCTION EQUIPMENT--8.6%
Krones AG (Germany), (a) Manufacturer of Production 180,045 $ 5,289,584
Machinery
NSC Groupe (France) Manufacturer of Textile 55,523 5,122,613
Equipment
De Dietrich et Compagnie SA Manufacturer of Production
(France) Machinery 34,000 1,999,540
--------------
12,411,737
STEEL--2.1%
Steel & Tube Holdings Ltd. Produces and Distributes Steel
(New Zealand) 3,292,370 $ 3,050,505
DIVERSIFIED CONGLOMERATES--10.4%
Wassall PLC (Great Britain) Diversified Consumer Goods 1,718,000 $ 5,889,895
Haw Par Corporation Limited Healthcare and Leisure
(Singapore) Products 2,808,000 4,784,489
TT Group PLC (Great Britain) Diversified Manufacturing 2,060,000 4,367,317
--------------
15,041,701
TOTAL COMMON STOCKS (COST: $116,139,799) 123,017,466
</TABLE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
35
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
SHORT TERM INVESTMENTS--14.5%
COMMERCIAL PAPER--10.4%
American Express Credit Corporation,
4.95%-5.50% due 7/1/1999-7/2/1999 5,000,000 $ 5,000,000
Ford Motor Credit Corp., 5.01%-5.25%
due 7/1/1999-7/8/1999 5,000,000 5,000,000
General Electric Capital Corporation,
5.70% due 7/1/1999 5,000,000 5,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $15,000,000) 15,000,000
REPURCHASE AGREEMENTS--4.1%
State Street Repurchase Agreement,
4.75% due 7/1/1999 5,990,000 $ 5,990,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $5,990,000) 5,990,000
TOTAL SHORT TERM INVESTMENTS (COST: $20,990,000) 20,990,000
Total Investments (Cost $137,129,799)--99.6% $ 144,007,466
Foreign Currencies (Proceeds $580,570)--0.4% 579,951
Other Assets In Excess Of Other Liabilities--0.0% 64,563
--------------
TOTAL NET ASSETS--100% $ 144,651,980
--------------
--------------
</TABLE>
(a) Non-income producing security.
36
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<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)
or 617-483-5000
WEBSITE
www.oakmark.com
24-HOUR NAV HOTLINE
1-800-GROWOAK (1-800-476-9625)
E-MAIL ADDRESS
[email protected]
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]
P.O. BOX 8510
BOSTON, MA 02266-8510
