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OAKMARK-REGISTERED TRADEMARK- FAMILY OF FUNDS
SUPPLEMENT DATED APRIL 23, 1999 TO THE PROSPECTUS DATED JANUARY 4, 1999
PURCHASING SHARES--BY EXCHANGE (PAGE 29)
PURCHASING SHARES--BY EXCHANGE (PAGE 33)
Effective May 31, 1999, the exchange privilege with the Service Units (also
known as "Oakmark Units") of the GS Short Duration Tax-Free Fund, a portfolio of
the Goldman Sachs Trust, and the ILA Service Units of the Tax-Exempt Portfolio,
a portfolio of Goldman Sachs--Institutional Liquid Assets, will be discontinued.
The exchange privilege will still be available with respect to Oakmark Units of
the ILA Service Units of the Government Portfolio of Goldman
Sachs--Institutional Liquid Assets. If you have established the exchange
privilege with either the GS Short Duration Tax-Free Fund or the Tax-Exempt
Portfolio, you may wish to exchange your Oakmark Units of either of those funds
for Oakmark Units of the Government Portfolio. Call 1-800-OAKMARK for
instructions.
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STATEMENT OF ADDITIONAL INFORMATION
January 4, 1999
As supplemented April 23, 1999
THE OAKMARK FAMILY OF FUNDS
No-Load Funds
Two North LaSalle Street
Chicago, Illinois 60602-3790
Telephone 1-800-OAKMARK
(1-800-625-6275)
www.oakmark.com
This Statement of Additional Information relates to The Oakmark Fund ("Oakmark
Fund"), The Oakmark Select Fund ("Select Fund"), The Oakmark Small Cap Fund
("Small Cap Fund"), The Oakmark Equity and Income Fund, ("Equity and Income
Fund"), The Oakmark International Fund ("International Fund") and The Oakmark
International Small Cap Fund ("International Small Cap Fund"), each a series of
Harris Associates Investment Trust (the "Trust"). It is not a prospectus but
provides information that should be read in conjunction with the Funds'
prospectus dated the same date as this Statement of Additional Information and
any supplement thereto. You may obtain a prospectus or annual report from the
Funds at no charge by writing, telephoning or accessing the Funds at their
address, telephone number or website shown above.
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TABLE OF CONTENTS
THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 2
HOW THE FUNDS INVEST . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . 11
INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . 14
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . 17
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . 18
PURCHASING AND REDEEMING SHARES. . . . . . . . . . . . . . . . 19
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . 21
TAXATION OF FOREIGN SHAREHOLDERS . . . . . . . . . . . . . . . 21
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 22
DECLARATION OF TRUST . . . . . . . . . . . . . . . . . . . . . 25
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . 25
APPENDIX A -- BOND RATINGS . . . . . . . . . . . . . . . . . .A-1
APPENDIX B -- FINANCIAL STATEMENTS . . . . . . . . . . . . . .B-1
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THE FUNDS
OAKMARK FUND seeks long-term capital appreciation by investing primarily in
U.S. equity securities.
SELECT FUND seeks long-term capital appreciation by investing primarily in
a non-diversified portfolio of U.S. equity securities.
SMALL CAP FUND seeks long-term capital appreciation by investing primarily
in U.S. equity securities of companies with small market capitalizations.
EQUITY AND INCOME FUND seeks high current income with regard for both
preservation and growth of capital by investing primarily in a diversified
portfolio of U.S. equity and fixed-income securities.
INTERNATIONAL FUND seeks long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers.
INTERNATIONAL SMALL CAP FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers with small market
capitalizations.
As of the date of this Statement of Additional Information, each Fund began
offering a second class of shares, so that it now offers two classes: Class I
Shares and Class II Shares. Class I Shares of each Fund are offered to members
of the general public. As described more fully in the prospectus, Class II
Shares of each Fund are offered to certain 401(k) plans and other tax-qualified
plans. Class II Shares of the Fund pay a service fee at the annual rate of .25%
of the average net assets of Class II Shares of the Fund for the administrative
services associated with the administration of such tax-qualified retirement
plans.
INVESTMENT RESTRICTIONS
In pursuing their respective investment objectives no Fund will:
1. [THIS RESTRICTION DOES NOT APPLY TO SELECT FUND] In regard to 75% of
its assets, invest more than 5% of its assets (valued at the time of investment)
in securities of any one issuer, except in U.S. government obligations;
2. Acquire securities of any one issuer which at the time of investment
(a) represent more than 10% of the voting securities of the issuer or (b) have a
value greater than 10% of the value of the outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at the time of
investment) in securities of companies in any one industry, except that this
restriction does not apply to investments in U.S. government obligations;
4. Borrow money except from banks for temporary or emergency purposes
in amounts not exceeding 10% of the value of the Fund's assets at the time of
borrowing [the Fund will not purchase additional securities when its borrowings,
less receivables from portfolio securities sold, exceed 5% of the value of the
Fund's total assets];
5. Issue any senior security except in connection with permitted
borrowings;
6. Underwrite the distribution of securities of other issuers; however
the Fund may acquire "restricted" securities which, in the event of a resale,
might be required to be registered
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under the Securities Act of 1933 on the ground that the Fund could be regarded
as an underwriter as defined by that act with respect to such resale;
7. Make loans, but this restriction shall not prevent the Fund from
(a) investing in debt obligations, (b) investing in repurchase agreements,
(1) or (c) [FUNDS OTHER THAN OAKMARK FUND] lending its portfolio securities
[the Fund will not lend securities having a value in excess of 33% of its
assets, including collateral received for loaned securities (valued at the
time of any loan)];
8. Purchase and sell real estate or interests in real estate, although
it may invest in marketable securities of enterprises which invest in real
estate or interests in real estate;
9. Purchase and sell commodities or commodity contracts, except that it
may enter into forward foreign currency contracts;
10. Acquire securities of other investment companies except (a) by
purchase in the open market, where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's commission
or (b) where the acquisition results from a dividend or a merger, consolidation
or other reorganization;(2)
11. Make margin purchases or participate in a joint or on a joint or
several basis in any trading account in securities;
12. Invest in companies for the purpose of management or the exercise of
control;
13. Invest more than 15% of its net assets (valued at the time of
investment) in illiquid securities, including repurchase agreements maturing in
more than seven days;
14. Invest in oil, gas or other mineral leases or exploration or
development programs, although it may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration;
15. [OAKMARK FUND, SELECT FUND, SMALL CAP FUND AND EQUITY AND INCOME
FUND ONLY] Invest more than 2% of its net assets (valued at the time of
investment) in warrants not listed on the New York or American stock exchanges,
valued at cost, nor more than 5% of its net assets in all warrants, provided
that warrants acquired in units or attached to other securities shall be deemed
to be without value for purposes of this restriction; [INTERNATIONAL FUND AND
INTERNATIONAL SMALL CAP FUND ONLY] Invest more than 10% of its net assets
(valued at the time of investment) in
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(1) A repurchase agreement involves a sale of securities to a Fund with the
concurrent agreement of the seller (bank or securities dealer) to
repurchase the securities at the same price plus an amount equal to an
agreed-upon interest rate within a specified time. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the
Fund could experience both delays in liquidating the underlying
securities and losses. No Fund may invest more than 15% of its net
assets in repurchase agreements maturing in more than seven days and
other illiquid securities.
(2) In addition to this investment restriction, the Investment Company Act
of 1940 provides that a Fund may neither purchase more than 3% of the
voting securities of any one investment company nor invest more than 10%
of the Fund's assets (valued at the time of investment) in all
investment company securities purchased by the Fund. Investment in the
shares of another investment company would require the Fund to bear a
portion of the management and advisory fees paid by that investment
company, which might duplicate the fees paid by the Fund.
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warrants valued at the lower of cost or market, provided that warrants acquired
in units or attached to securities shall be deemed to be without value for
purposes of this restriction;
16. [OAKMARK FUND, SELECT FUND AND SMALL CAP FUND ONLY] Invest more
than 25% of its total assets (valued at the time of investment) in securities of
non-U.S. issuers (other than securities represented by American Depositary
Receipts) [EQUITY AND INCOME FUND ONLY] Invest more than 10% of its total
assets (valued at the time of investment) in securities of non-U.S. issuers
(other than securities represented by American Depositary Receipts).(3)
17. Make short sales of securities unless the Fund owns at least an
equal amount of such securities, or owns securities that are convertible or
exchangeable, without payment of further consideration, into at least an equal
amount of such securities;
18. Purchase a call option or a put option if the aggregate premium
paid for all call and put options then held exceed 20% of its net assets (less
the amount by which any such positions are in-the-money);
19. Invest in futures or options on futures, except that it may
invest in forward foreign currency contracts.
The first 10 restrictions listed above, except the bracketed portions,
are fundamental policies and may be changed only with the approval of the
holders of a "majority of the outstanding voting securities" of the respective
Fund, which is defined in the Investment Company Act of 1940 (the "1940 Act") as
the lesser of (i) 67% of the shares of the Fund present at a meeting if more
than 50% of the outstanding shares of the Fund are present in person or
represented by proxy or (ii) more than 50% of the outstanding shares of the
Fund. Those restrictions not designated as "fundamental," and a Fund's
investment objective, may be changed by the board of trustees without
shareholder approval. A Fund's investment objective will not be changed without
at least 30 days' notice to shareholders.
Notwithstanding the foregoing investment restrictions, a Fund may
purchase securities pursuant to the exercise of subscription rights, provided,
in the case of each Fund other than Select Fund, that such purchase will not
result in the Fund's ceasing to be a diversified investment company. Japanese
and European corporations frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise such rights would
result in a Fund's interest in the issuing company being diluted. The market
for such rights is not well developed in all cases and, accordingly, a Fund may
not always realize full value on the sale of rights. The exception applies in
cases where the limits set forth in the investment restrictions would otherwise
be exceeded by exercising rights or would have already been exceeded as a result
of fluctuations in the market value of a Fund's portfolio securities with the
result that the Fund would be forced either to sell securities at a time when it
might not otherwise have done so, or to forego exercising the rights.
HOW THE FUNDS INVEST
SECURITIES OF NON-U.S. ISSUERS
International Fund and International Small Cap Fund invest primarily in
securities of non-U.S. issuers, and the other Funds each may invest a minor
portion of their assets (up to 25% for
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(3) Although securities represented by American Depositary Receipts ("ADRs")
are not subject to restriction 16, none of these Funds has any present
intention to invest more than the indicated percentage of its total
assets in ADRs and securities of foreign issuers.
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Oakmark Fund, Select Fund and Small Cap Fund and up to 10% for Equity and Income
Fund) in securities of non-U.S. issuers. International investing permits an
investor to take advantage of the growth in markets outside the United States.
Investing in securities of non-U.S. issuers may entail a greater degree of risk
(including risks relating to exchange rate fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of domestic issuers.
The Funds may invest in securities of non-U.S. issuers directly or in the form
of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receipts (GDRs), or other securities representing underlying
shares of foreign issuers. Positions in these securities are not necessarily
denominated in the same currency as the common stocks into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company and trading in U.S. markets evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally ADRs, in registered form, are designed for use in the U.S. securities
markets and EDRs, in bearer form, are designed for use in European securities
markets. GDRs are receipts that may trade in U.S. or non-U.S. markets. The
Funds may invest in both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a
sponsored depositary receipt, the issuer typically pays some or all of the
expenses of the depository and agrees to provide its regular shareholder
communications to depositary receipt holders. An unsponsored depositary receipt
is created independently of the issuer of the underlying security. The
depositary receipt holders generally pay the expenses of the depository and do
not have an undertaking from the issuer of the underlying security to furnish
shareholder communications.
With respect to portfolio securities of non-U.S. issuers or denominated
in foreign currencies, a Fund's investment performance is affected by the
strength or weakness of the U.S. dollar against these currencies. For example,
if the dollar falls in value relative to the Japanese yen, the dollar value of a
yen-denominated stock held in the portfolio will rise even though the price of
the stock remains unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock will fall. See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions."
You should understand and consider carefully the risks involved in
international investing. Investing in securities of non-U.S. issuers, positions
in which are generally denominated in foreign currencies, and utilization of
forward foreign currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically associated with investing
in U.S. securities. These considerations include: fluctuations in exchange
rates of foreign currencies; possible imposition of exchange control regulation
or currency restrictions that would prevent cash from being brought back to the
United States; less public information with respect to issuers of securities;
less governmental supervision of stock exchanges, securities brokers, and
issuers of securities; different accounting, auditing and financial reporting
standards; different settlement periods and trading practices; less liquidity
and frequently greater price volatility in foreign markets than in the United
States; imposition of foreign taxes; and sometimes less advantageous legal,
operational and financial protections applicable to foreign subcustodial
arrangements.
Although the Funds try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation of assets, confiscatory taxation, seizure or nationalization of
foreign bank deposits or other assets, establishment of exchange controls, the
adoption of foreign government restrictions, or other adverse, political, social
or diplomatic developments that could affect investment in these nations.
PRIVATIZATIONS. Some governments have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). The adviser believes that privatizations may
offer opportunities for significant capital appreciation, and intends to invest
assets of International Fund and International Small Cap Fund in privatizations
in appropriate circumstances. In certain of those markets, the ability of
foreign entities such as International Fund and International Small Cap Fund to
participate in privatizations may be limited by local law, and/or the terms on
which such Funds may be permitted to participate may be less
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advantageous than those afforded local investors. There can be no assurance
that governments will continue to sell companies currently owned or controlled
by them or that privatization programs will be successful.
EMERGING MARKETS. Investments in emerging markets securities include
special risks in addition to those generally associated with foreign investing.
Many investments in emerging markets can be considered speculative, and the
value of those investments can be more volatile than in more developed foreign
markets. This difference reflects the greater uncertainties of investing in
less established markets and economies. Emerging markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets is
uninvested and no return is earned thereon. The inability to make intended
security purchases due to settlement problems could cause the International Fund
and International Small Cap Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to those Funds due to subsequent declines in the value
of those securities or, if either Fund has entered into a contract to sell a
security, in possible liability to the purchaser. Costs associated with
transactions in emerging markets securities are typically higher than costs
associated with transactions in U.S. securities. Such transactions also involve
additional costs for the purchase or sale of foreign currency.
Certain foreign markets (including emerging markets) may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in an emerging market's balance of payments or for other
reasons, a country could impose temporary restrictions on foreign capital
remittances. International Fund and International Small Cap Fund could be
adversely affected by delays in, or a refusal to grant, required governmental
approval for repatriation of capital, as well as by the application to either
Fund of any restrictions on investments.
The risk also exists that an emergency situation may arise in one or
more emerging markets. As a result, trading of securities may cease or may be
substantially curtailed and prices for either Fund's securities in such markets
may not be readily available. International Fund and International Small Cap
Fund may suspend redemption of its shares for any period during which an
emergency exists, as determined by the Securities and Exchange Commission (the
"SEC"). Accordingly, if either Fund believes that appropriate circumstances
exist, it will promptly apply to the SEC for a determination that such an
emergency is present. During the period commencing from either Fund's
identification of such condition until the date of the SEC action, that Fund's
securities in the affected markets will be valued at fair value determined in
good faith by or under the direction of the Trust's board of trustees.
Income from securities held by International Fund or International Small
Cap Fund could be reduced by taxes withheld from that income, or other taxes
that may be imposed by the emerging market countries in which the Fund invests.
Net asset value of a Fund may also be affected by changes in the rates or
methods of taxation applicable to the Fund or to entities in which the Fund has
invested. Many emerging markets have experienced substantial rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had
and may continue to have adverse effects on the economies and securities markets
of certain emerging market countries. In an attempt to control inflation,
certain emerging market countries have imposed wage and price controls. Of
these countries, some, in recent years, have begun to control inflation through
prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest or principal on debt obligations as
those payments have come due. Obligations arising from past
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restructuring agreements may affect the economic performance and political and
social stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through ownership or control of many companies. The future actions of
those governments could have a significant effect on economic conditions in
emerging markets, which in turn, may adversely affect companies in the private
sector, general market conditions and prices and yields of certain of the
securities in a Fund's portfolio. Expropriation, confiscatory taxation,
nationalization, political, economic and social instability have occurred
throughout the history of certain emerging market countries and could adversely
affect Fund assets should any of those conditions recur.
CURRENCY EXCHANGE TRANSACTIONS. Each Fund may enter into currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market or
through a forward currency exchange contract ("forward contract"). A forward
contract is an agreement to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks, foreign
exchange dealers or broker-dealers, are not exchange-traded and are usually for
less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which a Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. A Fund's currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or actual or anticipated portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to specific receivables or payables of a Fund accruing in connection with the
purchase or sale of portfolio securities. Portfolio hedging is the use of a
forward contract with respect to an actual or anticipated portfolio security
position denominated or quoted in a particular currency. When the Fund owns or
anticipates owning securities in countries whose currencies are linked, the
Adviser may aggregate such positions as to the currency hedged.
If a Fund enters into a forward contract hedging an anticipated or
actual holding of portfolio securities, liquid assets of the Fund, having a
value at least as great as the amount of the excess, if any, of the Fund's
commitment under the forward contract over the value of the portfolio position
being hedged, will be segregated on the books of the Fund and held by the Fund's
custodian and marked to market daily, while the contract is outstanding.
At the maturity of a forward contract to deliver a particular currency,
a Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
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entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
EUROPEAN CURRENCY UNIFICATION. Effective January 1, 1999, eleven of the
fifteen member countries of the European Union adopted a single European
currency, the euro. The countries participating in the Economic and Monetary
Union ("EMU") are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain. The four European Union
countries not currently participating in the EMU are Great Britain, Denmark,
Sweden and Greece. A new European Central Bank manages the monetary policy of
the new unified region, and the exchange rates among the EMU member countries
are permanently fixed. National currencies will continue to circulate until
they are replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital
markets in which International Fund and International Small Cap Fund may invest
their assets. The euro conversion could have potential adverse effects on a
Fund's ability to value its portfolio holdings in foreign securities, and could
increase the costs associated with the Fund's operations. The Adviser is
working with the providers of services to the Funds in the areas of clearance
and settlement of trades in an effort to avoid any material impact on the Funds
due to the euro conversion; there can be no assurance, however, that the steps
taken by the Adviser will be sufficient to avoid any adverse impact on the
Funds.
DEBT SECURITIES
Each Fund may invest in debt securities, including lower-rated
securities (i.e., securities rated BB or lower by Standard & Poor's Corporation
("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly
called "junk bonds") and securities that are not rated. There are no
restrictions as to the ratings of debt securities acquired by a Fund or the
portion of a Fund's assets that may be invested in debt securities in a
particular ratings category, except that International Fund and International
Small Cap Fund will not invest more than 10% of their respective total assets in
securities rated below investment grade, Equity and Income Fund will not invest
more than 20% of its total assets in such securities, and each of the other
Funds will not invest more than 25% of its total assets in such securities.
Securities rated BBB or Baa are considered to be medium grade and to
have speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
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changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in servicing their principal and interest
payment obligations.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and a Fund may have greater difficulty selling its
portfolio securities. See "Net Asset Value." The market value of these
securities and their liquidity may be affected by adverse publicity and investor
perceptions.
A description of the characteristics of bonds in each ratings category
is included in the appendix to this statement of additional information.
WHEN-ISSUED, DELAYED-DELIVERY AND OTHER SECURITIES
Each Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time a Fund enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase, when their
value may have changed. A Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if the adviser deems it advisable for investment reasons. A
Fund may utilize spot and forward foreign currency exchange transactions to
reduce the risk inherent in fluctuations in the exchange rate between one
currency and another when securities are purchased or sold on a when-issued or
delayed-delivered basis.
At the time a Fund enters into a binding obligation to purchase
securities on a when-issued basis, liquid assets of the Fund having a value at
least as great as the purchase price of the securities to be purchased will be
segregated on the books of the Fund and held by the custodian throughout the
period of the obligation. The use of these investment strategies, as well as
any borrowing by a Fund, may increase net asset value fluctuation.
A Fund may also enter into a contract with a third party that provides
for the sale of securities held by the Fund at a set price, with a contingent
right for the Fund to receive additional proceeds from the purchaser upon the
occurrence of designated future events, such as a tender offer for the
securities of the subject company by the purchaser, and satisfaction of any
applicable conditions. Under such an arrangement, the amount of contingent
proceeds that the Fund will receive from the purchaser, if any, will generally
not be determinable at the time such securities are sold. The Fund's rights
under such an arrangement will not be secured and the Fund may not receive the
contingent payment if the purchaser does not have the resources to make the
payment. The Fund's rights under such an arrangement also generally will be
illiquid and subject to the limitations on ownership of illiquid securities.
ILLIQUID SECURITIES
No Fund may invest in illiquid securities, if as a result such
securities would comprise more than 15% of the value of the Fund's assets.
If through the appreciation of illiquid securities or the depreciation
of liquid securities, the Fund should be in a position where more than 15% of
the value of its net assets are invested in illiquid assets, including
restricted securities, the Fund will take appropriate steps to protect
liquidity.
Illiquid securities may include restricted securities, which may be sold
only in privately negotiated transactions or in a public offering with respect
to which a registration statement is in effect under the Securities Act of 1933
(the "1933 Act"). Where a Fund holds restricted securities
9
<PAGE>
and registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the board of
trustees.
Notwithstanding the above, each Fund may purchase securities that,
although privately placed, are eligible for purchase and sale under Rule 144A
under the 1933 Act. This rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The adviser, under the
supervision of the board of trustees, may consider whether securities purchased
under Rule 144A are liquid and thus not subject to the Fund's restriction of
investing no more than 15% of its assets in illiquid securities. (See
restriction 13 under "Investment Restrictions.") A determination of whether a
Rule 144A security is liquid or not is a question of fact. In making this
determination the adviser will consider the trading markets for the specific
security taking into account the unregistered nature of a Rule 144A security.
In addition, the adviser could consider the (1) frequency of trades and quotes,
(2) number of dealers and potential purchasers, (3) dealer undertakings to make
a market, (4) and the nature of the security and of market place trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer). The liquidity of Rule 144A securities would be
monitored and, if as a result of changed conditions, it is determined that a
Rule 144A security is no longer liquid, the Fund's holdings of illiquid
securities would be reviewed to determine what, if any, steps are required to
assure that the Fund does not invest more than 15% of its assets in illiquid
securities. Investing in Rule 144A securities could have the effect of
increasing the amount of a Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
SHORT SALES
Each Fund may sell securities short against the box, that is: (1) enter
into short sales of securities that it currently owns or has the right to
acquire through the conversion or exchange of other securities that it owns
without additional consideration; and (2) enter into arrangements with the
broker-dealers through which such securities are sold short to receive income
with respect to the proceeds of short sales during the period the Fund's short
positions remain open. A Fund may make short sales of securities only if at all
times when a short position is open the Fund owns at least an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and equal
in amount to, the securities sold short.
In a short sale against the box, a Fund does not deliver from its
portfolio the securities sold and does not receive immediately the proceeds from
the short sale. Instead, the Fund borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the broker-dealer
delivers such securities, on behalf of the Fund, to the purchaser of such
securities. Such broker-dealer is entitled to retain the proceeds from the
short sale until the Fund delivers to such broker-dealer the securities sold
short. In addition, the Fund is required to pay to the broker-dealer the amount
of any dividends paid on shares sold short. Finally, to secure its obligation
to deliver to such broker-dealer the securities sold short, the Fund must
deposit and continuously maintain in a separate account with the Fund's
custodian an equivalent amount of the securities sold short or securities
convertible into or exchangeable for such securities without the payment of
additional consideration. A Fund is said to have a short position in the
securities sold until it delivers to the broker-dealer the securities sold, at
which time the Fund receives the proceeds of the sale. A Fund may close out a
short position by purchasing on the open market and delivering to the
broker-dealer an equal amount of the securities sold short, rather than by
delivering portfolio securities.
10
<PAGE>
Short sales may protect a Fund against the risk of losses in the value
of its portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the price of the
security sold short increases between the time of the short sale and the time a
Fund replaces the borrowed security, the Fund will incur a loss and if the price
declines during this period, the Fund will realize a short-term capital gain.
Any realized short-term capital gain will be decreased, and any incurred loss
increased, by the amount of transaction costs and any premium, dividend or
interest which the Fund may have to pay in connection with such short sale.
Certain provisions of the Internal Revenue Code may limit the degree to which a
Fund is able to enter into short sales. There is no limitation on the amount of
each Fund's assets that, in the aggregate, may be deposited as collateral for
the obligation to replace securities borrowed to effect short sales and
allocated to segregated accounts in connection with short sales. No Fund
currently expects that more than 20% of its total assets would be involved in
short sales against the box.
OPTIONS
Each Fund may purchase both call options and put options on securities.
A call or put option is a contract that gives the Fund, in return for a premium
paid upon purchase of the option, the right during the term of the option to buy
from, or to sell to, the seller of the option the security underlying the option
at a specified exercise price. The option is valued initially at the premium
paid for the option. Thereafter, the value of the option is marked-to-market
daily. It is expected that a Fund will not purchase a call option or a put
option if the aggregate value of all call and put options held by the Fund would
exceed 5% of the Fund's net assets.
TEMPORARY STRATEGIES
Each Fund has the flexibility to respond promptly to changes in market
and economic conditions. In the interest of preserving shareholders' capital,
the adviser may employ a temporary defensive investment strategy if it
determines such a strategy to be warranted. Pursuant to such a defensive
strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or
multinational currency units) and/or invest up to 100% of its assets in high
quality debt securities or money market instruments of U.S. or foreign issuers,
and most or all of International Fund's investments and International Small Cap
Fund's investments may be made in the United States and denominated in U.S.
dollars. It is impossible to predict whether, when or for how long a Fund will
employ defensive strategies.
In addition, pending investment of proceeds from new sales of Fund
shares or to meet ordinary daily cash needs, each Fund temporarily may hold cash
(U.S. dollars, foreign currencies or multinational currency units) and may
invest any portion of its assets in money market instruments.
PERFORMANCE INFORMATION
From time to time the Funds may quote total return figures in sales
material. "Total Return" for a period is the percentage change in value during
the period of an investment in Fund shares, including the value of shares
acquired through reinvestment of all dividends and capital gains distributions.
"Average Annual Total Return" is the average annual compounded rate of change in
value represented by the Total Return for the period.
11
<PAGE>
Average Annual Total Return will be computed as follows:
n
ERV = P(1+T)
Where: P = the amount of an assumed initial investment in Fund shares
T = average annual total return
n = number of years from initial investment to the end of the
period
ERV = ending redeemable value of shares held at the end of the
period
For example, Total Return and Average Annual Total Return on a $1,000
investment in each Fund for the following periods ended September 30, 1998 were:
<TABLE>
<CAPTION>
Total Average Annual
Return Total Return
------ ------------
<S> <C> <C>
Oakmark Fund Class I
One year........................ -4.06% -4.06%
Five years...................... 116.06 16.65
Life of Fund*................... 398.99 25.17
Select Fund Class I
One year........................ 3.64 3.64
Life of Fund*................... 69.36 31.67
Small Cap Fund Class I
One year........................ -26.37 -26.37
Life of Fund*................... 49.76 14.85
Equity and Income Fund Class I
One year........................ 2.57 2.57
Life of Fund*................... 51.91 15.41
International Fund Class I
One year........................ -29.90 -29.90
Five years...................... 21.92 4.04
Life of Fund*................... 63.22 8.50
International Small Cap Fund Class I
One year........................ -35.20 -35.20
Life of Fund*................... -17.90 -6.53
</TABLE>
--------------------
*Life of Fund commenced with the public offering of its shares as follows:
Oakmark, 8/5/91; Select, 11/1/96; International, 9/30/92; Small Cap, Equity
and Income and International Small Cap, 11/1/95.
Total Return and Average Annual Total Return of Class II Shares of each
Fund will be calculated in the same way as for Class I Shares, but the
performance of Class II Shares will likely be different from the performance
of Class I Shares because the expense allocation for each class will be
different. Because the expense ratio for Class II Shares is expected to be
higher, the Total Return and Average Annual Total Return of Class II Shares
are expected to be lower than for Class I Shares.
Performance figures quoted by the Funds will assume reinvestment of all
dividends and distributions, but will not take into account income taxes payable
by shareholders. The Funds impose no sales charge and pay no distribution
("12b-1") expenses. Each Fund's performance is a function of conditions in the
securities markets, portfolio management, and operating expenses. Although
information such as yield and total return is useful in reviewing a Fund's
performance and in providing some basis for comparison with other investment
alternatives, it should not be
12
<PAGE>
used for comparison with other investments using different reinvestment
assumptions or time periods.
In advertising and sales literature, the performance of a Fund may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes or averages differs from that of
the Funds. Comparison of a Fund to an alternative investment should consider
differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Funds generally believe to be
accurate. The Funds may also refer to publicity (including performance
rankings) in newspapers, magazines, or other media from time to time. However,
the Funds assume no responsibility for the accuracy of such data. Newspapers
and magazines that might mention the Funds include, but are not limited to, the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
Barron's Fortune The New York Times
Business Week Global Finance Pensions and Investments
Changing Times Investor's Business Daily Personal Investor
Chicago Tribune Kiplinger's Personal Finance Smart Money
Chicago Sun-Times Los Angeles Times Stanger Reports
Crain's Chicago Business Money Time
Consumer Reports Mutual Fund Letter USA Today
Consumer Digest Mutual Funds Magazine U.S. News and World Report
Financial World Morningstar The Wall Street Journal
Forbes Newsweek Worth
</TABLE>
A Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation. The performance of a Fund
may also be compared to the Morgan Stanley EAFE (Europe, Australia and Far
East) Index*, a generally accepted benchmark for performance of major
overseas markets, and to the following indexes or averages:
Dow-Jones Industrial Average* Wilshire 5000
Standard & Poor's 500 Stock Index* New York Stock Exchange Composite Index
Standard & Poor's 400 Industrials American Stock Exchange Composite Index
Standard & Poor's Small Cap 600* NASDAQ Composite
Standard & Poor's Mid Cap 400* NASDAQ Industrials
Russell 2000
In addition, each of Oakmark Fund, Select Fund, Small Cap Fund and Equity
and Income Fund may compare its performance to the following indexes and
averages: Value Line Index; Lipper Capital Appreciation Fund Average; Lipper
Growth Funds Average; Lipper Small Company Growth Funds Average; Lipper General
Equity Funds Average; Lipper Equity Funds Average; Lipper Small Company Growth
Fund Index; and Lehman Brothers Government/Corporate Bond Index. Each of
International Fund and International Small Cap Fund may compare its performance
to the following indexes and averages: Lipper International & Global Funds
Average; Lipper International Fund Index; Lipper International Equity Funds
Average; Micropal International Small Company Fund Index; Morgan Stanley Capital
International World ex the U.S. Index*; Morningstar International Stock Average.
- --------------------------------
* With dividends reinvested.
13
<PAGE>
Lipper Indexes and Averages are calculated and published by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors the
performance of more than 1,000 funds. The Funds may also use comparative
performance as computed in a ranking by Lipper or category averages and rankings
provided by another independent service. Should Lipper or another service
reclassify a Fund to a different category or develop (and place a Fund into) a
new category, that Fund may compare its performance or ranking against other
funds in the newly assigned category, as published by the service. Each Fund
may also compare its performance or ranking against all funds tracked by Lipper
or another independent service, including Morningstar, Inc.
The Funds may cite their ratings, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on
risk-adjusted total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a fund's risk score (which
is a function of the fund's monthly returns less the 3-month T-bill return) from
the fund's load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five star, the next
22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled
two star, and the bottom 10% one star. A high rating reflects either
above-average returns or below-average risk or both.
To illustrate the historical returns on various types of financial assets,
the Funds may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks; small company stocks; long-term corporate bonds; long-term government
bonds; intermediate-term government bonds; U.S. Treasury bills; and Consumer
Price Index.
INVESTMENT ADVISER
The Funds' investment adviser, Harris Associates L.P. (the "Adviser"),
furnishes continuing investment supervision to the Funds and is responsible for
overall management of the Funds' business affairs pursuant to investment
advisory agreements relating to the respective Funds (the "Agreements"). The
Adviser furnishes office space, equipment and personnel to the Funds, and
assumes the expenses of printing and distributing the Funds' prospectus and
reports to prospective investors.
Each Fund pays the cost of its custodial, stock transfer, dividend
disbursing, bookkeeping, audit and legal services. Each Fund also pays other
expenses such as the cost of proxy solicitations, printing and distributing
notices and copies of the prospectus and shareholder reports furnished to
existing shareholders, taxes, insurance premiums, the expenses of maintaining
the registration of that Fund's shares under federal and state securities laws
and the fees of trustees not affiliated with the Adviser.
The Adviser has voluntarily agreed to reimburse Class I Shares of each
Fund to the extent that the annual ordinary operating expenses of that class
exceed the following percentages of the average net assets of Class I Shares:
1.5% in the case of Oakmark Fund, Select Fund, Small Cap Fund or Equity and
Income Fund and 2% in the case of International Fund and International Small
Cap Fund. The Adviser has also voluntarily agreed to reimburse Class II
Shares of each Fund to the extent that the annual ordinary operating expenses
of that class exceed the following percentages of the average net assets of
Class II Shares: Oakmark Fund, Select Fund, Small Cap Fund or Equity and
Income Fund, 1.75% (1.50% + .25%); International Fund and International Small
Cap Fund, 2.25% (2.00% + .25%). Each such agreement is
14
<PAGE>
effective through January 31, 2000, subject to earlier termination by the
Adviser on 30 days' notice to the Fund.
For the purpose of determining whether a share class of a Fund is
entitled to any reduction in advisory fee or expense reimbursement, the pro
rata portion of the Fund's expenses attributable to a share class of that
Fund, is calculated daily and any reduction in fee or reimbursement is made
monthly.
For its services as investment adviser, the Adviser receives from each
Fund a monthly fee based on that Fund's net assets at the end of the
preceding month. Basing the fee on net assets at the end of the preceding
month has the effect of (i) delaying the impact of changes in assets on the
amount of the fee and (ii) in the first year of a fund's operation, reducing
the amount of the aggregate fee by providing for no fee in the first month of
operation. The annual rates of fees as a percentage of each Fund's net
assets are as follows:
FUND FEE
- ----------------- ------------------------------------------------
Equity and Income .75%
Oakmark 1% up to $2.5 billion; .95% on the next $1.25
billion; .90% on the next $1.25 billion; .85% on
net assets in excess of $5 billion; and .80% on
net assets in excess of $10 billion
International 1% up to $2.5 billion; .95% on the next $2.5
billion; and .90% on net assets in excess of $5
billion
Select 1% up to $1 billion; .95% on the next $500
million; .90% on the next $500 million; .85% on
the next $500 million; .80% over $2.5 billion;
and .75% over $5 billion.
Small Cap 1.25% up to $1 billion; 1.15% on the next $500
million; 1.10% on the next $500 million; 1.05% on
the next $500 million; 1% over $2.5 billion.
International Small Cap 1.25%
The table below shows gross advisory fees paid by the Funds and any expense
reimbursements by the Adviser to them, which are described in the prospectus.
<TABLE>
<CAPTION>
TYPE OF YEAR ENDED ELEVEN MONTHS ENDED YEAR ENDED
FUND PAYMENT SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 OCTOBER 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oakmark Advisory fee $72,196,251 $43,705,462 $36,082,925
Select Advisory fee 11,525,158 1,731,599 --
Small Cap Advisory fee 15,863,707 7,705,828 956,809
Equity and Advisory fee 359,708 140,973 69,005
Income Reimbursement -- 39,450 14,245
International Advisory fee 12,623,371 13,040,702 10,113,272
International Advisory fee 827,611 648,148 258,427
Small Cap Reimbursement -- -- 35,441
</TABLE>
The Agreement for each Fund was for an initial term expiring September 30,
1997. Each Agreement will continue from year to year thereafter so long as
such continuation is approved at least annually by (1) the board of trustees
or the vote of a majority of the outstanding voting
15
<PAGE>
securities of the Fund, and (2) a majority of the trustees who are not
interested persons of any party to the Agreement, cast in person at a meeting
called for the purpose of voting on such approval. Each Agreement may be
terminated at any time, without penalty, by either the Trust or the Adviser upon
sixty days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
The Adviser is a limited partnership managed by its general partner, Harris
Associates, Inc., whose directors are David G. Herro, Robert M. Levy, Roxanne M.
Martino, Victor A. Morgenstern, Anita M. Nagler, William C. Nygren, Neal Ryland,
Robert J. Sanborn and Peter S. Voss. Mr. Levy is the president and chief
executive officer of Harris Associates, Inc.
TRUSTEES AND OFFICERS
Information on the trustees and officers of the Trust is included in the
Funds' prospectus under "Management of the Funds."
The addresses of the trustees are as follows:
Michael J. Friduss c/o MJ Friduss & Associates, Inc.
1555 Museum Drive
Highland Park, Illinois 60035
Thomas H. Hayden c/o Bozell Worldwide, Inc.
625 North Michigan Avenue
Chicago, Illinois 60611-3110
Christine M. Maki c/o Hyatt Corporation
200 West Madison Street
Chicago, Illinois 60606
Victor A. Morgenstern c/o Harris Associates L.P.
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
Allan J. Reich c/o D'Ancona & Pflaum
30 North LaSalle Street, Suite 2900
Chicago, Illinois 60602
Marv R. Rotter c/o Rotter & Associates
5 Revere Drive, Suite 400
Northbrook, Illinois 60062-1571
Burton W. Ruder c/o The Academy Group
707 Skokie Boulevard, Suite 410
Northbrook, Illinois 60062
Peter S. Voss c/o Nvest Companies, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Gary N. Wilner, M.D. c/o Evanston Hospital
2650 Ridge Avenue
Evanston, Illinois 60201
16
<PAGE>
Messrs. Morgenstern and Voss are trustees who are "interested persons" of
the Trust as defined in the 1940 Act. They and Dr. Wilner are members of the
executive committee, which has authority during intervals between meetings of
the board of trustees to exercise the powers of the board, with certain
exceptions.
At September 30, 1998, the trustees and officers as a group owned
beneficially the following percentages of the outstanding shares of the Funds:
Select, 1.36%; Small Cap, 1.30%; International Small Cap, 17.92%; and less than
1% in the case of each other Fund.
The following table shows the compensation paid by the Trust for the year
ended September 30, 1998 to each trustee who was not an "interested person" of
the Trust:
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF TRUSTEE FROM THE TRUST*
- -----------------------------------------------------------------------------
<S> <C>
Christine M. Maki $37,250
Michael J. Friduss 37,250
Thomas H. Hayden 37,750
Allan J. Reich 37,750
Marv R. Rotter 37,250
Burton W. Ruder 35,250
Gary N. Wilner, M.D. 41,250
- -----------------------------------------------------------------------------
</TABLE>
*The Trust is not part of a fund complex.
Other trustees who are "interested persons" of The Trust, as well as the
officers of the Trust, are compensated by the Adviser and not by The Trust.
The Trust does not provide any pension or retirement benefits to its trustees.
The Trust has a deferred compensation plan (the "Plan") that permits any
trustee who is not an "interested person" of the Trust to elect to defer receipt
of all or a portion of his or her compensation as a trustee for two or more
years. The deferred compensation of a participating trustee is credited to a
book reserve account of the Trust when the compensation would otherwise have
been paid to the trustee. The value of the trustee's deferral account at any
time is equal to the value that the account would have had if contributions to
the account had been invested and reinvested in shares of one or more of the
Oakmark Funds or the Goldman Sachs Institutional Liquid Assets Government
Portfolio as designated by the trustee. At the time for commencing
distributions from a trustee's deferral account, which is no later than when the
trustee ceases to be a member of the board, the trustee may elect to receive
distributions in a lump sum or over a period of five years. Each Fund's
obligation to make distributions under the Plan is a general obligation of that
Fund. No Fund will be liable for any other Fund's obligations to make
distributions under the Plan.
PRINCIPAL SHAREHOLDERS
The only persons known by the Trust to own of record or "beneficially"
(within the meaning of that term as defined in rule 13d-3 under the Securities
Exchange Act of 1934) 5% or more of the outstanding shares of any Fund as of
September 30, 1998 were:
17
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS FUND SHARES HELD
---------------- ---- -----------
<S> <C> <C>
Charles Schwab & Co. Inc. (1) Oakmark 33.67%
101 Montgomery Street Select 31.96
San Francisco, CA 94104-4122 Small Cap 33.65
Equity and Income 18.30
International 31.44
International Small Cap 29.43
David G. Herro (2) International Small Cap 9.42
Two North LaSalle Street, #500
Chicago, IL 60602
Clyde S. and Joan K. McGregor Equity and Income 5.20
Two North LaSalle Street, #500
Chicago, IL 60602
Morgan Stanley & Co., Inc. (1) Equity and Income 6.51
1 Pierrepont Plaza, 10th Floor International Small Cap 18.00
Brooklyn, NY 11201-2776
National Financial Services Corp. (1) Oakmark 8.06
P.O. Box 3908 Select 20.62
Church Street Station Small Cap 9.04
New York, NY 10008-3908 International 5.91
International Small Cap 6.29
</TABLE>
- -------------
(1) Shares are held for accounts of customers.
(2) 416,646 of these shares are included in shares held by
Morgan Stanley & Co., Inc.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the Funds' prospectus under the
headings "Purchasing Shares," "Redeeming Shares," and "Shareholder Services."
The net asset value per share Class I or Class II of each Fund is
determined by the Trust's custodian, State Street Bank and Trust Company. The
net asset value of Class I Shares of a Fund is determined by dividing the value
of the assets attributable to Class I Shares of the Fund, less liabilities
attributable to that class, by the number of Class I Shares outstanding.
Similarly, the net asset value of Class II Shares of a Fund is determined by
dividing the value of the assets attributable to Class II Shares of the Fund,
less liabilities attributable to that class, by the number of Class II Shares
outstanding. Securities traded on securities exchanges, or in the
over-the-counter market in which transaction prices are reported on the NASDAQ
National Market System, are valued at the last sales prices at the time of
valuation or, lacking any reported sales on that day, at the most recent bid
quotations. Other securities traded over-the-counter are also valued at the
most recent bid quotations. Money market instruments having a maturity of 60
days or less from the valuation date are valued on an amortized cost basis. The
values of securities of foreign issuers are generally based upon market
quotations which, depending upon local
18
<PAGE>
convention or regulation, may be last sale price, last bid or asked price, or
the mean between last bid and asked prices as of, in each case, the close of the
appropriate exchange or other designated time. Securities for which quotations
are not available and any other assets are valued at a fair value as determined
in good faith by or under the direction of the board of trustees. All assets
and liabilities initially expressed in foreign currencies are converted into
U.S. dollars at the mean of the bid and offer prices of such currencies against
U.S. dollars quoted by any major bank or dealer. If such quotations are not
available, the rate of exchange will be determined in accordance with policies
established in good faith by the Board.
The Funds' net asset values are determined only on days on which the New
York Stock Exchange is open for trading. The NYSE is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in January and
February, Good Friday, the last Monday in May, Independence Day, Labor Day,
Thanksgiving and Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the following Monday,
respectively.
Trading in the portfolio securities of International Fund or International
Small Cap Fund (and of any other Fund, to the extent it invests in securities of
non-U.S. issuers) takes place in various foreign markets on certain days (such
as Saturday) when the Fund is not open for business and does not calculate its
net asset value. In addition, trading in the Fund's portfolio securities may
not occur on days when the Fund is open. Therefore, the calculation of net
asset value does not take place contemporaneously with the determinations of the
prices of many of the Fund's portfolio securities and the value of the Fund's
portfolio may be significantly affected on days when shares of the Fund may not
be purchased or redeemed.
Computation of net asset value (and the sale and redemption of a Fund's
shares) may be suspended or postponed during any period when (a) trading on the
New York Stock Exchange is restricted, as determined by the Securities and
Exchange Commission, or that exchange is closed for other than customary weekend
and holiday closings, (b) the Commission has by order permitted such suspension,
or (c) an emergency, as determined by the Commission, exists making disposal of
portfolio securities or valuation of the net assets of a Fund not reasonably
practicable.
Shares of any of the Funds may be purchased through certain financial
service companies, without incurring any transaction fee. For services provided
by such a company with respect to Fund shares held by that company for its
customers, the company may charge a fee of up to 0.35% of the annual average
value of those accounts. Each Fund may pay a portion of those fees, not to
exceed the estimated fees that the Fund would pay to its own transfer agent if
the shares of the Fund held by such customers of the company were registered
directly in their names on the books of the Fund's transfer agent. The balance
of those fees are paid by the Adviser.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which it is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day
period for any one shareholder. Redemptions in excess of those amounts will
normally be paid in cash, but may be paid wholly or partly by a distribution in
kind of marketable securities. Brokerage costs may be incurred by a shareholder
who receives securities and desires to convert them to cash.
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem at net asset value the shares of any shareholder
whose account in any Fund has a value of less than the minimum amount specified
by the board of trustees, which currently is $1,000. Before such a redemption,
the shareholder will be notified that the account value is less than the minimum
and will be allowed at least 30 days to bring the value of the account up to the
19
<PAGE>
minimum. The agreement and declaration of trust also authorizes the Trust to
redeem shares under certain other circumstances as may be specified by the board
of trustees.
The Adviser acts as a Service Organization for the Institutional Liquid
Assets Service Units of the Government Portfolio of Goldman Sachs Money Market
Trust. The Adviser will act as a Service Organization for the Goldman Sachs
Short Duration Tax-Free Fund and the Institutional Liquid Assets Service Units
of the Tax Exempt Portfolio through May 31, 1999, at which time the exchange
privilege between those funds and the Oakmark Funds will be discontinued. For
its services it receives fees at rates of up to .50% of the average annual net
assets of each account in those portfolios, pursuant to 12b-1 plans adopted by
those investment companies.
ADDITIONAL TAX INFORMATION
GENERAL. Each Fund intends to continue to qualify to be taxed as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, so as to be relieved of federal income tax on its capital gains and net
investment income currently distributed to its shareholders. At the time of
your purchase, a Fund's net asset value may reflect undistributed income,
capital gains or net unrealized appreciation of securities held by that Fund. A
subsequent distribution to you of such amounts, although constituting a return
of your investment, would be taxable either as dividends or capital gain
distributions.
INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND. Dividends and
distributions paid by International Fund and International Small Cap Fund are
not eligible for the dividends-received deduction for corporate shareholders, if
as expected, none of such Funds' income consists of dividends paid by United
States corporations. Capital gain distributions paid by the Funds are never
eligible for this deduction.
Certain foreign currency gains and losses, including the portion of gain or
loss on the sale of debt securities attributable to foreign exchange rate
fluctuations are taxable as ordinary income. If the net effect of these
transactions is a gain, the dividend paid by either of these Funds will be
increased; if the result is a loss, the income dividend paid by either of these
Funds will be decreased.
Income received by International Fund or International Small Cap Fund from
sources within various foreign countries will be subject to foreign income taxes
withheld at the source. Under the Code, if more than 50% of the value of the
Fund's total assets at the close of its taxable year comprise securities issued
by foreign corporations, the Fund may file an election with the Internal Revenue
Service to "pass through" to the Fund's shareholders the amount of foreign
income taxes paid by the Fund. Pursuant to this election, shareholders will be
required to: (i) include in gross income, even though not actually received,
their respective pro rata share of foreign taxes paid by the Fund; (ii) treat
their pro rata share of foreign taxes as paid by them; and (iii) either deduct
their pro rata share of foreign taxes in computing their taxable income, or use
it as a foreign tax credit against U.S. income taxes (but not both). No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions.
Both International Fund and International Small Cap Fund intend to meet the
requirements of the Code to "pass through" to its shareholders foreign income
taxes paid, but there can be no assurance that a Fund will be able to do so.
Each shareholder will be notified within 60 days after the close of each taxable
year of a Fund, if the foreign taxes paid by the Fund will "pass through" for
that year, and, if so, the amount of each shareholder's pro rata share (by
country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from
foreign sources. Of course, shareholders who are not liable for federal income
taxes, such as retirement plans
20
<PAGE>
qualified under Section 401 of the Code, will not be affected by any such "pass
through" of foreign tax credits.
TAXATION OF FOREIGN SHAREHOLDERS
The Code provides that dividends from net income (which are deemed to
include for this purpose each shareholder's pro rata share of foreign taxes paid
by International Fund and International Small Cap Fund (see discussion of "pass
through" of the foreign tax credit to U.S. shareholders), will be subject to
U.S. tax. For shareholders who are not engaged in a business in the U.S., this
tax would be imposed at the rate of 30% upon the gross amount of the dividend in
the absence of a Tax Treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains realized by these Funds
are not subject to tax unless the foreign shareholder is a nonresident alien
individual who was physically present in the U.S. during the tax year for more
than 182 days.
PORTFOLIO TRANSACTIONS
Portfolio transactions for each Fund are placed with those securities
brokers and dealers that the Adviser believes will provide the best value in
transaction and research services for that Fund, either in a particular
transaction or over a period of time. Subject to that standard, portfolio
transactions for each Fund may be executed through Harris Associates Securities
L.P. ("HASLP"), a registered broker-dealer and an affiliate of the Adviser.
In valuing brokerage services, the Adviser makes a judgment as to which
brokers are capable of providing the most favorable net price (not necessarily
the lowest commission) and the best execution in a particular transaction. Best
execution connotes not only general competence and reliability of a broker, but
specific expertise and effort of a broker in overcoming the anticipated
difficulties in fulfilling the requirements of particular transactions, because
the problems of execution and the required skills and effort vary greatly among
transactions.
Although some transactions involve only brokerage services, many involve
research services as well. In valuing research services, the Adviser makes a
judgment of the usefulness of research and other information provided by a
broker to the Adviser in managing a Fund's investment portfolio. In some cases,
the information, e.g., data or recommendations concerning particular securities,
relates to the specific transaction placed with the broker, but for the greater
part the research consists of a wide variety of information concerning
companies, industries, investment strategy and economic, financial and political
conditions and prospects, useful to the Adviser in advising the Funds.
The Adviser is the principal source of information and advice to the Funds,
and is responsible for making and initiating the execution of the investment
decisions for each Fund. However, the board of trustees recognizes that it is
important for the Adviser, in performing its responsibilities to the Funds, to
continue to receive and evaluate the broad spectrum of economic and financial
information that many securities brokers have customarily furnished in
connection with brokerage transactions, and that in compensating brokers for
their services, it is in the interest of the Funds to take into account the
value of the information received for use in advising the Funds. Consequently,
the commission paid to brokers (other than HASLP) providing research services
may be greater than the amount of commission another broker would charge for the
same transaction. The extent, if any, to which the obtaining of such
information may reduce the expenses of the Adviser in providing management
services to the Funds is not determinable. In addition, it is understood by the
board of trustees that other clients of the Adviser might also benefit from the
information obtained for the Funds, in the same manner that the Funds might also
benefit from information obtained by the Adviser in performing services to
others.
21
<PAGE>
HASLP may act as broker for a Fund in connection with the purchase or sale
of securities by or to the Fund if and to the extent permitted by procedures
adopted from time to time by the board of trustees of the Trust. The board of
trustees, including a majority of the trustees who are not "interested"
trustees, has determined that portfolio transactions for a Fund may be executed
through HASLP if, in the judgment of the Adviser, the use of HASLP is likely to
result in prices and execution at least as favorable to the Fund as those
available from other qualified brokers and if, in such transactions, HASLP
charges the Fund commission rates at least as favorable to the Fund as those
charged by HASLP to comparable unaffiliated customers in similar transactions.
The board of trustees has also adopted procedures that are reasonably designed
to provide that any commissions, fees or other remuneration paid to HASLP are
consistent with the foregoing standard. The Funds will not effect principal
transactions with HASLP. In executing transactions through HASLP, the Funds
will be subject to, and intend to comply with, section 17(e) of the 1940 Act and
rules thereunder.
The reasonableness of brokerage commissions paid by the Funds in relation
to transaction and research services received is evaluated by the staff of the
Adviser on an ongoing basis. The general level of brokerage charges and other
aspects of the Funds' portfolio transactions are reviewed periodically by the
board of trustees.
Transactions of the Funds in the over-the-counter market and the third
market are executed with primary market makers acting as principal except where
it is believed that better prices and execution may be obtained otherwise.
Although investment decisions for the Funds are made independently from
those for other investment advisory clients of the Adviser, it may develop that
the same investment decision is made for both a Fund and one or more other
advisory clients. If both a Fund and other clients purchase or sell the same
class of securities on the same day, the transactions will be allocated as to
amount and price in a manner considered equitable to each.
The Funds do not purchase securities with a view to rapid turnover.
However, there are no limitations on the length of time that portfolio
securities must be held. Portfolio turnover can occur for a number of reasons,
including general conditions in the securities market, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. A high rate of portfolio
turnover would result in increased transaction expense, which must be borne by
the Fund. High portfolio turnover may also result in the realization of capital
gains or losses and, to the extent net short-term capital gains are realized,
any distributions resulting from such gains will be considered ordinary income
for federal income tax purposes. The portfolio turnover rates for the Funds are
set forth in the prospectus under "Financial Highlights."
22
<PAGE>
The following table shows the aggregate brokerage commissions (excluding
the gross underwriting spread on securities purchased in initial public
offerings) paid by each Fund during the periods indicated, as well as the
aggregate commissions paid to affiliated persons of the Trust.
<TABLE>
<CAPTION>
Year Ended Eleven Months Ended Year Ended
September 30,1998 September 30, 1997 October 31, 1996
----------------- ------------------- -----------------
<S> <C> <C> <C>
Oakmark Fund
Aggregate commissions............... $7,578,511 (100%) $3,094,186 (100%) $2,863,961 (100%)
Commissions paid to affiliates*..... 2,068,690 (27.3%) 997,845 (32.2%) 1,192,641 (41.6%)
Select Fund
Aggregate commissions............... 2,408,373 (100%) 750,698 (100%) --
Commissions paid to affiliates*..... 589,564 (24.5%) 341,805 (45.5%) --
Small Cap Fund
Aggregate commissions............... 1,956,668 (100%) 1,906,488 (100%) 404,602 (100%)
Commissions paid to affiliates*..... 193,708 (9.9%) 401,345 (21.0%) 132,729 (32.8%)
Equity and Income Fund
Aggregate commission................ 66,195 (100%) 24,588 (100%) 19,797 (100%)
Commissions paid to affiliates*..... 41,979 (63.4%) 15,611 (63.5%) 14,487 (73.2%)
International Fund
Aggregate commissions............... 4,287,619 (100%) 5,319,725 (100%) 2,804,611 (100%)
Commissions paid to affiliates*..... -- 9,732 (0.2%) 82,872 (3.0%)
International Small Cap Fund
Aggregate commissions............... 387,461 (100%) 332,214 (100%) 198,847 (100%)
Commissions paid to affiliates*..... -- 732 (0.2%) 6,128 (3.1%)
</TABLE>
- ------------------------
* The percent of the dollar amount of each Fund's aggregate transactions
involving the Fund's payment of brokerage commissions that were executed
through affiliates for each of the periods is shown below.
<TABLE>
<CAPTION>
Year Ended Eleven Months Ended Year Ended
Fund September 30, 1998 September 30, 1997 October 31, 1996
---- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Oakmark 29.50% 36.5% 47.0%
Select 33.06 48.0 -
Small Cap 14.51 23.2 40.0
Equity and Income 63.50 67.0 78.0
International - 0.4 5.0
International Small Cap - 0.5 0.4
</TABLE>
Of the aggregate brokerage transactions during the year ended September 30,
1998, the Funds paid the following commissions on transactions directed to
brokers because of research services they provided: Oakmark, $1,142,374;
Select, $201,272; Small Cap, $237,696; Equity and Income, $5,196; International,
$4,084,575; and International Small Cap, $362,321; and the aggregate dollar
amounts involved in those transactions for the respective Funds were
$880,711,989, $112,769,699, $122,006,697, $3,817,981, $1,304,968,668 and
$89,091,569, respectively.
23
<PAGE>
DECLARATION OF TRUST
The Agreement and Declaration of Trust under which the Trust has been
organized ("Declaration of Trust") disclaims liability of the shareholders,
trustees and officers of the Trust for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement,
obligation, or contract entered into or executed by the Trust or the board of
trustees. The Declaration of Trust provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held personally
liable for obligations of the Trust. Thus, although shareholders of a
business trust may, under certain circumstances, be held personally liable
under Massachusetts law for the obligations of the Trust, the risk of a
shareholder incurring financial loss on account of shareholder liability is
believed to be remote because it is limited to circumstances in which the
disclaimer is inoperative and the Trust itself is unable to meet its
obligations. The risk to any one series of sustaining a loss on account of
liabilities incurred by another series is also believed to be remote.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8510, Boston Massachusetts
02266-8510 is the custodian for the Trust. It is responsible for holding all
securities and cash of each Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and collecting income from
investments, making all payments covering expenses of the Funds, and performing
other administrative duties, all as directed by authorized persons of the Trust.
The custodian also performs certain portfolio accounting services for the Funds,
for which each Fund pays the custodian a monthly fee. The fee paid by Oakmark
Fund is $2,500 per month. The fee paid by Oakmark International is $3,000 per
month. The fee paid by each of Select Fund, Small Cap Fund and Equity and
Income Fund is $2,500 per month and the fee paid by International Small Cap Fund
is $3,000 per month. The custodian does not exercise any supervisory function
in such matters as the purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of a Fund. The Trust has authorized the
custodian to deposit certain portfolio securities of each Fund in central
depository systems as permitted under federal law. The Funds may invest in
obligations of the custodian and may purchase or sell securities from or to the
custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603, audits
and reports on each Fund's annual financial statements, reviews certain
regulatory reports and the Funds' federal income tax returns, and performs other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
24
<PAGE>
APPENDIX A -- BOND RATINGS
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general
and are not absolute standards of quality or guarantees as to the
credit-worthiness of an issuer. Consequently, the Adviser believes that the
quality of debt securities in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings to the various
factors involved in credit analysis. A rating is not a recommendation to
purchase, sell, or hold a security, because it does not take into account market
value or suitability for a particular investor. When a security has received a
rating from more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished by the issuer
or obtained by the rating services from other sources which they consider
reliable. Ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S:
Aaa. Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in the Aaa bonds, fluctuation of protective elements may
be of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
other good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B. Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
A-1
<PAGE>
Ca. Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C. Bonds rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Ratings By Standard & Poor's:
AAA. Debt rated AAA has the highest rating. Capacity to pay interest and
repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A. Debt rated A has a very strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB-B-CCC-CC. Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
C. This rating is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
NOTE: The ratings from AA to B may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating
categories.
A-2
<PAGE>
APPENDIX B -- FINANCIAL STATEMENTS
B-1
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--88.5%
FOOD & BEVERAGE--15.2%
Philip Morris Companies Inc. 13,810,700 $ 636,155,369
H.J. Heinz Company 4,007,250 204,870,656
Gallaher Group Plc (b) 3,835,500 112,667,812
Nabisco Holdings Corporation, Class A 2,572,100 92,434,844
The Quaker Oats Company 118,000 6,962,000
--------------
1,053,090,681
APPAREL--6.1%
Nike, Inc., Class B 11,457,100 $ 421,764,494
RETAIL--0.3%
American Stores Company 648,400 $ 20,870,375
OTHER CONSUMER GOODS & SERVICES--20.1%
Mattel, Inc. 13,439,400 $ 376,303,200
The Black & Decker Corporation (c) 8,267,000 344,113,875
H&R Block, Inc. (c) 7,665,800 317,172,475
Polaroid Corporation (c) 4,552,400 111,818,325
Brunswick Corporation (c) 7,280,800 94,195,350
Fortune Brands, Inc. 2,746,800 81,373,950
Juno Lighting, Inc. (c) 1,085,000 24,276,875
First Brands Corporation 1,070,400 23,348,100
GC Companies, Inc. (a)(c) 397,000 15,334,125
--------------
1,387,936,275
BANKS & THRIFTS--14.0%
Banc One Corporation 8,800,548 $ 375,123,359
Washington Mutual, Inc. 10,100,000 340,875,000
Mellon Bank Corporation 4,540,500 250,011,281
--------------
966,009,640
INSURANCE--1.3%
Old Republic International Corporation 4,122,930 $ 92,765,925
PUBLISHING--4.8%
Knight-Ridder, Inc. (c) 6,929,400 $ 308,358,300
R. H. Donnelley Corporation (c) 2,098,260 25,965,967
--------------
334,324,267
INFORMATION SERVICES--5.6%
The Dun & Bradstreet Corporation (c) 10,491,300 $ 283,265,100
ACNielsen Corporation (c) 4,764,000 105,999,000
--------------
389,264,100
COMPUTER SERVICES--2.2%
Electronic Data Systems Corporation 4,588,000 $ 152,264,250
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FUND
7
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--88.5% (CONT.)
MEDICAL CENTERS--3.9%
Columbia/HCA Healthcare Corporation 13,601,000 $ 272,870,063
MEDICAL PRODUCTS--0.9%
Sybron International Corporation (a) 3,135,600 $ 59,968,350
AUTOMOTIVE--0.5%
SPX Corporation (a)(c) 875,200 $ 36,156,700
AEROSPACE & DEFENSE--9.1%
Lockheed Martin Corporation 3,625,000 $ 365,445,312
The Boeing Company 7,599,400 260,754,413
--------------
626,199,725
MACHINERY & INDUSTRIAL PROCESSING--2.5%
Eaton Corporation 2,721,100 $ 170,578,956
FORESTRY PRODUCTS--0.1%
Fort James Corporation 237,200 $ 7,783,125
MINING--1.2%
DeBeers Centenary AG (b) 6,546,000 $ 82,234,125
OTHER INDUSTRIAL GOODS & SERVICES--0.7%
Bandag Incorporated, Class A 1,104,100 $ 34,227,100
The Geon Company 971,600 17,245,900
--------------
51,473,000
TOTAL COMMON STOCKS (COST: $5,810,888,085) 6,125,554,051
SHORT TERM INVESTMENTS--11.0%
GOVERNMENT AND AGENCY SECURITIES--1.4%
U.S. GOVERNMENT BILLS--1.4%
United States Treasury Bills, 4.29%-5.15%
due 10/15/1998-1/14/1999 $100,000,000 $ 99,199,666
--------------
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $99,146,486) 99,199,666
</TABLE>
8
THE OAKMARK FUND
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--11.0% (CONT.)
COMMERCIAL PAPER--7.4%
American Express Credit Corp., 5.27%-5.55%
due 10/1/1998-10/14/1998 $180,000,000 $ 180,000,000
Ford Motor Credit Corp., 5.40%-5.55% due
10/1/1998-10/9/1998 160,000,000 160,000,000
General Electric Capital Corporation,
5.45%-5.70% due 10/1/1998-10/5/1998 170,000,000 170,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $510,000,000) 510,000,000
REPURCHASE AGREEMENTS--2.2%
State Street Repurchase Agreement, 5.30%
due 10/1/1998 $153,865,000 $ 153,865,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $153,865,000) 153,865,000
TOTAL SHORT TERM INVESTMENTS (COST: $763,011,486) 763,064,666
Total Investments (Cost $6,573,899,571)--99.5% (d) $6,888,618,717
Other Assets In Excess Of Other Liabilities--0.5% 35,339,165
--------------
TOTAL NET ASSETS--100% $6,923,957,882
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(d) At September 30, 1998, net unrealized appreciation of
$314,719,146, for federal income tax purposes consisted of
gross unrealized appreciation of $1,142,918,937 and gross unrealized
depreciation of $828,199,791.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FUND
9
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--88.3%
RETAIL--8.2%
Gucci Group (b) 2,787,900 $ 100,712,887
OTHER CONSUMER GOODS & SERVICES--5.8%
Host Marriott Corporation (a) 3,260,900 $ 41,372,669
Ralston Purina Group 1,016,400 29,729,700
--------------
71,102,369
BANKS & THRIFTS--8.0%
Washington Mutual, Inc. 1,725,000 $ 58,218,750
People's Bank of Bridgeport, Connecticut 1,642,600 40,243,700
--------------
98,462,450
INSURANCE--8.2%
PartnerRe Ltd. (c) 2,522,600 $ 101,061,662
BROADCASTING & CABLE TV--13.8%
Cablevision Systems Corporation, Class A
(a) 3,930,200 $ 169,735,512
TV PROGRAMMING--4.4%
Tele-Communications, Liberty Media, Class A
(a) 1,453,550 $ 53,327,116
INFORMATION SERVICES--4.0%
The Dun & Bradstreet Corporation 1,818,600 $ 49,102,200
COMPUTER SERVICES--7.2%
First Data Corporation 1,900,000 $ 44,650,000
Electronic Data Systems Corporation 1,310,900 43,505,494
--------------
88,155,494
MEDICAL PRODUCTS--6.0%
Amgen, Inc. (a) 975,000 $ 73,673,438
BUILDING MATERIALS & CONSTRUCTION--9.7%
USG Corporation (d) 2,740,800 $ 118,539,600
OTHER INDUSTRIAL GOODS & SERVICES--3.8%
Premark International, Inc. 1,678,800 $ 47,111,325
DIVERSIFIED CONGLOMERATES--9.2%
U.S. Industries, Inc. (d) 7,514,000 $ 113,179,625
TOTAL COMMON STOCKS (COST: $1,075,412,040) 1,084,163,678
</TABLE>
12
THE OAKMARK SELECT FUND
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--12.0%
GOVERNMENT AND AGENCY SECURITIES--3.2%
U.S. GOVERNMENT BILLS--3.2%
United States Treasury Bills, 4.29%-5.07%
due 10/8/1998-1/14/1999 $40,000,000 $ 39,709,859
--------------
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $39,688,587) 39,709,859
COMMERCIAL PAPER--6.1%
American Express Credit Corp., 5.27%-5.55%
due 10/1/1998-10/9/1998 $25,000,000 $ 25,000,000
Ford Motor Credit Corp., 5.30%-5.53% due
10/1/1998-10/7/1998 20,000,000 20,000,000
General Electric Capital Corporation, 5.70%
due 10/1/1998 30,000,000 30,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $75,000,000) 75,000,000
REPURCHASE AGREEMENTS--2.7%
State Street Repurchase Agreement, 5.30%
due 10/1/1998 $32,399,000 $ 32,399,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $32,399,000) 32,399,000
TOTAL SHORT TERM INVESTMENTS (COST: $147,087,587) 147,108,859
Total Investments (Cost $1,222,499,627)--100.3% (e) $1,231,272,537
Other Liabilities In Excess Of Other Assets--(0.3)% (3,378,151)
--------------
TOTAL NET ASSETS--100% $1,227,894,386
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents foreign domiciled corporation.
(d) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(e) At September 30, 1998, net unrealized appreciation of $8,772,910,
for federal income tax purposes consisted of gross unrealized
appreciation of $155,507,575 and gross unrealized depreciation of
$146,734,665.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK SELECT FUND
13
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--91.9%
FOOD & BEVERAGE--11.2%
Ralcorp Holdings, Inc. (a)(b) 1,750,000 $ 24,500,000
Triarc Companies, Inc. (a)(b) 1,250,000 19,453,125
Vlasic Foods International Inc. (a) 500,000 9,343,750
International Multifoods Corporation 500,000 8,218,750
M & F Worldwide Corp. (a) 750,000 7,453,125
--------------
68,968,750
RETAIL--3.7%
Department 56, Inc. (a) 520,000 $ 14,040,000
Ugly Duckling Corporation (a)(b) 1,676,200 8,695,288
--------------
22,735,288
OTHER CONSUMER GOODS & SERVICES--13.0%
First Brands Corporation 1,250,000 $ 27,265,625
Scotsman Industries, Inc. (b) 983,000 22,240,375
Libbey, Inc. 420,500 12,404,750
Barry (R.G.) Corporation (a)(b) 849,100 11,781,262
P.H. Glatfelter Company 500,000 6,531,250
--------------
80,223,262
BANKS & THRIFTS--11.5%
People's Bank of Bridgeport, Connecticut 2,000,000 $ 49,000,000
BankAtlantic Bancorp, Inc., Class A 1,000,001 7,187,507
Northwest Bancorp Inc. 550,000 5,637,500
Niagara Bancorp Inc. (a) 400,000 3,925,000
PennFed Financial Services, Inc. 260,000 3,445,000
Finger Lakes Financial Corp. (b) 188,000 2,068,000
--------------
71,263,007
INSURANCE--2.3%
Financial Security Assurance Holdings Ltd. 292,600 $ 14,264,250
OTHER FINANCIAL--5.5%
ARM Financial Group, Inc., Class A 1,000,000 $ 17,750,000
Duff & Phelps Credit Rating Co. (b) 350,000 16,121,875
--------------
33,871,875
BROADCASTING & CABLE TV--6.8%
Cablevision Systems Corporation, Class A
(a) 689,800 $ 29,790,737
Ascent Entertainment Group, Inc. (a)(b) 1,500,000 12,000,000
--------------
41,790,737
TELECOMMUNICATIONS--0.9%
ROHN Industries, Inc. (b) 3,000,000 $ 5,812,500
COMPUTER SERVICES--1.5%
Symantec Corporation (a) 725,000 $ 9,560,938
</TABLE>
16
THE OAKMARK SMALL CAP FUND
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--91.9% (CONT.)
AUTOMOTIVE--7.9%
SPX Corporation (a) 500,000 $ 20,656,250
Stoneridge, Inc. (a) 1,000,000 16,187,500
Standard Motor Products, Inc. 500,000 12,187,500
--------------
49,031,250
TRANSPORTATION SERVICES--2.7%
Teekay Shipping Corporation (c) 900,000 $ 16,368,750
MACHINERY & INDUSTRIAL PROCESSING--1.9%
Northwest Pipe Company (a)(b) 500,000 $ 9,250,000
The Carbide/Graphite Group, Inc. (a) 240,000 2,670,000
--------------
11,920,000
FORESTRY PRODUCTS--0.8%
Schweitzer-Mauduit International, Inc. 216,500 $ 4,708,875
OTHER INDUSTRIAL GOODS & SERVICES--10.3%
Ferro Corporation 900,000 $ 17,887,500
Columbus McKinnon Corporation (b) 900,000 17,325,000
MagneTek, Inc. (a) 1,500,000 16,406,250
H.B. Fuller Company 200,000 7,575,000
Binks Sames Corporation (b) 275,000 4,675,000
--------------
63,868,750
COMMERCIAL REAL ESTATE--4.1%
Catellus Development Corporation (a) 1,500,000 $ 19,500,000
Prime Hospitality Corp. 800,000 5,600,000
--------------
25,100,000
DIVERSIFIED CONGLOMERATES--7.8%
U.S. Industries, Inc. 3,200,000 $ 48,200,000
TOTAL COMMON STOCKS (COST: $633,782,649) 567,688,232
SHORT TERM INVESTMENTS--7.8%
COMMERCIAL PAPER--5.6%
American Express Credit Corp., 5.27%-5.55%
due 10/1/1998-10/6/1998 $15,000,000 $ 15,000,000
Ford Motor Credit Corp., 5.40% due
10/2/1998 5,000,000 5,000,000
General Electric Capital Corporation, 5.70%
due 10/1/1998 15,000,000 15,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $35,000,000) 35,000,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK SMALL CAP FUND
17
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--2.2%
State Street Repurchase Agreement, 5.30%
due 10/1/1998 $13,543,000 $ 13,543,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $13,543,000) 13,543,000
TOTAL SHORT TERM INVESTMENTS (COST: $48,543,000) 48,543,000
Total Investments (Cost $682,325,649)--99.7% (d) $ 616,231,232
Other Assets In Excess Of Other Liabilities--0.3% 1,763,530
--------------
TOTAL NET ASSETS--100% $ 617,994,762
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(c) Represents foreign domiciled corporation.
(d) At September 30, 1998, net unrealized depreciation of $66,094,417,
for federal income tax purposes consisted of gross unrealized
appreciation of $47,329,047 and gross unrealized depreciation of
$113,423,464.
18
THE OAKMARK SMALL CAP FUND SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS--57.4%
OFFICE EQUIPMENT--3.1%
Lexmark International Group, Inc., Class A
(a) 26,000 $ 1,802,125
OTHER CONSUMER GOODS & SERVICES--6.4%
Juno Lighting, Inc. 76,300 $ 1,707,213
H&R Block, Inc. 33,000 1,365,375
National Presto Industries, Inc. 17,000 637,500
--------------
3,710,088
BANKS & THRIFTS--4.7%
Washington Mutual, Inc. 50,000 $ 1,687,500
Banc One Corporation 23,674 1,009,104
--------------
2,696,604
INSURANCE--4.2%
PartnerRe Ltd. (b) 32,500 $ 1,302,031
Old Republic International Corporation 49,500 1,113,750
--------------
2,415,781
TV PROGRAMMING--3.4%
Tele-Communications, Liberty Media, Class A
(a) 52,800 $ 1,937,100
PUBLISHING--1.5%
Lee Enterprises, Inc. 33,900 $ 879,281
INFORMATION SERVICES--3.3%
The Dun & Bradstreet Corporation 70,000 $ 1,890,000
COMPUTER SERVICES--5.8%
First Data Corporation 80,000 $ 1,880,000
Electronic Data Systems Corporation 45,000 1,493,438
--------------
3,373,438
DATA STORAGE--4.0%
Imation Corp. (a) 125,000 $ 2,312,500
MEDICAL PRODUCTS--3.1%
Sybron International Corporation (a) 93,000 $ 1,778,625
AUTOMOTIVE--6.5%
Chrysler Corporation 42,000 $ 2,010,750
Lear Corporation (a) 40,000 1,750,000
--------------
3,760,750
OTHER INDUSTRIAL GOODS & SERVICES--2.7%
Premark International, Inc. 56,500 $ 1,585,531
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK EQUITY AND INCOME
FUND
21
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--57.4% (CONT.)
COMMERCIAL REAL ESTATE--6.2%
Amli Residential Properties Trust 90,000 $ 1,918,125
Catellus Development Corporation (a) 127,728 1,660,464
--------------
3,578,589
DIVERSIFIED CONGLOMERATES--2.5%
U.S. Industries, Inc. 94,000 $ 1,415,875
TOTAL COMMON STOCKS (COST: $30,820,268) 33,136,287
FIXED INCOME--33.7%
PREFERRED STOCK--5.1%
BANKS & THRIFTS--5.1%
BBC Capital Trust I, Preferred, 9.50% 28,000 $ 714,000
Pennfed Capital Trust, Preferred, 8.90% 27,500 687,500
PennFirst Capital Trust 1, Preferred,
8.625% 70,000 673,750
RBI Capital Trust I, Preferred, 9.10% 42,500 430,312
Fidelity Capital Trust I, Preferred, 8.375% 43,500 424,125
--------------
2,929,687
TOTAL PREFERRED STOCK (COST: $2,970,738) 2,929,687
CORPORATE BONDS--2.4%
AEROSPACE & AUTOMOTIVE--0.3%
Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 157,687
Coltec Industries, Inc., 9.75% due
11/1/1999 25,000 26,188
--------------
183,875
BUILDING MATERIALS & CONSTRUCTION--0.3%
USG Corporation, 9.25% due 9/15/2001,
Senior Notes Series B 150,000 $ 160,313
UTILITIES--0.3%
Midland Funding Corporation, 11.75% due
7/23/2005 150,000 $ 173,438
OTHER INDUSTRIAL GOODS & SERVICES--1.5%
Scotsman Industries, Inc., 8.625% due
12/15/2007, Senior Subordinated Note 565,000 $ 560,762
UCAR Global Enterprises Inc., 12.00% due
1/15/2005, Senior Subordinated Note 300,000 304,500
--------------
865,262
TOTAL CORPORATE BONDS (COST: $1,395,124) 1,382,888
</TABLE>
22
THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
PRINCIPAL VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME--33.7% (CONT.)
GOVERNMENT AND AGENCY SECURITIES--26.2%
U.S. GOVERNMENT BONDS--25.7%
United States Treasury Notes, 7.875% due
11/15/2004 $6,000,000 $ 7,107,720
United States Treasury Notes, 7.50% due
5/15/2002 6,000,000 6,616,140
United States Treasury Notes, 6.25% due
2/15/2007 1,000,000 1,122,490
--------------
14,846,350
U.S. GOVERNMENT AGENCIES--0.5%
Federal Home Loan Bank, 6.405% due
4/10/2001, Consolidated Bond 300,000 $ 311,895
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $14,288,633) 15,158,245
TOTAL FIXED INCOME (COST: $18,654,495) 19,470,820
SHORT TERM INVESTMENTS--8.5%
COMMERCIAL PAPER--6.1%
American Express Credit Corp., 5.27% due
10/5/1998 $500,000 $ 500,000
Ford Motor Credit Corp., 5.55% due
10/1/1998 1,500,000 1,500,000
General Electric Capital Corporation, 5.70%
due 10/1/1998 1,500,000 1,500,000
--------------
TOTAL COMMERCIAL PAPER (COST: $3,500,000) 3,500,000
REPURCHASE AGREEMENTS--2.4%
State Street Repurchase Agreement, 5.30%
due 10/1/1998 $1,390,000 $ 1,390,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $1,390,000) 1,390,000
TOTAL SHORT TERM INVESTMENTS (COST: $4,890,000) 4,890,000
Total Investments (Cost $54,364,763)--99.6% (c) $ 57,497,107
Other Assets In Excess Of Other Liabilities--0.4% 248,748
--------------
TOTAL NET ASSETS--100% $ 57,745,855
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
(c) At September 30, 1998, net unrealized appreciation of $3,132,344,
for federal income tax purposes consisted of gross unrealized
appreciation of $5,429,008 and gross unrealized depreciation of
$2,296,664.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK EQUITY AND INCOME
FUND
23
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS--94.3%
CONSUMER NON-DURABLES--5.7%
Fila Holding S.p.A. (Italy), Athletic Footwear Manufacturing
(b)(e) 2,574,800 $ 21,885,800
Citizen Watch Co. (Japan) Watch Manufacturer and Retailer 3,166,000 21,438,086
--------------
43,323,886
FOOD & BEVERAGE--10.1%
Quilmes Industrial SA Brewer
(Argentina), (b) 4,724,300 $ 38,680,206
Pernod Ricard (France) Manufactures Wines, Spirits, & Fruit 228,579 16,837,894
Juices
Tate & Lyle PLC (Great Sugar Producer & Distributor
Britain) 2,665,700 14,774,171
Lotte Chilsung Beverage Manufacturer of Soft Drinks, Juices, &
Company (Korea) (e) Sport Drinks 123,000 3,095,452
Lotte Confectionery Company Confection Manufacturer
(Korea) 65,270 2,933,219
--------------
76,320,942
HOUSEHOLD PRODUCTS--1.6%
Amway Japan Limited (Japan) Marketing of Household Products 1,630,300 $ 11,934,409
RETAIL--1.2%
Giordano International East Asian Clothing Retailer &
Limited (Hong Kong) (e) Manufacturer 69,304,000 $ 9,391,028
OTHER CONSUMER GOODS & SERVICES--6.8%
Canon, Inc. (Japan) Office and Video Equipment 1,007,000 $ 20,419,383
Sankyo Company, Ltd. (Japan) Pachinko Machine Manufacturer 1,234,800 16,722,520
Mandarin Oriental Hotel Management
International Limited
(Singapore) 30,539,000 14,353,330
--------------
51,495,233
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND
27
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.3% (CONT.)
BANKS--8.2%
Uniao de Bancos Brasileiros Major Brazilian Bank
S.A. (Brazil), (c) 1,834,900 $ 24,771,150
Banco Latinoamericano de Multinational Bank
Exportaciones, S.A.,
Class E (Panama), (b)(e) 1,316,500 21,146,282
United Overseas Bank Ltd., Commercial Banking
Foreign Shares
(Singapore) 5,443,000 15,864,668
--------------
61,782,100
OTHER FINANCIAL--3.4%
Sedgwick Group plc (Great Insurance Broker, Financial Services
Britain) 7,510,000 $ 25,343,973
MARKETING SERVICES--9.5%
Cordiant Communications Advertising Services
Group plc (Great Britain)
(e) 21,997,578 $ 40,015,927
Saatchi & Saatchi plc (Great Advertising Services
Britain), (e) 17,757,578 31,699,125
--------------
71,715,052
BROADCASTING & PUBLISHING--5.3%
Singapore Press Holdings Newspaper Publisher
Ltd. (Singapore) 2,740,000 $ 22,725,119
Europe 1 Communication Television Production
(France) 74,020 14,804,529
Woongjin Publishing Company Publisher
(Korea) (e) 148,410 1,259,204
South China Morning Post Newspaper Publisher
(Holdings) Ltd. (Hong
Kong) 3,130,000 1,231,997
--------------
40,020,849
TELECOMMUNICATIONS--2.8%
Telesp Participacoes S.A. Telecommunications
(Brazil), (a) 401,100,000 $ 6,293,357
Embratel Participacoes S.A. Telecommunications
(Brazil), (a) 401,100,000 3,315,855
SK Telecom Co. Ltd. (Korea) Telecommunications 10,395 3,146,716
Tele Centro Sul Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 2,233,127
Tele Norte Leste Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 2,030,115
</TABLE>
28
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.3% (CONT.)
TELECOMMUNICATIONS--2.8% (CONT.)
Telesp Celular Participacoes Telecommunications
S.A. (Brazil), (a) 401,100,000 $ 1,691,763
Tele Sudeste Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 676,705
Technology Resources Telecommunications
Industries Berhad
(Malaysia) 1,485,000 472,855
Tele Celular Sul Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 304,517
Tele Centro Oeste Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 213,162
Telemig Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 179,327
Tele Nordeste Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 172,560
Tele Leste Celular Telecommunications
Participacoes (Brazil),
(a) 401,100,000 111,656
Tele Norte Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 401,100,000 84,588
Telecomunicacoes Brasileiras Telecommunications
S.A. (Brazil) 401,100,000 84,588
--------------
21,010,891
AEROSPACE--6.0%
Rolls-Royce plc (Great Jet Engines
Britain) 9,228,552 $ 31,928,037
Hong Kong Aircraft Commercial Aircraft Overhaul &
Engineering Company Ltd. Maintenance
(Hong Kong) (e) 11,096,900 13,175,134
--------------
45,103,171
AIRLINES--2.2%
Qantas Airways Limited International Airline
(Australia) 10,798,714 $ 16,828,789
OIL & NATURAL GAS--0.5%
ISIS (France), (a) Oil Services 57,000 $ 3,867,995
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND
29
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.3% (CONT.)
CHEMICALS--6.7%
Fernz Corporation Limited Agricultural & Industrial Chemical
(New Zealand) (e) Producer 13,373,250 $ 33,797,841
European Vinyls Corporation PVC Manufacturer
International N.V.
(Netherlands) (e) 1,212,299 15,126,783
Nagase & Co., Ltd. (Japan) Chemical Wholesaler 569,000 2,032,663
--------------
50,957,287
COMPONENTS--3.4%
Varitronix International Liquid Crystal Displays
Limited (Hong Kong) 13,421,000 $ 26,066,752
MACHINERY & METAL PROCESSING--2.2%
Outokumpu Oyj (Finland) Metal Producer 1,235,000 $ 10,250,172
The Rauma Group (Finland) Pulp Machinery 544,300 6,155,423
--------------
16,405,595
MINING AND BUILDING MATERIALS--0.7%
Keumkang Ltd. (Korea) (e) Building Materials 560,460 $ 4,956,792
Asia Cement Manufacturing Cement Producer
Company Ltd. (Korea) 10,500 42,581
--------------
4,999,373
OTHER INDUSTRIAL GOODS & SERVICES--13.7%
Tomkins plc (Great Britain) Industrial Management Company 9,065,000 $ 42,496,931
Chargeurs SA (France) (e) Wool Production Holding Company 524,387 25,752,067
Kone Corporation, Class B Elevators
(Finland) 103,870 10,418,665
Charter plc (Great Britain) Welding Products Manufacturer 1,884,100 10,250,102
Groupe Legris Industries SA European Crane Manufacturer
(France) 217,815 9,720,341
Dongah Tire Industry Company Tire Manufacturer
(Korea), (a)(e) 166,290 4,603,390
--------------
103,241,496
STEEL--2.9%
USIMINAS (Brazil), (e) Steel Production 7,401,370 $ 21,852,288
Pohang Iron & Steel Company Manufactures Steel Products
Ltd. (Korea) 14,000 443,933
--------------
22,296,221
</TABLE>
30
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
DESCRIPTION PRINCIPAL VALUE MARKET VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.3% (CONT.)
DIVERSIFIED CONGLOMERATES--1.4%
First Pacific Company Ltd. Diversified Operations
(Hong Kong) 19,948,000 $ 5,856,610
Tae Young Corporation Heavy Construction
(Korea) (e) 518,300 4,770,261
Lamex Holdings Ltd. (Hong Office Furniture Supplier
Kong) (e) 14,040,000 322,517
--------------
10,949,388
TOTAL COMMON STOCKS (COST: $1,061,918,399) 713,054,430
</TABLE>
<TABLE>
<S> <C> <C>
SHORT TERM INVESTMENTS--3.5%
COMMERCIAL PAPER--2.0%
General Electric Capital Corporation, 5.70% due 10/1/1998 $15,000,000 $ 15,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $15,000,000) 15,000,000
REPURCHASE AGREEMENTS--1.5%
State Street Repurchase Agreement, 5.30% due 10/1/1998 $11,121,000 $ 11,121,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $11,121,000) 11,121,000
TOTAL SHORT TERM INVESTMENTS (COST: $26,121,000) 26,121,000
Total Investments (Cost $1,088,039,399)--97.8% (f) $ 739,175,430
Foreign Currencies (Proceeds $1,367,998)--0.2% 1,367,813
Other Assets In Excess Of Other Liabilities--2.0% (d) 15,561,065
--------------
TOTAL NET ASSETS--100% $ 756,104,308
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents a Global Depository Receipt.
(d) Includes portfolio and transaction hedges.
(e) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(f) At September 30, 1998, net unrealized depreciation of
$348,863,969, for federal income tax purposes consisted of gross
unrealized appreciation of $42,503,436 and gross unrealized
depreciation of $391,367,405.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND
31
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKS--95.7%
CONSUMER NON-DURABLES--3.9%
Royal Doulton plc (Great Britain) Tableware and Giftware 990,000 $ 1,540,035
Designer Textiles (NZ) Limited Knit Fabrics
(New Zealand) (c) 2,960,000 459,213
Dickson Concepts International Jewlery Wholesaler and Retailer
Limited (Hong Kong) 20,000 15,615
--------------
2,014,863
FOOD & BEVERAGE--9.6%
Matthew Clark plc (Great Britain) Spirits & Drinks 1,054,000 $ 2,150,285
Alaska Milk Corporation Milk Producer
(Philippines), (a) 39,327,000 1,707,915
Hite Brewery Company (Korea) Brewer 165,010 761,722
Souza Cruz S/A (Brazil) Tobacco Products 55,000 347,969
--------------
4,967,891
RETAIL--11.3%
Carpetright plc (Great Britain) Carpet Retailer 650,000 $ 2,375,889
Daimon (Japan) (c) Liquor Retailer & Distributor 657,700 1,516,602
Paris Miki Inc. (Japan) Optical Supplies Retailer 85,100 1,140,024
Giordano International Limited East Asian Clothing Retailer &
(Hong Kong) Manufacturer 3,112,000 421,691
Jusco Stores Co., Limited (Hong Department Stores
Kong) 4,244,000 410,773
--------------
5,864,979
OTHER CONSUMER GOODS & SERVICES--6.5%
Sanford Limited (New Zealand) Fisheries 1,275,240 $ 1,595,485
CeWe Color Holding AG (Germany) Photo Equipment & Supplies 9,400 1,519,806
CDL Hotels International Limited Hotel Operator
(Hong Kong) 1,072,000 246,252
--------------
3,361,543
BANKS--0.3%
Shinhan Bank (Korea) Commercial Bank 47,764 $ 110,931
Kookmin Bank (Korea) Commercial Bank 11,351 27,587
--------------
138,518
OTHER FINANCIAL--11.0%
Lambert Fenchurch Group plc Insurance Broker
(Great Britain) 1,411,000 $ 2,470,805
JCG Holdings Ltd. (Hong Kong) Investment Holding Company 9,461,000 1,709,348
Ichiyoshi Securities (Japan) Stock Broker 1,575,000 1,498,847
--------------
5,679,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL SMALL
CAP FUND
35
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.7% (CONT.)
COMPUTER SOFTWARE--7.5%
Enix Corporation (Japan) Entertainment Software 129,100 $ 2,778,478
Koei (Japan) Computer Software 196,000 1,120,574
--------------
3,899,052
COMPUTER SYSTEMS--3.9%
Solution 6 Holdings Limited Systems Design & Consulting
(Australia), (a)(c) 4,150,893 $ 1,992,286
MARKETING SERVICES--5.0%
Cordiant Communications Group plc Advertising Services
(Great Britain) 1,428,500 $ 2,598,593
BROADCASTING & PUBLISHING--5.2%
Matichon Public Company Limited, Newspaper Publisher
Foreign Shares (Thailand) (c) 2,038,900 $ 1,801,468
Woongjin Publishing Company Publisher
(Korea) 107,076 908,501
Matichon Public Company Limited Newspaper Publisher
(Thailand) 600 505
--------------
2,710,474
TELECOMMUNICATIONS--0.5%
SK Telecom Co. Ltd. (Korea) Telecommunications 803 $ 243,080
CHEMICALS--2.0%
European Vinyls Corporation PVC Manufacturer
International N.V.
(Netherlands) 83,100 $ 1,036,902
MACHINERY & METAL PROCESSING--1.5%
Denyo Co., Ltd. (Japan) Welding Machines & Power Generators 184,000 $ 793,353
MINING AND BUILDING MATERIALS--3.1%
Parbury Limited (Australia) (c) Building Products 11,119,712 $ 1,581,357
OTHER INDUSTRIAL GOODS & SERVICES--11.6%
Elevadores Atlas, SA (Brazil) Elevators 229,200 $ 2,378,135
Dongah Tire Industry Company Tire Manufacturer
(Korea), (a) 43,900 1,215,280
Nishio Rent All Company (Japan) Construction Equipment Rental 163,900 995,842
Yip's Hang Cheung Ltd. (Hong Paint & Solvents
Kong) (c) 24,724,000 845,532
</TABLE>
36
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
DESCRIPTION PRINCIPAL VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.7% (CONT.)
OTHER INDUSTRIAL GOODS & SERVICES--11.6% (CONT.)
Groupe Legris Industries SA European Crane Manufacturer
(France) 12,800 $ 571,220
--------------
6,006,009
PRODUCTION EQUIPMENT--3.9%
NSC Groupe (France) Manufacturer of Textile Equipment 11,532 $ 1,637,191
Skyjack Inc. (Canada), (a) Producer of Elevating Platforms & Lifts 32,200 406,339
--------------
2,043,530
STEEL--4.3%
Steel & Tube Holdings Ltd. (New Produces and Distributes Steel
Zealand) 2,995,400 $ 2,023,714
Pohang Iron & Steel Company Ltd. Manufactures Steel Products
(Korea) 6,580 208,649
--------------
2,232,363
DIVERSIFIED CONGLOMERATES--4.6%
Haw Par Corporation Ltd. Healthcare and Leisure Products
(Singapore) 3,113,000 $ 2,397,452
TOTAL COMMON STOCKS (COST: $78,457,722) 49,561,245
</TABLE>
<TABLE>
<S> <C> <C>
SHORT TERM INVESTMENTS--1.9%
REPURCHASE AGREEMENTS--1.9%
State Street Repurchase Agreement,
5.30% due 10/1/1998 $967,000 $ 967,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $967,000) 967,000
TOTAL SHORT TERM INVESTMENTS (COST: $967,000) 967,000
Total Investments (Cost $79,424,722)--97.6% (d) $ 50,528,245
Foreign Currencies (Proceeds $31,439)--0.1% 31,436
Other Assets In Excess Of Other Liabilities--2.3% (b) 1,210,894
--------------
TOTAL NET ASSETS--100% $ 51,770,575
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Includes portfolio and transaction hedges.
(c) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(d) At September 30, 1998, net unrealized depreciation of $28,896,477,
for federal income tax purposes consisted of gross unrealized
appreciation of $437,043 and gross unrealized depreciation of
$29,333,520.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL SMALL
CAP FUND
37
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF ASSETS AND LIABILITIES--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK
FUND SELECT FUND
<S> <C> <C>
------------------------- -------------------------
- ---------------------------------------------------------------------------------
ASSETS
Investments, at market
value $ 6,888,618,717 $ 1,231,272,537
(cost: $6,573,899,571) (cost: $1,222,499,627)
Cash 47,767 652
Foreign currency, at value 0 0
Collateral for securities
loaned, at value 0 159,033,480
Receivable for:
Forward foreign currency
contracts 0 0
Securities sold 23,602,941 467,123
Fund shares sold 9,105,820 2,884,796
Dividends and interest 17,548,208 750,119
------------------------- -------------------------
Total receivables 50,256,969 4,102,038
Other assets 37,203 8,444
------------------------- -------------------------
Total assets $ 6,938,960,656 $ 1,394,417,151
------------------------- -------------------------
------------------------- -------------------------
.................................................................................
LIABILITIES AND NET ASSETS
Payable for:
Collateral for securities
loaned, at value $ 0 $ 159,033,480
Securities purchased 0 4,837,276
Fund shares redeemed 7,227,480 1,045,502
Due to adviser 5,290,462 957,981
Forward foreign currency
contracts 0 0
Other 2,484,832 648,526
------------------------- -------------------------
Total liabilities 15,002,774 166,522,765
------------------------- -------------------------
Net assets applicable to
fund shares outstanding $ 6,923,957,882 $ 1,227,894,386
------------------------- -------------------------
------------------------- -------------------------
Fund shares outstanding 206,454,614 73,251,709
------------------------- -------------------------
------------------------- -------------------------
.................................................................................
PRICE OF SHARES
Net asset value per share $ 33.54 $ 16.76
------------------------- -------------------------
------------------------- -------------------------
.................................................................................
ANALYSIS OF NET ASSETS
Paid in capital $ 6,156,111,515 $ 1,149,816,590
Accumulated undistributed
net realized gain (loss)
on sale of investments,
forward contracts and
foreign currency exchange
transactions 375,272,768 67,603,248
Net unrealized appreciation
(depreciation) of
investments 314,719,146 8,772,910
Net unrealized appreciation
(depreciation) of foreign
currency portfolio hedges 0 0
Net unrealized appreciation
(depreciation)--other 0 0
Accumulated undistributed
net investment income
(loss) 77,854,453 1,701,638
------------------------- -------------------------
Net assets applicable to
Fund shares outstanding $ 6,923,957,882 $ 1,227,894,386
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
38 THE OAKMARK FAMILY OF FUNDS
<PAGE>
......................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL
FUND INCOME FUND FUND
<S> <C> <C> <C>
------------------------- ------------------------- -------------------------
- -----------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market
value $ 616,231,232 $ 57,497,107 $ 739,175,430
(cost: $682,325,649) (cost: $54,364,763) (cost: $1,088,039,399)
Cash 1,013,396 585 601
Foreign currency, at value 0 0 1,367,813
Collateral for securities
loaned, at value 26,009,161 1,759,177 73,675,393
Receivable for:
Forward foreign currency
contracts 0 0 2,446,315
Securities sold 12,674,906 0 15,095,665
Fund shares sold 1,033,409 15,175 203,924
Dividends and interest 532,476 461,512 5,128,670
------------------------- ------------------------- -------------------------
Total receivables 14,240,791 476,687 22,874,574
Other assets 8,548 3,274 5,399
------------------------- ------------------------- -------------------------
Total assets $ 657,503,128 $ 59,736,830 $ 837,099,210
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
...........................................................................................................
LIABILITIES AND NET ASSETS
Payable for:
Collateral for securities
loaned, at value $ 26,009,161 $ 1,759,177 $ 73,675,393
Securities purchased 11,122,483 0 0
Fund shares redeemed 1,436,217 135,567 2,048,641
Due to adviser 670,322 34,324 683,804
Forward foreign currency
contracts 0 0 3,977,540
Other 270,183 61,907 609,524
------------------------- ------------------------- -------------------------
Total liabilities 39,508,366 1,990,975 80,994,902
------------------------- ------------------------- -------------------------
Net assets applicable to
fund shares outstanding $ 617,994,762 $ 57,745,855 $ 756,104,308
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
Fund shares outstanding 48,938,247 4,127,329 72,552,725
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
...........................................................................................................
PRICE OF SHARES
Net asset value per share $ 12.63 $ 13.99 $ 10.42
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
...........................................................................................................
ANALYSIS OF NET ASSETS
Paid in capital $ 684,807,280 $ 52,589,935 $ 1,015,075,572
Accumulated undistributed
net realized gain (loss)
on sale of investments,
forward contracts and
foreign currency exchange
transactions 6,202,400 1,002,213 52,470,799
Net unrealized appreciation
(depreciation) of
investments (66,094,417) 3,132,344 (348,864,154)
Net unrealized appreciation
(depreciation) of foreign
currency portfolio hedges 0 0 (1,515,552)
Net unrealized appreciation
(depreciation)--other 0 0 198,784
Accumulated undistributed
net investment income
(loss) (6,920,501) 1,021,363 38,738,859
------------------------- ------------------------- -------------------------
Net assets applicable to
Fund shares outstanding $ 617,994,762 $ 57,745,855 $ 756,104,308
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
<CAPTION>
THE OAKMARK
INTERNATIONAL
SMALL CAP FUND
<S> <C>
------------------------- -------------------------
-------------------------
- ------------------------------
ASSETS
Investments, at market
value $ 50,528,245
(cost: $79,424,722)
Cash 940
Foreign currency, at value 31,436
Collateral for securities
loaned, at value 3,218,851
Receivable for:
Forward foreign currency
contracts 1,877
Securities sold 1,087,279
Fund shares sold 24,414
Dividends and interest 512,069
-------------------------
Total receivables 1,625,639
Other assets 3,350
-------------------------
Total assets $ 55,408,461
-------------------------
-------------------------
..............................
LIABILITIES AND NET ASSETS
Payable for:
Collateral for securities
loaned, at value $ 3,218,851
Securities purchased 0
Fund shares redeemed 34,598
Due to adviser 58,195
Forward foreign currency
contracts 179,274
Other 146,968
-------------------------
Total liabilities 3,637,886
-------------------------
Net assets applicable to
fund shares outstanding $ 51,770,575
-------------------------
-------------------------
Fund shares outstanding 7,514,807
-------------------------
-------------------------
..............................
PRICE OF SHARES
Net asset value per share $ 6.89
-------------------------
-------------------------
..............................
ANALYSIS OF NET ASSETS
Paid in capital $ 80,845,737
Accumulated undistributed
net realized gain (loss)
on sale of investments,
forward contracts and
foreign currency exchange
transactions (1,634,583)
Net unrealized appreciation
(depreciation) of
investments (28,896,480)
Net unrealized appreciation
(depreciation) of foreign
currency portfolio hedges (179,057)
Net unrealized appreciation
(depreciation)--other 5,883
Accumulated undistributed
net investment income
(loss) 1,629,075
-------------------------
Net assets applicable to
Fund shares outstanding $ 51,770,575
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 39
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF OPERATIONS--YEAR ENDED SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
THE OAKMARK SELECT
FUND FUND
<S> <C> <C>
------------------------- -------------------------
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 132,309,356 $ 10,572,619
Interest Income 47,671,926 5,735,556
Securities lending income 0 109,602
Foreign taxes withheld (1,820,235) (169,788)
------------------------- -------------------------
Total investment income 178,161,047 16,247,989
.........................................................................................
EXPENSES:
Investment advisory fee 72,196,251 11,525,158
Transfer and dividend
disbursing agent fees 4,376,441 1,063,152
Other shareholder servicing
fees 3,387,013 764,027
Reports to shareholders 1,664,357 318,511
Custody and accounting fees 868,661 178,446
Registration and blue sky
expenses 673,806 335,384
Trustees fees 90,748 30,422
Legal fees 58,259 19,206
Audit fees 27,925 20,999
Other 343,480 46,872
------------------------- -------------------------
Total expenses 83,686,941 14,302,177
Expense offset
arrangements (6,489) (2,712)
------------------------- -------------------------
Net expenses 83,680,452 14,299,465
------------------------- -------------------------
.........................................................................................
NET INVESTMENT INCOME (LOSS): 94,480,595 1,948,524
.........................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss)
on investments 1,258,937,339 69,415,172
Net realized gain (loss)
on foreign currency
transactions (8,898) 0
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies (1,704,966,868) (78,902,257)
Net change in
appreciation of forward
currency exchange
contracts 0 0
Net change in
appreciation
(depreciation)--other 0 0
------------------------- -------------------------
.........................................................................................
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS: (446,038,427) (9,487,085)
------------------------- -------------------------
.........................................................................................
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (351,557,832) $ (7,538,561)
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
40 THE OAKMARK FAMILY OF FUNDS
<PAGE>
......................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL
FUND INCOME FUND FUND
<S> <C> <C> <C>
------------------------- ------------------------- -------------------------
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 8,702,112 $ 737,103 $ 38,964,663
Interest Income 3,864,378 1,064,634 2,761,336
Securities lending income 434,864 5,635 1,625,921
Foreign taxes withheld 0 (1,560) (3,542,574)
------------------------- ------------------------- -------------------------
Total investment income 13,001,354 1,805,812 39,809,346
.......................................................................................................................
EXPENSES:
Investment advisory fee 15,863,707 359,708 12,623,371
Transfer and dividend
disbursing agent fees 780,579 95,816 967,291
Other shareholder servicing
fees 700,403 12,676 580,069
Reports to shareholders 301,533 20,847 335,053
Custody and accounting fees 179,707 49,662 1,350,813
Registration and blue sky
expenses 55,750 43,519 53,679
Trustees fees 30,535 18,442 27,749
Legal fees 20,157 11,337 17,726
Audit fees 21,041 19,544 26,722
Other 56,482 7,909 123,111
------------------------- ------------------------- -------------------------
Total expenses 18,009,894 639,460 16,105,584
Expense offset
arrangements (48,678) (212) (105,661)
------------------------- ------------------------- -------------------------
Net expenses 17,961,216 639,248 15,999,923
------------------------- ------------------------- -------------------------
.......................................................................................................................
NET INVESTMENT INCOME (LOSS): (4,959,862) 1,166,564 23,809,423
.......................................................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss)
on investments 124,757,914 1,578,730 86,532,713
Net realized gain (loss)
on foreign currency
transactions 0 0 (3,890,444)
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies (374,056,372) (2,325,892) (502,914,491)
Net change in
appreciation of forward
currency exchange
contracts 0 0 (2,045,738)
Net change in
appreciation
(depreciation)--other 0 0 195,384
------------------------- ------------------------- -------------------------
.......................................................................................................................
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS: (249,298,458) (747,162) (422,122,576)
------------------------- ------------------------- -------------------------
.......................................................................................................................
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (254,258,320) $ 419,402 $ (398,313,153)
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
<CAPTION>
THE OAKMARK
INTERNATIONAL
SMALL CAP FUND
<S> <C>
------------------------- ------------------
-------------------------
- ------------------------------
INVESTMENT INCOME:
Dividends $ 2,777,457
Interest Income 214,453
Securities lending income 7,556
Foreign taxes withheld (304,967)
-------------------------
Total investment income 2,694,499
..............................
EXPENSES:
Investment advisory fee 827,611
Transfer and dividend
disbursing agent fees 112,828
Other shareholder servicing
fees 27,531
Reports to shareholders 31,378
Custody and accounting fees 176,922
Registration and blue sky
expenses 35,377
Trustees fees 18,433
Legal fees 12,111
Audit fees 24,144
Other 13,299
-------------------------
Total expenses 1,279,634
Expense offset
arrangements (292)
-------------------------
Net expenses 1,279,342
-------------------------
..............................
NET INVESTMENT INCOME (LOSS): 1,415,157
..............................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss)
on investments (96,290)
Net realized gain (loss)
on foreign currency
transactions (162,499)
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies (27,728,327)
Net change in
appreciation of forward
currency exchange
contracts (179,057)
Net change in
appreciation
(depreciation)--other 2,414
-------------------------
..............................
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS: (28,163,759)
-------------------------
..............................
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (26,748,602)
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 41
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1998
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK FUND
<S> <C> <C>
-------------------------------------------------------
YEAR ENDED ELEVEN MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 94,480,595 $ 55,858,346
Net realized gain on sale
of investments 1,258,937,339 239,442,987
Net realized gain (loss) on
foreign currency
transactions (8,898) (2,673)
Net change in unrealized
appreciation (1,704,966,868) 1,231,138,352
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS (351,557,832) 1,526,437,012
.........................................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM (1):
Net investment income (66,321,023) (41,659,757)
Net realized short-term
gain (25,210,618) (13,947,126)
Net realized long-term gain (1,098,260,243) (212,039,549)
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (1,189,791,884) (267,646,432)
.........................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 2,836,315,983 2,107,074,877
Reinvestment of dividends
and capital gain
distributions 1,133,761,068 256,384,877
Payments for shares
redeemed (2,119,718,081) (941,237,366)
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 1,850,358,970 1,422,222,388
------------------------- -------------------------
.........................................................................................
TOTAL INCREASE IN NET ASSETS 309,009,254 2,681,012,968
NET ASSETS:
Beginning of period 6,614,948,628 3,933,935,660
------------------------- -------------------------
End of period $ 6,923,957,882 $ 6,614,948,628
------------------------- -------------------------
------------------------- -------------------------
Undistributed net
investment income $ 77,854,452 $ 49,694,881
------------------------- -------------------------
------------------------- -------------------------
(1) DISTRIBUTIONS PER SHARE:
Net investment income 0.3996 0.3441
Net realized short-term
gain 0.1519 0.1152
Net realized long-term gain 5.8556 1.7514
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 6.4071 $ 2.2107
</TABLE>
42 THE OAKMARK FAMILY OF FUNDS
<PAGE>
......................................................................
<TABLE>
<CAPTION>
THE OAKMARK SELECT FUND
<S> <C> <C>
-------------------------------------------------------
YEAR ENDED ELEVEN MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 1,948,524 $ (246,886)
Net realized gain on sale
of investments 69,415,172 5,070,435
Net realized gain (loss) on
foreign currency
transactions 0 0
Net change in unrealized
appreciation (78,902,257) 87,675,167
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS (7,538,561) 92,498,716
.........................................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM (1):
Net investment income 0 0
Net realized short-term
gain (6,882,359) 0
Net realized long-term gain -- 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (6,882,359) 0
.........................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 1,440,695,723 571,117,746
Reinvestment of dividends
and capital gain
distributions 6,568,333 0
Payments for shares
redeemed (719,123,322) (149,441,890)
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 728,140,734 421,675,856
------------------------- -------------------------
.........................................................................................
TOTAL INCREASE IN NET ASSETS 713,719,814 514,174,572
NET ASSETS:
Beginning of period 514,174,572 0
------------------------- -------------------------
End of period $ 1,227,894,386 $ 514,174,572
------------------------- -------------------------
------------------------- -------------------------
Undistributed net
investment income $ 1,701,638 $ (246,886)
------------------------- -------------------------
------------------------- -------------------------
(1) DISTRIBUTIONS PER SHARE:
Net investment income 0 0
Net realized short-term
gain 0.1678 0
Net realized long-term gain 0 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 0.1678 $ 0
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 43
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK SMALL CAP FUND
<S> <C> <C>
-------------------------------------------------------
YEAR ENDED ELEVEN MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ (4,959,862) $ (1,684,439)
Net realized gain on sale
of investments 124,757,914 46,501,798
Net realized gain (loss) on
foreign currency
transactions 0 0
Net change in unrealized
appreciation (374,056,372) 287,859,202
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS (254,258,320) 332,676,561
.........................................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM: (1)
Net investment income 0 0
Net realized short-term
gain (35,041,133) 0
Net realized long-term gain (129,772,888) 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (164,814,021) 0
.........................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 416,817,749 1,289,718,462
Reinvestment of dividends
and capital gain
distributions 156,645,973 0
Payments for shares
redeemed (1,049,792,259) (327,419,790)
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS (476,328,537) 962,298,672
------------------------- -------------------------
.........................................................................................
TOTAL INCREASE IN NET ASSETS (895,400,878) 1,294,975,233
NET ASSETS:
Beginning of period 1,513,395,640 218,420,407
------------------------- -------------------------
End of period $ 617,994,762 $ 1,513,395,640
------------------------- -------------------------
------------------------- -------------------------
Undistributed net
investment income $ (6,920,502) $ (1,960,639)
------------------------- -------------------------
------------------------- -------------------------
(1) DISTRIBUTIONS PER SHARE:
Net investment income 0 0
Net realized short-term
gain 0.4738 0
Net realized long-term gain 2.3874 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 2.8612 $ 0
</TABLE>
44 THE OAKMARK FAMILY OF FUNDS
<PAGE>
......................................................................
<TABLE>
<CAPTION>
THE OAKMARK EQUITY AND INCOME FUND
<S> <C> <C>
-------------------------------------------------------
YEAR ENDED ELEVEN MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 1,166,564 $ 471,744
Net realized gain on sale
of investments 1,578,730 904,824
Net realized gain (loss) on
foreign currency
transactions 0 0
Net change in unrealized
appreciation (2,325,892) 4,554,518
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 419,402 5,931,086
.........................................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM: (1)
Net investment income (594,007) (148,466)
Net realized short-term
gain (882,071) (162,188)
Net realized long-term gain (599,021) 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (2,075,099) (310,654)
.........................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 43,125,943 24,903,007
Reinvestment of dividends
and capital gain
distributions 1,964,129 288,850
Payments for shares
redeemed (19,151,033) (11,148,702)
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 25,939,039 14,043,155
------------------------- -------------------------
.........................................................................................
TOTAL INCREASE IN NET ASSETS 24,283,342 19,663,587
NET ASSETS:
Beginning of period 33,462,513 13,798,926
------------------------- -------------------------
End of period $ 57,745,855 $ 33,462,513
------------------------- -------------------------
------------------------- -------------------------
Undistributed net
investment income $ 1,021,363 $ 448,806
------------------------- -------------------------
------------------------- -------------------------
(1) DISTRIBUTIONS PER SHARE:
Net investment income 0.2359 0.1202
Net realized short-term
gain 0.3503 0.1311
Net realized long-term gain 0.2379 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 0.8241 $ 0.2513
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 45
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK INTERNATIONAL FUND
<S> <C> <C>
-------------------------------------------------------
YEAR ENDED ELEVEN MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 23,809,423 $ 27,666,383
Net realized gain on sale
of investments 86,532,713 217,090,057
Net realized gain (loss) on
foreign currency
transactions (3,890,444) 17,724,883
Net change in unrealized
appreciation
(depreciation) (502,914,491) 70,717,122
Net change in unrealized
appreciation
(depreciation) of forward
currency exchange
contracts (2,045,738) 3,426,674
Net change in unrealized
appreciation
(depreciation)--other 195,384 197,532
------------------------- -------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS (398,313,153) 336,822,651
.........................................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM: (1)
Net investment income (46,460,573) (12,477,945)
Net realized short-term
gain (57,985,224) 0
Net realized long-term gain (173,099,244) 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (277,545,041) (12,477,945)
.........................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 482,976,228 710,447,882
Reinvestment of dividends
and capital gain
distributions 263,415,429 11,903,359
Payments for shares
redeemed (961,776,686) (572,115,610)
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS (215,385,029) 150,235,631
------------------------- -------------------------
.........................................................................................
TOTAL INCREASE (DECREASE) IN
NET ASSETS (891,243,223) 474,580,337
NET ASSETS:
Beginning of period 1,647,347,531 1,172,767,194
------------------------- -------------------------
End of period $ 756,104,308 $ 1,647,347,531
------------------------- -------------------------
------------------------- -------------------------
Undistributed net
investment income $ 38,738,859 $ 61,390,009
------------------------- -------------------------
------------------------- -------------------------
(1) DISTRIBUTIONS PER SHARE:
Net investment income 0.5758 0.1617
Net realized short-term
gain 0.7186 0
Net realized long-term gain 2.1453 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 3.4397 $ 0.1617
</TABLE>
46 THE OAKMARK FAMILY OF FUNDS
<PAGE>
......................................................................
<TABLE>
<CAPTION>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<S> <C> <C>
-------------------------------------------------------
YEAR ENDED ELEVEN MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 1,415,157 $ 646,048
Net realized gain on sale
of investments (96,290) 6,250,624
Net realized gain (loss) on
foreign currency
transactions (162,499) (232,740)
Net change in unrealized
appreciation
(depreciation) (27,728,327) (1,464,546)
Net change in unrealized
appreciation
(depreciation) of forward
currency exchange
contracts (179,057) 0
Net change in unrealized
appreciation
(depreciation)--other 2,414 5,257
------------------------- -------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS (26,748,602) 5,204,643
.........................................................................................
DISTRIBUTION TO SHAREHOLDERS
FROM: (1)
Net investment income (308,015) (279,216)
Net realized short-term
gain (3,477,982) (1,285,114)
Net realized long-term gain (3,890,139) 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (7,676,136) (1,564,330)
.........................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 77,339,314 63,012,100
Reinvestment of dividends
and capital gain
distributions 7,427,846 1,523,977
Payments for shares
redeemed (64,544,647) (41,955,631)
------------------------- -------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE
TRANSACTIONS 20,222,513 22,580,446
------------------------- -------------------------
.........................................................................................
TOTAL INCREASE (DECREASE) IN
NET ASSETS (14,202,225) 26,220,759
NET ASSETS:
Beginning of period 65,972,800 39,752,041
------------------------- -------------------------
End of period $ 51,770,575 $ 65,972,800
------------------------- -------------------------
------------------------- -------------------------
Undistributed net
investment income $ 1,629,074 $ 521,933
------------------------- -------------------------
------------------------- -------------------------
(1) DISTRIBUTIONS PER SHARE:
Net investment income 0.0559 0.0777
Net realized short-term
gain 0.6312 0.3581
Net realized long-term gain 0.7060 0
------------------------- -------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS $ 1.3931 $ 0.4358
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 47
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
........................................................................
1. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of The Oakmark Fund
("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund
("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The
Oakmark International Fund ("International"), and The Oakmark International
Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each
a series of the Harris Associates Investment Trust (a Massachusetts business
trust). These policies are in conformity with generally accepted accounting
principles ("GAAP"). The presentation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
SECURITY VALUATION--
Investments are stated at current value. Securities traded on securities
exchanges and securities traded on the NASDAQ National Market are valued at the
last sales price on the day of valuation, or if lacking any reported sales that
day, at the most recent bid quotation. Over-the-counter securities not so traded
are valued at the most recent bid quotation. Money market instruments having a
maturity of 60 days or less from the date of valuation are valued on an
amortized cost basis which approximates market value. Securities for which
quotations are not readily available are valued at a fair value as determined by
the Trustees.
FOREIGN CURRENCY TRANSLATIONS--
Values of investments and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars using the mean of the bid and offer
prices of such currencies at the time of valuation. Purchases and sales of
investments and dividend and interest income are converted at the prevailing
rate of exchange on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized gain or loss from investments.
Net realized gains on foreign currency transactions arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Funds' books,
and the U.S. dollar equivalent of the amounts actually received or paid, and the
realized gains or losses resulting from the portfolio and transaction hedges.
At September 30, 1998, only the International and Int'l Small Cap Funds had
foreign currency transactions. Net unrealized appreciation (depreciation)-other
includes the following components:
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL SMALL CAP
<S> <C> <C>
- ----------------------------------------------------------
Unrealized appreciation on
dividends and dividend
reclaims receivable $238,449 $ 12,428
Unrealized depreciation on
open securities purchases
and sales (17,431) (6,912)
Unrealized appreciation
(depreciation) on
transaction hedge purchases
and sales (15,673) 1,660
Unrealized depreciation on tax
expense payable (6,561) (1,293)
--------- ----------
Net Unrealized Appreciation
- Other $198,784 $ 5,883
--------- ----------
--------- ----------
</TABLE>
SECURITY TRANSACTIONS AND INVESTMENT INCOME--
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on the accrual basis.
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of regular trading on
the New York Stock Exchange on each day the Exchange is open for trading by
dividing the total value of the Fund's investments and other assets, less
liabilities, by the number of Fund shares outstanding.
FORWARD FOREIGN CURRENCY CONTRACTS--
At September 30, 1998, International and Int'l Small Cap had entered into
forward foreign currency contracts under which they are obligated to exchange
currencies at specified future dates. The Funds' currency transactions are
limited to transaction hedging and portfolio hedging involving either specific
transactions or portfolio positions.
48
THE OAKMARK FAMILY OF FUNDS
<PAGE>
The contractual amounts of forward foreign exchange contracts do not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered. Risks arise from the possible inability
of counter parties to meet the terms of their contracts and from movements in
currency values.
The International Fund had the following outstanding contracts at September 30,
1998:
PORTFOLIO HEDGES--
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION) AT
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998
<C> <C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$25,000,000 31,235,000 Brazilian Real January 1998 $ 1,310,201
20,000,000 24,992,000 Brazilian Real January 1998 1,112,769
30,654,500 18,500,000 Pound Sterling October 1998 (753,068)
37,289,250 22,500,000 Pound Sterling November 1998 (894,688)
14,801,400 9,000,000 Pound Sterling November 1998 (466,449)
14,794,200 9,000,000 Pound Sterling November 1998 (473,649)
14,607,000 9,000,000 Pound Sterling November 1998 (658,415)
14,233,120 8,800,000 Pound Sterling November 1998 (692,253)
-------------------
$(1,515,552)
-------------------
-------------------
</TABLE>
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION) AT
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998
<C> <C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
$3,738,928 20,963,421 French Franc October 1998 $ (4,674)
3,143,545 1,865,827 Pound Sterling October 1998 (28,545)
1,594,391 933,429 Pound Sterling October 1998 7,468
3,223,084 1,886,499 Pound Sterling October 1998 15,848
1,844,181 1,087,820 Pound Sterling October 1998 (5,221)
472,144 278,043 Pound Sterling October 1998 (556)
14,664 20,353,856 South Korean Won October 1998 29
24,850 49,700 New Zealand Dollar October 1998 (22)
----------
$ (15,673)
----------
----------
</TABLE>
The Int'l Small Cap Fund had the following outstanding contracts:
PORTFOLIO HEDGES--
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION) AT
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998
<C> <C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$7,456,500 4,500,000 Pound Sterling November 1998 $ (179,057)
----------
----------
</TABLE>
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION) AT
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1998
<C> <C> <S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
$ 36,402 55,680 Canadian Dollar October 1998 $ (99)
441,298 259,480 Pound Sterling October 1998 156
214,840 125,748 Pound Sterling October 1998 1,057
7,541 1,025,913 Japanese Yen October 1998 31
60,660 8,252,168 Japanese Yen October 1998 251
92,447 12,576,472 Japanese Yen October 1998 382
131,033 262,066 New Zealand Dollar October 1998 (118)
------
$1,660
------
------
</TABLE>
At September 30, 1998, International and Int'l Small Cap Funds each had
sufficient cash and/or securities to cover any commitments under these
contracts.
THE OAKMARK FAMILY OF FUNDS
49
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
SECURITIES LENDING--
Each Fund except The Oakmark Fund may lend portfolio securities to broker-
dealers and banks.
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned. The Funds receive income from
lending securities by investing the collateral and continue to earn income on
the loaned securities. Security loans are subject to the risk of failure by the
borrower to return the loaned securities, in which case the lending Fund could
incur a loss. The market values (in thousands) of securities on loan to
broker-dealers at September 30, 1998 are shown below.
<TABLE>
<CAPTION>
INT'L
SMALL EQUITY & SMALL
SELECT CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Market Value of Securities
Loaned $153,993 $24,519 $ 1,696 $67,416 $ 2,988
Collateral (Cash and U.S.
Treasuries) 159,033 26,009 1,759 73,675 3,219
</TABLE>
FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--
No provision is made for Federal income taxes since the Funds elect to be taxed
as "regulated investment companies" and make such distributions to their
shareholders as to be relieved of all Federal income taxes under provisions of
current Federal tax law.
The Funds hereby designate the following long term capital gain distributions
for purposes of the dividends received deduction (in thousands):
<TABLE>
<CAPTION>
INT'L
SMALL EQUITY & SMALL
OAKMARK SELECT CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Long Term Capital Gain $1,111,813 $ 67,892 $124,758 $ 1,111 $23,108 $ 0
</TABLE>
BANK LOANS--
The Funds have two unsecured lines of credit with a syndication of banks. One
line of credit is a committed line of $350 million and the other is an
uncommitted line of $250 million. Borrowings under this arrangement bear
interest at .50% above the Federal Funds Effective Rate. As of September 30,
1998, there were no outstanding borrowings.
2. TRANSACTIONS WITH AFFILIATES
Each fund has an investment advisory agreement with Harris Associates L.P.
(Adviser). For management services and facilities furnished, the Funds pay the
Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first
$2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90%
on the next $1.25 billion of net assets and .85% on the excess of $5 billion of
net assets. International pays 1% on the first $2.5 billion of net assets, .95%
on the next $2.5 billion of net assets and .90% on the excess of $5 billion of
net assets. Select pays 1% on the first $1 billion and .95% on the next $500
million, .90% on the next $500 million, .85% on the next $500 million and .80%
on the excess of $2.5 million of net assets. Small Cap pays 1.25% on the first
$1 billion of net assets, 1.15% on the next $500 million, 1.10% on the next $500
million, 1.05% on the next $500 million, and 1% on the excess of $2.5 billion.
Equity and Income pays .75% of net assets and Int'l Small Cap pays 1.25% of net
assets. Each fee is calculated on the total net assets as determined at the end
of each preceding calendar month. Beginning October 1, 1998, additional
breakpoints will be as follows: Oakmark will pay .80% on net assets in excess of
$10 billion and Select will pay .75% on excess of $5 billion of net assets. The
Adviser has voluntarily agreed to reimburse the Funds to the extent that annual
expenses, excluding certain expenses, exceed 1.5% for domestic funds and 2.0%
for international funds.
In connection with the organization of the Funds, expenses of approximately
$146,500 and $47,000 were advanced to Oakmark and International, approximately
$7,283 each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to
Select by the Adviser. These expenses are being amortized on a straight line
basis through October, 2000 for Small Cap, Equity and Income and Int'l Small
Cap, and October, 2001 for Select. Oakmark and International have fully
amortized all organization expenses.
During the year ended September 30, 1998, the Funds incurred brokerage
commissions of $7,658,348, $2,399,359, $1,956,260, $66,195, $4,295,208 and
$384,909 of which $2,068,690, $589,570, $193,708, $41,979, $0, and $0 were paid
by Oakmark, Select, Small Cap, Equity and Income, International and Int'l Small
Cap, respectively, to an affiliate of the Adviser.
50
THE OAKMARK FAMILY OF FUNDS
<PAGE>
3. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in the Statement of Changes in Net
Assets are in respect of the following number of shares (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------
EQUITY & INT'L SMALL
OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Shares sold 68,340 81,093 22,121 3,014 34,513 8,604
Shares issued in reinvestment of
dividends 30,513 410 9,667 149 20,108 786
Less shares redeemed (52,910) (39,717) (57,261) (1,344) (69,820) (7,284)
------- ------- --------- -------- ------------- -----
Net increase (decrease) in shares
outstanding 45,943 41,786 (25,473) 1,819 (15,199) 2,106
------- ------- --------- -------- ------------- -----
------- ------- --------- -------- ------------- -----
</TABLE>
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------
EQUITY & INT'L SMALL
OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Shares sold 57,226 42,529 78,065 1,941 41,288 5,229
Shares issued in reinvestment of
dividends 7,962 0 0 25 793 135
Less shares redeemed (26,115) (11,063) (20,201) (880) (32,946) (3,438)
------- ------- --------- -------- ------ -----------
Net increase in shares outstanding 39,073 31,466 57,864 1,086 9,135 1,926
------- ------- --------- -------- ------ -----------
------- ------- --------- -------- ------ -----------
</TABLE>
4. INVESTMENT TRANSACTIONS
Transactions in investment securities (excluding short term securities) were as
follows (in thousands):
<TABLE>
<CAPTION>
EQUITY & INT'L SMALL
OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Purchases $3,681,990 $1,219,648 $391,185 $41,789 $502,915 $57,346
Proceeds from sales 2,991,049 601,544 968,060 20,783 923,456 41,576
</TABLE>
THE OAKMARK FAMILY OF FUNDS
51
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the year ended September
30, 1998 is set forth below:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK FUND
<TABLE>
<CAPTION>
PURCHASE SALES DIVIDEND MARKET
AFFILIATES COST PROCEEDS INCOME VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
AC Nielsen Corporation $ - $ - $ - $ 105,999,000
Brunswick Corporation 47,321,680 - 1,789,400 94,195,350
GC Companies, Inc. - - - 15,334,125
H & R Block, Inc. 340,780,489 - 2,941,950 317,172,475
Juno Lighting, Incorporated - - 390,600 24,276,875
Knight Ridder 128,013,079 - 4,480,340 308,358,300
Polaroid Corporation 11,171,805 - 2,731,440 111,818,325
R. H. Donnelley Corporation 10,418,862 - 1,835,978 25,965,967
SPX Corporation - - - 36,156,700
The Black & Decker Corporation 46,677,053 - 3,899,160 344,113,875
The Dun & Bradstreet Corporation 107,175,516 - 6,115,747 283,265,100
------------ ----------- ----------- --------------
TOTALS $691,558,484 - $24,184,615 $1,666,656,092
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK SELECT FUND
<TABLE>
<CAPTION>
PURCHASE SALES DIVIDEND MARKET
AFFILIATES COST PROCEEDS INCOME VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
USG Corporation $ 96,334,193 $ 3,793,551 $ 26,492 $ 118,539,600
US Industries Inc. 148,983,455 16,251,897 1,212,415 113,179,625
------------ ----------- ----------- --------------
TOTALS $245,317,648 $20,045,448 $ 1,238,907 $ 231,719,225
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK SMALL CAP FUND
<TABLE>
<CAPTION>
PURCHASE SALES DIVIDEND MARKET
AFFILIATES COST PROCEEDS INCOME VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Ascent Entertainment Group, Inc. $ 3,794,484 $ 5,437,319 $ - $ 12,000,000
Barry (R.G.) Corporation 3,388,252 - - 11,781,263
Binks Sames Corporation 1,078,125 - 24,700 4,675,000
Columbus McKinnon Corporation 5,432,270 1,724,192 249,816 17,325,000
Duff & Phelps Credit Rating Company 3,082,142 - 38,808 16,121,875
Finger Lakes Financial Corp. - - 41,360 2,068,000
Northwest Pipe Company 1,520,000 2,103,411 - 9,250,000
Ralcorp Holdings, Inc. - 23,429,934 - 24,500,000
ROHN Industries, Inc. 17,335,121 - 50,000 5,812,500
Scotsman Industries, Inc. - 1,664,975 100,612 22,240,375
Triarc Companies, Inc. 1,959,905 10,981,722 - 19,453,125
Ugly Duckling Corporation 20,320,181 8,194,979 - 8,695,288
------------ ----------- ----------- --------------
TOTALS $ 57,910,480 $53,536,532 $ 505,296 $ 153,922,426
</TABLE>
52
THE OAKMARK FAMILY OF FUNDS
<PAGE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK INTERNATIONAL FUND
<TABLE>
<CAPTION>
PURCHASE SALES DIVIDEND MARKET
AFFILIATES COST PROCEEDS INCOME VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Banco Latinoamericano de
Exportaciones,S.A. Class E $ 39,751,365 $ 3,301,540 $ 849,888 $ 21,146,282
Chargeurs International SA - 9,934,608 1,430,885 25,752,067
Cordiant Communications Group PLC 2,891,044 - 420,931 40,015,927
Dongah Tire Industry Company 5,643,713 - - 4,603,390
European Vinyls Corporation Intl. NV - 3,188,031 1,951,039 15,126,783
Fernz Corporation Ltd. 6,718,676 2,115,546 1,574,294 33,797,841
Fila Holding S.p.A. 20,288,049 187,177 685,787 21,885,800
Giordano International Limited 8,556,185 98,829 89,476 9,391,028
Hong Kong Aircraft Engineering Company 3,216,275 607,632 1,026,373 13,175,134
Keumkang Ltd. 2,940,243 - 159,292 4,956,792
Lamex Holdings Ltd. - - 181,184 322,517
Lotte Chilsung Beverage Company 3,009,525 - 17,504 3,095,452
Saatchi & Saatchi PLC 523,408 7,666,881 492,036 31,699,125
Tae Young Corporation 13,975,221 1,023,976 88,023 4,770,261
USIMINAS 12,560,055 - 5,885,389 21,852,288
Woongjin Publishing Company 2,936,743 - 34,695 1,259,204
------------ ----------- ----------- ------------
TOTALS $123,010,502 $28,124,220 $14,886,796 $252,849,891
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
PURCHASE SALES DIVIDEND MARKET
AFFILIATES COST PROCEEDS INCOME VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Daimon $ 836,251 $ 61,037 $ 63,270 $ 1,516,602
Designer Textiles (NZ) Limited - - 56,322 459,213
Matichon Public Company Limited,
Foreign Shares 648,794 - 75,237 1,746,991
Parbury Limited 2,899,156 - 65,550 1,581,357
Solution 6 Holdings Ltd. 431,130 - - 1,992,286
Yip's Hang Cheung Ltd. 539,149 2,540 89,119 845,532
------------ ----------- ----------- ------------
TOTALS $ 5,354,480 $ 63,577 $ 349,498 $ 8,141,981
</TABLE>
6. INTRODUCTION OF THE EURO
The European Monetary Union intends to establish a common European currency for
participating countries to be called the "euro." Each participating country will
supplement its existing currency with the euro on January 1, 1999 and replace
its existing currency with the euro on July 2, 2002. The consequences of the
euro conversion for foreign exchange rates, interest rates and the value of
European securities are presently unclear. Uncertainties include whether
operational systems of banks and other financial institutions will be ready by
January 1, 1999; the application of exchange rates for existing currencies and
the euro; the creation of suitable clearing and settlement systems for the new
currency; the legal treatment of certain outstanding financial contracts after
January 1, 1999 that refer to existing currencies rather than the euro; and
whether the interest rate, tax and labor regimes of European countries
participating in the euro will converge over time. These and other factors,
including economic and political risks, could cause market disruptions before or
after the introduction of the euro, and could adversely affect the value of
securities held by the Funds.
THE OAKMARK FAMILY OF FUNDS
53
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
...............................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11
Income From Investment
Operations:
Net Investment Income
(Loss) 0.47 0.36 0.34 0.30 0.27 0.17
Net Gains or Losses on
Securities (both realized
and unrealized) (1.73) 10.67 4.70 4.66 1.76 7.15
-------- -------------- --------- --------- --------- ---------
Total From Investment
Operations: (1.26) 11.03 5.04 4.96 2.03 7.32
Less Distributions:
Dividends (from net
investment income) (0.40) (0.34) (0.28) (0.23) (0.23) (0.04)
Distributions (from capital
gains) (6.01) (1.87) (0.84) (1.47) (0.77) (0.21)
-------- -------------- --------- --------- --------- ---------
Total Distributions (6.41) (2.21) (1.12) (1.70) (1.00) (0.25)
-------- -------------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18
-------- -------------- --------- --------- --------- ---------
-------- -------------- --------- --------- --------- ---------
Total Return (4.06)% 39.24%* 18.07% 21.55% 8.77% 43.21%
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $ 6,924.0 $ 6,614.9 $ 3,933.9 $ 2,827.1 $ 1,677.3 $ 1,107.0
Ratio of Expenses to
Average Net Assets 1.08% 1.08%* 1.18% 1.17% 1.22% 1.32%
Ratio of Net Income (Loss)
to Average Net Assets 1.22% 1.19%* 1.13% 1.27% 1.19% 0.94%
Portfolio Turnover Rate 43% 17% 24% 18% 29% 18%
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1992 1991(A)
<S> <C> <C>
- ------------------------------
Net Asset Value, Beginning of
Period $ 12.10 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) (0.03) (0.01)
Net Gains or Losses on
Securities (both realized
and unrealized) 5.04 2.11
--------- -----------
Total From Investment
Operations: 5.01 2.10
Less Distributions:
Dividends (from net
investment income) -- --
Distributions (from capital
gains) -- --
--------- -----------
Total Distributions -- --
--------- -----------
Net Asset Value, End of Period $ 17.11 $ 12.10
--------- -----------
--------- -----------
Total Return 41.40% 87.10%*
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $ 114.7 $ 4.8
Ratio of Expenses to
Average Net Assets 1.70% 2.50%(b)*
Ratio of Net Income (Loss)
to Average Net Assets (0.24)% (0.66)%(c)*
Portfolio Turnover Rate 34% 0%
</TABLE>
*Data has been annualized.
(a) From August 5, 1991, the date on which Fund shares were first offered for
sale to the public.
(b) If the Fund had paid all of its expenses and there had been no reimbursement
by the Adviser, this annualized ratio would have been 4.92% for the period.
(c) Computed giving effect to the Adviser's expense limitation undertaking.
54 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
...............................................................................
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
ELEVEN
MONTHS
YEAR ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1997
<S> <C> <C>
- -----------------------------------------------------------
Net Asset Value, Beginning of
Period $ 16.34 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) 0.03 (0.01)
Net Gains or Losses on
Securities (both realized
and unrealized) 0.56 6.35
---------- ----------
Total From Investment
Operations: 0.59 6.34
Less Distributions:
Dividends (from net
investment income) 0.00 0.00
Distributions (from capital
gains) (0.17) 0.00
---------- ----------
Total Distributions (0.17) 0.00
---------- ----------
Net Asset Value, End of Period $ 16.76 $ 16.34
---------- ----------
---------- ----------
Total Return 3.64% 69.16%*
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $ 1,227.9 $ 514.2
Ratio of Expenses to
Average Net Assets (a) 1.22% 1.12%*
Ratio of Net Income (Loss)
to Average Net Assets (a) 0.17% (0.11)%*
Portfolio Turnover Rate 56% 37%
</TABLE>
Notes
*Ratios have been annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 55
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
...............................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
ELEVEN
MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER SEPTEMBER OCTOBER
30, 1998 30, 1997 31, 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 20.34 $ 13.19 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) (0.12) (0.01) (0.02)
Net Gains or Losses on
Securities (both realized
and unrealized) (4.73) 7.16 3.21
---------- ---------- ----------
Total From Investment
Operations: (4.85) 7.15 3.19
Less Distributions:
Dividends (from net
investment income) 0.00 0.00 0.00
Distributions (from capital
gains) (2.86) 0.00 0.00
---------- ---------- ----------
Total Distributions (2.86) 0.00 0.00
---------- ---------- ----------
Net Asset Value, End of Period $ 12.63 $ 20.34 $ 13.19
---------- ---------- ----------
---------- ---------- ----------
Total Return (26.37%) 59.14%* 31.94%
Ratios/Supplemental Data:
Net Assets, End of Period
($million) $ 618.0 $ 1,513.4 $ 218.4
Ratio of Expenses to
Average Net Assets 1.45% 1.37%* 1.61%
Ratio of Net Income (Loss)
to Average Net Assets (0.40%) (0.25%)* (0.29%)
Portfolio Turnover Rate 34% 27% 23%
</TABLE>
*Data has been annualized.
56 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
...............................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
ELEVEN
MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER SEPTEMBER OCTOBER
30, 1998 30, 1997 31, 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 14.49 $ 11.29 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) 0.29 0.21 0.10
Net Gains or Losses on
Securities (both realized
and unrealized) 0.04 3.24 1.19
---------- ---------- ----------
Total From Investment
Operations: 0.33 3.45 1.29
Less Distributions:
Dividends (from net
investment income) (0.24) (0.12) 0.00
Distributions (from capital
gains) (0.59) (0.13) 0.00
---------- ---------- ----------
Total Distributions (0.83) (0.25) 0.00
---------- ---------- ----------
Net Asset Value, End of Period $ 13.99 $ 14.49 $ 11.29
---------- ---------- ----------
---------- ---------- ----------
Total Return 2.57% 34.01%* 12.91%
Ratios/Supplemental Data:
Net Assets, End of Period
($million) $ 57.7 $ 33.5 $ 13.8
Ratio of Expenses to
Average Net Assets 1.31% 1.50%*(a) 2.50%(a)
Ratio of Net Income (Loss)
to Average Net Assets 2.39% 2.38%*(a) 1.21%(a)
Portfolio Turnover Rate 46% 53% 66%
</TABLE>
*Data has been annualized
(a) If the fund had paid all of its expenses and there had been no expense
reimbursement by the investment adviser, ratios would have been as follows:
<TABLE>
<CAPTION>
SEPTEMBER OCTOBER
30, 1997 31, 1996
<S> <C> <C>
- ------------------------------------------------------
Ratio of Expenses to Average
Net Assets 1.70 % 2.64 %
Ratio of Net Income (Loss) to
Average Net Assets 2.18 % 1.08 %
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
...............................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
ELEVEN PERIOD
MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER
SEPTEMBER SEPTEMBER -------------------------------------------- 31,
30, 1998 30, 1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) 0.41 0.27 0.09 0.30 0.21 0.06 0.26
Net Gains or Losses on
Securities (both realized
and unrealized) (5.32) 3.74 2.90 (0.77) 0.43 4.48 (0.46)
---------- ---------- -------- -------- -------- -------- ----------
Total From Investment
Operations: (4.91) 4.01 2.99 (0.47) 0.64 4.54 (0.20)
Less Distributions:
Dividends (from net
investment income) (0.58) (0.16) 0.00 0.00 (0.08) (0.25) --
Distributions (from capital
gains) (2.86) 0.00 (1.04) (1.06) (0.15) -- --
---------- ---------- -------- -------- -------- -------- ----------
Total Distributions (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) --
---------- ---------- -------- -------- -------- -------- ----------
Net Asset Value, End of Period $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 9.80
---------- ---------- -------- -------- -------- -------- ----------
---------- ---------- -------- -------- -------- -------- ----------
Total Return (29.90%) 29.63%* 24.90% (3.06%) 4.62% 47.49% (22.81%)*
Ratios/Supplemental Data:
Net Assets, End of Period
($million) $ 756.1 $ 1,647.3 $1,172.8 $ 819.7 $1,286.0 $ 815.4 $ 23.5
Ratio of Expenses to
Average Net Assets 1.32% 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%*
Ratio of Net Income (Loss)
to Average Net Assets 1.95% 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%*
Portfolio Turnover Rate 43% 61% 42% 26% 55% 21% 0%
</TABLE>
*Ratios have been annualized.
(a) From September 30, 1992, the date on which Fund shares were first offered
for sale to the public.
58 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
...............................................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
ELEVEN
MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER SEPTEMBER OCTOBER
30, 1998 30, 1997 31, 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 12.20 $ 11.41 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) 0.18 0.13 0.04
Net Gains or Losses on
Securities (both realized
and unrealized) (4.09) 1.10 1.37
---------- ---------- ----------
Total From Investment
Operations: (3.91) 1.23 1.41
Less Distributions:
Dividends (from net
investment income) (0.06) (0.08) 0.00
Distributions (from capital
gains) (1.34) (0.36) 0.00
---------- ---------- ----------
Total Distributions (1.40) (0.44) 0.00
---------- ---------- ----------
Net Asset Value, End of Period $ 6.89 $ 12.20 $ 11.41
---------- ---------- ----------
---------- ---------- ----------
Total Return (35.20%) 12.07%* 14.15%
Ratios/Supplemental Data:
Net Assets, End of Period
($million) $ 51.8 $ 66.0 $ 39.8
Ratio of Expenses to
Average Net Assets 1.96% 1.93%* 2.50%(a)
Ratio of Net Income (Loss)
to Average Net Assets 2.17% 1.23%* 0.65%(a)
Portfolio Turnover Rate 69% 63% 27%
</TABLE>
Notes
*Ratios have been annualized.
(a) If the fund had paid all of its expenses and there had been no expense
reimbursement by the investment advisor, the ratio of expenses to average
net assets would have been 2.65% and the ratio of net income (loss) to
average net assets would have been .50%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59
<PAGE>
THE OAKMARK FAMILY OF FUNDS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
........................................................................
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF HARRIS
ASSOCIATES INVESTMENT TRUST:
WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND
LIABILITIES OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK
SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK
INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (EACH A
SERIES OF HARRIS ASSOCIATES INVESTMENT TRUST), INCLUDING THE SCHEDULES
OF INVESTMENTS ON PAGES 7-9, 12-13, 16-18, 21-23, 27-31, AND 35-37, AS
OF SEPTEMBER 30, 1998, AND THE RELATED STATEMENTS OF OPERATIONS,
STATEMENTS OF CHANGES IN NET ASSETS AND THE FINANCIAL HIGHLIGHTS FOR THE
PERIODS INDICATED THEREON. THESE FINANCIAL STATEMENTS AND FINANCIAL
HIGHLIGHTS ARE THE RESPONSIBILITY OF THE TRUST'S MANAGEMENT. OUR
RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS
AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED
AUDITING STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE
AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL
STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT.
AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE
AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES
INCLUDED CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 1998, BY
CORRESPONDENCE WITH THE CUSTODIAN AND BROKERS. AS TO SECURITIES
PURCHASED BUT NOT RECEIVED, WE REQUESTED CONFIRMATION FROM BROKERS, AND
WHEN REPLIES WERE NOT RECEIVED, WE CARRIED OUT ALTERNATIVE AUDITING
PROCEDURES. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES
USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING
THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS
PROVIDE A REASONABLE BASIS FOR OUR OPINION.
IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE
FINANCIAL POSITIONS OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE
OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK
INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND OF THE
HARRIS ASSOCIATES INVESTMENT TRUST AS OF SEPTEMBER 30, 1998, THE RESULTS
OF THEIR OPERATIONS, THE CHANGES IN THEIR NET ASSETS, AND THEIR
FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON IN CONFORMITY
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 21, 1998
60
THE OAKMARK FAMILY OF FUNDS
