<PAGE>
SEMI-ANNUAL REPORT
THE OAKMARK
MARCH 31, 1999 FUND
LOGO
THE OAKMARK
SELECT FUND
THE OAKMARK
SMALL CAP FUND
THE OAKMARK
EQUITY AND
INCOME FUND
THE OAKMARK
INTERNATIONAL
FUND
MEMBER OF
- --------------------
- --------------------
100% NO-LOAD
MUTUAL FUND
COUNCIL
- --------------------
- --------------------
MANAGED BY THE OAKMARK
HARRIS INTERNATIONAL
ASSOCIATES L.P. SMALL CAP FUND
OAKMARK
<PAGE>
THE OAKMARK FAMILY OF FUNDS
1999 SEMI-ANNUAL REPORT
........................................................................
<TABLE>
<S> <C>
LETTER FROM THE CHAIRMAN AND PRESIDENT...................... 1
THE OAKMARK FAMILY OF FUNDS SUMMARY......................... 2
THE OAKMARK FUND
Letter from the Portfolio Manager......................... 4
Schedule of Investments................................... 7
THE OAKMARK SELECT FUND
Letter from the Portfolio Manager......................... 10
Schedule of Investments................................... 12
THE OAKMARK SMALL CAP FUND
Letter from the Portfolio Manager......................... 14
Schedule of Investments................................... 16
THE OAKMARK EQUITY AND INCOME FUND
Letter from the Portfolio Manager......................... 19
Schedule of Investments................................... 21
THE OAKMARK INTERNATIONAL FUND
Letter from the Portfolio Managers........................ 24
International Diversification Chart....................... 26
Schedule of Investments................................... 27
THE OAKMARK INT'L SMALL CAP FUND
Letter from the Portfolio Managers........................ 31
International Diversification Chart....................... 33
Schedule of Investments................................... 34
FINANCIAL STATEMENTS
Statement of Assets and Liabilities....................... 38
Statement of Operations................................... 40
Statement of Changes in Net Assets........................ 42
Notes to Financial Statements............................. 48
TRUSTEES AND OFFICERS....................................... 61
</TABLE>
FOR MORE INFORMATION
Access our web site at www.oakmark.com to obtain a
prospectus, an application or periodic reports, or call
1-800-OAKMARK (1-800-625-6275).
WEB SITE AND 24-HOUR NET ASSET VALUE HOTLINE
Access our web site at www.oakmark.com to obtain the current
net asset value of a fund, or call 1-800-GROWOAK
(1-800-476-9625).
<PAGE>
LETTER FROM THE CHAIRMAN AND PRESIDENT...
........................................................................
DEAR FELLOW SHAREHOLDERS:
WE ARE PLEASED TO PRESENT THE SEMI-ANNUAL REPORT FOR THE OAKMARK FAMILY OF
FUNDS. IN OUR LAST SEVERAL REPORTS, WE HAVE HIGHLIGHTED THE GROWING LIST OF
ATTRACTIVE SECURITIES THAT HAVE MET OUR VALUATION CRITERIA. WE ALSO NOTED THE
INCREASING CONFIDENCE AND ENTHUSIASM OF ALL OUR FUND MANAGERS FOR THE QUALITY
AND UPSIDE POTENTIAL OF THE HOLDINGS IN THEIR PORTFOLIOS. IN THIS REPORT,
SEVERAL MANAGERS' COMMENTARIES EXPLAIN
[PHOTO]
THE BASIS FOR THIS CONFIDENCE BY FEATURING IN-DEPTH DISCUSSIONS OF SOME OF THEIR
SIGNIFICANT HOLDINGS. MOST IMPORTANT, THIS CONVICTION HAS TRANSLATED INTO
TANGIBLE RESULTS.
DESPITE THE CONTINUATION OF A [LOGO]
MOMENTUM DRIVEN MARKET, THREE OF OUR FUNDS HAD VERY GOOD QUARTERS. THE
INTERNATIONAL SMALL CAP FUND WAS UP 24.6%, THE INTERNATIONAL FUND WAS UP 13.8%
AND THE SELECT FUND WAS UP 10.6%. WE HAVE NOT CHANGED OUR FOCUS TO A SHORT-TERM
TIME HORIZON. INSTEAD, WE CONTINUE TO ADHERE TO OUR VALUE INVESTMENT PHILOSOPHY.
ULTIMATELY, THESE STRONG ABSOLUTE RETURNS RESULT FROM THIS DISCIPLINED APPROACH
TO INVESTING.
WE ALSO WANT TO ADD A MORE SIGNIFICANT OBSERVATION ABOUT THESE RESULTS. OUR
VALUE DISCIPLINE IS APPLIED TO THE MANAGEMENT OF ALL OAKMARK FUNDS. WE BELIEVE
IT WOULD BE VERY UNUSUAL FOR THE PERFORMANCE REBOUND TO AFFECT ONLY HALF OF OUR
FUND FAMILY. WE HOPE AND EXPECT THAT OUR OTHER FUNDS ARE NEARING A
POINT WHERE RELATIVE AND ABSOLUTE RETURNS WILL BE IMPROVING. THIS
OUTCOME WILL CONFIRM OUR STRONG BELIEF THAT VALUE INVESTING WAS OUT
OF FAVOR CYCLICALLY, NOT SECULARLY.
ON ANOTHER NOTE, WE ARE ALWAYS LOOKING AT NEW IDEAS TO BETTER SERVE OUR
SHAREHOLDERS. JUST AS WE RESEARCH STOCK IDEAS THOROUGHLY BEFORE WE PURCHASE, WE
EXPLORE NEW SERVICING IDEAS IN THE SAME FASHION. CURRENTLY, WE ARE REVIEWING
SUCH SERVICES AS ELECTRONIC DELIVERY OF QUARTERLY REPORTS, PROSPECTUSES, AND
ACCOUNT STATEMENTS. WE ARE ALSO EXPLORING THE IDEA OF ALLOWING OUR SHAREHOLDERS
TO DO TRANSACTIONS OVER THE INTERNET. AS ALWAYS, WE BASE OUR DECISIONS ON WHAT
IS BEST FOR OUR SHAREHOLDERS. WE LOOK FORWARD TO CONTINUING TO SERVE YOUR
INVESTMENT NEEDS IN THE FUTURE.
AS THE YEAR 2000 APPROACHES, OUR Y2K ACTIVITIES ARE ON SCHEDULE AND WE ARE
STILL CONFIDENT THAT WE ARE WELL PREPARED FOR THIS EVENT.
FINALLY, WE ARE PLEASED TO SEE SOLID EVIDENCE THAT VALUE INVESTING IS
"MAKING A COMEBACK." IT IS A MISTAKE TO ASSUME THAT THE RACE IS OVER.
[SIGNATURE]
VICTOR MORGENSTERN
CHAIRMAN
[SIGNATURE]
ROBERT M. LEVY PRESIDENT
1
<PAGE>
THE OAKMARK FAMILY OF FUNDS
SUMMARY INFORMATION
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK
PERFORMANCE FOR PERIOD ENDED FUND SELECT
MARCH 31, 1999 FUND
<S> <C> <C>
------------------------ ------------------------
- ----------------------------------------------------------------------------------------
3 MONTHS -0.5% 10.6%
........................................................................................
6 MONTHS 12.0% 34.4%
........................................................................................
1 YEAR -6.1% 13.4%
........................................................................................
AVERAGE ANNUAL TOTAL RETURN
FOR:
3 YEAR 15.4% N/A
........................................................................................
5 YEAR 18.2% N/A
........................................................................................
SINCE INCEPTION 25.2% 40.6%
VALUE OF $10,000 $55,888 $22,766
FROM INCEPTION DATE (8/5/91) (11/1/96)
- ----------------------------------------------------------------------------------------
TOP FIVE HOLDINGS Nike, Inc., Class B7.4% Washington Mutual,
AS OF MARCH 31, 1999 Philip Morris Companies Inc. 10.8%
COMPANY AND % OF TOTAL NET Inc. 7.1% USG Corporation 10.7%
ASSETS The Black & Decker U.S. Industries,
Corporation 6.6% Inc. 8.7%
The Dun & Bradstreet PartnerRe Ltd. 6.3%
Corporation 5.8% First Data
Mattel, Inc. 5.7% Corporation 5.7%
- ----------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Other Consumer Banks & Thrifts 14.5%
AS OF MARCH 31, 1999 Goods & Services 18.6% Computer Services 12.7%
INDUSTRIES AND % OF TOTAL NET Banks & Thrifts 9.9% Building Materials &
ASSETS Aerospace & Defense 9.4% Construction 10.7%
Food & Beverage 8.8% Diversified
Information Conglomerates 8.7%
Services 8.1% Insurance 6.3%
</TABLE>
2 THE OAKMARK FAMILY OF FUNDS
<PAGE>
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL
FUND INCOME FUND FUND SMALL CAP FUND
<S> <C> <C> <C> <C>
----------------------- ----------------------- ----------------------- -----------------------
- ----------------------------------------------------------------------------------------------------------------------------------
3 Months -8.8% 0.0% 13.8% 24.6%
..................................................................................................................................
6 Months 7.3% 10.5% 30.2% 59.8%
..................................................................................................................................
1 Year -26.1% 3.5% -7.6% 14.8%
..................................................................................................................................
Average Annual Total Return
for:
3 Year 11.9% 16.9% 7.7% 6.1%
..................................................................................................................................
5 Year N/A N/A 6.9% N/A
..................................................................................................................................
Since inception 14.9% 16.4% 12.3% 8.3%
Value of $10,000 $16,069 $16,792 $21,258 $13,118
from inception date (11/1/95) (11/1/95) (9/30/92) (11/1/95)
- ----------------------------------------------------------------------------------------------------------------------------------
TOP FIVE HOLDINGS People's Bank of Imation Corp. 4.8% Cordiant Haw Par Corporation
AS OF MARCH 31, 1999 Bridgeport, CT 4.0% First Data Communications Group Limited 4.6%
COMPANY AND % OF TOTAL NET Duff & Phelps Credit Corporation 3.9% plc 6.3% Solution 6 Holdings
ASSETS Rating Co. 3.8% Juno Lighting, Tomkins plc 5.1% Limited 4.5%
Department 56, Inc. 3.6% Uniao de Bancas Royal Doulton plc4.4%
Inc. 3.8% Lear Corporation 3.5% Brasileiros Carpetright plc 4.4%
H. B. Fuller Amli Residential S.A. 4.8% Ichiyoshi
Company 3.6% Properties Banco Latinoamericano Securites 4.0%
Micron Electronics, Trust 3.4% de Exportaciones,
Inc. 3.6% S.A., Class E 4.4%
Chargeurs SA 4.1%
- ----------------------------------------------------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Other Industrial U.S. Government Other Industrial Retail 15.1%
AS OF MARCH 31, 1999 Goods & Bonds 24.8% Goods & Diversified
INDUSTRIES AND % OF TOTAL NET Services 14.1% Computer Services9.7% Services 14.2% Conglomerates 9.6%
ASSETS Food & Beverages 9.9% Real Estate 9.2% Banks 11.3% Other Financial 9.3%
Banks & Thrifts 8.8% Banks & Thrifts 7.1% Marketing Other Industrial Goods
Retail 8.7 Data Storage 4.8% Services 10.0% & Services 7.5%
Real Estate 7.2 Consumer Computer Software6.9%
Non-Durables 7.2%
Other Consumer
Goods &
Services 6.4%
</TABLE>
THE OAKMARK FAMILY OF FUNDS 3
<PAGE>
THE OAKMARK FUND
REPORT FROM ROBERT J. SANBORN, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION
(8/5/91) TO PRESENT (3/31/99)
AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK
FUND S & P 500
<S> <C> <C>
8/91 $10,000 $10,000
10/91 $12,100 $10,202
1/92 $13,910 $10,707
4/92 $14,660 $10,947
7/92 $15,910 $11,279
10/92 $17,110 $11,217
1/93 $19,913 $11,836
4/93 $20,136 $11,957
7/93 $22,052 $12,260
10/93 $24,504 $12,896
1/94 $25,648 $13,357
4/94 $24,855 $12,590
7/94 $25,321 $12,890
10/94 $26,653 $13,384
1/95 $26,480 $13,433
4/95 $28,846 $14,781
7/95 $30,883 $16,248
10/95 $32,397 $16,916
1/96 $36,091 $18,608
4/96 $36,823 $19,242
7/96 $35,559 $18,934
10/96 $38,252 $20,988
1/97 $43,112 $23,510
4/97 $44,197 $24,073
7/97 $51,606 $28,797
9/97 $52,009 $28,668
12/97 $54,132 $29,494
3/98 $59,517 $33,663
6/98 $57,909 $34,775
9/98 $49,899 $31,316
12/98 $56,155 $37,985
3/99 $55,888 $39,877
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN*
THROUGH 3/31/99
TOTAL RETURN FROM FUND INCEPTION
3/31/99 NAV $35.65 LAST 3 MOS. 8/5/91
<S> <C> <C>
- ------------------------------------------------------------------
THE OAKMARK FUND -0.5% 25.2%
Standard & Poor's 500 Stock
Index w/inc** 5.0% 19.8%
Dow Jones Industrial Average
w/ inc** 7.0% 19.5%
Value Line Composite Index** -6.4% 7.1%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks whose
composition is different from the Fund. The S&P 500 is a broad market-weighted
average dominated by blue-chip stocks. The Dow Jones Average includes only 30
big companies. The Value Line Index is an unweighted average of more than 1,000
stocks. Past performance is no guarantee of future results.
REDEMPTION SONG
The late great Bob Marley sang, "All I ever had ... redemption song."
I can relate.
When we launched The Oakmark Fund in 1991, we pledged to write meaningful
quarterly letters and to keep you apprised of significant developments at The
Oakmark Fund (and,subsequently, all our funds). An item I want to discuss is the
high and steady level of redemption activity we have experienced over the past
nine months or so. The total assets in The Oakmark Fund have declined from a
high of over $9 billion in April of 1998 to less than $6 billion today, and the
vast majority of that decline is due to redemptions.
I want to discuss this phenomenon, how it affects management of the Fund, and
how it affects the overall market.
First, the redemptions we have experienced have required selling a lot of our
holdings. In general, cash flows in or out, or even the size of the Fund, have
little bearing on where I invest our money. For instance, whether our Fund has
$1 billion or $10 billion in assets, I would have, say, seven percent invested
in Nike and five percent in Eaton. The number of shares and the dollars are
merely a residual. While I continue to make "real" trades--be it eliminating a
holding, or buying a new one, or altering percentage holdings--in general I have
met these redemptions by selling across the board.
Redemptions have affected virtually every fund with a value bias. (Throughout
this discussion, be advised that there are no hard and fast rules that make a
fund either a "value" or "growth" fund.) According to J.P. Morgan Securities,
over 98 percent of new money flowing into equity funds this year has gone to
growth funds! It seems that today's mutual fund investor has become very short
term in his investment endeavors, and the game seems to be dependent on the
assumption that what WILL be good is what HAS been good recently. These cash
flows--to the growth guys, away from the value
4
THE OAKMARK FUND
<PAGE>
........................................................................
guys--tend to create forced selling pressure on the stocks that the "value" guys
own and corresponding pressure on the stocks the "growth" guys own. This tends,
of course, to create conditions that allow the growth guys to do well and the
value guys to do poorly, which sets off the whole cycle again ... and again ...
and again ...
A key question is whether fundamentals and economics are driving these cash
flows or if they are mindless. A huge amount of anecdotal evidence leads me to
conclude that these flows are generally mindlessly following recent past
performance and increasingly bizarre theories are concocted to rationalize them.
Wall Street firms, competing for underwritings, have always been creative on
this score. One theory is that the Return on Invested Capital (ROIC) is so high
at the New Age companies that they deserve their stratospheric valuations. Of
course, what really matters is whether it can be sustained. In my experience,
excess returns attract new entrants and competitors and tend to be competed
away. Another theory is that Internet firms in particular should receive lofty
valuations because they require little cash investment to operate. Of course,
another way to look at this feature is to focus on the very low barriers to
entry facing anyone trying to compete with, say, Amazon.com. (Apparently, there
is a 16-year-old in Iowa who has replicated virtually their entire system!)
While I understand how frustrating our performance has been to you, and while I
appreciate your patience, I actually view this cash flow phenomenon as a
positive. The more investors who invest without regard to fundamentals and the
more investors adopt an ever-shorter time frame, the more attractive are the
opportunities for The Oakmark Fund. In fact, this is another quarter where I
will reiterate that I have never been more confident of our prospective
performance, particularly relative to the Standard & Poor's 500.
So, while I am now singing "Redemption Song," I expect to soon be singing
another song from the Marley oeuvre: "Riding High."
OAKMARK: A GROWTH FUND?
As I indicated above, the distinction between a value fund and a growth fund
tends to be arbitrary. We have never been the sort of value investors who simply
buy those stocks with the lowest price-earnings- or price-book-ratio. We prefer
to buy $1 of economic value for 60 cents. A growth company at a reasonable
valuation can be a value to us.
This is a prelude to an assertion I often hear: "The world has changed." Today,
this statement is often made by those trying to rationalize the valuations of
the market leaders. Many constituents use this argument in an effort to compel
me to surrender to the valuations of, say, Internet stocks. As I have written, I
will never buy what I believe to be an overvalued stock in the hopes of its
becoming even more over-valued.
Nevertheless, while our philosophy and how we frame the investment process never
changes and never will, we often change our assessments of value in response to
changes in the economic landscape. The most important change
in how we view businesses and their valuation versus, say, ten years ago, is how
we assess market leaders versus industry also-rans. If we look at our client
portfolios of ten years ago, in general they were heavily populated with
statistically cheap stocks that were in either horrible businesses or were the
third or fourth participant in a given industry.
Now, let's look at The Oakmark Fund's ten largest holdings, which comprise
almost 60 percent of the Fund's value. Within their respective industries, eight
are dominant competitors (Nike, Philip Morris, Mattel, Black & Decker, Lockheed
Martin, Boeing, H&R Block, and Dun & Bradstreet) and the other two (Washington
Mutual, Eaton) are strong competitors in their markets. For every stock we own
or monitor closely, our analysts assign a rating from 1 (best) to 5 (worst) in
assessing the quality of a given company's business. A "1" business would tend
to have a strong market share in a decent market, have high barriers to entry,
have low technological obsolescence, and provide products and/or services that
are differentiated. The average rating assigned to The Oakmark Fund's ten
largest holdings is less than 2, meaning that we believe that the average
quality of the business structure of our ten largest holdings is above average.
Our analysts also estimate long-term growth rates for every stock. The average
long-term earnings growth rate for our ten largest holdings is over 11 percent,
slightly above what the market is likely to experience. So, I conclude that the
bulk of our Fund, at the current time, is in superior businesses with robust
growth rates. Yet, the valuation
THE OAKMARK FUND
5
<PAGE>
........................................................................
of these holdings is significantly less than that of the Standard & Poor's 500.
... AND ON A PERSONAL NOTE
This past March, actually on the ides of March, I sent you a letter describing
our investment philosophy. This was in response to a lot of e-mails and letters
I had received from shareholders that led me to conclude that some of our
shareholders were not knowledgeable about our investment philosophy. This
concerned me because I believe that shareholders who simply chase returns are
bound to be disappointed.
Well, I received an avalanche of letters and e-mails in response to this letter.
And, I must admit it has been extremely gratifying that the vast majority of
these letters has expressed knowledge and support of our investment approach.
Many of you would (rightfully!) move on if we changed our philosophy. Do not
worry, we will not.
With the assistance of my colleague Ms. Kathy O'Keefe-Smith, I have tried to
respond to all of these communications. I want to thank all who wrote.
[SIGNATURE]
ROBERT SANBORN
Portfolio Manager
[email protected]
April 7, 1999
6
THE OAKMARK FUND
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--95.4%
FOOD & BEVERAGE--8.8%
Philip Morris Companies Inc. 11,610,700 $ 408,551,506
Nabisco Holdings Corporation, Class A 2,372,100 98,590,406
--------------
507,141,912
APPAREL--7.4%
Nike, Inc., Class B 7,307,100 $ 421,528,331
RETAIL--0.2%
GC Companies, Inc. (a)(b) 397,000 $ 12,480,688
HARDWARE--7.7%
The Black & Decker Corporation (b) 6,840,000 $ 379,192,500
The Stanley Works 2,524,900 64,700,562
--------------
443,893,062
OTHER CONSUMER GOODS & SERVICES--18.6%
Mattel, Inc. 13,214,400 $ 328,708,200
H&R Block, Inc. (b) 6,765,500 320,515,562
Fortune Brands, Inc. 4,861,100 188,063,806
Brunswick Corporation (b) 7,280,800 138,790,250
Polaroid Corporation (b) 4,527,400 90,830,963
--------------
1,066,908,781
BANKS & THRIFTS--9.9%
Washington Mutual, Inc. 7,680,000 $ 313,920,000
Bank One Corporation 4,600,548 253,317,674
--------------
567,237,674
INSURANCE--1.3%
Old Republic International Corporation 4,122,930 $ 75,243,473
PUBLISHING--6.0%
Knight Ridder, Inc. (b) 6,266,100 $ 313,305,000
R. H. Donnelley Corporation (b) 2,073,260 32,005,951
--------------
345,310,951
INFORMATION SERVICES--8.1%
The Dun & Bradstreet Corporation (b) 9,409,200 $ 335,202,750
ACNielsen Corporation (a) (b) 4,764,000 129,223,500
--------------
464,426,250
COMPUTER SERVICES--2.1%
First Data Corporation 2,873,200 $ 122,829,300
MEDICAL CENTERS--4.2%
Columbia/HCA Healthcare Corporation 12,601,000 $ 238,631,437
MEDICAL PRODUCTS--1.3%
Sybron International Corporation (a) 2,935,600 $ 73,390,000
</TABLE>
THE OAKMARK FUND
7
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--95.4% (CONT.)
AUTOMOTIVE--0.5%
SPX Corporation (a) 538,200 $ 27,145,463
AEROSPACE & DEFENSE--9.4%
Lockheed Martin Corporation 7,250,000 $ 273,234,375
The Boeing Company 7,799,400 266,154,525
--------------
539,388,900
MACHINERY & INDUSTRIAL PROCESSING--7.9%
Eaton Corporation (b) 4,179,600 $ 298,841,400
Cooper Industries, Inc. 3,558,400 151,676,800
--------------
450,518,200
BUILDING MATERIALS & CONSTRUCTION--0.4%
Juno Lighting, Inc. (b) 1,085,000 $ 24,344,688
OTHER INDUSTRIAL GOODS & SERVICES--1.6%
Parker-Hannifin Corporation 1,297,600 $ 44,442,800
Bandag Incorporated, Class A 1,104,100 26,222,375
The Geon Company 971,600 22,103,900
--------------
92,769,075
TOTAL COMMON STOCKS (COST: $5,124,581,785) 5,473,188,185
SHORT TERM INVESTMENTS--4.3%
U.S. GOVERNMENT BILLS--1.3%
United States Treasury Bills, 4.37%-4.70%
due 4/1/1999-4/22/1999 $75,000,000 $ 74,862,917
--------------
TOTAL U.S. GOVERNMENT BILLS (COST: $74,862,917) 74,862,917
COMMERCIAL PAPER--1.7%
American Express Credit Corp., 4.82%-4.84%
due 4/1/1999-4/5/1999 $40,000,000 $ 40,000,000
Ford Motor Credit Corp., 4.82% due 4/6/1999 20,000,000 20,000,000
General Electric Capital Corporation, 5.00%
due 4/1/1999 35,000,000 35,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $95,000,000) 95,000,000
</TABLE>
8
THE OAKMARK FUND
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--4.3% (CONT.)
REPURCHASE AGREEMENTS--1.3%
State Street Repurchase Agreement, 4.88%
due 4/1/1999 $73,725,000 $ 73,725,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $73,725,000) 73,725,000
TOTAL SHORT TERM INVESTMENTS (COST: $243,587,917) 243,587,917
Total Investments (Cost $5,368,169,702)--99.7% (c) $5,716,776,102
Other Assets In Excess Of Other Liabilities--0.3% 19,739,803
--------------
TOTAL NET ASSETS--100% $5,736,515,905
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(c) At March 31, 1999, net unrealized appreciation of $348,606,400,
for federal income tax purposes consisted of gross unrealized
appreciation of $965,289,295 and gross unrealized depreciation of
$616,682,895.
THE OAKMARK FUND
9
<PAGE>
THE OAKMARK SELECT FUND
REPORT FROM BILL NYGREN, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK
SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT
(3/31/99) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK
SELECT FUND S & P 500
<S> <C> <C>
10/96 $10,000 $10,000
1/97 $12,500 $11,202
4/97 $12,250 $11,470
7/97 $15,290 $13,721
9/97 $16,340 $13,659
12/97 $17,704 $14,053
3/98 $20,078 $16,021
6/98 $20,462 $16,551
9/98 $16,936 $14,904
12/98 $20,575 $18,078
3/99 $22,766 $18,979
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 3/31/99
TOTAL RETURN FROM FUND INCEPTION
3/31/99 NAV $21.62 LAST 3 MOS. 11/1/96
<S> <C> <C>
- ------------------------------------------------------------------------------
THE OAKMARK SELECT FUND 10.6% 40.6%
Standard & Poor's 500 Stock
Index w/inc** 5.0% 30.4%
Standard & Poor's MidCap 400
Index w/ inc** -6.4% 20.2%
Value Line Composite Index** -6.4% 5.8%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks whose
composition is different from the Fund. The S&P 500 is a broad market-weighted
average dominated by blue-chip stocks. The S&P 400 consists of 400 domestic
stocks chosen for market size, liquidity, and industry group representation. The
Value Line Index is an unweighted average of more than 1,000 stocks. Past
performance is no guarantee of future results.
The Oakmark Select Fund increased in value 10.6% during the quarter ended March
31 and 34.4% for the six month fiscal year-to-date. Both the three- and
six-month numbers are substantially ahead of the benchmark indices. The largest
contributor to the Fund's excellent quarter was Gucci's 66% increase. Gucci
became an acquisition target and we reduced our weighting in the company as the
stock price climbed in anticipation of a bidding war. Two other strong
contributors, Cablevision Systems and Amgen, have been sold because their stock
prices achieved (and then surpassed) our sell targets. At the end of March, the
S&P 500 sold at 29 times estimated 1999 earnings, whereas the P/E multiple for
The Oakmark Select Fund was 13 times, less than half the market multiple. As I
have highlighted in the last two quarterly reports, I find your Fund's current
relative valuation extremely compelling.
PORTFOLIO TURNOVER
Different investment styles lead to very different outcomes regarding portfolio
turnover. Consider, at two extremes, value and momentum styles. A value approach
purchases undervalued stocks, waits for the gap between price and value to
close, then sells them. This style generally produces low turnover. However, in
those periods when a value style is most successful, turnover will be higher as
many stocks appreciate to full value and are sold. At the other extreme is a
momentum style that purchases stocks that have been the recent best performers,
then waits for loss of momentum (price declines) before the stock is sold. This
approach generally leads to rapid turnover. However, in its most successful
periods, when yesterday's winners keep going up, there is very little turnover.
I have previously told you that when we purchase a stock, we expect, on average,
to hold it three to five years. The important phrase is "on average." We do not
manage the Fund to have a certain holding period or turnover ratio. Instead, we
buy stocks we believe are selling at 60% of intrinsic value, and we sell them
when they exceed 90% of intrinsic value. When stocks achieve our target sell
price, we sell regardless of
10
THE OAKMARK SELECT FUND
<PAGE>
........................................................................
how long we've held them (with the exception of monitoring the benefit of
allowing gains to go long term). As long as we stick to our discipline, you
should be pleased when you see high turnover because it means the market has
more rapidly recognized the undervaluation in our stocks. With that as an
introduction, last quarter's portfolio turnover was the highest in your Fund's
relatively short history. This is a good thing. The turnover is a direct result
of your Fund's stocks increasing in value more than most other stocks did. There
are four new stocks in the portfolio this quarter, six since fiscal year end, as
well as a new largest holding, Washington Mutual. Please take a few minutes to
get reacquainted with your portfolio.
Washington Mutual (symbol: WM, 3/31/99 price was approximately $41) is the
largest savings and loan in the U.S. and arguably the strongest West Coast
franchise. Its business is plain vanilla--collecting deposits and writing
mortgages on single family homes. As a low-cost provider, WM should benefit as
banking moves online. WM sells under 10 times next year's estimated earnings,
and we believe that if the stock price does not increase, it will be an
attractive acquisition candidate for any East Coast bank seeking a nationwide
presence.
Liz Claiborne (LIZ--$33) is a designer and marketer of moderately priced women's
apparel. Down from a high of $58, LIZ now sells at 10 times our estimate of next
year's earnings. LIZ has $4 per share in cash and no debt. Excess cash is being
used to repurchase stock and also to add new apparel brands that will benefit
from LIZ's strong distribution and superior cost structure.
Reynolds & Reynolds (REY--$19) makes, by far, the majority of its income as the
leading supplier of computer software to auto dealers. In addition, REY has a
forms business where they are leaders in creating electronic access to their
product. REY sells at about 11 times our estimate of next year's earnings. As an
aside, REY has a joint venture with Microsoft (Carpoint.com) that uses the
Internet to facilitate new car purchases. Businesses similar to Carpoint
(Autoweb and Autobytel) have recently come public at very large valuations.
Since Carpoint has made only a small profit (its competitors are losing money),
when you think of REY as selling at 11 times earnings, you are effectively
getting Carpoint for free.
ThermoElectron (TMO--$14) is a collection of many small businesses, mostly in
the instrumentation industry. Many of these businesses have a publicly traded
minority interest. The price of TMO looks inexpensive relative to the value
implied by those public interests and, in addition, it sells at only 12 times
next year's earnings. Over its forty plus year history, TMO has done an
excellent job creating and collecting this widely diversified group of
businesses. In June, a new CEO, Dick Syron, will start the process of examining
many strategic alternatives with the sole goal of maximizing the business value
of TMO.
Times Mirror Corporation (TMC-- $54) publishes newspapers including the L.A.
TIMES and BALTIMORE SUN. TMC sells at about 15 times our estimate of next year's
earnings and has a new CEO, Mark Willes, who is aggressively cutting costs and
repurchasing equity. TMC sells at a cashflow multiple that is about half the
multiple that has been paid in recent newspaper acquisitions.
Weatherford International (WFT-- $26) is an international oilfield service
provider. WFT stock traded above $70 in 1997 and troughed in the high teens last
quarter (our cost is below $20). Demand for oil services is obviously dependent
on oil prices and WFT stock has benefited from last month's brief rally in oil.
We find WFT modestly undervalued if oil prices don't recover further and
significantly undervalued if they do.
U.S. Filter (USF--$31) produces water filtration equipment. Its stock peaked in
late 1997 at $45 per share. We bought it in the low- to mid-$20s believing
"intrinsic value" to be in the high-$30s. Last month, USF agreed to sell the
company for $31.50 per share. By the time you read this, we should have received
our cash. I only wish all of our "mistakes" worked out like USF did.
Values such as these appear extremely compelling to us relative to the Dow at
10,000, or the S&P 500 at nearly 30 times earnings. I hope these brief
descriptions help convey our excitement. Thank you for your continued support.
[SIGNATURE]
WILLIAM C. NYGREN
Portfolio Manager
[email protected]
April 6, 1999
THE OAKMARK SELECT FUND
11
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.4%
APPAREL--4.4%
Liz Claiborne, Inc. 2,166,600 $ 70,685,325
RETAIL--4.8%
Gucci Group (b) 960,000 $ 77,280,000
OTHER CONSUMER GOODS & SERVICES--4.3%
Ralston Purina Group 2,622,600 $ 69,990,637
BANKS & THRIFTS--14.5%
Washington Mutual, Inc. 4,251,500 $ 173,780,062
People's Bank of Bridgeport, Connecticut 2,034,400 60,523,400
--------------
234,303,462
INSURANCE--6.3%
PartnerRe Ltd. (c) 2,523,800 $ 102,213,900
BROADCASTING & PUBLISHING--3.0%
The Times Mirror Company, Class A 900,000 $ 48,656,250
INFORMATION SERVICES--4.6%
The Dun & Bradstreet Corporation 2,068,600 $ 73,693,875
COMPUTER SERVICES--12.7%
First Data Corporation 2,155,000 $ 92,126,250
Electronic Data Systems Corporation 1,360,900 66,258,819
The Reynolds and Reynolds Company, Class A 2,450,000 46,550,000
--------------
204,935,069
MACHINERY & INDUSTRIAL PROCESSING--3.9%
Thermo Electron Corporation (a) 4,693,500 $ 63,655,594
BUILDING MATERIALS & CONSTRUCTION--10.7%
USG Corporation (d) 3,366,400 $ 172,948,800
OIL FIELD SERVICES & EQUIPMENT--4.0%
Weatherford International, Inc. (a) 2,495,800 $ 65,202,775
OTHER INDUSTRIAL GOODS & SERVICES--3.6%
Premark International, Inc. 1,742,600 $ 57,396,888
ENVIRONMENTAL PRODUCTS & SERVICES--4.3%
United States Filter Corporation (a) 2,282,700 $ 69,907,688
REAL ESTATE--3.6%
Host Marriott Corporation 5,274,863 $ 58,682,851
</TABLE>
12
THE OAKMARK SELECT FUND
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.4% (CONT.)
DIVERSIFIED CONGLOMERATES--8.7%
U.S. Industries, Inc. (d) 8,564,000 $ 140,770,750
--------------
TOTAL COMMON STOCKS (COST: $1,433,376,963) 1,510,323,864
OTHER ASSETS--0.3%
RETAIL--0.3%
Gucci Group Contingencies 1,781,125 $ 4,052,059
--------------
TOTAL OTHER ASSETS (COST: $0) 4,052,059
SHORT TERM INVESTMENTS--7.1%
U.S. GOVERNMENT BILLS--2.8%
United States Treasury Bills, 4.37%-4.70%
due 4/1/1999-4/22/1999 $45,000,000 $ 44,904,479
--------------
TOTAL U.S. GOVERNMENT BILLS (COST: $44,904,479) 44,904,479
COMMERCIAL PAPER--2.8%
American Express Credit Corp., 4.82% due
4/12/1999 $5,000,000 $ 5,000,000
Ford Motor Credit Corp., 4.76%-4.82% due
4/1/1999-4/9/1999 30,000,000 30,000,000
General Electric Capital Corporation, 5.00%
due 4/1/1999 10,000,000 10,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $45,000,000) 45,000,000
REPURCHASE AGREEMENTS--1.5%
State Street Repurchase Agreement, 4.88%
due 4/1/1999 $25,441,000 $ 25,441,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $25,441,000) 25,441,000
TOTAL SHORT TERM INVESTMENTS (COST: $115,345,479) 115,345,479
Total Investments (Cost $1,548,722,442)--100.8% (e) $1,629,721,402
Other Liabilities In Excess Of Other Assets--(0.8)% (13,264,411)
--------------
TOTAL NET ASSETS--100% $1,616,456,991
--------------
--------------
</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 March 31, 1999, net unrealized appreciation of $80,998,960, for
federal income tax purposes consisted of gross unrealized
appreciation of $173,131,049 and gross unrealized depreciation of
$92,132,089.
THE OAKMARK SELECT FUND
13
<PAGE>
THE OAKMARK SMALL CAP FUND
REPORT FROM STEVEN J. REID, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (3/31/99) AS COMPARED TO THE RUSSELL 2000 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK
SMALL CAP FUND RUSSELL 2000
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,180 $10,684
4/96 $12,180 $11,841
7/96 $11,830 $10,772
10/96 $13,190 $11,661
1/97 $15,180 $12,708
4/97 $15,170 $11,848
7/97 $18,730 $14,369
9/97 $20,340 $15,774
12/97 $20,290 $15,245
3/98 $21,732 $16,779
6/98 $20,467 $15,997
9/98 $14,976 $12,774
12/98 $17,620 $14,857
3/99 $16,069 $14,051
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
TOTAL RETURN* THROUGH 3/31/99
RETURN FROM FUND INCEPTION
3/31/99 NAV $13.47 LAST 3 MOS. 11/1/95
- ----------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK SMALL CAP FUND -8.8% 14.9%
Lipper Small Cap Fund Index** -4.7% 8.0%
Russell 2000 w/ inc** -5.4% 10.5%
S&P Small Cap 600 w/inc** -9.0% 11.4%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
whose composition is different from the Fund. The Lipper Small Cap Fund Index is
comprised of 30 Small Cap Funds. The Russell 2000 Index measures the performance
of smaller companies, and represents approximately 10% of the total value of
publicly traded companies in the U.S. The S&P 600 Index measures the performance
of selected U.S. stocks with small market capitalization. Past performance is no
guarantee of future results.
I THOUGHT 1998 WAS ENOUGH!!!
Just when it seemed it was safe to go outside, the door slammed shut. The shares
of small cap companies, as well as value investing, remain under pressure.
Redemptions from small cap funds have caused the liquidation of the shares of
small companies, which results in selling pressure in the market for small cap
stocks. According to Lipper, investors redeemed $1.9 billion and $3.5 billion
from small cap funds in January and February, respectively. At the same time the
vast majority of value managers are also lagging the market indices as growth
companies, particularly the larger ones, are seeing their shares appreciate.
While this may sound like a vicious circle of events, it also creates investment
opportunity. I believe that The Oakmark Small Cap Fund's portfolio of stocks is
more undervalued now than at anytime in the Fund's existence. As the portfolio
manager and one of the Fund's largest individual investors, this has been a
frustrating period. For the second fiscal quarter ended March 31, 1999, the Fund
declined 8.8%, reducing the fiscal year return to 7.3%. Rather than offer
excuses for the Fund's results, I am putting my money where my mouth is. The
Oakmark Small Cap Fund represents the majority of my investable assets and I
made a significant additional investment in the Fund's shares today!
Believe it or not you can be struck by lightning and not get burned!
In the last quarterly report I highlighted the recent purchase of the shares of
Paymentech, Inc. (PTI). At the time of purchase, the shares were trading in the
mid-teens. Our rationale for the investment in PTI was that the shares were
currently undervalued and that over time the underlying value of PTI would grow.
We also believed that consolidation in the credit card processing industry would
be a logical business outcome. On March 22, Pam Patsley, President & CEO of
Paymentech, and Ric Duques, Chairman & CEO of First Data Corporation (FDC),
announced that FDC would acquire the publicly traded shares of PTI for $25.50 in
cash.
14
THE OAKMARK SMALL CAP FUND
<PAGE>
........................................................................
We wish Pam and Ric success in their new venture and will continue to monitor
their efforts. Since the announcement of the merger we have reduced our position
in PTI and have redeployed the proceeds into other investments. In this case, a
little lightning did not hurt.
OPPORTUNITIES
I know that many of you are tired of being reminded of the opportunities we are
seeing in small cap companies. However, you should be made aware of our new
holdings and know that we are doing everything we can to create the most
attractive portfolio for your hard earned assets. During the quarter, we added
seven new companies to the Fund; some are household names, some are not.
Del Monte Foods (DLM): This company is a lot more than creamed corn. New
management took over DLM and re-energized the company. We expect to see an
increase in operating efficiency as recent capital spending aids future
profitability. DLM is the largest producer of packaged fruits and vegetables
sold under the Del Monte and Contadina brand names. New marketing, packaging,
and promotional efforts should increase sales and profits.
Fruit of the Loom, Inc. (FTL): FTL is the largest, low-cost producer of
underwear and basic knit wear. The stock has declined from $46 five years ago to
less than $11 a share. The shares are trading at about six times this year's
earnings and management owns 12% of the outstanding shares. These
characteristics made FTL an attractive addition to our portfolio.
Golden State Bancorp, Inc. (GSB): This is one of the few remaining independent
bank franchises in California. It was created out of the merger of CalFed,
Glenfed, and, the West Coast franchise, First Nationwide. Not only do we think
the shares are undervalued, but we are very impressed with management's vision
and commitment to building shareholder value.
Michaels Stores, Inc. (MIKE): Michaels is the largest arts and crafts retailer
in the country. This is the only company in the arts and crafts industry that
has sophisticated point-of-sale systems to manage and control inventory. We
expect continued double-digit growth in earnings over the next several years and
find the shares to be attractive.
PMI Group, Inc. (PMA): PMA is one of the top providers of mortgage insurance for
home buyers that do not meet federal agency financial requirements for
conforming mortgages. This is a well-run company that we have known for years.
The compelling attraction to PMA is its valuation. The shares trade around
stated book value, seven times this year's earnings, and at a healthy discount
to liquidating value.
Trammel Crow Co. (TCC): TCC is the largest U.S. property manager. They provide
real estate property management, infrastructure management, and brokerage and
development services. The company generates very high free cash flow and
management owns over 40% of the shares.
UCAR International, Inc. (UCR): This is not a household name or product. UCAR
produces graphite electrodes which are essentially the consumable burner tips in
electric arc steel furnaces. UCAR has the leading share in a near oligopoly. New
management is busy improving the operations and the practices of the previous
leadership. We view this as a very cheap stock.
OUTLOOK
Obviously, I don't have a crystal ball to predict the future. Value investing
has a history of being in and out of favor, but over the long term it has
produced excellent returns. Several pundits have suggested that value investing
is dead. I wholeheartedly disagree. The current market is in a very lopsided
state with a relatively small number of companies enjoying the irrational
exuberance of inflated valuations. Two factors are working in our favor. First,
the stocks we own are irrationally cheap and will not remain so over time.
Second, there is evidence of consolidation taking place among small companies as
we have seen with PTI and First Brands. It is reasonable to expect that
consolidation will continue. The Oakmark Small Cap Fund is managed with a
forward-looking vision, patience, and adherence to our value-oriented investment
philosophy.
Once again, I would like to thank everyone involved, especially our
shareholders, for your support of The Oakmark Small Cap Fund.
[SIGNATURE]
STEVEN J. REID
Portfolio Manager
[email protected]
April 7, 1999
THE OAKMARK SMALL CAP FUND
15
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--97.5%
FOOD & BEVERAGE--9.9%
Del Monte Foods Company (a) 1,000,000 $ 13,187,500
Ralcorp Holdings, Inc. (a) 600,000 11,400,000
International Multifoods Corporation 400,000 9,325,000
Triarc Companies, Inc. (a) 500,000 8,718,750
M & F Worldwide Corp. (a) 750,000 5,250,000
--------------
47,881,250
APPAREL--5.2%
Reebok International Ltd. (a) 1,000,000 $ 15,875,000
Fruit of the Loom, Inc., Class A (a) 900,000 9,337,500
--------------
25,212,500
RETAIL--8.7%
Department 56, Inc. (a) 600,000 $ 18,262,500
Ugly Duckling Corporation (a)(c) 1,750,000 9,679,687
The Great Atlantic & Pacific Tea Company,
Inc. 250,000 7,500,000
Michaels Stores, Inc. (a) 284,400 7,021,125
--------------
42,463,312
OTHER CONSUMER GOODS & SERVICES--4.5%
Libbey, Inc. 300,000 $ 9,300,000
Barry (R.G.) Corporation (a)(c) 900,000 7,875,000
Scotsman Industries, Inc. 287,000 4,932,813
--------------
22,107,813
BANKS & THRIFTS--8.8%
People's Bank of Bridgeport, Connecticut 650,000 $ 19,337,500
BankAtlantic Bancorp, Inc., Class A 1,000,001 7,062,507
Northwest Bancorp Inc. 600,000 5,550,000
Golden State Bancorp Inc. (a) 200,000 4,450,000
PennFed Financial Services, Inc. 260,000 4,160,000
Finger Lakes Financial Corp. (c) 188,000 2,138,500
--------------
42,698,507
INSURANCE--5.4%
The PMI Group, Inc. 300,000 $ 13,912,500
The MONY Group Inc. (a) 500,000 12,437,500
--------------
26,350,000
OTHER FINANCIAL--6.1%
Duff & Phelps Credit Rating Co. (c) 350,000 $ 18,331,250
ARM Financial Group, Inc., Class A 750,000 11,203,125
--------------
29,534,375
BROADCASTING & CABLE TV--3.4%
Ascent Entertainment Group, Inc. (a)(c) 1,500,000 $ 16,406,250
COMPUTER SERVICES--3.6%
Symantec Corporation (a) 1,000,000 $ 16,937,500
Paymentech, Inc. (a) 27,300 644,963
--------------
17,582,463
</TABLE>
16
THE OAKMARK SMALL CAP FUND
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--97.5% (CONT.)
COMPUTER SYSTEMS--5.0%
Micron Electronics, Inc. (a) 1,500,000 $ 17,625,000
Sequent Computer Systems, Inc. (a) 750,000 6,796,875
--------------
24,421,875
MANAGED CARE SERVICES--1.7%
First Health Group Corp. (a) 500,000 $ 8,031,250
AUTOMOTIVE--5.5%
SPX Corporation (a) 250,000 $ 12,609,375
Standard Motor Products, Inc. 500,000 10,343,750
Stoneridge, Inc. (a) 268,600 3,726,825
--------------
26,679,950
TRANSPORTATION SERVICES--2.5%
Teekay Shipping Corporation (b) 750,000 $ 12,375,000
MACHINERY & INDUSTRIAL PROCESSING--2.5%
Northwest Pipe Company (a)(c) 400,000 $ 6,600,000
Graco, Inc. 250,000 5,515,625
--------------
12,115,625
OTHER INDUSTRIAL GOODS & SERVICES--14.1%
H.B. Fuller Company 300,000 $ 17,681,250
Columbus McKinnon Corporation (c) 700,000 14,087,500
MagneTek, Inc. (a) 1,500,000 12,562,500
Ferro Corporation 500,000 12,375,000
Watts Industries, Inc., Class A 500,000 6,781,250
Binks Sames Corporation (c) 250,000 4,625,000
UCAR International, Inc. (a) 11,500 162,437
--------------
68,274,937
REAL ESTATE--7.2%
Catellus Development Corporation (a) 1,250,000 $ 16,718,750
Prime Hospitality Corp. (a) 1,250,000 12,421,875
Trammell Crow Company (a) 308,000 5,698,000
--------------
34,838,625
DIVERSIFIED CONGLOMERATES--3.4%
U.S. Industries, Inc. 1,000,000 $ 16,437,500
--------------
TOTAL COMMON STOCKS (COST: $494,221,462) 473,411,232
SHORT TERM INVESTMENTS--2.3%
COMMERCIAL PAPER--1.0%
General Electric Capital Corporation, 5.00%
due 4/1/1999 $5,000,000 $ 5,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $5,000,000) 5,000,000
</TABLE>
THE OAKMARK SMALL CAP FUND
17
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS--2.3% (CONT.)
REPURCHASE AGREEMENTS--1.3%
State Street Repurchase Agreement, 4.88%
due 4/1/1999 $6,347,000 $ 6,347,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $6,347,000) 6,347,000
TOTAL SHORT TERM INVESTMENTS (COST: $11,347,000) 11,347,000
Total Investments (Cost $505,568,462)--99.8% (d) $ 484,758,232
Other Assets In Excess Of Other Liabilities--0.2% 898,742
--------------
TOTAL NET ASSETS--100% $ 485,656,974
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
(c) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(d) At March 31, 1999, net unrealized depreciation of $20,810,230, for
federal income tax purposes consisted of gross unrealized
appreciation of $43,456,425 and gross unrealized depreciation of
$64,266,655.
18
THE OAKMARK SMALL CAP FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
REPORT FROM CLYDE S. MCGREGOR, PORTFOLIO MANAGER
........................................................................
[PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (3/31/99) AS COMPARED TO THE LIPPER BALANCED FUND
INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK LIPPER BALANCED
EQUITY & INCOME FUND FUND INDEX
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,290 $10,662
4/96 $10,630 $10,778
7/96 $10,660 $10,665
10/96 $11,290 $11,449
1/97 $12,255 $12,197
4/97 $12,429 $12,244
7/97 $14,289 $13,909
9/97 $14,810 $14,005
12/97 $14,941 $14,243
3/98 $16,233 $15,370
6/98 $16,320 $15,599
9/98 $15,191 $14,701
12/98 $16,792 $16,392
3/99 $16,792 $16,655
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
TOTAL RETURN* THROUGH 3/31/99
RETURN LAST FROM FUND INCEPTION
3/31/99 NAV $15.03 3 MOS. 11/1/95
- ----------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK EQUITY & INCOME
FUND 0.0% 16.4%
Lipper Balanced Fund Index** 1.6% 16.1%
Lehman Govt./ Corp. Bond** -1.2% 7.0%
S&P 500 w/ inc** 5.0% 28.5%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
whose composition is different from the Fund. The Lipper Balanced Fund Index
Composite is comprised of 30 balanced funds. The Lehman Govt./Corp. Bond Index
includes the Lehman Government and Lehman Corporate indices. The S&P 500 is a
broad market-weighted average dominated by blue-chip stocks. Past performance is
no guarantee of future results.
UNCHANGED
The quarter ended March 31 produced an odd outcome for The Oakmark Equity and
Income Fund: the Fund's price was unchanged over the period. This outcome is
probably a good analogy for our investment approach at Harris Associates. Though
the stock market's willingness to place incredible valuations on a few
businesses continues to surprise us, we are not shaken (or stirred). We are
confident that our reasons for owning the companies in which we have invested
for our clients will stand the test of time. Fads are, by definition, short-term
in nature and we are secure in our belief that much of the market's current
activity is simply a fad.
It is interesting, however, to note the frustration evident at several companies
held in the Fund. Juno Lighting was one of my initial purchases. While a
profitable investment, the stock price has never seemed to reflect the company's
15% net profit margins and its wonderful balance sheet. In the last week of the
quarter, Juno's management announced that the company would offer its
shareholders the opportunity to approve a public recapitalization whereby 87% of
the stock would be retired at $25/share. This announcement has produced a solid
increase in the price of Juno's stock, but we believe that the price would have
been much higher in a different environment for smaller stocks.
As I began to write this letter, one of my partners walked in to tell me a story
about one of his clients. The family's magnificent house has been put up for
sale at a comparatively modest price. The low price derives from the home's
obscure location. Here in Chicago, the same house would sell for many times its
current offering price. In real estate, the old maxim is "location, location,
location." For at least the last 18 months, the same has held true in the stock
market. If one's holdings were concentrated in the mega-cap or Internet
"location," all has been heavenly, while other locations have stayed on the
bargain table.
THE OAKMARK EQUITY AND INCOME FUND
19
<PAGE>
........................................................................
I see no reason for this analogy to hold for long. Unlike real estate, capital
is mobile and will flow quickly to higher return spaces. Furthermore, businesses
are dynamic, creating and destroying value daily. Investment bankers are working
overtime to bring capital into the sectors of the market which are "hot" today,
thereby ensuring intense competition (and lower returns) for those sectors in
the near future. Your Fund is invested in less trendy areas. But be assured that
these businesses have managers who are committed to increasing their company's
value per share and who perceive their shareholders to be their partners in this
effort. History teaches us that investments in these kinds of companies will
handsomely reward patient investors.
BONDS MASQUERADING AS STOCKS
For much of our country's economic history, dividends have provided half of the
total return from owning common stocks. That percentage has shrunk over the last
15 years, due to the combination of unusually strong price returns to stocks and
below average dividend growth. Ibbotson Associates calculates that for the
period from 1925 through 1998, dividends contributed 40% of the total return to
equities. Were that percentage to hold going into the future, equity investors
would be sorely disappointed. With dividend yields for "the market" under 1.5%
today, investors obviously expect to make almost all of their return through
capital appreciation.
My goal in managing The Equity and Income Fund is to produce as much income as
possible without sacrificing total return to artificial and unnecessary
restrictions. Unlike other income-oriented funds, Equity and Income will hold
stocks that do not currently pay a dividend. In fact, more than 20% of the
current equity holdings do not pay a dividend and the most important stock in
the Fund's history, Lexmark International, shares that "defect." While the
current group of fixed income holdings all have high cash yields, the Fund
achieved its highest return in this segment through an Everen Capital issue
which began its life as a "payment in kind" security.
Nevertheless, I am happy to report that the schizophrenic stock market
environment has begun to bring forth a good flow of attractive income-oriented
ideas. In fact, the addition of several of these "bonds masquerading as stocks"
to the equity portfolio has given the Fund its fully invested appearance.
Real estate equities often provide some of the highest income yields, and this
holds true today. The highest yielding equities in the Fund are real estate
investment trusts, Legacy Hotels and Amli Residential Properties. Amli joined
the portfolio in last year's second calendar quarter. I like this REIT because
of management's clever use of outside capital to leverage their brand name. In
addition, Amli probably has the most persistent pattern of insider buying of any
entity we track. We expect regular increases in the dividend from current levels
to add to the already substantial income return. Legacy Hotels, a group of
Canadian hotel properties, is a more recent addition to the Fund. Selling for
less than stated book value with below average leverage and rising earnings,
Legacy almost defines opportunity for the income-oriented value investor.
My third and final example comes from the financial services sector. IPC
Holdings, along with PartnerRe, comprises the Fund's commitment to the
Bermuda-based reinsurance industry. IPC specializes in reinsuring property
catastrophe risk, generally the most profitable segment in the reinsurance
industry. The stock sells at a discount to its stated book value and its
dividend yield with year-end extra distributions should approach 10%.
Several reports ago I asked, "What is a poor income manager to do?" The answer
then, as now, is to continue to probe all sectors of the market while not
compromising our standards.
Please feel free to e-mail me with your comments, questions, or ideas for
quarterly reports.
[SIGNATURE]
CLYDE S. MCGREGOR
Portfolio Manager
[email protected]
April 6, 1999
20
THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
SHARES HELD MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
EQUITY AND EQUIVALENTS--61.7%
FOOD & BEVERAGE--2.2%
UST Inc. 50,000 $ 1,306,250
OTHER CONSUMER GOODS & SERVICES--3.6%
H&R Block, Inc. 33,000 $ 1,563,375
National Presto Industries, Inc. 17,000 602,437
--------------
2,165,812
BANKS & THRIFTS--2.2%
Bank One Corporation 23,674 $ 1,303,550
INSURANCE--3.2%
IPC Holdings, Ltd. (b) 50,000 $ 993,750
PartnerRe Ltd. (b) 23,000 931,500
--------------
1,925,250
OTHER FINANCIAL--2.0%
Heller Financial, Inc. 50,000 $ 1,175,000
TV PROGRAMMING--2.7%
AT&T Corp.-Liberty Media Group, Class A (a) 30,800 $ 1,620,850
PUBLISHING--2.1%
Lee Enterprises, Inc. 43,900 $ 1,273,100
INFORMATION SERVICES--3.0%
The Dun & Bradstreet Corporation 51,500 $ 1,834,688
COMPUTER SERVICES--9.7%
First Data Corporation 55,000 $ 2,351,250
Electronic Data Systems Corporation 37,500 1,825,781
The Reynolds and Reynolds Company, Class A 87,500 1,662,500
--------------
5,839,531
DATA STORAGE--4.8%
Imation Corp. (a) 175,000 $ 2,887,500
MEDICAL PRODUCTS--3.2%
Sybron International Corporation (a) 78,000 $ 1,950,000
AUTOMOTIVE--3.5%
Lear Corporation (a) 50,000 $ 2,134,375
TRANSPORTATION SERVICES--1.5%
Tidewater Inc. 35,000 $ 905,625
BUILDING MATERIALS & CONSTRUCTION--3.6%
Juno Lighting, Inc. 96,300 $ 2,160,731
</TABLE>
THE OAKMARK EQUITY AND INCOME FUND
21
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
EQUITY AND EQUIVALENTS--61.7% (CONT.)
OTHER INDUSTRIAL GOODS & SERVICES--3.1%
Premark International, Inc. 56,500 $ 1,860,969
REAL ESTATE--9.2%
Amli Residential Properties Trust 100,000 $ 2,062,500
Catellus Development Corporation (a) 137,728 1,842,112
Legacy Hotels Real Estate Investment Trust
(b) 350,000 1,634,647
--------------
5,539,259
DIVERSIFIED CONGLOMERATES--2.1%
U.S. Industries, Inc. 78,000 $ 1,282,125
--------------
TOTAL EQUITY AND EQUIVALENTS (COST: $32,163,788) 37,164,615
FIXED INCOME--34.5%
PREFERRED STOCK--5.7%
BANKS & THRIFTS--4.9%
Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 718,437
BBC Capital Trust I, Preferred, 9.50% 28,000 703,500
PennFirst Capital Trust I, Preferred,
8.625% 70,000 700,000
RBI Capital Trust I, Preferred, 9.10% 42,500 425,000
Fidelity Capital Trust I, Preferred, 8.375% 43,500 418,688
--------------
2,965,625
BROADCASTING & CABLE TV--0.8%
MediaOne Finance Trust III, Preferred,
9.04% 20,000 $ 506,250
TOTAL PREFERRED STOCK (COST: $3,470,738) 3,471,875
CORPORATE BONDS--3.5%
RETAIL--1.0%
Ugly Duckling Corporation, 12.00% due
10/15/2003, Subordinated Debenture $650,000 $ 585,000
AEROSPACE & AUTOMOTIVE--0.3%
Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 159,188
Coltec Industries, Inc., 9.75% due
11/1/1999 25,000 26,500
--------------
185,688
BUILDING MATERIALS & CONSTRUCTION--0.3%
USG Corporation, 9.25% due 9/15/2001,
Senior Notes Series B $150,000 $ 159,375
UTILITIES--0.4%
Midland Funding Corporation, 11.75% due
7/23/2005 $200,000 $ 229,250
</TABLE>
22
THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME--34.5% (CONT.)
OTHER INDUSTRIAL GOODS & SERVICES--1.5%
Scotsman Industries, Inc., 8.625% due
12/15/2007, Senior Subordinated Note $615,000 $ 619,612
UCAR Global Enterprises Inc., 12.00% due
1/15/2005, Senior Subordinated Note $300,000 315,750
--------------
935,362
TOTAL CORPORATE BONDS (COST: $2,001,836) 2,094,675
GOVERNMENT AND AGENCY SECURITIES--25.3%
U.S. GOVERNMENT BONDS--24.8%
United States Treasury Notes, 7.50% due
5/15/2002 $7,000,000 $ 7,466,130
United States Treasury Notes, 7.875% due
11/15/2004 4,750,000 5,336,958
United States Treasury Notes, 6.25% due
2/15/2007 2,000,000 2,105,160
--------------
14,908,248
U.S. GOVERNMENT AGENCIES--0.5%
Federal Home Loan Bank, 6.405% due
4/10/2001, Consolidated Bond $300,000 $ 306,453
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $15,056,019) 15,214,701
TOTAL FIXED INCOME (COST: $20,528,593) 20,781,251
SHORT TERM INVESTMENTS--2.9%
COMMERCIAL PAPER--1.7%
General Electric Capital Corporation, 5.00%
due 4/1/1999 $1,000,000 $ 1,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $1,000,000) 1,000,000
REPURCHASE AGREEMENTS--1.2%
State Street Repurchase Agreement, 4.88%
due 4/1/1999 $716,000 $ 716,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $716,000) 716,000
TOTAL SHORT TERM INVESTMENTS (COST: $1,716,000) 1,716,000
Total Investments (Cost $54,408,381)--99.1% (c) $ 59,661,866
Other Assets In Excess Of Other Liabilities--0.9% 550,352
--------------
TOTAL NET ASSETS--100% $ 60,212,218
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents a foreign domiciled corporation.
(c) At March 31, 1999, net unrealized appreciation of $5,253,568, for
federal income tax purposes consisted of gross unrealized
appreciation of $6,715,152 and gross unrealized depreciation of
$1,461,584.
THE OAKMARK EQUITY AND INCOME FUND
23
<PAGE>
THE OAKMARK INTERNATIONAL FUND
REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
........................................................................
[PHOTO] [PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS
INCEPTION (9/30/92) TO
PRESENT (3/31/99) COMPARED TO THE MORGAN STANLEY
WORLD EX U.S. INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK M.S. WORLD EX
INTERNATIONAL FUND U.S. INDEX
<S> <C> <C>
9/92 $10,000 $10,000
10/92 $9,800 $9,505
1/93 $10,833 $9,621
4/93 $12,105 $11,764
7/93 $12,608 $12,233
10/93 $14,454 $12,981
1/94 $16,488 $13,786
4/94 $15,382 $13,664
7/94 $15,195 $13,899
10/94 $15,122 $14,265
1/95 $13,698 $13,124
4/95 $14,399 $14,437
7/95 $15,507 $14,911
10/95 $14,659 $14,248
1/96 $16,248 $15,312
4/96 $18,162 $16,144
7/96 $17,635 $15,471
10/96 $18,310 $15,843
1/97 $19,909 $15,761
4/97 $21,149 $16,144
7/97 $22,960 $18,426
9/97 $23,283 $18,027
12/97 $20,097 $16,637
3/98 $22,994 $19,083
6/98 $20,253 $19,233
9/98 $16,332 $16,404
12/98 $18,688 $19,759
3/99 $21,258 $20,070
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN* THROUGH 3/31/99
TOTAL RETURN FROM FUND INCEPTION
3/31/99 NAV $12.41 LAST 3 MOS. 9/30/92
- ------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK INTERNATIONAL FUND 13.8% 12.3%
Morgan Stanley World ex U.S.
w/inc.** 1.6% 11.3%
Morgan Stanley EAFE w/ inc** 1.4% 11.3%
Lipper Analytical
International Fund Index** 1.3% 12.1%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
whose composition is different from the Fund. The Morgan Stanley World ex U.S.
Index includes 19 country sub-indexes. The Morgan Stanley EAFE Free Index refers
to Europe, Asia and the Far East and includes 18 country sub-indexes. The Lipper
International Fund Index includes 30 mutual funds that invest in securities
whose primary markets are outside the United States. Past performance is no
guarantee of future results.
FELLOW SHAREHOLDERS,
The Oakmark International Fund had an outstanding first calendar quarter
returning 13.8%. This compares to our peers and the EAFE index return of just
over 1%. The average annual return since inception is 12.3%, which compares
favorably to EAFE at 11.3% and our international peers averaging 12.1%.
This quarter's strong return is a continuation of the Fund's rebound in
performance that began in September of 1998. From the fall of 1997 to the fall
of 1998, the Fund's relatively weak performance was due primarily to our
strategy of increasing our investments in areas such as Hong Kong, Singapore,
Brazil and Britain. Their markets performed poorly yet provided us with
irresistible value. Currently, we are reaping the rewards of our patience and,
what is even more exciting, the portfolio still represents excellent value and
future opportunity.
"TIMING" DOES NOT PAY!
We have long written in this space why one should adopt the stance of an
investor versus that of a trader or market timer. In terms of cash outflow from
the Fund, the times of greatest discontent, as measured by shareholders leaving
the fund, invariably occurs at the bottom of a cycle. During the Fund's near
seven-year history, we have experienced two very weak periods, in 1994 and 1998.
Near the end of each period, we experienced substantial cash outflows.
Subsequently, in each case, sustained periods of strong performance followed.
The result: some investors pulled out at a low point, made their paper losses
24
THE OAKMARK INTERNATIONAL FUND
<PAGE>
........................................................................
real, and ultimately missed the subsequent huge recovery! Because of the
abruptness of these cycles, DISCIPLINE is the most important characteristic for
true, long-term value investors.
The Fund's recent recovery has been extremely broad-based. In the developed
markets, stocks such as UK advertising companies SAATCHI AND SAATCHI and
CORDIANT COMMUNICATIONS GROUP (BATES ADVERTISING) have done extremely well,
returning 51% and 48% respectively since the beginning of the year. In Brazil,
UNIBANCO and all of our telecom stocks have soared. And in Hong Kong, one of our
favorite Asian-based companies, retailer GIORDANO was up more than 60% over the
last three months! When this stock was trading below HK$1.00, investors focused
on its uncertain short-term prospects while ignoring its liquid balance sheet
and its enviable market position, which improved every day as its competitors
continued to go bankrupt. After a tremendous run, the shares are currently
trading around HK$2.50, still a big discount to our estimate of business value
of HK$4.00. The fact that Giordano is still significantly undervalued even after
this run up gives you an idea of the bargains that were available in Asia over
the past two years.
THE TRUTH ABOUT CORPORATE RESTRUCTURING
Today, many pundits are encouraging investors to jump into the continental
European markets and, to some degree, Japan, because both areas are supposedly
undertaking massive corporate restructuring plans similar to the restructuring
plans of U.S. companies in the 80s and 90s. However, proponents of this theme
are ignoring some major differences. First, our own corporate revolution
occurred because shareholders became more proactive toward underperforming
managements and larger concentrations of private pools of money took larger
stakes of corporate America. Second, corporate America had the will and the
legal ability to truly restructure.
Taking the second point first, a lot of "restructuring" simply means closing
plants, laying off people, or selling off non-performing businesses. In the
U.S., this is relatively easy to do. Though it seems mean-spirited in the short
term, it is an example of what economist Joseph Schumpeter called "creative
destruction." In order to move forward, it becomes necessary to tear down the
past. Though this can be accomplished in the United Kingdom and in some of the
smaller European countries, it is extremely difficult to do in the real economic
engines of Europe, such as France, Germany, and Spain. We have seen some
exceptions but the fact remains that there are prohibitive economic and
political costs to laying off excess workers. In many cases, investors in
"restructuring stories" are underestimating the time and costs involved and are
overestimating management's tenacity and ability to implement.
On a more positive note, activist shareholders are starting to appear on
occasion. As private pensions and the mutual fund industry take root in Europe,
there is more owner pressure building. However, it's still at an early stage.
From an investment perspective, true restructuring stories are more the
exception than the rule. And, because of the cultural differences, it will not
be a rapid transformation in some places.
There have been and will continue to be extremely successful restructurings in
Europe and Japan. The Oakmark International Fund has benefited greatly over the
past seven years from value being unlocked in Europe by aggressive
restructuring, including such standouts as Volvo, Chargeurs, Philips
Electronics, and Vivendi. The important difference now is that, typically, much
of the potential restructuring is already fully reflected in the share price.
IN THE FUTURE ...
Going forward, we remain extremely bullish about the Fund's prospects. We are
excited about the value and quality of our Fund's underlying investments, and
are heartened that money is starting to flow into many of the forgotten markets
of the Pacific Rim, Latin America and the United Kingdom, where we are heavily
invested. As always, we appreciate your continued support.
[SIGNATURE]
DAVID G. HERRO
Portfolio Manager
[email protected]
[SIGNATURE]
MICHAEL J. WELSH
Portfolio Manager
[email protected]
April 7, 1999
THE OAKMARK INTERNATIONAL FUND
25
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--MARCH 31, 1999
........................................................................
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
% OF FUND NET ASSETS
<S> <C>
EUROPE 44.1%
Great Britain 21.8%
*France 8.3%
*Finland 6.6%
*Italy 3.0%
Sweden 1.6%
*Netherlands 1.5%
Norway 0.8%
*Germany 0.3%
Switzerland 0.2%
PACIFIC RIM 32.0%
Japan 8.0%
Korea 7.1%
Singapore 6.9%
Hong Kong 6.3%
New Zealand 3.6%
Malaysia 0.1%
LATIN AMERICA 18.5%
Brazil 10.0%
Panama 4.4%
Argentina 4.1%
*Euro currency countries comprise 19.7% of the
Fund.
</TABLE>
26
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.6%
CONSUMER NON-DURABLES--7.2%
Citizen Watch Co. (Japan) Watch Manufacturer and Retailer 4,216,000 $ 29,194,950
Fila Holding S.p.A. (Italy), (b)(e) Athletic Footwear Manufacturing 2,649,800 21,860,850
The Swatch Group AG (Switzerland) Watch Manufacturer 2,000 1,273,324
--------------
52,329,124
FOOD & BEVERAGE--5.4%
Quilmes Industrial SA (Argentina), (b) Brewer 3,130,100 $ 29,540,319
Lotte Chilsung Beverage Company Manufacturer of Soft Drinks, Juices, &
(Korea), (e) SportDrinks 123,000 5,212,714
Lotte Confectionery Company (Korea) Confection Manufacturer 65,270 4,782,211
--------------
39,535,244
RETAIL--4.5%
Giordano International Limited (Hong East Asian Clothing Retailer &
Kong), (e) Manufacturer 69,304,000 $ 21,463,269
Somerfield plc (Great Britain) Food Retailer 2,175,000 11,149,128
--------------
32,612,397
HOUSEHOLD PRODUCTS--0.6%
Hunter Douglas N.V. (Netherlands) Manufacturer of Window Coverings 141,000 $ 4,116,316
OTHER CONSUMER GOODS & SERVICES--6.4%
Canon, Inc. (Japan) Office and Video Equipment 1,097,000 $ 27,143,605
Mandarin Oriental International Hotel Management
Limited (Singapore) 30,539,000 19,850,350
--------------
46,993,955
BANKS--11.3%
Uniao de Bancos Brasileiros S.A. Major Brazilian Bank
(Brazil), (c) 1,801,900 $ 34,686,575
Banco Latinoamericano de Multinational Bank
Exportaciones, S.A., Class E
(Panama), (b)(e) 1,235,100 32,112,600
United Overseas Bank Ltd., Foreign Commercial Banking
Shares (Singapore) 2,543,000 15,907,559
--------------
82,706,734
</TABLE>
THE OAKMARK INTERNATIONAL FUND
27
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.6% (CONT.)
MARKETING SERVICES--10.0%
Cordiant Communications Group plc Advertising Services
(Great Britain), (e) 17,982,578 $ 46,017,088
Saatchi & Saatchi plc (Great Britain) Advertising Services 8,007,578 26,793,758
--------------
72,810,846
BROADCASTING & PUBLISHING--5.4%
Europe 1 Communication (France) Television Production 67,020 $ 16,935,149
Singapore Press Holdings Ltd., Newspaper Publisher
(Singapore) 1,316,000 14,634,926
Schibsted ASA (Norway) Newspaper Publisher 500,100 5,957,426
Woongjin Publishing Company (Korea) Publisher 102,862 2,041,312
--------------
39,568,813
TELECOMMUNICATIONS--4.8%
Telesp Celular Participacoes S.A. Telecommunications
(Brazil) 1,452,700,000 $ 8,207,967
SK Telecom Co. Ltd. (Korea) Telecommunications 10,706 7,102,432
Telesp Participacoes S.A. (Brazil) Telecommunications 541,100,000 7,098,979
Tele Sudeste Celular Participacoes Telecommunications
S.A. (Brazil) 1,351,100,000 4,805,662
Embratel Participacoes S.A. (Brazil), Telecommunications
(a) 401,100,000 3,388,886
Tele Centro Sul Participacoes S.A. Telecommunications
(Brazil) 501,100,000 2,337,493
Telemig Celular Participacoes S.A. Telecommunications
(Brazil), (a) 1,372,600,000 1,720,752
Technology Resources Industries Berhad Telecommunications
(Malaysia) 1,485,000 515,842
--------------
35,178,013
MEDICAL PRODUCTS--1.6%
Getinge Industrier AB (Sweden) Medical Instruments Manufacturer 782,000 $ 11,521,003
AEROSPACE--2.1%
Rolls-Royce plc (Great Britain) Jet Engines 3,588,552 $ 15,237,471
</TABLE>
28
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.6% (CONT.)
OIL & NATURAL GAS--1.9%
ISIS (France), (a) Oil Services 208,250 $ 13,667,830
CHEMICALS--4.9%
Fernz Corporation Limited (New Agricultural & Industrial Chemical
Zealand), (e) Producer 8,727,554 $ 26,607,215
European Vinyls Corporation PVC Manufacturer
International N.V.(Netherlands),
(e) 956,199 6,927,060
Nagase & Co., Ltd. (Japan) Chemical Wholesaler 579,000 2,371,448
--------------
35,905,723
COMPONENTS--2.0%
Varitronix International Limited (Hong Liquid Crystal Displays
Kong) 9,588,000 $ 14,970,617
MACHINERY & METAL PROCESSING--5.1%
The Rauma Group (Finland) Pulp Machinery 2,033,343 $ 23,634,422
Outokumpu Oyj (Finland) Metal Producer 1,295,000 13,372,082
--------------
37,006,504
MINING AND BUILDING MATERIALS--1.8%
Keumkang Ltd. Building Materials
(Korea), (e) 500,460 $ 13,255,868
OTHER INDUSTRIAL GOODS & SERVICES--14.2%
Tomkins plc (Great Britain) Industrial Management Company 10,060,768 $ 37,115,495
Chargeurs SA (France), (e) Wool Production Holding Company 559,438 29,827,225
Charter plc (Great Britain) Welding Products Manufacturer 2,956,014 17,443,426
Kone Corporation, Class B (Finland) Elevators 103,870 10,950,164
Dongah Tire Industry Company (Korea), Tire Manufacturer
(e) 166,290 5,841,156
Buderus AG (Germany), (a) Industrial Manufacturing Firm 7,000 2,263,055
--------------
103,440,521
</TABLE>
THE OAKMARK INTERNATIONAL FUND
29
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
SHARES HELD/
PAR VALUE MARKET VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--94.6% (CONT.)
STEEL--1.6%
Usinas Siderurgicas de Minas Gerais Steel Production
S.A., Preferred Class A (Brazil),
(a)(e) 6,476,370 $ 11,064,586
Pohang Iron & Steel Company Ltd. Manufactures Steel Products
(Korea) 14,000 778,158
--------------
11,842,744
DIVERSIFIED CONGLOMERATES--3.8%
Tae Young Corporation (Korea), (e) Heavy Construction 371,380 $ 12,530,670
First Pacific Company Ltd. (Hong Kong) Diversified Operations 16,448,000 9,869,437
Berisford plc (Great Britain) Diversified Operations 1,510,700 5,390,244
--------------
27,790,351
TOTAL COMMON STOCKS (COST: $829,995,438) 690,490,074
SHORT TERM INVESTMENTS--1.2%
REPURCHASE AGREEMENTS--1.2%
State Street Repurchase Agreement,
4.88% due 4/1/1999 $8,711,000 $ 8,711,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $8,711,000) 8,711,000
TOTAL SHORT TERM INVESTMENTS (COST: $8,711,000) 8,711,000
Total Investments (Cost $838,706,438)--95.8% (f) $699,201,074
Foreign Currencies (Proceeds $3,136,478)--0.4% $ 3,152,865
Other Assets In Excess Of Other Liabilities--3.8% (d) 27,645,330
--------------
TOTAL NET ASSETS--100% $729,999,269
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents a Global Depository Receipt.
(d) Includes portfolio and transaction hedges.
(e) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(f) At March 31, 1999, net unrealized depreciation of $139,488,976,
for federal income tax purposes consisted of gross unrealized
appreciation of $76,836,828 and gross unrealized depreciation of
$216,325,804.
30
THE OAKMARK INTERNATIONAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
........................................................................
[PHOTO] [PHOTO]
- --------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK
INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95)
TO PRESENT (3/31/99) AS COMPARED TO THE MORGAN STANLEY
WORLD EX U.S. INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE OAKMARK INTERNATIONAL M.S. WORLD EX
SMALL CAP FUND U.S. INDEX
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,530 $10,747
4/96 $11,340 $11,331
7/96 $11,040 $10,858
10/96 $11,410 $11,120
1/97 $12,142 $11,062
4/97 $12,152 $11,310
7/97 $13,253 $12,933
9/97 $12,672 $12,652
12/97 $9,642 $11,677
3/98 $11,429 $13,394
6/98 $9,892 $13,499
9/98 $8,211 $11,513
12/98 $10,529 $13,868
3/99 $13,118 $14,086
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN* THROUGH 3/31/99
TOTAL RETURN FROM FUND INCEPTION
3/31/99 NAV $10.74 LAST 3 MOS. 11/1/95
- ------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK INTERNATIONAL
SMALL CAP FUND 24.6% 8.3%
Morgan Stanley World ex U.S.
w/inc.** 1.6% 10.6%
Lipper Analytical
International Small Cap Fund
Average** 5.0% 10.6%
Micropal International Small
Co. Fund Index** 5.3% 10.4%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of indexes or
funds whose composition is different from the Fund. The Morgan Stanley World ex
U.S. Index includes 19 country sub-indexes. The Lipper International Small Cap
Fund Average includes 69 mutual funds that invest in securities whose primary
markets are outside the United States. The Micropal Int'l Small Co. Fund Index
sector average is an unweighted index comprised of all funds within the
international small company fund sector. Past performance is no guarantee of
future results.
FELLOW SHAREHOLDERS,
We are pleased to report that The Oakmark International Small Cap Fund has
produced a return of 24.6% for the first quarter of 1999. This compares very
favorably to our peers, which on average returned around 3%. The Morgan Stanley
Small Cap World ex-US index returned 2.8%. This performance is a continuation of
the strong rebound from a weak period, which ended in the third quarter of 1998.
Since the end of the one-year "drought" in September, 1998, your Fund is up over
59%. Though this rate of appreciation is not sustainable, we remain very
enthusiastic about the future of this Fund and the underlying value.
DEATH TO DIVERSIFICATION???
On a recent trip to the west coast of the U.S., we met with investment advisors
to discuss the great opportunities we are finding for our international funds.
While our remarks were well received, the advisors were not eager to invest.
Why? Because, we were told, their clients, now are only interested in what has
been hot over the last few years-- U.S. big cap, growth and technology stocks.
We warn our clients against this type of thinking. Remember, past performance is
not always a good indicator of future performance.
A rowboat capsizes when all of its passengers lean in the same direction and we
have seen the same happen in investment markets. When the majority of investors
flee from emerging markets, foreign markets, U.S. small caps and U.S. value
stocks, long-term investors
THE OAKMARK INTERNATIONAL SMALL CAP FUND
31
<PAGE>
........................................................................
should start investigating opportunities. Do not fall into the trap of investing
in an asset class because it has performed well in the recent past or because
everyone else is doing it.
As shown by our Fund's recent performance, recovery can happen when it is least
expected. We are constantly asked about our short-term market outlook, and our
answer is always the same: we gauge our optimism about future prospects solely
on the values we are finding in the markets. As value investors, we are
convinced that price and value converge in the long run, but it is the timing
that is often uncertain. Based on the value of companies in the portfolio today,
we are extremely optimistic that long-term investors will do well.
"SCARY" EMERGING MARKETS?
Another theme in the investment world today is that it is the riskiness of
investing in emerging markets. This line of thinking completely ignores a factor
near and dear to our hearts: PRICE.
In the maximum bullishness of 1993, prices told you that market growth was
limitless. In the days of extreme pessimism in 1997-98, share prices implied
that markets in Asia and Latin America would never grow again. What do current
share prices tell us about expectations? Emerging markets went from "dot.com"
euphoria status to shunned pariah in five years. Investors must remember that it
is the price you pay for a business that is the biggest determinant of the risk
you are taking.
As we have written before, the destruction in the emerging markets over the past
two years has produced some extremely positive long-term changes, the most
important of which is that these markets are now more open than ever and less
controlled by political powers. The extremely attractive long-term demographic
trends and growth opportunities are still intact--companies can now take
advantage of these opportunities from a more solid, sustainable base. And, best
of all, we can still buy these companies at fractions of what they were selling
for five years ago!
It is important to note, as we have in the past, that the share prices of many
emerging market companies (especially in Asia) deserved the beating they took.
Poor underlying businesses, bad balance sheets, and weak management are some of
the reasons. It is our job as analysts to find the ones that did not deserve it.
One of your Fund's largest holdings, HAW PAR, is one such company. It is a
holding company that has some leisure businesses but is best known for its
analgesic rub, "Tiger Balm" (we encourage you to try it for aches and pains--it
works). Its largest asset is a large stake in UNITED OVERSEAS BANK, one of
Singapore's best run financial institutions (and a holding of The Oakmark
International Fund). Though it appreciated in price over the last 6 months, UOB
is still considerably cheaper than most European banks and, in our opinion, is a
significantly better bank. It was not hoodwinked by BCCI, Russian government
debt, Long-Term Capital Management or any of the other disasters du jour that
European banks are so famous for collecting. And, even in a period of strong
asset deflation, their loan loss experience has been very manageable. Even
better for shareholders of International Small Cap, the large appreciation in
UOB's share price has really yet to be recognized by the market in terms of Haw
Par's share price.
LOOKING FORWARD
Despite the nice price appreciation the Fund has experienced in the past few
quarters, we are still very excited about the values that have yet to be
recognized. We appreciate your continued support.
[SIGNATURE]
DAVID G. HERRO
Portfolio Manager
[email protected]
[SIGNATURE]
MICHAEL J. WELSH
Portfolio Manager
[email protected]
April 7, 1999
32
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--MARCH 31, 1999
........................................................................
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
% OF FUND NET ASSETS
<S> <C>
PACIFIC RIM 48.8%
Japan 12.8%
Hong Kong 9.1%
Australia 7.1%
Korea 6.5%
Singapore 4.6%
New Zealand 4.1%
Thailand 2.4%
Philippines 2.2%
EUROPE 34.4%
Great Britain 24.6%
*France 5.2%
*Germany 2.7%
Switzerland 1.3%
*Finland 0.4%
Poland 0.1%
*Portugal 0.1%
LATIN AMERICA 4.7%
Brazil 3.9%
Panama 0.8%
OTHER COUNTRIES 2.2%
Canada 2.2%
*Euro currency countries comprise 8.4% of the
Fund.
</TABLE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
33
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED)
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--90.1%
CONSUMER NON-DURABLES--6.2%
Royal Doulton plc (Great Britain), (d) Tableware and Giftware 2,940,000 $ 4,461,831
TAG Heuer International SA Watch Manufacturer
(Switzerland), (b) 154,700 1,295,613
Designer Textiles (NZ) Limited (New Knit Fabrics
Zealand), (d) 2,960,000 490,778
Kingmaker Footwear Holdings (Hong Athletic Footwear Manufacturer
Kong) 484,000 58,708
--------------
6,306,930
FOOD & BEVERAGE--5.0%
Hite Brewery Company (Korea) Brewer 157,450 $ 2,797,400
Alaska Milk Corporation (Philippines), Milk Producer
(a) 39,557,000 2,245,817
--------------
5,043,217
RETAIL--15.1%
Carpetright plc (Great Britain) Carpet Retailer 770,000 $ 4,438,098
House Of Fraser Plc (Great Britain) Department Store 2,810,000 3,561,344
D.F.S. Furniture Company plc (Great Furniture Retailer & Manufacturer
Britain) 570,000 2,374,283
Dylex Limited (Canada), (a) Specialty Retail Operator 845,000 2,267,141
Giordano International Limited (Hong East Asian Clothing Retailer &
Kong) Manufacturer 4,312,000 1,335,415
Paris Miki Inc. (Japan) Optical Supplies Retailer 22,000 743,149
Jusco Stores (Hong Kong) Co., Limited Department Stores
(Hong Kong) 6,412,000 604,008
--------------
15,323,438
OFFICE EQUIPMENT--3.7%
Neopost SA (France), (a) Mailroom Equipment Supplier 230,000 $ 3,705,442
OTHER CONSUMER GOODS & SERVICES--5.6%
CDL Hotels International Limited (Hong Hotel Operator
Kong) 6,996,691 $ 2,166,857
CeWe Color Holding AG (Germany) Photo Equipment & Supplies 10,400 1,956,629
Sanford Limited (New Zealand) Fisheries 769,840 1,502,884
--------------
5,626,370
</TABLE>
34
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--90.1% (CONT.)
BANKS--0.8%
Banco Latinoamericano de Multinational Bank
Exportaciones, S.A., Class E
(Panama), (b) 31,000 $ 806,000
OTHER FINANCIAL--9.3%
Ichiyoshi Securities (Japan) Stock Broker 1,787,000 $ 4,029,295
JCG Holdings Ltd. (Hong Kong) Investment Holding Company 12,463,000 3,538,112
Lambert Fenchurch Group plc (Great Insurance Broker
Britain) 1,696,000 1,875,661
--------------
9,443,068
COMPUTER SOFTWARE--6.9%
Koei Co., Ltd. (Japan) Computer Software 291,700 $ 3,645,788
Enix Corporation (Japan) Entertainment Software 87,900 3,325,525
--------------
6,971,313
COMPUTER SYSTEMS--4.9%
Solution 6 Holdings Limited Systems Design & Consulting
(Australia), (a)(d) 2,950,893 $ 4,584,707
Solution 6 Holdings Limited Rights Systems Design & Consulting
(Australia), (a)(d) 1,475,446 421,044
--------------
5,005,751
MARKETING SERVICES--3.1%
Cordiant Communications Group plc Advertising Services
(Great Britain) 1,228,500 $ 3,143,709
BROADCASTING & PUBLISHING--4.0%
Matichon Public Company Limited, Newspaper Publisher
Foreign Shares (Thailand), (d) 2,038,900 $ 2,402,378
Woongjin Publishing Company (Korea) Publisher 83,159 1,650,303
Matichon Public Company Limited Newspaper Publisher
(Thailand) 600 707
--------------
4,053,388
TELECOMMUNICATIONS--0.5%
SK Telecom Co. Ltd. (Korea) Telecommunications 827 $ 548,637
OIL & NATURAL GAS--0.6%
ISIS (France), (a) Oil Services 8,900 $ 584,124
</TABLE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
35
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
DESCRIPTION SHARES HELD MARKET VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--90.1% (CONT.)
MACHINERY & METAL PROCESSING--1.2%
Denyo Co., Ltd. (Japan) Welding Machines & Power Generators 184,000 $ 1,204,239
MINING AND BUILDING MATERIALS--2.3%
Parbury Limited (Australia), (d) Building Products 12,517,553 $ 2,222,642
Semapa-Sociedade de Investimento e Cement Manufacturer
Gestao, SGPS,SA (Portugal) 5,000 86,878
--------------
2,309,520
OTHER INDUSTRIAL GOODS & SERVICES--7.5%
Elevadores Atlas S.A. (Brazil) Elevator Manufacturer 378,200 $ 3,969,446
Yip's Hang Cheung Ltd. (Hong Kong), Paint & Solvent Manufacturer
(d) 31,502,000 1,544,714
Dongah Tire Industry Company (Korea), Tire Manufacturer
(a) 43,900 1,542,046
Vaisala OY (Finland) Atmospheric Observation Equipment 5,300 383,952
Polifarb Cieszyn- Wroclaw S.A. Paint & Varnish Manufacturer
(Poland) 100,000 142,678
--------------
7,582,836
PRODUCTION EQUIPMENT--1.7%
NSC Groupe (France) Manufacturer of Textile Equipment 11,532 $ 978,814
Krones AG (Germany), (a) Manufacturer of Production Machinery 29,700 767,503
--------------
1,746,317
STEEL--2.1%
Steel & Tube Holdings Ltd. (New Produces and Distributes Steel
Zealand) 2,434,400 $ 2,109,303
DIVERSIFIED CONGLOMERATES--9.6%
Haw Par Corporation Limited Healthcare and Leisure Products
(Singapore) 3,764,000 $ 4,687,286
TT Group PLC (Great Britain) Diversified Manufacturing 1,200,000 3,419,510
Wassall PLC (Great Britain) Diversified Consumer Goods 470,000 1,635,246
--------------
9,742,042
TOTAL COMMON STOCKS (COST: $88,077,263) 91,255,644
</TABLE>
36
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT.
........................................................................
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--12.5%
U.S. GOVERNMENT BILLS--5.9%
United States Treasury Bills, 4.68%-4.80% due 4/22/1999 $6,000,000 $ 5,983,480
--------------
TOTAL U.S. GOVERNMENT BILLS (COST: $5,983,480) 5,983,480
COMMERCIAL PAPER--4.9%
American Express Credit Corporation, 4.82%-4.84% due 4/1/1999-4/5/1999 $1,500,000 $ 1,500,000
Ford Motor Credit Corp., 4.82%-4.89% due 4/6/1999-4/12/1999 2,500,000 2,500,000
General Electric Capital Corporation, 5.00% due 4/1/1999 1,000,000 1,000,000
--------------
TOTAL COMMERCIAL PAPER (COST: $5,000,000) 5,000,000
REPURCHASE AGREEMENTS--1.7%
State Street Repurchase Agreement, 4.88% due 4/1/1999 $1,703,000 $ 1,703,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST: $1,703,000) 1,703,000
TOTAL SHORT TERM INVESTMENTS (COST: $12,686,480) 12,686,480
Total Investments (Cost $100,763,743)--102.6% (e) $ 103,942,124
Foreign Currencies (Proceeds $3,347)--(0.0)% 3,368
Other Liabilities In Excess Of Other Assets--(2.6)% (c) (2,666,830)
--------------
TOTAL NET ASSETS--100% $ 101,278,662
--------------
--------------
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Includes portfolio and transaction hedges.
(d) See footnote number five in the Notes to Financial Statements
regarding transactions in affiliated issuers.
(e) At March 31, 1999, net unrealized appreciation of $3,178,401, for
federal income tax purposes consisted of gross unrealized
appreciation of $15,167,423 and gross unrealized depreciation of
$11,989,022.
THE OAKMARK INTERNATIONAL SMALL CAP FUND
37
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF ASSETS AND LIABILITIES--MARCH 31, 1999
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
THE OAKMARK SELECT
FUND FUND
<S> <C> <C>
---------------------- ----------------------
- -----------------------------------------------------------------------------------
ASSETS
Investments, at value $5,716,776,102 $1,629,721,402
(cost: 5,368,169,702) (cost: 1,548,722,442)
Cash 659 651
Foreign currency, at value 0 0
Receivable for:
Forward foreign currency
contracts 0 0
Securities sold 26,560,169 0
Fund shares sold 2,519,119 2,763,418
Dividends and interest 13,514,355 1,866,764
Expense reimbursement 0 0
---------------------- ----------------------
Total receivables 42,593,643 4,630,182
Other assets 156,740 30,166
---------------------- ----------------------
Total assets $5,759,527,144 $1,634,382,401
---------------------- ----------------------
---------------------- ----------------------
...................................................................................
LIABILITIES AND NET ASSETS
Payable for:
Securities purchased 0 14,109,761
Fund shares redeemed 16,564,437 2,110,873
Due to adviser 4,765,865 1,248,472
Forward foreign currency
contracts 0 0
Other 1,680,937 456,304
---------------------- ----------------------
Total liabilities 23,011,239 17,925,410
---------------------- ----------------------
Net assets applicable to
fund shares outstanding $5,736,515,905 $1,616,456,991
---------------------- ----------------------
---------------------- ----------------------
Fund shares outstanding 160,902,730 74,760,952
---------------------- ----------------------
---------------------- ----------------------
...................................................................................
PRICE OF SHARES
Net asset value per share $ 35.65 $ 21.62
---------------------- ----------------------
---------------------- ----------------------
...................................................................................
ANALYSIS OF NET ASSETS
Paid in capital $4,580,091,836 $1,193,414,387
Accumulated undistributed
net realized gain (loss)
on sale of investments,
forward contracts and
foreign currency exchange
transactions 785,349,749 333,459,399
Net unrealized appreciation
(depreciation) of
investments 348,606,400 80,998,960
Net unrealized appreciation
(depreciation) of foreign
currency portfolio hedges 0 0
Net unrealized appreciation
(depreciation)--other 0 0
Accumulated undistributed
net investment income
(loss) 22,467,920 8,584,245
---------------------- ----------------------
Net assets applicable to
Fund shares outstanding $5,736,515,905 $1,616,456,991
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
38 THE OAKMARK FAMILY OF FUNDS
<PAGE>
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL
FUND INCOME FUND FUND SMALL CAP FUND
<S> <C> <C> <C> <C>
---------------------- ---------------------- ---------------------- ----------------------
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value $ 484,758,232 $ 59,661,949 $ 699,201,074 $ 103,942,124
(cost: 505,568,462) (cost: 54,408,381) (cost: 838,706,438) (cost: 100,763,743)
Cash 105 57 219 82
Foreign currency, at value 0 0 3,152,865 3,368
Receivable for:
Forward foreign currency
contracts 0 0 8,315,529 999,808
Securities sold 3,597,360 250,507 22,341,159 261,048
Fund shares sold 284,476 7,418 2,028,971 815,310
Dividends and interest 230,230 537,647 8,067,611 484,833
Expense reimbursement 0 0 0 0
---------------------- ------------ ---------------------- ----------------------
Total receivables 4,112,066 795,572 40,753,270 2,560,999
Other assets 21,729 3,511 19,661 3,679
---------------------- ------------ ---------------------- ----------------------
Total assets $ 488,892,132 $ 60,461,089 $ 743,127,089 $ 106,510,252
---------------------- ------------ ---------------------- ----------------------
---------------------- ------------ ---------------------- ----------------------
.................................................................................................................................
LIABILITIES AND NET ASSETS
Payable for:
Securities purchased 2,405,950 132,800 7,157,165 4,570,943
Fund shares redeemed 0.00 19,896 3,828,193 472,676
Due to adviser 555,725 37,144 586,831 78,878
Forward foreign currency
contracts 0 0 57,770 267
Other 273,483 59,031 1,497,861 108,826
---------------------- ------------ ---------------------- ----------------------
Total liabilities 3,235,158 248,871 13,127,820 5,231,590
---------------------- ------------ ---------------------- ----------------------
Net assets applicable to
fund shares outstanding $ 485,656,974 $ 60,212,218 $ 729,999,269 $ 101,278,662
---------------------- ------------ ---------------------- ----------------------
---------------------- ------------ ---------------------- ----------------------
Fund shares outstanding 36,044,548 4,005,126 58,801,836 9,428,517
---------------------- ------------ ---------------------- ----------------------
---------------------- ------------ ---------------------- ----------------------
.................................................................................................................................
PRICE OF SHARES
Net asset value per share $ 13.47 $ 15.03 $ 12.41 $ 10.74
---------------------- ------------ ---------------------- ----------------------
---------------------- ------------ ---------------------- ----------------------
.................................................................................................................................
ANALYSIS OF NET ASSETS
Paid in capital $ 504,505,329 $ 50,758,005 $ 860,052,071 $ 100,484,054
Accumulated undistributed
net realized gain (loss)
on sale of investments,
forward contracts and
foreign currency exchange
transactions 9,868,667 3,265,621 (28,016,663) (3,840,371)
Net unrealized appreciation
(depreciation) of
investments (20,810,230) 5,253,568 (139,488,976) 3,178,401
Net unrealized appreciation
(depreciation) of foreign
currency portfolio hedges 0 0 8,294,591 994,168
Net unrealized appreciation
(depreciation)--other 0 0 (649,895) 81
Accumulated undistributed
net investment income
(loss) (7,906,792) 935,024 29,808,141 462,329
---------------------- ------------ ---------------------- ----------------------
Net assets applicable to
Fund shares outstanding $ 485,656,974 $ 60,212,218 $ 729,999,269 $ 101,278,662
---------------------- ------------ ---------------------- ----------------------
---------------------- ------------ ---------------------- ----------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 39
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF OPERATIONS--MARCH 31, 1999
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
THE OAKMARK SELECT
FUND FUND
<S> <C> <C>
---------------------- ----------------------
- -----------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 61,658,308 $ 14,689,387
Interest Income 10,212,951 3,756,519
Securities lending income 0 75,764
Foreign taxes withheld (126,816) 0
---------------------- ----------------------
Total investment income 71,744,443 18,521,670
...................................................................................
EXPENSES:
Investment advisory fee 32,785,403 6,838,371
Transfer and dividend
disbursing agent fees 1,903,989 464,312
Other shareholder servicing
fees 1,605,504 386,486
Reports to shareholders 957,714 228,052
Custody and accounting fees 375,316 94,186
Registration fees, net of
reimbursements 7,228 12,479
Trustee fees 92,991 33,730
Legal fees 36,689 16,421
Audit fees 15,597 16,550
Other 325,041 59,108
---------------------- ----------------------
Total expenses 38,105,472 8,149,695
Expense reinbursement
Expense offset
arrangements (1,795) (2,303)
---------------------- ----------------------
Net expenses 38,103,677 8,147,392
---------------------- ----------------------
...................................................................................
NET INVESTMENT INCOME (LOSS): 33,640,766 10,374,278
...................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) on
investments 734,073,485 316,560,438
Net realized gain (loss) on
foreign currency
transactions 0 0
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies 33,887,254 72,226,050
Net change in appreciation
(depreciation) of forward
currency exchange
contracts 0 0
Net change in appreciation
(depreciation)--other 0 0
---------------------- ----------------------
...................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS: 767,960,739 388,786,488
---------------------- ----------------------
...................................................................................
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 801,601,505 $ 399,160,766
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
40 THE OAKMARK FAMILY OF FUNDS
<PAGE>
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL
FUND INCOME FUND FUND SMALL CAP FUND
<S> <C> <C> <C> <C>
---------------------- ---------------------- ---------------------- ----------------------
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,909,841 $ 532,325 $ 13,996,787 $ 996,019
Interest Income 728,907 600,769 563,929 91,675
Securities lending income 33,811 6,921 114,999 1,798
Foreign taxes withheld 0 (6,941) (2,136,341) (104,546)
------------ ----------- ---------------------- ------------
Total investment income 3,672,559 1,133,074 12,539,374 984,946
.................................................................................................................................
EXPENSES:
Investment advisory fee 4,070,715 229,768 3,774,106 398,517
Transfer and dividend
disbursing agent fees 287,986 32,856 326,251 30,623
Other shareholder servicing
fees 144,456 8,008 138,512 13,016
Reports to shareholders 122,962 14,820 165,427 16,391
Custody and accounting fees 58,323 24,257 432,012 76,482
Registration fees, net of
reimbursements (105,245) 10,388 (44,514) 12,111
Trustee fees 24,858 18,586 26,294 18,724
Legal fees 10,055 7,898 10,629 7,943
Audit fees 14,050 13,550 16,644 15,597
Other 34,666 3,905 37,749 3,937
------------ ----------- ---------------------- ------------
Total expenses 4,662,826 364,036 4,883,110 593,341
Expense reinbursement
Expense offset
arrangements (3,976) (18) (347) (101)
------------ ----------- ---------------------- ------------
Net expenses 4,658,850 364,018 4,882,763 593,240
------------ ----------- ---------------------- ------------
.................................................................................................................................
NET INVESTMENT INCOME (LOSS): (986,291) 769,056 7,656,611 391,706
.................................................................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) on
investments 8,177,983 3,094,125 (31,108,797) (2,097,425)
Net realized gain (loss) on
foreign currency
transactions 0 (1,160) 3,371,071 (108,363)
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies 45,284,187 2,121,224 209,375,178 32,074,881
Net change in appreciation
(depreciation) of forward
currency exchange
contracts 0 0 9,810,143 1,173,225
Net change in appreciation
(depreciation)--other 0 0 (848,679) (5,802)
------------ ----------- ---------------------- ------------
.................................................................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
TRANSACTIONS: 53,462,170 5,214,189 190,598,916 31,036,516
------------ ----------- ---------------------- ------------
.................................................................................................................................
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 52,475,879 $ 5,983,245 $ 198,255,527 $ 31,428,222
------------ ----------- ---------------------- ------------
------------ ----------- ---------------------- ------------
</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--MARCH 31, 1999
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK FUND
<S> <C> <C>
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 33,640,766 $ 94,480,595
Net realized gain (loss) on sale of
investments 734,073,485 1,258,937,339
Net realized gain (loss) on foreign
currency transactions -- (8,898)
Net change in unrealized appreciation
(depreciation) 33,887,254 (1,704,966,868)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 801,601,505 (351,557,832)
.............................................................................................
DISTRIBUTION TO SHAREHOLDERS FROM:*
Net investment income (89,027,299) (66,321,023)
Net realized short-term gain (128,028,090) (25,210,618)
Net realized long-term gain (195,968,414) (1,098,260,243)
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (413,023,803) (1,189,791,884)
.............................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 525,301,024 2,836,315,983
Reinvestment of dividends and capital
gain distributions 391,286,661 1,133,761,068
Payments for shares redeemed (2,492,607,364) (2,119,718,081)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS (1,576,019,679) 1,850,358,970
---------------------- ----------------------
.............................................................................................
TOTAL INCREASE IN NET ASSETS (1,187,441,977) 309,009,254
NET ASSETS:
Beginning of period 6,923,957,882 6,614,948,628
---------------------- ----------------------
End of period $5,736,515,905 $6,923,957,882
---------------------- ----------------------
---------------------- ----------------------
Undistributed net investment income $ 22,467,920 $ 77,854,452
---------------------- ----------------------
---------------------- ----------------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0.4401 0.3996
Net realized short-term gain 0.6329 0.1519
Net realized long-term gain 0.9686 5.8556
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 2.0416 $ 6.4071
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
42 THE OAKMARK FAMILY OF FUNDS
<PAGE>
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
SELECT FUND
<S> <C> <C>
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 10,374,278 $ 1,948,524
Net realized gain (loss) on sale of
investments 316,560,438 69,415,172
Net realized gain (loss) on foreign
currency transactions -- --
Net change in unrealized appreciation
(depreciation) 72,226,050 (78,902,257)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 399,160,766 (7,538,561)
.............................................................................................
DISTRIBUTION TO SHAREHOLDERS FROM:*
Net investment income (3,491,671) --
Net realized short-term gain (497,653) (6,882,359)
Net realized long-term gain (50,206,634) --
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (54,195,958) (6,882,359)
.............................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 348,812,227 1,440,695,723
Reinvestment of dividends and capital
gain distributions 51,669,470 6,568,333
Payments for shares redeemed (356,883,900) (719,123,322)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 43,597,797 728,140,734
---------------------- ----------------------
.............................................................................................
TOTAL INCREASE IN NET ASSETS 388,562,605 713,719,814
NET ASSETS:
Beginning of period 1,227,894,386 514,174,572
---------------------- ----------------------
End of period $1,616,456,991 $1,227,894,386
---------------------- ----------------------
---------------------- ----------------------
Undistributed net investment income $ 8,584,245 $ 1,701,638
---------------------- ----------------------
---------------------- ----------------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0.0491 --
Net realized short-term gain 0.0070 0.1678
Net realized long-term gain 0.7058 --
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.7619 $ 0.1678
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 43
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 1999 CONT.
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
SMALL CAP FUND
<S> <C> <C>
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ (986,291) $ (4,959,862)
Net realized gain (loss) on sale of
investments 8,177,983 124,757,914
Net realized gain (loss) on foreign
currency transactions -- --
Net change in unrealized appreciation
(depreciation) 45,284,187 (374,056,372)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 52,475,879 (254,258,320)
.............................................................................................
DISTRIBUTION TO SHAREHOLDERS FROM:*
Net investment income -- --
Net realized short-term gain -- (35,041,133)
Net realized long-term gain (4,511,716) (129,772,888)
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,511,716) (164,814,021)
.............................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 173,080,077 416,817,749
Reinvestment of dividends and capital
gain distributions 4,282,238 156,645,973
Payments for shares redeemed (357,664,266) (1,049,792,259)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS (180,301,951) (476,328,537)
---------------------- ----------------------
.............................................................................................
TOTAL INCREASE IN NET ASSETS (132,337,788) (895,400,878)
NET ASSETS:
Beginning of period 617,994,762 1,513,395,640
---------------------- ----------------------
End of period $ 485,656,974 $ 617,994,762
---------------------- ----------------------
---------------------- ----------------------
Undistributed net investment income $ (7,906,792) $ (6,920,502)
---------------------- ----------------------
---------------------- ----------------------
* DISTRIBUTIONS PER SHARE:
Net investment income -- --
Net realized short-term gain -- 0.4738
Net realized long-term gain 0.0874 2.3874
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.0874 $ 2.8612
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
44 THE OAKMARK FAMILY OF FUNDS
<PAGE>
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
EQUITY AND INCOME FUND
<S> <C> <C>
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 769,056 $ 1,166,564
Net realized gain (loss) on sale of
investments 3,094,125 1,578,730
Net realized gain (loss) on foreign
currency transactions (1,160) --
Net change in unrealized appreciation
(depreciation) 2,121,224 (2,325,892)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 5,983,245 419,402
.............................................................................................
DISTRIBUTION TO SHAREHOLDERS FROM:*
Net investment income (855,395) (594,007)
Net realized short-term gain -- (882,071)
Net realized long-term gain (829,557) (599,021)
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,684,952) (2,075,099)
.............................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 13,810,491 43,125,943
Reinvestment of dividends and capital
gain distributions 1,610,146 1,964,129
Payments for shares redeemed (17,252,567) (19,151,033)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS (1,831,930) 25,939,039
---------------------- ----------------------
.............................................................................................
TOTAL INCREASE IN NET ASSETS 2,466,363 24,283,342
NET ASSETS:
Beginning of period 57,745,855 33,462,513
---------------------- ----------------------
End of period $ 60,212,218 $ 57,745,855
---------------------- ----------------------
---------------------- ----------------------
Undistributed net investment income $ 935,024 $ 1,021,363
---------------------- ----------------------
---------------------- ----------------------
* DISTRIBUTIONS PER SHARE:
Net investment income 0.2118 0.2359
Net realized short-term gain -- 0.3503
Net realized long-term gain 0.2053 0.2379
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.4171 $ 0.8241
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 45
<PAGE>
THE OAKMARK FAMILY OF FUNDS
STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 1998 CONT.
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK
INTERNATIONAL FUND
<S> <C> <C>
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 7,656,611 $ 23,809,423
Net realized gain (loss) on sale of
investments (31,108,797) 86,532,713
Net realized gain (loss) on foreign
currency transactions (3,890,444) (108,363)
Net change in unrealized appreciation
(depreciation) 209,375,178 (502,914,491)
Net change in unrealized appreciation
(depreciation) of forward currency
exchange contracts 9,773,311 (2,045,738)
Net change in unrealized appreciation
(depreciation)--other (811,847) 195,384
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 198,255,527 (398,313,153)
.............................................................................................
DISTRIBUTION TO SHAREHOLDERS FROM (1):
Net investment income (16,587,329) (46,460,573)
Net realized short-term gain (32,678,201) (57,985,224)
Net realized long-term gain (20,071,535) (173,099,244)
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (69,337,065) (277,545,041)
.............................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 103,602,841 482,976,228
Reinvestment of dividends and capital
gain distributions 65,429,007 263,415,429
Payments for shares redeemed (324,055,349) (961,776,686)
---------------------- ----------------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS (155,023,501) (215,385,029)
---------------------- ----------------------
.............................................................................................
TOTAL INCREASE IN NET ASSETS (26,105,039) (891,243,223)
NET ASSETS:
Beginning of period 756,104,308 1,647,347,531
---------------------- ----------------------
End of period $ 729,999,269 $ 756,104,308
---------------------- ----------------------
---------------------- ----------------------
Undistributed net investment income $ 29,808,142 $ 38,738,859
---------------------- ----------------------
---------------------- ----------------------
(1): DISTRIBUTIONS PER SHARE:
Net investment income 0.2440 0.5758
Net realized short-term gain 0.4807 0.7186
Net realized long-term gain 0.2953 2.1453
---------------------- ----------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.0200 $ 3.4397
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
46 THE OAKMARK FAMILY OF FUNDS
<PAGE>
........................................................................
<TABLE>
<CAPTION>
THE OAKMARK INTERNATIONAL
SMALL CAP FUND
<S> <C> <C>
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 391,706 $ 1,415,157
Net realized gain (loss) on sale of
investments (2,097,425) (96,290)
Net realized gain (loss) on foreign
currency transactions (108,363) (162,499)
Net change in unrealized appreciation
(depreciation) 32,074,882 (27,728,327)
Net change in unrealized appreciation
(depreciation) of forward currency
exchange contracts 1,178,598 (179,057)
Net change in unrealized appreciation
(depreciation)--other (11,175) 2,414
------------ ------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 31,428,222 (26,748,602)
.............................................................................................
DISTRIBUTION TO SHAREHOLDERS FROM (1):
Net investment income (1,558,452) (308,015)
Net realized short-term gain -- (3,477,982)
Net realized long-term gain -- (3,890,139)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,558,452) (7,676,136)
.............................................................................................
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 50,793,315 77,339,314
Reinvestment of dividends and capital
gain distributions 1,468,342 7,427,846
Payments for shares redeemed (32,623,340) (64,544,647)
------------ ------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 19,638,317 20,222,513
------------ ------------
.............................................................................................
TOTAL INCREASE IN NET ASSETS 49,508,087 (14,202,225)
NET ASSETS:
Beginning of period 51,770,575 65,972,800
------------ ------------
End of period $ 101,278,662 $ 51,770,575
------------ ------------
------------ ------------
Undistributed net investment income $ 462,329 $ 1,629,074
------------ ------------
------------ ------------
(1): DISTRIBUTIONS PER SHARE:
Net investment income 0.2049 0.0559
Net realized short-term gain -- 0.6312
Net realized long-term gain -- 0.7060
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2049 $ 1.3931
------------ ------------
------------ ------------
</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 Pricing Committee appointed by the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS--
Values of investments and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars using the mean of the bid and offer
prices of such currencies at the time of valuation. Purchases and sales of
investments and dividend and interest income are converted at the prevailing
rate of exchange on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized gain or loss from investments.
Net realized gains on foreign currency transactions arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Funds' books,
and the U.S. dollar equivalent of the amounts actually received or paid, and the
realized gains or losses resulting from the portfolio and transaction hedges.
At March 31, 1999, only the International and Int'l Small Cap Funds had foreign
currency transactions. Net unrealized appreciation (depreciation)-other includes
the following components:
<TABLE>
<CAPTION>
INT'L
INTERNATIONAL SMALL CAP
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) on
dividends and dividend reclaims receivable $(777,048) $ 343
Unrealized appreciation (depreciation) on open
securities purchases and sales 51,704 (5,558)
Unrealized appreciation (depreciation) on
transaction hedge purchases and sales (36,832) 5,373
Unrealized appreciation (depreciation) on tax
expense payable 112,281 (77)
--------------- ------
Net Unrealized Appreciation (Depreciation) -
Other $(649,895) $ 81
--------------- ------
--------------- ------
</TABLE>
SECURITY TRANSACTIONS AND INVESTMENT INCOME--
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on the accrual basis.
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of regular trading on
the New York Stock Exchange on each day the Exchange is open for trading by
dividing the total value of the Fund's investments and other assets, less
liabilities, by the number of Fund shares outstanding.
FORWARD FOREIGN CURRENCY CONTRACTS--
At March 31, 1999, International and Int'l Small Cap had entered into forward
foreign currency contracts under which they are obligated to exchange currencies
at specified future dates. The Funds' currency transactions are limited to
transaction hedging and portfolio hedging involving either specific transactions
or portfolio positions.
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 March 31,
1999:
PORTFOLIO HEDGES:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
US DOLLARS PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE AT MARCH 31, 1999
<C> <C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
$31,080,000 18,500,000 Pound Sterling April 1999 $1,219,666
8,073,500 5,000,000 Pound Sterling April 1999 364,500
37,444,500 22,500,000 Pound Sterling May 1999 1,130,046
29,682,000 18,000,000 Pound Sterling May 1999 631,702
18,883,917 2,236,800,000 Japanese Yen April 1999 2,164,356
25,000,000 2,760,500,000 Japanese Yen July 1999 1,386,672
20,000,000 2,174,400,000 Japanese Yen July 1999 1,397,649
----------
$8,294,591
----------
----------
</TABLE>
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
(DEPRECIATION) AT MARCH
US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE 31, 1999
<C> <C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
$ 351,681 326,568 Euro Currency April 1999 $ 1,420
20,760 19,278 Euro Currency April 1999 84
619,303 577,546 Euro Currency April 1999 5,169
275,322 169,680 Pound Sterling April 1999 (1,374)
993,543 612,315 Pound Sterling April 1999 (4,960)
2,189,018 1,349,413 Pound Sterling April 1999 (10,391)
696,023 5,797,872 Swedish Krona April 1999 9,915
-------
$ (137)
-------
-------
</TABLE>
THE OAKMARK FAMILY OF FUNDS
49
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
TRANSACTION HEDGES: FOREIGN CURRENCY SALES:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
(DEPRECIATION) AT MARCH
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE 31, 1999
<C> <C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
$ 109,392 101,694 Euro Currency April 1999 $ (564)
2,011,239 1,239,516 Pound Sterling April 1999 10,041
216,778 133,632 Pound Sterling April 1999 1,030
954,782 591,614 Pound Sterling April 1999 (378)
119,589 74,101 Pound Sterling April 1999 (47)
167,354 103,792 Pound Sterling April 1999 (218)
1,170,244 726,544 Pound Sterling April 1999 (2,761)
117,742 73,100 Pound Sterling April 1999 (278)
117,742 73,100 Pound Sterling April 1999 (278)
1,170,244 726,544 Pound Sterling April 1999 (2,761)
2,714,650 325,988,720 Japanese Yen April 1999 (38,285)
974,438 115,441,653 Japanese Yen April 1999 (453)
1,114,624 1,927,408 Singapore Dollar April 1999 (1,743)
-------
$(36,695)
-------
-------
</TABLE>
The Int'l Small Cap Fund had the following outstanding contracts at March 31,
1999:
PORTFOLIO HEDGES:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
US DOLLARS PROCEEDS FOREIGN CURRENCY PURCHASED SETTLEMENT DATE AT MARCH 31, 1999
<C> <C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
$1,250,000 1,728,125 Brazilian Real April 1999 $261,935
7,389,000 4,500,000 Pound Sterling May 1999 126,203
2,500,000 281,487,500 Japanese Yen June 1999 98,592
1,500,000 165,630,000 Japanese Yen July 1999 83,200
2,000,000 217,440,000 Japanese Yen July 1999 139,765
3,157,241 335,520,000 Japanese Yen July 1999 284,473
--------
$994,168
--------
--------
</TABLE>
50
THE OAKMARK FAMILY OF FUNDS
<PAGE>
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
(DEPRECIATION) AT MARCH
US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE 31, 1999
<C> <C> <S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
$494,211 747,000 Canadian Dollar April 1999 $ 655
85,677 79,692 Euro Currency April 1999 490
25,883 24,034 Euro Currency April 1999 105
486,871 453,030 Euro Currency April 1999 2,967
18,040 16,817 Euro Currency April 1999 144
10,894 10,090 Euro Currency April 1999 16
751,135 694,530 Euro Currency April 1999 (174)
47,148 43,666 Euro Currency April 1999 65
293,189 272,271 Euro Currency April 1999 1,203
565,496 523,075 Euro Currency April 1999 78
235,232 145,008 Pound Sterling April 1999 (1,117)
176,332 109,261 Pound Sterling April 1999 70
176,172 109,261 Pound Sterling April 1999 229
288,312 178,743 Pound Sterling April 1999 268
176,456 109,261 Pound Sterling April 1999 (55)
294,862 183,065 Pound Sterling April 1999 696
5,844 45,287 Hong Kong Dollar April 1999 (1)
54,618 423,233 Hong Kong Dollar April 1999 (3)
10,400 80,591 Hong Kong Dollar April 1999 (1)
1,652 63,861 Philippine Peso April 1999 (4)
8,581 331,228 Philippine Peso April 1999 (33)
358,443 618,673 Singapore Dollar April 1999 (104)
------
$ 5,494
------
------
</TABLE>
TRANSACTION HEDGES: FOREIGN CURRENCY SALES:
<TABLE>
<CAPTION>
UNREALIZED
(DEPRECIATION) AT MARCH
US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE 31, 1999
<C> <C> <S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
$260,927 30,912,052 Japanese Yen April 1999 $(121)
-----
-----
</TABLE>
At March 31, 1999, International and Int'l Small Cap Funds each had sufficient
cash and/or securities to cover any commitments under these contracts.
SECURITIES LENDING--
Each Fund except The Oakmark Fund may lend portfolio securities to broker-
dealers and banks. As of December 31, 1998, the Funds are not participating in a
securities lending program and any securities previously loaned to borrowers
have been returned.
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.
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 March 31, 1999,
there were no outstanding borrowings.
2. TRANSACTIONS WITH AFFILIATES
Each fund has an investment advisory agreement with Harris Associates L.P.
(Adviser). For management services and facilities furnished, the Funds pay the
Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first
$2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90%
on the next $1.25 billion of net assets and .85% on the next
THE OAKMARK FAMILY OF FUNDS
51
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
$5 billion of net assets and .80% on the excess of $10 billion of net assets.
International pays 1% on the first $2.5 billion of net assets, .95% on the next
$2.5 billion of net assets and .90% on the excess of $5 billion of net assets.
Select pays 1% on the first $1 billion and .95% on the next $500 million, .90%
on the next $500 million, .85% on the next $500 million, .80% on the next $2.5
million of net assets and .75% on the excess of $5 billion of net assets. Small
Cap pays 1.25% on the first $1 billion of net assets, 1.15% on the next $500
million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1%
on the excess of $2.5 billion. Equity and Income pays .75% of net assets and
Int'l Small Cap pays 1.25% of net assets. Each fee is calculated on the total
net assets as determined at the end of each preceding calendar month. The
Adviser has voluntarily agreed to reimburse the Funds to the extent that annual
expenses, excluding certain expenses, exceed 1.5% for domestic funds and 2.0%
for international funds.
In connection with the organization of the Funds, expenses of approximately
$146,500 and $47,000 were advanced to Oakmark and International, approximately
$7,283 each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to
Select by the Adviser. These expenses are being amortized on a straight line
basis through October, 2000 for Small Cap, Equity and Income and Int'l Small
Cap, and October, 2001 for Select. Oakmark and International have fully
amortized all organization expenses.
During the six months ended March 31, 1999, the Funds incurred brokerage
commissions of $2,188,897, $1,524,368, $1,507,906, $46,533, $1,383,915 and
$172,048 of which $1,151,089, $552,563, $125,452, $24,154, $0 and $0 were paid
by Oakmark, Select, Small Cap, Equity and Income, International and Int'l Small
Cap, respectively, to an affiliate of the Adviser.
The Funds' Trustees may participate in a Deferred Compensation Plan which may be
terminated at any time. The obligations of the Plan are paid solely out of the
assets of the Funds.
3. FUND SHARE TRANSACTIONS
Proceeds and payments on Fund shares as shown in the Statement of Changes in Net
Assets are in respect of the following number of shares (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------------------------
INT'L
SMALL EQUITY & SMALL
OAKMARK SELECT CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Shares sold 14,515 17,430 12,530 948 9,040 5,375
Shares issued in reinvestment of
dividends 10,299 2,852 298 112 6,003 178
Less shares redeemed (70,366) (18,773) (25,722) (1,182) (28,794) (3,639)
-------- -------- -------- -------- ------ ---------
Net increase (decrease) in shares
outstanding (45,552) 1,509 12,894 122 (13,751) 1,914
-------- -------- -------- -------- ------ ---------
-------- -------- -------- -------- ------ ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------------
INT'L
SMALL EQUITY & SMALL
OAKMARK SELECT 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>
52
THE OAKMARK FAMILY OF FUNDS
<PAGE>
4. INVESTMENT TRANSACTIONS
Transactions in investment securities (excluding short term securities) were as
follows (in thousands):
<TABLE>
<CAPTION>
INT'L
EQUITY & SMALL
OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Purchases $ 597,681 $767,113 $243,319 $18,455 $125,192 $ 30,213
Proceeds from sales 2,018,060 $725,705 $391,058 $18,242 $325,130 $ 18,502
</TABLE>
5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the six months ended
March 31, 1999 is set forth below:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK FUND
<TABLE>
<CAPTION>
PURCHASES DIVIDEND MARKET
AFFILIATES (COST) SALES (COST) INCOME VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
AC Nielsen Corporation - - - $ 129,223,500
Brunswick Corporation - - $ 1,820,200 138,790,250
Eaton Corporation $ 95,898,237 - 187,976 298,841,400
GC Companies, Inc. - - - 12,480,688
H & R Block, Inc. - $ 42,048,416 3,695,325 320,515,562
Juno Lighting, Inc. - - 217,000 24,344,688
Knight Ridder, Inc. 13,380,889 47,492,369 2,840,700 313,305,000
Polaroid Corporation - 421,331 1,361,970 90,830,963
R. H. Donnelley Corporation - 423,736 367,196 32,005,951
The Black & Decker Corporation - 79,705,558 1,860,840 379,192,500
The Dun & Bradstreet Corporation - 36,083,438 3,828,409 335,202,750
------------ ------------ ----------- --------------
Totals 109,279,126 206,174,848 16,179,616 2,074,733,252
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK SELECT FUND
<TABLE>
<CAPTION>
PURCHASES SALES DIVIDEND MARKET
AFFILIATES (COST) (COST) INCOME VALUE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
USG Corporation $45,557,754 $13,554,188 $ 541,720 $172,948,800
US Industries Inc. 22,691,449 2,682,483 788,770 140,770,750
----------- ----------- ---------- ---------------
Totals 68,249,203 16,236,671 1,330,490 313,719,550
</TABLE>
THE OAKMARK FAMILY OF FUNDS
53
<PAGE>
THE OAKMARK FAMILY OF FUNDS
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
........................................................................
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK SMALL CAP FUND
<TABLE>
<CAPTION>
PURCHASES SALES DIVIDEND MARKET
AFFILIATES (COST) (COST) INCOME VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Ascent Entertainment Group, Inc. - - - $16,406,250
Barry (R.G.) Corporation $ 683,865 - - 7,875,000
Binks Sames Corporation - - - 4,625,000
Columbus McKinnon Corporation 1,112,813 $5,257,106 $116,725 14,087,500
Duff & Phelps Credit Rating Co. - - 21,000 18,331,250
Finger Lakes Financial Corp. - - 22,560 2,138,500
Northwest Pipe Company - 1,677,942 - 6,600,000
Ugly Duckling Corporation 366,408 - - 9,679,687
---------- ---------- -------- ---------------
Totals 2,163,086 6,935,048 160,285 79,743,187
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK INTERNATIONAL FUND
<TABLE>
<CAPTION>
PURCHASES SALES DIVIDEND MARKET
AFFILIATES (COST) (COST) INCOME VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Banco Latinoamericano de
Exportaciones, S.A. Class E $3,380,362 $ 6,440,554 $1,380,960 $ 32,112,600
Chargeurs SA 3,107,014 1,481,640 388,650 29,827,225
Cordiant Communications Group plc - 10,160,631 - 46,017,088
Dongah Tire Industry Company - - 140,181 5,841,156
European Vinyls Corporation
International NV - 1,883,143 - 6,927,060
Fernz Corporation Limited - 14,034,949 458,024 26,607,215
Fila Holding S.p.A. 691,130 - - 21,860,850
Giordano International Limited - - - 21,463,269
Keumkang Ltd. - 1,555,011 307,101 13,255,868
Lotte Chilsung Beverage Company - - 36,291 5,212,714
Tae Young Corporation - 4,233,806 2,624,590 12,530,670
Usinas Siderugicas de Minas Gerais
S.A., Preferred Class A - - - 11,064,586
---------- ----------- ---------- ---------------
Totals 7,178,506 39,789,734 5,335,797 232,720,301
</TABLE>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<TABLE>
<CAPTION>
PURCHASES SALES DIVIDEND MARKET
AFFILIATES (COST) (COST) INCOME VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Designer Textiles (NZ) Limited - - $ 18,615 $ 490,778
Matichon Public Company Limited,
Foreign Shares - - - 2,402,378
Parbury Limited $ 255,279 - 131,268 2,222,642
Royal Doulton plc 2,589,134 - 205,506 4,461,831
Solution 6 Holdings Limited - $1,672,006 - 4,584,707
Solution 6 Holdings Limited Rights 0 0 0 421,044
Yip's Hang Cheung Ltd. 281,712 - 73,565 1,544,714
---------- ---------- -------- ---------------
Totals 3,126,125 1,672,006 428,954 16,128,094
</TABLE>
54
THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
..................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX ELEVEN PERIOD
MONTHS YEAR MONTHS ENDED
ENDED ENDED ENDED YEAR ENDED OCTOBER 31, OCT.
MARCH 31, SEPTEMBER SEPTEMBER -------------------------------------------------------- 31,
1999 30, 1998 30, 1997 1996 1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of
Period $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10 $10.00
Income From
Investment
Operations:
Net Investment
Income (Loss) 0.20 0.47 0.36 0.34 0.30 0.27 0.17 (0.03) (0.01)
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 3.95 (1.73) 10.67 4.70 4.66 1.76 7.15 5.04 2.11
--------- --------- --------- --------- --------- --------- --------- -------- -------
Total From
Investment
Operations: 4.15 (1.26) 11.03 5.04 4.96 2.03 7.32 5.01 2.10
Less Distributions:
Dividends (from
net investment
income) (0.44) (0.40) (0.34) (0.28) (0.23) (0.23) (0.04) -- --
Distributions
(from capital
gains) (1.60) (6.01) (1.87) (0.84) (1.47) (0.77) (0.21) -- --
--------- --------- --------- --------- --------- --------- --------- -------- -------
Total
Distributions (2.04) (6.41) (2.21) (1.12) (1.70) (1.00) (0.25) -- --
--------- --------- --------- --------- --------- --------- --------- -------- -------
Net Asset Value, End
of Period $ 35.65 $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10
--------- --------- --------- --------- --------- --------- --------- -------- -------
--------- --------- --------- --------- --------- --------- --------- -------- -------
Total Return 12.00% (4.06)% 39.24%* 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%*
Ratios/Supplemental
Data:
Net Assets, End
of Period ($
million) $5,736.5 $6,924.0 $6,614.9 $ 3,933.9 $ 2,827.1 $ 1,677.3 $ 1,107.0 $ 114.7 $ 4.8
Ratio of Expenses
to Average Net
Assets 1.11% 1.08% 1.08%* 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)*
Ratio of Net
Income (Loss)
to Average Net
Assets .98% 1.22% 1.19%* 1.13% 1.27% 1.19% 0.94% (0.24)% (0.66)%(c)*
Portfolio
Turnover Rate 9% 43% 17% 24% 18% 29% 18% 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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 55
<PAGE>
THE OAKMARK SELECT FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
..................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
ELEVEN
SIX MONTHS MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, SEPTEMBER SEPTEMBER
1999 30, 1998 30, 1997
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 16.76 $ 16.34 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) 0.14 0.03 (0.01)
Net Gains or Losses on Securities (both
realized and unrealized) 5.48 0.56 6.35
---------- ---------- ----------
Total From Investment Operations: 5.62 0.59 6.34
Less Distributions:
Dividends (from net investment income) (0.05) -- --
Distributions (from capital gains) (0.71) (0.17) --
---------- ---------- ----------
Total Distributions (0.76) (0.17) --
---------- ---------- ----------
Net Asset Value, End of Period $ 21.62 $ 16.76 $ 16.34
---------- ---------- ----------
---------- ---------- ----------
Total Return 34.42% 3.64% 69.16%*
Ratios/Supplemental Data:
Net Assets, End of Period ($ million) $ 1,616.5 $ 1,227.9 $ 514.2
Ratio of Expenses to Average Net Assets
(a) 1.15%* 1.22% 1.12%*
Ratio of Net Income (Loss) to Average Net
Assets (a) 1.46%* 17.00% (0.11)%*
Portfolio Turnover Rate 57% 56% 37%
</TABLE>
*Data has been annualized.
56 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK SMALL CAP FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
..................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX ELEVEN
MONTHS YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER SEPTEMBER OCTOBER
1999 30, 1998 30, 1997 31, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 12.63 $ 20.34 $ 13.19 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) (0.08) (0.12) (0.01) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) 1.01 (4.73) 7.16 3.21
--------- --------- ---------- ---------
Total From Investment Operations: 0.93 (4.85) 7.15 3.19
Less Distributions:
Dividends (from net investment
income) -- -- -- --
Distributions (from capital gains) (0.09) (2.86) -- --
--------- --------- ---------- ---------
Total Distributions (0.09) (2.86) -- --
--------- --------- ---------- ---------
Net Asset Value, End of Period $ 13.47 $ 12.63 $ 20.34 $ 13.19
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Total Return 7.30% (26.37)% 59.14%* 31.94%
Ratios/Supplemental Data:
Net Assets, End of Period ($ million) $ 485.7 $ 618.0 $ 1,513.4 $ 218.4
Ratio of Expenses to Average Net
Assets 1.49%* 1.45% 1.37%* 1.61%
Ratio of Net Income (Loss) to Average
Net Assets (0.31)%* (0.40)% (0.25)%* (0.29)%
Portfolio Turnover Rate 41% 34% 27% 23%
</TABLE>
*Data has been annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
..................................................
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX ELEVEN
MONTHS YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER SEPTEMBER OCTOBER
1999 30, 1998 30, 1997 31, 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 13.99 $ 14.49 $ 11.29 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) 0.20 0.29 0.21 0.10
Net Gains or Losses on Securities
(both realized and unrealized) 1.26 0.04 3.24 1.19
--------- --------- --------- ---------
Total From Investment Operations: 1.46 0.33 3.45 1.29
Less Distributions:
Dividends (from net investment
income) (0.21) (0.24) (0.12) --
Distributions (from capital gains) (0.21) (0.59) (0.13) --
--------- --------- --------- ---------
Total Distributions (0.42) (0.83) (0.25) --
--------- --------- --------- ---------
Net Asset Value, End of Period $ 15.03 $ 13.99 $ 14.49 $ 11.29
--------- --------- --------- ---------
--------- --------- --------- ---------
Total Return 10.54% 2.57% 34.01%* 12.91%
Ratios/Supplemental Data:
Net Assets, End of Period ($ million) $ 60.2 $ 57.7 $ 33.5 $ 13.8
Ratio of Expenses to Average Net
Assets 1.19%* 1.31% 1.50%*(a) 2.50%(a)
Ratio of Net Income (Loss) to Average
Net Assets 2.52%* 2.39% 2.38%*(a) 1.21%(a)
Portfolio Turnover Rate 32% 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 30, 1997 OCTOBER 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>
58 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK INTERNATIONAL FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX ELEVEN PERIOD
MONTHS YEAR MONTHS ENDED
ENDED ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER
MARCH SEPTEMBER SEPTEMBER -------------------------------------------- 31,
31, 1999 30, 1998 30, 1997 1996 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00
Income From Investment
Operations:
Net Investment Income
(Loss) 0.21 0.41 0.27 0.09 0.30 0.21 0.06 0.26
Net Gains or Losses on
Securities (both
realized and unrealized) 2.80 (5.32) 3.74 2.90 (0.77) 0.43 4.48 (0.46)
-------- -------- ----------- ----------- -------- -------- -------- --------
Total From Investment
Operations: 3.01 (4.91) 4.01 2.99 (0.47) 0.64 4.54 (0.2)
Less Distributions:
Dividends (from net
investment income) (0.24) (0.58) (0.16) -- -- (0.08) (0.25) --
Distributions (from capital
gains) (0.78) (2.86) -- (1.04) (1.06) (0.15) -- --
-------- -------- ----------- ----------- -------- -------- -------- --------
Total Distributions (1.02) (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) --
-------- -------- ----------- ----------- -------- -------- -------- --------
Net Asset Value, End of Period $ 12.41 $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80
-------- -------- ----------- ----------- -------- -------- -------- --------
-------- -------- ----------- ----------- -------- -------- -------- --------
Total Return 30.24% (29.90)% 29.63%* 24.90% (3.06)% 4.62% 47.49% (22.81)%*
Ratios/Supplemental Data:
Net Assets, End of Period
($ million) $ 730.0 $ 756.1 $ 1,647.3 $ 1,172.8 $ 819.7 $1,286.0 $ 815.4 $ 23.5
Ratio of Expenses to
Average Net Assets 1.30%* 1.32% 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%*
Ratio of Net Income (Loss)
to Average Net Assets 2.04%* 1.95% 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%*
Portfolio Turnover Rate 18% 43% 61% 42% 26% 55% 21% 0%
</TABLE>
*Data has been annualized.
(a) From September 30, 1992, the date on which Fund shares were first offered
for sale to the public.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59
<PAGE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX ELEVEN
MONTHS YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED
MARCH 31, SEPTEMBER SEPTEMBER OCTOBER
1999 30, 1998 30, 1997 31, 1996
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 6.89 $ 12.20 $ 11.41 $ 10.00
Income From Investment Operations:
Net Investment Income (Loss) 0.03 0.18 0.13 0.04
Net Gains or Losses on
Securities (both realized and
unrealized) 4.02 (4.09) 1.10 1.37
--------- --------- --------- ---------
Total From Investment
Operations: 4.05 (3.91) 1.23 1.41
Less Distributions:
Dividends (from net investment
income) (0.20) (0.06) (0.08) --
Distributions (from capital
gains) -- (1.34) (0.36) --
--------- --------- --------- ---------
Total Distributions (0.20) (1.40) (0.44) --
--------- --------- --------- ---------
Net Asset Value, End of Period $ 10.74 $ 6.89 $ 12.20 $ 11.41
--------- --------- --------- ---------
--------- --------- --------- ---------
Total Return 59.75% (35.20)% 12.07%* 14.15%
Ratios/Supplemental Data:
Net Assets, End of Period ($
million) $ 101.3 $ 51.8 $ 66.0 $ 39.8
Ratio of Expenses to Average
Net Assets 1.72%* 1.96% 1.93%* 2.50%(a)
Ratio of Net Income (Loss) to
Average Net Assets 1.13%* 2.17% 1.23%* 0.65%(a)
Portfolio Turnover Rate 29% 69% 63% 27%
</TABLE>
*Data has been annualized.
(a) If the fund had paid all of its expenses and there had been no expense
reimbursement by the investment advisor, the ratio of expenses to average
net assets would have been 2.65% and the ratio of net income (loss) to
average net assets would have been .50%.
60 THE OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK FAMILY OF FUNDS
TRUSTEES AND OFFICERS
........................................................................
TRUSTEES
Michael J. Friduss
Thomas H. Hayden
Christine M. Maki
Victor A. Morgenstern
Allan J. Reich
Marv Rotter
Burton W. Ruder
Peter S. Voss
Gary Wilner, M.D.
OFFICERS
Victor A. Morgenstern--CHAIRMAN
Robert M. Levy--PRESIDENT
Robert J. Sanborn--EXECUTIVE VICE PRESIDENT
David G. Herro--VICE PRESIDENT
Clyde S. McGregor--VICE PRESIDENT
William C. Nygren--VICE PRESIDENT
Steven J. Reid--VICE PRESIDENT
Michael J. Welsh--VICE PRESIDENT
Donald Terao--VICE PRESIDENT--FINANCE
Anita M. Nagler--SECRETARY
Ann W. Regan--VICE PRESIDENT--
SHAREHOLDER OPERATIONS AND ASSISTANT SECRETARY
Kristi L. Rowsell--TREASURER
OTHER INFORMATION
INVESTMENT ADVISER
Harris Associates L.P.
Two North LaSalle Street
Chicago, Illinois 60602-3790
TRANSFER AGENT
State Street Bank and Trust Company
Attention: The Oakmark Family of Funds
P.O. Box 8510
Boston, Massachusetts 02266-8510
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
FOR MORE INFORMATION:
Please call 1-800-OAKMARK
(1-800-625-6275)
or 617-328-5000
WEBSITE
www.oakmark.com
24-HOUR NAV HOTLINE
1-800-GROWOAK (1-800-476-9625)
This report, including the unaudited financial statements contained
herein, is submitted for the general information of the shareholders
of the Funds. The report is not authorized for distribution to
prospective investors in the Funds unless it is accompanied or
preceded by a currently effective prospectus of the Funds. No sales
charge to the shareholder or to the new investor is made in offering
the shares of the Funds.
<PAGE>
LOGO
P.O. BOX 8510
BOSTON, MA 02266-8510
