<PAGE>
THE OAKMARK FUND
THE OAKMARK
SELECT FUND
THE OAKMARK SMALL
CAP FUND
THE OAKMARK EQUITY
AND INCOME FUND
THE OAKMARK
GLOBAL FUND
THE OAKMARK
INTERNATIONAL FUND
THE OAKMARK
INTERNATIONAL SMALL
CAP FUND
THIRD QUARTER REPORT
JUNE 30, 2000
MANAGED BY HARRIS ASSOCIATES L.P. [LOGO] OAKMARK FAMILY OF FUNDS
<PAGE>
THE OAKMARK FAMILY OF FUNDS
2000 THIRD QUARTER REPORT
-------------------------------------------------------------------------------
LETTERS FROM THE CHAIRMAN AND PRESIDENT.................................... 1
THE OAKMARK FAMILY OF FUNDS SUMMARY ....................................... 2
THE OAKMARK FUND
Letter from the Portfolio Manager ...................................... 4
Schedule of Investments ................................................ 6
THE OAKMARK SELECT FUND
Letter from the Portfolio Manager ...................................... 9
Schedule of Investments ................................................11
THE OAKMARK SMALL CAP FUND
Letter from the Portfolio Managers .....................................13
Schedule of Investments ................................................15
THE OAKMARK EQUITY AND INCOME FUND
Letter from the Portfolio Manager ......................................18
Schedule of Investments ................................................20
THE OAKMARK GLOBAL FUND
Letter from the Portfolio Managers .....................................23
Global Diversification Chart ...........................................25
Schedule of Investments ................................................26
THE OAKMARK INTERNATIONAL FUND
Letter from the Portfolio Managers .....................................29
International Diversification Chart ....................................31
Schedule of Investments ................................................32
THE OAKMARK INTERNATIONAL SMALL CAP FUND
Letter from the Portfolio Managers .....................................37
International Diversification Chart ....................................39
Schedule of Investments ................................................40
TRUSTEES AND OFFICERS .....................................................45
FOR MORE INFORMATION
Access our web site at www.oakmark.com to obtain a prospectus, an application or
periodic reports, or call 1-800-OAKMARK (1-800-625-6275) or (617) 578-1329.
WEB SITE AND 24-HOUR NET ASSET VALUE HOTLINE
Access our web site at www.oakmark.com to obtain the current net asset value of
a fund, or call 1-800-GROWOAK (1-800-476-9625).
TO COMMENT ON SHAREHOLDER SERVICES
E-mail us at [email protected].
<PAGE>
LETTER FROM THE CHAIRMAN AND PRESIDENT
--------------------------------------------------------------------------------
DEAR FELLOW
SHAREHOLDERS,
We are pleased to present the Third-Quarter Report for The Oakmark Family of
Funds. Value investors received an increasing amount of attention in the past
quarter. There was a significant correction in the market, especially in the
NASDAQ, as investors became disenchanted with the technology sector. From its
peak on March 10 through June 30 the NASDAQ lost 21.4%, while we saw
[PHOTO]
positive advances in all of our funds during this same period. We are encouraged
by the fact that investors have begun to reconsider so-called "old economy"
stocks--an indication that our long-term value style will be rewarded.
During the quarter, some of our stocks experienced takeovers at considerable
premiums, and the comparative valuations of many of the other stocks on our buy
list remain very attractive. This strengthens our conviction that we have seen a
turn in value. We are pleased with the relative performance of each of the Funds
in our family. Our international funds had an especially solid quarter, as our
managers used global volatility as an opportunity to pick up great companies at
attractive prices. Please see details from the portfolio managers in the letters
that follow.
As you may know, we have added Clyde McGregor as portfolio manager to The
Oakmark Small Cap Fund. Clyde has been with Harris Associates for close to 20
years, and has expertly guided The Oakmark Equity and Income Fund since its
inception in November 1995. We're pleased he can extend his stock-picking
expertise to the Small Cap Fund. Steve Reid, who managed the Fund since its
inception, has been on an extended leave of absence and has stepped down from
management of the Fund.
In mid-June, our parent company, Nvest L. P., entered into an agreement to be
acquired by CDC Asset Management, the investment management arm of France's
Caisse des Depots Group, a major diversified financial institution. We expect to
retain our investment independence and operating autonomy. Thus, this will not
affect our investment management activities or the daily operations of the
Funds. We believe this new relationship is a very positive development for our
parent company and may provide us with additional resources for the distribution
of our investment products.
When visiting our web site at www.oakmark.com, you'll notice important changes
to content and navigation. Investors can look up account balances and
transactions in a secure environment, read portfolio manager commentary and fund
updates, and view timely news information and market analysis. In the very near
future, sometime in August, you will be able to purchase shares, order duplicate
statements and change your address on-line. Going forward, we will continue to
take steps toward providing important and timely information through our web
site.
We appreciate your continued investment in The Oakmark Family of Funds.
/s/Victor Morgenstern
VICTOR MORGENSTERN
CHAIRMAN
/s/Robert M. Levy
ROBERT M. LEVY
PRESIDENT
July 5, 2000
[LOGO]
OAKMARK FAMILY OF FUNDS
1
<PAGE>
THE OAKMARK FAMILY OF FUNDS
<TABLE>
<CAPTION>
SUMMARY INFORMATION
-----------------------------------------------------------------------------------------------------------------------
PERFORMANCE FOR PERIOD THE OAKMARK THE OAKMARK THE OAKMARK
ENDED FUND SELECT SMALL CAP
JUNE 30, 2000 FUND FUND
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 MONTHS 2.6% (5.2%) (0.3%)
-----------------------------------------------------------------------------------------------------------------------
6 MONTHS (6.6%) 3.3% (1.8%)
-----------------------------------------------------------------------------------------------------------------------
1 YEAR (24.7%) (0.6%) (12.5%)
-----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL
RETURN FOR:
3 YEAR (1.4%) 19.7% (3.4%)
-----------------------------------------------------------------------------------------------------------------------
5 YEAR 9.1% N/A N/A
-----------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION 19.0% 27.4% 10.5%
-----------------------------------------------------------------------------------------------------------------------
Value of $10,000 $46,950 $24,324 $15,926
from inception date (8/5/91) (11/1/96) (11/1/95)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOP FIVE HOLDINGS Fortune Brands, Inc. 3.9% Washington Catellus Development
AS OF JUNE 30, 2000 Mutual, Inc. 14.3% Corporation 6.2%
Nabisco Holdings Toys 'R' Us, Inc. 8.6% ITT Educational
Corporation 3.8% The Reynolds & Services, Inc. 6.0%
Washington Reynolds Company 7.5% Ugly Duckling
Mutual, Inc. 3.7% USG Corporation 7.2% Corporation 5.6%
COMPANY AND % OF TOTAL Brunswick The Dun & Bradstreet Micron
NET ASSETS Corporation 3.3% Corporation 5.9% Electronics, Inc. 4.7%
ACNielsen National Data
Corporation 3.2% Corporation 4.6%
-----------------------------------------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Other Consumer Banks & Thrifts 14.6% Real Estate 11.7%
AS OF JUNE 30, 2000 Goods & Services 17.4% Retail 13.4% Banks & Thrifts 8.6%
Food & Beverage 7.7% Information Insurance 7.8%
INDUSTRIES AND % of Total Information Services 7.6% Services 11.0% Food & Beverage 7.0%
Net Assets Retail 6.2% Computer Services 8.9% Educational Services 6.0%
Household Products 6.0% Computer Software 7.5%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
2 THE OAKMARK FAMILY OF FUNDS
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK
EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL
INCOME FUND FUND FUND SMALL CAP FUND
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(0.2%) 3.2% 7.1% 0.9%
----------------------------------------------------------------------------------------------------------------------------
4.2% 4.09% 6.9% (4.1%)
----------------------------------------------------------------------------------------------------------------------------
2.3% N/A 8.3% 1.4%
----------------------------------------------------------------------------------------------------------------------------
12.0% N/A 7.1% 5.6%
----------------------------------------------------------------------------------------------------------------------------
N/A N/A 13.5% N/A
----------------------------------------------------------------------------------------------------------------------------
14.6% N/A 14.1% 9.9%
----------------------------------------------------------------------------------------------------------------------------
$18,886 $10,381 $27,856 $15,529
(11/1/95) (8/4/99) (9/30/92) (11/1/95)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alamo Group Inc. 4.8% Ceridian Diageo plc 4.9% Fletcher Challenge
Citizens Corporation 5.4% Somerfield plc 4.6% Building 4.8%
Communications ITT Educational Tomkins plc 4.1% GFI Industries SA 4.8%
Company 4.3% Services, Inc. 5.2% Hunter Hite Brewery 4.7%
The Reynolds & Somerfield plc 5.0% Douglas N.V. 4.1% JCG Holdings Ltd. 4.7%
Reynolds Company 4.3% Banco Krones AG 4.7%
Catellus Development The Reynolds & Latinoamericano
Corporation 4.1% Reynolds Company 4.9% de Exportaciones,
Ceridian House of Fraser Plc 4.5% S.A. 3.9%
Corporation 3.8%
----------------------------------------------------------------------------------------------------------------------------
U.S. Government Retail 15.9% Banks & Thrifts 19.2% Production
Notes 25.7% Information Other Industrial Equipment 10.9%
Real Estate 13.8% Services 13.1% Goods & Services 10.0% Retail 10.5%
Banks & Thrifts 7.8% Food & Beverage 8.7% Food & Beverage 9.0% Food & Beverage 8.2%
Telecommunications 7.2% Other Consumer Household Other Consumer
Medical Products 5.7% Goods & Services 7.8% Products 7.3% Goods & Services 7.7%
Banks & Thrifts 7.5% Retail 5.8% Other Financial 7.2%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE OAKMARK FAMILY OF FUNDS 3
<PAGE>
THE OAKMARK FUND
REPORT FROM BILL NYGREN AND KEVIN GRANT, PORTFOLIO MANAGERS
----------------------------------------------------------------------------
[PHOTO] [PHOTO]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION
(8/5/91) TO PRESENT (6/30/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
[CHART]
[EDGAR REPRESENTATION OF PLOT 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
6/99 $62,332 $42,688
9/99 $53,882 $40,023
12/99 $50,277 $45,977
3/00 $45,767 $47,032
6/00 $46,950 $45,783
</TABLE>
<TABLE>
<CAPTION>
6/30/00 NAV $25.40 AVERAGE ANNUAL TOTAL RETURN*
THROUGH 6/30/00
TOTAL RETURN FROM FUND INCEPTION
LAST 3 MOS. 8/5/91
---------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK FUND 2.6% 19.0%
Standard & Poor's 500 Stock
Index w/inc** -2.7% 18.6%
Dow Jones Industrial Average w/inc** -4.0% 17.6%
Value Line Composite Index** -4.8% 6.1%
</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.
The Oakmark Fund increased in value by 2.6% for the quarter ended June
30. While we are pleased with that level of absolute gain, it was especially
rewarding to achieve it during a quarter when most of the market averages went
down. We have been saying for some time that the market would return to a focus
on business values and the high level of risk investors assume when stocks are
purchased at substantial premiums to underlying value. We believe this process
began in March and has a long way to go before stock prices and business values
are brought back into alignment. We continue to believe that our stocks will
benefit from this shift.
Corporate investors have been responsible for some of the renewed focus on
value. During the quarter, your Fund's performance was strongly benefited from
takeover activity. In April, Union Pacific Resources (UPR) announced its sale to
Anadarko Petroleum. Also in April, Nabisco Holdings' management decided to hold
an auction for the company. The $55 per share bid by Philip Morris was an 88%
premium to Nabisco Holdings' February low. Thanks to the managements of both UPR
and Nabisco for making the difficult decision that their shareholders would be
best served by selling the company. We believe that our portfolio continues to
be extremely well positioned to benefit from an ongoing increase in merger and
acquisition activity.
WHAT'S NEW
The unusually high volatility the stock market experienced last quarter allowed
us to purchase an unusually high number of new stocks. Because of increased
popularity of momentum investing, fewer investors now view stock price declines
as buying opportunities. The
4 THE OAKMARK FUND
<PAGE>
result of this is that companies reporting disappointing news now drop in price
much more than they used to. Most of our new holdings suffered severe price
declines in response to news that we felt had little impact on long-term
business values. Here's a brief explanation of each of them:
CARNIVAL CRUISE LINES
(CCL--$20)
The leader in the cruise ship industry announced that this year's earnings would
only increase slightly from 1999 because newly built ships increased industry
capacity at a more rapid rate than demand. The stock fell from $48 in December
to $19 in June, where it was below 10 times next year's earnings estimate.
CENDANT (CD--$14)
This leader in franchise operations such as Ramada Inns, Avis Rental Cars and
Century21 saw its growth cut by higher interest rates. In December, this stock
traded at $27 per share following the purchase of a large interest in Cendant by
Liberty Media. Last quarter, Liberty's highly regarded chairman, John Malone,
joined Cendant's board and personally bought stock. Having fallen to $12 in
June, Cendant was selling at about 10 times next year's earnings.
CHIRON (CHIR--$48)
This biotech leader fell from $71 in February to $35 in May after reporting
disappointing results from one of its many new drug trials. At this price,
Chiron sold at a large discount to its traditional pharmaceutical peers (based
on enterprise value divided by pre-R&D cash flow) despite having a much higher
growth rate.
ELECTRONIC DATA SYSTEMS (EDS--$41)
A leader in IT consulting and MIS outsourcing, EDS announced that second quarter
sales would grow more slowly than expected. EDS stock, which traded at $72 in
April, fell to $39. Based on our estimate of next year, EDS now sells at 14
times earnings, just over half the S&P 500 multiple.
GOODRICH (GR--$34)
As the stock market lost interest in cyclicals, this aerospace and chemicals
company watched its stock decline from $43 a year ago to $28 in April. We
applaud management's reaction of putting the chemical business up for sale and
committing to use much of the proceeds to repurchase stock. Goodrich currently
trades at 9 times expected earnings.
NEWELL (NWL--$26)
This manufacturer of a broad range of consumer goods sold at $48 in May of 1999.
After acquiring Rubbermaid and realizing the "Newellization" process would take
a few months more than expected, the stock sunk to $25 in June. Newell currently
sells at 10 times our estimate of cash earnings.
SUNGARD DATA SYSTEMS
(SDS--$31)
Sungard is a highly successful e-processing company offering investor support
systems as well as disaster recovery systems. Despite seeing earnings grow 20%
over the last year, Sungard stock fell 25% from its $41 high in March 1999.
Sungard now sells at less than 17 times our earnings estimate for next year,
despite expected annual growth of 20%
XEROX
(XRX--$21)
Xerox sold at $64 last May and fell below $20 in June. Earnings growth stalled
due to difficulties in emerging markets as well as dislocations caused by a
realignment of the domestic sales force. At a price below 10 times next year's
earnings, we feel the market is ignoring the strength of Xerox's new printing
products as well as the significant profit potential from the transition from
black-and-white to color copying and printing.
As we manage the portfolio, we will continue to take advantage of opportunities
created by excessive volatility. These wide price swings give us the opportunity
to buy positions in stocks we feel are extremely undervalued and reduce
positions in stocks we believe are selling closer to their intrinsic value. It's
what value investing is all about.
Thank you for your continued support.
/s/ William C. Nygren
WILLIAM C. NYGREN, CFA
Portfolio Manager
[email protected]
/s/ Kevin G. Grant
KEVIN G. GRANT, CFA
Portfolio Manager
[email protected]
July 6, 2000
THE OAKMARK FUND 5
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
THE OAKMARK FUND
------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------
Shares Held Market Value
------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.2%
FOOD & BEVERAGE--7.7%
Nabisco Holdings Corporation, Class A 1,522,100 $ 79,910,250
H.J. Heinz Company 1,125,000 49,218,750
Philip Morris Companies Inc. 1,160,700 30,831,094
-----------------
159,960,094
APPAREL--3.2%
Nike, Inc., Class B 984,000 $ 39,175,500
Jones Apparel Group, Inc. (a) 1,157,000 27,189,500
-----------------
66,365,000
RETAIL--6.2%
The Kroger Company 2,200,000 $ 48,537,500
Toys 'R' Us, Inc. (a) 3,000,000 43,687,500
Tricon Global Restaurants, Inc. (a) 1,350,000 38,137,500
-----------------
130,362,500
HOUSEHOLD PRODUCTS--6.0%
Newell Rubbermaid Inc. 1,700,000 $ 43,775,000
Fort James Corporation 1,400,000 32,375,000
Energizer Holdings, Inc. (a) 1,500,000 27,375,000
The Dial Corporation 2,052,900 21,298,838
-----------------
124,823,838
HOUSEHOLD APPLIANCES--2.1%
Maytag Corporation 1,160,400 $ 42,789,750
OFFICE EQUIPMENT--1.6%
Xerox Corporation 1,650,000 $ 34,237,500
HARDWARE--4.5%
The Black & Decker Corporation 1,672,200 $ 65,738,363
The Stanley Works 1,224,900 29,091,375
-----------------
94,829,738
OTHER CONSUMER GOODS & SERVICES--17.4%
Fortune Brands, Inc. 3,515,200 $ 81,069,300
Brunswick Corporation 4,127,800 68,366,687
Mattel, Inc. 4,964,400 65,468,025
H&R Block, Inc. 1,275,300 41,287,837
Galileo International, Inc. 1,539,500 32,137,063
Cendant Corporation (a) 2,100,000 29,400,000
Ralston Purina Group 1,450,000 28,909,375
American Greetings Corporation, Class A 866,500 16,463,500
-----------------
363,101,787
</TABLE>
6 THE OAKMARK FUND
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
THE OAKMARK FUND
------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
------------------------------------------------------------------------------------------------------
Shares Held Market Value
------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.2% (CONT.)
BANKS & THRIFTS--5.7%
Washington Mutual, Inc. 2,680,000 $ 77,385,000
Bank One Corporation 1,550,548 41,186,431
-----------------
118,571,431
INSURANCE--2.5%
Old Republic International Corporation 1,843,830 $ 30,423,195
MGIC Investment Corporation 475,000 21,612,500
-----------------
52,035,695
OTHER FINANCIAL--2.0%
SLM Holding Corporation 1,100,000 $ 41,181,250
INFORMATION SERVICES--7.6%
ACNielsen Corporation (a) 3,053,500 $ 67,177,000
The Dun & Bradstreet Corporation 2,107,500 60,327,187
Equifax Inc. 1,200,000 31,500,000
-----------------
159,004,187
COMPUTER SERVICES--5.4%
First Data Corporation 850,000 $ 42,181,250
Electronic Data Systems Corporation 1,000,000 41,250,000
SunGard Data Systems Inc. (a) 940,800 29,164,800
-----------------
112,596,050
TELECOMMUNICATIONS--1.9%
Citizens Communications Company 2,350,000 $ 40,537,500
PUBLISHING--1.8%
Knight Ridder, Inc. 692,000 $ 36,805,750
PHARMACEUTICALS--1.1%
Chiron Corporation (a) 495,000 $ 23,512,500
MEDICAL PRODUCTS--2.1%
Sybron International Corporation (a) 2,173,600 $ 43,064,450
AUTOMOBILES--2.0%
DaimlerChrysler AG (b) 800,000 $ 41,650,000
AEROSPACE & DEFENSE--2.9%
Lockheed Martin Corporation 1,300,000 $ 32,256,250
The B.F. Goodrich Company 820,000 27,931,250
-----------------
60,187,500
MACHINERY & INDUSTRIAL PROCESSING--4.4%
Cooper Industries, Inc. 1,798,400 $ 58,560,400
Eaton Corporation 511,700 34,283,900
-----------------
92,844,300
</TABLE>
THE OAKMARK FUND 7
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
THE OAKMARK FUND
------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
------------------------------------------------------------------------------------------------------
Shares Held/ Market Value
Par Value
------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.2% (CONT.)
BUILDING MATERIALS & CONSTRUCTION--1.7%
Masco Corporation 1,933,000 $ 34,914,813
CHEMICALS--0.8%
The Geon Company 956,600 $ 17,697,100
UTILITIES--1.3%
TXU Corp. 900,000 $ 26,550,000
RECREATION & ENTERTAINMENT--1.3%
Carnival Corporation 1,425,000 $ 27,787,500
TOTAL COMMON STOCKS (COST: $1,963,247,573) 1,945,410,233
SHORT TERM INVESTMENTS--6.4%
U.S. GOVERNMENT BILLS--1.2%
United States Treasury Bills, 6.10% due 11/24/2000 25,000,000 $ 24,411,000
TOTAL U.S. GOVERNMENT BILLS
(COST: $24,381,528) 24,411,000
COMMERCIAL PAPER--3.3%
American Express Credit Corporation, 6.75% due 7/5/2000 10,000,000 $ 10,000,000
Ford Motor Credit Corp., 6.72%-6.81%
due 7/3/2000-7/6/2000 20,000,000 20,000,000
General Electric Capital Corporation, 6.80% due 7/3/2000 40,000,000 40,000,000
-----------------
TOTAL COMMERCIAL PAPER (COST: $70,000,000) 70,000,000
REPURCHASE AGREEMENTS--1.9%
State Street Repurchase Agreement, 6.25% due 7/3/2000 39,164,000 $ 39,164,000
TOTAL REPURCHASE AGREEMENTS (COST: $39,164,000) 39,164,000
TOTAL SHORT TERM INVESTMENTS (COST: $133,545,528) 133,575,000
Total Investments (Cost $2,096,793,101)--99.6% $ 2,078,985,233
Other Assets In Excess Of Other Liabilities--0.4% 7,342,590
TOTAL NET ASSETS--100% $ 2,086,327,823
=================
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
8 THE OAKMARK FUND
<PAGE>
THE OAKMARK SELECT FUND
REPORT FROM BILL NYGREN AND HENRY BERGHOEF, PORTFOLIO MANAGERS
-----------------------------------------------------------------------------
[PHOTO] [PHOTO]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS
INCEPTION (11/1/96) TO PRESENT (6/30/00) AS COMPARED TO THE STANDARD & POOR'S
500 INDEX
[CHART]
[EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
THE OAKMARK
SELECT FUND S&P 500
<S> <C> <C>
10/96 $10,000 $10,000
1/97 $12,500 $11,202
4/97 $12,250 $11,470
7/97 $15,290 $13,721
9/97 $16,340 $13,659
12/97 $17,704 $14,053
3/98 $20,078 $16,021
6/98 $20,462 $16,551
9/98 $16,936 $14,904
12/98 $20,575 $18,078
3/99 $22,766 $18,979
6/99 $24,482 $20,317
9/99 $22,028 $19,048
12/99 $23,557 $21,882
3/00 $25,667 $22,384
6/00 $24,324 $21,790
</TABLE>
<TABLE>
<CAPTION>
6/30/00 NAV $19.02 AVERAGE ANNUAL TOTAL RETURN*
THROUGH 6/30/00
TOTAL RETURN FROM FUND INCEPTION
LAST 3 MOS. 11/1/96
--------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK SELECT FUND -5.2% 27.4%
Standard & Poor's 500 Stock
Index w/inc** -2.7% 23.7%
Standard & Poor's MidCap 400
Index w/inc** -3.3% 22.2%
Value Line Composite Index** -4.8% 3.7%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks whose
composition is different from the Fund. The S&P 500 is a broad market-weighted
average dominated by blue-chip stocks. The 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.
Although some of our stocks were up significantly in the quarter ended June 30,
The Oakmark Select Fund fell by 5% compared to 3% losses in both the S&P 500 and
the S&P Midcap 400. Our gain of 3% for the calendar year-to-date is superior to
most midcap value funds and better than the S&P 500.
During the quarter we suffered from declines in two big holdings, USG Corp. and
Reynolds & Reynolds (REY). USG stock fell from $42 to $30 as construction
spending slowed and earnings estimates fell from over $8.00 to over $7.00. We
believe this earnings decline is an expected result of economic slowing and that
USG's annual earnings per share will vacillate from $3 to $9 based on the
economic cycle. At 10 times trough earnings and just over 3 times peak earnings,
we believe USG stock is very attractive. USG management apparently agrees. They
have repurchased about 2% of their outstanding shares per month this year.
We also believe REY is extremely attractive. During the quarter REY sold its
business forms division and plans to use the proceeds for its rapidly growing
automotive information business as well as for share repurchase. REY also
announced a transaction with GM that will further the company's lead as the
dominant Information Technology provider to auto dealers. Both transactions
sacrificed a small amount of near-term earnings in exchange for much more rapid
earnings growth. We feel they were positive developments, albeit misunderstood
by REY's shareholders. Because the immediate result of those transactions is a
higher P/E on next year's earnings, shareholders reacted negatively. Our
estimate of REY's value is higher than it was last quarter, and we believe the
stock is now at a much greater discount to its value.
SHARE REPURCHASES
Our stock selection criteria have always included identifying companies where
the value grows as time passes. That growth in value comes mostly, but not only,
from sales gains. Lately, investors have become so focused on sales growth that
other sources of growth seem to be
THE OAKMARK SELECT FUND 9
<PAGE>
unrewarded by the market. However, we own many companies that have moderate
levels of sales growth but generate more cash from their operations than is
required to support that growth. Management can return that cash to shareholders
as dividends, or they can invest it in new business opportunities, acquisitions
of other businesses, debt paydown, or share repurchases. Because of the
tax-inefficiency of dividends, we generally prefer companies that reinvest
excess cash. We prefer investment of that excess cash because it creates
incremental earnings and thus sustainable earnings per share growth that is
significantly higher than sales growth alone. And when their own stock sells at
a large discount to business value, we love to see excess cash invested in share
repurchase.
While competitive bidding for acquisitions usually forces prices to a
fully-valued level, share repurchases can occur at prices far below fair value.
Share repurchase also is an investment in the business management understands
best as opposed to the uncertainties associated with new business opportunities
or acquisitions. Lastly, we take share repurchases as a confirmation that
management shares our belief about the undervaluation of their stock. A recent
Barron's article cited a decline in corporate share repurchase announcements as
an indication that the stock market has become more fully valued. We're pleased
to say that our portfolio's holdings are not responsible for that decline.
During the most recently reported quarter 14 of our 20 holdings repurchased
shares. And six of those repurchased shares at an annual rate of more than 10%
of their outstanding shares. We believe that per share growth that comes from
shrinking the share count is just as valuable as growth that comes from
increasing sales. We commend our managements that have embraced the concept of
growing value by shrinking!
DROP THE CHALUPA!
When a financial magazine asked last quarter for a stock recommendation
investors could buy and hold for a decade, our answer was a recent addition to
our fund, Tricon Global Restaurants (YUM). The writer seemed to expect that,
with the luxury of an extended time frame, our choice might be a high-priced,
high-growth favorite. One of today's most popular rationales for paying very
high P/E multiples is that future growth will compensate for the high purchase
price and that as time passes, the "over-pricing" will be eliminated. A problem
with that logic is that it is most frequently applied to companies in rapidly
changing industries, making a long-term forecast a very fuzzy one.
So, why would we pick a company in an industry that often shows how fickle our
taste buds can be? Tricon owns and operates three fast food chains: KFC, Pizza
Hut and Taco Bell. As you forecast out a decade, what trend seems more likely to
continue than America's, and increasingly the world's, growing appetite for fast
food? And as more of our meals are eaten on the run, the demand for food other
than hamburgers grows even more rapidly than does the fast food industry. In the
non-hamburger category, Tricon owns the three leading chains serving chicken,
pizza and Mexican. Those leadership positions have been unchallenged for years
and are, in our opinion, quite likely to remain intact. Outside the United
States, KFC, Pizza Hut and Taco Bell are all growing extremely rapidly.
Why does a company with such strong fundamentals become a value stock? Tricon
was spun-off from Pepsi in 1997 with earnings from operations of $1.59 per
share, and the stock traded in a range of $28 to $36. During 1998, operating EPS
grew to $1.79, and Tricon secured exclusive rights for STAR WARS promotions. The
stock hit a high that year of $51. Last March, after a highly successful launch
of Pizza Hut's "Big New Yorker Pizza" and amid growing anticipation of STAR
WARS, Tricon stock peaked at $74 per share.
Since then Tricon has had some issues: STAR WARS was a disappointment; KFC's new
and successful chicken sandwich cannibalized sales of higher-profit
on-the-bone-chicken; after very strong sales from the New Yorker introduction,
Pizza Hut saw sales decline in this year's first quarter; and AmeriServe, the
highly-leveraged supplier from which Tricon buys its food, declared bankruptcy.
Despite these issues, Tricon's strong international sales and better expense
control allowed 1999 operating EPS to grow to $2.58, and its earnings are
expected to exceed $3.00 this year. Tricon stock, at $29, down over 60% from its
high, now trades at a P/E of about 9 times, barely one-third of the multiple of
the S&P 500. We expect the AmeriServe situation to be resolved soon, and we were
pleased to see Wal-Mart indicate an interest in acquiring it. AmeriServe's
situation should not meaningfully impact Tricon's earnings.
Over the next few years, sales and earnings at Tricon should grow at about 10%
per year. As cash flow is used to reduce both debt and outstanding shares, we
believe the annual EPS growth rate will be in the teens. Although the 30 times
earnings at which Tricon traded in early 1999 seems like an overly optimistic
target, we believe the P/E multiple should increase substantially from 9. The
market's over-reaction, combined with Tricon's strong growth outlook, makes
Tricon a great long term holding and a great addition to our portfolio.
Thank you for your support.
/s/ William C. Nygren
WILLIAM C. NYGREN, CFA
Portfolio Manager
[email protected]
/s/ Henry R. Berghoef
HENRY R. BERGHOEF, CFA
Portfolio Manager
[email protected]
July 6, 2000
10 THE OAKMARK SELECT FUND
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
THE OAKMARK SELECT FUND
------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------------------
Shares Held Market Value
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--92.0%
FOOD & BEVERAGE--0.2%
Citizens Communications Company 192,000 $ 3,312,000
APPAREL--4.0%
Liz Claiborne, Inc. 1,748,600 $ 61,638,150
RETAIL--13.4%
Toys `R' Us, Inc. (a) 9,048,500 $ 131,768,781
Tricon Global Restaurants, Inc. (a) 2,615,400 73,885,050
---------------
205,653,831
HOUSEHOLD PRODUCTS--4.8%
Energizer Holdings, Inc. (a) 4,041,400 $ 73,755,550
OTHER CONSUMER GOODS & SERVICES--4.2%
Ralston Purina Group 2,130,200 $ 42,470,863
H&R Block, Inc. 685,000 22,176,875
---------------
64,647,738
BANKS & THRIFTS--14.6%
Washington Mutual, Inc. 7,579,800 $ 218,866,725
People's Bank of Bridgeport, Connecticut 274,400 5,042,100
---------------
223,908,825
INSURANCE--4.0%
PartnerRe Ltd. (b) 1,737,300 $ 61,565,569
OTHER FINANCIAL--1.4%
MBIA, Inc. 440,800 $ 21,241,050
INFORMATION SERVICES--11.0%
The Dun & Bradstreet Corporation 3,143,600 $ 89,985,550
Ceridian Corporation 3,284,500 79,033,281
---------------
169,018,831
COMPUTER SERVICES--8.9%
Electronic Data Systems Corporation 1,750,000 $ 72,187,500
First Data Corporation 1,277,200 63,381,050
---------------
135,568,550
COMPUTER SOFTWARE--7.5%
The Reynolds and Reynolds Company, Class A 6,279,700 $ 114,604,525
PHARMACEUTICALS--2.1%
Chiron Corporation (a) 668,900 $ 31,772,750
</TABLE>
THE OAKMARK SELECT FUND 11
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
THE OAKMARK SELECT FUND
------------------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
------------------------------------------------------------------------------------------------------------
Shares Held/
Par Value Market Value
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--92.0% (CONT.)
MACHINERY & INDUSTRIAL PROCESSING--4.6%
Thermo Electron Corporation (a) 3,369,000 $ 70,959,563
BUILDING MATERIALS & CONSTRUCTION--7.2%
USG Corporation 3,634,900 $ 110,410,087
DIVERSIFIED CONGLOMERATES--4.1%
U.S. Industries, Inc. 5,141,600 $ 62,341,900
TOTAL COMMON STOCKS (COST: $1,441,253,970) 1,410,398,919
SHORT TERM INVESTMENTS--8.0%
U.S. GOVERNMENT BILLS--1.3%
United States Treasury Bills, 6.10% due 11/24/200 20,000,000 $ 19,528,800
TOTAL U.S. GOVERNMENT BILLS
(COST: $19,505,222) 19,528,800
COMMERCIAL PAPER--4.2%
American Express Credit Corporation, 6.75%
due 7/6/2000 10,000,000 $ 10,000,000
Ford Motor Credit Corp., 6.54%-6.72%
due 7/3/2000-7/5/2000 20,000,000 20,000,000
General Electric Capital Corporation, 6.80% due 7/3/2000 35,000,000 35,000,000
---------------
TOTAL COMMERCIAL PAPER (COST: $65,000,000) 65,000,000
REPURCHASE AGREEMENTS--2.5%
State Street Repurchase Agreement, 6.25% due 7/3/2000 38,779,000 $ 38,779,000
TOTAL REPURCHASE AGREEMENTS (COST: $38,779,000) 38,779,000
TOTAL SHORT TERM INVESTMENTS (COST: $123,284,222) 123,307,800
Total Investments (Cost $1,564,538,192)--100.0% $ 1,533,706,719
Other Liabilities In Excess Of Other Assets--(0.0)% (725,844)
TOTAL NET ASSETS--100% $ 1,532,980,875
===============
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
12 THE OAKMARK SELECT FUND
<PAGE>
THE OAKMARK SMALL CAP FUND
REPORT FROM JAMES P. BENSON AND CLYDE S. MCGREGOR, PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO] [PHOTO]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (6/30/00) AS COMPARED TO THE RUSSELL 2000 INDEX
[CHART]
[EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
THE OAKMARK
SMALL CAP FUND RUSSELL 2000
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,180 $10,684
4/96 $12,180 $11,841
7/96 $11,830 $10,772
10/96 $13,190 $11,661
1/97 $15,180 $12,708
4/97 $15,170 $11,848
7/97 $18,730 $14,369
9/97 $20,340 $15,774
12/97 $20,290 $15,245
3/98 $21,732 $16,779
6/98 $20,467 $15,997
9/98 $14,976 $12,774
12/98 $17,620 $14,857
3/99 $16,069 $14,051
6/99 $18,205 $16,237
9/99 $16,558 $15,210
12/99 $16,224 $18,015
3/00 $15,974 $19,292
6/00 $15,926 $18,562
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
6/30/00 NAV $13.35 THROUGH 6/30/00
TOTAL RETURN FROM FUND INCEPTION
LAST 3 MOS. 11/1/95
---------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK SMALL CAP FUND -0.3% 10.5%
Lipper Small Cap Fund Index** 1.3% 10.8%
Russell 2000 w/inc** -3.8% 14.2%
S&P Small Cap 600 w/inc.** 1.0% 14.9%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
whose composition is different from the Fund. The Lipper 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.
The second calendar quarter of 2000 was a more typical period for stocks as
investors began to question the business models of many of the new technology
companies that came into existence over the past two years. The dependence by
these firms on untested business plans, often inexperienced managements and an
overly zealous pursuit of revenue growth despite negative cash generation
created an environment that was likely to lead to disappointing investment
results for these companies. Our focus on more established enterprises with
positive cash flow characteristics aided our investment returns in the second
quarter. For the quarter, your Fund was down 0.30% versus the Russell 2000 Index
which fell by 3.78%. While pleased by the 3.48% outperformance of the Russell
2000, we continue to work to position your Fund to improve our absolute returns.
For much of the balance of this report, we would like to detail for you some of
the changes that have been underway at your Fund that we expect will have a
positive impact on future results.
TACTICAL CHANGES
Over the past two quarters we have intensified our focus on stocks that offer
improved liquidity and stocks that suggest near-term catalysts that might help
reveal the underlying value of the company in which we are investing. Improving
the liquidity of the portfolio should reduce our trading costs which should
translate into better investment performance over the long-term. While liquidity
in an individual stock can change over time (which makes precise estimates of
portfolio liquidity difficult), we would estimate that we have completed the
majority of the moves we needed to significantly improve
THE OAKMARK SMALL CAP FUND 13
<PAGE>
--------------------------------------------------------------------------------
the portfolio's liquidity. Two examples of low liquidity stocks that we sold are
Northwest Savings and Northwest Pipe, where we sold the entire positions. We
also trimmed many other stock positions to bring our position size down to a
level that is more tradable should we need to sell the position. While we
improved the portfolio's liquidity, we did not change the basic focus of this
Fund and that is to own positions in attractive value-oriented small cap
equities.
Our focus on companies with near-term catalysts is our response to "investment
clutter." In today's world there are thousands of domestic small cap companies
all trying to capture the attention of investors, but only a subset of this
universe will accomplish this goal. We are no longer in a world where we can buy
sound small cap companies trading at inexpensive prices and then wait for other
investors to discover the company and bid the shares higher. Rather, we believe
that we are in an impatient market that will quickly reward those firms that
exhibit positive catalysts such as great new products, accretive share
repurchases, aggressive cost controls and above expectations earnings growth. We
want to be positioned in undervalued equities that exhibit some or all of these
traits.
PORTFOLIO OVERVIEW
As we begin the third quarter, the Fund's portfolio consists of forty stocks
that are trading on a weighted average basis at 9.1 times estimated year 2001
earnings. Despite the low P/E ratio, we have not sacrificed growth as the
expected earnings per share growth from 2000 to 2001 for this portfolio is
approximately 25%. These two figures translate into a PEG (price/earnings ratio
to expected growth rate) of 0.36 in a market where a ratio of under 1 is
considered reasonably good by most investors.
We would like to highlight two stocks your fund owns: ITT Educational Services
(ESI) and Micron Electronics (MUEI). Both of these stocks have interesting new
developments that we expect to positively impact their share prices over the
next few quarters. First, ESI is experiencing robust enrollment growth in their
computer and internet-related educational courses. This growth is being somewhat
mitigated by lower demand for some of ESI's older educational offerings, but we
expect the strong growth in ESI's computer-related courses to begin to overwhelm
the softness in the older offerings over the next year. This should result in an
upturn in ESI's revenue and profit growth. With this stock trading at a
significantly lower multiple to earnings than its peers, we expect ESI to do
quite well over the next several quarters.
MUEI is an efficient manufacturer of personal computers (slightly more efficient
than Dell!) with a memory chip remanufacturing operation and a rapidly growing
web hosting business. MUEI's biggest problem in recent periods was lack of
demand due to a weak brand position. However, we believe they may have solved
the issue of demand generation for their PC business by teaming up with Best Buy
and other retailers. MUEI will provide the retailers' customers with
made-to-order PC's that are ordered in the store and shipped from MUEI's
manufacturing plant a day or two later directly to the customer. This looks like
a win-win situation as MUEI realizes increased volume for its manufacturing
facilities while the retailers reduce their inventory costs by stocking fewer
PC's in their stores. Several additional retailers have signed on with MUEI
following a promising start at Best Buy. If this model works well, the upside in
MUEI's revenue growth and profitability should be substantial.
PORTFOLIO MANAGER CHANGE
At the end of June, Steve Reid stepped down as portfolio manager of the Fund
following an extended leave of absence. We thank him for his valuable
contributions and we wish him all the best. Clyde McGregor has joined me to
provide the portfolio management team for your Fund. Clyde has successfully
managed The Oakmark Equity and Income Fund since its inception in 1995 (a role
that he will continue to perform) and he has over two decades of professional
investment experience. We look forward to a successful collaboration.
Once again we would like to thank our shareholders for your support of The
Oakmark Small Cap Fund.
/s/ James P. Benson
JAMES P. BENSON, CFA
Portfolio Manager
[email protected]
/s/ Clyde S. McGregor
CLYDE S. MCGREGOR, CFA
Portfolio Manager
[email protected]
July 3, 2000
14 THE OAKMARK SMALL CAP FUND
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
THE OAKMARK SMALL CAP FUND
------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED)
------------------------------------------------------------------------------------------------
Shares Held Market Value
------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.5%
FOOD & BEVERAGE--7.0%
Ralcorp Holdings, Inc. (a) 465,000 $ 5,696,250
Del Monte Foods Company (a) 800,000 5,450,000
International Multifoods Corporation 150,000 2,596,875
M & F Worldwide Corp. (a) 300,000 1,687,500
----------------
15,430,625
RETAIL--5.9%
Ugly Duckling Corporation (a) 1,750,000 $ 12,359,375
The Great Atlantic & Pacific Tea Company, Inc. 39,900 663,338
----------------
13,022,713
HARDWARE--0.9%
Jore Corporation (a) 376,000 $ 2,044,500
OTHER CONSUMER GOODS & SERVICES--5.6%
Department 56, Inc. (a) 800,000 $ 8,800,000
Barry (R.G.) Corporation (a) 885,000 3,429,375
----------------
12,229,375
BANKS & THRIFTS--8.6%
People's Bank of Bridgeport, Connecticut 400,000 $ 7,350,000
BankAtlantic Bancorp, Inc., Class A 1,082,500 4,059,375
PennFed Financial Services, Inc. 250,000 3,531,250
Golden State Bancorp Inc. (a) 150,000 2,700,000
Finger Lakes Financial Corp. 175,500 1,250,437
----------------
18,891,062
INSURANCE--7.8%
The PMI Group, Inc. 190,000 $ 9,025,000
The MONY Group Inc. (a) 240,000 8,115,000
----------------
17,140,000
EDUCATIONAL SERVICES--6.0%
ITT Educational Services, Inc. (a) 750,000 $ 13,171,875
INFORMATION SERVICES--4.6%
National Data Corporation 435,000 $ 10,005,000
DATA STORAGE--0.0%
StorageNetworks, Inc. (a) 700 $ 63,175
COMPUTER SOFTWARE--4.3%
Mentor Graphics Corporation 300,000 $ 5,962,500
MSC.Software Corp. 200,000 1,862,500
Symantec Corporation (a) 30,000 1,618,125
----------------
9,443,125
</TABLE>
THE OAKMARK SMALL CAP FUND 15
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
THE OAKMARK SMALL CAP FUND
------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
------------------------------------------------------------------------------------------------
Shares Held Market Value
------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.5% (CONT.)
COMPUTER SYSTEMS--4.7%
Micron Electronics, Inc. (a) 825,000 $ 10,312,500
SECURITY SYSTEMS--1.7%
Checkpoint Systems, Inc. (a) 500,000 $ 3,750,000
PHARMACEUTICALS---3.3%
Dura Pharmaceuticals, Inc. (a) 500,000 $ 7,187,500
MEDICAL CENTERS--1.1%
Veterinary Centers of America, Inc. (a) 180,000 $ 2,475,000
MEDICAL RESEARCH--0.8%
Covance Inc. (a) 200,000 $ 1,762,500
MEDICAL PRODUCTS--2.2%
Hanger Orthopedic Group, Inc. (a) 1,000,000 $ 4,937,500
AUTOMOTIVE--2.1%
Standard Motor Products, Inc. 280,000 $ 2,380,000
Stoneridge, Inc. (a) 245,000 2,143,750
----------------
4,523,750
AUTOMOBILE RENTALS--1.3%
Dollar Thrifty Automotive Group, Inc. (a) 151,500 $ 2,793,281
TRANSPORTATION SERVICES--3.0%
Teekay Shipping Corporation (b) 200,000 $ 6,575,000
MACHINERY & INDUSTRIAL PROCESSING--5.9%
Columbus McKinnon Corporation 495,000 $ 6,868,125
Sames Corporation 235,000 3,701,250
MagneTek, Inc. (a) 300,000 2,400,000
----------------
12,969,375
CHEMICALS--3.5%
Ferro Corporation 210,000 $ 4,410,000
H.B. Fuller Company 70,000 3,189,375
----------------
7,599,375
REAL ESTATE--11.7%
Catellus Development Corporation (a) 907,800 $ 13,617,000
Prime Hospitality Corp. (a) 800,000 7,550,000
Trammell Crow Company (a) 427,700 4,597,775
----------------
25,764,775
</TABLE>
16 THE OAKMARK SMALL CAP FUND
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
THE OAKMARK SMALL CAP FUND
------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
------------------------------------------------------------------------------------------------
Shares Held/
Par Value Market Value
------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--93.5% (CONT.)
DIVERSIFIED CONGLOMERATES--1.5%
U.S. Industries, Inc. 275,000 $ 3,334,375
TOTAL COMMON STOCKS (COST: $241,680,521) 205,426,381
CALL OPTIONS WRITTEN--(0.1%)
EQUITY OPTIONS--(0.1%)
COMPUTER SOFTWARE--(0.1%)
Symantec Corporation, July 75 Calls (30,000) $ (11,250)
Mentor Graphics Corporation, July 17.50 Calls (40,000) (117,500)
----------------
(128,750)
COMPUTER SYSTEMS--0.0%
Micron Electronics, Inc., July 15 Calls (27,500) $ (1,718)
TOTAL CALL OPTIONS WRITTEN (COST: $(237,698)) (130,468)
SHORT TERM INVESTMENTS--6.0%
COMMERCIAL PAPER--3.2%
General Electric Capital Corporation, 6.80%
due 7/3/2000 7,000,000 $ 7,000,000
TOTAL COMMERCIAL PAPER (COST: $7,000,000) 7,000,000
REPURCHASE AGREEMENTS--2.8%
State Street Repurchase Agreement, 6.25% due 7/3/2000 6,187,000 $ 6,187,000
TOTAL REPURCHASE AGREEMENTS (COST: $6,187,000) 6,187,000
TOTAL SHORT TERM INVESTMENTS (COST: $13,187,000) 13,187,000
Total Investments (Cost $254,629,823)--99.4% $ 218,482,913
Other Assets In Excess Of Other Liabilities--0.6% 1,307,002
TOTAL NET ASSETS--100% $ 219,789,915
================
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
THE OAKMARK SMALL CAP FUND 17
<PAGE>
THE OAKMARK EQUITY AND INCOME FUND
REPORT FROM CLYDE S. MCGREGOR AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO][PHOTO]
--------------------------------------------------------------------------------
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (6/30/00) AS COMPARED TO THE LIPPER BALANCED FUND
INDEX
[CHART]
[EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
THE OAKMARK LIPPER
EQUITY & BALANCED
INCOME FUND FUND INDEX
<C> <C> <C>
10/95 $10,000 $10,000
1/96 $10,290 $10,662
4/96 $10,630 $10,778
7/96 $10,660 $10,665
10/96 $11,290 $11,449
1/97 $12,255 $12,197
4/97 $12,429 $12,244
7/97 $14,289 $13,909
9/97 $14,810 $14,005
12/97 $14,941 $14,243
3/98 $16,233 $15,370
6/98 $16,320 $15,599
9/98 $15,191 $14,701
12/98 $16,792 $16,392
3/99 $16,792 $16,655
6/99 $18,457 $17,402
9/99 $17,518 $16,682
12/99 $18,119 $17,863
3/00 $18,924 $18,396
6/00 $18,886 $18,174
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
6/30/00 NAV $15.01 THROUGH 6/30/00
TOTAL RETURN FROM FUND INCEPTION
LAST 3 MOS. 11/1/95
--------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK EQUITY & INCOME FUND -0.2% 14.6%
Lipper Balanced Fund Index** -1.2% 13.7%
Lehman Govt./Corp. Bond** 1.5% 5.8%
S&P 500 w/inc.** -2.7% 23.8%
</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 or funds
whose composition is different from the Fund. The Lipper Balanced Fund Index
Composite is comprised of 30 balanced funds. The Lehman Govt./Corp. Bond Index
includes the Lehman Government and Lehman Corporate indices. The S&P 500 is a
broad market-weighted average dominated by blue-chip stocks. Past performance is
no guarantee of future results.
QUARTER REVIEW
The price of the Oakmark Equity and Income Fund was virtually unchanged in the
quarter ended June 30, which contrasts with a small loss of -1.2% for the Lipper
Balanced Fund Index, our primary standard of comparison. Two equity holdings
suffered drastic markdowns late in the quarter, turning an otherwise promising
period into one with a dull outcome. We are most pleased with the Fund's fixed
income holdings as they provided positive rates of return despite continued
upward pressure on interest rates.
TIME PERIODS
But for a particularly bad day on June 30th, we had a pretty good quarter. While
this may smack of an apology (like the insurance company that, but for the
hurricane that destroyed property it was insuring, would have had a banner
underwriting year), it is more by way of leading into a discussion of time
periods. What is so magical about the end of a month, end of a quarter, end of a
year? Just as corporations (or families) do not wind up their businesses and
liquidate at the end of a calendar year (hence the phrase going concern), it
should be remembered that investment results should be looked at in the context
of the long-term, rather than just interim snapshots. Certainly those snapshots
serve as progress reports. However, since the dates on which the snapshots are
taken increasingly are subject to market forces other than fundamentals (whether
it be the derivative positions of arbitrageurs or major financial institutions),
measuring over a rolling long-term period is critical when assessing the true
performance of value investors.
18 THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
--------------------------------------------------------------------------------
One of our more successful investments of 2000 has been the St. Joe Company, the
largest private landholder in Florida. Originally a creation of a branch of the
DuPont family, St. Joe over time grew to be a collection of a variety of assets,
including majority ownership of the Florida East Coast Railway. New management
was brought in several years ago in an effort to unlock the inherent value in
the company's assets and pristine balance sheet. That management has moved
aggressively to exit non-core, capital intensive businesses and focus on the
development of St. Joe's land portfolio. To that end, upon receiving IRS
approval, St. Joe will spin out tax-free to its shareholders its ownership in
the Florida East Coast Railway and become a pure real estate operating company.
That company, with more than 1,000,000 acres, will own a substantial portion of
the remaining part of coastal Florida that is left open to development, with a
cost basis of approximately $100 per acre. Management expects that it will have
few capital needs going forward, and will effectively be in long-term
liquidation as it undertakes a major shrinkage of its equity base with its free
cash flow. Florida East Coast Railway will operate as an independent company and
have the opportunity to optimize not just its transportation assets but also its
own real estate and telecommunications business. In both instances, we will have
the opportunity to participate with smart, shareholder-oriented managements in
an area where the demographics for their businesses are favorable for the
foreseeable future.
SELL DISCIPLINE
Over our many years as investors, the stock market has changed its
characteristics in several respects. Perhaps most noticeable has been the
amplification of volatility in the prices of individual stocks in response to
news. This particular trend seems to be a natural outcome of the fact that the
institutionally-managed share of invested assets continues to grow, and an ever
larger number of institutions employ investing styles that are news-dependent.
As mentioned in the quarter review section above, our results would have been
more pleasant but for two stock blowups late in June. Both Electronic Data
Systems (EDS) and Sybron International issued releases to warn investors that
their earnings would not meet expectations. The combined effect on the Fund of
the price declines in these two issues was more than 1.3%. When situations such
as this arise, clients often inquire as to our sell discipline.
Our sell discipline is a logical outcome of our investing process. To buy a
security, we must find it to be selling at a significant discount to its
intrinsic value, project a satisfactory growth rate for that intrinsic value,
and evaluate the management team to be one which treats company shareholders as
partners. Obviously, the sell discipline is based on an investment failing to
satisfy one or more of these conditions.
We establish buy and sell targets for each company that we approve for purchase
based on our understanding of the intrinsic value per share. Next, our analysts
devise a list of "reasons to own" which help provide the conceptual framework
for holding a security. Stocks are sold when they attain their sell target. In
some cases, however, we sell without reaching the sell target when the reasons
to own begin to erode away.
Now how does this relate to EDS and Sybron? In both cases the share price has
yet to attain our sell target and the respective reasons to own have not been
compromised. In fact, our respect for each management team has only increased
with time. Before June, share prices for both companies had risen significantly
this year, and we reduced our holdings on the way up. This reflects our
perception that risk increases as a stock price closes in on its sell target.
With the precipitous and, in our opinion, unwarranted declines in stock price,
we have been rebuilding these positions. In both cases we are confident that the
disappointment in earnings does not reflect a secular deterioration in the
company's prospects. It is our firmly held belief that at some point in the
future we will be able to report back to our shareholders concerning the
successful conclusion of our ownership of each of these stocks.
/s/ Clyde S. McGregor
CLYDE S. MCGREGOR, CFA
Portfolio Manager
[email protected]
/s/ Edward A. Studzinski
EDWARD A. STUDZINSKI, CFA
Portfolio Manager
[email protected]
July 3, 2000
THE OAKMARK EQUITY AND INCOME FUND 19
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
THE OAKMARK EQUITY AND INCOME FUND
-------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED)
-------------------------------------------------------------------------------------------------
Shares Held Market Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY AND EQUIVALENTS--56.2%
HOUSEHOLD PRODUCTS--2.9%
Energizer Holdings, Inc. (a) 80,000 $ 1,460,000
BANKS & THRIFTS--3.7%
Washington Mutual, Inc. 64,000 $ 1,848,000
OTHER FINANCIAL--3.0%
Heller Financial, Inc. 74,000 $ 1,517,000
INFORMATION SERVICES--3.8%
Ceridian Corporation 80,000 $ 1,925,000
DATA STORAGE--0.1%
StorageNetworks, Inc. (a) 600 $ 54,150
COMPUTER SERVICES--3.5%
Electronic Data Systems Corporation 25,000 $ 1,031,250
First Data Corporation 15,000 744,375
---------------
1,775,625
COMPUTER SOFTWARE--4.2%
The Reynolds and Reynolds Company 117,500 $ 2,144,375
TELECOMMUNICATIONS--4.3%
Citizens Communications Company 125,000 $ 2,156,250
MEDICAL PRODUCTS--5.7%
Sybron International Corporation (a) 89,500 $ 1,773,219
Edwards Lifesciences Corporation (a) 60,000 1,110,000
---------------
2,883,219
AUTOMOTIVE--2.7%
Lear Corporation (a) 67,700 $ 1,354,000
TRANSPORTATION SERVICES--1.2%
GATX Corporation 18,500 $ 629,000
AGRICULTURAL EQUIPMENT--4.8%
Alamo Group Inc. 192,350 $ 2,404,375
CHEMICALS--0.9%
The Geon Company 25,000 $ 462,500
</TABLE>
20 THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
THE OAKMARK EQUITY AND INCOME FUND
-------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-------------------------------------------------------------------------------------------------
Shares Held/
Par Value Market Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY AND EQUIVALENTS--56.2% (CONT.)
REAL ESTATE--13.5%
Catellus Development Corporation (a) 136,728 $ 2,050,920
The St. Joe Company 55,000 1,650,000
Amli Residential Properties Trust 67,500 1,590,469
Legacy Hotels Real Estate Investment Trust (b) 250,000 1,494,932
---------------
6,786,321
TOTAL EQUITY (COST: $24,047,908) 27,399,815
CONVERTIBLE PREFERRED STOCK--1.9%
TELECOMMUNICATIONS--1.9%
Metromedia International Group, Inc.,
Convertible Preferred, 7.25% 34,000 $ 952,000
TOTAL CONVERTIBLE PREFERRED STOCK (COST: $993,260) 952,000
TOTAL EQUITY AND EQUIVALENTS (COST: $25,041,168) 28,351,815
FIXED INCOME--38.8%
PREFERRED STOCK--5.4%
BANKS & THRIFTS--4.1%
BBC Capital Trust I, Preferred, 9.50% 34,000 $ 597,125
Pennfed Capital Trust, Preferred, 8.90% 27,500 594,687
PennFirst Capital Trust I, Preferred, 8.625% 70,000 511,875
Fidelity Capital Trust I, Preferred, 8.375% 43,500 353,438
---------------
2,057,125
TELECOMMUNICATIONS--1.0%
MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 501,250
REAL ESTATE--0.3%
Host Marriott Corporation, Preferred Class B, 10.00% 6,000 $ 132,000
TOTAL PREFERRED STOCK (COST: $3,270,348) 2,690,375
CORPORATE BONDS--3.7%
RETAIL--1.1%
Ugly Duckling Corporation, 12.00% due 10/15/2003,
Subordinated Debenture 650,000 $ 573,625
</TABLE>
THE OAKMARK EQUITY AND INCOME FUND 21
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
THE OAKMARK EQUITY AND INCOME FUND
-------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-------------------------------------------------------------------------------------------------
Par Value Market Value
-------------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME--38.8% (CONT.)
BUILDING MATERIALS & CONSTRUCTION--1.5%
Juno Lighting, Inc., 11.875% due 7/1/2009,
Senior Subordinated Note 750,000 $ 622,500
USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 150,000 152,625
---------------
775,125
UTILITIES--1.1%
Midland Funding Corporation, 11.75% due 7/23/2005 500,000 $ 532,500
TOTAL CORPORATE BONDS (COST: $1,933,362) 1,881,250
GOVERNMENT AND AGENCY SECURITIES--29.7%
U.S. GOVERNMENT NOTES--25.7%
United States Treasury Notes, 6.50% due 10/15/2006 3,000,000 $ 3,031,579
United States Treasury Notes, 6.50% due 2/28/2002 2,000,000 2,000,000
United States Treasury Notes, 6.00% due 8/15/2009 2,000,000 1,983,750
United States Treasury Notes, 5.25% due 8/15/2003 2,000,000 1,939,376
United States Treasury Notes, 5.25% due 5/15/2004 2,000,000 1,929,376
United States Treasury Notes, 9.125% due 5/15/2009 1,000,000 1,088,125
United States Treasury Notes, 7.875% due 8/15/2001 1,000,000 1,014,688
---------------
12,986,894
U.S. GOVERNMENT AGENCIES--4.0%
Federal Home Loan Bank, 6.75% due 5/1/2002 2,000,000 $ 1,994,456
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $14,950,646) 14,981,350
TOTAL FIXED INCOME (COST: $20,154,356) 19,552,975
SHORT TERM INVESTMENTS--4.4%
COMMERCIAL PAPER--3.0%
Ford Motor Credit Corp., 6.72% due 7/3/2000 1,500,000 $ 1,500,000
TOTAL COMMERCIAL PAPER (COST: $1,500,000) 1,500,000
REPURCHASE AGREEMENTS--1.4%
State Street Repurchase Agreement, 6.25% due 7/3/2000 731,000 $ 731,000
TOTAL REPURCHASE AGREEMENTS (COST: $731,000) 731,000
TOTAL SHORT TERM INVESTMENTS (COST: $2,231,000) 2,231,000
Total Investments (Cost $47,426,524)--99.4% $ 50,135,790
Other Assets In Excess Of Other Liabilities--0.6% 313,354
TOTAL NET ASSETS--100% $ 50,449,144
===============
</TABLE>
(a) Non-income producing security.
(b) Represents foreign domiciled corporation.
22 THE OAKMARK EQUITY AND INCOME FUND
<PAGE>
THE OAKMARK GLOBAL FUND
REPORT FROM MICHAEL J. WELSH AND GREGORY L. JACKSON, PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
[PHOTO][PHOTO]
--------------------------------------------------------------------------------
RESULTS FROM FUND INCEPTION 8/4/99 THROUGH 6/30/00
<TABLE>
<CAPTION>
6/30/00 NAV $10.37 TOTAL RETURN*
FROM FUND
TOTAL RETURN INCEPTION
LAST 3 MOS. 8/4/99
--------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK GLOBAL FUND 3.2% 3.8%
MSCI World Index w/inc.** -3.5% 12.6%
Lipper Global Fund Index** -4.2% 22.3%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks whose
composition is different from the Fund. The MSCI World Index includes 22 country
sub-indexes. The Lipper Global Fund Index includes 30 mutual funds that invest
in securities throughout the world. Past performance is no guarantee of future
results.
FELLOW SHAREHOLDERS,
The Oakmark Global Fund was up 3.2% for the three-month period ending June 30,
2000. This compares to losses of 3.5% for the MSCI World Index and 4.2% for the
Lipper Global Fund Index.
The markets around the globe continued their volatile trend which is becoming
the normal trading pattern. Investors around the world seem to be moving their
money in-and-out of stocks on a minute-by-minute basis, trying to catch the
latest and greatest announcement as reported by the various financial news
services such as CNBC and CNN. As the information flow for companies has become
more accessible, the academicians would argue that stock markets should become
more efficient. Nothing could be further from the truth. Stock prices seem to
react violently both up and down to earnings announcements (or
pre-announcements), Wall Street analyst recommendations, and the press releases
that constantly flood the news wires. All of this excess stimulation causes us
to sit back and reflect upon the words of great investors who have seen similar
fads come and go. In the book "THE INTELLIGENT INVESTOR," Benjamin Graham
devotes the entire eighth chapter to "The Investor and Market Fluctuations." In
that chapter, Benjamin Graham uses an analogy of Mr. Market, which we think is
worth sharing.
"MR. MARKET"
"Imagine that in some private business you own a small share that cost you
$1,000. One of your partners, named Mr. Market, is very obliging indeed.
Everyday he tells you what he thinks your interest is worth and furthermore
offers to either buy you out or to sell you an additional interest on that
basis. Sometimes his idea of value appears plausible and justified by business
developments and prospects as you know them. Often, on the other hand, Mr.
Market lets his enthusiasm or his fears run away
THE OAKMARK GLOBAL FUND 23
<PAGE>
with him, and the value he proposes seems to you a little short of silly.
If you are a prudent investor or a sensible businessman, will you let Mr.
Market's daily communication determine your view of the value of a $1,000
interest in the enterprise? Only in the case you agree with him, or in case you
want to trade with him. You may be happy to sell out to him when he quotes you a
ridiculously high price, and equally happy to buy from him when his price is
low. But the rest of the time you will be wiser to form your own ideas of the
value of your holdings, based upon full reports from the company about its
operations and financial position.
The true investor is in that very position when he owns a listed common stock.
He can take advantage of the daily market price or leave it alone, as dictated
by his own judgement and inclination. .... Basically, price fluctuations have
only one significant meaning for the true investor. They provide him with an
opportunity to buy wisely when prices fall sharply and to sell wisely when they
advance a great deal. At other times he will do better if he forgets about the
stock market and pays attention to his dividend returns and to the operating
results of his companies."
As the managers of the Fund, we spend our time focusing upon the operating
fundamentals of our companies--for in the end these fundamentals will drive the
performance of the fund. However, we pay close attention to the volatile price
movements in the market and try to take advantage of Mr. Market when prices seem
attractive to us. Therefore, during the quarter we added 5 new names to the
portfolio at what we believe are very attractive prices. Below is a brief
description of each of the new companies:
FIRST PACIFIC:
First Pacific is an Asian holding company. The company has a long history of
creating and adding value to their holdings. Currently, First Pacific is trading
at a substantial discount to its easily calculated and quantifiable net asset
value (NAV). First Pacific's stock price hit a high of $7.18 (Hong Kong Dollar)
in July of 1999 and hit a recent low of $2.18 (Hong Kong Dollar) in May of 2000.
We began buying First Pacific in May and believe the company offers a tremendous
risk/reward ratio given the large discount between the stock price and the
calculated NAV.
H&R BLOCK:
H&R Block is the largest tax preparation service in the United States. During
1999 and early 2000, the management of H&R Block made a series of acquisitions
including Olde Brokerage, a mortgage operation, and many financial planning
companies. The idea was to expand the H&R Block brand name into other financial
services. The stock market had a negative reaction to these various acquisitions
and took the stock from a high price of $59.50 in August of 1999 to a recent low
price of $27 in June of 2000. While H&R Block's diversification moves may not
have been the ideal use of the company's resources, we believe the market has
grossly overreacted. The company is currently trading for 10x our 2000 earnings
per share estimate, which we consider far too low for such a high quality
company.
SYBRON INTERNATIONAL:
Sybron Int'l is one of the largest dental supply and laboratory companies in the
United States. On June 27, 2000, Sybron announced they would miss the consensus
earnings estimate for the second half of 2000 by $.10 or 7%. The stock market
proceeded to take the shares of Sybron down by 43% on the news. We took
advantage of this large stock price decline to add this high quality name to the
portfolio.
TOYS 'R' US:
See Bill Nygren's excellent review of the merits of owning Toys `R' Us in the
Semi-Annual Report dated March 31, 2000.
VALASSIS COMMUNICATIONS:
Valassis is one of two companies that print and distribute the weekly Free
Standing Insert (FSIs) coupon booklets that we receive in weekly U.S.
newspapers. Valassis's stock price hit a high of $46.50 in September 1999 and
then proceeded to decline to below $30 per share due to concerns about higher
paper costs and slowing revenue growth. This price decline afforded us the
opportunity to add Valassis to the portfolio. Valassis has hedged their paper
costs and revenues are again accelerating, which we believe will propel the
stock price higher.
These new additions to the portfolio demonstrate our continued focus on buying
and holding the most attractive companies at the best prices. We welcome the
recent volatility in the stock markets around the world, since it affords us the
opportunity to buy good businesses at very attractive prices. As managers of the
Fund, we continue to be excited about the portfolio and its future prospects.
Thank you for your continued confidence and support.
/s/ Michael J. Welsh
MICHAEL J. WELSH, CFA, CPA
Portfolio Manager
[email protected]
/s/ Greg Jackson
GREG JACKSON
Portfolio Manager
[email protected]
June 30, 2000
24 THE OAKMARK GLOBAL FUND
<PAGE>
--------------------------------------------------------------------------------
THE OAKMARK GLOBAL FUND
--------------------------------------------------------------------------------
GLOBAL DIVERSIFICATION--JUNE 30, 2000
--------------------------------------------------------------------------------
[CHART]
<TABLE>
<S> <C>
United States 49.30%
Europe 36.30%
Pacific Rim 10.50%
Latin America 4.00%
Other 0.10%
</TABLE>
<TABLE>
<CAPTION>
% OF FUND % OF FUND
NET ASSETS NET ASSETS
------------------------------------ -------------------------------------
<S> <C> <C> <C>
/ / UNITED STATES 46.4% / / LATIN AMERICA 4.0%
Panama 2.7%
/ / EUROPE 36.3% Brazil 1.3%
Great Britain 19.6%
*France 4.3% / / OTHER 0.1%
*Germany 4.2% Bermuda 0.1%
*Italy 3.9%
*Finland 2.7%
Denmark 1.6%
/ / PACIFIC RIM 10.5%
Korea 4.4%
New Zealand 4.3%
Hong Kong 1.8%
</TABLE>
* Euro currency countries comprise 15.1% of the Fund.
THE OAKMARK GLOBAL FUND 25
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK GLOBAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED)
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.8%
FOOD & BEVERAGE--8.7%
Hite Brewery Company Brewer
(Korea) 27,000 $ 1,186,520
Diageo plc Beverages, Wines, & Spirits
(Great Britain) Manufacturer 130,000 1,168,416
------------------
2,354,936
APPAREL--3.9%
Fila Holding S.p.A. Athletic Footwear & Apparel
(Italy), (b) 99,000 $ 1,045,687
RETAIL--14.4%
Somerfield plc Food Retailer
(Great Britain) 1,497,000 $ 1,347,740
House Of Fraser Plc Department Store
(Great Britain) 1,671,300 1,201,201
Toys `R' Us, Inc. Toy Retailer
(United States), (a) 50,000 728,125
Ugly Duckling Automobile Retailer & Financier
Corporation
(United States), (a) 50,000 353,125
Tricon Global Restaurants, Restaurant Owner & Franchisor
Inc. (United States), (a) 9,000 254,250
------------------
3,884,441
HOUSEHOLD PRODUCTS--1.5%
The Dial Corporation Cleaning Products Manufacturer
(United States) 38,000 $ 394,250
OTHER CONSUMER GOODS & SERVICES--7.8%
Department 56, Inc. Collectibles & Giftware Products
(United States), (a) 70,000 $ 770,000
Royal Doulton plc Tableware & Giftware
(Great Britain) 668,700 748,739
H&R Block, Inc. Financial Services Provider
(United States) 18,000 582,750
------------------
2,101,489
BANKS & THRIFTS--7.5%
Washington Mutual, Inc. Thrift
(United States) 30,000 $ 866,250
Banco Latinoamericano Latin American Trade Bank
de Exportaciones, S.A.,
Class E (Panama), (b) 26,300 728,181
Den Danske Bank Group Commercial Banking
(Denmark) 3,700 445,005
------------------
2,039,436
</TABLE>
26 THE OAKMARK GLOBAL FUND
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK GLOBAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.8% (CONT.)
EDUCATIONAL SERVICES--5.2%
ITT Educational Services, Postsecondary Degree Programs
Inc.
(United States), (a) 80,000 $ 1,405,000
INFORMATION SERVICES--13.1%
Ceridian Corporation Data Management Services
(United States) 60,000 $ 1,443,750
NOVA Corporation Transaction Processing Services
(United States) 40,000 1,117,500
Equifax Inc. Consumer Credit Information
(United States) 37,000 971,250
------------------
3,532,500
DATA STORAGE--0.2%
StorageNetworks, Inc. Data Storage
(United States), (a) 600 $ 54,150
COMPUTER SOFTWARE--4.9%
The Reynolds and Information Management Systems
Reynolds Company
(United States) 73,000 $ 1,332,250
PRINTING--2.4%
Valassis Communications, Product Promotions Printer
Inc. (United States), (a) 17,000 $ 648,125
TELECOMMUNICATIONS--1.4%
Telemig Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 11,345,000 $ 358,082
Exfo Electro-Optical Fiber Optic Test Equipment
Engineering Inc.
(Canada), (a) 700 30,713
------------------
388,795
MEDICAL PRODUCTS--4.4%
Sybron International Dental Supplies & Equipment
Corporation
(United States), (a) 35,000 $ 693,437
Hanger Orthopedic Group, Orthotics & Prosthetics
Inc. (United States), (a) Manufacturer 100,000 493,750
------------------
1,187,187
MACHINERY & METAL PROCESSING--2.7%
Metso Oyj (Finland), (a) Paper & Pulp Machinery 59,600 $ 716,942
</TABLE>
THE OAKMARK GLOBAL FUND 27
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK GLOBAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Shares Held/
Description Par Value Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.8% (CONT.)
MINING & BUILDING MATERIALS--4.3%
Fletcher Challenge Building Materials Manufacturer
Building (New Zealand) 1,107,186 $ 1,173,801
OTHER INDUSTRIAL GOODS & SERVICES--7.4%
Tomkins plc (Great Britain) Diversified Engineering 258,932 $ 840,389
GFI Industries SA (France) Industrial Fastener Manufacturer 26,600 599,069
Chargeurs SA (France) Wool, Textile Production & Trading 9,900 567,092
------------------
2,006,550
PRODUCTION EQUIPMENT--4.2%
Krones AG (Germany) Production Machinery Manufacturer 38,700 $ 1,126,881
DIVERSIFIED CONGLOMERATES--1.8%
First Pacific Company Ltd. Diversified Operations
(Hong Kong) 1,393,000 $ 473,536
TOTAL COMMON STOCKS (COST: $25,406,057) 25,865,956
FIXED INCOME--1.5%
RETAIL--1.5%
Ugly Duckling Corporation,
11.00% due 4/15/2007 605,000 $ 423,500
TOTAL FIXED INCOME (COST: $436,404) 423,500
SHORT TERM INVESTMENTS--1.1%
REPURCHASE AGREEMENTS--1.1%
State Street Repurchase Agreement, 6.25% due 7/3/2000 296,000 $ 296,000
TOTAL REPURCHASE AGREEMENTS (COST: $296,000) 296,000
TOTAL SHORT TERM INVESTMENTS (COST: $296,000) 296,000
Total Investments (Cost $26,138,461)--98.4% $ 26,585,456
Foreign Currencies (Proceeds $13,757)--0.1% $ 13,909
Other Assets In Excess Of Other Liabilities--1.5% (c) 408,864
TOTAL NET ASSETS--100% $ 27,008,229
==================
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Includes portfolio and transaction hedges.
28 THE OAKMARK GLOBAL FUND
<PAGE>
THE OAKMARK INTERNATIONAL FUND
REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
-----------------------------------------------------------------------------
[PHOTO] [PHOTO]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK
INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO
PRESENT (6/30/00) COMPARED TO THE MSCI WORLD EX U.S. INDEX
[GRAPH]
[EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
THE OAKMARK MSCI WORLD
INTERNATIONAL FUND EX U.S. INDEX
<S> <C> <C>
9/92 $10,000 $10,000
10/92 $9,800 $9,505
1/93 $10,833 $9,621
4/93 $12,105 $11,764
7/93 $12,608 $12,233
10/93 $14,454 $12,981
1/94 $16,488 $13,786
4/94 $15,382 $13,664
7/94 $15,195 $13,899
10/94 $15,122 $14,265
1/95 $13,698 $13,124
4/95 $14,399 $14,437
7/95 $15,507 $14,911
10/95 $14,659 $14,248
1/96 $16,248 $15,312
4/96 $18,162 $16,144
7/96 $17,635 $15,471
10/96 $18,310 $15,843
1/97 $19,909 $15,761
4/97 $21,149 $16,114
7/97 $22,960 $18,426
9/97 $23,283 $18,027
12/97 $20,097 $16,637
3/98 $22,994 $19,083
6/98 $20,253 $19,233
9/98 $16,322 $16,404
12/98 $18,688 $19,759
3/99 $21,258 $20,070
6/99 $25,728 $20,650
9/99 $23,896 $21,535
12/99 $26,065 $25,277
3/00 $26,012 $25,416
6/00 $27,856 $24,530
</TABLE>
<TABLE>
<CAPTION>
6/30/00 NAV $15.71
AVERAGE ANNUAL TOTAL RETURN*
THROUGH 6/30/00
TOTAL RETURN FROM FUND INCEPTION
LAST 3 MOS. 9/30/92
-------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK INTERNATIONAL FUND 7.1% 14.1%
MSCI World ex U.S. Index w/inc.** -3.5% 12.3%
MSCI EAFE Index w/inc.** -4.0% 12.0%
Lipper International Fund Index** -4.7% 13.9%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of stocks or funds
whose composition is different from the Fund. The MSCI World ex U.S. Index
includes 21 country sub-indexes. The MSCI EAFE Index refers to Europe, Asia and
the Far East and includes 20 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,
For the second quarter of 2000, your Fund has achieved a return of 7.1%. This
compares favorably to the declines of the MSCI World ex-US Index which was down
3.5%, and the Lipper International Fund Index, which was down 4.7%.
We are also happy to report that in the first six months of the year the Fund
has returned nearly 7% despite negative returns of -4% for the MSCI EAFE Index
and the Lipper International Fund Index over the same period.
The past quarter, like the two that preceded it, was marked by great volatility
in global share prices. Many overseas funds that continue to have substantial
technology and telecom weightings have begun to suffer after reaping the
benefits of the one-way upward ride in share prices since August, 1999. Another
rough quarter like the one just ended and it is even conceivable that U.S.
investors may begin to question whether it is such a good idea for their
international exposure to have a near 100% correlation to the performance of the
U.S. NASDAQ market.
WEIGHTINGS
Portfolio weightings in The Oakmark International Fund have always been a
function of stock selection. If we overweight or underweight a particular
country, industry, or market capitalization size, it is a reflection of the
attractive opportunities (or lack thereof) we can find among the diverse number
of investment opportunities afforded by the markets.
For example, in the early years of the Fund we had the majority of our assets in
large capitalization European companies. The consensus negative short-term
macroeconomic
THE OAKMARK INTERNATIONAL FUND 29
<PAGE>
outlook as well as the uncertainty of corporate restructuring gains resulted in
very cheap share prices, and we were happy to take advantage of the opportunity.
Over the past few years, we have found it increasingly difficult to find many
good values in large-cap companies because they have traded at significant
premiums to their mid-cap and small-cap peers. Our portfolio weighting dwindled
substantially in this area.
Fortunately, over the past few quarters, the volatility in share prices, always
the friend of long-term investors, has caused this to change a bit. Money has
continued to migrate to stocks in a very narrow segment of the market, the
so-called "T-M-T" area of Technology, Media and Telecommunications. For example,
the absolute dollar amount of European IPOs in the first half of this year was
up 70% from the comparable period last year, and exceeded the amount in the
United States. Of the 117 billion Euros that were raised, a good chunk
represented T-M-T offerings. The money that supported these IPOs and helped
propel the huge leaps in T-M-T share prices came FROM somewhere. As funds
drained out of the other industry sectors, prices of some high quality big caps
started to become attractive. We are once again taking advantage of the
opportunity the market is currently presenting.
Among the big cap names we have added in the Oakmark International Fund over the
past two quarters are: Diageo, Reckitt Benckiser, and Glaxo/Smithkline Beecham
in the United Kingdom; BNP-Paribas, Aventis, and Michelin in France; Swiss
Reinsurance in Switzerland; and, outside of Europe, Canadian Pacific in Canada,
and National Australia Bank Down Under. Their commonality? All trade at
significant discounts to our calculation of intrinsic value.
These are all companies that we've wanted to own, but only on our terms--at an
attractive price. We owned four of these companies in the past, three under
different corporate structures: Diageo (Guinness), Reckitt (Reckitt & Colman),
BNP (Paribas), and National Australia Bank.
LOOKING FORWARD
We are very optimistic about the portfolio going forward. We have a group of
very high quality, cash generative businesses, trading at attractive values.
We appreciate your continued support.
/s/ David G. Herro
DAVID G. HERRO
Portfolio Manager
[email protected]
/s/ Michael J. Welsh
MICHAEL J. WELSH, CFA, CPA
Portfolio Manager
[email protected]
July 3, 2000
30 THE OAKMARK INTERNATIONAL FUND
<PAGE>
--------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL FUND
--------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--JUNE 30, 2000
--------------------------------------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Europe 62.3%
Pacific Rim 17.1%
Latin America 11.0%
Other 3.5%
</TABLE>
<TABLE>
<CAPTION>
% OF FUND % OF FUND
NET ASSETS NET ASSETS
------------------------------------ -------------------------------------
<S> <C> <C> <C>
/ / EUROPE 62.3% / / PACIFIC RIM 17.1%
Great Britain 26.4% Korea 5.5%
*France 9.3% Singapore 3.2%
*Finland 6.1% Australia 3.1%
Denmark 5.7% Japan 3.0%
*Netherlands 4.1% Hong Kong 2.3%
*Italy 3.7%
Sweden 2.7% / / OTHER 3.5%
Switzerland 2.3% Canada 3.5%
*Ireland 1.2%
*Germany 0.5%
*Austria 0.3%
/ / LATIN AMERICA 11.0%
Brazil 4.2%
Panama 3.9%
Argentina 2.9%
</TABLE>
* Euro currency countries comprise 25.2% of the Fund.
THE OAKMARK INTERNATIONAL FUND 31
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED)
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--93.9%
FOOD & BEVERAGE--9.0%
Diageo plc Beverages, Wines, &
(Great Britain) Spirits Manufacturer 4,472,000 $ 40,193,495
Quilmes Industrial Brewer
SA (Argentina), (b) 2,121,000 23,596,125
Lotte Chilsung
Beverage Company Soft Drinks, Juices, & Sport
(Korea) Drinks Manufacturer 73,000 5,538,710
Lotte Confectionery Confection Manufacturer
Company (Korea) 37,270 4,311,858
------------
73,640,188
APPAREL--3.5%
Fila Holding S.p.A. Athletic Footwear & Apparel
(Italy), (b) 2,677,800 $ 28,284,262
RETAIL--5.8%
Somerfield plc
(Great Britain) Food Retailer 41,894,995 $ 37,717,825
Giordano International Pacific Rim Clothing
Limited (Hong Kong) Retailer & Manufacturer 6,293,000 9,559,580
------------
47,277,405
HOUSEHOLD PRODUCTS--7.3%
Hunter Douglas N.V. Window Coverings Manufacturer
(Netherlands) 1,230,285 $ 33,298,584
Reckitt Benckiser plc Household Cleaners & Air Fresheners
(Great Britain) 2,355,000 26,457,872
------------
59,756,456
OTHER CONSUMER GOODS & SERVICES--3.0%
Citizen Watch Co. (Japan) Watch and Component
Manufacturer 2,245,000 21,666,086
Shimano Inc. (Japan) Bicycle Parts Manufacturer 120,000 2,883,936
------------
24,550,022
</TABLE>
32 THE OAKMARK INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--93.9% (CONT.)
BANKS & THRIFTS--19.2%
Banco Latinoamericano Latin American Trade Bank
de Exportaciones, S.A.,
Class E (Panama), (b) 1,157,800 $ 32,056,587
Den Danske Bank Commercial Banking
Group (Denmark) 201,500 24,234,554
Nordic Baltic Holding Commercial Banking
(NBH) AB
(Denmark), (a) 3,126,728 22,803,267
Uniao de Bancos Commercial Banking
Brasileiros S.A.
(Brazil), (c) 757,200 21,769,500
Canadian Imperial Commercial Banking
Bank of Commerce
(Canada) 547,300 15,032,260
Banque Nationale de Commercial Banking
Paris (France) 108,500 10,441,368
Bank of Ireland (Ireland) Commercial Banking 1,549,100 9,765,351
Svenska Handelsbanken Commercial Banking
AB (Sweden) 502,500 7,292,517
Kookmin Bank (Korea) Commercial Banking 430,000 5,476,110
National Australia Bank Commercial Banking
Limited (Australia) 295,000 4,921,898
United Overseas Bank Commercial Banking
Ltd., Foreign Shares
(Singapore) 583,968 3,820,983
------------
157,614,395
INSURANCE--2.3%
Swiss Re (Switzerland) Reinsurance Provider 9,300 $ 18,955,741
HOTELS & MOTELS--2.7%
Mandarin Oriental Hotel Management
International Limited
(Singapore) 33,134,400 $ 22,034,376
</TABLE>
THE OAKMARK INTERNATIONAL FUND 33
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--93.9% (CONT.)
TELECOMMUNICATIONS--3.1%
SK Telecom Co., Telecommunications
Ltd. (Korea) 39,620 $ 12,969,485
Telemig Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 2,297,800,000 7,389,653
Tele Centro Sul Telecommunications
Participacoes S.A.
(Brazil), (a) 469,200,000 4,760,943
Telesp Participacoes Telecommunications
S.A. (Brazil) 48,500,000 529,775
Tele Sudeste Celular Telecommunications
Participacoes S.A.
(Brazil) 35,700,000 109,073
------------
25,758,929
PHARMACEUTICALS--3.0%
Glaxo Wellcome plc Pharmaceuticals
(Great Britain) 455,000 $ 13,239,092
Aventis S.A. (France) Pharmaceuticals 152,000 11,094,001
------------
24,333,093
AUTOMOTIVE--4.0%
Autoliv, Inc (Sweden) Automotive Safety Systems
Manufacturer 619,500 $ 15,171,428
Compagnie Generale Tire Manufacturer
des Establissements
Michelin (France) 446,000 14,311,017
Dongah Tire Industry Tire Manufacturer
Company (Korea) 166,290 3,280,985
------------
32,763,430
AUTOMOBILES--0.2%
Fiat S.p.A. (Italy) Automobile Manufacturer 72,000 $ 1,868,311
AEROSPACE--2.6%
Rolls-Royce plc Aviation & Marine Power
(Great Britain) 5,988,702 $ 21,271,878
AIRPORT MAINTENANCE--0.3%
Flughafen Wien Airport Management & Operations
AG (Austria) 70,290 $ 2,502,379
</TABLE>
34 THE OAKMARK INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--93.9% (CONT.)
COMPONENTS--3.7%
IMI plc (Great Britain) Components Manufacturer 4,370,000 $ 18,348,981
Morgan Crucible Crucible & Components
Company plc Manufacturer
(Great Britain) 3,683,424 12,122,118
------------
30,471,099
CHEMICALS--2.5%
Nufarm Limited Agricultural & Industrial
(Australia) Chemical Producer 10,381,415 $ 20,177,967
OIL & NATURAL GAS--1.8%
ISIS (France) Oil Services 208,250 $ 14,811,819
MACHINERY & METAL PROCESSING--3.8%
Metso Oyj (Finland), (a) Paper and Pulp Machinery 2,572,987 $ 30,951,040
MINING & BUILDING MATERIALS--1.7%
Kumkang Korea Chemical Co.,
Ltd. (Korea) Building Materials 396,660 $ 13,784,960
OTHER INDUSTRIAL GOODS & SERVICES--10.0%
Tomkins plc Diversified Engineering
(Great Britain) 10,386,685 $ 33,711,012
Chargeurs SA (France) Wool, Textile Production
& Trading 444,243 25,447,139
Kone Corporation, Elevators
Class B (Finland) 312,790 18,813,107
Buderus AG (Germany) Industrial Manufacturing 266,820 4,241,307
------------
82,212,565
DIVERSIFIED CONGLOMERATES--4.4%
Canadian Pacific Diversified Operations
Limited (Canada) 517,000 $ 13,414,054
Enodis plc Diversified Operations
(Great Britain) 2,645,700 12,990,409
First Pacific Company Diversified Operations
Ltd. (Hong Kong) 27,361,868 9,301,386
------------
35,705,849
TOTAL COMMON STOCKS (COST: $803,045,312) 768,726,164
</TABLE>
THE OAKMARK INTERNATIONAL FUND 35
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Par Value Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS--5.4%
COMMERCIAL PAPER--3.6%
Ford Motor Credit Corp., 6.54%-6.81% due
7/3/2000-7/6/2000 20,000,000 $ 20,000,000
General Electric Capital Corporation, 6.80% due 7/3/2000 10,000,000 10,000,000
------------
TOTAL COMMERCIAL PAPER (COST: $30,000,000) 30,000,000
REPURCHASE AGREEMENTS--1.8%
State Street Repurchase Agreement, 6.25% due 7/3/2000 14,746,000 $ 14,746,000
TOTAL REPURCHASE AGREEMENTS (COST: $14,746,000) 14,746,000
TOTAL SHORT TERM INVESTMENTS (COST: $44,746,000) 44,746,000
Total Investments (Cost $847,791,312)--99.3% $ 813,472,164
Foreign Currencies (Proceeds $584,193)--0.1% $ 586,720
Other Assets In Excess Of Other Liabilities--0.6% (d) 4,872,630
TOTAL NET ASSETS--100% $ 818,931,514
=============
</TABLE>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents a Global Depository Receipt.
(d) Includes portfolio and transaction hedges.
36 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 (6/30/00) AS
COMPARED TO THE MSCI WORLD EX U.S. INDEX
[GRAPH]
<TABLE>
<CAPTION>
THE OAKMARK
INTERNATIONAL MSCI WORLD
SMALL CAP FUND EX U.S. INDEX
<S> <C> <C>
10/95 $10,000 $10,000
1/96 $10,530 $10,747
4/96 $11,340 $11,331
7/96 $11,040 $10,858
10/96 $11,410 $11,120
1/97 $12,142 $11,062
4/97 $12,152 $11,310
7/97 $13,253 $12,933
9/97 $12,672 $12,652
12/97 $9,642 $11,677
3/98 $11,429 $13,394
6/98 $9,892 $13,499
9/98 $8,211 $11,513
12/98 $10,529 $13,868
3/99 $13,118 $14,086
6/99 $15,317 $14,493
9/99 $15,439 $15,114
12/99 $16,190 $17,741
3/00 $15,387 $17,839
6/00 $15,529 $17,217
</TABLE>
<TABLE>
<CAPTION>
6/30/00 NAV $11.99 AVERAGE ANNUAL TOTAL RETURN*
THROUGH 6/30/00
TOTAL RETURN FROM FUND INCEPTION
LAST 3 MOS. 11/1/95
-------------------------------------------------------------------------------
<S> <C> <C>
THE OAKMARK INTERNATIONAL SMALL
CAP FUND 0.9% 9.9%
MSCI World ex U.S. Index w/inc.** -3.5% 12.3%
Lipper International Small Cap Fund
Average** -10.6% 20.7%
Micropal Equity International Small
Cap Index** -11.5% 20.6%
</TABLE>
*Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
**Each of the three indexes or averages is an unmanaged group of indexes or
funds whose composition is different from the Fund. The MSCI World ex U.S. Index
includes 21 country sub-indexes. The Lipper International Small Cap Fund Average
includes 76 mutual funds that invest in securities whose primary markets are
outside the United States. The Micropal Equity International Small Cap Index is
an unweighted index comprised of all funds within the international small
company fund sector. Past performance is no guarantee of future results.
FELLOW SHAREHOLDERS,
The Oakmark International Small Cap Fund achieved an acceptable performance
of .9% for the second quarter of 2000. This compares positively with the MSCI
World ex-US Index which was up .3% and the Lipper International Small Cap
Fund Average which was down 10.6%. From inception, your Fund has returned
just under 10% per year. Though this quarter's performance was not exciting,
it was steady given the volatility in the global market place. More
importantly, we remain extremely enthused with this fund's potential given
how it is positioned and the rotation that appears to be happening out of
speculative, money-losing tech stock and into companies that earn money and
sell at low prices.
THE BUBBLE IS LOSING AIR
Certainly one of the biggest stories of this past calendar quarter is the
weakness of the tech sector. No matter how it is analyzed, the truth is reality
appears to be returning to the global equity markets. The reality we speak of is
very simple: the worth of any asset is determined ultimately, over time, by the
wealth that asset generates. In the case of stocks, the wealth of the underlying
business is represented by free cash flow. We, as owners of business
enterprises, prosper when our claim or share of ownership is enhanced by rising
profits in general and free cash flow specifically. Over the last 18 months or
so, depending on the specific location, tech, media and telecom stocks ("T-M-T")
soared on the prospects for their sectors. In many cases, "prospects" and
"profitability" were confused. Though usage of technology and telecommunications
is soaring and is transforming how we live, there has been little profitability
tied to this revolution.
THE OAKMARK INTERNATIONAL SMALL CAP FUND 37
<PAGE>
One question that needs to be asked is: "why is there no profitability tied to
this revolution?" The answer is actually quite simple and deals in part with the
nature of the revolution itself. The fact is, in many cases there are very few
barriers to entry for competitors. Because of the lack of barriers, enhanced by
the spread of technology itself, it is almost impossible for companies in this
sector to generate and grow the real wealth in the future that shareholders have
discounted in the current share prices. In most cases, as soon as they make a
profit (if they ever do, that is), the lack of barriers enables other
competitors to eat away at any economic profitability that was finally achieved.
Advancing technology has been the most important economic force of our
generation. But as investors, it is pure intellectual sloth to assume that any
company that is simply involved in T-M-T is valuable. As investors, we need to
understand how technological change will enhance profitability for a particular
business enterprise. The other irony is that it is the "old economy" companies
that seem to be the main tangible beneficiaries so far of this change.
CHINA: ITS ECONOMIC EVOLUTION WILL IMPACT THE WORLD
Since 1978, China's transformation from a command economy to one that is
market-oriented has been a story of two steps forward, one step back. Today, the
pace is genuinely accelerating. What is particularly notable is the leadership
of China's firm embrace of the private sector over the public sector that has
been exemplified in deeds as well as words. Jiang Zemin, China's President,
recently made it clear to an Asian audience that China's future prosperity lies
in its private sector. He even went as far as to tie long-term prosperity and
the development of a modern economy to a robust stock market. Add to this the
monetary liberalization that has been slowly occurring, as well as trade
liberalization through the new WTO agreement, and it means huge investment
opportunity in time.
China has always been an entrepreneurial place. We have interviewed countless
Chinese owners/managers of businesses that fled China in the years after 1949
only to become highly successful entrepreneurs. Today, many manage huge
businesses that literally were started with just the pennies they had in their
pockets. The Chinese culture stresses a strong work ethic and they have an
established commercial mentality. It does seem that these qualities are now
becoming officially endorsed on the mainland after a 40-year slumber.
Though Oakmark International Small Cap has no direct investments in China yet,
we have excellent exposure via companies listed in Hong Kong and the surrounding
area. We feel this fund is extremely well-positioned to take advantage of this
monumental change. We have an approx. 35% weighting in Asian companies, which
are priced low but face high growth. HUNG HING PRINTING, for example, is a Hong
Kong-based company that derives almost all of its sales from China. Hung Hing is
the leading printing company in the region with blue-chip clients such as Mattel
and Hasbro. With sales growing at over 15% annually, it has net cash and trades
at under 7 times earnings.
SECOND QUARTER MOVERS
HITE BREWING, a South Korean beer company we previously wrote about, gave the
fund over 2 percentage points of return. The company continues to perform:
profitability ratios and sales growth continue to beat all expectations. As a
result, our sell target keeps increasing as well...a great situation for
long-term shareholders such as ourselves. On the negative side, ROYAL DOULTON,
the UK-based gift and tableware maker cost the Fund over 1%. Oddly, the
company's performance has done nothing but improve and its new casual line of
tablewear has had very good success. Though the stock has been weak due to
market disinterest, we would look for it to be a major future contributor to
returns given its fundamental successes.
In closing, we remain extremely enthused with this Fund's potential. The current
market has given us a rare opportunity to buy quality companies in developed
markets at very low prices. In addition, restructuring in Europe has meant more
management focus on profitability. Economic growth in Europe and recovery in the
Pacific Rim and Latin America has provided a great investment climate for our
companies. Thanks again for your continued support.
/s/ David G. Herro
DAVID G. HERRO, CFA
Portfolio Manager
[email protected]
/s/ Michael J. Welsh
MICHAEL J. WELSH, CFA, CPA
Portfolio Manager
[email protected]
July 6, 2000
38 THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
-------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL SMALL CAP FUND
-------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION--JUNE 30, 2000
-------------------------------------------------------------------------------
[CHART]
<TABLE>
<S> <C>
Europe 45.5%
Pacific Rim 43.6%
Latin America 2.7%
Other 3.6%
</TABLE>
<TABLE>
<CAPTION>
% OF FUND % OF FUND
NET ASSETS NET ASSETS
------------------------------------ -------------------------------------
<S> <C> <C> <C>
/ / EUROPE 45.5% / / PACIFIC RIM 43.6%
Great Britain 17.5% New Zealand 9.6%
*France 13.7% Korea 9.5%
*Germany 6.6% Hong Kong 9.5%
*Italy 3.2% Japan 5.2%
*Portugal 2.2% Singapore 4.3%
*Finland 1.2% Thailand 3.2%
Sweden 1.1% Philippines 2.3%
/ / LATIN AMERICA 2.7% / / OTHER 3.6%
Brazil 1.5% Canada 1.8%
Mexico 1.2% Bermuda 1.8%
</TABLE>
* Euro currency countries comprise 26.9% of the Fund.
THE OAKMARK INTERNATIONAL SMALL CAP FUND 39
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL SMALL CAP FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.4%
FOOD & BEVERAGE--8.2%
Hite Brewery Company Brewer
(Korea) 108,631 $ 4,773,811
Alaska Milk Corporation Milk Producer
(Philippines), (a) 43,432,000 2,309,679
Grupo Continental, S.A. Soft Drink Manufacturer
(Mexico), (a) 1,205,000 1,223,847
-------------
8,307,337
APPAREL--1.5%
Kingmaker Footwear Athletic Footwear Manufacturer
Holdings Limited
(Hong Kong) 8,840,000 $ 1,519,543
RETAIL--10.5%
House Of Fraser Plc Department Store
(Great Britain) 5,885,000 $ 4,229,681
Carpetright plc Carpet Retailer
(Great Britain) 374,000 2,891,745
Denny's Japan Co., Ltd. Restaurant Chain
(Japan) 110,000 2,228,924
Jusco Stores (Hong Kong) Department Stores
Co., Limited (Hong
Kong) 6,888,000 759,885
York-Benimaru Co., Ltd. Supermarket Chain
(Japan) 21,000 593,752
-------------
10,703,987
OTHER CONSUMER GOODS & SERVICES--7.7%
Royal Doulton plc Tableware & Giftware
(Great Britain) 3,858,332 $ 4,320,150
Il Shin Spinning Fabric & Yarn Manufacturer
Company (Korea) 65,220 2,608,741
Sanford Limited Fisheries
(New Zealand) 358,334 697,592
Designer Textiles (NZ) Knit Fabrics
Limited (New
Zealand) 1,960,000 220,665
-------------
7,847,148
INSURANCE--2.8%
Hannover Reinsurance Provider
Rueckversicherungs-AG
(Germany) 27,500 $ 1,995,324
IPC Holdings, Ltd. Reinsurance Provider
(Bermuda) 58,300 816,200
-------------
2,811,524
</TABLE>
40 THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL SMALL CAP FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.4% (CONT.)
OTHER FINANCIAL--7.2%
JCG Holdings Ltd. Investment Holding Company
(Hong Kong) 9,514,000 $ 4,759,746
Ichiyoshi Securities Co., Stock Broker
Ltd. (Japan) 298,000 2,502,408
-------------
7,262,154
HOTELS & MOTELS--4.6%
Jarvis Hotels plc Hotel Operator
(Great Britain) 2,935,000 $ 4,707,404
BROADCASTING & CABLE TV--1.8%
Regional Cablesystems Cable Operator
Inc. (Canada), (a) 178,000 $ 1,773,987
PUBLISHING--4.3%
Matichon Public Newspaper Publisher
Company Limited,
Foreign Shares
(Thailand) 2,039,500 $ 3,227,798
VLT AB, Class B (Sweden) Newspaper Publisher 125,950 1,092,424
-------------
4,320,222
PRINTING--2.1%
Hung Hing Printing Printing Company
Group Limited
(Hong Kong) 5,498,000 $ 2,115,836
TELECOMMUNICATIONS--2.5%
Telemig Celular Telecommunications
Participacoes S.A.
(Brazil), (a) 475,000,000 $ 1,527,585
SK Telecom Co., Ltd. Telecommunications
(Korea) 2,960 968,947
Exfo Electro-Optical Fiber Optic Test Equipment
Engineering Inc.
(Canada), (a) 1,800 78,975
-------------
2,575,507
PHARMACEUTICALS--0.8%
Recordati (Italy) Pharmaceuticals 95,400 $ 855,226
AUTOMOTIVE--0.7%
Dongah Tire Industry Tire Manufacturer
Company (Korea) 34,400 $ 678,729
</TABLE>
THE OAKMARK INTERNATIONAL SMALL CAP FUND 41
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THE OAKMARK INTERNATIONAL SMALL CAP FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Description Shares Held Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.4% (CONT.)
AUTOMOBILES--2.4%
Ducati Motor Holding Motorcycle Manufacturer
S.p.A. (Italy), (a) 955,000 $ 2,448,019
TRANSPORTATION SERVICES--4.0%
Mainfreight Limited Logistics Services
(New Zealand) 4,373,551 $ 3,487,775
DelGro Corporation Bus, Taxi, & Car Leasing
Limited (Singapore) 209,000 605,096
-------------
4,092,871
OIL & NATURAL GAS--4.2%
ISIS (France) Oil Services 36,677 $ 2,608,658
Cairn Energy plc Oil & Natural Gas Producer
(Great Britain), (a) 640,000 1,641,411
-------------
4,250,069
MINING & BUILDING MATERIALS--7.0%
Fletcher Challenge Building Materials Manufacturer
Building (New Zealand) 4,625,951 $ 4,904,275
Semapa-Sociedade de Cement Manufacturer
Investimento e Gestao,
SGPS, SA (Portugal) 137,512 2,193,735
-------------
7,098,010
OTHER INDUSTRIAL GOODS & SERVICES--6.5%
GFI Industries SA Industrial Fastener Manufacturer
(France) 216,874 $ 4,884,302
Vaisala Oyj (Finland) Atmospheric Observation
Equipment 61,400 1,230,991
Yip's Hang Cheung Paint & Solvent Manufacturer
(Holdings) Ltd.
(Hong Kong) 7,472,000 460,081
-------------
6,575,374
PRODUCTION EQUIPMENT--10.9%
Krones AG (Germany) Production Machinery
Manufacturer 162,000 $ 4,717,175
NSC Groupe (France) Textile Equipment Manufacturer 34,437 3,715,103
De Dietrich et Production Machinery
Compagnie SA (France) Manufacturer 41,500 2,666,430
-------------
11,098,708
STEEL--0.4%
Steel & Tube Holdings Produces and Distributes Steel
Limited (New Zealand) 704,187 $ 445,951
</TABLE>
42 THE OAKMARK INTERNATIONAL SMALL CAP FUND
<PAGE>
<TABLE>
<CAPTION>
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THE OAKMARK INTERNATIONAL SMALL CAP FUND
-----------------------------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--JUNE 30, 2000 (UNAUDITED) CONT.
-----------------------------------------------------------------------------------------------------
Shares Held/
Description Par Value Market Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--95.4% (CONT.)
DIVERSIFIED CONGLOMERATES--5.3%
Haw Par Corporation Healthcare and Leisure Products
Ltd. (Singapore) 2,314,000 $ 3,751,708
Jardine Strategic Holdings Diversified Operations
Limited (Bermuda) 340,700 1,018,693
Tae Young Corporation Heavy Construction
(Korea) 25,260 659,237
-------------
5,429,638
TOTAL COMMON STOCKS (COST: $98,508,499) 96,917,244
SHORT TERM INVESTMENTS--3.5%
COMMERCIAL PAPER--2.0%
General Electric Capital Corporation, 6.80%
due 7/3/2000 2,000,000 $ 2,000,000
TOTAL COMMERCIAL PAPER (COST: $2,000,000) 2,000,000
REPURCHASE AGREEMENTS--1.5%
State Street Repurchase Agreement, 6.25% due 7/3/2000 1,511,000 $ 1,511,000
TOTAL REPURCHASE AGREEMENTS (COST: $1,511,000) 1,511,000
TOTAL SHORT TERM INVESTMENTS (COST: $3,511,000) 3,511,000
Total Investments (Cost $102,019,499)--98.9% $ 100,428,244
Foreign Currencies (Proceeds $201,079)--0.2% $ 201,643
Other Assets In Excess Of Other Liabilities--0.9% (b) 922,510
TOTAL NET ASSETS--100% $ 101,552,397
=============
</TABLE>
(a) Non-income producing security.
(b) Includes portfolio and transaction hedges.
THE OAKMARK INTERNATIONAL SMALL CAP FUND 43
<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
James P. Benson--VICE PRESIDENT
Henry R. Berghoef--VICE PRESIDENT
Kevin G. Grant--VICE PRESIDENT
David G. Herro--VICE PRESIDENT
Gregory L. Jackson--VICE PRESIDENT
Clyde S. McGregor--VICE PRESIDENT
William C. Nygren--VICE PRESIDENT
Edward A. Studzinski--VICE PRESIDENT
Michael J. Welsh--VICE PRESIDENT
Anita M. Nagler--SECRETARY
Ann W. Regan--VICE PRESIDENT--
SHAREHOLDER OPERATIONS AND ASSISTANT SECRETARY
Kristi L. Rowsell--TREASURER
John J. Kane--ASSISTANT TREASURER
OTHER INFORMATION
INVESTMENT ADVISER
Harris Associates L.P.
Two North LaSalle Street
Chicago, Illinois 60602-3790
TRANSFER AGENT
Nvest Services Company, Inc.
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 617-578-1329
WEBSITE
www.oakmark.com
24-HOUR NAV HOTLINE
1-800-GROWOAK (1-800-476-9625)
E-MAIL ADDRESS
[email protected]
This report 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>
P.O. Box 8510
Boston, MA 02266-8510
[LOGO]
OAKMARK FAMILY OF FUNDS
1-800-OAKMARK
www.oakmark.com
