-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G7YUzj6yj5oJcGMBgMPPXM1wmuaCugg9N6oES8WWqXS58YvsHLxzCB8SxWjhFLB9 AngqYf4q81OxcJnw0R1JyQ== 0000912057-00-022498.txt : 20000510 0000912057-00-022498.hdr.sgml : 20000510 ACCESSION NUMBER: 0000912057-00-022498 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06279 FILM NUMBER: 622744 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO N LASALLE ST STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 BUSINESS PHONE: 8004769625 MAIL ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 N-30D 1 N-30D [GRAPHIC] 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 SEMI-ANNUAL REPORT MARCH 31, 2000 MANAGED BY HARRIS ASSOCIATES L.P. [LOGO] THE OAKMARK FAMILY OF FUNDS 2000 SEMI-ANNUAL REPORT --------------------------------------------------------------------------- LETTER FROM THE CHAIRMAN AND PRESIDENT .......................1 THE OAKMARK FAMILY OF FUNDS SUMMARY ..........................2 THE OAKMARK FUND Letter from the Portfolio Manager .........................4 Schedule of Investments ...................................6 THE OAKMARK SELECT FUND Letter from the Portfolio Manager .........................9 Schedule of Investments ..................................11 THE OAKMARK SMALL CAP FUND Letter from the Portfolio 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 .......................36 International Diversification Chart ......................38 Schedule of Investments ..................................39 FINANCIAL STATEMENTS Statement of Assets and Liabilities ......................44 Statement of Operations ..................................46 Statement of Changes in Net Assets .......................48 Notes to Financial Statements ............................55 TRUSTEES AND OFFICERS .......................................69
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 ServiceComments@oakmark.com. LETTER FROM THE CHAIRMAN AND PRESIDENT - -------------------------------------------------------------------------------- DEAR FELLOW SHAREHOLDERS: We are pleased to present the Semi-Annual Report for The Oakmark Family of Funds. After a difficult start, the last month of the quarter provided reinforcing evidence that value investing is nearing a positive turn. One of the most important hallmarks of a successful investment firm is the ability to create a team of focused and disciplined individuals that can define and execute its investment philosophy in environments that can, at times, be extremely challenging. [PHOTO] On the next several pages, you will notice some changes in our "lineup." As you know, Robert Sanborn has stepped down from the management of The Oakmark Fund. His very positive contribution to our long-term success is obvious, but it was time for a change. We expect him to continue to play a significant role in our firm. In the meantime, our careful planning leaves us in the enviable position of seamlessly changing the management of The Oakmark Fund. Additional changes in our "lineup" include adding a second manager to three of our funds. The message should be very clear. We have the depth and commitment to bring a large group of talented individuals into the spotlight to help insure the long-term success of our fund family. On many recent occasions, we have indicated a growing confidence that value investing will come back. This quarter, our buy list has expanded to levels not seen since 1990, and takeovers of "old economy" stocks at significant price premiums are accelerating. These are classic signs that our turn is near. Your patience will be rewarded. We are happy to announce that in the coming months we will be making exciting improvements to our web site. In the future on www.oakmark.com, you will be able to purchase shares, change your address, or order duplicate statements on-line. You will also find a new page design with improved navigation to make the site easier to use. We appreciate your feedback on our current site and we used your valuable comments to develop these improvements. /s/ Victor Morgenstern VICTOR MORGENSTERN CHAIRMAN /s/ Robert M. Levy ROBERT M. LEVY PRESIDENT April 6, 2000 [LOGO] 1 THE OAKMARK FAMILY OF FUNDS SUMMARY INFORMATION -------------------
PERFORMANCE FOR PERIOD THE OAKMARK THE OAKMARK ENDED THE OAKMARK SELECT SMALL CAP MARCH 31, 2000 FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------- 3 MONTHS (9.0%) 9.0% (1.5%) - ----------------------------------------------------------------------------------------------------------------------- 6 MONTHS (15.1%) 16.5% (3.5%) (a) - ----------------------------------------------------------------------------------------------------------------------- 1 YEAR (18.1%) 12.8% (0.6%) - ----------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 2.5% 28.3% 1.6% - ----------------------------------------------------------------------------------------------------------------------- 5 YEAR 9.9% N/A N/A - ----------------------------------------------------------------------------------------------------------------------- SINCE INCEPTION 19.2% 31.8% 11.2% - ----------------------------------------------------------------------------------------------------------------------- VALUE OF $10,000 $45,767 $25,667 $15,974 FROM INCEPTION DATE (8/5/91) (11/1/96) (11/1/95) - ----------------------------------------------------------------------------------------------------------------------- TOP FIVE HOLDINGS Fortune Brands, Inc. 4.8% Washington Catellus Development AS OF MARCH 31, 2000 Washington Mutual, Inc. 13.5% Corporation 6.8% Mutual, Inc. 4.1% USG Corporation 9.7% Ugly Duckling Brunswick The Reynolds & Corporation 5.3% COMPANY AND % OF TOTAL Corporation 3.8% Reynolds Company 8.3% ITT Educational NET ASSETS The Dun & Bradstreet Toys `R' Us, Inc. 8.2% Services, Inc. 4.7% Corporation 3.8% The Dun & Bradstreet National Data ACNielsen Corporation 6.9% Corporation 4.4% Corporation 3.8% People's Bank of Bridgeport, CT 3.9% - ----------------------------------------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES Other Consumer Banks & Thrifts 15.7% Real Estate 11.0% AS OF MARCH 31, 2000 Goods & Services 19.5% Information Services 11.2% Banks & Thrifts 10.2% Information Services 8.1% Retail 9.8% Insurance 7.5% Food & Beverage 7.6% Building Materials Food & Beverage 7.4% COMPANY AND % OF TOTAL Banks & Thrifts 7.0% & Construction 9.7% Retail 6.8% NET ASSETS Machinery & Computer Software 8.3% Industrial Processing 6.5%
(a) During the six months ended March 31, 2000, Initial Public Offerings ("LPOs") contributed .34%, 1.6% and 10% to the performance of Small Cap, Equity and Income and Global, respectively. As the IPO environment changes and the total assets of the Funds grow, the impact of IPOs on performance will diminish. 2 THE OAKMARK FAMILY OF FUNDS
PERFORMANCE FOR PERIOD THE OAKMARK THE OAKMARK THE OAKMARK ENDED EQUITY AND GLOBAL INTERNATIONAL MARCH 31, 2000 INCOME FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------- 3 MONTHS 4.4% 0.8% (0.2%) - --------------------------------------------------------------------------------------------------------------------- 6 MONTHS 8.0% (a) 9.6% (a) 8.9% - --------------------------------------------------------------------------------------------------------------------- 1 YEAR 12.7% N/A 22.4% - --------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 15.9% N/A 7.5% - --------------------------------------------------------------------------------------------------------------------- 5 YEAR N/A N/A 13.9% - --------------------------------------------------------------------------------------------------------------------- SINCE INCEPTION 15.5% N/A 13.6% - --------------------------------------------------------------------------------------------------------------------- VALUE OF $10,000 $18,924 $10,061 $26,012 FROM INCEPTION DATE (11/1/95) (8/4/99) (9/30/92) - --------------------------------------------------------------------------------------------------------------------- TOP FIVE HOLDINGS The Reynolds & Department 56, Inc. 5.3% Tomkins plc 4.8% AS OF MARCH 31, 2000 Reynolds Company 6.1% Ceridian Diageo plc 4.8% Ceridian Corporation 5.1% Metso Oyj 4.7% Corporation 4.4% The Reynolds & Somerfield plc 4.3% COMPANY AND % OF TOTAL Alamo Group Inc. 4.4% Reynolds Company 5.0% Banco NET ASSETS Legacy Hotels Real NOVA Corporation 5.0% Latinoamericano Estate Investment Fletcher Challenge de Exportaciones, Trust 3.8% Building 4.7% S.A. 4.1% Catellus Development Corporation 3.6% - --------------------------------------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES U.S. Government Retail 18.1% Banks & Thrifts 16.7% AS OF MARCH 31, 2000 Bonds 24.4% Information Services 13.6% Other Industrial Real Estate 13.0% Other Consumer Goods & Services 14.3% Banks & Thrifts 7.1% Goods & Services 9.4% Food & Beverage 8.9% COMPANY AND % OF TOTAL Computer Software 6.1% Banks & Thrifts 9.1% Household Products 8.4% NET ASSETS Computer Services 5.7% Other Industrial Retail 6.0% Goods & Services 8.1% PERFORMANCE FOR PERIOD THE OAKMARK ENDED INTERNATIONAL MARCH 31, 2000 SMALL CAP FUND - ----------------------------------------------------------- 3 MONTHS (5.0%) - ----------------------------------------------------------- 6 MONTHS (0.3%) - ----------------------------------------------------------- 1 YEAR 17.3% - ----------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 8.4% - ----------------------------------------------------------- 5 YEAR N/A - ----------------------------------------------------------- SINCE INCEPTION 10.2% - ----------------------------------------------------------- VALUE OF $10,000 $15,387 FROM INCEPTION DATE (11/1/95) - ----------------------------------------------------------- TOP FIVE HOLDINGS Krones AG 6.4% AS OF MARCH 31, 2000 Fletcher Challenge Building 5.8% GFI Industries SA 5.4% COMPANY AND % OF TOTAL House Of Fraser Plc 4.9% NET ASSETS Royal Doulton plc 4.9% - ----------------------------------------------------------- TOP FIVE INDUSTRIES Production AS OF MARCH 31, 2000 Equipment 12.4% Retail 11.8% Other Industrial COMPANY AND % OF TOTAL Goods & Services 8.6% NET ASSETS Other Consumer Goods & Services 8.2% Other Financial 8.2%
(a) During the six months ended March 31, 2000, Initial Public Offerings ("IPOs") contributed .34%, 1.6% and 10% to the performance of Small Cap, Equity and Income and Global, respectively. As the IPO environment changes and the total assets of the Funds grow, the impact of IPOs on performance will diminish. THE OAKMARK FAMILY OF FUNDS 3 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 (3/31/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX [GRAPH]
THE OAKMARK FUND S & P 500 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
AVERAGE ANNUAL TOTAL RETURN* 3/31/00 NAV $24.76 THROUGH 3/31/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 8/5/91 - ---------------------------------------------------------------------------------- THE OAKMARK FUND -9.0% 19.2% Standard & Poor's 500 Stock Index w/inc** 2.3% 19.6% Dow Jones Industrial Average w/inc** -4.7% 18.7% Value Line Composite Index** -0.6% 6.8%
*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. This is a very exciting time at The Oakmark Fund. Your new portfolio managers have been on the job for two weeks. We have completed the portfolio restructuring we felt was appropriate and are very confident about how the fund is positioned. The focus of this report will be on our management approach and our very attractive portfolio. But first, we'd like to comment that under Robert Sanborn's leadership, The Oakmark Fund's return placed it in the top 10% of value mutual funds for the period from inception (8/91) to the end of this March according to Lipper. We look forward to extending that exceptional track record. It is important to us that our investors understand that we will continue to employ the same value philosophy that has been responsible for these results. We will only buy a stock when it is selling below 60% of what we believe the business is worth today. We will sell it when it is priced at more than 90% of estimated value, or when we believe we have made a mistake analyzing the company. In addition, we will seek to identify companies where value grows as time passes and where managements have economic interests that are well aligned with their shareholders. When we identify these stocks, we will buy them in meaningful size. While most mutual funds own over 100 different stocks, we expect to usually have only 40-50 stocks. We are confident that this approach will continue to deliver excellent long-term returns, and we have both made substantial personal investments in The Oakmark Fund since being named the new managers. We are well aware that recent results have been disappointing, and the quarter just ended was no exception. But in our search for light at the end of the tunnel, it is interesting to note that the fund has already increased 15% from its March 8 low. We are seeing an increased level of acquisition activity 4 THE OAKMARK FUND - -------------------------------------------------------------------------------- that we believe will benefit the Fund. Additionally, our companies continue to repurchase large quantities of their own stocks, which we believe adds significant value to the remaining shares. Our portfolio is extremely undervalued based on our forecasts for the stocks we own. The price-to-earnings ratio of The Oakmark Fund stands at 11.5 (using estimated 2000 eps) compared to 26 for the S&P 500. That means that each share of The Oakmark Fund that you purchase for $24.76 represents $2.16 of current earnings. If you invested enough money in the S&P 500 to create that same $2.16 of earnings, it would cost $57 or 130% more than in The Oakmark Fund. And what's even more exciting is that when you look at the stocks we own, you don't find structurally disadvantaged companies. Instead, you find industry leaders whose businesses should be worth more as each year passes. Hopefully, the excitement we feel about the portfolio can be captured in a few words about our top five positions: FORTUNE BRANDS (FO--$25) The Fund's largest position was highlighted in the last quarterly report. Fortune is a diversified consumer products company selling brands such as Jim Beam, Titleist, and Moen faucets. After adding back goodwill amortization, Fortune sells at less than 9 times this year's earnings estimate. WASHINGTON MUTUAL (WM--$27) The largest savings and loan in the country, Washington Mutual, is expected to grow earnings at a double-digit rate due to both growth in customers and share repurchase. In addition, Washington Mutual has a dividend yield of over 4% and has raised that dividend every quarter for the last four years. Washington Mutual sells at a P/E of just over 7 times estimated 2000 earnings. DUN AND BRADSTREET (DNB--$29) Dun & Bradstreet sells at a high P/E for us, 17 times, but we believe a higher multiple is warranted for this terrific franchise. The company is in the process of splitting into two pieces, separating its highly regarded Moody's bond rating business (17% compounded earnings growth for the last decade) from the more stagnant Dun & Bradstreet credit report business. We believe new management on the credit side will improve profitability and restore growth to that business. We are also pleased that Warren Buffett has recently purchased 15% of Dun & Bradstreet's shares. BRUNSWICK (BC--$19) Brunswick sells at 7 times estimated earnings. With its Sea Ray line of luxury boats, Brunswick continues to be the industry leader. Brunswick also gets nearly a third of its income from less cyclical consumer recreation products (Life Fitness exercise equipment, Igloo coolers, Mongoose bicycles, Brunswick bowling and billiards), so earnings should be less sensitive to an economic downturn than one would expect for a boat company. ACNIELSEN (ART--$23) Nielsen is the global leader in market research for consumer product companies. Outside the US, Nielsen is also a leader in measuring television audiences. In mid-1999, Nielsen bought 6% of NetRatings, a business that measures Internet site usage in North America, and also started eratings.com that will measure Internet audiences and advertising outside North America. Were these investments valued similarly to pure-play Internet stocks, it is conceivable they would sell for more than the entire market value of Nielsen. Adding back the Internet startup losses as well as expenses to restructure operations (especially in Europe), Nielsen sells at 10 times our estimate of next year's earnings, and that assigns zero value to the Internet investments. In addition to having a portfolio full of great values, we inherit a very favorable tax position. It is unlikely that we will have to make any capital gains distributions for at least a couple of years. We will only pay capital gains taxes after the portfolio appreciates substantially from current levels and that will be welcomed by all of us! In closing, we'd like to thank you, our shareholders, for your patience. We are not satisfied with recent performance and are energized by the challenge of restoring The Oakmark Fund to the position of the premier diversified value fund. We believe the road ahead will be an exciting and profitable one. We encourage you to join us for that journey. Thank you for your support. /s/ Bill Nygren BILL NYGREN Portfolio Manager bnygren@oakmark.com /s/ Kevin Grant KEVIN GRANT Portfolio Manager kgrant@oakmark.com April 3, 2000 THE OAKMARK FUND 5 - -------------------------------------------------------------------------------- THE OAKMARK FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------- Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--90.7% FOOD & BEVERAGE--7.6% Nabisco Holdings Corporation, Class A 2,072,100 $ 66,695,719 Philip Morris Companies Inc. 2,610,700 55,151,037 H.J. Heinz Company 1,325,000 46,209,375 ------------- 168,056,131 APPAREL--3.0% Nike, Inc., Class B 1,539,300 $ 60,994,763 Jones Apparel Group, Inc. (a) 157,000 5,004,375 ------------- 65,999,138 RETAIL--5.4% The Kroger Company 2,200,000 $ 38,637,500 Tricon Global Restaurants, Inc. (a) 1,200,000 37,275,000 Toys "R" Us, Inc. (a) 2,263,400 33,526,612 GC Companies, Inc. (a) 266,200 9,250,450 ------------- 118,689,562 HOUSEHOLD PRODUCTS--2.9% Fort James Corporation 1,400,000 $ 30,800,000 The Dial Corporation 2,052,900 28,227,375 The Clorox Company 192,300 6,249,750 ------------- 65,277,125 HOUSEHOLD APPLIANCES--1.9% Maytag Corporation 1,260,400 $ 41,750,750 HARDWARE--5.2% The Black & Decker Corporation 1,872,200 $ 70,324,512 The Stanley Works 1,724,900 45,494,238 ------------- 115,818,750 OTHER CONSUMER GOODS & SERVICES--19.5% Fortune Brands, Inc. 4,261,100 $ 106,527,500 Brunswick Corporation 4,475,800 84,760,462 Mattel, Inc. 6,964,400 72,690,925 H&R Block, Inc. 1,330,500 59,539,875 Galileo International, Inc. 2,358,600 56,753,813 Ralston Purina Group 1,011,000 27,676,125 American Greetings Corporation, Class A 1,308,300 23,876,475 ------------- 431,825,175 BANKS & THRIFTS--7.0% Washington Mutual, Inc. 3,430,000 $ 90,895,000 Bank One Corporation 1,850,548 63,612,587 ------------- 154,507,587 6 THE OAKMARK FUND - -------------------------------------------------------------------------------- THE OAKMARK FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - ----------------------------------------------------------------------------------------------------- Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--90.7% (CONT.) INSURANCE--3.4% Old Republic International Corporation 3,896,330 $ 53,574,538 MGIC Investment Corporation 475,000 20,721,875 ------------- 74,296,413 OTHER FINANCIAL--1.2% SLM Holding Corporation 800,000 $ 26,650,000 INFORMATION SERVICES--8.1% The Dun & Bradstreet Corporation 2,957,500 $ 84,658,437 ACNielsen Corporation (a) (c) 3,714,000 83,565,000 Equifax Inc. 443,500 11,198,375 ------------- 179,421,812 COMPUTER SERVICES--2.2% First Data Corporation 1,100,000 $ 48,675,000 PUBLISHING--3.0% Knight Ridder, Inc. 1,315,300 $ 66,998,094 Medical Products3.0% Sybron International Corporation (a) 2,295,600 $ 66,572,400 AUTOMOBILES--2.1% DaimlerChrysler AG (b) 700,000 $ 45,806,250 AEROSPACE & DEFENSE--3.7% Lockheed Martin Corporation 3,150,000 $ 64,378,125 The Boeing Company 474,400 17,997,550 ------------- 82,375,675 Machinery & Industrial Processing--6.5% Cooper Industries, Inc. 2,123,400 $ 74,319,000 Eaton Corporation 743,600 58,000,800 Crane Co. 500,000 11,781,250 ------------- 144,101,050 BUILDING MATERIALS & CONSTRUCTION--1.1% Masco Corporation 1,183,000 $ 24,251,500 CHEMICALS--0.9% The Geon Company 956,600 $ 20,566,900 THE OAKMARK FUND 7 - -------------------------------------------------------------------------------- THE OAKMARK FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - ----------------------------------------------------------------------------------------------------- Shares Held/ Par Value Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--90.7% (CONT.) UTILITIES--2.2% Texas Utilities Company 900,000 $ 26,718,750 Citizens Utilities Company, Class B 1,393,700 22,821,838 ------------- 49,540,588 OIL & NATURAL GAS--0.8% Union Pacific Resources Group Inc. 1,299,000 $ 18,835,500 TOTAL COMMON STOCKS (COST: $2,097,226,948) 2,010,015,400 SHORT TERM INVESTMENTS--8.9% U.S. GOVERNMENT BILLS--2.3% United States Treasury Bills, 4.91%-5.31% due 4/6/2000-5/25/2000 50,000,000 $ 49,783,826 TOTAL U.S. GOVERNMENT BILLS (COST: $49,783,827) 49,783,826 COMMERCIAL PAPER--3.8% Ford Motor Credit Corp., 5.90%-6.07% due 4/3/2000-4/5/2000 55,000,000 $ 55,000,000 General Electric Capital Corporation, 6.18% due 4/3/2000 30,000,000 30,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $85,000,000) 85,000,000 REPURCHASE AGREEMENTS--2.8% State Street Repurchase Agreement, 6.03% due 4/3/2000 61,914,000 $ 61,914,000 TOTAL REPURCHASE AGREEMENTS (COST: $61,914,000) 61,914,000 TOTAL SHORT TERM INVESTMENTS (COST: $196,697,827) 196,697,826 Total Investments (Cost $2,293,924,775)--99.6% (c) $2,206,713,226 Other Assets In Excess Of Other Liabilities--0.4% 9,149,227 TOTAL NET ASSETS--100% $2,215,862,453 ==============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At March 31, 2000, net unrealized depreciation of $87,211,548, for federal income tax purposes, consisted of gross unrealized appreciation of $240,278,410 and gross unrealized depreciation of $327,489,958. 8 THE OAKMARK FUND 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 (3/31/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
THE OAKMARK SELECT FUND S & P 500 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
AVERAGE ANNUAL TOTAL RETURN* 3/31/00 NAV $20.07 THROUGH 3/31/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 11/1/96 - ------------------------------------------------------------------------------ The Oakmark Select Fund 9.0% 31.8% Standard & Poor's 500 Stock Index w/inc** 2.3% 26.6% Standard & Poor's MidCap 400 Index w/inc** 12.7% 25.2% Value Line Composite Index** -0.6% 5.5%
*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. TheS&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. As of today, every investor in The Oakmark Select Fund has made a profit. The fund hit an all-time high, adjusted for distributions, on March 31. I can't imagine a statistic I'd be more pleased to report! This quarter's 9.0% return exceeded the S&P 500, but trailed the S&P Midcap Index. The Midcap Index has become less useful as a day-to-day predictor of our Fund because it has become dominated by large cap technology stocks (the companies are still small, but their capitalizations are not). Our portfolio today is priced at 10.6 times estimated 2000 earnings, which compares to 26 times for the S&P 500 and 23 times for the S&P Midcap. I believe our portfolio is extremely attractive relative to both the S&P 500 and the S&P Midcap and expect it to perform well as the P/E gap closes. During the quarter, two stocks in our portfolio--Sterling Commerce and Times Mirror--accepted acquisition offers. On February 22, Sterling Commerce agreed to be acquired by SBC Communications for $44 per share. That price was a 30% premium to Sterling's stock price at the end of 1999, and a 144% premium to its October, 1999 low of $18. Congratulations to CEO Warner Blow for delivering this value to his shareholders. On March 13, Times Mirror stock jumped 79% after it agreed to be acquired by the Tribune Company for $95 per share. In journalism circles, Times Mirror CEO Mark Willes has been a controversial figure because of changes he spearheaded at the LA Times. Among shareholders there was no such controversy. Times Mirror stock was trading at $23 in June of 1995 when Mark was named CEO. In less than five years, Times Mirror shareholders received a return in excess of 300%. We will definitely investigate the next company Mark joins! (As an aside, our portfolio now includes a short position in Tribune Company. This short sale is simply a THE OAKMARK SELECT FUND 9 pre-sale of some of the shares we anticipate receiving in the Times Mirror tender offer.) "When will stock market investors start caring about value again?" Our answer has been that we know it will happen, but we don't know when. Examples like Sterling, Times Mirror and the many other acquisitions we now see occurring show that if investors don't correct these mispricings, corporations will. We expect merger activity to continue accelerating and think we are well positioned to benefit from that trend. TOYS `R' US Because over 7% of our portfolio is now invested in a new stock, Toys `R' Us (TOY $15), I'd like to explain what we find so attractive about this company. First, a bit of history. Through the 1980's and early 1990's TOY was a favorite of growth stock investors. TOY reached its highest stock price in 1993 when it traded for $43 per share. At that time, TOY had a P/E ratio of 26 (when the market multiple was much lower than it is today) because it had compounded earnings per share growth at 18% for the prior decade. But the later 1990's were tough on TOY. The quality of the stores went downhill as capital expenditures were focused on expansion instead of modernizing the existing store base, and service levels became close to non-existent. Mass merchants like Wal-Mart and Target took advantage of TOY's problems and increased their commitment to the toy category. In 1999, Wal-Mart passed TOY as the country's largest toy retailer and Wall Street analysts became uniformly negative on TOY. With that background, what could possibly have attracted us to TOY? Well, nearly seven years after TOY hit its $43 high, the stock hit a low of $10. Despite all the negatives, TOY had a $16 book value (how long has it been since you've heard that term on CNBC?) and had per share earnings of $1.36 before deducting losses from their Internet startup, toysrus.com. Furthermore, TOY owns a very successful Babies `R' Us chain, 80% of Toys `R' Us Japan, and much of the real estate its stores occupy. It is our belief that the value of these assets alone could be as much as the current stock price. And management is taking steps toward having these values recognized by bringing Toys `R' Us - Japan public and partnering with Softbank on the Internet site. But what really caught our attention was TOY's announcement on January 10 that John Eyler had been named CEO. Most recently, John engineered a turnaround of the wonderful toy retailer FAO Schwartz. We believe John has a perfect skill set for increasing profitability and at the same time, making the Toys `R' Us shopping experience fun. When we met with John at their New Jersey headquarters, he outlined his plan for changing the in-store merchandise presentation, which should create a shopper-friendly environment. These changes should start appearing in stores by Fall, 2000. In addition to these positives, John took a compensation package, which includes a large stock option plan and also personally purchased TOY stock in the open market. We like managements with a large economic interest in an improved share price. If, as we expect, he succeeds in turning around the toy stores, TOY is likely to be a great stock. Finally, I'd like to welcome Henry Berghoef to The Oakmark Select team. One of my best moves as Director of Research was the decision to hire Henry in 1994. Over the past six years, we have worked together on many stocks, the most recent example being our successful effort persuading the Dun & Bradstreet board to make changes to maximize the value of their company. Henry is also the analyst responsible for Times Mirror being in our portfolio. You should be reassured to know that it is now part of Henry's formal responsibilities to prod me when he thinks we should be making changes in the portfolio. Over the last three years, our portfolio has benefited from Henry's strong analytic skill. I'm delighted that he's now getting the recognition he deserves. Thank you for your continued support. /s/ Bill Nygren BILL NYGREN Portfolio Manager bnygren@oakmark.com /s/ Henry Berghoef HENRY BERGHOEF Portfolio Manager berghoef@oakmark.com April 3, 2000 10 THE OAKMARK SELECT FUND - -------------------------------------------------------------------------------- THE OAKMARK SELECT FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------- Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--92.7% APPAREL--4.9% Liz Claiborne, Inc. 1,591,600 $ 72,915,175 RETAIL--9.8% Toys "R" Us, Inc. (a) 8,338,300 $ 123,511,069 Tricon Global Restaurants, Inc. (a) 756,500 23,498,781 ------------- 147,009,850 OTHER CONSUMER GOODS & SERVICES--3.3% Ralston Purina Group 1,780,200 $ 48,732,975 BANKS & THRIFTS--15.7% Washington Mutual, Inc. 7,674,800 $ 203,382,200 People's Bank of Bridgeport, Connecticut 1,572,900 32,932,594 ------------- 236,314,794 INSURANCE--4.5% PartnerRe Ltd. (b) 1,837,300 $ 67,635,606 OTHER FINANCIAL--1.5% MBIA, Inc. 440,800 $ 22,949,150 INFORMATION SERVICES--11.2% The Dun & Bradstreet Corporation 3,643,600 $ 104,298,050 Ceridian Corporation 3,284,500 63,021,344 ------------- 167,319,394 COMPUTER SERVICES--7.0% First Data Corporation 1,277,200 $ 56,516,100 Electronic Data Systems Corporation 750,000 48,140,625 ------------- 104,656,725 COMPUTER SOFTWARE--8.3% The Reynolds and Reynolds Company, Class A 4,633,600 $ 125,107,200 PUBLISHING--4.3% The Times Mirror Company, Class A 700,300 $ 65,084,131 PHARMACEUTICALS--2.2% Chiron Corporation (a) 668,900 $ 33,361,388 MACHINERY & INDUSTRIAL PROCESSING--5.5% Thermo Electron Corporation (a) 3,369,000 $ 68,643,375 Illinois Tool Works Inc. 255,592 14,121,458 ------------- 82,764,833 BUILDING MATERIALS & CONSTRUCTION--9.7% USG Corporation (c) 3,483,000 $ 146,068,312 THE OAKMARK SELECT FUND 11 - -------------------------------------------------------------------------------- THE OAKMARK SELECT FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - ----------------------------------------------------------------------------------------------------- Shares Held/ Par Value Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--92.7% (CONT.) DIVERSIFIED CONGLOMERATES--4.8% U.S. Industries, Inc. (c) 6,531,600 $ 72,255,825 Total Common Stocks (Cost: $1,333,690,841) 1,392,175,358 COMMON STOCKS SOLD SHORT--(0.4%) PUBLISHING--(0.4%) Tribune Company (185,000) $ (6,764,062) Total Common Stocks Sold Short (Proceeds: $(7,069,753)) (6,764,062) SHORT TERM INVESTMENTS--7.4% U.S. GOVERNMENT BILLS--0.6% United States Treasury Bills, 5.31% due 5/25/2000 10,000,000 $ 9,920,350 TOTAL U.S. GOVERNMENT BILLS (COST: $9,920,350) 9,920,350 COMMERCIAL PAPER--4.0% Ford Motor Credit Corp., 5.90%-6.07% due 4/3/2000-4/4/2000 20,000,000 $ 20,000,000 General Electric Capital Corporation, 6.18% due 4/3/2000 40,000,000 40,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $60,000,000) 60,000,000 REPURCHASE AGREEMENTS--2.8% State Street Repurchase Agreement, 6.03% due 4/3/2000 41,932,000 $ 41,932,000 TOTAL REPURCHASE AGREEMENTS (COST: $41,932,000) 41,932,000 TOTAL SHORT TERM INVESTMENTS (COST: $111,852,350) 111,852,350 Total Investments (Cost $1,438,473,438)--99.7% (d) $1,497,263,646 Other Assets In Excess Of Other Liabilities--0.3% 5,071,403 TOTAL NET ASSETS--100% $1,502,335,049 ==============
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At March 31, 2000, net unrealized appreciation of $58,790,207, for federal income tax purposes, consisted of gross unrealized appreciation of $198,341,495 and gross unrealized depreciation of $139,551,288. 12 THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND REPORT FROM JAMES P. BENSON AND STEVEN J. REID, PORTFOLIO MANAGERS [PHOTO] [PHOTO] (on leave of absence) - ------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/00) AS COMPARED TO THE RUSSELL 2000 INDEX [GRAPH] The Oakmark Small Cap Fund Russell 2000 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 AVERAGE ANNUAL TOTAL RETURN* 3/31/00 NAV $13.39 THROUGH 3/31/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 11/1/95 - ------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND -1.5% 11.2% Lipper Small Cap Fund Index** 3.6% 11.1% Russell 2000 w/inc** 7.1% 16.0% S&P Small Cap 600 w/inc.** 5.8% 15.5% *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 first calendar quarter of 2000 began poorly as the Fund declined 5.44% in January. February was somewhat better as the Fund slipped 1.32%, while March saw a modest return to value investing and the Fund responded with a monthly gain of 5.52%. The March rebound trimmed the Fund's quarterly loss to 1.54%. The recent progress relative to our benchmark, the Russell 2000, has also been encouraging. At the Russell's peak on March 9th we were 25.08% behind this index on a year-to-date basis, but we closed the quarter trailing the index by only 8.34% as we made up 16.74% during the last 16 trading days of the quarter! The question is can we sustain the positive momentum that developed in March or will the stock market revert to a "growth at any price" mentality. While our focus remains on investing in undervalued companies with positive business and cash flow characteristics, we are shifting our strategy slightly to position the fund in stocks that we believe have not only the value characteristics that we desire, but also have a catalyst that will reveal that value. We have been and will continue to pursue the upgrading of the portfolio. IS VALUE COMING BACK INTO STYLE? Over the last few weeks investors have rotated out of some of the highflying growth stocks and into equities that actually represent long-term value. Yahoo!, the company that we used as an example in last quarter's letter, had a market value in early January of approximately $135 billion, but as of early April this value had declined to around $101 billion or a drop of 25%. Yet despite this decline Yahoo! still trades at approximately 375 times expected year 2000 earnings. Interestingly, most analyst estimates project Yahoo's earnings growth rate in 2001 THE OAKMARK SMALL CAP FUND 13 - -------------------------------------------------------------------------------- versus 2000 at only 30% that would imply that Yahoo! is currently trading at 12.5 times its growth rate (375 divided by 30). By contrast the stocks in our portfolio are trading near 12 times earnings with an expected earnings growth rate of approximately 20%. Thus, our portfolio is trading at approximately 0.6 times its growth rate. We believe that over time stocks that can be purchased at substantial discounts to their growth rates represent excellent values and are likely to outperform stocks that trade at very high and probably unsustainable multiples of earnings. PORTFOLIO UPDATE The continued malaise in small cap companies, especially value-oriented equities, has created a number of new investment opportunities for the Fund. Fortunately, a few of our investments such as NovaMed (sold for a gain of over 140%), Superior Consultants (sold for a gain in excess of 35%) and Duff & Phelps Credit Rating Co. (agreed to be bought out at $100 per share) have performed very well. Funds from these sold stocks have been utilized to buy stocks that have higher expected returns. New companies to the portfolio include: Checkpoint Systems, a provider of security and anti-theft products for retailers; Dollar Thrifty Automotive Group, a car rental company with strong positions in leisure markets; Dura Pharmaceuticals, a firm specializing in respiratory drugs and drug delivery systems; Mentor Graphics, a software provider to the semiconductor industry; and MSC.Software, the leading supplier of simulation software. We believe these five companies are attractive additions to the portfolio based upon very attractive multiples to earnings and cash flows. TAXES AND TIDBITS Since we are half way through the current tax year we want to update everyone on the Fund's tax status. As disclosed elsewhere in this report your Fund has a moderate realized gain for the first six months of this tax year. We would point out two items with respect to the realized gain. First, the gains are principally long-term and secondly we currently have unrealized losses in the portfolio that exceed the current realized gain, thus we have a good opportunity to manage down the tax liability over the next six months. While taxes alone do not drive our investment decisions, we do focus on our shareholders' tax status and we strive to maximize after-tax returns. One other item worth mentioning is that we have begun to make use of call options. Given the recent volatility in the stock market, call option premiums have reached very high levels. We have taken advantage of these attractive premiums by writing some calls on portions of two of our positions. The goal of these sales is to enhance our returns while simultaneously reducing risk. While the writing of call options is unlikely to be a principle driver of our investment returns, we expect the returns from these sales will have a positive impact on our overall return. Once again we would like to thank our shareholders for supporting The Oakmark Small Cap Fund. /s/ James P. Benson, CFA JAMES P. BENSON, CFA Portfolio Manager jbenson@oakmark.com STEVEN J. REID Portfolio Manager (on leave of absense) April 6, 2000 14 THE OAKMARK SMALL CAP FUND THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) - -------------------------------------------------------------------------------
Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--91.0% FOOD & BEVERAGE--7.4% Del Monte Foods Company (a) 800,000 $ 8,550,000 Ralcorp Holdings, Inc. (a) 465,000 6,742,500 International Multifoods Corporation 180,000 2,407,500 M & F Worldwide Corp. (a) 300,000 1,312,500 ------------ 19,012,500 RETAIL--6.8% Ugly Duckling Corporation (a) (c) 1,750,000 $ 13,453,125 The Great Atlantic & Pacific Tea Company, Inc. 200,000 3,900,000 ------------ 17,353,125 HARDWARE--1.1% Jore Corporation (a) 417,500 $ 2,818,125 OTHER CONSUMER GOODS & SERVICES--5.4% Department 56, Inc. (a) 572,300 $ 8,477,194 Barry (R.G.) Corporation (a) (c) 880,000 2,970,000 Harman International Industries, Incorporated 40,000 2,400,000 ------------ 13,847,194 BANKS & THRIFTS--10.2% People's Bank of Bridgeport, Connecticut 480,000 $ 10,050,000 Golden State Bancorp Inc. (a) 450,000 6,721,875 BankAtlantic Bancorp, Inc., Class A 1,100,000 4,331,250 PennFed Financial Services, Inc. 260,000 3,672,500 Finger Lakes Financial Corp. (c) 178,500 1,260,656 ------------ 26,036,281 INSURANCE--7.5% The MONY Group Inc. (a) 300,000 $ 9,693,750 The PMI Group, Inc. 200,000 9,487,500 ------------ 19,181,250 EDUCATIONAL SERVICES--4.7% ITT Educational Services, Inc. (a) 750,000 $ 12,000,000 INFORMATION SERVICES--4.4% National Data Corporation 435,000 $ 11,310,000 COMPUTER SOFTWARE--4.1% Symantec Corporation (a) 62,500 $ 4,695,312 Mentor Graphics Corporation 300,000 4,537,500 MSC.Software Corp. 100,000 1,181,250 ------------ 10,414,062 COMPUTER SYSTEMS--3.8% Micron Electronics, Inc. (a) 700,000 $ 9,800,000 THE OAKMARK SMALL CAP FUND 15 - ----------------------------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - ----------------------------------------------------------------------------------------------------- Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--91.0% (CONT.) SECURITY SYSTEMS--0.8% Checkpoint Systems, Inc. (a) 256,000 $ 2,144,000 PHARMACEUTICALS--1.4% Dura Pharmaceuticals, Inc. (a) 300,000 $ 3,693,750 MEDICAL CENTERS--1.1% Veterinary Centers of America, Inc. (a) 200,000 $ 2,750,000 MANAGED CARE SERVICES--2.3% First Health Group Corp. (a) 190,000 $ 6,008,750 MEDICAL PRODUCTS--1.8% Hanger Orthopedic Group, Inc. (a) 850,000 $ 4,515,625 AUTOMOTIVE--2.8% Standard Motor Products, Inc. 280,000 $ 4,165,000 Stoneridge, Inc. (a) 250,000 2,875,000 ------------ 7,040,000 AUTOMOBILE RENTALS--1.0% Dollar Thrifty Automotive Group, Inc. (a) 151,500 $ 2,603,906 TRANSPORTATION SERVICES--3.5% Teekay Shipping Corporation (b) 325,000 $ 8,957,813 MACHINERY & INDUSTRIAL PROCESSING--5.0% Columbus McKinnon Corporation 500,000 $ 6,562,500 Sames Corporation (c) 240,000 3,390,000 MagneTek, Inc. (a) 300,000 2,737,500 ------------ 12,690,000 CHEMICALS--2.8% Ferro Corporation 250,000 $ 4,453,125 H.B. Fuller Company 70,000 2,795,625 ------------ 7,248,750 REAL ESTATE--11.0% Catellus Development Corporation (a) 1,250,000 $ 17,343,750 Prime Hospitality Corp. (a) 800,000 5,800,000 Trammell Crow Company (a) 450,000 4,978,125 ------------ 28,121,875 DIVERSIFIED CONGLOMERATES--2.1% U.S. Industries, Inc. 480,000 $ 5,310,000 TOTAL COMMON STOCKS (COST: $268,430,034) 232,857,006 16 THE OAKMARK SMALL CAP FUND - ----------------------------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - ----------------------------------------------------------------------------------------------------- Shares Held/ Par Value Market Value - ----------------------------------------------------------------------------------------------------- CALL OPTIONS WRITTEN--(0.1%) EQUITY OPTIONS--(0.1%) COMPUTER SOFTWARE--(0.1%) Symantec Corporation, April 75 Calls (25,000) $ (100,000) COMPUTER SYSTEMS--(0.0%) Micron Electronics, Inc., April 20 Calls (20,000) $ (1,250) Micron Electronics, Inc., July 15 Calls (27,500) (68,750) ------------- (70,000) TOTAL CALL OPTIONS WRITTEN (COST: $(227,886)) (170,000) SHORT TERM INVESTMENTS--8.2% COMMERCIAL PAPER--4.9% Ford Motor Credit Corp., 6.07% due 4/4/2000 5,000,000 $ 5,000,000 General Electric Capital Corporation, 6.18% due 4/3/2000 7,500,000 7,500,000 ------------ TOTAL COMMERCIAL PAPER (COST: $12,500,000) 12,500,000 REPURCHASE AGREEMENTS--3.3% State Street Repurchase Agreement, 6.03% due 4/3/2000 8,318,000 $ 8,318,000 TOTAL REPURCHASE AGREEMENTS (COST: $8,318,000) 8,318,000 TOTAL SHORT TERM INVESTMENTS (COST: $20,818,000) 20,818,000 Total Investments (Cost $289,020,148)--99.1% (d) $ 253,505,006 Other Assets In Excess Of Other Liabilities--0.9% 2,334,784 TOTAL NET ASSETS--100% $ 255,839,790 =============
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At March 31, 2000, net unrealized depreciation of $35,515,142, for federal income tax purposes, consisted of gross unrealized appreciation of $22,736,208 and gross unrealized depreciation of $58,251,350. THE OAKMARK SMALL CAP FUND 17 [PHOTO] [PHOTO] THE OAKMARK EQUITY AND INCOME FUND REPORT FROM CLYDE S. MCGREGOR AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS - ------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/00) AS COMPARED TO THE LIPPER BALANCED FUND INDEX [GRAPH] THE OAKMARK LIPPER BALANCED EQUITY & INCOME FUND FUND INDEX 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 AVERAGE ANNUAL TOTAL RETURN* 3/31/00 NAV $15.04 THROUGH 3/31/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 11/1/95 - ------------------------------------------------------------------------------- THE OAKMARK EQUITY & INCOME FUND 4.4% 15.5% Lipper Balanced Fund Index** 3.0% 14.8% Lehman Govt./Corp. Bond** 2.7% 5.8% S&P 500 w/inc.** 2.3% 26.0% * 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 Frankly, it is impossible to give a thorough review of the recent quarter within the confines of this report. The March quarter was my 91st in this business, and it stands out as one of the most unusual. The emotional state of investors cycled between elation and despair frequently. The NASDAQ marketplace experienced both robust gains and the fastest correction in history not associated with a crash. The Equity and Income Fund was not immune to this turbulence but did succeed in dampening the volatility. At the nadir in returns for the quarter (January 28) the Fund had declined 3%. Over the next two months the Fund rebounded, closing March 31 at an all-time high and producing a total return of 4.4%. While the recovery in fund returns in March is pleasing, it does not yet reflect a definitive change in the investing environment. Flows to and from mutual funds dominate investing activity today in a manner never previously observed, and to date these flows continue to favor funds employing a momentum style, especially those concentrating on issues in the technology sector. Over the last decade technology has grown in importance within the stock market at an incredible pace--by one measure from 7% of market value to about 40% today. The contribution to gross domestic product, however, has not grown commensurately. As I noted in my June, 1999, report, the Equity and Income Fund has not ignored this development--currently 40% of the fund's equities are in the technology "space" and this is true even after losing Sterling Commerce in March to a takeover offer. As you would expect from an Oakmark Group offering, our thrust in this sector has been to identify issues with strong business franchises and attractive valuations. It has been frustrating, however, to 18 THE OAKMARK EQUITY AND INCOME FUND - ------------------------------------------------------------------------------- observe the market favoring concerns with little more than an idea. Imagine that in 1980 two knowledgeable investors (I'll call them Rip van Winkle 1 and 2) had gone to sleep and were awakened today. If we now give Rip 1 information about the prevailing market environment except for the 250 or so most expensive stocks and Rip 2 information only concerning those 250 issues, imagine how their analysis would differ. The first Rip would no doubt wax eloquent about the improved conditions in the overall picturereduced world tensions, low inflation and interest rates, no federal deficit, etc. He would also note that valuations of the stocks he had reviewed were not too much in excess of 1980 levels. He would probably conclude that this is a wonderful time to be an investor. In contrast, Rip 2 would no doubt come back in shock. The high valuation periods within his previous experience would seem tame in comparison to present conditions. He would also admit that the world seems like a far safer and more prosperous place, but he would counsel fleeing the stock market. I cannot predict when the current trend will change. I am convinced, however, that it sows the seeds of its own destruction. The vast amounts of money both public and private flowing into so-called "new economy" ventures will eventually ensure that profitability in this sector melts away. In the meantime, our focus is on issues which benefit from these trends and managements which fully understand how to propel their companies' evolution. FIXED INCOME MANAGEMENT IN A TIME OF FEDERAL RESERVE TIGHTENING One of the best known and most successful rules for investors is "don't fight the Fed." In the March quarter investors in both stocks and long term Treasury notes chose to ignore this axiom. In the Treasury market the promise of shrinking supply induced a buying panic in issues with the longest maturities. This has resulted in an "inversion" in the Treasury yield curve where short term issues yield more than long. The corporate debt market does not have a similar future scarcity issue, and longer term issues continue to yield more than short. Our strategy for the fixed income segment of the Equity and Income Fund has not changed with the peculiar conditions in the fixed income market. We continue to seek corporate debt and preferred issues which offer the possibility of equity-like returns while managing the riskiness of the entire portfolio with a significant commitment to short and intermediate term Treasury and Agency notes. HELLER VS. GE SCORECARD Last quarter I wrote at length concerning the amazing divergence in valuation statistics between Heller Financial and General Electric. Each company experienced wide swings in stock price in the March quarter, but by March 31 the score was Heller +14.6%, GE +0.4%. Of course, this barely begins to bridge the valuation gap, but it is noteworthy that rising interest rates did not prove to be a problem to either stock in the quarter. NEW TO THE FUND In March, Edward Studzinski joined me as portfolio manager of the Equity and Income Fund. Ed has been invaluable to me in the management of The Fund since his arrival here nearly four years ago, and I have regularly mentioned his efforts in these pages. Ed has a wide range of experience and his incisive insights have often helped me to see flaws in my logic. Because his appointment as portfolio manager was so recent, I did not think it fair to ask Ed to contribute his thoughts to this report. Future editions will bear his unmistakable imprint. Both Ed and I welcome e-mailed questions or comments. /s/ Clyde S. McGregor CLYDE S. MCGREGOR Portfolio Manager mcgregor@oakmark.com /s/ Edward A. Studzinski EDWARD A. STUDZINSKI Portfolio Manager estudzinski@oakmark.com April 5, 2000 THE OAKMARK EQUITY AND INCOME FUND 19 - ------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------- Shares Held Market Value - ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--61.6% BANKS & THRIFTS--2.9% Washington Mutual, Inc. 57,000 $ 1,510,500 OTHER FINANCIAL--3.3% Heller Financial, Inc. 75,000 $ 1,734,375 INFORMATION SERVICES--4.4% Ceridian Corporation 120,000 $ 2,302,500 DATA STORAGE--3.1% Imation Corp. (a) 61,500 $ 1,641,281 COMPUTER SERVICES--5.7% First Data Corporation 35,000 $ 1,548,750 Electronic Data Systems Corporation 22,000 1,412,125 ------------ 2,960,875 COMPUTER SOFTWARE--6.1% The Reynolds and Reynolds Company 117,500 $ 3,172,500 PUBLISHING--2.2% Lee Enterprises, Incorporated 43,900 $ 1,146,888 MEDICAL PRODUCTS--3.2% Sybron International Corporation (a) 58,500 $ 1,696,500 AUTOMOTIVE--3.2% Lear Corporation (a) 60,000 $ 1,687,500 AGRICULTURAL EQUIPMENT--4.4% Alamo Group Inc. 196,350 $ 2,282,569 BUILDING MATERIALS & CONSTRUCTION--3.1% Vulcan Materials Company 35,000 $ 1,603,437 CHEMICALS--1.0% The Geon Company 25,000 $ 537,500 UTILITIES--3.1% Citizens Utilities Company 100,000 $ 1,637,500 20 THE OAKMARK EQUITY AND INCOME FUND - ----------------------------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - ----------------------------------------------------------------------------------------------------- Shares Held/ Par Value Market Value - ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--61.6% (CONT.) REAL ESTATE--12.8% Legacy Hotels Real Estate Investment Trust (b) 350,000 $ 1,999,312 Catellus Development Corporation (a) 136,728 1,897,101 Amli Residential Properties Trust 80,000 1,640,000 The St. Joe Company 40,000 1,157,500 ------------ 6,693,913 TOTAL EQUITY (COST: $25,237,495) 30,607,838 CONVERTIBLE PREFERRED STOCK--3.1% TELECOMMUNICATIONS--3.1% Metromedia International Group, Inc., Convertible Preferred, 7.25% 50,000 $ 1,600,000 TOTAL CONVERTIBLE PREFERRED STOCK (COST: $1,543,788) 1,600,000 TOTAL EQUITY AND EQUIVALENTS (COST: $26,781,283) 32,207,838 FIXED INCOME--34.3% PREFERRED STOCK--5.4% BANKS & THRIFTS--4.2% Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 605,000 BBC Capital Trust I, Preferred, 9.50% 28,000 507,500 PennFirst Capital Trust I, Preferred, 8.625% 70,000 507,500 Fidelity Capital Trust I, Preferred, 8.375% 43,500 326,250 RBI Capital Trust I, Preferred, 9.10% 35,700 272,212 ------------ 2,218,462 TELECOMMUNICATIONS--1.0% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 500,000 REAL ESTATE--0.2% Host Marriott Corporation, Preferred Class B, 10.00% 6,000 $ 120,750 Total Preferred Stock (Cost: $3,518,598) 2,839,212 CORPORATE BONDS--3.9% RETAIL--1.1% Ugly Duckling Corporation, 12.00% due 10/15/2003, Subordinated Debenture 650,000 $ 573,625 AEROSPACE & AUTOMOTIVE--0.3% Coltec Industries, Inc., 9.75% due 4/1/2000 150,000 $ 150,000 THE OAKMARK EQUITY AND INCOME FUND 21 - ----------------------------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - ----------------------------------------------------------------------------------------------------- Par Value Market Value - ----------------------------------------------------------------------------------------------------- FIXED INCOME--34.3% (CONT.) BUILDING MATERIALS & CONSTRUCTION--1.5% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note 750,000 $ 631,875 USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 150,000 152,625 ------------ 784,500 UTILITIES--1.0% Midland Funding Corporation, 11.75% due 7/23/2005 500,000 $ 534,375 Total Corporate Bonds (Cost: $2,084,983) 2,042,500 GOVERNMENT AND AGENCY SECURITIES--25.0% U.S. GOVERNMENT BONDS--24.4% United States Treasury Notes, 6.25% due 6/30/2002 4,000,000 $ 3,980,589 United States Treasury Notes, 4.75% due 2/15/2004 4,000,000 3,781,919 United States Treasury Notes, 6.50% due 10/15/2006 3,000,000 3,026,556 United States Treasury Notes, 6.00% due 8/15/2009 2,000,000 1,974,644 ------------ 12,763,708 U.S. GOVERNMENT AGENCIES--0.6% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond 300,000 $ 299,009 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $13,219,341) 13,062,717 TOTAL FIXED INCOME (COST: $18,822,922) 17,944,429 SHORT TERM INVESTMENTS--3.0% REPURCHASE AGREEMENTS--3.0% State Street Repurchase Agreement, 6.03% due 4/3/2000 1,575,000 $ 1,575,000 TOTAL REPURCHASE AGREEMENTS (COST: $1,575,000) 1,575,000 TOTAL SHORT TERM INVESTMENTS (COST: $1,575,000) 1,575,000 Total Investments (Cost $47,179,205)--98.9% (c) $ 51,727,267 Other Assets In Excess Of Other Liabilities--1.1% 588,612 TOTAL NET ASSETS--100% $ 52,315,879 ============
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) At March 31, 2000, net unrealized appreciation of $4,548,062, for federal income tax purposes, consisted of gross unrealized appreciation of $5,810,766 and gross unrealized depreciation of $1,262,704. 22 THE OAKMARK EQUITY AND INCOME FUND 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 3/31/00
TOTAL RETURN* 3/31/00 NAV $10.05 FROM FUND TOTAL RETURN INCEPTION LAST 3 MOS. 8/4/99 - -------------------------------------------------------------------------------- The Oakmark Global Fund 0.8% 0.6% MSCI World Index w/inc.** 1.0% 16.7% Lipper Global Fund Index** 4.6% 27.6%
*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 .8% for the three-month period ending March 31, 2000. This compares to a gain of 1.0% for the MSCI World index and 4.6% for the Lipper Global Fund Index. The performance of share prices around the world in the first quarter of the new millennium continued roughly the same trend as the fourth quarter of 1999--technology and telecommunications issues soared, and everything else was ignored. Consequently, this trend did little to close the large valuation gap we spoke about in our last letter between the intrinsic value of our current portfolio of companies and the market. As we said before, and it bears repeating, while the timing may be uncertain we are as confident as ever in the attractive values and future outlooks of our companies. COMPOSITION OF CURRENT PORTFOLIO The composition of the current portfolio geographically consists of 44% United States, 37% Europe (with the United Kingdom representing 20% of the Fund), 8% Asia, and 4% Latin America. As you already know, this allocation is not the reflection of some grand, top-down macroeconomic forecast but of the best opportunities we can find around the globe. In other words, geographic weighting is simply a fall-out of stock selection. Macroeconomic forecasts certainly play a part of our valuation of each individual company, but will never drive the decision of where to invest your money. Consumer product oriented companies make up the largest weighting in the Fund, at over 19% of assets. We have found this industry group to be particularly fertile ground around the world, providing a number of businesses with good growth prospects, high financial returns, quality management, and, THE OAKMARK GLOBAL FUND 23 - -------------------------------------------------------------------------------- most importantly, bargain share prices. The multinational colossus Diageo and Korean brewer Hite Brewery are the most recent additions to the portfolio from this area. Diageo, you may remember, is the result of the merger between Guinness plc and Grand Metropolitan. Pillsbury, Burger King, and Haagen Dazs are three of their best known businesses but the real jewel is their unparalleled portfolio of distilled spirits brands. You can own all of these highly cash generative businesses at the bargain price of less than 12x earnings. Three US-based service companies make up over 13% of the portfolio: Nova, Ceridian, and Equifax. All are benefiting greatly from the boom in technology, resulting in "New Economy" growth rates in profit, but selling in the market at attractive "Old Economy" share prices. Regarding the Internet, each to a certain extent is employing the strategy Levi Straus used during the Gold Rush days: don't try to become a successful miner--make money selling supplies to the multitudes of people who believe they will be successful miners. This strategy allows your business to thrive without having to figure out precisely where the gold is in the ground. Nova, for example, has an attractive position in credit card transaction processing, an area which will continue to grow regardless of which "e-tailer" wins the battle of the Internet. Companies broadly defined as capital goods manufacturers make up 13% of the Fund. The four companies--Krones, Tomkins, Metso, and GFI Industries--are all European-based and all extremely out of favor. However the most important trait they all share is the large discount to intrinsic value they currently trade at in the market. Krones, as mentioned in the Oakmark International Small Cap letter, is the world-leading manufacturer of bottling equipment. An investment in Krones at four times cash flow nets you a globally dominant technological leader with attractive growth prospects, net cash on its balance sheet and a management that is eagerly buying in shares at current prices. Financials represent just under 13% of the Fund, composed of companies with variety of specialties located on three continents. Banco Latinoamericano de Exportaciones, or Bladex as it is known, is a good example of the value we are finding in the area. The Bank is the largest trade finance institution in Latin America, and has successfully negotiated a multitude of regional and global shocks with a minimum of credit quality problems. Overcapitalized and extremely conservatively provisioned, the market is currently pricing this business at less than 5 times earnings and less than 70% of a growing and understated (given their tendency to over-provision for potential risks) book value. This is far too cheap a price for a business of this quality. LOOKING FORWARD At Harris Associates our primary concern as analysts and portfolio managers is to fully understand the underlying value of a business, not to predict short-term, sentiment-driven price movements in the market. If we properly ascertain the intrinsic value of a business with a reasonable level of confidence, and can purchase that business at a significant discount, we are confident we will do well over time. Once again, we would like to thank you for your continued confidence in the newest Fund in the Oakmark Family. /s/ Michael Welsh MICHAEL WELSH Portfolio Manager 102521.2142@compuserve.com /s/ Greg Jackson GREG JACKSON Portfolio Manager gjackson@oakmark.com April 6 24 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- GLOBAL DIVERSIFICATION--MARCH 31, 2000 - -------------------------------------------------------------------------------- [PIE CHART] United States 44.2% Europe 37.4% Pacific Rim 7.5% Latin America 4.0% Other 2.2%
% OF FUND NET ASSETS - ------------------------------------------ UNITED STATES 44.2% EUROPE 37.4% Great Britain 20.2% *France 4.4% *Germany 4.2% Denmark 3.0% *Finland 3.0% *Italy 2.6% PACIFIC RIM 7.5% New Zealand 4.7% Korea 1.7% Japan 1.1% LATIN AMERICA 4.0% Panama 2.6% Brazil 1.4% OTHER 2.2% Bermuda 2.2%
* Euro currency countries comprise 14.2% of the Fund. THE OAKMARK GLOBAL FUND 25 - -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) - --------------------------------------------------------------------------------
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--95.3% FOOD & BEVERAGE--5.4% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 130,000 $ 976,395 Hite Brewery Company Brewer (Korea) 20,500 458,132 ----------- 1,434,527 APPAREL--4.7% Fila Holding S.p.A. Athletic Footwear & Apparel (Italy), (b) 94,700 $ 704,331 Jones Apparel Group, Inc. Apparel Manufacturer (United States), (a) 17,000 541,875 ----------- 1,246,206 RETAIL--18.1% Somerfield plc (Great Food Retailer Britain) 1,421,500 $ 1,256,060 House Of Fraser Plc (Great Department Store Britain) 1,201,300 1,071,051 Ugly Duckling Automobile Retailer & Financier Corporation (United States), (a) 125,000 960,937 Toys "R" Us, Inc. (United Toy Retailer States), (a) 50,000 740,625 Tricon Global Restaurants, Restaurant Owner and Franchisor Inc. (United States), (a) 17,000 528,062 Denny's Japan Co., Ltd. Restaurant Chain (Japan) 17,000 298,057 ----------- 4,854,792 OTHER CONSUMER GOODS & SERVICES--9.4% Department 56, Inc. Collectibles & Giftware Products (United States), (a) 95,000 $ 1,407,188 Royal Doulton plc (Great Tableware & Giftware Britain) 703,700 1,120,361 ----------- 2,527,549 BANKS & THRIFTS--9.1% Washington Mutual, Inc. Thrift (United States) 35,000 $ 927,500 Banco Latinoamericano Latin American Trade Bank de Exportaciones, S.A., Class E (Panama), (b) 26,300 696,950 Unidanmark A/S, Class A Commercial Banking (Denmark) 6,600 423,431 Den Danske Bank Group Commercial Banking (Denmark) 3,700 387,701 ----------- 2,435,582 26 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - -------------------------------------------------------------------------------- Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--95.3% (CONT.) INSURANCE--2.2% PartnerRe Ltd. (Bermuda) Reinsurance Company 16,000 $ 589,000 EDUCATIONAL SERVICES--4.5% ITT Educational Services, Postsecondary Degree Programs Inc. (United States), (a) 75,000 $ 1,200,000 INFORMATION SERVICES--13.6% Ceridian Corporation Data Management Services (United States) 71,500 $ 1,371,906 NOVA Corporation Transaction Processing Services (United States) 46,000 1,339,750 Equifax Inc. (United Consumer Credit Information States) 37,000 934,250 ----------- 3,645,906 COMPUTER SOFTWARE--5.0% The Reynolds and Information Management Reynolds Company, Class A (United States) 50,000 $ 1,350,000 TELECOMMUNICATIONS--1.3% Telemig Celular Telecommunications Participacoes S.A. (Brazil), (a) 111,345,000 $ 361,240 MEDICAL PRODUCTS--2.0% Hanger Orthopedic Orthotics and Prosthetics Group, Inc. (United Manufacturer States), (a) 100,000 $ 531,250 MACHINERY & METAL PROCESSING--3.0% Metso Oyj (Finland), (a) Paper and Pulp Machinery 59,600 $ 804,687 MINING & BUILDING MATERIALS--4.7% Fletcher Challenge Building Materials Manufacturer Building (New Zealand) 1,172,186 $ 1,267,717 THE OAKMARK GLOBAL FUND 27 - -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - -------------------------------------------------------------------------------- Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--95.3% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--8.1% Tomkins plc (Great Diversified Engineering Britain) 308,000 $ 988,090 GFI Industries SA (France) Industrial Fastener Manufacturer 26,600 598,564 Chargeurs SA (France) Wool, Textile Production & Trading 9,900 578,264 ----------- 2,164,918 PRODUCTION EQUIPMENT--4.2% Krones AG (Germany) Production Machinery Manufacturer 38,700 $ 1,111,715 TOTAL COMMON STOCKS (COST: $27,050,697) 25,525,089 Total Investments (Cost $27,050,697)--95.3% (c) $25,525,089 Foreign Currencies (Proceeds $11,511)--0.0% $ 11,427 Other Assets In Excess Of Other Liabilities--4.7% (d) 1,258,261 TOTAL NET ASSETS--100% $26,794,777 ===========
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) At March 31, 2000, net unrealized depreciation of $1,525,692, for federal income tax purposes, consisted of gross unrealized appreciation of $1,649,547 and gross unrealized depreciation of $3,175,239. (d) Includes portfolio and transaction hedges. 28 THE OAKMARK GLOBAL FUND THE OAKMARK INTERNATIONAL FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- [PHOTO] [PHOTO] - -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/00) COMPARED TO THE MSCI WORLD EX U.S. INDEX [GRAPH]
THE OAKMARK MSCI WORLD EX INTERNATIONAL FUND U.S. INDEX 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
AVERAGE ANNUAL TOTAL RETURN* 3/31/00 NAV $14.67 THROUGH 3/31/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 9/30/92 - ------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND -0.2% 13.6% MSCI World ex U.S. Index w/inc.** 0.6% 13.2% MSCI EAFE Index w/inc.** -0.1% 13.0% Lipper International Fund Index** 0.6% 15.1%
*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. For the first quarter of the year, your fund has achieved a return of -.2%. This compares to the MSCI World ex-U.S. Index which was up .6%. The Lipper International Fund Index also was up .6%. TRAVELER'S LOG: JAPAN AND KOREA Perceiving change in the Japanese economy is difficult for anyone using a time horizon shorter than a year. While there are numerous examples of specific companies which have started to restructure and focus more on shareholder returns (something we have found more common in smaller companies), in general, the changes have been masked by continued economic paralysis. The quality of our company visits has certainly improved over the years. Management personnel dispatched to meet with investors are now higher up the ladder than they used to be and seem to better understand concepts like return and capital. However, many sociological impediments to enhancing shareholder returns still remain. For example, many companies are still tied to the tradition of using seniority as the primary criterion for advancement. Thankfully, there are some respected industry leaders such as Canon, Sony and Nomura which have started making promotion and compensation more dependent on performance. We are hopeful this trend will continue. One very positive aspect of the rise of "new economy" companies in Japan (setting aside the absurd valuations the market is assigning many of them) is the freeing up of options for young people entering the labor market. The relaxation of listing requirements and the formation of alternative exchanges have opened the door to capital for many young firms. With the possibility of founding new startups or joining fast-growing service firms, many are no THE OAKMARK INTERNATIONAL FUND 29 - -------------------------------------------------------------------------------- longer are forced into a life of mind-numbing conformity as "salary men". It has been sad to watch the treatment of the Japanese taxpayer over the past decade. To say they have been poorly served by their government is too kind. The delays and half-actions of the 1990s have transformed the country's formerly rock-solid finances into an enormous pile of government debt (most estimate total government obligations at well over 100% of GDP). The government's favorite tool, fiscal stimulus primarily in construction, has been a recurring failure. Japanese earners continue to be exceptional savers and will continue to be so as long as they have little confidence in an economic turnaround. In stark contrast the Koreans have made more progress in reforming their banking sector in the last six months than the Japanese have in the past decade. It helped, ironically, that their short-term problems were much more severe, i.e., the wolf was at the door and they had no choice. Because of the rapidity of reform the outlook for Korea has gone from bleak to bright in two years. The burst of change and energy happening right now in Korea was jolting, framed as it was by our Japanese visit. Anecdotally, the immigration area designated for foreigners was packed by Americans, French, Germans and Indians (not ALL fund managers!); on previous visits there were usually only a handful of non-GI foreigners going through Kimpo Airport. On this trip you couldn't throw a rock in Seoul without hitting a foreigner trying to make a deal. This has shown up in dramatic fashion in the foreign direct investment ("FDI") numbers. Before the crisis Korea used to be the outcast of Asian FDI, with regulations and nationalistic attitudes that were nearly xenophobic. Since the crisis the country has attracted more FDI capital than in the previous six years combined. President DJ Kim returned from Europe recently with a fist full of fresh investment commitments he received from French and German companies. The dramatic adoption of change by the Korean people is most obvious in technology and telecoms. Cellular telephone penetration is now 50% (remember this country has 1/3 the GDP per capita of the US!), a rate that has DOUBLED since the crisis. The internet is also sweeping the country, from the share price mania of the KOSDAQ (Korea's equally high-octane version of our NASDAQ), to the embrace of on-line trading. "Cyber-trading", as its known, now accounts for nearly 50% of total share turnover, up from 5% at the beginning of last year, and currently the highest rate in the world. Of course the dark side of this rush to embrace the future is that a financial bubble has developed in public companies identified with the internet. The KOSDAQ appears wildly overvalued (50% more expensive than the NASDAQ on a price/sales ratio) and share turnover on this market has increased an astounding 100-fold in the last 12 months. The terms "New economy" and "Cyber" routinely set-off desperate floods of money. THE ASIAN WALL STREET JOURNAL recently related the story of a young entrepreneur, Jeong Seung Mo, who watched nearly US$7 million gush into his bank account in the first five minutes after he posted a notice for new investors in his software company. "I advertised on the Internet because I contacted friends, banks, and institutional investors in person, and no one would give me money, " Jeong said. Our company meetings, most with "old economy" companies, were punctuated by management's disbelief in the under-valuation of their share prices, a sentiment that is all too familiar to value investors around the globe. Profitability for many of these "old" companies has been tremendous. Because many of these companies were over-levered as the crisis hit, they responded with deep and massive restructuring. With slimmed down cost structures and many weaker competitors bankrupt, margins exploded when the economy boomed last year. For instance, one of our investments, Keumkang, doubled their operating profit in 1999 on a 20% pick up in revenue. The future looks very bright for Korea as long as it stays on the path of reform. They have jettisoned their former economic role model, Japan, and replaced it with a more open Anglo-American style of free market capitalism. The short-term could still be volatile and progress could very well be interrupted by a number of potential negatives, including: another Daewoo-sized bankruptcy damaging the recovering financial sector; a popping of the KOSDAQ bubble; an unfavorable outcome in the upcoming legislative elections; a strongly appreciating Korean currency; trouble with North Korea; or a resurgence in the country's formerly strong labor unions. We appreciate your support and confidence. /s/ David G. Herro DAVID G. HERRO Portfolio Manager dherro@cs.com /s/ Michael J. Welsh MICHAEL J. WELSH Portfolio Manager 102521.2142@compuserve.com April 5, 2000 30 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--MARCH 31, 2000 - -------------------------------------------------------------------------------- [PIE CHART] Europe 58.8% Latin America 13.5% Pacific Rim 18.5% Other 4.1%
% OF FUND NET ASSETS EUROPE 58.8% Great Britain 28.6% *France 7.6% *Finland 7.4% Denmark 5.1% *Netherlands 3.8% *Italy 2.7% Switzerland 1.8% *Germany 1.6% *Austria 0.2% LATIN AMERICA 13.5% Brazil 6.4% Panama 4.1% Argentina 3.0% PACIFIC RIM 18.5% Korea 5.4% Japan 4.3% Australia 3.4% Singapore 2.8% Hong Kong 2.6% OTHER 4.1% Canada 3.5% Bermuda 0.6%
* Euro currency countires comprise 23.3% of the Fund. THE OAKMARK INTERNATIONAL FUND 31 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) - --------------------------------------------------------------------------------
Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.9% FOOD & BEVERAGE--8.9% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 4,757,000 $ 35,728,565 Quilmes Industrial SA Brewer (Argentina), (b) 2,121,000 22,270,500 Lotte Confectionery Confection Manufacturer Company (Korea) 37,270 4,602,900 Lotte Chilsung Beverage Soft Drinks, Juices, & Sport Company (Korea) (d) Drinks Manufacturer 73,000 4,405,429 ------------ 67,007,394 APPAREL--2.7% Fila Holding S.p.A. Athletic Footwear & Apparel (Italy), (b) (d) 2,752,800 $ 20,473,950 RETAIL--6.0% Somerfield plc (Great Food Retailer Britain) (d) 36,474,995 $ 32,229,884 Giordano International Pacific Rim Clothing Retailer & Limited (Hong Kong) Manufacturer 10,218,000 12,400,883 ------------ 44,630,767 HOUSEHOLD PRODUCTS--8.4% Hunter Douglas N.V. Window Coverings Manufacturer (Netherlands) 1,107,700 $ 28,320,103 Reckitt Benckiser plc Household Cleaners & Air (Great Britain) Fresheners 2,530,000 23,906,267 Unilever plc (Great Detergents & Personal Care Britain) Products 1,685,000 10,757,585 ------------ 62,983,955 ELECTRONICS--1.2% Canon, Inc. (Japan) Office & Video Equipment 213,000 $ 9,232,455 OTHER CONSUMER GOODS & SERVICES--5.4% Citizen Watch Co. Watch and Component (Japan) Manufacturer 2,480,000 $ 20,895,144 Mandarin Oriental Hotel Management International Limited (Singapore) 33,134,400 17,561,232 Shimano Inc. (Japan) Bicycle Parts Manufacturer 120,000 2,276,920 ------------ 40,733,296 32 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - -------------------------------------------------------------------------------- Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.9% (CONT.) BANKS & THRIFTS--16.7% Banco Latinoamericano Latin American Trade Bank de Exportaciones, S.A., Class E (Panama), (b) (d) 1,157,800 $ 30,681,700 Uniao de Bancos Major Brazilian Bank Brasileiros S.A. (Brazil), (c) 701,100 22,259,925 Den Danske Bank Group Commercial Banking (Denmark) 201,500 21,113,990 Canadian Imperial Bank Commercial Banking of Commerce (Canada) 625,000 17,829,491 Unidanmark A/S, Commercial Banking Class A (Denmark) 269,500 17,290,078 Banque Nationale de Commercial Banking Paris (France) 108,500 8,571,268 National Australia Bank Commercial Banking Limited (Australia) 295,000 3,789,784 United Overseas Bank Commercial Banking Ltd., Foreign Shares (Singapore) 583,968 3,581,998 ------------ 125,118,234 INSURANCE--2.4% Swiss Re (Switzerland) Reinsurance Provider 7,825 $ 13,561,419 IPC Holdings, Ltd. Reinsurance Provider (Bermuda) 370,500 4,446,000 ------------ 18,007,419 TELECOMMUNICATIONS--5.2% SK Telecom Co. Ltd. Telecommunications (Korea) 3,962 $ 12,904,954 Telesp Participacoes Telecommunications (Brazil) S.A. 444,100,000 7,752,306 Telemig Celular Telecommunications Participacoes S.A. (Brazil), (a) 2,297,800,000 7,454,821 Tele Sudeste Celular Telecommunications Participacoes S.A. (Brazil) 1,151,100,000 5,691,058 Tele Centro Sul Telecommunications Participacoes S.A. (Brazil), (a) 469,200,000 5,119,035 ------------ 38,922,174 PHARMACEUTICALS--1.7% Glaxo Wellcome plc Pharmaceuticals (Great Britain) 455,000 $ 12,988,596 THE OAKMARK INTERNATIONAL FUND 33 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - -------------------------------------------------------------------------------- Description Shares Held Market Value - ------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.9% (CONT.) MEDICAL PRODUCTS--0.0% Getinge Industrier AB, Medical Instruments Manufacturer Class B (Sweden) 200 $ 2,086 Aerospace2.6% Rolls-Royce plc (Great Aviation & Marine Power Britain) 5,988,702 $ 19,355,271 AIRPORT MAINTENANCE--0.2% Flughafen Wien AG Airport Management & (Austria) Operations 36,700 $ 1,363,513 COMPONENTS--4.1% Morgan Crucible Crucible & Components Company plc (Great Manufacturer Britain) 4,058,424 $ 15,862,785 IMI plc (Great Britain) Components Manufacturer 4,120,000 15,152,340 ------------ 31,015,125 CHEMICALS--2.9% Nufarm Limited Agricultural & Industrial (Australia) (d) Chemical Producer 10,557,554 $ 21,439,531 OIL & NATURAL GAS--1.8% ISIS (France) Oil Services 208,250 $ 13,180,986 MACHINERY & METAL PROCESSING--4.8% Metso Oyj (Finland), (a) Paper and Pulp Machinery 2,634,577 $ 35,570,619 MINING & BUILDING MATERIALS--1.8% Keumkang Ltd. (Korea) (d) Building Materials 312,460 $ 13,711,206 OTHER INDUSTRIAL GOODS & SERVICES--14.3% Tomkins plc (Great Diversified Engineering Britain) 11,211,565 $ 35,967,629 Chargeurs SA (France) (d) Wool, Textile Production & Trading 494,243 28,869,002 Kone Corporation, Elevators Class B (Finland) 338,790 19,626,704 Buderus AG (Germany) Industrial Manufacturing 710,120 11,967,566 Compagnie Generale des Tire Manufacturer Establissements Michelin (France) 205,000 6,583,826 Dongah Tire Industry Tire Manufacturer Company (Korea) (d) 166,290 4,513,639 ------------ 107,528,366
34 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - --------------------------------------------------------------------------------
Shares Held/ Description Par Value Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.9% (CONT.) DIVERSIFIED CONGLOMERATES--3.8% Berisford plc (Great Diversified Operations Britain) 2,645,700 $ 12,699,845 Canadian Pacific Limited Diversified Operations (Canada) 367,000 8,183,620 First Pacific Company Ltd. Diversified Operations (Hong Kong) 14,716,000 7,181,717 ------------- 28,065,182 TOTAL COMMON STOCKS (COST: $798,638,163) 711,330,125 SHORT TERM INVESTMENTS--4.3% COMMERCIAL PAPER--2.0% General Electric Capital Corporation, 6.18% due 4/3/2000 15,000,000 $ 15,000,000 Total Commercial Paper (Cost: $15,000,000) 15,000,000 REPURCHASE AGREEMENTS--2.3% State Street Repurchase Agreement, 6.03% due 4/3/2000 17,401,000 $ 17,401,000 TOTAL REPURCHASE AGREEMENTS (COST: $17,401,000) 17,401,000 TOTAL SHORT TERM INVESTMENTS (COST: $32,401,000) 32,401,000 Total Investments (Cost $831,039,163)--99.1% (e) $ 743,731,125 Foreign Currencies (Proceeds $1,953,699)--0.3% $ 1,959,114 Other Assets In Excess Of Other Liabilities--0.6% (f) 4,358,328 TOTAL NET ASSETS--100% $ 750,048,567 =============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) March 31, 2000, net unrealized depreciation of $87,302,622, for federal income tax purposes, consisted of gross unrealized appreciation of $93,318,929 and gross unrealized depreciation of $180,621,551. (f) Includes portfolio and transaction hedges. THE OAKMARK INTERNATIONAL FUND 35 THE OAKMARK INTERNATIONAL SMALL CAP FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS -------------------------------------------------------------------- [PHOTO] [PHOTO] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/00) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX [GRAPH]
THE OAKMARK INTERNATIONAL MSCI WORLD EX SMALL CAP FUND U.S. INDEX 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
AVERAGE ANNUAL TOTAL RETURN* 3/31/00 NAV $11.88 THROUGH 3/31/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 11/1/95 - --------------------------------------------------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -5.0% 10.2% MSCI World ex U.S. Index w/inc.** 0.6% 14.0% Lipper International Small Cap Fund Average** 13.1% 23.7% Micropal Equity International Small Cap Index** 13.8% 25.3%
*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, For the first calendar quarter of the year, your fund achieved a return of - -5.0%. This compares to the MCSI World ex-U.S. Index which returned .6% and a 13.1% return for the Lipper International Small Cap average. Though your Fund has achieved a negative return, please keep in mind that your fund was up over 53% last year so some pull back is natural. The current market prices of our portfolio of companies is EXTREMELY attractive, several examples of which we will describe below. ON MANIAS... A lot has been said and written on the technology stock mania that has swept the globe. As managers who feel a tremendous sense of responsibility and duty to our shareholders we feel we must continue to warn you on the dangers of participating in this absurdity. Again, we are not saying that technology should be ignored or that the Internet in not a potent force to be reckoned with. We have experienced in our travels and in the normal course of business how technology and telecommunications have shrunk the world and changed the way the way it operates. As mentioned last quarter, we have owned certain technology and software stocks over the life of the Fund that have greatly contributed to returns. These truths, however, do not mean that companies involved in technology or telecommunications are always good investments. Price always must be considered. This is no different from buying a house, car, insurance policy or even a pound of hamburger. Rarely does any rational person buy something regardless of price. 36 THE OAKMARK - -------------------------------------------------------------------------------- Today, at time of writing, this is not true in the global equity markets. A wall of money has piled into a small group of technology and telecom stocks no matter what the price. This buying hysteria has made for a two-headed market: one priced highly and the rest of the investment universe on sale. FOR LONG-TERM INVESTORS LIKE US, THESE TIMES ARE GLORIOUS. THE MISPRICING OF ASSETS IN THE SHORT-TERM MAKES OUR JOB EASIER AS LONG-TERM INVESTORS. The availability of sound, well-managed companies with great GROWTH prospects selling at LOW prices is huge. In fact, this highlights that the choice an investor faces is not between growth stocks and value stocks, for they are now one in the same, but between growth and momentum. And as we have always stated, buying something because of anticipated price movement is not investing, but, speculating. Yes, these times often cause one to second-guess common sense. But, in the end, fundamentals always assert themselves. Always remember Nobel Prize winning economist Milton Friedman's famous quote: "there is no such thing as a free lunch." ...AND REAL OPPORTUNITY Two years ago, we raved about values available to us in the Pacific Rim specifically and in the emerging markets in general. In a disciplined fashion we took advantage of these opportunities and performed very well. Today, the situation is more expansive as the enormous gap between "old economy" and "new economy" has created great opportunity in the developed markets as well. Why are these stocks so undervalued? For one reason and one reason only: they are not directly related to technology. Consider your fund's largest holding, a German company called KRONES. Krones is the world-leading manufacturer of bottling equipment. The company has great growth prospects as global soft drink and beer consumption increases, it is a technological leader, has net cash on its balance sheet and sells for about 4x's its cashflow. Management has made great strides to improve transparency and treatment of minority shareholders. And, the company itself thinks it's so undervalued that it is buying back its own stock! Another large position in your Fund is FLETCHER BUILDING in New Zealand. It sells at depressed valuation levels, is the dominant force in New Zealand construction materials including cement and concrete and operates in a market that is coming out of a lengthy recession in building activity. On top of all of this, they have divested themselves of underperforming assets and are about to be spun-out of a larger group thereby making themselves a focused, independent entity (and, perhaps, a takeover target). This stock yields close to 10% and trades at 7x's expanding earnings. Fletcher and Krones are just two examples of why we are so excited about the portfolio going forward. STICK WITH COMMON SENSE In closing this letter, we as managers of your Fund urge you to think carefully about your investment choices. Never before in recent memory has there been two distinct choices in the field of common stock investment. We are quite confident of our approach and remain extremely enthusiastic about this Fund's prospects. We hope you share our enthusiasm. /s/ David G. Herro DAVID G. HERRO Portfolio Manager dherro@cs.com /s/ Michael J. Welsh MICHAEL J. WELSH Portfolio Manager 102521.2142@compuserve.com April 5 , 2000 THE OAKMARK INTERNATIONAL SMALL CAP FUND 37 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--MARCH 31, 2000 - -------------------------------------------------------------------------------- [PIE CHART] Europe 47.2% Pacific Rim 43.2% Latin America 1.4% Other 2.4%
% OF FUND NET ASSETS - --------------------------------------- EUROPE 47.2% Great Britain 17.9% *France 14.7% *Germany 7.4% *Portugal 2.3% *Italy 2.2% *Finland 1.5% Sweden 1.2% LATIN AMERICA 1.4% Brazil 1.4% PACIFIC RIM 43.2% New Zealand 12.8% Hong Kong 8.8% Japan 6.4% Korea 5.7% Singapore 4.1% Thailand 3.3% Philippines 2.1% OTHER 2.4% Canada 1.5% Bermuda 0.9%
* Euro currency countries comprise 28.1% of the Fund. 38 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) - --------------------------------------------------------------------------------
Description Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% FOOD & BEVERAGE--4.0% Alaska Milk Corporation Milk Producer (Philippines), (a) 42,544,000 $ 2,274,528 Hite Brewery Company Brewer (Korea) 90,861 2,030,551 ------------------ 4,305,079 APPAREL--1.2% Kingmaker Footwear Athletic Footwear Manufacturer Holdings Limited (Hong Kong) 7,640,000 $ 1,314,780 RETAIL1--1.8% House Of Fraser Plc (Great Department Store Britain) 5,885,000 $ 5,246,927 Carpetright plc (Great Carpet Retailer Britain) 424,000 3,307,748 Denny's Japan Co., Ltd. Restaurant Chain (Japan) 116,000 2,033,799 Dairy Farm International Supermarket Chain Holdings Limited (Singapore) 1,405,800 899,712 Jusco Stores (Hong Kong) Department Stores Co., Limited (Hong Kong) 6,888,000 574,992 York-Benimaru Co., Ltd. Supermarket Chain (Japan) 21,000 572,737 ------------------ 12,635,915 OTHER CONSUMER GOODS & SERVICES--8.2% Royal Doulton plc Tableware & Giftware (Great Britain) 3,285,000 $ 5,230,051 Il Shin Spinning Fabric & Yarn Manufacturer Company (Korea) 53,320 2,170,912 Sanford Limited (New Fisheries Zealand) 458,334 1,114,159 Designer Textiles (NZ) Knit Fabrics Limited (New Zealand) (b) 1,960,000 281,983 ------------------ 8,797,105 INSURANCE--1.0% Hannover Rueckversicherungs-AG Reinsurance Provider (Germany) 16,500 $ 1,066,471 THE OAKMARK INTERNATIONAL SMALL CAP FUND 39 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - -------------------------------------------------------------------------------- Description Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% (CONT.) OTHER FINANCIAL--8.2% JCG Holdings Ltd. (Hong Investment Holding Company Kong) 9,914,000 $ 4,488,104 Ichiyoshi Securities Co., Stock Broker Ltd. (Japan) 328,000 4,277,914 ------------------ 8,766,018 HOTELS & MOTELS--4.1% Jarvis Hotels plc (Great Hotel Operator Britain) 2,735,000 $ 4,354,395 BROADCASTING & CABLE TV--1.5% Regional Cablesystems Inc. (Canada), (a) Cable Operator 137,000 $ 1,650,034 PUBLISHING--4.5% Matichon Public Newspaper Publisher Company Limited, Foreign Shares (Thailand) (b) 2,039,500 $ 3,532,185 VLT AB, Class B (Sweden) Newspaper Publisher 125,950 1,313,804 ------------------ 4,845,989 PRINTING--2.0% Hung Hing Printing Printing Company Group Limited (Hong Kong) 5,498,000 $ 2,118,268 TELECOMMUNICATIONS--2.3% Telemig Celular Telecommunications Participacoes S.A. (Brazil), (a) 475,000,000 $ 1,541,056 SK Telecom Co. Ltd. Telecommunications (Korea) 296 964,126 ------------------ 2,505,182 PHARMACEUTICALS--2.2% Recordati (Italy) Pharmaceuticals 479,000 $ 2,302,505 TRANSPORTATION SERVICES--3.6% Mainfreight Limited Logistics Services (New Zealand) (b) 4,373,551 $ 3,905,493 40 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - -------------------------------------------------------------------------------- Description Shares Held Market Value - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% (CONT.) OIL & NATURAL GAS-4.2% ISIS (France) Oil Services 54,177 $ 3,429,082 Cairn Energy plc (Great Oil & Natural Gas Producer Britain), (a) 545,000 1,110,649 ------------------ 4,539,731 MINING & BUILDING MATERIALS--8.1% Fletcher Challenge Building Materials Manufacturer Building (New Zealand) 5,710,951 $ 6,176,381 Semapa-Sociedade de Cement Manufacturer Investimento e Gestao, SGPS, SA (Portugal) 146,012 2,494,278 ------------------ 8,670,659 OTHER INDUSTRIAL GOODS & SERVICES--8.6% GFI Industries SA Industrial Fastener Manufacturer (France) 257,974 $ 5,805,040 Vaisala Oyj (Finland) Atmospheric Observation Equipment 61,400 1,587,426 Yip's Hang Cheung Paint & Solvent Manufacturer (Holdings) Ltd. (Hong Kong) 14,654,000 940,982 Dongah Tire Industry Tire Manufacturer Company (Korea) 34,400 933,725 ------------------ 9,267,173 PRODUCTION EQUIPMENT--12.4% Krones AG (Germany) Production Machinery Manufacturer 239,100 $ 6,868,505 NSC Groupe (France) (b) Textile Equipment Manufacturer 44,398 4,251,330 De Dietrich et Production Machinery Compagnie SA (France) Manufacturer 41,500 2,227,333 ------------------ 13,347,168 STEEL--2.1% Steel & Tube Holdings Produces and Distributes Steel Limited (New Zealand) 3,261,470 $ 2,249,041 DIVERSIFIED CONGLOMERATES--4.2% Haw Par Corporation Healthcare and Leisure Products Ltd. (Singapore) 2,177,000 $ 3,459,189 Jardine Strategic Holdings Diversified Operations Limited (Bermuda) 490,000 999,600 ------------------ 4,458,789 TOTAL COMMON STOCKS (COST: $103,324,195) 101,099,795 THE OAKMARK INTERNATIONAL SMALL CAP FUND 41 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2000 (UNAUDITED) CONT. - -------------------------------------------------------------------------------- Description Shares Held Market Value - ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--4.2% COMMERCIAL PAPER--1.9% General Electric Capital Corporation, 6.18% due 4/3/2000 2,000,000 $ 2,000,000 TOTAL COMMERCIAL PAPER (COST: $2,000,000) 2,000,000 REPURCHASE AGREEMENTS--2.3% State Street Repurchase Agreement, 6.03% due 4/3/2000 2,534,000 $ 2,534,000 TOTAL REPURCHASE AGREEMENTS (COST: $2,534,000) 2,534,000 TOTAL SHORT TERM INVESTMENTS (COST: $4,534,000) 4,534,000 Total Investments (Cost $107,858,195)--98.4% (c) $ 105,633,795 Foreign Currencies (Proceeds $81,485)--0.1% $ 81,319 Other Assets In Excess Of Other Liabilities--1.5% (d) 1,604,663 TOTAL NET ASSETS--100% $ 107,319,777 ==================
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At March 31, 2000, net unrealized depreciation of $2,224,566, for federal income tax purposes, consisted of gross unrealized appreciation of $10,878,312 and gross unrealized depreciation of $13,102,878. (d) Includes portfolio and transaction hedges. 42 THE OAKMARK INTERNATIONAL SMALL CAP FUND [LOGO] (This page has been intentionally left blank.) THE OAKMARK FAMILY OF FUNDS 43 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--MARCH 31, 2000
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value $ 2,206,713,226 $ 1,497,263,646 $ 253,675,006 (cost: 2,293,924,775) (cost: 1,438,473,438) (cost: 289,248,034) Cash 298 422 926 Foreign currency, at value 0 0 0 Receivable for: Forward foreign currency contracts 0 0 0 Securities sold 42,700,243 8,470,527 5,364,945 Fund shares sold 4,916,456 7,765,648 122,016 Dividends and interest 7,630,388 1,006,773 142,133 -------------------- -------------------- ------------------- Total receivables 55,247,087 17,242,948 5,629,094 Other assets 156,740 29,457 20,269 -------------------- -------------------- ------------------- Total assets $ 2,262,117,351 $ 1,514,536,473 $ 259,325,295 ==================== ==================== =================== - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND NET ASSETS Options sold, at fair value $ 0 $ 0 $ 170,000 (premiums received:) 0 0 227,886 Payable for: Securities purchased 28,673,299 9,899,563 2,322,050 Fund shares redeemed 15,957,012 1,657,274 751,085 Forward foreign currency contracts 0 0 0 Other 1,624,587 644,587 242,370 -------------------- -------------------- ------------------- Total liabilities 46,254,898 12,201,424 3,485,505 -------------------- -------------------- ------------------- Net assets applicable to fund shares outstanding $ 2,215,862,453 $ 1,502,335,049 $ 255,839,790 ==================== ==================== =================== Fund shares outstanding 89,480,824 74,863,519 19,103,170 ==================== ==================== =================== - ------------------------------------------------------------------------------------------------------------------------------------ ANALYSIS OF NET ASSETS Paid in capital $ 2,689,287,987 $ 1,279,139,658 $ 270,855,132 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions (411,801,705) 162,429,490 20,499,800 Net unrealized appreciation (depreciation) of investments (87,211,548) 58,790,207 (35,515,142) Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 0 Net unrealized appreciation (depreciation)--other 0 0 0 Accumulated undistributed net investment income (loss) 25,587,719 1,975,694 0 -------------------- -------------------- ------------------- Net assets applicable to Fund shares outstanding $ 2,215,862,453 $ 1,502,335,049 $ 255,839,790 ==================== ==================== =================== PRICE OF SHARES Net asset value per share: Class I $ 24.76 $ 20.07 $ 13.39 Class I--Net assets $ 2,215,862,453 $ 1,497,713,941 $ 255,839,790 Class I--Shares outstanding 89,480,824 74,633,059 19,103,170 Net asset value per share: Class II $ 20.05 Class II--Net assets $ 4,621,108 Class II--Shares outstanding 230,460 44 THE OAKMARK FAMILY OF FUNDS THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INCOME FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value $ 51,727,267 $ 25,536,516 $ 743,731,125 (cost: 47,179,205) (cost: 27,050,697) (cost: 831,039,163) Cash 904 (361,613) 383 Foreign currency, at value 0 0 1,959,114 Receivable for: Forward foreign currency contracts 0 50,555 1,607,161 Securities sold 808,948 1,609,028 8,135,843 Fund shares sold 3,460 1,500 433,394 Dividends and interest 358,855 165,603 7,585,450 ------------------ ------------------ -------------------- Total receivables 1,171,263 1,834,686 17,761,848 Other assets 2,051 10,680 19,661 ------------------ ------------------ -------------------- Total assets $ 52,901,485 $ 27,020,269 $ 763,472,131 ================== ================== ==================== - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND NET ASSETS Options sold, at fair value $ 0 $ 0 $ 0 (premiums received:) 0 0 0 Payable for: Securities purchased 115,300 115,300 9,625,153 Fund shares redeemed 378,007 10,776 577,297 Forward foreign currency contracts 0 28,299 1,871,278 Other 92,299 71,117 1,349,836 ------------------ ------------------ -------------------- Total liabilities 585,606 225,492 13,423,564 ------------------ ------------------ -------------------- Net assets applicable to fund shares outstanding $ 52,315,879 $ 26,794,777 $ 750,048,567 ------------------ ------------------ -------------------- Fund shares outstanding 3,479,175 2,665,668 51,122,007 ================== ================== ==================== - ------------------------------------------------------------------------------------------------------------------------------------ ANALYSIS OF NET ASSETS Paid in capital $ 44,705,203 $ 26,287,235 $ 776,055,252 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 2,496,638 1,870,172 83,685,784 Net unrealized appreciation (depreciation) of investments 4,548,062 (1,525,692) (87,302,622) Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 36,112 (207,417) Net unrealized appreciation (depreciation)--other 75 1,787 (109,263) Accumulated undistributed net investment income (loss) 565,901 125,163 (22,073,167) ------------------ ------------------ -------------------- Net assets applicable to Fund shares outstanding $ 52,315,879 $ 26,794,777 $ 750,048,567 ================== ================== ==================== PRICE OF SHARES Net asset value per share: Class I $ 15.04 $ 10.05 $ 14.67 Class I--Net assets $ 52,315,879 $ 26,794,777 $ 749,992,422 Class I--Shares outstanding 3,479,175 2,665,668 51,118,176 Net asset value per share: Class II $ 14.66 Class II--Net assets $ 56,145 Class II--Shares outstanding 3,831 THE OAKMARK INTERNATIONAL SMALL CAP FUND - ------------------------------------------------------------------------------------- ASSETS Investments, at value $ 105,633,796 (cost: 107,858,195) Cash Foreign currency, at value 81,319 Receivable for: Forward foreign currency contracts 544,254 Securities sold 1,138,651 Fund shares sold 71,597 Dividends and interest 1,153,906 ------------------ Total receivables 2,908,408 Other assets 2,219 ------------------ Total assets $ 108,626,133 ================== - ------------------------------------------------------------------------------------- LIABILITIES AND NET ASSETS Options sold, at fair value $ 0 (premiums received:) 0 Payable for: Securities purchased 659,217 Fund shares redeemed 247,728 Forward foreign currency contracts 144,057 Other 255,354 ------------------ Total liabilities 1,306,356 ------------------ Net assets applicable to fund shares outstanding $ 107,319,777 ================== Fund shares outstanding 9,032,169 ================== - ------------------------------------------------------------------------------------- ANALYSIS OF NET ASSETS Paid in capital $ 103,392,566 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 4,384,393 Net unrealized appreciation (depreciation) of investments (2,224,566) Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 409,652 Net unrealized appreciation (depreciation)--other (654) Accumulated undistributed net investment income (loss) 1,358,386 ------------------ Net assets applicable to Fund shares outstanding $ 107,319,777 ================== - ------------------------------------------------------------------------------------- PRICE OF SHARES Net asset value per share: Class I $ 11.88 Class I--Net assets $ 107,319,777 Class I--Shares outstanding 9,032,169 Net asset value per share: Class II Class II--Net assets Class II--Shares outstanding
THE OAKMARK FAMILY OF FUNDS 45 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--MARCH 31, 2000 - --------------------------------------------------------------------------------
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND - -------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 40,256,457 $ 12,056,916 $ 1,372,017 Interest Income 6,215,066 2,430,662 366,228 Securities lending income 0 0 0 Other Income 189,274 0 0 Foreign taxes withheld 0 0 0 --------------- --------------- --------------- Total investment income 46,660,797 14,487,578 1,738,245 - -------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 17,361,382 7,560,785 2,206,456 Transfer and dividend disbursing agent fees 1,015,631 395,189 116,894 Other shareholder servicing fees 870,695 549,720 102,134 Reports to shareholders 719,858 254,909 85,998 Custody and accounting fees 188,043 101,691 41,603 Registration and blue sky expenses (8,396) 35,102 9,607 Trustee fees 58,509 28,371 17,575 Legal fees 23,710 14,106 6,295 Audit fees 12,829 12,273 12,273 Other 179,993 88,464 34,244 --------------- --------------- --------------- Total expenses 20,422,254 9,040,610 2,633,079 Expense reimbursement 0 0 (112,500) Expense offset arrangements (6,499) (1,216) (332) --------------- --------------- --------------- Net expenses 20,415,755 9,039,394 2,520,247 - -------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS): 26,245,042 5,448,184 (782,002) - -------------------------------------------------------------------------------------------------------------------------- NETREALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments (411,390,237) 184,486,213 36,103,517 Net realized gain (loss) on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (254,210,921) 31,553,980 (51,770,930) Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 0 Net change in appreciation (depreciation)--other 0 0 0 - -------------------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: (665,601,158) 216,040,193 (15,667,413) --------------- --------------- --------------- - -------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (639,356,116) $ 221,488,377 $ (16,449,415) =============== =============== =============== 46 THE OAKMARK FAMILY OF FUNDS THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INCOME FUND FUND FUND - ---------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 663,899 $ 323,047 $ 12,106,499 Interest Income 604,341 16,699 1,039,528 Securities lending income 0 0 0 Other Income 0 0 0 Foreign taxes withheld (16,519) (30,087) (1,333,627) --------------- --------------- --------------- Total investment income 1,251,721 309,659 11,812,400 - -------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 215,368 136,171 3,981,177 Transfer and dividend disbursing agent fees 24,194 17,526 229,650 Other shareholder servicing fees 7,517 1,782 187,488 Reports to shareholders 14,216 30,792 152,516 Custody and accounting fees 25,114 14,085 451,147 Registration and blue sky expenses 8,057 15,087 28,804 Trustee fees 12,754 12,383 22,137 Legal fees 4,893 7,728 8,875 Audit fees 10,773 9,027 14,883 Other 18,507 10,785 53,780 --------------- --------------- --------------- Total expenses 341,393 255,366 5,130,457 Expense reimbursement 0 (16,500) 0 Expense offset arrangements (410) (231) (1,404) --------------- --------------- --------------- Net expenses 340,983 238,635 5,129,053 - -------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS): 910,738 71,024 6,683,347 - -------------------------------------------------------------------------------------------------------------------------- NETREALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 2,515,982 1,954,715 86,862,642 Net realized gain (loss) on foreign currency transactions 0 52,812 1,616,580 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 725,595 263,350 (28,999,849) Net change in appreciation (depreciation) of forward currency exchange contracts 0 34,975 244,057 Net change in appreciation (depreciation)--other 234 7,590 16,532 - -------------------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: 3,241,811 2,313,442 59,739,962 --------------- --------------- --------------- - -------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,152,549 $ 2,384,466 $ 66,423,309 =============== =============== =============== THE OAKMARK INTERNATIONAL SMALL CAP FUND - ------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 2,099,822 Interest Income 125,643 Securities lending income 0 Other Income 0 Foreign taxes withheld (243,351) --------------- Total investment income 1,982,114 - ----------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 831,013 Transfer and dividend disbursing agent fees 52,277 Other shareholder servicing fees 38,248 Reports to shareholders 29,792 Custody and accounting fees 98,302 Registration and blue sky expenses 13,204 Trustee fees 13,580 Legal fees 5,308 Audit fees 12,829 Other 24,681 --------------- Total expenses 1,119,234 Expense reimbursement 0 Expense offset arrangements (1,829) --------------- Net expenses 1,117,405 - ----------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS): 864,709 - ----------------------------------------------------------------------------------- NETREALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 5,599,958 Net realized gain (loss) on foreign currency transactions (222,842) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (8,096,383) Net change in appreciation (depreciation) of forward currency exchange contracts 392,574 Net change in appreciation (depreciation)--other 5,776 - ----------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: (2,320,917) --------------- - ----------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (1,456,208) ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 47 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2000 - --------------------------------------------------------------------------------
------------------------------------- THE OAKMARK FUND ------------------------------------- - -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 26,245,042 $ 63,903,129 Net realized gain (loss) on sale of investments (411,390,237) 748,595,189 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (254,210,921) (147,719,773) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation)-- other 0 0 NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (639,356,116) 664,778,545 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (32,700,105) (89,026,890) Net realized short-term gain (100,782,239) (128,028,090) Net realized long-term gain (487,251,797) (195,972,927) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (620,734,141) (413,027,907) - -------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 170,987,093 832,343,635 Reinvestment of dividends and capital gain distributions 603,455,859 391,307,098 Payments for shares redeemed (2,071,322,609) (3,626,526,884) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (1,296,879,657) (2,402,876,151) --------------- --------------- - -------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (2,556,969,915) (2,151,125,513) NET ASSETS: Beginning of period 4,772,832,369 6,923,957,882 --------------- --------------- End of period $ 2,215,862,453 $ 4,772,832,369 =============== =============== Undistributed net investment income $ 25,587,719 $ 52,730,692 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2632 $ 0.4401 Net realized short-term gain 0.8111 0.6329 Net realized long-term gain 3.9217 0.9686 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 4.9960 $ 2.0416 =============== ===============
48 THE OAKMARK FAMILY OF FUNDS
------------------------------------- THE OAKMARK SELECT FUND ------------------------------------- - -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 5,448,184 $ 15,427,356 Net realized gain (loss) on sale of investments 184,486,213 301,413,442 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) 31,553,980 18,463,317 of investments and foreign currencies Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation)-- other 0 0 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 221,488,377 335,304,115 - -------------------------------------------------------------------------------------------------------------- *DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (14,709,648) (3,491,747) Net realized short-term gain (8,341,169) (497,653) Net realized long-term gain (268,868,124) (50,206,634) --------------- --------------- Total distributions to shareholders (291,918,941) (54,196,034) - -------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 330,084,276 688,865,887 Reinvestment of dividends and capital gain distributions 287,174,874 51,676,128 Payments for shares redeemed, net of fees (683,402,349) (610,635,670) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (66,143,199) 129,906,345 --------------- --------------- - -------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (136,573,763) 411,014,426 NET ASSETS: Beginning of period 1,638,908,812 1,227,894,386 --------------- --------------- End of period $ 1,502,335,049 $ 1,638,908,812 =============== =============== Undistributed net investment income $ 1,975,694 $ 13,637,247 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.1972 $ 0.0491 Net realized short-term gain 0.1118 0.0070 Net realized long-term gain 3.6040 0.7058 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 3.9130 $ 0.7619 =============== ===============
*Class II shares were first sold December 31, 1999, after the distribution date. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 49 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2000 (CONT.) - --------------------------------------------------------------------------------
------------------------------------- THE OAKMARK SMALL CAP FUND ------------------------------------- - -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ (782,002) $ (2,516,832) Net realized gain (loss) on sale of investments 36,103,517 (11,002,740) Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) (51,770,930) 82,350,204 of investments and foreign currencies Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation)-- other 0 0 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (16,449,415) 68,830,632 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 0 Net realized short-term gain 0 0 Net realized long-term gain 0 (4,508,112) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 (4,508,112) - -------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 24,431,744 262,182,135 Reinvestment of dividends and capital gain distributions 0 4,278,943 Payments for shares redeemed, net of fees (189,281,818) (511,639,081) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (164,850,074) (245,178,003) --------------- --------------- - -------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (181,299,489) (180,855,483) NET ASSETS: Beginning of period 437,139,279 617,994,762 --------------- --------------- End of period $ 255,839,790 $ 437,139,279 =============== =============== Undistributed net investment income $ 0 $ (9,437,333) =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0 $ 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0.0874 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0 $ 0.0874 =============== ===============
50 THE OAKMARK FAMILY OF FUNDS
------------------------------------- THE OAKMARK EQUITY AND INCOME FUND ------------------------------------- - -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 910,738 $ 1,640,639 Net realized gain (loss) on sale of investments 2,515,982 6,246,386 Net realized gain (loss) on foreign currency transactions 0 (1,597) Net change in unrealized appreciation (depreciation) 725,595 690,123 of investments and foreign currencies Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation)-- other 234 (159) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 4,152,549 8,575,392 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (1,718,499) (855,395) Net realized short-term gain 0 0 Net realized long-term gain (5,192,802) (829,557) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (6,911,301) (1,684,952) - -------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 5,590,181 21,877,864 Reinvestment of dividends and capital gain distributions 6,650,712 1,610,146 Payments for shares redeemed, net of fees (17,483,853) (27,806,714) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (5,242,960) (4,318,704) --------------- --------------- - -------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (8,001,712) 2,571,736 NET ASSETS: Beginning of period 60,317,591 57,745,855 --------------- --------------- End of period $ 52,315,879 $ 60,317,591 =============== =============== Undistributed net investment income $ 565,901 $ 1,806,607 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.4509 $ 0.2118 Net realized short-term gain 0 0 Net realized long-term gain 1.3625 0.2053 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.8134 $ 0.4171 =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 51 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2000 (CONT.) - --------------------------------------------------------------------------------
------------------------------------- THE OAKMARK GLOBAL FUND ------------------------------------- - -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 71,024 $ 32,032 Net realized gain (loss) on sale of investments 1,954,715 (84,542) Net realized gain (loss) on foreign currency transactions 52,812 (871) Net change in unrealized appreciation (depreciation) 263,350 (1,789,042) of investments and foreign currencies Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 34,975 (4,719) Net change in unrealized appreciation (depreciation)-- other 7,590 53 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 2,384,466 (1,847,089) - -------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (29,834) 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (29,834) 0 - -------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 10,783,756 25,938,577 Reinvestment of dividends and capital gain distributions 28,824 0 Payments for shares redeemed, net of fees (10,325,789) (138,134) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 486,791 25,800,443 --------------- --------------- - -------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 2,841,423 23,953,354 NET ASSETS: Beginning of period 23,953,354 0 --------------- --------------- End of period $ 26,794,777 $ 23,953,354 =============== =============== Undistributed net investment income $ 125,163 $ 32,032 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.0098 $ 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.0098 $ 0 =============== ===============
(a) From August 4, 1999, to date on which Fund shares were first offered for sale to the public. 52 THE OAKMARK FAMILY OF FUNDS - --------------------------------------------------------------------------------
------------------------------------- THE OAKMARK INTERNATIONAL FUND ------------------------------------- - -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 6,683,347 $ 15,632,479 Net realized gain (loss) on sale of investments 86,862,642 (28,187,781) Net realized gain (loss) on foreign currency transactions 1,616,580 11,558,024 Net change in unrealized appreciation (depreciation) (28,999,849) 290,561,381 of investments and foreign currencies Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 244,057 1,014,015 Net change in unrealized appreciation (depreciation)-- other 16,532 (274,516) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 66,423,309 290,303,602 - -------------------------------------------------------------------------------------------------------------- *DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income--Class I (27,291,783) (16,590,763) Net investment income--Class II (1,053) 0 Net realized short-term gain 0 (32,678,201) Net realized long-term gain 0 (20,071,535) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (27,292,836) (69,340,499) - -------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 73,526,909 370,563,788 Reinvestment of dividends and capital gain distributions 26,255,741 65,432,760 Payments for shares redeemed, net of fees (200,006,543) (601,921,972) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (100,223,893) (165,925,424) --------------- --------------- - -------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (61,093,420) 55,037,679 NET ASSETS: Beginning of period 811,141,987 756,104,308 --------------- --------------- End of period $ 750,048,567 $ 811,141,987 =============== =============== Undistributed net investment income $ (22,073,167) $ 37,780,575 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.4861 $ 0.2440 Net realized short-term gain 0 0.4807 Net realized long-term gain 0 0.2953 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.4861 $ 1.0200 =============== ===============
* Class II Shares were first sold November 4, 1999. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 53 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2000 (CONT.) - --------------------------------------------------------------------------------
------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------- - -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 2000 SEPTEMBER 30, 1999 - -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 864,709 $ 2,541,981 Net realized gain (loss) on sale of investments 5,599,958 12,338,825 Net realized gain (loss) on foreign currency transactions (222,842) 968,518 Net change in unrealized appreciation (depreciation) (8,096,383) 34,768,296 of investments and foreign currencies Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 392,574 186,436 Net change in unrealized appreciation (depreciation)-- other 5,776 (2,615) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (1,456,208) 50,801,441 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (1,252,257) (1,558,450) Net realized short-term gain (3,278,736) 0 Net realized long-term gain (3,226,904) 0 --------------- --------------- Total distributions to shareholders (7,757,898) (1,558,450) - -------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 29,202,382 253,467,836 Reinvestment of dividends and capital gain distributions 7,637,609 1,470,554 Payments for shares redeemed, net of fees (75,672,311) (200,585,753) --------------- --------------- Net increase (decrease) in net assets from Fund share transactions (38,832,320) 54,352,637 --------------- --------------- - -------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (48,046,426) 103,595,628 NET ASSETS: Beginning of period 155,366,203 51,770,575 --------------- --------------- End of period $ 107,319,777 $ 155,366,203 =============== =============== Undistributed net investment income $ 1,358,386 $ 2,612,604 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.1135 $ 0.2049 Net realized short-term gain 0.2972 0 Net realized long-term gain 0.2923 0 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.7030 $ 0.2049 =============== ===============
54 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS ................................................................................ 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Global Fund ("Global"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. SECURITY VALUATION-- Investments are stated at current value. Securities traded on securities exchanges and securities traded on the NASDAQ National Market are valued at the last sales price on the day of valuation, or if lacking any reported sales that day, at the most recent bid quotation. Over-the-counter securities not so traded are valued at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the date of valuation are valued on an amortized cost basis which approximates market value. Securities for which quotations are not readily available are valued at a fair value as determined by the Pricing Committee appointed by the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS-- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. At March 31, 2000, only the Equity and Income, Global, International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:
EQUITY AND INT'L SMALL INCOME GLOBAL INTERNATIONAL CAP - --------------------------------------------------------------------------------------------------------------------------- Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $ 88 $ 1,787 $ (82,393) $ 1,182 Unrealized appreciation (depreciation) on open securities purchases and sales 0 6,133 24,677 9,944 Unrealized appreciation (depreciation) on transaction hedge purchases and sales 0 (5,857) (56,701) (9,453) Unrealized appreciation (depreciation) on tax expense payable (13) (276) 5,154 (2,327) --------- --------- --------- --------- Net unrealized appreciation (depreciation) - other $ 75 $ 1,787 $(109,263) $ (654) ========= ========= ========= =========
SECURITY TRANSACTIONS AND INVESTMENT INCOME-- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. FORWARD FOREIGN CURRENCY CONTRACTS-- At March 31, 2000,Global, International and Int'l Small Cap had entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. THE OAKMARK FAMILY OF FUNDS 55 - -------------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ................................................................................ The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movements in currency values. The Global Fund had the following outstanding contracts at March 31, 2000: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $ 1,500,000 905,551 Pound Sterling April 2000 $ 58,196 302,821 32,523,000 Japanese Yen April 2000 (22,084) --------- $ 36,112 =========
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $ 83,595 647,400 Danish Krone April 2000 $ 359 221,294 23,353,200 Japanese Yen April 2000 (6,176) --------- $ (5,817) =========
The International Fund had the following outstanding contracts at March 31, 2000: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $24,629,460 2,645,204,000 Japanese Yen August 2000 $(1,796,138) 30,000,000 18,111,021 Pound Sterling April 2000 1,163,917 29,088,000 18,000,000 Pound Sterling May 2000 424,804 ----------- $ (207,417) ===========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $ 1,546,581 2,240,903 Canadian Dollar April 2000 $ (4,322) 995,939 1,027,271 Euro Currency April 2000 (12,276) 988,396 623,122 Pound Sterling April 2000 3,677 2,092,386 1,318,163 Pound Sterling April 2000 6,262 2,043,880 1,287,443 Pound Sterling April 2000 5,859 --------- $ (800) =========
56 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ................................................................................ TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $ 136,135 142,252 Euro Currency April 2000 $ (78) 484,385 506,149 Euro Currency April 2000 (278) 2,362,240 248,554,894 Japanese Yen April 2000 (58,788) 209,651 21,461,990 Japanese Yen April 2000 602 1,375,324 862,272 Pound Sterling April 2000 2,500 2,265,110 1,422,629 Pound Sterling April 2000 141 -------- $(55,901) ========
The Int'l Small Cap Fund had the following outstanding contracts at March 31, 2000: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $4,959,938 507,600,000 Japanese Yen September 2000 $(133,510) 14,000,000 8,451,810 Pound Sterling April 2000 543,162 --------- $ 409,652 =========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $ 281,764 177,484 Euro Currency April 2000 $ 808 95,508 60,168 Pound Sterling April 2000 286 ------- $ 1,094 =======
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2000 - ---------------------------------------------------------------------------------------------------------------- $ 33,916 35,493 Euro Currency April 2000 $ (70) 4,467 34,777 Hong Kong Dollar April 2000 0 9,571 74,523 Hong Kong Dollar April 2000 0 186,965 19,730,460 Japanese Yen April 2000 (5,218) 105,301 11,079,796 Japanese Yen April 2000 (2,621) 39,959 80,595 New Zealand Dollar April 2000 (24) 702,864 443,112 Pound Sterling April 2000 (2,614) -------- $(10,547) ========
At March 31, 2000, Global, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. THE OAKMARK FAMILY OF FUNDS 57 - -------------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ................................................................................ FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- No provision is made for Federal income taxes. The Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. Income dividends and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these tax and book differences are permanent in nature, such amounts are reclassified among paid in capital, undistributed net investment income and undistributed net realized gain (loss) on investments. These differences are primarily related to foreign currency transactions, deferral of losses on wash sales, and character of capital loss carryforwards. The funds also utilize earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. BANK LOANS-- The Funds have an unsecured line of credit with a syndication of banks. It is a committed line of $300 million. Borrowings under this arrangement bear interest at .45% above the Federal Funds Effective Rate. As of March 31, 2000, there were no outstanding borrowings. 2. TRANSACTIONS WITH AFFILIATES Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets, .85% on the next $5 billion of net assets, and .80% on the excess of $10 billion of net assets. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets, and .90% on the excess of $5 billion of net assets. Select pays 1% on the first $1 billion, .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million, .80% on the next $2.5 million of net assets, and .75% on the excess of $5 billion of net assets. Small Cap pays 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1% on the excess of $2.5 billion. Equity and Income pays .75% of net assets, Int'l Small Cap pays 1.25% of net assets, and Global pays 1.00% of net assets. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% for domestic funds, 2.0% for international funds, and 1.75% for The Global Fund. In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International, approximately $7,283 each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to Select by the Adviser. These expenses are being amortized on a straight line basis through October, 2000 for Small Cap, Equity and Income and Int'l Small Cap, and October, 2001 for Select. Oakmark and International have fully amortized all organization expenses. During the twelve months ended March 31, 2000, the Funds incurred brokerage commissions of $4,765,046, $1,970,164, $430,363, $91,585, $177,124, $1,876,722, amd $262,991 of which $1,600,477, $601,043, $106,188, $41,177, $57,179, $0, and $0 were paid by Oakmark, Select, Small Cap, Equity and Income, Global, International and Int'l Small Cap, respectively, to an affiliate of the Adviser. The Funds' Trustees may participate in a Deferred Compensation Plan which may be terminated at any time. The obligations of the Plan are paid solely out of the assets of the Funds. 58 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ................................................................................ 3. FUND SHARE TRANSACTIONS Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following number of shares (in thousands):
SIX MONTHS ENDED MARCH 31, 2000 ------------------------------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL CAP - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold 6,430 17,874 1,832 380 1,156 5,118 2,412 Shares issued in reinvestment of dividends 21,629 15,744 0 463 3 1,898 656 Less shares redeemed (77,434) (37,087) (14,214) (1,209) (1,102) (14,047) (6,328) -------- ------- ------- ------ ------ ------- ------ Net increase (decrease) in shares outstanding (49,375) (3,469) (12,382) (366) 57 (7,031) (3,260) ======== ======= ======= ====== ====== ======= ====== TWELVE MONTHS ENDED SEPTEMBER 30, 1999 - ------------------------------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL CAP - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold 22,559 32,332 18,587 1,449 2,623 27,499 21,542 Shares issued in reinvestment of dividends 10,299 2,853 298 112 0 6,003 178 Less shares redeemed (100,457) (30,105) (36,338) (1,842) (15) (47,902) (16,944) -------- ------- ------- ------ ------ ------- ------ Net increase (decrease) in shares outstanding (67,599) 5,080 (17,453) (281) 2,608 (14,400) 4,776 ======== ======= ======= ====== ====== ======= ====== 4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands): EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL CAP - ----------------------------------------------------------------------------------------------------------------------------------- Purchases $649,635 $392,575 $ 40,917 $15,944 $25,272 $262,741 $19,964 Proceeds from sales $2,310,069 $772,559 $222,938 $26,482 $25,479 $380,793 $62,744
THE OAKMARK FAMILY OF FUNDS 59 - -------------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ................................................................................ 5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the six months ended March 31, 2000 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2000 ----------------------------------------------------------------------------------------------------------------------- AC Nielsen Corporation $ 0 $21,436,839 $ 0 $83,565,000 --- ----------- --- ----------- TOTALS $ 0 $21,436,839 $ 0 $83,565,000 Summary of Transactions with Affiliated Companies The Oakmark Select Fund PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2000 ----------------------------------------------------------------------------------------------------------------------- US Industries, Inc. $ 2,912,258 $27,182,892 $ 760,745 $ 72,255,825 USG Corporation 11,264,597 12,477,289 1,056,720 146,068,312 ---------- ---------- --------- ----------- TOTALS $14,176,855 $39,660,181 $1,817,465 $218,324,137 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2000 ----------------------------------------------------------------------------------------------------------------------- Barry (R.G.) Corporation $ 0 $ 59,398 $ 0 $ 2,970,000 Finger Lakes Financial Corp. 0 56,248 22,140 1,260,656 Sames Corporation 0 157,333 0 3,390,000 Ugly Duckling Corporation 0 0 0 13,453,125 ------- -------- ------- ---------- TOTALS $ 0 $272,979 $22,140 $21,073,781
60 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ................................................................................ SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2000 ----------------------------------------------------------------------------------------------------------------------- Banco Latinoamericano de Exportaciones, S.A. Class E $ 443,700 $ 3,045,448 $1,591,000 $ 30,681,700 Chargeurs SA 0 8,287,042 0 28,869,002 Dongah Tire Industry Company 0 0 222,263 4,513,639 Fila Holding S.p.A. 1,824,332 0 0 20,473,950 Keumkang Ltd. 0 1,467,014 348,029 13,711,206 Lotte Chilsung Beverage Company 0 0 32,524 4,405,429 Nufarm Limited 1,403,176 0 0 21,439,531 Somerfield plc 29,313,238 0 813,479 32,229,884 ---------- ------------ ------- ---------- TOTALS $32,984,446 $12,799,504 $3,007,295 $156,324,341 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2000 ----------------------------------------------------------------------------------------------------------------------- Designer Textiles (NZ) Limited $ 0 $ 0 $ 11,154 $ 281,983 Mainfreight Limited 115,895 15,170 167,324 3,905,493 Matichon Public Company Limited, Foreign Shares 0 0 0 3,532,185 NSC Groupe 0 1,118,301 0 4,251,330 ----------- ----------- ----------- ----------- TOTALS $ 115,895 $ 1,133,471 $ 178,478 $11,970,991
THE OAKMARK FAMILY OF FUNDS 61 - -------------------------------------------------------------------------------- THE OAKMARK FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN SIX MONTHS YEAR YEAR MONTHS ENDED ENDED ENDED ENDED MARCH 31, SEPTEMBER SEPTEMBER SEPTEMBER 2000 30, 1999 30, 1998 30, 1997 - --------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 34.37 $ 33.54 $ 41.21 $ 32.39 Income From Investment Operations: Net Investment Income (Loss) 0.25 0.44 0.47 0.36 Net Gains or Losses on Securities (both realized and unrealized) (4.86) 2.43 (1.73) 10.67 --------- --------- --------- --------- Total From Investment Operations: (4.61) 2.87 (1.26) 11.03 Less Distributions: Dividends (from net investment income) (0.26) (0.44) (0.40) (0.34) Distributions (from capital gains) (4.74) (1.60) (6.01) (1.87) --------- --------- --------- --------- Total Distributions (5.00) (2.04) (6.41) (2.21) --------- --------- --------- --------- Net Asset Value, End of Period $ 24.76 $ 34.37 $ 33.54 $ 41.21 ========= ========= ========= ========= Total Return (15.06)% 7.98% (4.06)% 39.24%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $2,215.9 $4,772.8 $6,924.0 $6,614.9 Ratio of Expenses to Average Net Assets 1.22%* 1.11% 1.08% 1.08%* Ratio of Net Income (Loss) to Average Net Assets 1.56%* 1.02% 1.22% 1.19%* Portfolio Turnover Rate 21% 13% 43% 17% PERIOD YEAR ENDED OCTOBER 31, ENDED ------------------------------------------------------ OCTOBER 31, 1996 1995 1994 1993 1992 1991(a) - ---------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.34 0.30 0.27 0.17 (0.03) (0.01) Net Gains or Losses on Securities --------- --------- --------- --------- ------- ------ (both realized and unrealized) 4.70 4.66 1.76 7.15 5.04 2.11 Total From Investment Operations: 5.04 4.96 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.28) (0.23) (0.23) (0.04) 0 0 Distributions (from capital gains) (0.84) (1.47) (0.77) (0.21) 0 0 --------- --------- --------- --------- ------- ------ Total Distributions (1.12) (1.70) (1.00) (0.25) 0 0 --------- --------- --------- --------- ------- ------ Net Asset Value, End of Period $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 ========= ========= ========= ========= ======= ====== Total Return 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $3,933.9 $2,827.1 $1,677.3 $1,107.0 $114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets 1.13% 1.27% 1.19% 0.94% (0.24)% (0.66)%(c)* Portfolio Turnover Rate 24% 18% 29% 18% 34% 0%
*Data has been annualized. (a) The date which Fund shares were first offered for sale to the public was August 5, 1991. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. 62 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- THE OAKMARK SELECT FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
DECEMBER 31, ELEVEN SIX MONTHS 1999 MONTHS ENDED THROUGH YEAR ENDED YEAR ENDED ENDED MARCH 31, 2000 MARCH 31, 2000 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II (a) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 20.92 $18.42 $ 16.76 $ 16.34 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.06 0.03 0.20 0.03 (0.01) Net Gains or Losses on Securities (both realized and unrealized) 3.01 1.60 4.72 0.56 6.35 --------- ------ --------- --------- ------- Total From Investment Operations: 3.07 1.63 4.92 0.59 6.34 Less Distributions: Dividends (from net investment income) (0.20) 0.00 (0.05) 0 0 Distributions (from capital gains) (3.72) 0.00 (0.71) (0.17) 0 --------- ------ --------- --------- ------- Total Distributions (3.92) 0.00 (0.76) (0.17) 0 Net Asset Value, End of Period $ 20.07 $20.05 $ 20.92 $ 16.76 $ 16.34 ========= ====== ========= ========= ======= Total Return 16.52% 8.85% 30.07% 3.64% 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,497.7 $ 4.6 $1,638.9 $1,227.9 $514.2 Ratio of Expenses to Average Net Assets 1.18%* 1.36%* 1.16% 1.22% 1.12%* Ratio of Net Income (Loss) to Average Net Assets 0.71%* .33%* 0.98% 17.00% (0.11)%* Portfolio Turnover Rate 27% 27% 67% 56% 37%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was December 31, 1999. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 63 - -------------------------------------------------------------------------------- THE OAKMARK SMALL-CAP FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.88 $ 12.63 $ 20.34 $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.00 (0.16) (0.12) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) (0.49) 1.50 (4.73) 7.16 3.21 ------- ------- ------- --------- ------- Total From Investment Operations: (0.49) 1.34 (4.85) 7.15 3.19 Less Distributions: Dividends (from net investment income) 0.00 0.00 0 0 0 Distributions (from capital gains) 0.00 (0.09) (2.86) 0 0 ------- ------- ------- --------- ------- Total Distributions 0.00 (0.09) (2.86) 0 0 ------- ------- ------- --------- ------- Net Asset Value, End of Period $ 13.39 $ 13.88 $ 12.63 $ 20.34 $ 13.19 ======= ======= ======= ========= ======= Total Return (3.53)% 10.56% (26.37)% 59.14% 31.94%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $255.8 $437.1 $618.0 $1,513.4 $218.4 Ratio of Expenses to Average Net Assets 1.50%*(a) 1.48% 1.45% 1.37%* 1.61% Ratio of Net Income (Loss) to Average Net Assets (0.46)%*(a) (0.44)% (0.40)% (0.25)%* (0.29)% Portfolio Turnover Rate 13% 68% 34% 27% 23%
*Data has been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
MARCH 31, 2000 - -------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.57% Ratio of Net Income (Loss) to Average Net Assets (0.53)%
64 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $15.68 $13.99 $14.49 $11.29 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.22 0.43 0.29 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 0.95 1.68 0.04 3.24 1.19 ------ ------ ------ ------ ------ Total From Investment Operations: 1.17 2.11 0.33 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.45) (0.21) (0.24) (0.12) 0 Distributions (from capital gains) (1.36) (0.21) (0.59) (0.13) 0 ------ ------ ------ ------ ------ Total Distributions (1.81) (0.42) (0.83) (0.25) 0 Net Asset Value, End of Period $15.04 $15.68 $13.99 $14.49 $11.29 ====== ====== ====== ====== ====== Total Return 8.02% 15.32% 2.57% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $52.3 $60.3 $57.7 $33.5 $13.8 Ratio of Expenses to Average Net Assets 1.21%* 1.18% 1.31% 1.50%*(a) 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 3.21%* 2.65% 2.39% 2.38%*(a) 1.21%(a) Portfolio Turnover Rate 29% 81% 46% 53% 66%
*Data has been annualized (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
SEPTEMBER 30, OCTOBER 31, 1997 1996 - --------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.70% 2.64% Ratio of Net Income (Loss) to Average Net Assets 2.18% 1.08%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 65 - -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, 2000 1999(a) - ------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 9.18 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.05 0.01 Net Gains or Losses on Securities (both realized and unrealized) 0.83 (0.83) ------ ------ Total From Investment Operations: 0.88 (0.82) Less Distributions: Dividends (from net investment income) (0.01) 0.00 Distributions (from capital gains) 0.00 0.00 ------ ------ Total Distributions (0.01) 0.00 Net Asset Value, End of Period $10.05 $ 9.18 ====== ====== Total Return 9.59% (8.18)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $26.8 $24.0* Ratio of Expenses to Average Net Assets 1.75%*(b) 1.75%*(b) Ratio of Net Income (Loss) to Average Net Assets 0.52%*(b) 0.98%*(b) Portfolio Turnover Rate 96% 7%
*Data has been annualized (a) The date which Fund shares were first offered for sale to the public was August 4, 1999. (b) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
MARCH 31, SEPTEMBER 30, 2000 1999 - -------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.87% 2.22% Ratio of Net Income (Loss) to Average Net Assets 0.40% 0.51%
66 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NOVEMBER 4, 1999 ELEVEN SIX MONTHS THROUGH MONTHS ENDED MARCH 31, YEAR ENDED YEAR ENDED ENDED MARCH 31, 2000 2000 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II(b) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.95 $14.36 $ 10.42 $18.77 $ 14.92 Income From Investment Operations: Net Investment Income (Loss) 0.11 0.19 0.36 0.41 0.27 Net Gains or Losses on Securities (both realized and unrealized) 1.10 0.60 4.19 (5.32) 3.74 ------- ------ ------- ------ --------- Total From Investment Operations: 1.21 0.79 4.55 (4.91) 4.01 Less Distributions: Dividends (from net investment income) (0.49) (0.49) (0.24) (0.58) (0.16) Distributions (from capital gains) 0.00 0.00 (0.78) (2.86) 0 ------- ------ ------- ------ --------- Total Distributions (0.49) 0.00 (1.02) (3.44) (0.16) ------- ------ ------- ------ --------- Net Asset Value, End of Period $ 14.67 $14.66 $ 13.95 $ 10.42 $ 18.77 ======= ====== ======= ======= ========= Total Return 8.85% 5.67% 46.41% (29.90)% 29.63%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $750.0 $ 0.1 $811.1 $756.1 $1,647.3 Ratio of Expenses to Average Net Assets 1.30%* 1.69%* 1.29% 1.32% 1.26%* Ratio of Net Income (Loss) to Average Net Assets 1.68%* 1.87%* 1.94% 1.95% 2.09%* Portfolio Turnover Rate 35% 35% 54% 43% 61% YEAR ENDED OCTOBER 31, -------------------------------------------- PERIOD ENDED OCTOBER 31, 1996 1995 1994 1993 1992(a) - ---------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.97 $ 14.50 $ 14.09 $ 9.80 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) 2.90 (0.77) 0.43 4.48 (0.46) --------- ------- --------- ------ ------ Total From Investment Operations: 2.99 (0.47) 0.64 4.54 (0.2) Less Distributions: Dividends (from net investment income) 0 0 (0.08) (0.25) 0 Distributions (from capital gains) (1.04) (1.06) (0.15) 0 0 --------- ------- --------- ------ ------ Total Distributions (1.04) (1.06) (0.23) (0.25) 0 --------- ------- --------- ------ ------ Net Asset Value, End of Period $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 ========= ======= ========= ======= ====== Total Return 24.90% (3.06)% 4.62% 47.49% (22.81)%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,172.8 $819.7 $1,286.0 $815.4 $ 23.5 Ratio of Expenses to Average Net Assets 1.32% 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income (Loss) to Average Net Assets 1.45% 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 42% 26% 55% 21% 0%
*Data has been annualized. (a) The date which Fund shares were first offered for sale to the public was September 30, 1992. (b) The date which Class II shares were first sold to the public was November 4, 1999. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 67 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.64 $ 6.89 $12.20 $11.41 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.01 0.20 0.18 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) (0.07) 5.75 (4.09) 1.10 1.37 ------- ------- ------ ------ ------ Total From Investment Operations: (0.06) 5.95 (3.91) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.11) (0.20) (0.06) (0.08) 0 Distributions (from capital gains) (0.59) 0.00 (1.34) (0.36) 0 ------- ------- ------ ------ ------ Total Distributions (0.70) (0.20) (1.40) (0.44) 0 Net Asset Value, End of Period $ 11.88 $ 12.64 $ 6.89 $12.20 $11.41 ======= ======= ====== ====== ====== Total Return (0.34)% 88.02% (35.20)% 12.07% *14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $107.3 $155.4 $51.8 $66.0 $39.8 Ratio of Expenses to Average Net Assets 1.73%* 1.79% 1.96% 1.93%* 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 1.33%* 2.31% 2.17% 1.23%* 0.65%(a) Portfolio Turnover Rate 16% 126% 69% 63% 27%
*Data has been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
OCTOBER 31, 1996 - ------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 2.65% Ratio of Net Income (Loss) to Average Net Assets 0.50%
68 THE OAKMARK FAMILY OF FUNDS 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 Steven J. Reid--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 ServiceComments@oakmark.com This report, including the unaudited financial statements contained herein, is submitted for the general information of the shareholders of the Funds. The report is not authorized for distribution to prospective investors in the Funds unless it is accompanied or preceded by a currently effective prospectus of the Funds. No sales charge to the shareholder or to the new investor is made in offering the shares of the Funds. - -------------------------------------------------------------------------------- P.O. Box 8510 Boston, MA 02266-8510 - -------------------------------------------------------------------------------- [LOGO] OAKMARK FAMILY OF FUNDS 1-800-OAKMARK www.oakmark.com -----END PRIVACY-ENHANCED MESSAGE-----