-----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, UmWUpCOnY+wqAoG1SOnR6Hc5w/sbCwvSSVu7G7NdbF1HjVeChMfXNJkkdFXl39Lr IEiCJxPD32vQO8lIIuHU2w== 0000912057-99-003132.txt : 19991103 0000912057-99-003132.hdr.sgml : 19991103 ACCESSION NUMBER: 0000912057-99-003132 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991102 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: 99739497 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] ANNUAL REPORT SEPTEMBER 30, 1999 MEMBER OF 100% NO-LOAD MUTUAL FUND COUNCIL MANAGED BY HARRIS ASSOCIATES L.P. 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 OAKMARK THE OAKMARK FAMILY OF FUNDS 1999 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................................... 7 THE OAKMARK SELECT FUND Letter from the Portfolio Manager......................... 10 Schedule of Investments................................... 12 THE OAKMARK SMALL CAP FUND Letter from the Portfolio Manager......................... 14 Schedule of Investments................................... 16 THE OAKMARK EQUITY AND INCOME FUND Letter from the Portfolio Manager......................... 19 Schedule of Investments................................... 21 THE OAKMARK GLOBAL FUND Letter from the Portfolio Managers........................ 25 Global Diversification Chart.............................. 27 Schedule of Investments................................... 28 THE OAKMARK INTERNATIONAL FUND Letter from the Portfolio Managers........................ 31 International Diversification Chart....................... 33 Schedule of Investments................................... 34 THE OAKMARK INTERNATIONAL SMALL CAP FUND Letter from the Portfolio Managers........................ 38 International Diversification Chart....................... 40 Schedule of Investments................................... 41 FINANCIAL STATEMENTS Statement of Assets and Liabilities....................... 46 Statement of Operations................................... 48 Statement of Changes in Net Assets........................ 50 Notes to Financial Statements............................. 57 TRUSTEES AND OFFICERS....................................... 73
FOR MORE INFORMATION Access our web site at www.oakmark.com to obtain a profile, 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... ........................................................................ [PHOTO] DEAR FELLOW SHAREHOLDERS: WE ARE PLEASED TO PRESENT THE ANNUAL REPORT FOR THE OAKMARK FAMILY OF FUNDS. THE FOURTH QUARTER PERFORMANCE OF OUR FUNDS WAS MIXED AT BEST AND LEFT ALL OF US FRUSTRATED. WE VIEW THIS QUARTER AS A TEMPORARY SETBACK THAT WILL BE OVERCOME BY THE ULTIMATE RETURNS GENERATED BY THE COMPELLING VALUES THAT ARE CURRENTLY HELD IN OUR PORTFOLIOS. YOUR PATIENCE AND LOYALTY IS SOMETHING THAT WE VALUE HIGHLY. AS OUR DOMESTIC INVESTMENT STYLE RETURNS TO FAVOR, THE COMEBACK WILL NOT BE SMOOTH AND STRAIGHT UP IN TERMS OF PERFORMANCE. MANY OF YOU HAVE ASKED OR ARE LIKELY TO BE WONDERING WHAT IS BEHIND OUR RESOLVE AND CONVICTION THAT OUR PERFORMANCE IS AT OR NEAR A TURNING POINT. IN BOTH OUR DOMESTIC AND INTERNATIONAL PORTFOLIOS, SEVERAL FACTORS ARE THE SOURCE OF OUR CONFIDENCE. IN ABSOLUTE AND RELATIVE TERMS, THE CURRENT VALUATION OF OUR INDIVIDUAL HOLDINGS IS VERY ATTRACTIVE. EACH OF THE STOCKS IS SELLING BELOW, AND IN SOME CASES SUBSTANTIALLY BELOW, THE BUSINESS VALUE OF THE COMPANY IN WHICH WE ARE INVESTED. THIS GAP BETWEEN ABSOLUTE VALUE AND BUSINESS VALUE WILL ULTIMATELY CLOSE AS THE STOCK PRICE AND BUSINESS VALUES CONVERGE. ON A RELATIVE BASIS, LOOKING AT A VARIETY OF QUANTITATIVE FACTORS, OUR PORTFOLIOS ARE UNIFORMLY SELLING AT VALUATIONS WELL BELOW THE AVERAGE FOR THE APPROPRIATE STOCK MARKET INDEX. OUR CONFIDENCE THAT WE ARE CLOSER TO SEEING THIS VALUATION GAP CLOSE IS REINFORCED BY THE SUBSTANTIAL AND BROAD BASED INCREASE IN SHARE REPURCHASES AND INSIDER BUYING IN THE SECURITIES THAT WE OWN. THE PEOPLE WHO KNOW THESE COMPANIES BEST ARE CLEARLY MAKING SUBSTANTIAL TANGIBLE STATEMENTS THAT THESE SECURITIES ARE UNDERVALUED. AS WE HAVE ALWAYS SAID, THE PROSPECTS FOR INVESTMENT SUCCESS ARE ENHANCED WHEN THE SHAREHOLDERS AND MANAGEMENT INTERESTS ARE ALIGNED. FINALLY, THE INCREASE IN TAKEOVER ACTIVITY AIMED AT THE COMPANIES IN OUR PORTFOLIOS IS A REMINDER THAT THE VALUATION GAP CAN BE CLOSED EITHER GRADUALLY OR DRAMATICALLY. IN EITHER CASE, WE WILL ULTIMATELY BENEFIT. WE CONTINUE TO BELIEVE THAT SUPERIOR SHAREHOLDER SERVICE CAN BUILD LOYALTY TO THE FUNDS. THUS WE ARE ALWAYS LOOKING FOR WAYS TO IMPROVE THIS SERVICE. TO THIS END, WE HAVE RECENTLY CHANGED OUR TRANSFER AGENT. THE NEW PROVIDER IS NVEST SERVICES COMPANY WHICH IS COMMITTED TO BECOMING THE TOP PROVIDER OF INVESTOR SERVICES. PLEASE LET US KNOW IF YOU EXPERIENCE UNUSUALLY GOOD OR BAD SERVICE FROM THE NEW FIRM BY E-MAILING US AT SERVICECOMMENTS@OAKMARK.COM. AS THE END OF THE CENTURY RAPIDLY APPROACHES, WE REMAIN CONFIDENT THAT WE ARE PREPARED FOR THE EVENT. WE WOULD ALSO LIKE TO BE THE FIRST TO WISH YOU A HAPPY, HEALTHY AND PROSPEROUS NEW YEAR AND WE LOOK FORWARD TO A SUCCESSFUL 2000. [SIGNATURE] VICTOR MORGENSTERN CHAIRMAN [SIGNATURE] ROBERT M. LEVY PRESIDENT [LOGO] 1 THE OAKMARK FAMILY OF FUNDS SUMMARY INFORMATION ........................................................................
THE OAKMARK THE OAKMARK PERFORMANCE FOR PERIOD ENDED THE OAKMARK SELECT SMALL CAP SEPTEMBER 30, 1999 FUND FUND FUND ---------------------- ---------------------- ---------------------- 3 MONTHS -13.6% -10.0% -9.0% ......................................................................................................... 6 MONTHS -3.6% -3.2% 3.0% ......................................................................................................... 1 YEAR 8.0% 30.1% 10.6% AVERAGE ANNUAL TOTAL RETURN 3 YEAR 12.4% N/A 7.7% ......................................................................................................... 5 YEAR 15.1% N/A N/A ......................................................................................................... SINCE INCEPTION 22.9% 31.1% 13.7% VALUE OF $10,000 $53,882 $22,028 $16,558 FROM INCEPTION DATE (8/5/91) (11/1/96) (11/1/95) - --------------------------------------------------------------------------------------------------------- TOP FIVE HOLDINGS Philip Morris USG Corporation 10.1% Symantec AS OF SEPTEMBER 30, 1999 Companies Inc. 7.2% Washington Corporation 6.6% COMPANY AND % OF TOTAL NET Knight Ridder, Mutual, Inc. 9.1% Duff & Phelps Credit ASSETS Inc. 6.6% U.S. Industries, Rating Co. 5.5% Nike, Inc., Inc. 8.2% SPX Corporation 4.2% Class B 6.3% First Data Catellus Development H&R Block, Inc. 5.8% Corporation 7.0% Corporation 3.8% The Dun & Bradstreet The Dun & Bradstreet U.S. Industries, Corporation 5.8% Corporation 6.6% Inc. 3.6% - --------------------------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES Other Consumer Computer Banks & Thrifts 10.2% AS OF SEPTEMBER 30, 1999 Goods & Services 17.5% Machinery & Industrial INDUSTRIES AND % OF TOTAL NET Services 19.4% Banks & Thrifts 12.0% Processing 9.5% ASSETS Aerospace & Building Materials & Retail 8.7% Defense 9.2% Construction 10.1% Food & Beverage 7.6% Food & Beverage 8.9% Diversified Automotive 7.4% Information Conglomerates 8.2% Services 8.1% Information Banks & Thrifts 7.9% Services 6.6%
THE OAKMARK FAMILY OF FUNDS 2 ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND -------------------- -------------------- -------------------- -------------------- 3 Months -5.1% -8.2% -7.1% 0.8% (inception 8/4/99) ...................................................................................................................... 6 Months 4.3% N/A 12.4% 17.7% ...................................................................................................................... 1 Year 15.3% N/A 46.4% 88.0% Average Annual Total Return 3 Year 16.4% N/A 9.2% 10.0% ...................................................................................................................... 5 Year N/A N/A 9.4% N/A ...................................................................................................................... Since inception 15.4% N/A 13.3% 11.7% Value of $10,000 $17,518 $9,180 $23,896 $15,439 from inception date (11/1/95) (8/4/99) (9/30/92) (11/1/95) - ---------------------------------------------------------------------------------------------------------------------- TOP FIVE HOLDINGS Imation Corp. 5.4% The Dun & Metso Oyj 5.0% Royal Doulton AS OF SEPTEMBER 30, 1999 Premark Bradstreet Chargeurs SA 4.9% plc 5.1% COMPANY AND % OF TOTAL NET International, Inc. 3.9% Corporation 5.6% Fila Holdings Carpetright ASSETS The Reynolds and Department S.p.A. 4.0% plc 4.9% 56, Inc. 5.2% Cordiant JCG Reynolds Company 3.7% NOVA Communications Holdings Ltd. 4.8% First Data Corporation 4.6% Group plc 4.0% House of Fraser Corporation 3.6% Sterling Commerce, Citizen Watch Plc 4.7% Amli Residential Inc. 4.4% Co. 3.9% Krones AG 4.3% Properties Somerfield plc4.3% Trust 3.5% - ---------------------------------------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES U.S. Government Information Other Industrial Retail 12.7% AS OF SEPTEMBER 30, 1999 Bonds 25.4% Services 12.8% Goods & Diversified INDUSTRIES AND % OF TOTAL NET Computer Retail 11.8% Services 16.5% Conglomerates 10.1% ASSETS Services 12.7% Banks & Banks & Production Real Estate 9.1% Thrifts 9.9% Thrifts 9.6% Equipment 9.7% Banks & Computer Machinery and Mining & Building Thrifts 8.9% Services 8.8% Metal Materials 9.5% Data Storage 5.4% Other Consumer Processing 6.3% Other Consumer Goods & Other Consumer Goods & Services 8.2% Goods & Services 9.3% Services 6.3% Food & Beverage 6.0%
THE OAKMARK FAMILY OF FUNDS 3 THE OAKMARK FUND REPORT FROM ROBERT J. SANBORN, PORTFOLIO MANAGER ........................................................................ [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (9/30/99) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK S & P 500 FUND 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 $53,822 $40,023
9/30/99 NAV AVERAGE ANNUAL TOTAL RETURN* $34.37 THROUGH 9/30/99 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 8/5/91 - -------------------------------------------------------------------------- THE OAKMARK FUND -13.6% 22.9% Standard & Poor's 500 Stock Index w/inc** -6.2% 18.5% Dow Jones Industrial Average w/ inc** -5.4% 19.1% Value Line Composite Index** -10.3% 6.9%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The Dow Jones Average includes only 30 big companies. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results. PORTFOLIO UPDATE The fiscal year ending September 30, 1999 was very disappointing to me. Your Fund lagged significantly behind the overall market, and this is especially frustrating after our lackluster 1998. While your Fund generated positive absolute returns each year, it has dramatically lagged a very strong overall market. On the one hand, your Fund has had a dearth of big winners to compensate for some disappointments. Of our sixteen positions greater than 3 percent of assets, only four performed better than the Standard & Poor's 500--Brunswick, Nike, Boeing, and Eaton. This does not really surprise me, because in general the big winners in this market have been the fast-growing technology stocks that represent a big portion of the overall market. As most of you know, we find these stocks to be grossly overpriced and do not own any (see next item for more). However, your Fund had a number of losers during the year that are more troubling and deserve discussion. Of our aforementioned sixteen largest holdings, five stocks--Lockheed Martin, Mattel, Philip Morris, Bank One, and Washington Mutual--were down for the year. Individual declines ranged from 13 percent for Washington Mutual to 35 percent for Lockheed Martin. One needs to differentiate between stocks that went down due to a decline in underlying business value, and those that went down because...they went down. Our investment methodology involves buying stocks in businesses we understand, with owner-oriented management, and, most important, that sell at a significant discount to underlying value. In our view, two of our losers--Philip Morris and Washington Mutual--have performed as expected as BUSINESSES and our buy-and-sell targets are at least as high today as they were a year ago. While we monitor developments closely, we view the declines in these two stocks as opportunities. Bank One did experience a fundamental disappointment during the year as growth at its large credit card business was less than expected. While we have adjusted our earnings estimates somewhat, we do not view this development as a major hit to underlying value. We still have great respect for the First USA THE OAKMARK FUND 4 ........................................................................ credit card operation and, selling at less than 10x next year's earnings, we view ONE as a bargain. Mattel and Lockheed Martin both experienced major declines in our estimate of underlying value. In the case of Mattel, the culprit was the disastrous acquisition of The Learning Company. After closing this deal in the second quarter of this year, MAT announced in the THIRD quarter that TLC was nowhere near as profitable as originally thought. In fact, at this date, the Company is still apparently trying to ascertain the extent of the problems at TLC. We have dramatically lowered our earnings estimates and our buy-and-sell targets. In the case of Lockheed Martin, this is a case of The Gang That Cannot Launch a Satellite Straight. Very poor execution in a number of its businesses and in some cost-cutting initiatives have caused our earnings estimates for the years 1999 and 2000 to be cut in half versus prior expectations. Our buy-and-sell targets have been similarly cut. When doing a post-mortem on these two, it is clear in the case of MAT that management was not up to the critical job of capital allocation. When a management issues stock equal to more than one-third of its shares outstanding, it better have a firm handle on what it is buying. It is clear in the instance of TLC that management's due diligence is highly suspect. In the case of Lockheed Martin, management also is to blame for its problems. As we watched this company make a very large number of acquisitions--each of which was logical on its face--we concluded that management was up to the task of integrating these disparate cultures. In retrospect, we were wrong. In the case of both Mattel and Lockheed, we have had extensive and continuous contact with top management. Despite this, we clearly misjudged management's abilities. This is especially frustrating, because we as a firm traditionally seek out superior managements and have spent a lot of time with a lot of CEOs. While we as a group are not known as being bashful, we recognize that our questioning of management must be even more direct and pointed in the future. What are we doing with these stocks? As our schedule of investments indicates, we have retained the vast majority of our shares in both companies at the current time. While I am discomfited about holding shares in companies in which we have serious doubts about management, the market has driven the shares of both stocks to levels that are too cheap. Both stocks sell at less than 10x next year's cash earnings, huge discounts to the overall market. With both vulnerable to either financial or strategic buyers, with both companies leaders in their industries, and with management under the gun to produce, I have elected to retain both holdings for now. While it is important to look back and understand one's investment results, it is even more crucial always to look to the future and not be burdened by history. While the past couple of years have produced unacceptable performance, I am more confident about your Fund's prospective relative performance than I have ever been. My colleagues and I have experienced similar periods before and we have seen our patience rewarded. A TALE OF TWO ACQUISITIONS The history of financial markets tells us that the more things appear to change, the more they stay the same. Reading about the South Sea Company in 1720s England reminded me of the stock market in 1999 America. Despite the grandiose name, the South Sea Company had no business except converting illiquid government annuities into stock shares. The intrinsic value per share was easily obtained. Despite this, South Sea stock became a sensation and soared far above this value, attracting first government officials and royalty, then professional traders, and then, towards the end of the bubble, the proverbial widows and orphans. The rapid price rise above value stimulated entrepreneurs to float other "bubble" companies. These companies had a huge variety of purposes. One was formed merely to trade South Sea stock; others were to settle Australia, to gather saltpeter by cleaning out all the loos in England, and to make an air pump for the brain. As an aside, there are days (and quarters) I wish that last one had panned out! Now let's advance to 1999. The awesome albeit irregular rise in technology stocks continues and the awesome increase in IPOs to take advantage of this reality also continues. What is driving these deals, in my opinion, is the same thing that propelled the emergence of the "bubble companies" over 220 years ago--public market prices that far exceed intrinsic value. I have discussed at length how the US stock market is roughly divided into two camps, the large-cap growth (primarily technology) companies on the one hand and everything else on the other. "Everything else" hasn't been winning, as if you did not already know. This situation has created a pervasive psychology in today's stock market, exemplified by two acquisitions that occurred the same week in September: Cisco/Cerent and H. & R. Block/ Olde. Cisco, a leading networking company, announced the over-$7 billion purchase of a private company, Cerent, that has been in business only two years and THE OAKMARK FUND 5 ........................................................................ possesses an apparently nice evolutionary technology. Cerent is unprofitable and has lost $60 million to date. It has only $10 million in revenue, which is expected to grow to $300 million by 2001; it has 266 employees. By my calculations, this deal occurred at 700x revenues, 23x 2001 expected revenues, and $26 million per employee. A venture capital firm that recently invested $8 million in Cerent will soon receive more than $2.1 billion in Cisco stock. (This is a better-annualized return than even a certain First Lady's foray into the commodity markets!). The "Wall Street Journal" wrote that this transaction "...is the latest sign of the Internet's mind-boggling impact on corporate valuations." The stock market likes this deal. H&R Block, the tax-preparation company, is one of your Fund's larger holdings. It also announced an acquisition, buying Olde, the discount brokerage company. Block is paying 2.5x revenues and 16.5x earnings for Olde. While we have serious reservations about this deal and believe that Block could have found a far better return for its capital, we would concede that there is a credible strategic rationale for this deal. The market hates, hates, hates this deal, and in the two trading days after the announcement, Block's market value fell by MORE than the purchase price for Olde. The market is apparently saying, "Not only is Olde worth zero, but it has negative value." What explains the market's different reactions to the two deals? Well, my belief is that a deep-rooted psychology has taken root among investors (not to mention venture capitalists, investment bankers, and even corporate executives), that in the technology arena, particularly anything related to the Internet, valuation does not matter. One can pay virtually any multiple for any well-positioned tech company because, of course, the world has changed and the growth is going to be there. After all, the stocks keep going up, right? Let's compare what one can own in the "brick-and-mortar" toy world versus what can own in the Net toy world. Mattel and Hasbro COMBINED have approximately the same market capitalization ($8 billion) as eToys, an Internet toy retailer that has been in business for less than three years. Mattel and Hasbro are the two biggest toy companies in the US and own great brands such as Barbie, G.I. Joe, Fisher-Price, Hot Wheels, and many others. Combined, Mattel and Hasbro have sales of about $10 billion and generate over $1.6 billion in pre-tax profits. eToys, in its most recent quarter, generated less than $8 million (that's with an "m") in revenues and lost $20 million. If the market is right, eToys is going to experience decades of excellent results. Personally, I think it is exceedingly remote that the market is valuing these respective businesses correctly. There are countless examples in history of such psychology taking root for a long period of time. Of course, in the long run, the piper must be paid. In 1720 England, the fate of the London banker John Martin is instructive. Early in the summer, watching the price of South Sea soar, he argued, "When the rest of the world is mad, we must imitate them in some measure." Alas, it turned out he was late to the game, and failed to sell out before the crash. Losing his fortune, he complained of being "blinded by other people's advice." I get many letters from you, the shareholders, complaining about my stubborn refusal to buy the tech stocks. I share--believe me!--your frustration. However, I remain very confident about our Fund and its relative value. As I write this, investment banks are about to float a huge number of IPOs, most of which have an Internet connection of some sort. (I note that there are now a number of mutual funds that focus on investing in IPOs, and more are on the way!). All of the money raised by these IPOs will go into competing with other players. The laws of economics dictate that this capital will retard returns. In addition, venture capital firms are no doubt observing the valuations the stock market is placing on Internet plays. According to the National Venture Capital Association, the dollar value of Internet venture outlays has more than quadrupled in the last year. In that last year, the percentage of venture investments geared to the Internet has gone from 25 percent to over 50 percent. This capital will make the sector more competitive. So, I concede that many of you must be very frustrated by our Fund's anemic performance, and I continue to appreciate your support and patience. I am not tempted to imitate the madness we see in much of the stock market and remain very confident in our portfolio. In the fullness of time, I am confident that our approach will be validated. /S/ ROBERT SANBORN ROBERT J. SANBORN Portfolio Manager rsanborn@oakmark.com October 13, 1999 THE OAKMARK FUND 6 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--90.8% FOOD & BEVERAGE--8.9% Philip Morris Companies Inc. 10,010,700 $ 342,240,806 Nabisco Holdings Corporation, Class A 2,372,100 81,985,706 ------------- 424,226,512 APPAREL--6.3% Nike, Inc., Class B 5,257,100 $ 298,997,563 RETAIL--0.2% GC Companies, Inc. (a) 266,200 $ 7,986,000 HARDWARE--6.8% The Black & Decker Corporation (b) 5,412,200 $ 247,269,887 The Stanley Works 3,124,900 78,708,419 ------------- 325,978,306 OTHER CONSUMER GOODS & SERVICES--19.4% H&R Block, Inc. (b) 6,415,500 $ 278,673,281 Mattel, Inc. 12,164,400 231,123,600 Brunswick Corporation (b) 7,280,800 181,109,900 Fortune Brands, Inc. 4,861,100 156,770,475 Galileo International, Inc. 1,980,000 79,695,000 ------------- 927,372,256 BANKS & THRIFTS--7.9% Washington Mutual, Inc. 7,480,000 $ 218,790,000 Bank One Corporation 4,600,548 160,156,577 ------------- 378,946,577 INSURANCE--1.8% Old Republic International Corporation 5,820,330 $ 84,031,014 INFORMATION SERVICES--8.1% The Dun & Bradstreet Corporation (b) 9,322,500 $ 278,509,687 ACNielsen Corporation (a)(b) 4,764,000 108,083,250 ------------- 386,592,937 COMPUTER SERVICES--2.6% First Data Corporation 2,873,200 $ 126,061,650 PUBLISHING--6.6% Knight Ridder, Inc. (b) 5,716,100 $ 313,670,988 MEDICAL CENTERS--3.0% Columbia/HCA Healthcare Corporation 6,746,600 $ 142,943,588 MEDICAL PRODUCTS--1.6% Sybron International Corporation (a) 2,935,600 $ 78,894,250
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FUND 7 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--90.8% (CONT.) AEROSPACE & DEFENSE--9.2% Lockheed Martin Corporation 7,150,000 $ 233,715,625 The Boeing Company 4,799,400 204,574,425 ------------- 438,290,050 MACHINERY & INDUSTRIAL PROCESSING--7.3% Eaton Corporation 2,113,600 $ 182,430,100 Cooper Industries, Inc. 3,558,400 166,355,200 ------------- 348,785,300 BUILDING MATERIALS & CONSTRUCTION--0.0% Juno Lighting, Inc. 63,702 $ 760,443 OTHER INDUSTRIAL GOODS & SERVICES--1.1% Bandag, Incorporated, Class A 1,104,100 $ 27,878,525 The Geon Company 956,600 24,632,450 ------------- 52,510,975 TOTAL COMMON STOCKS (COST: $4,169,051,189) 4,336,048,409 SHORT TERM INVESTMENTS--8.9% U.S. GOVERNMENT BILLS--1.6% United States Treasury Bills, 4.51%-4.65% due 10/7/1999-12/2/1999 $75,000,000 $ 74,744,459 ------------- TOTAL U.S. GOVERNMENT BILLS (COST: $74,742,306) 74,744,459 COMMERCIAL PAPER--5.5% American Express Credit Corp., 5.26%-5.31% due 10/1/1999-10/8/1999 $80,000,000 $ 80,000,000 Ford Motor Credit Corp., 5.28%-5.29% due 10/4/1999-10/6/1999 60,000,000 60,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 125,000,000 125,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $265,000,000) 265,000,000
THE OAKMARK FUND 8 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- SHORT TERM INVESTMENTS--8.9% (CONT.) REPURCHASE AGREEMENTS--1.8% State Street Repurchase Agreement, 5.20% due 10/1/1999 $83,761,000 $ 83,761,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $83,761,000) 83,761,000 TOTAL SHORT TERM INVESTMENTS (COST: $423,503,306) 423,505,459 Total Investments (Cost $4,592,554,495)--99.7% (c) $4,759,553,868 Other Assets In Excess Of Other Liabilities--0.3% 13,278,501 ------------- TOTAL NET ASSETS--100% $4,772,832,369 =============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At September 30, 1999, net unrealized appreciation of $166,999,373, for federal income tax purposes, consisted of gross unrealized appreciation of $654,481,043 and gross unrealized depreciation of $487,481,670. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FUND 9 THE OAKMARK SELECT FUND REPORT FROM BILL NYGREN, PORTFOLIO MANAGER ........................................................................ [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (9/30/99) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK S & P 500 SELECT FUND 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 9/30/99 TOTAL RETURN FROM FUND INCEPTION 9/30/99 NAV $20.92 LAST 3 MOS. 11/1/96 - ----------------------------------------------------------------------------- THE OAKMARK SELECT FUND -10.0% 31.1% Standard & Poor's 500 Stock Index w/inc** -6.2% 24.7% Standard & Poor's MidCap 400 Index w/ inc** -8.4% 18.3% Value Line Composite Index** -10.3% 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. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results. For fiscal 1999, The Oakmark Select Fund increased in value by 30.1%. This performance somewhat exceeded the 25.5% gain in the S&P MidCap 400, and the 27.8% gain in the S&P 500. Your fund also outperformed 95% of the other funds classified by Morningstar as midcap value funds. I want to thank our research department for another year of outstanding contribution. Their hard work and insights are the foundation for the results we have achieved. The chart below shows that, unlike the full year, the fourth fiscal quarter was somewhat disappointing as the fund's NAV declined by more than the relevant indices. I continue to believe that the valuation of The Oakmark Select Fund makes it a very attractive alternative to a popular market index like the S&P 500. At quarter's end, the S&P 500 sold above 23x estimated year 2000 earnings. The average P/E ratio on year 2000 estimates for The Oakmark Select Fund was 11x--less than half the market multiple. When the market will "discover" our stocks is anyone's guess. But, while we wait, most of our companies are aggressively repurchasing their own shares, increasing the remaining shares' value. One of our holdings, Premark, found a corporate buyer. Illinois Tool Works agreed with us that Premark stock was a bargain and offered to purchase it for a 60% premium. Congratulations to Premark's Jim Ringler for an outstanding job of maximizing value for Premark's owners. Thanks also to Gucci's Dominico DeSole for fighting off a hostile attempt to acquire Gucci at a bargain price and his speedy demonstration that Gucci could maximize its value by remaining a public company. Managers like these are great to have working for us. They accept the obligation to their owners to evaluate what the business is worth and to have a strategic plan that will see that value recognized in the public market. They also understand that selling the company above that value benefits shareholders. We strive to be aligned with this type of management in all our stocks. When management acts contrary to this thought process, we will usually sell our stock and move on. In extreme cases of undervaluation, we will encourage the board of directors to adopt our perspective. We took such a step last quarter THE OAKMARK SELECT FUND 10 ........................................................................ with the board of Dun & Bradstreet, urging them to solicit offers for the company. This effort will continue as we work toward having the strong Dun & Bradstreet franchise value reflected in its stock price. This quarter was another relatively quiet one for your portfolio with only one new addition, Chiron. As a leading biotechnology company selling at 45x this year's earnings, Chiron is hardly a typical holding for a value fund. Chiron's earnings are depressed by heavy R&D spending. This spending provides no current benefit but is very important for Chiron's long-term growth. Unlike manufacturing companies that capitalize and depreciate their growth expenditures, R&D spending is fully expensed as incurred. In our opinion, the result is an understatement of Chiron's earnings. We faced the same accounting issue when we bought Amgen two years ago, so the measure we used to compare it to other drug companies was enterprise value divided by pre-tax, pre-R&D cashflow. On that measure, Chiron sells at about 8x, while other biotech and drug companies average over 15x. Acquisition prices have also confirmed that 15x multiple. We believe new management at Chiron now has the company focused on growing business value and expect they will be successful attaining that goal. THE ILLUSION OF CERTAINTY The financial media today is full of forecasts by prognosticators. Magazines for investors, stock market Internet sites and shows on CNBC all provide forums for professional investors to share their views on their favorite stocks. The well-articulated reasons why certain stocks are favorites make it sound nearly impossible that the pundits could be wrong. This illusion of certainty is in direct conflict with the reality that most professional investors, including mutual fund managers, underperform the market. This is a dangerous misperception. The most obvious danger is that naive users of these forecasts may take inappropriate risks believing the forecasters are right. The more subtle danger is that portfolio managers, believing their clients or shareholders want them to be infallible, become incapable of admitting and correcting their mistakes. A great long-term track record is one that exceeds the market's return by just a couple of percentage points annually. The truth is that even great long-term records include many, many mistakes. In fact, if our stock picks are right a little more often than they are wrong, and the magnitude of the winners exceeds the magnitude of the losers, the results will be outstanding. One of the most powerful tools in acheiving that goal is the ability to unemotionally re-assess our successes and failures and to reposition the portfolio in response to new information and changed share prices. With that as background, I'd like to look back at our performance in fiscal 1999. During the year, The Oakmark Select Fund held positions in a total of 24 stocks. Of those, 18 moved our relative performance by more than 50 basis points, or one-half percent. Ten of these were positive, eight were negative. The largest winner, Gucci, added more to our performance than the largest loser, Washington Mutual, subtracted. Looking at the ten biggest movers, six were successes (Gucci, Cablevision, First Data, Premark, Weatherford, Amgen) and, as you should expect, our exposure to that group of stocks has decreased. Our exposure to the four biggest failures (Washington Mutual, PartnerRe, Host Marriott, Sterling Commerce) has also declined over the last couple quarters, but that has more to do with tax-loss selling than any change in my conviction. Although I wish we had not owned Washington Mutual last year, the best we can do now is re-assess the situation and react accordingly. Washington Mutual ended the quarter at a price of $29. It sells at less than 8x our estimate of next year's earnings. A growing customer base and intelligent use of excess capital should allow for continued double-digit EPS growth. Further, Washington Mutual has established a very strong West Coast franchise, has top-notch management and is using every dollar of excess capital to repurchase their shares. I was early in purchasing Washington Mutual and, although I could be wrong, I remain convinced that it will make a strong positive contribution to our future results. We will continue to re-evaluate our Washington Mutual holding as new information becomes available, but at this point, I believe Washington Mutual is one of the most attractive stocks in our portfolio and intend to increase our commitment to it. Thank you for your support. [SIGNATURE] WILLIAM C. NYGREN Portfolio Manager bnygren@oakmark.com October 8, 1999 THE OAKMARK SELECT FUND 11 THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--94.5% APPAREL--4.1% Liz Claiborne, Inc. 2,166,600 $ 67,164,600 RETAIL--1.7% Gucci Group (b) 325,000 $ 27,137,500 OTHER CONSUMER GOODS & SERVICES--4.0% Ralston Purina Group 2,372,600 $ 65,987,937 BANKS & THRIFTS--12.0% Washington Mutual, Inc. 5,074,800 $ 148,437,900 People's Bank of Bridgeport, Connecticut 2,038,400 48,157,200 ------------- 196,595,100 INSURANCE--4.7% PartnerRe Ltd. (c) 2,222,300 $ 77,224,925 INFORMATION SERVICES--6.6% The Dun & Bradstreet Corporation 3,643,600 $ 108,852,550 COMPUTER SERVICES--17.5% First Data Corporation 2,605,000 $ 114,294,375 The Reynolds and Reynolds Company, Class A 3,875,000 78,953,125 Electronic Data Systems Corporation 1,360,900 72,042,644 Sterling Commerce, Inc. (a) 1,168,000 21,681,000 ------------- 286,971,144 PUBLISHING--4.6% The Times Mirror Company, Class A 1,146,300 $ 75,440,869 PHARMACEUTICALS--3.6% Chiron Corporation (a) 2,150,000 $ 59,528,125 MACHINERY & INDUSTRIAL PROCESSING--3.9% Thermo Electron Corporation (a) 4,693,500 $ 63,068,906 BUILDING MATERIALS & CONSTRUCTION--10.1% USG Corporation (d) 3,499,900 $ 166,245,250 OIL FIELD SERVICES & EQUIPMENT--4.9% Weatherford International, Inc. (a) 2,480,800 $ 79,385,600 OTHER INDUSTRIAL GOODS & SERVICES--5.9% Premark International, Inc. 1,915,600 $ 96,737,800 REAL ESTATE--2.7% Host Marriott Corporation 4,680,863 $ 44,468,199
THE OAKMARK SELECT FUND 12 THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--94.5% (CONT.) DIVERSIFIED CONGLOMERATES--8.2% U.S. Industries, Inc. (d) 8,486,000 $ 133,654,500 ------------- TOTAL COMMON STOCKS (COST: $1,522,118,201) 1,548,463,005 OTHER ASSETS--0.0% RETAIL--0.0% Gucci Group Contingent Receivables 1,781,125 $ 890,562 ------------- TOTAL OTHER ASSETS (COST: $0) 890,562 SHORT TERM INVESTMENTS--5.1% U.S. GOVERNMENT BILLS--0.6% United States Treasury Bills, 4.65% due 12/2/1999 $10,000,000 $ 9,920,778 ------------- TOTAL U.S. GOVERNMENT BILLS (COST: $9,919,917) 9,920,778 COMMERCIAL PAPER--3.1% American Express Credit Corp., 5.26% due 10/1/1999 $10,000,000 $ 10,000,000 Ford Motor Credit Corp., 5.34% due 10/5/1999 10,000,000 10,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 30,000,000 30,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $50,000,000) 50,000,000 REPURCHASE AGREEMENTS--1.4% State Street Repurchase Agreement, 5.20% due 10/1/1999 $23,073,000 $ 23,073,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $23,073,000) 23,073,000 TOTAL SHORT TERM INVESTMENTS (COST: $82,992,917) 82,993,778 Total Investments (Cost $1,605,111,118)--99.6% (e) $1,632,347,345 Other Assets In Excess Of Other Liabilities--0.4% 6,561,467 ------------- TOTAL NET ASSETS--100% $1,638,908,812 =============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents foreign domiciled corporation. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At September 30, 1999, net unrealized appreciation of $24,656,664, for federal income tax purposes, consisted of gross unrealized appreciation of $187,822,431 and gross unrealized depreciation of $163,165,767. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK SELECT FUND 13 THE OAKMARK SMALL CAP FUND REPORT FROM STEVEN J. REID, PORTFOLIO MANAGER ........................................................................ [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/99) AS COMPARED TO THE RUSSELL 2000 INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK RUSSELL 2000 SMALL CAP FUND 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 9/30/99 TOTAL RETURN FROM FUND INCEPTION 9/30/99 NAV $13.88 LAST 3 MOS. 11/1/95 - ---------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND -9.0% 13.7% Lipper Small Cap Fund Index** -2.1% 10.1% Russell 2000 w/inc** -6.3% 11.3% S&P Small Cap 600 w/inc** -4.8% 12.5%
*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 Oakmark Small Cap Fund's fiscal year ended on September 30, 1999. Results for the fourth quarter and the fiscal year were a disappointment. The Fund lost 9.0% in the quarter and gained only 10.6% for the year. These results lagged the relevant small cap indices. It is worth noting that since inception The Oakmark Small Cap Fund has outperformed the relevant indices. While we do not believe that our investment philosophy is flawed, it is definitely out of favor. Still, we are taking steps to improve the investment performance of the Fund. WHAT ARE WE DOING? We are firmly committed to our style of value investing. Over time, it has produced results that best accomplish our long-term investment objectives. In the last year we have been much more active in the portfolio. Although we try to keep turnover as low as possible to limit taxable events, buy and sell decisions are not driven by tax considerations. However, if I have scared any shareholders away by the thought of a year-end distribution, rest assured that our expectation is that there will not be a distribution this year. During the past year we have had substantial changes in the holdings of The Oakmark Small Cap Fund. This activity increased the net number of holdings to 45. What drove this activity? Succinctly, investment opportunities. Our investment process requires that we continually scan and monitor the small cap stock universe for new ideas. In a difficult small cap stock environment it is only natural that we should come across new ideas that are more attractive than some of our existing holdings. My primary responsibilities are to see that the portfolio is composed of the most attractive investment ideas available and adhere to our disciplined style of value investing. I am very encouraged by the attractive valuation level of the portfolio, the mix and quality of the businesses we own, and the strength of the people who guide these companies. THE OAKMARK SMALL CAP FUND 14 ........................................................................ The past year had its disappointments, but also had its bright spots. The Fund's three largest holdings Symantec Corp., SPX Corp., and Duff & Phelps Credit Rating Co. gained 173%, 120%, and 74%, respectively. I credit much of the appreciation of these companies share prices to the due diligence of our research staff. Sourcing of ideas is not a simple task and this group is a valuable asset in helping to produce investment results. Another encouraging sign is that we were not the only ones to recognize the value of our holdings. In the course of the fiscal year five of our holdings were acquired by other companies that saw the values we had also discovered. First Brands Corporation, Paymentech, Inc., Scotsman Industries, Inc., Sequent Computer Systems, Inc., and American Heritage Life Investment Corporation were all acquired in the past fiscal year. This begs the question: what went wrong? There are two parts to this answer. First, small cap stocks and, in particular, value stocks remain out of favor. The valuation gap between large cap stocks and small cap stocks, and growth stocks and value stocks, has continued to widen. Since I have made this point ad nauseam in previous shareholder letters, there is no point in belaboring it. Second, our investment in ARM Financial turned into nothing short of an investment disaster. We eliminated the holding from the portfolio in the fourth quarter, but not before significant losses were realized. The full story on all that went wrong at ARM is still not known from public information available to investors. Suffice it to say that by the number of lawsuits filed against the company it appears likely that we won't know all the facts until these issues circulate through the courts. WHAT ELSE ARE WE DOING? I have received numerous comments that as shareholders you would like to hear more about the holdings of the Fund. We added a number of new holdings to the portfolio in the quarter. A brief description of four of them follows: Hudson City Bancorp, Inc. (HCBK) is a very well run thrift based in New Jersey. It recently converted to public ownership through the Mutual Holding Company structure. HCBK has a significant share of loans and deposits in their market. We believe their shares are trading at a significant discount to their underlying value. The Great Atlantic & Pacific Tea Company, Inc. (GAP) is an old-line grocery store chain based in the Northeast. GAP is controlled by the Haub family that has stepped in to operate the business. Their goal is to improve the margins and achieve industry-like returns from the company. ITT Educational Services, Inc. (ESI) is a leading provider of technology-oriented post-secondary degree programs. We see demographics benefiting their business and are highly intrigued by the high free cash flow characteristics of their operations. National Data Corporation (NDC) is a merchant processor of credit card transactions and a health care information service provider. NDC should have tremendous internal and external growth opportunities. The shares are close to their 52-week low and very attractively valued. Once again, I would like to thank everyone involved, especially our shareholders, for your support of The Oakmark Small Cap Fund. [SIGNATURE] STEVEN J. REID Portfolio Manager sreid@oakmark.com October 11, 1999 THE OAKMARK SMALL CAP FUND 15 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--98.5% FOOD & BEVERAGE--7.6% Del Monte Foods Company (a) 1,000,000 $ 14,125,000 Ralcorp Holdings, Inc. (a) 500,000 8,843,750 International Multifoods Corporation 275,000 6,325,000 M & F Worldwide Corp. (a) 500,000 4,000,000 ------------- 33,293,750 APPAREL--1.8% Reebok International Ltd. (a) 750,000 $ 8,015,625 RETAIL--8.7% The Great Atlantic & Pacific Tea Company, Inc. 500,000 $ 15,156,250 Ugly Duckling Corporation (a)(c) 1,750,000 12,468,750 Michaels Stores, Inc. (a) 350,000 10,325,000 ------------- 37,950,000 HARDWARE--1.0% Jore Corporation (a) 353,000 $ 4,213,938 OTHER CONSUMER GOODS & SERVICES--7.0% Department 56, Inc. (a) 500,000 $ 11,968,750 Libbey, Inc. 300,000 8,868,750 Barry (R.G.) Corporation (a)(c) 900,000 5,512,500 Harman International Industries, Incorporated 100,000 4,206,250 ------------- 30,556,250 BANKS & THRIFTS--10.2% People's Bank of Bridgeport, Connecticut 500,000 $ 11,812,500 Golden State Bancorp Inc. (a) 600,000 10,762,500 BankAtlantic Bancorp, Inc., Class A 1,150,001 6,396,881 Hudson City Bancorp, Inc. (a) 400,000 5,500,000 Northwest Bancorp, Inc. 500,000 4,312,500 PennFed Financial Services, Inc. 260,000 3,900,000 Finger Lakes Financial Corp. (c) 185,500 1,808,625 ------------- 44,493,006 INSURANCE--6.6% The MONY Group Inc. (a) 500,000 $ 14,437,500 The PMI Group, Inc. 350,000 14,306,250 ------------- 28,743,750 OTHER FINANCIAL--5.5% Duff & Phelps Credit Rating Co. (c) 300,000 $ 23,981,250 EDUCATIONAL SERVICES--2.7% ITT Educational Services, Inc. (a) 600,000 $ 11,700,000 INFORMATION SERVICES--1.8% National Data Corporation 300,000 $ 7,800,000
THE OAKMARK SMALL CAP FUND 16 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- COMMON STOCKS--98.5% (CONT.) COMPUTER SERVICES--6.6% Symantec Corporation (a) 800,000 $ 28,775,000 COMPUTER SYSTEMS--1.8% Micron Electronics, Inc. (a) 750,000 $ 7,875,000 MANAGED CARE SERVICES--2.0% First Health Group Corp. (a) 400,000 $ 8,975,000 AUTOMOTIVE--7.4% SPX Corporation (a) 200,000 $ 18,150,000 Standard Motor Products, Inc. 500,000 9,718,750 Stoneridge, Inc. (a) 250,000 4,343,750 ------------- 32,212,500 TRANSPORTATION SERVICES--2.5% Teekay Shipping Corporation (b) 700,000 $ 10,937,500 INSTRUMENTS--0.5% Varian Inc. (a) 135,000 $ 2,396,250 MACHINERY & INDUSTRIAL PROCESSING--9.5% Columbus McKinnon Corporation 600,000 $ 10,350,000 Graco Inc. 250,000 8,203,125 MagneTek, Inc. (a) 900,000 8,043,750 Tokheim Corporation (a)(c) 860,000 7,686,250 Sames Corporation (c) 250,000 4,468,750 Northwest Pipe Company (a) 185,000 2,890,625 ------------- 41,642,500 CHEMICALS--4.8% H.B. Fuller Company 200,000 $ 12,175,000 Ferro Corporation 404,200 8,614,512 ------------- 20,789,512 REAL ESTATE--6.9% Catellus Development Corporation (a) 1,400,000 $ 16,450,000 Prime Hospitality Corp. (a) 900,000 7,200,000 Trammell Crow Company (a) 500,000 6,625,000 ------------- 30,275,000 DIVERSIFIED CONGLOMERATES--3.6% U.S. Industries, Inc. 1,000,000 $ 15,750,000 TOTAL COMMON STOCKS (COST: $414,120,043) 430,375,831
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK SMALL CAP FUND 17 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- SHORT TERM INVESTMENTS--3.0% COMMERCIAL PAPER--2.3% General Electric Capital Corporation, 5.53% due 10/1/1999 $10,000,000 $ 10,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $10,000,000) 10,000,000 REPURCHASE AGREEMENTS--0.7% State Street Repurchase Agreement, 5.20% due 10/1/1999 $3,325,000 $ 3,325,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $3,325,000) 3,325,000 TOTAL SHORT TERM INVESTMENTS (COST: $13,325,000) 13,325,000 Total Investments (Cost $427,445,043)--101.5% (d) $ 443,700,831 Other Liabilities In Excess Of Other Assets--(1.5)% (6,561,552) ------------- TOTAL NET ASSETS--100% $ 437,139,279 =============
(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 September 30, 1999, net unrealized appreciation of $16,255,788, for federal income tax purposes, consisted of gross unrealized appreciation of $71,981,161 and gross unrealized depreciation of $55,725,373. THE OAKMARK SMALL CAP FUND 18 THE OAKMARK EQUITY AND INCOME FUND REPORT FROM CLYDE S. MCGREGOR, PORTFOLIO MANAGER ........................................................................ [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/99) AS COMPARED TO THE LIPPER BALANCED FUND INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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
9/30/99 NAV AVERAGE ANNUAL TOTAL RETURN* $15.68 THROUGH 9/30/99 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 11/1/95 - ---------------------------------------------------------------------------- THE OAKMARK EQUITY & INCOME FUND -5.1% 15.4% Lipper Balanced Fund Index** -4.1% 14.0% Lehman Govt./ Corp. Bond** .5% 5.9% S&P 500 w/ inc** -6.2% 24.6%
*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 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. FISCAL 1999: IT WAS THE BEST OF TIMES, IT WAS THE WORST OF TIMES Oakmark Equity and Income's fiscal year ended on September 30. For fiscal 1999 as a whole, the Fund returned 15.3%, a solid absolute level of return and nearly 2% better than the Lipper Balanced Fund Index. The year exhibited a curious pattern, however: strong results in quarters one and three, weak in two and four. In fact, the September quarter was only the second in the Fund's four-year history to register a loss, the previous example being last year's September quarter (whatever happened to the "summer rally?"). As I wrote this letter one-year ago, stock prices were rapidly eroding, culminating in a panic on October 8. Soon thereafter Alan Greenspan and the Federal Reserve restored the equilibrium of the markets with three interest rate cuts. Today the environment is quite different. The overall economic and political situation appears promising, and the distractions originating abroad which have bedeviled the markets have mostly dissipated. Probably the biggest negative for investors is the fact that the Federal Reserve has now taken away two of last year's rate reductions and noisily threatens to increase rates yet again. Despite the recent quarter's difficulties, I remain optimistic in my outlook for the security markets. The current economic expansion may be one of the longest-lived, but it is also the slowest on record. This means that the kinds of imbalances that develop during periods of growth are less prevalent this cycle. Instead, the imbalances have surfaced in the stock market where some sectors trade at unprecedented multiples while others suffer through a bear market. This "aversion to the mean" runs counter to powerful economic forces; we value investors eagerly await the inevitable trend reversal. MIGHTY OAKS AWARDS My tradition at the fiscal year-end is to honor the analysts in our firm whose THE OAKMARK EQUITY AND INCOME FUND 19 ........................................................................ ideas had the greatest positive impact on the Fund in both equity and fixed income investments. (The name "Mighty Oaks" derives from our firm's splendid athletic teams.) In the first three years of the Fund's existence it was easy to determine the winners. In fiscal 1999, however, price considerations caused me to sell several very successful holdings early in the year, complicating the analysis. Rather than be too arbitrary, I have decided to make four awards for equities. Greg Jackson, co-manager of the new Oakmark Global Fund, wins an award for his recommendation of First Data (FDC). FDC more than doubled over the fiscal year as investors regained confidence in management. As a processor of transactions which involve the use of credit and debit cards, the company is a beneficiary of changing consumer preferences. Increased immigration lies behind the strength of FDC's Western Union unit. Following close behind is analyst Kevin Grant with Premark International. In September, Premark announced that it would merge into Illinois Tool Works at a price of $55/share. Back in April, Jim Ringler, Premark CEO, stopped by our office to give us an update. During the meeting he pointed out that the company had been growing earnings at 18% per year yet the investing community did not seem to notice. We commended him and his team on their fine work and averred that eventually their efforts would be rewarded. Now, as it happened, the CEO of Illinois Tool sat on Premark's board of directors. With ITW's stock price much more highly valued than Premark's, he was able to make a deal that should continue to produce shareholder value for many years to come. One footnote is in order concerning this merger. Most stocks experience some increase in their share price in the period leading up to a deal announcement. Occasionally this price increase is natural, but it often is the result of some sort of information leak. The Premark announcement came after the stock market closed on September 9. On that day the stock price rose a mere 6 cents, and its price had actually declined over the previous week. Congratulations to all involved for their professionalism and integrity! Jim Benson of our research team receives a sort of group award for his recommendations of Lexmark International, Imation, and Ugly Duckling debentures, all of which I have discussed in detail in previous reports. I am also granting Ed Studzinski a special award for "best performance by an income-oriented equity in an industry with collapsing stock prices." Ed has worked diligently to develop ideas which would build up the Fund's income generation. His Legacy Hotels not only had a better than 13% dividend yield at the time of my purchase for the Fund but also earned a 30% return over the last nine months. Thanks Ed, Jim, Kevin, and Greg for your contributions. On the fixed income side of the ledger, the Ugly Duckling debentures mentioned above clearly take the prize. One other issue is worthy of comment, however. As I have often noted, it is a great advantage for this Fund to be in a group of funds which invest in different market segments. In particular, Steve Reid's Small Cap Fund has been a fertile source of fixed-income ideas. In December of 1997, one of Steve's holdings, Scotsman Industries, acquired a division of another company in which his Fund held an investment. To finance this purchase, Scotsman issued debentures for the first time in its corporate history. I purchased a position in this issue for your Fund, merely expecting to earn a comfortable income return over the 10-year life of the security. In August, 1999, Scotsman itself was acquired. In order to effect this transaction the purchaser tendered for our bonds at a healthy premium to the pre-acquisition price. The result was a 19% return to the issue for the fiscal year, not bad for a bond in a period where the returns to bond indices were close to zero. Thanks to research director John Raitt for this successful idea. At the close of this rather lumpy fiscal year I would certainly be remiss not to thank the Fund's long-term shareholders for their support. Those who have been with the Fund since inception have enjoyed a 15% rate of return compounded annually which falls in the top 20% of similar funds. Thanks for your interest, questions, and e-mails. [SIGNATURE] CLYDE S. MCGREGOR Portfolio Manager mcgregor@oakmark.com October 8, 1999 THE OAKMARK EQUITY AND INCOME FUND 20 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.4% FOOD & BEVERAGE--3.0% UST Inc. 60,000 $ 1,811,250 BANKS & THRIFTS--4.3% Washington Mutual, Inc. 67,000 $ 1,959,750 Bank One Corporation 18,724 651,829 ----------- 2,611,579 INSURANCE--2.9% IPC Holdings, Ltd. (b) 50,000 $ 937,500 PartnerRe Ltd. (b) 23,000 799,250 ----------- 1,736,750 OTHER FINANCIAL--2.6% Heller Financial, Inc. 70,000 $ 1,575,000 INFORMATION SERVICES--3.1% The Dun & Bradstreet Corporation 63,500 $ 1,897,062 COMPUTER SERVICES--12.7% The Reynolds and Reynolds Company 110,200 $ 2,245,325 First Data Corporation 50,000 2,193,750 Electronic Data Systems Corporation 32,500 1,720,469 Sterling Commerce, Inc. (a) 80,000 1,485,000 ----------- 7,644,544 DATA STORAGE--5.4% Imation Corp. (a) 104,300 $ 3,233,300 PUBLISHING--2.0% Lee Enterprises, Incorporated 43,900 $ 1,201,763 MEDICAL PRODUCTS--3.0% Sybron International Corporation (a) 68,000 $ 1,827,500 AUTOMOTIVE--2.6% Lear Corporation (a) 45,000 $ 1,583,438 AGRICULTURAL EQUIPMENT--1.5% Alamo Group Inc. 100,000 $ 925,000 OTHER INDUSTRIAL GOODS & SERVICES--3.9% Premark International, Inc. 46,500 $ 2,348,250
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK EQUITY AND INCOME FUND 21 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.4% (CONT.) REAL ESTATE--9.1% Amli Residential Properties Trust 100,000 $ 2,100,000 Legacy Hotels Real Estate Investment Trust (b) 350,000 1,989,042 Catellus Development Corporation (a) 116,728 1,371,554 ----------- 5,460,596 DIVERSIFIED CONGLOMERATES--0.8% U.S. Industries, Inc. 30,000 $ 472,500 TOTAL EQUITY (COST: $29,851,840) 34,328,532 CONVERTIBLE PREFERRED STOCK--2.5% TELECOMMUNICATIONS--2.5% Metromedia International Group, Inc., Convertible Preferred, 7.25% 60,000 $ 1,477,500 TOTAL CONVERTIBLE PREFERRED STOCK (COST: $1,946,738) 1,477,500 TOTAL EQUITY AND EQUIVALENTS (COST: $31,798,578) 35,806,032 FIXED INCOME--35.8% PREFERRED STOCK--5.4% TELECOMMUNICATIONS--0.8% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 505,000 BANKS & THRIFTS--4.6% Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 677,187 BBC Capital Trust I, Preferred, 9.50% 28,000 661,500 PennFirst Capital Trust I, Preferred, 8.625% 70,000 630,000 RBI Capital Trust I, Preferred, 9.10% 42,500 401,094 Fidelity Capital Trust I, Preferred, 8.375% 43,500 396,938 ----------- 2,766,719 TOTAL PREFERRED STOCK (COST: $3,470,738) 3,271,719 CORPORATE BONDS--4.5% RETAIL--1.0% Ugly Duckling Corporation, 12.00% due 10/23/2003, Subordinated Debenture $650,000 $ 604,500
THE OAKMARK EQUITY AND INCOME FUND 22 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- FIXED INCOME--35.8% (CONT.) AEROSPACE & AUTOMOTIVE--0.3% Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 150,750 Coltec Industries, Inc., 9.75% due 11/1/1999 25,000 25,063 ----------- 175,813 MACHINERY & INDUSTRIAL PROCESSING--0.8% Tokheim Corporation, 11.375% due 8/1/2008, Senior Subordinated Note (c) 500,000 $ 491,250 BUILDING MATERIALS & CONSTRUCTION--1.5% Juno Lighting Inc., 11.875% due 7/1/2009, Senior Subordinated Note (c) 750,000 $ 742,500 USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 150,000 158,062 ----------- 900,562 UTILITIES--0.4% Midland Funding Corporation, 11.75% due 7/23/2005 200,000 $ 220,750 OTHER INDUSTRIAL GOODS & SERVICES--0.5% UCAR Global Enterprises Inc., 12.00% due 1/15/2005, Senior Subordinated Note 300,000 $ 316,875 TOTAL CORPORATE BONDS (COST: $2,613,725) 2,709,750 GOVERNMENT AND AGENCY SECURITIES--25.9% U.S. GOVERNMENT BONDS--25.4% United States Treasury Notes, 6.625% due 5/15/2007 5,250,000 $ 5,412,242 United States Treasury Notes, 6.25% due 6/30/2002 4,000,000 4,052,757 United States Treasury Notes, 4.75% due 2/15/2004 4,000,000 3,835,563 United States Treasury Notes, 6.00% due 8/15/2009 2,000,000 2,014,868 ----------- 15,315,430 U.S. GOVERNMENT AGENCIES--0.5% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond 300,000 $ 301,695 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $15,699,118) 15,617,125 TOTAL FIXED INCOME (COST: $21,783,581) 21,598,594
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK EQUITY AND INCOME FUND 23 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------- SHORT TERM INVESTMENTS--5.0% COMMERCIAL PAPER--2.5% General Electric Capital Corporation, 5.53% due 10/1/1999 $1,500,000 $ 1,500,000 ----------- TOTAL COMMERCIAL PAPER (COST: $1,500,000) 1,500,000 REPURCHASE AGREEMENTS--2.5% State Street Repurchase Agreement, 5.20% due 10/1/1999 $1,507,000 $ 1,507,000 ----------- TOTAL REPURCHASE AGREEMENTS (COST: $1,507,000) 1,507,000 TOTAL SHORT TERM INVESTMENTS (COST: $3,007,000) 3,007,000 Total Investments (Cost $56,589,159)--100.2% (d) $60,411,626 Other Liabilities In Excess Of Other Assets--(0.2)% (94,035) ----------- TOTAL NET ASSETS--100% $60,317,591 ===========
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) Restricted security. (d) At September 30, 1999, net unrealized appreciation of $3,822,467, for federal income tax purposes, consisted of gross unrealized appreciation of $6,404,058 and gross unrealized depreciation of $2,581,591. THE OAKMARK EQUITY AND INCOME FUND 24 THE OAKMARK GLOBAL FUND REPORT FROM GREGORY L. JACKSON AND MICHAEL J. WELSH, PORTFOLIO MANAGERS ........................................................................ [PHOTO] [PHOTO] - -------------------------------------------------------------------- RESULTS FROM FUND INCEPTION (8/4/99) THROUGH 9/30/99
9/30/99 NAV $9.18 TOTAL RETURN FROM FUND INCEPTION 8/4/99 - -------------------------------------------- THE OAKMARK GLOBAL FUND -8.2% MSCI World w/inc.* -1.2% Lipper Global Fund Index* -1.0%
*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: We are pleased to present the first quarterly report of The Oakmark Global Fund! While the Fund's first two months were disappointing, we are extremely excited about the appreciation potential of our current portfolio. The recent weakness in share prices throughout most of the world's equity markets has given us the chance to buy into very high quality businesses at very attractive prices. PHILOSOPHY As investors in The Oakmark Family of Funds, you are well aware of our long- term, disciplined value philosophy. As this is our first direct communication we think it is important to clearly outline the process with which we will implement this philosophy with The Global Fund. As with the other Oakmark Funds, we believe superior, long-term results are achieved by investing in quality companies purchased at significant discounts to their underlying business value. Equally important, we must have confidence that the priority of management is to make money for the owners -- us. No matter how cheap the stock, we will never invest unless we believe management's top priority is to build the value of the business. Inherent in our philosophy is the belief that, over time, a company's share price will increase and ultimately reflect underlying business value. It may take time for this gap to close, perhaps, if the short-term uncertainty that created the opportunity persists. It is our job as THE OAKMARK GLOBAL FUND 25 ........................................................................ analysts to determine whether the current share price is properly compensating us for this uncertainty. PORTFOLIO CONSTRUCTION The portfolio of companies in The Global Fund is built from the bottom-up on a stock-by-stock basis. We will never allocate money, as many global investors do, based solely on macro-economic predictions of the various regions of the world. Too often this sort of top-down investing ignores valuation and, more important, the quality of the underlying companies in a particular economy. We will certainly consider macroeconomic factors in our investments, but will use them as important inputs to determining the underlying business value of a specific company. The Fund's largest positions will be those we perceive to have the largest gaps between price and value. Before purchasing a single share of stock we establish a firm Sell Price for that business. Portfolio construction then becomes, in general, an optimization function. We want the most money invested in those businesses with the largest gap between the current price and our Sell Price. Of course we are also cognizant of other factors, including the amount invested in a particular industry or country, but the valuation gap will be the biggest driver of position size. We like to characterize the construction process as "ideas battling their way into the portfolio on a stock-by-stock basis." Whether it is Dun & Bradstreet or Citi- zen Watch, each idea is judged strictly on appreciation potential, not whether it is a large cap or small cap, or whether it is located in Murray Hill, New Jersey or Tokyo, Japan. As with the other Oakmark Funds, concentration is another important part of portfolio construction -- we want our best ideas to have significant impact on the Fund's net asset value. Currently, the Fund is invested in 34 companies, with 43% of the assets invested in the US market and 55% internationally. The international portion breaks down regionally as 32% Europe, 11% Asia, and 8% Latin America. The United Kingdom is far and away the largest country weighting overseas, representing around 19% of the portfolio. FLEXIBILITY As both managers and large personal investors, we feel flexibility is the most exciting aspect of The Global Fund. We are able to participate in the firm's best ideas regardless of where they are located. We are also able to invest in companies of any size capitalization, from small to large. This flexibility allows us to go wherever value takes us. As value investors, short-term market volatility gives us an assist in implementing our investment philosophy -- greater volatility affords us greater opportunities to purchase stocks trading at significant discounts to their perceived true business value. The fact that The Global Fund can invest regardless of company size, location, region, etc. gives it even more flexibility to seize these opportunities. We recognize that the value discipline inherent in our process is the most important element of success in using short-term fluctuations to the Fund's advantage. At this time we see great opportunities worldwide in mid-size and smaller companies. The already large valuation gap has been widening between this sector and the large caps for a number of years throughout the world (the lone exception is Japan). We believe the size of this gap cannot persist. We would like to thank you for your confidence in the newest fund in the Oakmark Family. We look forward to a long and prosperous future. [SIGNATURE] GREG JACKSON Portfolio Manager gjackson@oakmark.com [SIGNATURE] MICHAEL WELSH Portfolio Manager 102521.2142@compuserve.com October 7, 1999 THE OAKMARK GLOBAL FUND 26 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- GLOBAL DIVERSIFICATION--SEPTEMBER 30, 1999 ........................................................................ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC UNITED STATES 43.4% EUROPE 32.1% PACIFIC RIM 11.3% LATIN AMERICA 7.8% OTHER COUNTRIES 3.6% % OF FUND NET ASSETS UNITED STATES 43.4% EUROPE 32.1% Great Britain 19.3% *Finland 3.9% *France 3.9% *Italy 2.6% *Germany 2.4% LATIN AMERICA 7.8% Brazil 5.3% Panama 2.5% % OF FUND NET ASSETS PACIFIC RIM 11.3% Japan 4.7% New Zealand 3.7% Australia 2.9% OTHER 3.6% Bermuda 3.6% *Euro currency countries comprise 12.8% of the Fund.
THE OAKMARK GLOBAL FUND 27 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--98.2% CONSUMER NON-DURABLES--2.9% Citizen Watch Co. (Japan) Watch Manufacturer & Retailer 96,000 $ 687,769 APPAREL--4.6% Fila Holding S.p.A. (Italy), (b) Athletic Footwear & Apparel 49,200 $ 615,000 Reebok International Ltd. (United Athletic Apparel States), (a) 45,200 483,075 ----------- 1,098,075 RETAIL--11.8% Somerfield plc Food Retailer (Great Britain) 478,500 $ 1,020,141 House Of Fraser Plc Department Store (Great Britain) 712,300 914,674 Denny's Japan Co., Ltd. (Japan) Restaurant Chain 19,000 444,840 Ugly Duckling Corporation (United Automobile Retailer & Financier States), (a) 62,000 441,750 ----------- 2,821,405 OTHER CONSUMER GOODS & SERVICES--8.2% Department 56, Inc. (United Collectibles & Giftware Products States), (a) 52,000 $ 1,244,750 Royal Doulton plc Tableware & Giftware (Great Britain) 411,700 732,004 ----------- 1,976,754 BANKS & THRIFTS--9.9% Uniao de Bancos Brasileiros S.A. Major Brazilian Bank (Brazil), (c) 54,700 $ 967,506 Washington Mutual, Inc. (United Thrift States) 27,700 810,225 Banco Latinoamericano de Latin American Trade Bank Exportaciones, S.A., Class E (Panama), (b) 26,300 601,613 ----------- 2,379,344 INSURANCE--6.5% PartnerRe Ltd. (Bermuda) Reinsurance Company 25,000 $ 868,750 Reinsurance Australia Corporation Limited (Australia) Reinsurance Company 1,297,700 682,741 ----------- 1,551,491 HOTELS & MOTELS--1.5% Promus Hotel Corporation (United Hotel Operator States), (a) 11,000 $ 358,188
THE OAKMARK GLOBAL FUND 28 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--98.2% (CONT.) TEMPORARY STAFFING--2.9% Robert Half International Inc. (United Temporary Staffing Services States), (a) 29,000 $ 696,000 EDUCATIONAL SERVICES--2.3% ITT Educational Services, Inc. Postsecondary Degree Programs (United States), (a) 29,000 $ 565,500 INFORMATION SERVICES--12.8% The Dun & Bradstreet Corporation Financial Information Services (United States) 45,000 $ 1,344,375 NOVA Corporation (United States) Transaction Processing Services 44,000 1,100,000 Keane, Inc. (United States) Information Technology Consulting 27,000 615,938 ----------- 3,060,313 COMPUTER SERVICES--8.8% Sterling Commerce, Inc. (United Electronic Commerce Services States), (a) 56,500 $ 1,048,781 The Reynolds and Reynolds Company, Information Management Systems Class A (United States) 30,500 621,438 First Data Corporation (United States) Electronic Commerce Services 10,000 438,750 ----------- 2,108,969 TELECOMMUNICATIONS--1.3% Telemig Celular Participacoes S.A. Telecommunications (Brazil), (a) 161,645,000 $ 252,570 Telesp Celular Participacoes S.A. Telecommunications (Brazil) 9,600,000 53,900 ----------- 306,470 MACHINERY & METAL PROCESSING--6.5% Metso Oyj (Finland), (a) Pulp Machinery 82,600 $ 932,518 Tokheim Corporation (United Petroleum Dispensing Systems States), (a) Manufacturer 69,000 616,687 ----------- 1,549,205 MINING & BUILDING MATERIALS--3.7% Fletcher Challenge Building (New Building Materials Manufacturer Zealand) 714,200 $ 879,220
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK GLOBAL FUND 29 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--98.2% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--6.2% Tomkins plc (Great Britain) Diversified Engineering 130,500 $ 549,996 Chargeurs SA (France) Wool Production & Trading 7,900 483,344 GFI Industries SA (France) Industrial Fastener Manufacturer 18,900 460,330 ----------- 1,493,670 PRODUCTION EQUIPMENT--2.4% Krones AG (Germany) Manufacturer of Production Machinery 19,500 $ 570,596 DIVERSIFIED CONGLOMERATES--5.9% TT Group PLC Diversified Manufacturing (Great Britain) 319,500 $ 721,925 Wassall PLC (Great Britain) Diversified Consumer Goods 176,200 688,935 ----------- 1,410,860 TOTAL COMMON STOCKS (COST: $25,302,871) 23,513,829
SHORT TERM INVESTMENTS--1.8% COMMERCIAL PAPER--1.0% General Electric Capital Corporation, 5.53% due 10/1/1999 $250,000 $ 250,000 ----------- TOTAL COMMERCIAL PAPER (COST: $250,000) 250,000 REPURCHASE AGREEMENTS--0.8% State Street Repurchase Agreement, 5.20% due 10/1/1999 $192,000 $ 192,000 ----------- TOTAL REPURCHASE AGREEMENTS (COST: $192,000) 192,000 TOTAL SHORT TERM INVESTMENTS (COST: $442,000) 442,000 Total Investments (Cost $25,744,871)--100.0% (d) $23,955,829 Other Liabilities In Excess Of Other Assets--(0.0)% (e) (2,475) ----------- TOTAL NET ASSETS--100% $23,953,354 ===========
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) At September 30, 1999, net unrealized depreciation of $1,789,042, for federal income tax purposes, consisted of gross unrealized appreciation of $650,351 and gross unrealized depreciation of $2,439,393. (e) Includes portfolio hedges. THE OAKMARK GLOBAL FUND 30 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 (9/30/99) COMPARED TO THE MSCI WORLD EX U.S. INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 9/30/99 TOTAL RETURN FROM FUND INCEPTION 9/30/99 NAV $13.95 LAST 3 MOS. 9/30/92 - ---------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND -7.1% 13.3% MSCI World ex U.S. w/inc.** 4.3% 11.6% MSCI EAFE w/ inc** 4.4% 11.5% Lipper International Fund Index** 3.4% 12.6%
*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 or funds whose composition is different from the Fund. The MSCI World ex U.S. Index includes 21 country sub-indexes. The MSCI EAFE Index refers to Europe, Asia and the Far East and includes 20 country sub-indexes. The Lipper International Fund Index includes 30 mutual funds that invest in securities whose primary markets are outside the United States. Past performance is no guarantee of future results. FELLOW SHAREHOLDERS, For fiscal year 1999, The Oakmark International Fund increased in value by 46.4%. This compares very favorably with the MSCI World ex U.S. Index which was up 31.3% and the Lipper International Fund Index which was up 27.6%. However, in the last quarter ending September 30, the Fund gave back 7.1% of the large gains achieved in the fiscal year. This compares to the quarterly return of the MSCI World ex U.S. Index which was up 4.3%. PERFORMANCE ATTRIBUTION FOR QUARTER 4 There were a couple of reasons why we had an off quarter. One was the weakness in the Pacific Rim and Latin America. These areas were extremely over-sold going into the fourth quarter of 1998 and had recovered quite strongly until the third quarter of 1999. FERNZ, a New Zealand-based agri-company, SK TELECOM, a South Korean mobile phone company, UNIBANCO, a Brazilian bank, and MANDARIN ORIENTAL HOTELS each cost your Fund between 1/2 and 1% of quarterly performance. From an investment perspective, though all these companies had rough calendar third quarters, we still think all are high quality, long-term investments with outstanding upside potential. In most cases, we have taken advantage of share price weakness to bolster our positions. In the United Kingdom, one of our positions cost us almost 3% this past quarter. SOMERFIELD, the UK's fifth largest grocer, dropped 56%. We think this company offers outstanding value selling at around 5x's earnings power and yielding over 10%. They have had some problems integrating an acquisition but their basic business is outperforming a very weak U.K. retail THE OAKMARK INTERNATIONAL FUND 31 ........................................................................ environment. The company is financially sound and has authorized a sizable stock buyback. Being underweighted in Japan also cost the Fund. Japan achieved a U.S. dollar return of over 15% in the latest quarter, being the top rated developed market. We are still significantly underweighted in this market. Apart from Citizen Watch and Canon, we have found it difficult to find any "real" companies that are undervalued enough to warrant your investment dollars. Most large corporations in Japan still are unprofitable, wasteful capital allocators who care more about their creditors (who are hurting) and their suppliers (who are hurting) than their shareholders (who have been hurting for a decade). PROSPECTS LOOK GREAT! Looking forward, we believe that our shareholders will continue to be rewarded as prospects around the globe are rapidly improving for investors. Though the Pacific Rim has had a bit of a rally over the last 12 months, there is still huge potential as economies are recovering much faster than expected and real structural reform has occurred in most of Asia. As an example of this, we point to South Korea which continues to open its economy at a rate unthinkable only 18 months ago. Further, the big business groups known as "chaebols," which have had a strong hand in South Korea's collapse at the end of 1997, are under constant pressure to reform. Contrast the Kim administration's quick response in Korea to the paralysis of the Japanese powers that be. Though the Japanese economy has rebounded, it remains to be seen if it is for real. Little, if any, real structural reform has occurred. In the United Kingdom, where The Oakmark International Fund has over 25% of its assets, companies are cheap, well run and based in the soundest, most capital-friendly European economy. Our holdings there have generally done well (with the exception of Somerfield, mentioned above) and continue to have bright prospects. We continue to find new names, as well, that fit our very strict criteria. Continental Europe is also looking attractive again. Though company managements are nowhere near as shareholder-oriented as in the UK or the US, they are slowly changing. Further, share prices have lagged, offering some decent value, especially in places like Finland and Sweden. Metso, one of the Fund's largest holdings in one of the top two manufacturers of paper making machines in the world, is thoroughly restructuring its business to enhance profitability in all of its divisions, and has benefited by the bankruptcy of one of its largest competitors. We think it has a good chance of doubling in price based on the above! IN CLOSING.... As large shareholders of this Fund, we too are very aware of the ups and downs of international investing. But, as we have said many times before, volatility breeds opportunity! We are committed to making lemonade out of lemons and welcome the opportunities that short-term traders drop on our laps. Rather than try to guess short-term price movements, changes in economic policy, election winners or the movements in exchange and/or interest rates, we would rather apply our research to something we are confident in: our ability to value a business. As suggested many times in the past, if one wants to gamble, one should try casinos. If a more certain outcome is desired, wager on the Green Bay Packers, for they will most likely win the next Super Bowl. [SIGNATURE] DAVID HERRO Portfolio Manager dherro@cs.com [SIGNATURE] MICHAEL WELSH Portfolio Manager 102521.2142@compuserve.com October 8, 1999 THE OAKMARK INTERNATIONAL FUND 32 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--SEPTEMBER 30, 1999 ........................................................................ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC EUROPE 54.9% PACIFIC RIM 24.2% LATIN AMERICA 14.9% OTHER COUNTRIES 1.1% % OF FUND NET ASSETS EUROPE 54.9% Great Britain 25.2% *Finland 8.1% *France 6.7% *Italy 4.0% *Netherlands 3.5% Sweden 2.5% *Germany 2.0% Denmark 1.7% Switzerland 1.2% LATIN AMERICA 14.9% Brazil 8.1% Panama 3.5% Argentina 3.3% % OF FUND NET ASSETS PACIFIC RIM 24.2% Japan 8.0% Korea 5.6% Hong Kong 4.9% Singapore 3.1% New Zealand 2.6% OTHER 1.1% Bermuda 0.8% Canada 0.3% *Euro currency countries comprise 24.3% of the Fund.
THE OAKMARK INTERNATIONAL FUND 33 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% CONSUMER NON-DURABLES--3.9% Citizen Watch Co. (Japan) Watch Manufacturer & Retailer 4,392,000 $ 31,465,443 FOOD & BEVERAGE--6.0% Quilmes Industrial SA (Argentina), (b) Brewer 2,795,000 $ 26,727,188 Diageo plc (Great Britain) Manufacturer of Beverages, Wines, & 1,300,000 13,290,573 Spirits Lotte Confectionery Company (Korea) Confection Manufacturer 37,270 4,549,605 Lotte Chilsung Beverage Company Manufacturer of Soft Drinks, Juices, & (Korea), (d) Sport Drinks 73,000 4,428,607 ------------- 48,995,973 APPAREL--4.0% Fila Holding S.p.A. (Italy), (b)(d) Athletic Footwear & Apparel 2,572,800 $ 32,160,000 HOUSEHOLD PRODUCTS--4.7% Hunter Douglas N.V. (Netherlands) Manufacturer of Window Coverings 802,700 $ 21,737,162 Reckitt & Colman plc (Great Britain) Household Cleaners & Air Fresheners 1,305,000 16,285,027 ------------- 38,022,189 RETAIL--6.0% Somerfield plc (Great Britain) Food Retailer 12,969,995 $ 27,651,478 Giordano International Limited (Hong East Asian Clothing Retailer & Kong) Manufacturer 26,306,000 20,826,980 ------------- 48,478,458 OTHER CONSUMER GOODS & SERVICES--6.3% Canon, Inc. (Japan) Office & Video Equipment 1,039,000 $ 30,163,889 Mandarin Oriental International Hotel Management Limited (Singapore) 29,253,000 20,769,630 ------------- 50,933,519 BANKS & THRIFTS--9.6% Uniao de Bancos Brasileiros S.A. Major Brazilian Bank (Brazil), (c) 1,769,900 $ 31,305,106 Banco Latinoamericano de Latin American Trade Bank Exportaciones, S.A., Class E (Panama), (b)(d) 1,252,800 28,657,800 Den Danske Bank Group (Denmark) Commercial Banking 64,000 7,284,285
THE OAKMARK INTERNATIONAL FUND 34 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) BANKS & THRIFTS--9.6% (CONT.) Unidanmark A/S, Class A (Denmark) Commercial Banking 94,000 $ 6,365,446 United Overseas Bank Ltd., Foreign Commercial Banking Shares (Singapore) 553,000 4,196,294 ------------- 77,808,931 INSURANCE--0.8% IPC Holdings, Ltd. (Bermuda) Reinsurance Provider 345,000 $ 6,468,750 TEMPORARY STAFFING--0.3% Vedior NV (Netherlands) Temporary Staffing 150,500 $ 2,634,294 MARKETING SERVICES--5.3% Cordiant Communications Group plc Advertising Services (Great Britain) 10,798,877 $ 32,000,729 Saatchi & Saatchi plc (Great Britain) Advertising Services 3,202,497 11,071,763 ------------- 43,072,492 BROADCASTING & PUBLISHING--0.2% Torstar Corporation, Class B (Canada) Newspaper Publisher 195,000 $ 2,116,824 TELECOMMUNICATIONS--5.7% SK Telecom Co. Ltd. (Korea) Telecommunications 13,162 $ 12,172,010 Telesp Celular Participacoes S.A. Telecommunications (Brazil) 2,096,500,000 11,770,974 Telesp Participacoes S.A. (Brazil) Telecommunications 631,100,000 6,573,958 Tele Centro Sul Participacoes S.A. Telecommunications (Brazil), (a) 712,600,000 4,943,662 Telemig Celular Participacoes S.A. Telecommunications (Brazil), (a) 2,372,600,000 3,707,188 Embratel Participacoes S.A. Telecommunications (Brazil), (a) 526,100,000 3,534,734 Tele Sudeste Celular Participacoes Telecommunications S.A. (Brazil) 1,351,100,000 3,518,490 ------------- 46,221,016
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND 35 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) MEDICAL PRODUCTS--2.5% Getinge Industrier AB, Class B Medical Instruments Manufacturer (Sweden) 1,619,100 $ 20,552,472 AEROSPACE--1.5% Rolls-Royce plc (Great Britain) Aviation & Marine Power 3,588,552 $ 12,421,213 COMPONENTS--4.6% IMI plc (Great Britain) Components Manufacturer 4,655,000 $ 21,381,228 Varitronix International Limited (Hong Liquid Crystal Displays Kong) 5,318,000 11,604,179 Morgan Crucible Company plc (Great Crucible & Components Manufacturer Britain) 1,000,000 4,263,915 ------------- 37,249,322 CHEMICALS--3.5% Fernz Corporation Limited (New Agricultural & Industrial Chemical Zealand), (d) Producer 9,862,554 $ 21,170,836 European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands) 579,550 4,316,689 Nagase & Co., Ltd. (Japan) Chemical Wholesaler 579,000 2,868,431 ------------- 28,355,956 OIL & NATURAL GAS--1.9% ISIS (France) Oil Services 208,250 $ 15,112,321 MACHINERY & METAL PROCESSING--6.3% Metso Oyj (Finland), (a) Pulp Machinery 3,562,977 $ 40,224,457 Outokumpu Oyj (Finland) Metal Producer 945,000 10,970,296 ------------- 51,194,753 MINING & BUILDING MATERIALS--2.3% Keumkang Ltd. (Korea), (d) Building Materials 340,460 $ 18,471,319 OTHER INDUSTRIAL GOODS & SERVICES--16.5% Chargeurs SA (France), (d) Wool Production & Trading 644,824 $ 39,452,164 Tomkins plc (Great Britain) Diversified Engineering 7,442,640 31,367,199 Buderus AG (Germany) Industrial Manufacturing 970,320 16,519,494 Charter plc (Great Britain) Welding Products Manufacturer 2,806,014 16,052,897
THE OAKMARK INTERNATIONAL FUND 36 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
SHARES HELD/ DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) Kone Corporation, Class B (Finland) Elevators 112,930 $ 14,864,175 Sika Finanz AG (Switzerland) Corrosion Protection Products 32,350 10,054,875 Dongah Tire Industry Company Tire Manufacturer (Korea), (d) 166,290 5,399,470 ------------- 133,710,274 DIVERSIFIED CONGLOMERATES--3.2% Berisford plc (Great Britain) Diversified Operations 3,745,700 $ 18,838,788 First Pacific Company Ltd. (Hong Kong) Diversified Operations 11,966,000 7,240,078 ------------- 26,078,866 TOTAL COMMON STOCKS (COST: $829,827,804) 771,524,385
SHORT TERM INVESTMENTS--3.8% COMMERCIAL PAPER--3.1% American Express Credit Corp., 5.31% due 10/7/1999 $5,000,000 $ 5,000,000 Ford Motor Credit Corp., 5.34% due 10/5/1999 5,000,000 5,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 15,000,000 15,000,000 ------------- TOTAL COMMERCIAL PAPER (COST: $25,000,000) 25,000,000 REPURCHASE AGREEMENTS--0.7% State Street Repurchase Agreement, 5.20% due 10/1/1999 $5,761,000 $ 5,761,000 ------------- TOTAL REPURCHASE AGREEMENTS (COST: $5,761,000) 5,761,000 TOTAL SHORT TERM INVESTMENTS (COST: $30,761,000) 30,761,000 Total Investments (Cost $860,588,804)--98.9% (e) $ 802,285,385 Foreign Currencies (Proceeds $300,051)--0.0% 300,697 Other Assets In Excess Of Other Liabilities--1.1% (f) 8,555,905 ------------- TOTAL NET ASSETS--100% $ 811,141,987 =============
(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) At September 30, 1999, net unrealized depreciation of $58,302,773, for federal income tax purposes, consisted of gross unrealized appreciation of $96,229,261 and gross unrealized depreciation of $154,532,034. (f) Includes portfolio and transaction hedges. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL FUND 37 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 (9/30/99) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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
9/30/99 NAV AVERAGE ANNUAL TOTAL RETURN* $12.64 THROUGH 9/30/99 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 11/1/95 - --------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND 0.8% 11.7% MSCI World ex U.S. w/inc.** 4.3% 11.1% Lipper International Small Cap Fund Average** 9.1% 15.1% Micropal Equity International Small Cap Index** 9.7% 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 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 70 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, Over the last fiscal year, The Oakmark International Small Cap Fund achieved a return of 88.0%, smashing the MSCI World ex U.S. Index which was up 31.3% and the Lipper International Small Cap Average which was up 47.2%. The Fund posted a return of 0.8% for the quarter ending September 30. This compares with returns of 4.3% and 9.1% for the MSCI World ex U.S. Index and the Lipper International Small Cap Average respectively. Since inception, your Fund has averaged 11.7% per annum which compares to 11.1% for the MSCI Index and 15.1% for the Lipper Average. A QUIET QUARTER After some volatile price movements over the last few years, this quarter was a quiet one. Our star performers continue to be located in the Pacific Rim. ICHIYOSHI SECURITIES, based in Japan, added close to 2.5 percentage points of return. Ichiyoshi is a regional brokerage firm that continues to benefit from the pick-up of stockmarket activity. JCG HOLDINGS, a Hong Kong based consumer credit company added over 1 percentage point to return. It continues to improve its business as the Hong Kong economy lifts out of recession. On the negative side, a couple of our newer positions have hurt. REINSURANCE AUSTRALIA cost the Fund almost 1.5% as an abundance of natural disasters hit the insurance industry very hard. "ReAC" is a smaller reinsurer with a new, more profit-focused Managing Director; even after losses from increased claims, the current share price THE OAKMARK INTERNATIONAL SMALL CAP FUND 38 ........................................................................ is at less than half of book value. We have used the short-term price weakness to add to our position. DYLEX, a Canadian retail company, cost the Fund 1.3%. We have sold this company because we have lost faith in the company's management team. Though the stock is cheap on paper, the company was performing differently than expected and we were unable to ascertain why after numerous discussions with management. The last point above highlights a part of our philosophy that merits expansion. Though we are dogmatic value investors, we will NEVER invest in a company that either has consistently impaired value or starts to do so after we have invested in them. Part of our due diligence is to examine a management's past record. We also continue to monitor them while we own the investment. If things change, like with Dylex, we will not hesitate to sell the stock. WHY AND WHY NOT TO INVEST IN OAKEX As many of you may have noticed, The Oakmark International Small Cap Fund (OAKEX) has had a great 1-year run. Though we are heartened by the returns, keep in mind, past performance is no reason to invest in a mutual fund. In fact, we strongly discourage "momentum" TRADERS for this is a fund for long-term INVESTORS. As you have noticed, we instituted a redemption fee, payable to the Fund, for those traders who leave the Fund in less than 90 days. The people who frequently trade in and out hurt those who truly invest for the long term by creating volatility in our cash position. We are confident that a 2% redemption fee will solve this problem. Though the Fund's performance has been strong, we continue to feel quite confident that there is significant long-term investment potential within our portfolio. The Fund is full of high quality, undervalued companies. HOUSE OF FRASER, for example, is a UK-based department store company that yields 7% and has a normal P/E of 5.5 times earnings. In fact, we love it when the sustainable yield is greater than the normal p/e, as in this case! FLETCHER BUILDING is a New Zealand-based building materials company that could be one of the cheapest of its kind in the world. It has high quality assets, huge market positions and its main market is in a cyclical trough. Fletcher has a normal p/e of about 7 times earnings and yields almost 8%. We are happy to say that we have an entire portfolio of good quality, value stocks that should provide us with great returns going forward. THE WORLD IS LOOKING UP! Over the history of the Fund, short-term crises have often provided us with the OPPORTUNITY to invest in quality companies at extremely low prices. Today, though, the world seems to have stabilized. Asia is growing again and even Europe seems to be showing signs of life. This may well mean that though it will be harder to find "fire sales," the operating environment will be more conducive for smaller companies to grow. This invariably means more growth in earnings, cashflow and usually shareholder value. As two of the Fund's largest shareholders, we remain enthusiastic about the prospects of our small companies and look forward to their future performance. [SIGNATURE] DAVID HERRO Portfolio Manager dherro@cs.com [SIGNATURE] MICHAEL WELSH Portfolio Manager 102521.2142@compuserve.com October 8, 1999 THE OAKMARK INTERNATIONAL SMALL CAP FUND 39 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--SEPTEMBER 30, 1999 ........................................................................ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC EUROPE 54.2% PACIFIC RIM 40.0% % OF FUND NET ASSETS EUROPE 54.2% Great Britain 27.0% *France 12.6% *Germany 7.0% *Portugal 3.9% *Italy 1.7% Sweden 1.0% *Finland 0.7% Poland 0.3% % OF FUND NET ASSETS PACIFIC RIM 40.0% New Zealand 9.8% Hong Kong 8.5% Japan 7.2% Australia 4.4% Singapore 3.4% Korea 2.8% Thailand 2.1% Philippines 1.8% *Euro currency countries comprise 25.9% of the Fund.
THE OAKMARK INTERNATIONAL SMALL CAP FUND 40 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% CONSUMER NON-DURABLES--1.7% Kingmaker Footwear Holdings Limited Athletic Footwear Manufacturer (Hong Kong) 8,040,000 $ 1,200,633 Il Shin Spinning Company (Korea) Fabric & Yarn Manufacturer 20,200 1,145,746 Designer Textiles (NZ) Limited (New Knit Fabrics Zealand), (b) 1,960,000 314,281 ------------ 2,660,660 FOOD & BEVERAGE--2.7% Alaska Milk Corporation Milk Producer (Philippines), (a) 42,544,000 $ 2,808,528 Hite Brewery Company (Korea) Brewer 42,861 1,419,892 ------------ 4,228,420 RETAIL--12.7% Carpetright plc (Great Britain) Carpet Retailer 1,115,000 $ 7,682,085 House Of Fraser Plc (Great Britain) Department Store 5,640,000 7,242,399 Denny's Japan Co., Ltd. (Japan) Restaurant Chain 181,000 4,237,685 Jusco Stores (Hong Kong) Co., Limited Department Stores (Hong Kong) 6,888,000 647,310 ------------ 19,809,479 OFFICE EQUIPMENT--1.0% Neopost SA (France), (a) Mailroom Equipment Supplier 50,000 $ 1,484,349 OTHER CONSUMER GOODS & SERVICES--9.3% Royal Doulton plc (Great Britain), (b) Tableware & Giftware 4,490,000 $ 7,983,234 Cewe Color Holding AG (Germany) Photo Equipment & Supplies 186,340 4,084,464 Sanford Limited (New Zealand) Fisheries 838,134 2,167,624 Shaw Brothers (Hong Kong) Ltd. (Hong Media and Entertainment Services Kong) 270,000 232,882 ------------ 14,468,204
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL SMALL CAP FUND 41 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% (CONT.) INSURANCE--5.7% Reinsurance Australia Corporation Reinsurance Company Limited (Australia) 8,422,211 $ 4,431,065 Lambert Fenchurch Group plc (Great Insurance Broker Britain) 3,336,000 4,393,643 ------------ 8,824,708 OTHER FINANCIAL--7.6% JCG Holdings Ltd. (Hong Kong) Investment Holding Company 12,624,000 $ 7,394,431 Ichiyoshi Securities Co., Ltd. (Japan) Stock Broker 638,000 4,361,678 ------------ 11,756,109 HOTELS & MOTELS--2.7% Jarvis Hotels plc (Great Britain) Hotel Operator 2,045,000 $ 4,174,685 COMPUTER SOFTWARE--1.7% Koei Co., Ltd. (Japan) Computer Software 56,500 $ 2,650,918 BROADCASTING & PUBLISHING--3.1% Matichon Public Company Limited, Newspaper Publisher Foreign Shares (Thailand), (b) 2,039,500 $ 3,261,806 VLT AB, Class B (Sweden) Newspaper Publisher 139,950 1,520,267 ------------ 4,782,073 PRINTING--1.0% Hung Hing Printing Group Limited (Hong Printing Company Kong) 3,680,000 $ 1,563,357 TELECOMMUNICATIONS--0.6% SK Telecom Co. Ltd. (Korea) Telecommunications 1,016 $ 939,581 PHARMACEUTICALS--1.7% Recordati (Italy), (b) Pharmaceuticals 573,000 $ 2,597,323 TRANSPORTATION SERVICES--2.3% Mainfreight Limited (New Zealand), (b) Logistics Services 4,243,351 $ 3,511,797 OIL & NATURAL GAS--2.5% ISIS (France) Oil Services 53,165 $ 3,858,087
THE OAKMARK INTERNATIONAL SMALL CAP FUND 42 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.2% (CONT.) MINING & BUILDING MATERIALS--9.5% Fletcher Challenge Building (New Building Materials Manufacturer Zealand) 5,245,000 $ 6,456,884 Semapa-Sociedade de Investimento e Cement Manufacturer Gestao, SGPS, SA (Portugal) 333,012 6,037,974 Parbury Limited (Australia), (b) Building Products 12,517,553 2,328,688 ------------ 14,823,546 OTHER INDUSTRIAL GOODS & SERVICES--6.9% GFI Industries SA (France) Industrial Fastener Manufacturer 175,680 $ 4,278,878 Yip's Hang Cheung (Holdings) Ltd. Paint & Solvent Manufacturer (Hong Kong), (b) 35,472,000 2,237,578 Chargeurs SA (France) Wool Production & Trading 26,750 1,636,641 Vaisala Oyj (Finland) Atmospheric Observation Equipment 15,350 1,140,054 Dongah Tire Industry Company (Korea) Tire Manufacturer 26,900 873,448 Polifarb Cieszyn-Wroclaw S.A. (Poland) Paint & Varnish Manufacturer 347,983 509,219 ------------ 10,675,818 PRODUCTION EQUIPMENT--9.7% Krones AG (Germany) Manufacturer of Production Machinery 230,100 $ 6,733,039 NSC Groupe (France), (b) Manufacturer of Textile Equipment 55,523 5,842,934 De Dietrich et Compagnie SA (France) Manufacturer of Production Machinery 39,000 2,518,924 ------------ 15,094,897 STEEL--1.7% Steel & Tube Holdings Limited (New Produces and Distributes Steel Zealand) 3,292,370 $ 2,724,766 DIVERSIFIED CONGLOMERATES--10.1% Wassall PLC (Great Britain) Diversified Consumer Goods 1,718,000 $ 6,717,312 Haw Par Corporation Ltd. (Singapore) Healthcare and Leisure Products 3,205,000 5,335,383 TT Group PLC (Great Britain) Diversified Manufacturing 1,635,000 3,694,357 ------------ 15,747,052 TOTAL COMMON STOCKS (COST: $140,503,948) 146,375,829
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK INTERNATIONAL SMALL CAP FUND 43 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 1999 CONT. ........................................................................
PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--6.1% COMMERCIAL PAPER--4.5% American Express Credit Corporation, 5.31% due 10/7/1999 $1,000,000 $ 1,000,000 Ford Motor Credit Corp., 5.34% due 10/5/1999 2,000,000 2,000,000 General Electric Capital Corporation, 5.53% due 10/1/1999 4,000,000 ------------ TOTAL COMMERCIAL PAPER (COST: $7,000,000) 7,000,000 REPURCHASE AGREEMENTS--1.6% State Street Repurchase Agreement, 5.20% due 10/1/1999 $ 2,405,000 ------------ TOTAL REPURCHASE AGREEMENTS (COST: $2,405,000) 2,405,000 TOTAL SHORT TERM INVESTMENTS (COST: $9,405,000) 9,405,000 Total Investments (Cost $149,908,948)--100.3% (c) 155,780,829 Foreign Currencies (Proceeds $6,580)--(0.0)% 6,516 Other Liabilities In Excess Of Other Assets--(0.3)% (d) (421,142) ------------ TOTAL NET ASSETS--100% $155,366,203 ============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At September 30, 1999, net unrealized appreciation of $5,871,817, for federal income tax purposes, consisted of gross unrealized appreciation of $18,082,868 and gross unrealized depreciation of $12,211,051. (d) Includes portfolio and transaction hedges. THE OAKMARK INTERNATIONAL SMALL CAP FUND 44 [LOGO] (This page has been intentionally left blank.) THE OAKMARK FAMILY OF FUNDS 45 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--SEPTEMBER 30, 1999 ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND ------------------------------------------------------------------------------------------------------ ASSETS Investments, at value $ 4,759,553,868 $ 1,632,347,345 $ 443,700,831 (cost: 4,592,554,495) (cost: 1,605,111,118) (cost: 427,445,043) Cash 556 836 500 Foreign currency, at value 0 0 0 Receivable for: Forward foreign currency contracts 0 0 0 Securities sold 21,219,292 15,179,570 2,054,841 Fund shares sold 1,347,311 1,468,976 308,751 Dividends and interest 12,465,607 1,721,557 190,847 --------------- --------------- ------------- Total receivables 35,032,210 18,370,103 2,554,439 Other assets 156,740 29,811 20,999 --------------- --------------- ------------- Total assets $ 4,794,743,374 $ 1,650,748,095 $ 446,276,769 =============== =============== ============= ...................................................................................................... LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 545,733 $ 7,550,881 $ 7,789,614 Fund shares redeemed 15,409,302 2,300,778 591,967 Due to adviser 4,174,405 1,365,482 485,886 Forward foreign currency contracts 0 0 0 Other 1,781,565 622,142 270,023 --------------- --------------- ------------- Total liabilities 21,911,005 11,839,283 9,137,490 --------------- --------------- ------------- Net assets applicable to fund shares outstanding $ 4,772,832,369 $ 1,638,908,812 $ 437,139,279 =============== =============== ============= Fund shares outstanding 138,855,787 78,332,068 31,485,265 =============== =============== ============= ...................................................................................................... PRICE OF SHARES Net asset value per share $ 34.37 $ 20.92 $ 13.88 =============== =============== ============= ...................................................................................................... ANALYSIS OF NET ASSETS Paid in capital $ 3,821,186,642 $ 1,298,678,085 $ 434,024,162 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 743,709,340 299,824,158 (13,140,671) Net unrealized appreciation (depreciation) of investments 166,999,373 27,236,227 16,255,788 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) 40,937,014 13,170,342 0 --------------- --------------- ------------- Net assets applicable to Fund shares outstanding $ 4,772,832,369 $ 1,638,908,812 $ 437,139,279 =============== =============== =============
THE OAKMARK FAMILY OF FUNDS 46 ............................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value $ 60,411,626 $ 23,955,829 $ 802,285,385 $ 155,780,829 (cost: 56,589,159) (cost: 25,744,871) (cost: 860,588,804) (cost: 149,908,948) Cash 648 225 8 981 Foreign currency, at value 0 0 300,697 6,516 Receivable for: Forward foreign currency contracts 0 0 596,807 7,756 Securities sold 0 12,537 10,270,655 197,161 Fund shares sold 8,255 178,640 2,502,167 323,831 Dividends and interest 406,110 68,013 6,012,218 758,957 ------------ ------------ ------------- ------------- Total receivables 414,365 259,190 19,381,847 1,287,705 Other assets 2,781 10,680 19,661 2,949 ------------ ------------ ------------- ------------- Total assets $ 60,829,420 $ 24,225,924 $ 821,987,598 $ 157,078,980 ============ ============ ============= ============= .............................................................................................................................. LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 268,100 $ 213,966 $ 6,610,271 $ 1,134,610 Fund shares redeemed 114,269 0 1,257,055 143,744 Due to adviser 37,626 3,045 734,839 169,370 Forward foreign currency contracts 0 4,720 1,098,344 376 Other 91,834 50,839 1,145,102 264,677 ------------ ------------ ------------- ------------- Total liabilities 511,829 272,570 10,845,611 1,712,777 ------------ ------------ ------------- ------------- Net assets applicable to fund shares outstanding $ 60,317,591 $ 23,953,354 $ 811,141,987 $ 155,366,203 ============ ============ ============= ============= Fund shares outstanding 3,846,006 2,608,650 58,153,195 12,292,100 ============ ============ ============= ============= .............................................................................................................................. PRICE OF SHARES Net asset value per share $ 15.68 $ 9.18 $ 13.95 $ 12.64 ============ ============ ============= ============= .............................................................................................................................. ANALYSIS OF NET ASSETS Paid in capital $ 48,625,541 $ 25,800,443 $ 876,279,147 $ 135,198,375 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 6,238,498 (84,542) (3,176,858) 11,120,075 Net unrealized appreciation (depreciation) of investments 3,822,467 (1,789,042) (58,302,773) 5,871,817 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 (4,719) (508,175) 7,624 Net unrealized appreciation (depreciation)--other (159) 53 (69,095) 3,023 Accumulated undistributed net investment income (loss) 1,631,244 31,161 (3,080,259) 3,165,289 ------------ ------------ ------------- ------------- Net assets applicable to Fund shares outstanding $ 60,317,591 $ 23,953,354 $ 811,141,987 $ 155,366,203 ============ ============ ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 47 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--SEPTEMBER 30, 1999 ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND ------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 112,444,285 $ 27,208,265 $ 4,644,655 Interest Income 21,271,005 6,488,832 1,194,223 Securities lending income 0 75,764 33,811 Foreign taxes withheld (126,816) (63,600) 0 -------------- ------------- ------------ Total investment income 133,588,474 33,709,261 5,872,689 ...................................................................................................... EXPENSES: Investment advisory fee 59,957,947 15,358,029 7,251,751 Transfer and dividend disbursing agent fees 3,518,298 998,731 507,287 Other shareholder servicing fees 2,966,381 957,631 264,350 Reports to shareholders 1,855,038 473,189 217,200 Custody and accounting fees 693,549 212,400 108,278 Registration and blue sky expenses 24,183 71,067 (95,846) Trustee fees 166,808 66,691 46,996 Legal fees 58,406 28,572 16,418 Audit fees 28,181 28,629 31,454 Other 418,999 95,840 47,192 -------------- ------------- ------------ Total expenses 69,687,790 18,290,779 8,395,080 Expense reimbursement 0 0 0 Expense offset arrangements (2,445) (8,874) (5,559) -------------- ------------- ------------ Net expenses 69,685,345 18,281,905 8,389,521 ...................................................................................................... NET INVESTMENT INCOME (LOSS): 63,903,129 15,427,356 (2,516,832) ...................................................................................................... NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 748,595,189 301,413,442 (11,002,740) Net realized gain (loss) on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (147,719,773) 18,463,317 82,350,204 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: 600,875,416 319,876,759 71,347,464 -------------- ------------- ------------ ...................................................................................................... NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 664,778,545 $ 335,304,115 $ 68,830,632 ============== ============= ============
(a) From August 4, 1999, the date on which fund shares were first offered for sale to the public. THE OAKMARK FAMILY OF FUNDS 48 ............................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND(A) FUND SMALL CAP FUND - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 1,158,904 $ 74,217 $ 27,387,199 $ 4,445,739 Interest Income 1,227,611 23,658 1,612,869 606,224 Securities lending income 6,921 0 114,999 1,799 Foreign taxes withheld (23,405) (8,764) (3,070,519) (539,396) ----------- ------------ ------------- ------------ Total investment income 2,370,031 89,111 26,044,548 4,514,366 .............................................................................................................................. EXPENSES: Investment advisory fee 464,454 18,520 8,068,806 1,330,000 Transfer and dividend disbursing agent fees 65,540 7,434 639,040 97,700 Other shareholder servicing fees 16,086 803 315,585 61,056 Reports to shareholders 29,051 1,650 304,430 38,271 Custody and accounting fees 49,870 10,044 958,112 256,163 Registration and blue sky expenses 22,967 16,590 (32,848) 43,024 Trustee fees 34,721 5,134 52,671 35,454 Legal fees 12,909 2,100 17,730 13,415 Audit fees 24,079 10,000 30,280 39,731 Other 9,765 278 58,778 57,836 ----------- ------------ ------------- ------------ Total expenses 729,442 72,553 10,412,584 1,972,650 Expense reimbursement 0 (15,474) 0 0 Expense offset arrangements (50) 0 (515) (265) ----------- ------------ ------------- ------------ Net expenses 729,392 57,079 10,412,069 1,972,385 .............................................................................................................................. NET INVESTMENT INCOME (LOSS): 1,640,639 32,032 15,632,479 2,541,981 .............................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 6,246,386 (84,542) (28,187,781) 12,338,825 Net realized gain (loss) on foreign currency transactions (1,597) (871) 11,558,024 968,518 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 690,123 (1,789,042) 290,561,381 34,768,296 Net change in appreciation (depreciation) of forward currency exchange contracts 0 (4,719) 1,014,015 186,436 Net change in appreciation (depreciation)--other (159) 53 (274,516) (2,615) .............................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: 6,934,753 (1,879,121) 274,671,123 48,259,460 ----------- ------------ ------------- ------------ .............................................................................................................................. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 8,575,392 $ (1,847,089) $ 290,303,602 $ 50,801,441 =========== ============ ============= ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 49 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 ........................................................................
THE OAKMARK FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 63,903,129 $ 94,480,595 Net realized gain (loss) on sale of investments 748,595,189 1,258,937,339 Net realized gain (loss) on foreign currency transactions 0 (8,898) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (147,719,773) (1,704,966,868) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 664,778,545 (351,557,832) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (89,026,890) (66,321,023) Net realized short-term gain (128,028,090) (25,210,618) Net realized long-term gain (195,972,927) (1,098,260,243) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (413,027,907) (1,189,791,884) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 832,343,635 2,836,315,983 Reinvestment of dividends and capital gain distributions 391,307,098 1,133,761,068 Payments for shares redeemed, net of fees (3,626,526,884) (2,119,718,081) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (2,402,876,151) 1,850,358,970 ---------------- ---------------- .............................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS (2,151,125,513) 309,009,254 NET ASSETS: Beginning of period 6,923,957,882 6,614,948,628 ---------------- ---------------- End of period $ 4,772,832,369 $ 6,923,957,882 ================ ================ Undistributed net investment income $ 52,730,692 $ 77,854,453 ================ ================ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.4401 $ 0.3996 Net realized short-term gain 0.6329 0.1519 Net realized long-term gain 0.9686 5.8556 ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 2.0416 $ 6.4071 ================ ================
THE OAKMARK FAMILY OF FUNDS 50 .............................................................................
THE OAKMARK SELECT FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 15,427,356 $ 1,948,524 Net realized gain (loss) on sale of investments 301,413,442 69,415,172 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 18,463,317 (78,902,257) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 335,304,115 (7,538,561) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (3,491,747) 0 Net realized short-term gain (497,653) (6,882,359) Net realized long-term gain (50,206,634) 0 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (54,196,034) (6,882,359) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 688,865,887 1,440,695,723 Reinvestment of dividends and capital gain distributions 51,676,128 6,568,333 Payments for shares redeemed, net of fees (610,635,670) (719,123,322) --------------- --------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 129,906,345 728,140,734 --------------- --------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 411,014,426 713,719,814 NET ASSETS: Beginning of period 1,227,894,386 514,174,572 --------------- --------------- End of period $ 1,638,908,812 $ 1,227,894,386 =============== =============== Undistributed net investment income $ 13,637,247 $ 1,701,638 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.0491 $ 0 Net realized short-term gain 0.0070 0.1678 Net realized long-term gain 0.7058 0 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.7619 $ 0.1678 =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 51 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 CONT. ........................................................................
THE OAKMARK SMALL CAP FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment loss $ (2,516,832) $ (4,959,862) Net realized gain (loss) on sale of investments (11,002,740) 124,757,914 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 82,350,204 (374,056,372) -------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 68,830,632 (254,258,320) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 0 Net realized short-term gain 0 (35,041,133) Net realized long-term gain (4,508,112) (129,772,888) -------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,508,112) (164,814,021) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 262,182,135 416,817,749 Reinvestment of dividends and capital gain distributions 4,278,943 156,645,973 Payments for shares redeemed, net of fees (511,639,081) (1,049,792,259) -------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (245,178,003) (476,328,537) -------------- ---------------- .............................................................................. TOTAL INCREASE IN NET ASSETS (180,855,483) (895,400,878) NET ASSETS: Beginning of period 617,994,762 1,513,395,640 -------------- ---------------- End of period $ 437,139,279 $ 617,994,762 ============== ================ Undistributed net investment income $ (9,437,333) $ (6,920,501) ============== ================ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0 $ 0 Net realized short-term gain 0 0.4738 Net realized long-term gain 0.0874 2.3874 -------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.0874 $ 2.8612 ============== ================
THE OAKMARK FAMILY OF FUNDS 52 .............................................................................
THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 1,640,639 $ 1,166,564 Net realized gain (loss) on sale of investments 6,246,386 1,578,730 Net realized gain (loss) on foreign currency transactions (1,597) 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 690,123 (2,325,892) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in unrealized appreciation (depreciation)--other (159) 0 ------------- ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 8,575,392 419,402 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (855,395) (594,007) Net realized short-term gain 0 (882,071) Net realized long-term gain (829,557) (599,021) ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,684,952) (2,075,099) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 21,877,864 43,125,943 Reinvestment of dividends and capital gain distributions 1,610,146 1,964,129 Payments for shares redeemed, net of fees (27,806,714) (19,151,033) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (4,318,704) 25,939,039 ------------- ------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 2,571,736 24,283,342 NET ASSETS: Beginning of period 57,745,855 33,462,513 ------------- ------------- End of period $ 60,317,591 $ 57,745,855 ============= ============= Undistributed net investment income $ 1,806,607 $ 1,021,363 ============= ============= (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2118 $ 0.2359 Net realized short-term gain 0 0.3503 Net realized long-term gain 0.2053 0.2379 ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.4171 $ 0.8241 ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 53 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 CONT. ........................................................................
THE OAKMARK GLOBAL FUND -------------------- PERIOD ENDED SEPTEMBER 30, 1999(a) ------------------------------------------------------ FROM OPERATIONS: Net investment income $ 32,032 Net realized gain (loss) on sale of investments (84,542) Net realized gain (loss) on foreign currency transactions (871) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (1,789,042) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (4,719) Net change in unrealized appreciation (depreciation)--other 53 ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (1,847,089) ...................................................... DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 Net realized short-term gain 0 Net realized long-term gain 0 ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 ...................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 25,938,577 Reinvestment of dividends and capital gain distributions 0 Payments for shares redeemed, net of fees (138,134) ------------ NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 25,800,443 ------------ ...................................................... TOTAL INCREASE IN NET ASSETS 23,953,354 NET ASSETS: Beginning of period 0 ------------ End of period $ 23,953,354 ============ Undistributed net investment income $ 32,032 ============ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0 Net realized short-term gain 0 Net realized long-term gain 0 ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0 ============
(a) From August 4, 1999, the date on which fund shares were first offered for sale to the public THE OAKMARK FAMILY OF FUNDS 54 .............................................................................
THE OAKMARK INTERNATIONAL FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 15,632,479 $ 23,809,423 Net realized gain (loss) on sale of investments (28,187,781) 86,532,713 Net realized gain (loss) on foreign currency transactions 11,558,024 (3,890,444) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 290,561,381 (502,914,491) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 1,014,015 (2,045,738) Net change in unrealized appreciation (depreciation)--other (274,516) 195,384 -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 290,303,602 (398,313,153) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (16,590,763) (46,460,573) Net realized short-term gain (32,678,201) (57,985,224) Net realized long-term gain (20,071,535) (173,099,244) -------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (69,340,499) (277,545,041) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 370,563,788 482,976,228 Reinvestment of dividends and capital gain distributions 65,432,760 263,415,429 Payments for shares redeemed, net of fees (601,921,972) (961,776,686) -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (165,925,424) (215,385,029) -------------- --------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 55,037,679 (891,243,223) NET ASSETS: Beginning of period 756,104,308 1,647,347,531 -------------- --------------- End of period $ 811,141,987 $ 756,104,308 ============== =============== Undistributed net investment income $ 37,780,575 $ 38,738,859 ============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2440 $ 0.5758 Net realized short-term gain 0.4807 0.7186 Net realized long-term gain 0.2953 2.1453 -------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.0200 $ 3.4397 ============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 55 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 1999 CONT. ........................................................................
THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 2,541,981 $ 1,415,157 Net realized gain (loss) on sale of investments 12,338,825 (96,290) Net realized gain (loss) on foreign currency transactions 968,518 (162,499) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 34,768,296 (27,728,327) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 186,436 (179,057) Net change in unrealized appreciation (depreciation)--other (2,615) 2,414 -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 50,801,441 (26,748,602) .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (1,558,450) (308,015) Net realized short-term gain 0 (3,477,982) Net realized long-term gain 0 (3,890,139) -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,558,450) (7,676,136) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 253,467,836 77,339,314 Reinvestment of dividends and capital gain distributions 1,470,554 7,427,846 Payments for shares redeemed, net of fees (200,585,753) (64,544,647) -------------- ------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 54,352,637 20,222,513 -------------- ------------- .............................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS 103,595,628 (14,202,225) NET ASSETS: Beginning of period 51,770,575 65,972,800 -------------- ------------- End of period $ 155,366,203 $ 51,770,575 ============== ============= Undistributed net investment income $ 2,612,604 $ 1,629,075 ============== ============= (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2049 $ 0.0559 Net realized short-term gain 0 0.6312 Net realized long-term gain 0 0.7060 -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2049 $ 1.3931 ============== =============
THE OAKMARK FAMILY OF FUNDS 56 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS ........................................................................ 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Oakmark 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 market 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 September 30, 1999, 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 $(187) $29 $(85,076) $ 4,448 Unrealized appreciation (depreciation) on open securities purchases and sales -- -- (13,762) (1,286) Unrealized appreciation (depreciation) on transaction hedge purchases and sales -- -- 6,638 (245) Unrealized appreciation (depreciation) on tax expense payable 28 24 23,105 106 ------ --- -------- ------- Net Unrealized Appreciation (Depreciation) - Other $(159) $53 $(69,095) $ 3,023 ====== === ======== =======
SECURITY TRANSACTIONS AND INVESTMENT INCOME-- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. FORWARD FOREIGN CURRENCY CONTRACTS-- At September 30, 1999, 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. These contracts are valued daily and the fund's net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the statement of assets and liabilities. Realized and unrealized gains and losses are included in the statement of operations. THE OAKMARK FAMILY OF FUNDS 57 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 September 30, 1999: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------------------------- $300,000 32,523,000 Japanese Yen February 2000 $(11,766) 300,000 30,456,000 Japanese Yen March 2000 7,047 -------- $ (4,719) ========
The International Fund had the following outstanding contracts at September 30, 1999: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------------------- $29,496,600 18,000,000 Pound Sterling November 1999 $(138,396) 24,400,000 2,645,204,000 Japanese Yen February 2000 (956,994) 25,000,000 2,538,000,000 Japanese Yen March 2000 587,215 --------- $(508,175) =========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------- $ 271,353 1,894,725 Danish Krone October 1999 $ (93) 427,188 406,266 Euro Currency October 1999 5,098 1,522,910 926,006 Pound Sterling October 1999 1,574 1,014,403 616,284 Pound Sterling October 1999 185 1,539,504 934,506 Pound Sterling October 1999 (1,029) 1,547,003 939,057 Pound Sterling October 1999 (1,034) ------- $ 4,701 =======
THE OAKMARK FAMILY OF FUNDS 58 TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------- $ 53,592 78,700 Canadian Dollar October 1999 $ 29 341,801 320,790 Euro Currency October 1999 465 248,930 233,124 Euro Currency October 1999 874 2,007,902 1,219,867 Pound Sterling October 1999 (365) 1,985,610 1,205,299 Pound Sterling October 1999 1,327 80,586 625,993 Hong Kong Dollar October 1999 (1) 3,044,739 23,605,862 Norwegian Krone October 1999 (2,555) 536,900 4,381,103 Swedish Krone October 1999 2,163 ------- $ 1,937 =======
The Int'l Small Cap Fund had the following outstanding contracts at September 30, 1999: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------- $2,800,000 303,548,000 Japanese Yen February 2000 $(109,819) 5,000,000 507,600,000 Japanese Yen March 1999 117,443 --------- $ 7,624 =========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE SEPTEMBER 30, 1999 ------------------------------------------------------------------------------------------------------------- $ 44,340 42,168 Euro Currency October 1999 $ 529 269,843 253,159 Euro Currency October 1999 (469) 11,140 10,542 Euro Currency October 1999 77 205,888 193,232 Euro Currency October 1999 (280) 252,990 153,569 Pound Sterling October 1999 (169) 97,670 59,287 Pound Sterling October 1999 (65) ----- $(377) =====
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 1999 -------------------------------------------------------------------------------------------------------------- $197,293 119,760 Pound Sterling October 1999 $132 ====
At September 30, 1999, 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 59 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ SECURITIES LENDING-- Each Fund except The Oakmark Fund may lend portfolio securities to broker- dealers and banks. As of December 31, 1998, the Funds discontinued participation in a securities lending program and any securities previously loaned to borrowers have been returned. FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- No provision is made for Federal income taxes. The Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. The Funds hereby designate the approximate long term capital gains for purposes of the dividends paid deduction (in thousands):
SMALL EQUITY & INT'L SMALL OAKMARK SELECT CAP INCOME GLOBAL INT'L CAP $618,028 $296,551 $0 $6,231 $0 $0 $5,912
The amount of income dividends and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these book and tax 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 two unsecured lines of credit with a syndication of banks. One line of credit is a committed line of $350 million and the other is an uncommitted line of $250 million. Borrowings under this arrangement bear interest at .50% above the Federal Funds Effective Rate. As of September 30, 1999, there were no outstanding borrowings. 2. TRANSACTIONS WITH AFFILIATES Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets, .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 Global. In connection with the organization of the Funds, expenses of approximately $7,283 were advanced 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. During the twelve months ended September 30, 1999, the Funds incurred brokerage commissions of $5,015,100, $2,890,278, $2,569,414, $128,972, $93,787, $3,642,521 and $1,155,829 of which $1,944,758, $725,722, $213,191, $56,545, $29,127, $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. All amounts payable under the Plan as of September 30, 1999 have been accrued. THE OAKMARK FAMILY OF FUNDS 60 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):
PERIOD ENDED SEPTEMBER 30, 1999 ----------------------------------------- EQUITY & OAKMARK SELECT SMALL CAP INCOME ---------------------------------------------------------------------------------- Shares sold 22,559 32,332 18,587 1,449 Shares issued in reinvestment of dividends 10,299 2,853 297 112 Less shares redeemed (100,457) (30,105) (36,338) (1,842) ---------- ------- -------- ------- Net increase (decrease) in shares outstanding (67,599) 5,080 (17,454) (281) ========== ======= ======== ======= PERIOD ENDED SEPTEMBER 30, 1999 ------------------------------------- INT'L SMALL GLOBAL(A) INTERNATIONAL CAP ------------------------------------- --------------------------------------- Shares sold 2,623 27,499 21,542 Shares issued in reinvestment of dividends -- 6,003 178 Less shares redeemed (15) (47,902) (16,944) -------- ---------- --------- Net increase (decrease) in shares outstanding 2,608 (14,400) 4,776 ======== ========== =========
(a) From August 4, 1999, the date on which fund shares were first offered for sale to the public.
YEAR ENDED SEPTEMBER 30, 1998 ------------------------------------------------------------------ EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP ----------------------------------------------------------------------------------------------------------- Shares sold 68,340 81,093 22,121 3,014 34,513 8,604 Shares issued in reinvestment of dividends 30,513 410 9,667 149 20,108 786 Less shares redeemed (52,910) (39,717) (57,261) (1,344) (69,820) (7,284) ------- ------- -------- ------- ---------- --------- Net increase (decrease) in shares outstanding 45,943 41,786 (25,473) 1,819 (15,199) 2,106 ======= ======= ======== ======= ========== =========
Effective January, 1999, the Funds offer two classes of shares. Class I shares are offered to the general public and Class II shares are offered to certain 401(k) and other tax qualified plans. Because no Class II shares have been issued as of September 30, 1999, no financial data is presented. 4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
EQUITY & OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL -------------------------------------------------------------------------------------------------------------- Purchases $ 734,144 $1,114,254 $ 370,124 $45,738 $27,010 $408,596 Proceeds from sales 3,124,576 968,958 4,661,866 49,281 1,595 611,623 INT'L SMALL CAP ----------- --------------------------------------- Purchases $175,083 Proceeds from sales 125,384
THE OAKMARK FAMILY OF FUNDS 61 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ 5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the year ended September 30, 1999 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- ACNielsen Corporation $ -- $ -- $ -- $ 108,083,250 Brunswick Corporation -- -- 3,640,400 181,109,900 H & R Block, Inc. -- 59,237,433 7,114,713 278,673,281 Knight Ridder, Inc. 13,380,889 76,860,097 5,585,106 313,670,988 The Black & Decker Corporation -- 163,345,561 3,201,948 247,269,887 The Dun & Bradstreet Corporation 12,433,629 57,927,867 7,103,390 278,509,687 ----------- ------------ ----------- -------------- TOTALS $25,814,518 $357,370,958 $26,645,557 $1,407,316,993
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- USG Corporation $53,055,089 $ 13,554,188 $ 1,238,350 $ 166,245,250 US Industries Inc. 44,696,796 27,494,375 1,586,420 133,654,500 ----------- ------------ ----------- -------------- TOTALS $97,751,885 $ 41,048,563 $ 2,824,770 $ 299,899,750
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- Barry (R.G.) Corporation $ 683,865 $ -- $ -- $ 5,512,500 Duff & Phelps Credit Rating Co. -- 2,576,539 39,000 23,981,250 Finger Lakes Financial Corp. -- 22,374 45,120 1,808,625 Sames Corporation -- 448,735 -- 4,468,750 Tokheim Corporation 9,617,102 -- -- 7,686,250 Ugly Duckling Corporation 366,408 -- -- 12,468,750 ----------- ------------ ----------- -------------- TOTALS $10,667,375 $ 3,047,648 $ 84,120 $ 55,926,125
THE OAKMARK FAMILY OF FUNDS 62 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- Banco Latinoamericano de Exportaciones, S.A. Class E $ 8,398,520 $ 10,993,184 $ 1,380,960 $ 28,657,800 Chargeurs International SA 487,752 -- 388,650 39,452,164 Dongah Tire Industry Company -- -- 140,181 5,399,470 Fernz Corporation Ltd. 3,621,336 14,034,949 1,034,503 21,170,836 Fila Holding S.p.A. 691,130 989,957 -- 32,160,000 Keumkang Ltd. -- 7,957,641 307,101 18,471,319 Lotte Chilsung Beverage Company -- 4,600,021 36,291 4,428,607 ----------- ------------ ----------- -------------- TOTALS $13,198,738 $ 38,575,752 $ 3,287,686 $ 149,740,196
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET AFFILIATES COST COST INCOME VALUE - ----------------------------------------------------------------------------------------------- Designer Textiles (NZ) Limited $ -- $ 158,585 $ 42,398 $ 314,281 Mainfreight Limited 3,661,625 -- 51,467 3,511,797 Matichon Public Company Limited, Foreign Share -- -- 162,053 3,261,806 NSC Groupe 3,693,254 -- 349,183 5,842,934 Parbury Limited 255,279 -- 131,268 2,328,688 Recordati 2,860,638 -- 47,131 2,597,323 Royal Doulton PLC 6,916,864 1,773,353 -- 7,983,234 Yip's Hang Cheung (Holdings) Ltd. 671,588 112,764 164,944 2,237,578 ----------- ------------ ----------- -------------- TOTALS $18,059,248 $ 2,044,702 $ 948,444 $ 28,077,641
THE OAKMARK FAMILY OF FUNDS 63 THE OAKMARK FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, ---------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 Income From Investment Operations: Net Investment Income (Loss) 0.44 0.47 0.36 0.34 0.30 Net Gains or Losses on Securities (both realized and unrealized) 2.43 (1.73 ) 10.67 4.70 4.66 --------- --------- --------- --------- --------- Total From Investment Operations: 2.87 (1.26 ) 11.03 5.04 4.96 Less Distributions: Dividends (from net investment income) (0.44) (0.40 ) (0.34) (0.28) (0.23) Distributions (from capital gains) (1.60) (6.01 ) (1.87) (0.84) (1.47) --------- --------- --------- --------- --------- Total Distributions (2.04) (6.41 ) (2.21) (1.12) (1.70) --------- --------- --------- --------- --------- Net Asset Value, End of Period $ 34.37 $ 33.54 $ 41.21 $ 32.39 $ 28.47 ========= ========= ========= ========= ========= Total Return 7.98% (4.06 )% 39.24%* 18.07% 21.55% Ratios/Supplemental Data: Net Assets, End of Period ($million) $4,772.8 6$,924.0 $6,614.9 $3,933.9 $2,827.1 Ratio of Expenses to Average Net Assets 1.11% 1.08 % 1.08%* 1.18% 1.17% Ratio of Net Income (Loss) to Average Net Assets 1.02% 1.22 % 1.19%* 1.13% 1.27% Portfolio Turnover Rate 13 % 43 % 17 % 24% 18% YEAR ENDED OCTOBER 31, ----------------------------------- OCTOBER 31, 1994 1993 1992 1991(A) - ------------------------------ Net Asset Value, Beginning of Period $ 24.18 $ 17.11 $ 12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.27 0.17 (0.03) (0.01 ) Net Gains or Losses on Securities (both realized and unrealized) 1.76 7.15 5.04 2.11 --------- --------- ------- ------ Total From Investment Operations: 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.23) (0.04) -- -- Distributions (from capital gains) (0.77) (0.21) -- -- --------- --------- ------- ------ Total Distributions (1.00) (0.25) -- -- --------- --------- ------- ------ Net Asset Value, End of Period $ 25.21 $ 24.18 $ 17.11 $12.10 ========= ========= ======= ====== Total Return 8.77% 43.21% 41.40% 87.10 %* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,677.3 $1,107.0 $114.7 $4.8 Ratio of Expenses to Average Net Assets 1.22% 1.32% 1.70% 2.50 %(b)* Ratio of Net Income (Loss) to Average Net Assets 1.19% 0.94% (0.24)% (0.66 )%(c)* Portfolio Turnover Rate 29% 18% 34 % 0 %
*Data has been annualized. (a) From August 5, 1991, the date on which Fund shares were first offered for sale to the public. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. THE OAKMARK FAMILY OF FUNDS 64 THE OAKMARK SELECT FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 - -------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.76 $ 16.34 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.20 0.03 (0.01 ) Net Gains or Losses on Securities (both realized and unrealized) 4.72 0.56 6.35 --------- --------- ------- Total From Investment Operations: 4.92 0.59 6.34 Less Distributions: Dividends (from net investment income) (0.05) -- -- Distributions (from capital gains) (0.71) (0.17 ) -- --------- --------- ------- Total Distributions (0.76) (0.17 ) -- --------- --------- ------- Net Asset Value, End of Period $ 20.92 $ 16.76 $16.34 ========= ========= ======= Total Return 30.07% 3.64 % 69.16 %* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,638.9 $1,227.9 $514.2 Ratio of Expenses to Average Net Assets 1.16% 1.22 % 1.12 %* Ratio of Net Income (Loss) to Average Net Assets 0.98% .17 % (0.11 )%* Portfolio Turnover Rate 67 % 56 % 37 %
*Ratios have been annualized. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 65 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, OCTOBER 31, SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.63 $ 20.34 $ 13.19 $10.00 Income From Investment Operations: Net Investment Income (Loss) (0.16) (0.12) (0.01) (0.02 ) Net Gains or Losses on Securities (both realized and unrealized) 1.50 (4.73) 7.16 3.21 ------- ------- --------- ------- Total From Investment Operations: 1.34 (4.85) 7.15 3.19 Less Distributions: Dividends (from net investment income) 0.00 -- -- -- Distributions (from capital gains) (0.09) (2.86) -- -- ------- ------- --------- ------- Total Distributions (0.09) (2.86) -- -- ------- ------- --------- ------- Net Asset Value, End of Period $ 13.88 $ 12.63 $ 20.34 $13.19 ======= ======= ========= ======= Total Return 10.56% (26.37)% 59.14%* 31.94 % Ratios/Supplemental Data: Net Assets, End of Period ($million) $437.1 $618.0 $ 1,513.4 $218.4 Ratio of Expenses to Average Net Assets 1.48% 1.45% 1.37%* 1.61 % Ratio of Net Income (Loss) to Average Net Assets (0.44)% (0.40)% (0.25)%* (0.29 )% Portfolio Turnover Rate 68 % 34 % 27 % 23 %
*Data has been annualized. THE OAKMARK FAMILY OF FUNDS 66 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, OCTOBER 31, SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.99 $ 14.49 $11.29 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.43 0.29 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 1.68 0.04 3.24 1.19 ------ ------ ------ ------ Total From Investment Operations: 2.11 0.33 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.21) (0.24) (0.12) -- Distributions (from capital gains) (0.21) (0.59) (0.13) -- ------ ------ ------ ------ Total Distributions (0.42) (0.83) (0.25) -- ------ ------ ------ ------ Net Asset Value, End of Period 15.68 13.99 $14.49 $11.29 ====== ====== ====== ====== Total Return 15.32% 2.57% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 60.3 $ 57.7 $33.5 $13.8 Ratio of Expenses to Average Net Assets 1.18% 1.31% 1.50%*(a) 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.65% 2.39% 2.38%*(a) 1.21%(a) Portfolio Turnover Rate 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 investment adviser, ratios would have been as follows:
SEPTEMBER 30, 1997 OCTOBER 31, 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 67 THE OAKMARK GLOBAL FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED SEPTEMBER 30, 1999(a) - -------------------------------------------------------- Net Asset Value, Beginning of Period $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.01 Net Gains or Losses on Securities (both realized and unrealized) (0.83) ------ Total From Investment Operations: (0.82) Less Distributions: Dividends (from net investment income) 0.00 Distributions (from capital gains) 0.00 ------ Total Distributions 0.00 ------ Net Asset Value, End of Period $ 9.18 ====== Total Return (8.18%) Ratios/Supplemental Data: Net Assets, End of Period ($million) $24.0 Ratio of Expenses to Average Net Assets 1.75%*(b) Ratio of Net Income (Loss) to Average Net Assets 0.98%*(b) Portfolio Turnover Rate 7.23%
*Data has been annualized. (a) From August 14, 1999, the date on which fund shares were first offered for sale to the public. (b) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment advisor, the ratio of expenses to average net assets would have been 2.22% and the ratio of net income (loss) to average net assets would have been 1.45%. THE OAKMARK FAMILY OF FUNDS 68 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, ---------------------------------------------- 1999 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 Income From Investment Operations: Net Investment Income (Loss) 0.36 0.41 0.27 0.09 0.30 0.21 0.06 Net Gains or Losses on Securities (both realized and unrealized) 4.19 (5.32) 3.74 2.90 (0.77) 0.43 4.48 ------- ------- --------- --------- ------- --------- ------- Total From Investment Operations: 4.55 (4.91) 4.01 2.99 (0.47) 0.64 4.54 Less Distributions: Dividends (from net investment income) (0.24) (0.58) (0.16) -- -- (0.08) (0.25) Distributions (from capital gains) (0.78) (2.86) -- (1.04) (1.06) (0.15) -- ------- ------- --------- --------- ------- --------- ------- Total Distributions (1.02) (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) ------- ------- --------- --------- ------- --------- ------- Net Asset Value, End of Period $ 13.95 $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 ======= ======= ========= ========= ======= ========= ======= Total Return 46.41% (29.90)% 29.63%* 24.90% (3.06)% 4.62% 47.49% Ratios/Supplemental Data: Net Assets, End of Period ($million) $811.1 $756.1 $1,647.3 $1,172.8 $819.7 $1,286.0 $815.4 Ratio of Expenses to Average Net Assets 1.29% 1.32% 1.26%* 1.32% 1.40% 1.37% 1.26% Ratio of Net Income (Loss) to Average Net Assets 1.94% 1.95% 2.09%* 1.45% 1.40% 1.44% 1.55% Portfolio Turnover Rate 54 % 43 % 61 % 42% 26 % 55% 21 % PERIOD ENDED OCTOBER 31, 1992(A) - ------------------------------ Net Asset Value, Beginning of Period $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.26 Net Gains or Losses on Securities (both realized and unrealized) (0.46 ) ------- Total From Investment Operations: (0.2 ) Less Distributions: Dividends (from net investment income) -- Distributions (from capital gains) -- ------- Total Distributions -- ------- Net Asset Value, End of Period 9.80 ======= Total Return (22.81 )%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $23.5 Ratio of Expenses to Average Net Assets 2.04 %* Ratio of Net Income (Loss) to Average Net Assets 37.02 %* Portfolio Turnover Rate 0 %
*Ratios have been annualized. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 69 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .......................................................... FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 OCTOBER 31, 1996 - -------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 6.89 $12.20 $11.41 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.20 0.18 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) 5.75 (4.09 ) 1.10 1.37 ------- ------- ------ ------ Total From Investment Operations: 5.95 (3.91 ) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.20 ) (0.06 ) (0.08) -- Distributions (from capital gains) 0.00 (1.34 ) (0.36) -- ------- ------- ------ ------ Total Distributions (0.20 ) (1.40 ) (0.44) -- ------- ------- ------ ------ Net Asset Value, End of Period $12.64 $ 6.89 $12.20 $11.41 ======= ======= ====== ====== Total Return 88.02 % (35.20 )% 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $155.4 $51.8 $66.0 $39.8 Ratio of Expenses to Average Net Assets 1.79 % 1.96 % 1.93%* 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.31 % 2.17 % 1.23%* 0.65%(a) Portfolio Turnover Rate 126 % 69 % 63 % 27 %
* Ratios have been annualized. (a) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment advisor, the ratio of expenses to average net assets would have been 2.65% and the ratio of net income (loss) to average net assets would have been .50%. 70 THE OAKMARK FAMILY OF FUNDS THE OAKMARK FAMILY OF FUNDS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ........................................................................ TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF HARRIS ASSOCIATES INVESTMENT TRUST: WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (EACH A SERIES OF HARRIS ASSOCIATES INVESTMENT TRUST), INCLUDING THE SCHEDULES OF INVESTMENTS ON PAGES 7-9, 12-13, 16-18, 21-24, 28-30, 34-37, AND 41-44, AS OF SEPTEMBER 30, 1999, AND THE RELATED STATEMENTS OF OPERATIONS, STATEMENTS OF CHANGES IN NET ASSETS AND THE FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON. THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE THE RESPONSIBILITY OF THE TRUST'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS. WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES INCLUDED CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 1999, BY CORRESPONDENCE WITH THE CUSTODIAN AND BROKERS. AS TO SECURITIES PURCHASED BUT NOT RECEIVED, WE REQUESTED CONFIRMATION FROM BROKERS, AND WHEN REPLIES WERE NOT RECEIVED, WE CARRIED OUT ALTERNATIVE AUDITING PROCEDURES. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION. IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITIONS OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND OF THE HARRIS ASSOCIATES INVESTMENT TRUST AS OF SEPTEMBER 30, 1999, THE RESULTS OF THEIR OPERATIONS, THE CHANGES IN THEIR NET ASSETS, AND THEIR FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. ARTHUR ANDERSEN LLP Chicago, Illinois October 25, 1999 THE OAKMARK FAMILY OF FUNDS 71 [LOGO] THE OAKMARK FAMILY OF FUNDS 72 THE OAKMARK FAMILY OF FUNDS TRUSTEES AND OFFICERS ........................................................................ TRUSTEES Michael J. Friduss Thomas H. Hayden Christine M. Maki Victor A. Morgenstern Allan J. Reich Marv Rotter Burton W. Ruder Peter S. Voss Gary Wilner, M.D. OFFICERS Victor A. Morgenstern--CHAIRMAN Robert M. Levy--PRESIDENT Robert J. Sanborn--EXECUTIVE VICE PRESIDENT David G. Herro--VICE PRESIDENT Gregory L. Jackson--VICE PRESIDENT Clyde S. McGregor--VICE PRESIDENT William C. Nygren--VICE PRESIDENT Steven J. Reid--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 audited 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 profile and/or prospectus of the Funds. No sales charge to the shareholder or to the new investor is made in offering the shares of the Funds. [LOGO] OAKMARK FAMILY OF FUNDS P.O. BOX 8510 BOSTON, MA 02266-8510 -----END PRIVACY-ENHANCED MESSAGE-----