-----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, BHtCI5Mhs7oX7jQWBEACQEDsu9MaA3vaQomYwQ4TUuhK2mM/wT1RuXTau70MxVRG nprjIVIqbS9XPz2sDYaUFg== 0001047469-99-017977.txt : 19990505 0001047469-99-017977.hdr.sgml : 19990505 ACCESSION NUMBER: 0001047469-99-017977 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990504 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: 99610030 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 SEMI-ANNUAL REPORT THE OAKMARK MARCH 31, 1999 FUND LOGO THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK INTERNATIONAL FUND MEMBER OF - -------------------- - -------------------- 100% NO-LOAD MUTUAL FUND COUNCIL - -------------------- - -------------------- MANAGED BY THE OAKMARK HARRIS INTERNATIONAL ASSOCIATES L.P. SMALL CAP FUND OAKMARK THE OAKMARK FAMILY OF FUNDS 1999 SEMI-ANNUAL REPORT ........................................................................ LETTER FROM THE CHAIRMAN AND PRESIDENT...................... 1 THE OAKMARK FAMILY OF FUNDS SUMMARY......................... 2 THE OAKMARK FUND Letter from the Portfolio Manager......................... 4 Schedule of Investments................................... 7 THE OAKMARK SELECT FUND Letter from the Portfolio Manager......................... 10 Schedule of Investments................................... 12 THE OAKMARK SMALL CAP FUND Letter from the Portfolio Manager......................... 14 Schedule of Investments................................... 16 THE OAKMARK EQUITY AND INCOME FUND Letter from the Portfolio Manager......................... 19 Schedule of Investments................................... 21 THE OAKMARK INTERNATIONAL FUND Letter from the Portfolio Managers........................ 24 International Diversification Chart....................... 26 Schedule of Investments................................... 27 THE OAKMARK INT'L SMALL CAP FUND Letter from the Portfolio Managers........................ 31 International Diversification Chart....................... 33 Schedule of Investments................................... 34 FINANCIAL STATEMENTS Statement of Assets and Liabilities....................... 38 Statement of Operations................................... 40 Statement of Changes in Net Assets........................ 42 Notes to Financial Statements............................. 48 TRUSTEES AND OFFICERS....................................... 61
FOR MORE INFORMATION Access our web site at www.oakmark.com to obtain a prospectus, an application or periodic reports, or call 1-800-OAKMARK (1-800-625-6275). WEB SITE AND 24-HOUR NET ASSET VALUE HOTLINE Access our web site at www.oakmark.com to obtain the current net asset value of a fund, or call 1-800-GROWOAK (1-800-476-9625). LETTER FROM THE CHAIRMAN AND PRESIDENT... ........................................................................ DEAR FELLOW SHAREHOLDERS: WE ARE PLEASED TO PRESENT THE SEMI-ANNUAL REPORT FOR THE OAKMARK FAMILY OF FUNDS. IN OUR LAST SEVERAL REPORTS, WE HAVE HIGHLIGHTED THE GROWING LIST OF ATTRACTIVE SECURITIES THAT HAVE MET OUR VALUATION CRITERIA. WE ALSO NOTED THE INCREASING CONFIDENCE AND ENTHUSIASM OF ALL OUR FUND MANAGERS FOR THE QUALITY AND UPSIDE POTENTIAL OF THE HOLDINGS IN THEIR PORTFOLIOS. IN THIS REPORT, SEVERAL MANAGERS' COMMENTARIES EXPLAIN [PHOTO] THE BASIS FOR THIS CONFIDENCE BY FEATURING IN-DEPTH DISCUSSIONS OF SOME OF THEIR SIGNIFICANT HOLDINGS. MOST IMPORTANT, THIS CONVICTION HAS TRANSLATED INTO TANGIBLE RESULTS. DESPITE THE CONTINUATION OF A [LOGO] MOMENTUM DRIVEN MARKET, THREE OF OUR FUNDS HAD VERY GOOD QUARTERS. THE INTERNATIONAL SMALL CAP FUND WAS UP 24.6%, THE INTERNATIONAL FUND WAS UP 13.8% AND THE SELECT FUND WAS UP 10.6%. WE HAVE NOT CHANGED OUR FOCUS TO A SHORT-TERM TIME HORIZON. INSTEAD, WE CONTINUE TO ADHERE TO OUR VALUE INVESTMENT PHILOSOPHY. ULTIMATELY, THESE STRONG ABSOLUTE RETURNS RESULT FROM THIS DISCIPLINED APPROACH TO INVESTING. WE ALSO WANT TO ADD A MORE SIGNIFICANT OBSERVATION ABOUT THESE RESULTS. OUR VALUE DISCIPLINE IS APPLIED TO THE MANAGEMENT OF ALL OAKMARK FUNDS. WE BELIEVE IT WOULD BE VERY UNUSUAL FOR THE PERFORMANCE REBOUND TO AFFECT ONLY HALF OF OUR FUND FAMILY. WE HOPE AND EXPECT THAT OUR OTHER FUNDS ARE NEARING A POINT WHERE RELATIVE AND ABSOLUTE RETURNS WILL BE IMPROVING. THIS OUTCOME WILL CONFIRM OUR STRONG BELIEF THAT VALUE INVESTING WAS OUT OF FAVOR CYCLICALLY, NOT SECULARLY. ON ANOTHER NOTE, WE ARE ALWAYS LOOKING AT NEW IDEAS TO BETTER SERVE OUR SHAREHOLDERS. JUST AS WE RESEARCH STOCK IDEAS THOROUGHLY BEFORE WE PURCHASE, WE EXPLORE NEW SERVICING IDEAS IN THE SAME FASHION. CURRENTLY, WE ARE REVIEWING SUCH SERVICES AS ELECTRONIC DELIVERY OF QUARTERLY REPORTS, PROSPECTUSES, AND ACCOUNT STATEMENTS. WE ARE ALSO EXPLORING THE IDEA OF ALLOWING OUR SHAREHOLDERS TO DO TRANSACTIONS OVER THE INTERNET. AS ALWAYS, WE BASE OUR DECISIONS ON WHAT IS BEST FOR OUR SHAREHOLDERS. WE LOOK FORWARD TO CONTINUING TO SERVE YOUR INVESTMENT NEEDS IN THE FUTURE. AS THE YEAR 2000 APPROACHES, OUR Y2K ACTIVITIES ARE ON SCHEDULE AND WE ARE STILL CONFIDENT THAT WE ARE WELL PREPARED FOR THIS EVENT. FINALLY, WE ARE PLEASED TO SEE SOLID EVIDENCE THAT VALUE INVESTING IS "MAKING A COMEBACK." IT IS A MISTAKE TO ASSUME THAT THE RACE IS OVER. [SIGNATURE] VICTOR MORGENSTERN CHAIRMAN [SIGNATURE] ROBERT M. LEVY PRESIDENT 1 THE OAKMARK FAMILY OF FUNDS SUMMARY INFORMATION ........................................................................
THE OAKMARK THE OAKMARK PERFORMANCE FOR PERIOD ENDED FUND SELECT MARCH 31, 1999 FUND ------------------------ ------------------------ - ---------------------------------------------------------------------------------------- 3 MONTHS -0.5% 10.6% ........................................................................................ 6 MONTHS 12.0% 34.4% ........................................................................................ 1 YEAR -6.1% 13.4% ........................................................................................ AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 15.4% N/A ........................................................................................ 5 YEAR 18.2% N/A ........................................................................................ SINCE INCEPTION 25.2% 40.6% VALUE OF $10,000 $55,888 $22,766 FROM INCEPTION DATE (8/5/91) (11/1/96) - ---------------------------------------------------------------------------------------- TOP FIVE HOLDINGS Nike, Inc., Class B7.4% Washington Mutual, AS OF MARCH 31, 1999 Philip Morris Companies Inc. 10.8% COMPANY AND % OF TOTAL NET Inc. 7.1% USG Corporation 10.7% ASSETS The Black & Decker U.S. Industries, Corporation 6.6% Inc. 8.7% The Dun & Bradstreet PartnerRe Ltd. 6.3% Corporation 5.8% First Data Mattel, Inc. 5.7% Corporation 5.7% - ---------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES Other Consumer Banks & Thrifts 14.5% AS OF MARCH 31, 1999 Goods & Services 18.6% Computer Services 12.7% INDUSTRIES AND % OF TOTAL NET Banks & Thrifts 9.9% Building Materials & ASSETS Aerospace & Defense 9.4% Construction 10.7% Food & Beverage 8.8% Diversified Information Conglomerates 8.7% Services 8.1% Insurance 6.3%
2 THE OAKMARK FAMILY OF FUNDS ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL FUND INCOME FUND FUND SMALL CAP FUND ----------------------- ----------------------- ----------------------- ----------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 3 Months -8.8% 0.0% 13.8% 24.6% .................................................................................................................................. 6 Months 7.3% 10.5% 30.2% 59.8% .................................................................................................................................. 1 Year -26.1% 3.5% -7.6% 14.8% .................................................................................................................................. Average Annual Total Return for: 3 Year 11.9% 16.9% 7.7% 6.1% .................................................................................................................................. 5 Year N/A N/A 6.9% N/A .................................................................................................................................. Since inception 14.9% 16.4% 12.3% 8.3% Value of $10,000 $16,069 $16,792 $21,258 $13,118 from inception date (11/1/95) (11/1/95) (9/30/92) (11/1/95) - ---------------------------------------------------------------------------------------------------------------------------------- TOP FIVE HOLDINGS People's Bank of Imation Corp. 4.8% Cordiant Haw Par Corporation AS OF MARCH 31, 1999 Bridgeport, CT 4.0% First Data Communications Group Limited 4.6% COMPANY AND % OF TOTAL NET Duff & Phelps Credit Corporation 3.9% plc 6.3% Solution 6 Holdings ASSETS Rating Co. 3.8% Juno Lighting, Tomkins plc 5.1% Limited 4.5% Department 56, Inc. 3.6% Uniao de Bancas Royal Doulton plc4.4% Inc. 3.8% Lear Corporation 3.5% Brasileiros Carpetright plc 4.4% H. B. Fuller Amli Residential S.A. 4.8% Ichiyoshi Company 3.6% Properties Banco Latinoamericano Securites 4.0% Micron Electronics, Trust 3.4% de Exportaciones, Inc. 3.6% S.A., Class E 4.4% Chargeurs SA 4.1% - ---------------------------------------------------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES Other Industrial U.S. Government Other Industrial Retail 15.1% AS OF MARCH 31, 1999 Goods & Bonds 24.8% Goods & Diversified INDUSTRIES AND % OF TOTAL NET Services 14.1% Computer Services9.7% Services 14.2% Conglomerates 9.6% ASSETS Food & Beverages 9.9% Real Estate 9.2% Banks 11.3% Other Financial 9.3% Banks & Thrifts 8.8% Banks & Thrifts 7.1% Marketing Other Industrial Goods Retail 8.7 Data Storage 4.8% Services 10.0% & Services 7.5% Real Estate 7.2 Consumer Computer Software6.9% Non-Durables 7.2% Other Consumer Goods & Services 6.4%
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 (3/31/99) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK FUND S & P 500 8/91 $10,000 $10,000 10/91 $12,100 $10,202 1/92 $13,910 $10,707 4/92 $14,660 $10,947 7/92 $15,910 $11,279 10/92 $17,110 $11,217 1/93 $19,913 $11,836 4/93 $20,136 $11,957 7/93 $22,052 $12,260 10/93 $24,504 $12,896 1/94 $25,648 $13,357 4/94 $24,855 $12,590 7/94 $25,321 $12,890 10/94 $26,653 $13,384 1/95 $26,480 $13,433 4/95 $28,846 $14,781 7/95 $30,883 $16,248 10/95 $32,397 $16,916 1/96 $36,091 $18,608 4/96 $36,823 $19,242 7/96 $35,559 $18,934 10/96 $38,252 $20,988 1/97 $43,112 $23,510 4/97 $44,197 $24,073 7/97 $51,606 $28,797 9/97 $52,009 $28,668 12/97 $54,132 $29,494 3/98 $59,517 $33,663 6/98 $57,909 $34,775 9/98 $49,899 $31,316 12/98 $56,155 $37,985 3/99 $55,888 $39,877
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/99 TOTAL RETURN FROM FUND INCEPTION 3/31/99 NAV $35.65 LAST 3 MOS. 8/5/91 - ------------------------------------------------------------------ THE OAKMARK FUND -0.5% 25.2% Standard & Poor's 500 Stock Index w/inc** 5.0% 19.8% Dow Jones Industrial Average w/ inc** 7.0% 19.5% Value Line Composite Index** -6.4% 7.1%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The Dow Jones Average includes only 30 big companies. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results. REDEMPTION SONG The late great Bob Marley sang, "All I ever had ... redemption song." I can relate. When we launched The Oakmark Fund in 1991, we pledged to write meaningful quarterly letters and to keep you apprised of significant developments at The Oakmark Fund (and,subsequently, all our funds). An item I want to discuss is the high and steady level of redemption activity we have experienced over the past nine months or so. The total assets in The Oakmark Fund have declined from a high of over $9 billion in April of 1998 to less than $6 billion today, and the vast majority of that decline is due to redemptions. I want to discuss this phenomenon, how it affects management of the Fund, and how it affects the overall market. First, the redemptions we have experienced have required selling a lot of our holdings. In general, cash flows in or out, or even the size of the Fund, have little bearing on where I invest our money. For instance, whether our Fund has $1 billion or $10 billion in assets, I would have, say, seven percent invested in Nike and five percent in Eaton. The number of shares and the dollars are merely a residual. While I continue to make "real" trades--be it eliminating a holding, or buying a new one, or altering percentage holdings--in general I have met these redemptions by selling across the board. Redemptions have affected virtually every fund with a value bias. (Throughout this discussion, be advised that there are no hard and fast rules that make a fund either a "value" or "growth" fund.) According to J.P. Morgan Securities, over 98 percent of new money flowing into equity funds this year has gone to growth funds! It seems that today's mutual fund investor has become very short term in his investment endeavors, and the game seems to be dependent on the assumption that what WILL be good is what HAS been good recently. These cash flows--to the growth guys, away from the value 4 THE OAKMARK FUND ........................................................................ guys--tend to create forced selling pressure on the stocks that the "value" guys own and corresponding pressure on the stocks the "growth" guys own. This tends, of course, to create conditions that allow the growth guys to do well and the value guys to do poorly, which sets off the whole cycle again ... and again ... and again ... A key question is whether fundamentals and economics are driving these cash flows or if they are mindless. A huge amount of anecdotal evidence leads me to conclude that these flows are generally mindlessly following recent past performance and increasingly bizarre theories are concocted to rationalize them. Wall Street firms, competing for underwritings, have always been creative on this score. One theory is that the Return on Invested Capital (ROIC) is so high at the New Age companies that they deserve their stratospheric valuations. Of course, what really matters is whether it can be sustained. In my experience, excess returns attract new entrants and competitors and tend to be competed away. Another theory is that Internet firms in particular should receive lofty valuations because they require little cash investment to operate. Of course, another way to look at this feature is to focus on the very low barriers to entry facing anyone trying to compete with, say, Amazon.com. (Apparently, there is a 16-year-old in Iowa who has replicated virtually their entire system!) While I understand how frustrating our performance has been to you, and while I appreciate your patience, I actually view this cash flow phenomenon as a positive. The more investors who invest without regard to fundamentals and the more investors adopt an ever-shorter time frame, the more attractive are the opportunities for The Oakmark Fund. In fact, this is another quarter where I will reiterate that I have never been more confident of our prospective performance, particularly relative to the Standard & Poor's 500. So, while I am now singing "Redemption Song," I expect to soon be singing another song from the Marley oeuvre: "Riding High." OAKMARK: A GROWTH FUND? As I indicated above, the distinction between a value fund and a growth fund tends to be arbitrary. We have never been the sort of value investors who simply buy those stocks with the lowest price-earnings- or price-book-ratio. We prefer to buy $1 of economic value for 60 cents. A growth company at a reasonable valuation can be a value to us. This is a prelude to an assertion I often hear: "The world has changed." Today, this statement is often made by those trying to rationalize the valuations of the market leaders. Many constituents use this argument in an effort to compel me to surrender to the valuations of, say, Internet stocks. As I have written, I will never buy what I believe to be an overvalued stock in the hopes of its becoming even more over-valued. Nevertheless, while our philosophy and how we frame the investment process never changes and never will, we often change our assessments of value in response to changes in the economic landscape. The most important change in how we view businesses and their valuation versus, say, ten years ago, is how we assess market leaders versus industry also-rans. If we look at our client portfolios of ten years ago, in general they were heavily populated with statistically cheap stocks that were in either horrible businesses or were the third or fourth participant in a given industry. Now, let's look at The Oakmark Fund's ten largest holdings, which comprise almost 60 percent of the Fund's value. Within their respective industries, eight are dominant competitors (Nike, Philip Morris, Mattel, Black & Decker, Lockheed Martin, Boeing, H&R Block, and Dun & Bradstreet) and the other two (Washington Mutual, Eaton) are strong competitors in their markets. For every stock we own or monitor closely, our analysts assign a rating from 1 (best) to 5 (worst) in assessing the quality of a given company's business. A "1" business would tend to have a strong market share in a decent market, have high barriers to entry, have low technological obsolescence, and provide products and/or services that are differentiated. The average rating assigned to The Oakmark Fund's ten largest holdings is less than 2, meaning that we believe that the average quality of the business structure of our ten largest holdings is above average. Our analysts also estimate long-term growth rates for every stock. The average long-term earnings growth rate for our ten largest holdings is over 11 percent, slightly above what the market is likely to experience. So, I conclude that the bulk of our Fund, at the current time, is in superior businesses with robust growth rates. Yet, the valuation THE OAKMARK FUND 5 ........................................................................ of these holdings is significantly less than that of the Standard & Poor's 500. ... AND ON A PERSONAL NOTE This past March, actually on the ides of March, I sent you a letter describing our investment philosophy. This was in response to a lot of e-mails and letters I had received from shareholders that led me to conclude that some of our shareholders were not knowledgeable about our investment philosophy. This concerned me because I believe that shareholders who simply chase returns are bound to be disappointed. Well, I received an avalanche of letters and e-mails in response to this letter. And, I must admit it has been extremely gratifying that the vast majority of these letters has expressed knowledge and support of our investment approach. Many of you would (rightfully!) move on if we changed our philosophy. Do not worry, we will not. With the assistance of my colleague Ms. Kathy O'Keefe-Smith, I have tried to respond to all of these communications. I want to thank all who wrote. [SIGNATURE] ROBERT SANBORN Portfolio Manager rsanborn@oakmark.com April 7, 1999 6 THE OAKMARK FUND THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--95.4% FOOD & BEVERAGE--8.8% Philip Morris Companies Inc. 11,610,700 $ 408,551,506 Nabisco Holdings Corporation, Class A 2,372,100 98,590,406 -------------- 507,141,912 APPAREL--7.4% Nike, Inc., Class B 7,307,100 $ 421,528,331 RETAIL--0.2% GC Companies, Inc. (a)(b) 397,000 $ 12,480,688 HARDWARE--7.7% The Black & Decker Corporation (b) 6,840,000 $ 379,192,500 The Stanley Works 2,524,900 64,700,562 -------------- 443,893,062 OTHER CONSUMER GOODS & SERVICES--18.6% Mattel, Inc. 13,214,400 $ 328,708,200 H&R Block, Inc. (b) 6,765,500 320,515,562 Fortune Brands, Inc. 4,861,100 188,063,806 Brunswick Corporation (b) 7,280,800 138,790,250 Polaroid Corporation (b) 4,527,400 90,830,963 -------------- 1,066,908,781 BANKS & THRIFTS--9.9% Washington Mutual, Inc. 7,680,000 $ 313,920,000 Bank One Corporation 4,600,548 253,317,674 -------------- 567,237,674 INSURANCE--1.3% Old Republic International Corporation 4,122,930 $ 75,243,473 PUBLISHING--6.0% Knight Ridder, Inc. (b) 6,266,100 $ 313,305,000 R. H. Donnelley Corporation (b) 2,073,260 32,005,951 -------------- 345,310,951 INFORMATION SERVICES--8.1% The Dun & Bradstreet Corporation (b) 9,409,200 $ 335,202,750 ACNielsen Corporation (a) (b) 4,764,000 129,223,500 -------------- 464,426,250 COMPUTER SERVICES--2.1% First Data Corporation 2,873,200 $ 122,829,300 MEDICAL CENTERS--4.2% Columbia/HCA Healthcare Corporation 12,601,000 $ 238,631,437 MEDICAL PRODUCTS--1.3% Sybron International Corporation (a) 2,935,600 $ 73,390,000
THE OAKMARK FUND 7 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--95.4% (CONT.) AUTOMOTIVE--0.5% SPX Corporation (a) 538,200 $ 27,145,463 AEROSPACE & DEFENSE--9.4% Lockheed Martin Corporation 7,250,000 $ 273,234,375 The Boeing Company 7,799,400 266,154,525 -------------- 539,388,900 MACHINERY & INDUSTRIAL PROCESSING--7.9% Eaton Corporation (b) 4,179,600 $ 298,841,400 Cooper Industries, Inc. 3,558,400 151,676,800 -------------- 450,518,200 BUILDING MATERIALS & CONSTRUCTION--0.4% Juno Lighting, Inc. (b) 1,085,000 $ 24,344,688 OTHER INDUSTRIAL GOODS & SERVICES--1.6% Parker-Hannifin Corporation 1,297,600 $ 44,442,800 Bandag Incorporated, Class A 1,104,100 26,222,375 The Geon Company 971,600 22,103,900 -------------- 92,769,075 TOTAL COMMON STOCKS (COST: $5,124,581,785) 5,473,188,185 SHORT TERM INVESTMENTS--4.3% U.S. GOVERNMENT BILLS--1.3% United States Treasury Bills, 4.37%-4.70% due 4/1/1999-4/22/1999 $75,000,000 $ 74,862,917 -------------- TOTAL U.S. GOVERNMENT BILLS (COST: $74,862,917) 74,862,917 COMMERCIAL PAPER--1.7% American Express Credit Corp., 4.82%-4.84% due 4/1/1999-4/5/1999 $40,000,000 $ 40,000,000 Ford Motor Credit Corp., 4.82% due 4/6/1999 20,000,000 20,000,000 General Electric Capital Corporation, 5.00% due 4/1/1999 35,000,000 35,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $95,000,000) 95,000,000
8 THE OAKMARK FUND THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--4.3% (CONT.) REPURCHASE AGREEMENTS--1.3% State Street Repurchase Agreement, 4.88% due 4/1/1999 $73,725,000 $ 73,725,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $73,725,000) 73,725,000 TOTAL SHORT TERM INVESTMENTS (COST: $243,587,917) 243,587,917 Total Investments (Cost $5,368,169,702)--99.7% (c) $5,716,776,102 Other Assets In Excess Of Other Liabilities--0.3% 19,739,803 -------------- TOTAL NET ASSETS--100% $5,736,515,905 -------------- --------------
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At March 31, 1999, net unrealized appreciation of $348,606,400, for federal income tax purposes consisted of gross unrealized appreciation of $965,289,295 and gross unrealized depreciation of $616,682,895. THE OAKMARK FUND 9 THE OAKMARK SELECT FUND REPORT FROM BILL NYGREN, PORTFOLIO MANAGER ........................................................................ [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (3/31/99) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK SELECT FUND S & P 500 10/96 $10,000 $10,000 1/97 $12,500 $11,202 4/97 $12,250 $11,470 7/97 $15,290 $13,721 9/97 $16,340 $13,659 12/97 $17,704 $14,053 3/98 $20,078 $16,021 6/98 $20,462 $16,551 9/98 $16,936 $14,904 12/98 $20,575 $18,078 3/99 $22,766 $18,979
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/99 TOTAL RETURN FROM FUND INCEPTION 3/31/99 NAV $21.62 LAST 3 MOS. 11/1/96 - ------------------------------------------------------------------------------ THE OAKMARK SELECT FUND 10.6% 40.6% Standard & Poor's 500 Stock Index w/inc** 5.0% 30.4% Standard & Poor's MidCap 400 Index w/ inc** -6.4% 20.2% Value Line Composite Index** -6.4% 5.8%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results. The Oakmark Select Fund increased in value 10.6% during the quarter ended March 31 and 34.4% for the six month fiscal year-to-date. Both the three- and six-month numbers are substantially ahead of the benchmark indices. The largest contributor to the Fund's excellent quarter was Gucci's 66% increase. Gucci became an acquisition target and we reduced our weighting in the company as the stock price climbed in anticipation of a bidding war. Two other strong contributors, Cablevision Systems and Amgen, have been sold because their stock prices achieved (and then surpassed) our sell targets. At the end of March, the S&P 500 sold at 29 times estimated 1999 earnings, whereas the P/E multiple for The Oakmark Select Fund was 13 times, less than half the market multiple. As I have highlighted in the last two quarterly reports, I find your Fund's current relative valuation extremely compelling. PORTFOLIO TURNOVER Different investment styles lead to very different outcomes regarding portfolio turnover. Consider, at two extremes, value and momentum styles. A value approach purchases undervalued stocks, waits for the gap between price and value to close, then sells them. This style generally produces low turnover. However, in those periods when a value style is most successful, turnover will be higher as many stocks appreciate to full value and are sold. At the other extreme is a momentum style that purchases stocks that have been the recent best performers, then waits for loss of momentum (price declines) before the stock is sold. This approach generally leads to rapid turnover. However, in its most successful periods, when yesterday's winners keep going up, there is very little turnover. I have previously told you that when we purchase a stock, we expect, on average, to hold it three to five years. The important phrase is "on average." We do not manage the Fund to have a certain holding period or turnover ratio. Instead, we buy stocks we believe are selling at 60% of intrinsic value, and we sell them when they exceed 90% of intrinsic value. When stocks achieve our target sell price, we sell regardless of 10 THE OAKMARK SELECT FUND ........................................................................ how long we've held them (with the exception of monitoring the benefit of allowing gains to go long term). As long as we stick to our discipline, you should be pleased when you see high turnover because it means the market has more rapidly recognized the undervaluation in our stocks. With that as an introduction, last quarter's portfolio turnover was the highest in your Fund's relatively short history. This is a good thing. The turnover is a direct result of your Fund's stocks increasing in value more than most other stocks did. There are four new stocks in the portfolio this quarter, six since fiscal year end, as well as a new largest holding, Washington Mutual. Please take a few minutes to get reacquainted with your portfolio. Washington Mutual (symbol: WM, 3/31/99 price was approximately $41) is the largest savings and loan in the U.S. and arguably the strongest West Coast franchise. Its business is plain vanilla--collecting deposits and writing mortgages on single family homes. As a low-cost provider, WM should benefit as banking moves online. WM sells under 10 times next year's estimated earnings, and we believe that if the stock price does not increase, it will be an attractive acquisition candidate for any East Coast bank seeking a nationwide presence. Liz Claiborne (LIZ--$33) is a designer and marketer of moderately priced women's apparel. Down from a high of $58, LIZ now sells at 10 times our estimate of next year's earnings. LIZ has $4 per share in cash and no debt. Excess cash is being used to repurchase stock and also to add new apparel brands that will benefit from LIZ's strong distribution and superior cost structure. Reynolds & Reynolds (REY--$19) makes, by far, the majority of its income as the leading supplier of computer software to auto dealers. In addition, REY has a forms business where they are leaders in creating electronic access to their product. REY sells at about 11 times our estimate of next year's earnings. As an aside, REY has a joint venture with Microsoft (Carpoint.com) that uses the Internet to facilitate new car purchases. Businesses similar to Carpoint (Autoweb and Autobytel) have recently come public at very large valuations. Since Carpoint has made only a small profit (its competitors are losing money), when you think of REY as selling at 11 times earnings, you are effectively getting Carpoint for free. ThermoElectron (TMO--$14) is a collection of many small businesses, mostly in the instrumentation industry. Many of these businesses have a publicly traded minority interest. The price of TMO looks inexpensive relative to the value implied by those public interests and, in addition, it sells at only 12 times next year's earnings. Over its forty plus year history, TMO has done an excellent job creating and collecting this widely diversified group of businesses. In June, a new CEO, Dick Syron, will start the process of examining many strategic alternatives with the sole goal of maximizing the business value of TMO. Times Mirror Corporation (TMC-- $54) publishes newspapers including the L.A. TIMES and BALTIMORE SUN. TMC sells at about 15 times our estimate of next year's earnings and has a new CEO, Mark Willes, who is aggressively cutting costs and repurchasing equity. TMC sells at a cashflow multiple that is about half the multiple that has been paid in recent newspaper acquisitions. Weatherford International (WFT-- $26) is an international oilfield service provider. WFT stock traded above $70 in 1997 and troughed in the high teens last quarter (our cost is below $20). Demand for oil services is obviously dependent on oil prices and WFT stock has benefited from last month's brief rally in oil. We find WFT modestly undervalued if oil prices don't recover further and significantly undervalued if they do. U.S. Filter (USF--$31) produces water filtration equipment. Its stock peaked in late 1997 at $45 per share. We bought it in the low- to mid-$20s believing "intrinsic value" to be in the high-$30s. Last month, USF agreed to sell the company for $31.50 per share. By the time you read this, we should have received our cash. I only wish all of our "mistakes" worked out like USF did. Values such as these appear extremely compelling to us relative to the Dow at 10,000, or the S&P 500 at nearly 30 times earnings. I hope these brief descriptions help convey our excitement. Thank you for your continued support. [SIGNATURE] WILLIAM C. NYGREN Portfolio Manager bnygren@oakmark.com April 6, 1999 THE OAKMARK SELECT FUND 11 THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--93.4% APPAREL--4.4% Liz Claiborne, Inc. 2,166,600 $ 70,685,325 RETAIL--4.8% Gucci Group (b) 960,000 $ 77,280,000 OTHER CONSUMER GOODS & SERVICES--4.3% Ralston Purina Group 2,622,600 $ 69,990,637 BANKS & THRIFTS--14.5% Washington Mutual, Inc. 4,251,500 $ 173,780,062 People's Bank of Bridgeport, Connecticut 2,034,400 60,523,400 -------------- 234,303,462 INSURANCE--6.3% PartnerRe Ltd. (c) 2,523,800 $ 102,213,900 BROADCASTING & PUBLISHING--3.0% The Times Mirror Company, Class A 900,000 $ 48,656,250 INFORMATION SERVICES--4.6% The Dun & Bradstreet Corporation 2,068,600 $ 73,693,875 COMPUTER SERVICES--12.7% First Data Corporation 2,155,000 $ 92,126,250 Electronic Data Systems Corporation 1,360,900 66,258,819 The Reynolds and Reynolds Company, Class A 2,450,000 46,550,000 -------------- 204,935,069 MACHINERY & INDUSTRIAL PROCESSING--3.9% Thermo Electron Corporation (a) 4,693,500 $ 63,655,594 BUILDING MATERIALS & CONSTRUCTION--10.7% USG Corporation (d) 3,366,400 $ 172,948,800 OIL FIELD SERVICES & EQUIPMENT--4.0% Weatherford International, Inc. (a) 2,495,800 $ 65,202,775 OTHER INDUSTRIAL GOODS & SERVICES--3.6% Premark International, Inc. 1,742,600 $ 57,396,888 ENVIRONMENTAL PRODUCTS & SERVICES--4.3% United States Filter Corporation (a) 2,282,700 $ 69,907,688 REAL ESTATE--3.6% Host Marriott Corporation 5,274,863 $ 58,682,851
12 THE OAKMARK SELECT FUND THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--93.4% (CONT.) DIVERSIFIED CONGLOMERATES--8.7% U.S. Industries, Inc. (d) 8,564,000 $ 140,770,750 -------------- TOTAL COMMON STOCKS (COST: $1,433,376,963) 1,510,323,864 OTHER ASSETS--0.3% RETAIL--0.3% Gucci Group Contingencies 1,781,125 $ 4,052,059 -------------- TOTAL OTHER ASSETS (COST: $0) 4,052,059 SHORT TERM INVESTMENTS--7.1% U.S. GOVERNMENT BILLS--2.8% United States Treasury Bills, 4.37%-4.70% due 4/1/1999-4/22/1999 $45,000,000 $ 44,904,479 -------------- TOTAL U.S. GOVERNMENT BILLS (COST: $44,904,479) 44,904,479 COMMERCIAL PAPER--2.8% American Express Credit Corp., 4.82% due 4/12/1999 $5,000,000 $ 5,000,000 Ford Motor Credit Corp., 4.76%-4.82% due 4/1/1999-4/9/1999 30,000,000 30,000,000 General Electric Capital Corporation, 5.00% due 4/1/1999 10,000,000 10,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $45,000,000) 45,000,000 REPURCHASE AGREEMENTS--1.5% State Street Repurchase Agreement, 4.88% due 4/1/1999 $25,441,000 $ 25,441,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $25,441,000) 25,441,000 TOTAL SHORT TERM INVESTMENTS (COST: $115,345,479) 115,345,479 Total Investments (Cost $1,548,722,442)--100.8% (e) $1,629,721,402 Other Liabilities In Excess Of Other Assets--(0.8)% (13,264,411) -------------- TOTAL NET ASSETS--100% $1,616,456,991 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents foreign domiciled corporation. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At March 31, 1999, net unrealized appreciation of $80,998,960, for federal income tax purposes consisted of gross unrealized appreciation of $173,131,049 and gross unrealized depreciation of $92,132,089. THE OAKMARK SELECT FUND 13 THE OAKMARK SMALL CAP FUND REPORT FROM STEVEN J. REID, PORTFOLIO MANAGER ........................................................................ [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/99) AS COMPARED TO THE RUSSELL 2000 INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK SMALL CAP FUND RUSSELL 2000 10/95 $10,000 $10,000 1/96 $10,180 $10,684 4/96 $12,180 $11,841 7/96 $11,830 $10,772 10/96 $13,190 $11,661 1/97 $15,180 $12,708 4/97 $15,170 $11,848 7/97 $18,730 $14,369 9/97 $20,340 $15,774 12/97 $20,290 $15,245 3/98 $21,732 $16,779 6/98 $20,467 $15,997 9/98 $14,976 $12,774 12/98 $17,620 $14,857 3/99 $16,069 $14,051
AVERAGE ANNUAL TOTAL TOTAL RETURN* THROUGH 3/31/99 RETURN FROM FUND INCEPTION 3/31/99 NAV $13.47 LAST 3 MOS. 11/1/95 - ---------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND -8.8% 14.9% Lipper Small Cap Fund Index** -4.7% 8.0% Russell 2000 w/ inc** -5.4% 10.5% S&P Small Cap 600 w/inc** -9.0% 11.4%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Lipper Small Cap Fund Index is comprised of 30 Small Cap Funds. The Russell 2000 Index measures the performance of smaller companies, and represents approximately 10% of the total value of publicly traded companies in the U.S. The S&P 600 Index measures the performance of selected U.S. stocks with small market capitalization. Past performance is no guarantee of future results. I THOUGHT 1998 WAS ENOUGH!!! Just when it seemed it was safe to go outside, the door slammed shut. The shares of small cap companies, as well as value investing, remain under pressure. Redemptions from small cap funds have caused the liquidation of the shares of small companies, which results in selling pressure in the market for small cap stocks. According to Lipper, investors redeemed $1.9 billion and $3.5 billion from small cap funds in January and February, respectively. At the same time the vast majority of value managers are also lagging the market indices as growth companies, particularly the larger ones, are seeing their shares appreciate. While this may sound like a vicious circle of events, it also creates investment opportunity. I believe that The Oakmark Small Cap Fund's portfolio of stocks is more undervalued now than at anytime in the Fund's existence. As the portfolio manager and one of the Fund's largest individual investors, this has been a frustrating period. For the second fiscal quarter ended March 31, 1999, the Fund declined 8.8%, reducing the fiscal year return to 7.3%. Rather than offer excuses for the Fund's results, I am putting my money where my mouth is. The Oakmark Small Cap Fund represents the majority of my investable assets and I made a significant additional investment in the Fund's shares today! Believe it or not you can be struck by lightning and not get burned! In the last quarterly report I highlighted the recent purchase of the shares of Paymentech, Inc. (PTI). At the time of purchase, the shares were trading in the mid-teens. Our rationale for the investment in PTI was that the shares were currently undervalued and that over time the underlying value of PTI would grow. We also believed that consolidation in the credit card processing industry would be a logical business outcome. On March 22, Pam Patsley, President & CEO of Paymentech, and Ric Duques, Chairman & CEO of First Data Corporation (FDC), announced that FDC would acquire the publicly traded shares of PTI for $25.50 in cash. 14 THE OAKMARK SMALL CAP FUND ........................................................................ We wish Pam and Ric success in their new venture and will continue to monitor their efforts. Since the announcement of the merger we have reduced our position in PTI and have redeployed the proceeds into other investments. In this case, a little lightning did not hurt. OPPORTUNITIES I know that many of you are tired of being reminded of the opportunities we are seeing in small cap companies. However, you should be made aware of our new holdings and know that we are doing everything we can to create the most attractive portfolio for your hard earned assets. During the quarter, we added seven new companies to the Fund; some are household names, some are not. Del Monte Foods (DLM): This company is a lot more than creamed corn. New management took over DLM and re-energized the company. We expect to see an increase in operating efficiency as recent capital spending aids future profitability. DLM is the largest producer of packaged fruits and vegetables sold under the Del Monte and Contadina brand names. New marketing, packaging, and promotional efforts should increase sales and profits. Fruit of the Loom, Inc. (FTL): FTL is the largest, low-cost producer of underwear and basic knit wear. The stock has declined from $46 five years ago to less than $11 a share. The shares are trading at about six times this year's earnings and management owns 12% of the outstanding shares. These characteristics made FTL an attractive addition to our portfolio. Golden State Bancorp, Inc. (GSB): This is one of the few remaining independent bank franchises in California. It was created out of the merger of CalFed, Glenfed, and, the West Coast franchise, First Nationwide. Not only do we think the shares are undervalued, but we are very impressed with management's vision and commitment to building shareholder value. Michaels Stores, Inc. (MIKE): Michaels is the largest arts and crafts retailer in the country. This is the only company in the arts and crafts industry that has sophisticated point-of-sale systems to manage and control inventory. We expect continued double-digit growth in earnings over the next several years and find the shares to be attractive. PMI Group, Inc. (PMA): PMA is one of the top providers of mortgage insurance for home buyers that do not meet federal agency financial requirements for conforming mortgages. This is a well-run company that we have known for years. The compelling attraction to PMA is its valuation. The shares trade around stated book value, seven times this year's earnings, and at a healthy discount to liquidating value. Trammel Crow Co. (TCC): TCC is the largest U.S. property manager. They provide real estate property management, infrastructure management, and brokerage and development services. The company generates very high free cash flow and management owns over 40% of the shares. UCAR International, Inc. (UCR): This is not a household name or product. UCAR produces graphite electrodes which are essentially the consumable burner tips in electric arc steel furnaces. UCAR has the leading share in a near oligopoly. New management is busy improving the operations and the practices of the previous leadership. We view this as a very cheap stock. OUTLOOK Obviously, I don't have a crystal ball to predict the future. Value investing has a history of being in and out of favor, but over the long term it has produced excellent returns. Several pundits have suggested that value investing is dead. I wholeheartedly disagree. The current market is in a very lopsided state with a relatively small number of companies enjoying the irrational exuberance of inflated valuations. Two factors are working in our favor. First, the stocks we own are irrationally cheap and will not remain so over time. Second, there is evidence of consolidation taking place among small companies as we have seen with PTI and First Brands. It is reasonable to expect that consolidation will continue. The Oakmark Small Cap Fund is managed with a forward-looking vision, patience, and adherence to our value-oriented investment philosophy. Once again, I would like to thank everyone involved, especially our shareholders, for your support of The Oakmark Small Cap Fund. [SIGNATURE] STEVEN J. REID Portfolio Manager sreid@oakmark.com April 7, 1999 THE OAKMARK SMALL CAP FUND 15 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--97.5% FOOD & BEVERAGE--9.9% Del Monte Foods Company (a) 1,000,000 $ 13,187,500 Ralcorp Holdings, Inc. (a) 600,000 11,400,000 International Multifoods Corporation 400,000 9,325,000 Triarc Companies, Inc. (a) 500,000 8,718,750 M & F Worldwide Corp. (a) 750,000 5,250,000 -------------- 47,881,250 APPAREL--5.2% Reebok International Ltd. (a) 1,000,000 $ 15,875,000 Fruit of the Loom, Inc., Class A (a) 900,000 9,337,500 -------------- 25,212,500 RETAIL--8.7% Department 56, Inc. (a) 600,000 $ 18,262,500 Ugly Duckling Corporation (a)(c) 1,750,000 9,679,687 The Great Atlantic & Pacific Tea Company, Inc. 250,000 7,500,000 Michaels Stores, Inc. (a) 284,400 7,021,125 -------------- 42,463,312 OTHER CONSUMER GOODS & SERVICES--4.5% Libbey, Inc. 300,000 $ 9,300,000 Barry (R.G.) Corporation (a)(c) 900,000 7,875,000 Scotsman Industries, Inc. 287,000 4,932,813 -------------- 22,107,813 BANKS & THRIFTS--8.8% People's Bank of Bridgeport, Connecticut 650,000 $ 19,337,500 BankAtlantic Bancorp, Inc., Class A 1,000,001 7,062,507 Northwest Bancorp Inc. 600,000 5,550,000 Golden State Bancorp Inc. (a) 200,000 4,450,000 PennFed Financial Services, Inc. 260,000 4,160,000 Finger Lakes Financial Corp. (c) 188,000 2,138,500 -------------- 42,698,507 INSURANCE--5.4% The PMI Group, Inc. 300,000 $ 13,912,500 The MONY Group Inc. (a) 500,000 12,437,500 -------------- 26,350,000 OTHER FINANCIAL--6.1% Duff & Phelps Credit Rating Co. (c) 350,000 $ 18,331,250 ARM Financial Group, Inc., Class A 750,000 11,203,125 -------------- 29,534,375 BROADCASTING & CABLE TV--3.4% Ascent Entertainment Group, Inc. (a)(c) 1,500,000 $ 16,406,250 COMPUTER SERVICES--3.6% Symantec Corporation (a) 1,000,000 $ 16,937,500 Paymentech, Inc. (a) 27,300 644,963 -------------- 17,582,463
16 THE OAKMARK SMALL CAP FUND THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--97.5% (CONT.) COMPUTER SYSTEMS--5.0% Micron Electronics, Inc. (a) 1,500,000 $ 17,625,000 Sequent Computer Systems, Inc. (a) 750,000 6,796,875 -------------- 24,421,875 MANAGED CARE SERVICES--1.7% First Health Group Corp. (a) 500,000 $ 8,031,250 AUTOMOTIVE--5.5% SPX Corporation (a) 250,000 $ 12,609,375 Standard Motor Products, Inc. 500,000 10,343,750 Stoneridge, Inc. (a) 268,600 3,726,825 -------------- 26,679,950 TRANSPORTATION SERVICES--2.5% Teekay Shipping Corporation (b) 750,000 $ 12,375,000 MACHINERY & INDUSTRIAL PROCESSING--2.5% Northwest Pipe Company (a)(c) 400,000 $ 6,600,000 Graco, Inc. 250,000 5,515,625 -------------- 12,115,625 OTHER INDUSTRIAL GOODS & SERVICES--14.1% H.B. Fuller Company 300,000 $ 17,681,250 Columbus McKinnon Corporation (c) 700,000 14,087,500 MagneTek, Inc. (a) 1,500,000 12,562,500 Ferro Corporation 500,000 12,375,000 Watts Industries, Inc., Class A 500,000 6,781,250 Binks Sames Corporation (c) 250,000 4,625,000 UCAR International, Inc. (a) 11,500 162,437 -------------- 68,274,937 REAL ESTATE--7.2% Catellus Development Corporation (a) 1,250,000 $ 16,718,750 Prime Hospitality Corp. (a) 1,250,000 12,421,875 Trammell Crow Company (a) 308,000 5,698,000 -------------- 34,838,625 DIVERSIFIED CONGLOMERATES--3.4% U.S. Industries, Inc. 1,000,000 $ 16,437,500 -------------- TOTAL COMMON STOCKS (COST: $494,221,462) 473,411,232 SHORT TERM INVESTMENTS--2.3% COMMERCIAL PAPER--1.0% General Electric Capital Corporation, 5.00% due 4/1/1999 $5,000,000 $ 5,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $5,000,000) 5,000,000
THE OAKMARK SMALL CAP FUND 17 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--2.3% (CONT.) REPURCHASE AGREEMENTS--1.3% State Street Repurchase Agreement, 4.88% due 4/1/1999 $6,347,000 $ 6,347,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $6,347,000) 6,347,000 TOTAL SHORT TERM INVESTMENTS (COST: $11,347,000) 11,347,000 Total Investments (Cost $505,568,462)--99.8% (d) $ 484,758,232 Other Assets In Excess Of Other Liabilities--0.2% 898,742 -------------- TOTAL NET ASSETS--100% $ 485,656,974 -------------- --------------
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At March 31, 1999, net unrealized depreciation of $20,810,230, for federal income tax purposes consisted of gross unrealized appreciation of $43,456,425 and gross unrealized depreciation of $64,266,655. 18 THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND REPORT FROM CLYDE S. MCGREGOR, PORTFOLIO MANAGER ........................................................................ [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/99) AS COMPARED TO THE LIPPER BALANCED FUND INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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
AVERAGE ANNUAL TOTAL TOTAL RETURN* THROUGH 3/31/99 RETURN LAST FROM FUND INCEPTION 3/31/99 NAV $15.03 3 MOS. 11/1/95 - ---------------------------------------------------------------------- THE OAKMARK EQUITY & INCOME FUND 0.0% 16.4% Lipper Balanced Fund Index** 1.6% 16.1% Lehman Govt./ Corp. Bond** -1.2% 7.0% S&P 500 w/ inc** 5.0% 28.5%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Lipper Balanced Fund Index Composite is comprised of 30 balanced funds. The Lehman Govt./Corp. Bond Index includes the Lehman Government and Lehman Corporate indices. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. Past performance is no guarantee of future results. UNCHANGED The quarter ended March 31 produced an odd outcome for The Oakmark Equity and Income Fund: the Fund's price was unchanged over the period. This outcome is probably a good analogy for our investment approach at Harris Associates. Though the stock market's willingness to place incredible valuations on a few businesses continues to surprise us, we are not shaken (or stirred). We are confident that our reasons for owning the companies in which we have invested for our clients will stand the test of time. Fads are, by definition, short-term in nature and we are secure in our belief that much of the market's current activity is simply a fad. It is interesting, however, to note the frustration evident at several companies held in the Fund. Juno Lighting was one of my initial purchases. While a profitable investment, the stock price has never seemed to reflect the company's 15% net profit margins and its wonderful balance sheet. In the last week of the quarter, Juno's management announced that the company would offer its shareholders the opportunity to approve a public recapitalization whereby 87% of the stock would be retired at $25/share. This announcement has produced a solid increase in the price of Juno's stock, but we believe that the price would have been much higher in a different environment for smaller stocks. As I began to write this letter, one of my partners walked in to tell me a story about one of his clients. The family's magnificent house has been put up for sale at a comparatively modest price. The low price derives from the home's obscure location. Here in Chicago, the same house would sell for many times its current offering price. In real estate, the old maxim is "location, location, location." For at least the last 18 months, the same has held true in the stock market. If one's holdings were concentrated in the mega-cap or Internet "location," all has been heavenly, while other locations have stayed on the bargain table. THE OAKMARK EQUITY AND INCOME FUND 19 ........................................................................ I see no reason for this analogy to hold for long. Unlike real estate, capital is mobile and will flow quickly to higher return spaces. Furthermore, businesses are dynamic, creating and destroying value daily. Investment bankers are working overtime to bring capital into the sectors of the market which are "hot" today, thereby ensuring intense competition (and lower returns) for those sectors in the near future. Your Fund is invested in less trendy areas. But be assured that these businesses have managers who are committed to increasing their company's value per share and who perceive their shareholders to be their partners in this effort. History teaches us that investments in these kinds of companies will handsomely reward patient investors. BONDS MASQUERADING AS STOCKS For much of our country's economic history, dividends have provided half of the total return from owning common stocks. That percentage has shrunk over the last 15 years, due to the combination of unusually strong price returns to stocks and below average dividend growth. Ibbotson Associates calculates that for the period from 1925 through 1998, dividends contributed 40% of the total return to equities. Were that percentage to hold going into the future, equity investors would be sorely disappointed. With dividend yields for "the market" under 1.5% today, investors obviously expect to make almost all of their return through capital appreciation. My goal in managing The Equity and Income Fund is to produce as much income as possible without sacrificing total return to artificial and unnecessary restrictions. Unlike other income-oriented funds, Equity and Income will hold stocks that do not currently pay a dividend. In fact, more than 20% of the current equity holdings do not pay a dividend and the most important stock in the Fund's history, Lexmark International, shares that "defect." While the current group of fixed income holdings all have high cash yields, the Fund achieved its highest return in this segment through an Everen Capital issue which began its life as a "payment in kind" security. Nevertheless, I am happy to report that the schizophrenic stock market environment has begun to bring forth a good flow of attractive income-oriented ideas. In fact, the addition of several of these "bonds masquerading as stocks" to the equity portfolio has given the Fund its fully invested appearance. Real estate equities often provide some of the highest income yields, and this holds true today. The highest yielding equities in the Fund are real estate investment trusts, Legacy Hotels and Amli Residential Properties. Amli joined the portfolio in last year's second calendar quarter. I like this REIT because of management's clever use of outside capital to leverage their brand name. In addition, Amli probably has the most persistent pattern of insider buying of any entity we track. We expect regular increases in the dividend from current levels to add to the already substantial income return. Legacy Hotels, a group of Canadian hotel properties, is a more recent addition to the Fund. Selling for less than stated book value with below average leverage and rising earnings, Legacy almost defines opportunity for the income-oriented value investor. My third and final example comes from the financial services sector. IPC Holdings, along with PartnerRe, comprises the Fund's commitment to the Bermuda-based reinsurance industry. IPC specializes in reinsuring property catastrophe risk, generally the most profitable segment in the reinsurance industry. The stock sells at a discount to its stated book value and its dividend yield with year-end extra distributions should approach 10%. Several reports ago I asked, "What is a poor income manager to do?" The answer then, as now, is to continue to probe all sectors of the market while not compromising our standards. Please feel free to e-mail me with your comments, questions, or ideas for quarterly reports. [SIGNATURE] CLYDE S. MCGREGOR Portfolio Manager mcgregor@oakmark.com April 6, 1999 20 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--61.7% FOOD & BEVERAGE--2.2% UST Inc. 50,000 $ 1,306,250 OTHER CONSUMER GOODS & SERVICES--3.6% H&R Block, Inc. 33,000 $ 1,563,375 National Presto Industries, Inc. 17,000 602,437 -------------- 2,165,812 BANKS & THRIFTS--2.2% Bank One Corporation 23,674 $ 1,303,550 INSURANCE--3.2% IPC Holdings, Ltd. (b) 50,000 $ 993,750 PartnerRe Ltd. (b) 23,000 931,500 -------------- 1,925,250 OTHER FINANCIAL--2.0% Heller Financial, Inc. 50,000 $ 1,175,000 TV PROGRAMMING--2.7% AT&T Corp.-Liberty Media Group, Class A (a) 30,800 $ 1,620,850 PUBLISHING--2.1% Lee Enterprises, Inc. 43,900 $ 1,273,100 INFORMATION SERVICES--3.0% The Dun & Bradstreet Corporation 51,500 $ 1,834,688 COMPUTER SERVICES--9.7% First Data Corporation 55,000 $ 2,351,250 Electronic Data Systems Corporation 37,500 1,825,781 The Reynolds and Reynolds Company, Class A 87,500 1,662,500 -------------- 5,839,531 DATA STORAGE--4.8% Imation Corp. (a) 175,000 $ 2,887,500 MEDICAL PRODUCTS--3.2% Sybron International Corporation (a) 78,000 $ 1,950,000 AUTOMOTIVE--3.5% Lear Corporation (a) 50,000 $ 2,134,375 TRANSPORTATION SERVICES--1.5% Tidewater Inc. 35,000 $ 905,625 BUILDING MATERIALS & CONSTRUCTION--3.6% Juno Lighting, Inc. 96,300 $ 2,160,731
THE OAKMARK EQUITY AND INCOME FUND 21 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--61.7% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--3.1% Premark International, Inc. 56,500 $ 1,860,969 REAL ESTATE--9.2% Amli Residential Properties Trust 100,000 $ 2,062,500 Catellus Development Corporation (a) 137,728 1,842,112 Legacy Hotels Real Estate Investment Trust (b) 350,000 1,634,647 -------------- 5,539,259 DIVERSIFIED CONGLOMERATES--2.1% U.S. Industries, Inc. 78,000 $ 1,282,125 -------------- TOTAL EQUITY AND EQUIVALENTS (COST: $32,163,788) 37,164,615 FIXED INCOME--34.5% PREFERRED STOCK--5.7% BANKS & THRIFTS--4.9% Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 718,437 BBC Capital Trust I, Preferred, 9.50% 28,000 703,500 PennFirst Capital Trust I, Preferred, 8.625% 70,000 700,000 RBI Capital Trust I, Preferred, 9.10% 42,500 425,000 Fidelity Capital Trust I, Preferred, 8.375% 43,500 418,688 -------------- 2,965,625 BROADCASTING & CABLE TV--0.8% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 506,250 TOTAL PREFERRED STOCK (COST: $3,470,738) 3,471,875 CORPORATE BONDS--3.5% RETAIL--1.0% Ugly Duckling Corporation, 12.00% due 10/15/2003, Subordinated Debenture $650,000 $ 585,000 AEROSPACE & AUTOMOTIVE--0.3% Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 159,188 Coltec Industries, Inc., 9.75% due 11/1/1999 25,000 26,500 -------------- 185,688 BUILDING MATERIALS & CONSTRUCTION--0.3% USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B $150,000 $ 159,375 UTILITIES--0.4% Midland Funding Corporation, 11.75% due 7/23/2005 $200,000 $ 229,250
22 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------- FIXED INCOME--34.5% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--1.5% Scotsman Industries, Inc., 8.625% due 12/15/2007, Senior Subordinated Note $615,000 $ 619,612 UCAR Global Enterprises Inc., 12.00% due 1/15/2005, Senior Subordinated Note $300,000 315,750 -------------- 935,362 TOTAL CORPORATE BONDS (COST: $2,001,836) 2,094,675 GOVERNMENT AND AGENCY SECURITIES--25.3% U.S. GOVERNMENT BONDS--24.8% United States Treasury Notes, 7.50% due 5/15/2002 $7,000,000 $ 7,466,130 United States Treasury Notes, 7.875% due 11/15/2004 4,750,000 5,336,958 United States Treasury Notes, 6.25% due 2/15/2007 2,000,000 2,105,160 -------------- 14,908,248 U.S. GOVERNMENT AGENCIES--0.5% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond $300,000 $ 306,453 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $15,056,019) 15,214,701 TOTAL FIXED INCOME (COST: $20,528,593) 20,781,251 SHORT TERM INVESTMENTS--2.9% COMMERCIAL PAPER--1.7% General Electric Capital Corporation, 5.00% due 4/1/1999 $1,000,000 $ 1,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $1,000,000) 1,000,000 REPURCHASE AGREEMENTS--1.2% State Street Repurchase Agreement, 4.88% due 4/1/1999 $716,000 $ 716,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $716,000) 716,000 TOTAL SHORT TERM INVESTMENTS (COST: $1,716,000) 1,716,000 Total Investments (Cost $54,408,381)--99.1% (c) $ 59,661,866 Other Assets In Excess Of Other Liabilities--0.9% 550,352 -------------- TOTAL NET ASSETS--100% $ 60,212,218 -------------- --------------
(a) Non-income producing security. (b) Represents a foreign domiciled corporation. (c) At March 31, 1999, net unrealized appreciation of $5,253,568, for federal income tax purposes consisted of gross unrealized appreciation of $6,715,152 and gross unrealized depreciation of $1,461,584. THE OAKMARK EQUITY AND INCOME FUND 23 THE OAKMARK INTERNATIONAL FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS ........................................................................ [PHOTO] [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/99) COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK M.S. 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 $16,144 7/97 $22,960 $18,426 9/97 $23,283 $18,027 12/97 $20,097 $16,637 3/98 $22,994 $19,083 6/98 $20,253 $19,233 9/98 $16,332 $16,404 12/98 $18,688 $19,759 3/99 $21,258 $20,070
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/99 TOTAL RETURN FROM FUND INCEPTION 3/31/99 NAV $12.41 LAST 3 MOS. 9/30/92 - ------------------------------------------------------------------------ THE OAKMARK INTERNATIONAL FUND 13.8% 12.3% Morgan Stanley World ex U.S. w/inc.** 1.6% 11.3% Morgan Stanley EAFE w/ inc** 1.4% 11.3% Lipper Analytical International Fund Index** 1.3% 12.1%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Morgan Stanley World ex U.S. Index includes 19 country sub-indexes. The Morgan Stanley EAFE Free Index refers to Europe, Asia and the Far East and includes 18 country sub-indexes. The Lipper International Fund Index includes 30 mutual funds that invest in securities whose primary markets are outside the United States. Past performance is no guarantee of future results. FELLOW SHAREHOLDERS, The Oakmark International Fund had an outstanding first calendar quarter returning 13.8%. This compares to our peers and the EAFE index return of just over 1%. The average annual return since inception is 12.3%, which compares favorably to EAFE at 11.3% and our international peers averaging 12.1%. This quarter's strong return is a continuation of the Fund's rebound in performance that began in September of 1998. From the fall of 1997 to the fall of 1998, the Fund's relatively weak performance was due primarily to our strategy of increasing our investments in areas such as Hong Kong, Singapore, Brazil and Britain. Their markets performed poorly yet provided us with irresistible value. Currently, we are reaping the rewards of our patience and, what is even more exciting, the portfolio still represents excellent value and future opportunity. "TIMING" DOES NOT PAY! We have long written in this space why one should adopt the stance of an investor versus that of a trader or market timer. In terms of cash outflow from the Fund, the times of greatest discontent, as measured by shareholders leaving the fund, invariably occurs at the bottom of a cycle. During the Fund's near seven-year history, we have experienced two very weak periods, in 1994 and 1998. Near the end of each period, we experienced substantial cash outflows. Subsequently, in each case, sustained periods of strong performance followed. The result: some investors pulled out at a low point, made their paper losses 24 THE OAKMARK INTERNATIONAL FUND ........................................................................ real, and ultimately missed the subsequent huge recovery! Because of the abruptness of these cycles, DISCIPLINE is the most important characteristic for true, long-term value investors. The Fund's recent recovery has been extremely broad-based. In the developed markets, stocks such as UK advertising companies SAATCHI AND SAATCHI and CORDIANT COMMUNICATIONS GROUP (BATES ADVERTISING) have done extremely well, returning 51% and 48% respectively since the beginning of the year. In Brazil, UNIBANCO and all of our telecom stocks have soared. And in Hong Kong, one of our favorite Asian-based companies, retailer GIORDANO was up more than 60% over the last three months! When this stock was trading below HK$1.00, investors focused on its uncertain short-term prospects while ignoring its liquid balance sheet and its enviable market position, which improved every day as its competitors continued to go bankrupt. After a tremendous run, the shares are currently trading around HK$2.50, still a big discount to our estimate of business value of HK$4.00. The fact that Giordano is still significantly undervalued even after this run up gives you an idea of the bargains that were available in Asia over the past two years. THE TRUTH ABOUT CORPORATE RESTRUCTURING Today, many pundits are encouraging investors to jump into the continental European markets and, to some degree, Japan, because both areas are supposedly undertaking massive corporate restructuring plans similar to the restructuring plans of U.S. companies in the 80s and 90s. However, proponents of this theme are ignoring some major differences. First, our own corporate revolution occurred because shareholders became more proactive toward underperforming managements and larger concentrations of private pools of money took larger stakes of corporate America. Second, corporate America had the will and the legal ability to truly restructure. Taking the second point first, a lot of "restructuring" simply means closing plants, laying off people, or selling off non-performing businesses. In the U.S., this is relatively easy to do. Though it seems mean-spirited in the short term, it is an example of what economist Joseph Schumpeter called "creative destruction." In order to move forward, it becomes necessary to tear down the past. Though this can be accomplished in the United Kingdom and in some of the smaller European countries, it is extremely difficult to do in the real economic engines of Europe, such as France, Germany, and Spain. We have seen some exceptions but the fact remains that there are prohibitive economic and political costs to laying off excess workers. In many cases, investors in "restructuring stories" are underestimating the time and costs involved and are overestimating management's tenacity and ability to implement. On a more positive note, activist shareholders are starting to appear on occasion. As private pensions and the mutual fund industry take root in Europe, there is more owner pressure building. However, it's still at an early stage. From an investment perspective, true restructuring stories are more the exception than the rule. And, because of the cultural differences, it will not be a rapid transformation in some places. There have been and will continue to be extremely successful restructurings in Europe and Japan. The Oakmark International Fund has benefited greatly over the past seven years from value being unlocked in Europe by aggressive restructuring, including such standouts as Volvo, Chargeurs, Philips Electronics, and Vivendi. The important difference now is that, typically, much of the potential restructuring is already fully reflected in the share price. IN THE FUTURE ... Going forward, we remain extremely bullish about the Fund's prospects. We are excited about the value and quality of our Fund's underlying investments, and are heartened that money is starting to flow into many of the forgotten markets of the Pacific Rim, Latin America and the United Kingdom, where we are heavily invested. As always, we appreciate your continued support. [SIGNATURE] DAVID G. HERRO Portfolio Manager 72242.772@compuserve.com [SIGNATURE] MICHAEL J. WELSH Portfolio Manager 102521.2142@compuserve.com April 7, 1999 THE OAKMARK INTERNATIONAL FUND 25 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--MARCH 31, 1999 ........................................................................ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
% OF FUND NET ASSETS EUROPE 44.1% Great Britain 21.8% *France 8.3% *Finland 6.6% *Italy 3.0% Sweden 1.6% *Netherlands 1.5% Norway 0.8% *Germany 0.3% Switzerland 0.2% PACIFIC RIM 32.0% Japan 8.0% Korea 7.1% Singapore 6.9% Hong Kong 6.3% New Zealand 3.6% Malaysia 0.1% LATIN AMERICA 18.5% Brazil 10.0% Panama 4.4% Argentina 4.1% *Euro currency countries comprise 19.7% of the Fund.
26 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.6% CONSUMER NON-DURABLES--7.2% Citizen Watch Co. (Japan) Watch Manufacturer and Retailer 4,216,000 $ 29,194,950 Fila Holding S.p.A. (Italy), (b)(e) Athletic Footwear Manufacturing 2,649,800 21,860,850 The Swatch Group AG (Switzerland) Watch Manufacturer 2,000 1,273,324 -------------- 52,329,124 FOOD & BEVERAGE--5.4% Quilmes Industrial SA (Argentina), (b) Brewer 3,130,100 $ 29,540,319 Lotte Chilsung Beverage Company Manufacturer of Soft Drinks, Juices, & (Korea), (e) SportDrinks 123,000 5,212,714 Lotte Confectionery Company (Korea) Confection Manufacturer 65,270 4,782,211 -------------- 39,535,244 RETAIL--4.5% Giordano International Limited (Hong East Asian Clothing Retailer & Kong), (e) Manufacturer 69,304,000 $ 21,463,269 Somerfield plc (Great Britain) Food Retailer 2,175,000 11,149,128 -------------- 32,612,397 HOUSEHOLD PRODUCTS--0.6% Hunter Douglas N.V. (Netherlands) Manufacturer of Window Coverings 141,000 $ 4,116,316 OTHER CONSUMER GOODS & SERVICES--6.4% Canon, Inc. (Japan) Office and Video Equipment 1,097,000 $ 27,143,605 Mandarin Oriental International Hotel Management Limited (Singapore) 30,539,000 19,850,350 -------------- 46,993,955 BANKS--11.3% Uniao de Bancos Brasileiros S.A. Major Brazilian Bank (Brazil), (c) 1,801,900 $ 34,686,575 Banco Latinoamericano de Multinational Bank Exportaciones, S.A., Class E (Panama), (b)(e) 1,235,100 32,112,600 United Overseas Bank Ltd., Foreign Commercial Banking Shares (Singapore) 2,543,000 15,907,559 -------------- 82,706,734
THE OAKMARK INTERNATIONAL FUND 27 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.6% (CONT.) MARKETING SERVICES--10.0% Cordiant Communications Group plc Advertising Services (Great Britain), (e) 17,982,578 $ 46,017,088 Saatchi & Saatchi plc (Great Britain) Advertising Services 8,007,578 26,793,758 -------------- 72,810,846 BROADCASTING & PUBLISHING--5.4% Europe 1 Communication (France) Television Production 67,020 $ 16,935,149 Singapore Press Holdings Ltd., Newspaper Publisher (Singapore) 1,316,000 14,634,926 Schibsted ASA (Norway) Newspaper Publisher 500,100 5,957,426 Woongjin Publishing Company (Korea) Publisher 102,862 2,041,312 -------------- 39,568,813 TELECOMMUNICATIONS--4.8% Telesp Celular Participacoes S.A. Telecommunications (Brazil) 1,452,700,000 $ 8,207,967 SK Telecom Co. Ltd. (Korea) Telecommunications 10,706 7,102,432 Telesp Participacoes S.A. (Brazil) Telecommunications 541,100,000 7,098,979 Tele Sudeste Celular Participacoes Telecommunications S.A. (Brazil) 1,351,100,000 4,805,662 Embratel Participacoes S.A. (Brazil), Telecommunications (a) 401,100,000 3,388,886 Tele Centro Sul Participacoes S.A. Telecommunications (Brazil) 501,100,000 2,337,493 Telemig Celular Participacoes S.A. Telecommunications (Brazil), (a) 1,372,600,000 1,720,752 Technology Resources Industries Berhad Telecommunications (Malaysia) 1,485,000 515,842 -------------- 35,178,013 MEDICAL PRODUCTS--1.6% Getinge Industrier AB (Sweden) Medical Instruments Manufacturer 782,000 $ 11,521,003 AEROSPACE--2.1% Rolls-Royce plc (Great Britain) Jet Engines 3,588,552 $ 15,237,471
28 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.6% (CONT.) OIL & NATURAL GAS--1.9% ISIS (France), (a) Oil Services 208,250 $ 13,667,830 CHEMICALS--4.9% Fernz Corporation Limited (New Agricultural & Industrial Chemical Zealand), (e) Producer 8,727,554 $ 26,607,215 European Vinyls Corporation PVC Manufacturer International N.V.(Netherlands), (e) 956,199 6,927,060 Nagase & Co., Ltd. (Japan) Chemical Wholesaler 579,000 2,371,448 -------------- 35,905,723 COMPONENTS--2.0% Varitronix International Limited (Hong Liquid Crystal Displays Kong) 9,588,000 $ 14,970,617 MACHINERY & METAL PROCESSING--5.1% The Rauma Group (Finland) Pulp Machinery 2,033,343 $ 23,634,422 Outokumpu Oyj (Finland) Metal Producer 1,295,000 13,372,082 -------------- 37,006,504 MINING AND BUILDING MATERIALS--1.8% Keumkang Ltd. Building Materials (Korea), (e) 500,460 $ 13,255,868 OTHER INDUSTRIAL GOODS & SERVICES--14.2% Tomkins plc (Great Britain) Industrial Management Company 10,060,768 $ 37,115,495 Chargeurs SA (France), (e) Wool Production Holding Company 559,438 29,827,225 Charter plc (Great Britain) Welding Products Manufacturer 2,956,014 17,443,426 Kone Corporation, Class B (Finland) Elevators 103,870 10,950,164 Dongah Tire Industry Company (Korea), Tire Manufacturer (e) 166,290 5,841,156 Buderus AG (Germany), (a) Industrial Manufacturing Firm 7,000 2,263,055 -------------- 103,440,521
THE OAKMARK INTERNATIONAL FUND 29 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PAR VALUE MARKET VALUE - -------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.6% (CONT.) STEEL--1.6% Usinas Siderurgicas de Minas Gerais Steel Production S.A., Preferred Class A (Brazil), (a)(e) 6,476,370 $ 11,064,586 Pohang Iron & Steel Company Ltd. Manufactures Steel Products (Korea) 14,000 778,158 -------------- 11,842,744 DIVERSIFIED CONGLOMERATES--3.8% Tae Young Corporation (Korea), (e) Heavy Construction 371,380 $ 12,530,670 First Pacific Company Ltd. (Hong Kong) Diversified Operations 16,448,000 9,869,437 Berisford plc (Great Britain) Diversified Operations 1,510,700 5,390,244 -------------- 27,790,351 TOTAL COMMON STOCKS (COST: $829,995,438) 690,490,074 SHORT TERM INVESTMENTS--1.2% REPURCHASE AGREEMENTS--1.2% State Street Repurchase Agreement, 4.88% due 4/1/1999 $8,711,000 $ 8,711,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $8,711,000) 8,711,000 TOTAL SHORT TERM INVESTMENTS (COST: $8,711,000) 8,711,000 Total Investments (Cost $838,706,438)--95.8% (f) $699,201,074 Foreign Currencies (Proceeds $3,136,478)--0.4% $ 3,152,865 Other Assets In Excess Of Other Liabilities--3.8% (d) 27,645,330 -------------- TOTAL NET ASSETS--100% $729,999,269 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) Includes portfolio and transaction hedges. (e) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (f) At March 31, 1999, net unrealized depreciation of $139,488,976, for federal income tax purposes consisted of gross unrealized appreciation of $76,836,828 and gross unrealized depreciation of $216,325,804. 30 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS ........................................................................ [PHOTO] [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/99) AS COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE OAKMARK INTERNATIONAL M.S. 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/99 TOTAL RETURN FROM FUND INCEPTION 3/31/99 NAV $10.74 LAST 3 MOS. 11/1/95 - ------------------------------------------------------------------------ THE OAKMARK INTERNATIONAL SMALL CAP FUND 24.6% 8.3% Morgan Stanley World ex U.S. w/inc.** 1.6% 10.6% Lipper Analytical International Small Cap Fund Average** 5.0% 10.6% Micropal International Small Co. Fund Index** 5.3% 10.4%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of indexes or funds whose composition is different from the Fund. The Morgan Stanley World ex U.S. Index includes 19 country sub-indexes. The Lipper International Small Cap Fund Average includes 69 mutual funds that invest in securities whose primary markets are outside the United States. The Micropal Int'l Small Co. Fund Index sector average is an unweighted index comprised of all funds within the international small company fund sector. Past performance is no guarantee of future results. FELLOW SHAREHOLDERS, We are pleased to report that The Oakmark International Small Cap Fund has produced a return of 24.6% for the first quarter of 1999. This compares very favorably to our peers, which on average returned around 3%. The Morgan Stanley Small Cap World ex-US index returned 2.8%. This performance is a continuation of the strong rebound from a weak period, which ended in the third quarter of 1998. Since the end of the one-year "drought" in September, 1998, your Fund is up over 59%. Though this rate of appreciation is not sustainable, we remain very enthusiastic about the future of this Fund and the underlying value. DEATH TO DIVERSIFICATION??? On a recent trip to the west coast of the U.S., we met with investment advisors to discuss the great opportunities we are finding for our international funds. While our remarks were well received, the advisors were not eager to invest. Why? Because, we were told, their clients, now are only interested in what has been hot over the last few years-- U.S. big cap, growth and technology stocks. We warn our clients against this type of thinking. Remember, past performance is not always a good indicator of future performance. A rowboat capsizes when all of its passengers lean in the same direction and we have seen the same happen in investment markets. When the majority of investors flee from emerging markets, foreign markets, U.S. small caps and U.S. value stocks, long-term investors THE OAKMARK INTERNATIONAL SMALL CAP FUND 31 ........................................................................ should start investigating opportunities. Do not fall into the trap of investing in an asset class because it has performed well in the recent past or because everyone else is doing it. As shown by our Fund's recent performance, recovery can happen when it is least expected. We are constantly asked about our short-term market outlook, and our answer is always the same: we gauge our optimism about future prospects solely on the values we are finding in the markets. As value investors, we are convinced that price and value converge in the long run, but it is the timing that is often uncertain. Based on the value of companies in the portfolio today, we are extremely optimistic that long-term investors will do well. "SCARY" EMERGING MARKETS? Another theme in the investment world today is that it is the riskiness of investing in emerging markets. This line of thinking completely ignores a factor near and dear to our hearts: PRICE. In the maximum bullishness of 1993, prices told you that market growth was limitless. In the days of extreme pessimism in 1997-98, share prices implied that markets in Asia and Latin America would never grow again. What do current share prices tell us about expectations? Emerging markets went from "dot.com" euphoria status to shunned pariah in five years. Investors must remember that it is the price you pay for a business that is the biggest determinant of the risk you are taking. As we have written before, the destruction in the emerging markets over the past two years has produced some extremely positive long-term changes, the most important of which is that these markets are now more open than ever and less controlled by political powers. The extremely attractive long-term demographic trends and growth opportunities are still intact--companies can now take advantage of these opportunities from a more solid, sustainable base. And, best of all, we can still buy these companies at fractions of what they were selling for five years ago! It is important to note, as we have in the past, that the share prices of many emerging market companies (especially in Asia) deserved the beating they took. Poor underlying businesses, bad balance sheets, and weak management are some of the reasons. It is our job as analysts to find the ones that did not deserve it. One of your Fund's largest holdings, HAW PAR, is one such company. It is a holding company that has some leisure businesses but is best known for its analgesic rub, "Tiger Balm" (we encourage you to try it for aches and pains--it works). Its largest asset is a large stake in UNITED OVERSEAS BANK, one of Singapore's best run financial institutions (and a holding of The Oakmark International Fund). Though it appreciated in price over the last 6 months, UOB is still considerably cheaper than most European banks and, in our opinion, is a significantly better bank. It was not hoodwinked by BCCI, Russian government debt, Long-Term Capital Management or any of the other disasters du jour that European banks are so famous for collecting. And, even in a period of strong asset deflation, their loan loss experience has been very manageable. Even better for shareholders of International Small Cap, the large appreciation in UOB's share price has really yet to be recognized by the market in terms of Haw Par's share price. LOOKING FORWARD Despite the nice price appreciation the Fund has experienced in the past few quarters, we are still very excited about the values that have yet to be recognized. We appreciate your continued support. [SIGNATURE] DAVID G. HERRO Portfolio Manager 72242.772@compuverve.com [SIGNATURE] MICHAEL J. WELSH Portfolio Manager 102521.2142@compuserve.com April 7, 1999 32 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--MARCH 31, 1999 ........................................................................ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
% OF FUND NET ASSETS PACIFIC RIM 48.8% Japan 12.8% Hong Kong 9.1% Australia 7.1% Korea 6.5% Singapore 4.6% New Zealand 4.1% Thailand 2.4% Philippines 2.2% EUROPE 34.4% Great Britain 24.6% *France 5.2% *Germany 2.7% Switzerland 1.3% *Finland 0.4% Poland 0.1% *Portugal 0.1% LATIN AMERICA 4.7% Brazil 3.9% Panama 0.8% OTHER COUNTRIES 2.2% Canada 2.2% *Euro currency countries comprise 8.4% of the Fund.
THE OAKMARK INTERNATIONAL SMALL CAP FUND 33 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.1% CONSUMER NON-DURABLES--6.2% Royal Doulton plc (Great Britain), (d) Tableware and Giftware 2,940,000 $ 4,461,831 TAG Heuer International SA Watch Manufacturer (Switzerland), (b) 154,700 1,295,613 Designer Textiles (NZ) Limited (New Knit Fabrics Zealand), (d) 2,960,000 490,778 Kingmaker Footwear Holdings (Hong Athletic Footwear Manufacturer Kong) 484,000 58,708 -------------- 6,306,930 FOOD & BEVERAGE--5.0% Hite Brewery Company (Korea) Brewer 157,450 $ 2,797,400 Alaska Milk Corporation (Philippines), Milk Producer (a) 39,557,000 2,245,817 -------------- 5,043,217 RETAIL--15.1% Carpetright plc (Great Britain) Carpet Retailer 770,000 $ 4,438,098 House Of Fraser Plc (Great Britain) Department Store 2,810,000 3,561,344 D.F.S. Furniture Company plc (Great Furniture Retailer & Manufacturer Britain) 570,000 2,374,283 Dylex Limited (Canada), (a) Specialty Retail Operator 845,000 2,267,141 Giordano International Limited (Hong East Asian Clothing Retailer & Kong) Manufacturer 4,312,000 1,335,415 Paris Miki Inc. (Japan) Optical Supplies Retailer 22,000 743,149 Jusco Stores (Hong Kong) Co., Limited Department Stores (Hong Kong) 6,412,000 604,008 -------------- 15,323,438 OFFICE EQUIPMENT--3.7% Neopost SA (France), (a) Mailroom Equipment Supplier 230,000 $ 3,705,442 OTHER CONSUMER GOODS & SERVICES--5.6% CDL Hotels International Limited (Hong Hotel Operator Kong) 6,996,691 $ 2,166,857 CeWe Color Holding AG (Germany) Photo Equipment & Supplies 10,400 1,956,629 Sanford Limited (New Zealand) Fisheries 769,840 1,502,884 -------------- 5,626,370
34 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.1% (CONT.) BANKS--0.8% Banco Latinoamericano de Multinational Bank Exportaciones, S.A., Class E (Panama), (b) 31,000 $ 806,000 OTHER FINANCIAL--9.3% Ichiyoshi Securities (Japan) Stock Broker 1,787,000 $ 4,029,295 JCG Holdings Ltd. (Hong Kong) Investment Holding Company 12,463,000 3,538,112 Lambert Fenchurch Group plc (Great Insurance Broker Britain) 1,696,000 1,875,661 -------------- 9,443,068 COMPUTER SOFTWARE--6.9% Koei Co., Ltd. (Japan) Computer Software 291,700 $ 3,645,788 Enix Corporation (Japan) Entertainment Software 87,900 3,325,525 -------------- 6,971,313 COMPUTER SYSTEMS--4.9% Solution 6 Holdings Limited Systems Design & Consulting (Australia), (a)(d) 2,950,893 $ 4,584,707 Solution 6 Holdings Limited Rights Systems Design & Consulting (Australia), (a)(d) 1,475,446 421,044 -------------- 5,005,751 MARKETING SERVICES--3.1% Cordiant Communications Group plc Advertising Services (Great Britain) 1,228,500 $ 3,143,709 BROADCASTING & PUBLISHING--4.0% Matichon Public Company Limited, Newspaper Publisher Foreign Shares (Thailand), (d) 2,038,900 $ 2,402,378 Woongjin Publishing Company (Korea) Publisher 83,159 1,650,303 Matichon Public Company Limited Newspaper Publisher (Thailand) 600 707 -------------- 4,053,388 TELECOMMUNICATIONS--0.5% SK Telecom Co. Ltd. (Korea) Telecommunications 827 $ 548,637 OIL & NATURAL GAS--0.6% ISIS (France), (a) Oil Services 8,900 $ 584,124
THE OAKMARK INTERNATIONAL SMALL CAP FUND 35 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.1% (CONT.) MACHINERY & METAL PROCESSING--1.2% Denyo Co., Ltd. (Japan) Welding Machines & Power Generators 184,000 $ 1,204,239 MINING AND BUILDING MATERIALS--2.3% Parbury Limited (Australia), (d) Building Products 12,517,553 $ 2,222,642 Semapa-Sociedade de Investimento e Cement Manufacturer Gestao, SGPS,SA (Portugal) 5,000 86,878 -------------- 2,309,520 OTHER INDUSTRIAL GOODS & SERVICES--7.5% Elevadores Atlas S.A. (Brazil) Elevator Manufacturer 378,200 $ 3,969,446 Yip's Hang Cheung Ltd. (Hong Kong), Paint & Solvent Manufacturer (d) 31,502,000 1,544,714 Dongah Tire Industry Company (Korea), Tire Manufacturer (a) 43,900 1,542,046 Vaisala OY (Finland) Atmospheric Observation Equipment 5,300 383,952 Polifarb Cieszyn- Wroclaw S.A. Paint & Varnish Manufacturer (Poland) 100,000 142,678 -------------- 7,582,836 PRODUCTION EQUIPMENT--1.7% NSC Groupe (France) Manufacturer of Textile Equipment 11,532 $ 978,814 Krones AG (Germany), (a) Manufacturer of Production Machinery 29,700 767,503 -------------- 1,746,317 STEEL--2.1% Steel & Tube Holdings Ltd. (New Produces and Distributes Steel Zealand) 2,434,400 $ 2,109,303 DIVERSIFIED CONGLOMERATES--9.6% Haw Par Corporation Limited Healthcare and Leisure Products (Singapore) 3,764,000 $ 4,687,286 TT Group PLC (Great Britain) Diversified Manufacturing 1,200,000 3,419,510 Wassall PLC (Great Britain) Diversified Consumer Goods 470,000 1,635,246 -------------- 9,742,042 TOTAL COMMON STOCKS (COST: $88,077,263) 91,255,644
36 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1999 (UNAUDITED) CONT. ........................................................................
PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS--12.5% U.S. GOVERNMENT BILLS--5.9% United States Treasury Bills, 4.68%-4.80% due 4/22/1999 $6,000,000 $ 5,983,480 -------------- TOTAL U.S. GOVERNMENT BILLS (COST: $5,983,480) 5,983,480 COMMERCIAL PAPER--4.9% American Express Credit Corporation, 4.82%-4.84% due 4/1/1999-4/5/1999 $1,500,000 $ 1,500,000 Ford Motor Credit Corp., 4.82%-4.89% due 4/6/1999-4/12/1999 2,500,000 2,500,000 General Electric Capital Corporation, 5.00% due 4/1/1999 1,000,000 1,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $5,000,000) 5,000,000 REPURCHASE AGREEMENTS--1.7% State Street Repurchase Agreement, 4.88% due 4/1/1999 $1,703,000 $ 1,703,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $1,703,000) 1,703,000 TOTAL SHORT TERM INVESTMENTS (COST: $12,686,480) 12,686,480 Total Investments (Cost $100,763,743)--102.6% (e) $ 103,942,124 Foreign Currencies (Proceeds $3,347)--(0.0)% 3,368 Other Liabilities In Excess Of Other Assets--(2.6)% (c) (2,666,830) -------------- TOTAL NET ASSETS--100% $ 101,278,662 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Includes portfolio and transaction hedges. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At March 31, 1999, net unrealized appreciation of $3,178,401, for federal income tax purposes consisted of gross unrealized appreciation of $15,167,423 and gross unrealized depreciation of $11,989,022. THE OAKMARK INTERNATIONAL SMALL CAP FUND 37 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--MARCH 31, 1999 ........................................................................
THE OAKMARK THE OAKMARK SELECT FUND FUND ---------------------- ---------------------- - ----------------------------------------------------------------------------------- ASSETS Investments, at value $5,716,776,102 $1,629,721,402 (cost: 5,368,169,702) (cost: 1,548,722,442) Cash 659 651 Foreign currency, at value 0 0 Receivable for: Forward foreign currency contracts 0 0 Securities sold 26,560,169 0 Fund shares sold 2,519,119 2,763,418 Dividends and interest 13,514,355 1,866,764 Expense reimbursement 0 0 ---------------------- ---------------------- Total receivables 42,593,643 4,630,182 Other assets 156,740 30,166 ---------------------- ---------------------- Total assets $5,759,527,144 $1,634,382,401 ---------------------- ---------------------- ---------------------- ---------------------- ................................................................................... LIABILITIES AND NET ASSETS Payable for: Securities purchased 0 14,109,761 Fund shares redeemed 16,564,437 2,110,873 Due to adviser 4,765,865 1,248,472 Forward foreign currency contracts 0 0 Other 1,680,937 456,304 ---------------------- ---------------------- Total liabilities 23,011,239 17,925,410 ---------------------- ---------------------- Net assets applicable to fund shares outstanding $5,736,515,905 $1,616,456,991 ---------------------- ---------------------- ---------------------- ---------------------- Fund shares outstanding 160,902,730 74,760,952 ---------------------- ---------------------- ---------------------- ---------------------- ................................................................................... PRICE OF SHARES Net asset value per share $ 35.65 $ 21.62 ---------------------- ---------------------- ---------------------- ---------------------- ................................................................................... ANALYSIS OF NET ASSETS Paid in capital $4,580,091,836 $1,193,414,387 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 785,349,749 333,459,399 Net unrealized appreciation (depreciation) of investments 348,606,400 80,998,960 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 Net unrealized appreciation (depreciation)--other 0 0 Accumulated undistributed net investment income (loss) 22,467,920 8,584,245 ---------------------- ---------------------- Net assets applicable to Fund shares outstanding $5,736,515,905 $1,616,456,991 ---------------------- ---------------------- ---------------------- ----------------------
38 THE OAKMARK FAMILY OF FUNDS ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL FUND INCOME FUND FUND SMALL CAP FUND ---------------------- ---------------------- ---------------------- ---------------------- - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value $ 484,758,232 $ 59,661,949 $ 699,201,074 $ 103,942,124 (cost: 505,568,462) (cost: 54,408,381) (cost: 838,706,438) (cost: 100,763,743) Cash 105 57 219 82 Foreign currency, at value 0 0 3,152,865 3,368 Receivable for: Forward foreign currency contracts 0 0 8,315,529 999,808 Securities sold 3,597,360 250,507 22,341,159 261,048 Fund shares sold 284,476 7,418 2,028,971 815,310 Dividends and interest 230,230 537,647 8,067,611 484,833 Expense reimbursement 0 0 0 0 ---------------------- ------------ ---------------------- ---------------------- Total receivables 4,112,066 795,572 40,753,270 2,560,999 Other assets 21,729 3,511 19,661 3,679 ---------------------- ------------ ---------------------- ---------------------- Total assets $ 488,892,132 $ 60,461,089 $ 743,127,089 $ 106,510,252 ---------------------- ------------ ---------------------- ---------------------- ---------------------- ------------ ---------------------- ---------------------- ................................................................................................................................. LIABILITIES AND NET ASSETS Payable for: Securities purchased 2,405,950 132,800 7,157,165 4,570,943 Fund shares redeemed 0.00 19,896 3,828,193 472,676 Due to adviser 555,725 37,144 586,831 78,878 Forward foreign currency contracts 0 0 57,770 267 Other 273,483 59,031 1,497,861 108,826 ---------------------- ------------ ---------------------- ---------------------- Total liabilities 3,235,158 248,871 13,127,820 5,231,590 ---------------------- ------------ ---------------------- ---------------------- Net assets applicable to fund shares outstanding $ 485,656,974 $ 60,212,218 $ 729,999,269 $ 101,278,662 ---------------------- ------------ ---------------------- ---------------------- ---------------------- ------------ ---------------------- ---------------------- Fund shares outstanding 36,044,548 4,005,126 58,801,836 9,428,517 ---------------------- ------------ ---------------------- ---------------------- ---------------------- ------------ ---------------------- ---------------------- ................................................................................................................................. PRICE OF SHARES Net asset value per share $ 13.47 $ 15.03 $ 12.41 $ 10.74 ---------------------- ------------ ---------------------- ---------------------- ---------------------- ------------ ---------------------- ---------------------- ................................................................................................................................. ANALYSIS OF NET ASSETS Paid in capital $ 504,505,329 $ 50,758,005 $ 860,052,071 $ 100,484,054 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 9,868,667 3,265,621 (28,016,663) (3,840,371) Net unrealized appreciation (depreciation) of investments (20,810,230) 5,253,568 (139,488,976) 3,178,401 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 8,294,591 994,168 Net unrealized appreciation (depreciation)--other 0 0 (649,895) 81 Accumulated undistributed net investment income (loss) (7,906,792) 935,024 29,808,141 462,329 ---------------------- ------------ ---------------------- ---------------------- Net assets applicable to Fund shares outstanding $ 485,656,974 $ 60,212,218 $ 729,999,269 $ 101,278,662 ---------------------- ------------ ---------------------- ---------------------- ---------------------- ------------ ---------------------- ----------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 39 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--MARCH 31, 1999 ........................................................................
THE OAKMARK THE OAKMARK SELECT FUND FUND ---------------------- ---------------------- - ----------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 61,658,308 $ 14,689,387 Interest Income 10,212,951 3,756,519 Securities lending income 0 75,764 Foreign taxes withheld (126,816) 0 ---------------------- ---------------------- Total investment income 71,744,443 18,521,670 ................................................................................... EXPENSES: Investment advisory fee 32,785,403 6,838,371 Transfer and dividend disbursing agent fees 1,903,989 464,312 Other shareholder servicing fees 1,605,504 386,486 Reports to shareholders 957,714 228,052 Custody and accounting fees 375,316 94,186 Registration fees, net of reimbursements 7,228 12,479 Trustee fees 92,991 33,730 Legal fees 36,689 16,421 Audit fees 15,597 16,550 Other 325,041 59,108 ---------------------- ---------------------- Total expenses 38,105,472 8,149,695 Expense reinbursement Expense offset arrangements (1,795) (2,303) ---------------------- ---------------------- Net expenses 38,103,677 8,147,392 ---------------------- ---------------------- ................................................................................... NET INVESTMENT INCOME (LOSS): 33,640,766 10,374,278 ................................................................................... NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 734,073,485 316,560,438 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 33,887,254 72,226,050 Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 Net change in appreciation (depreciation)--other 0 0 ---------------------- ---------------------- ................................................................................... NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: 767,960,739 388,786,488 ---------------------- ---------------------- ................................................................................... NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 801,601,505 $ 399,160,766 ---------------------- ---------------------- ---------------------- ----------------------
40 THE OAKMARK FAMILY OF FUNDS ........................................................................
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK SMALL CAP EQUITY AND INTERNATIONAL INTERNATIONAL FUND INCOME FUND FUND SMALL CAP FUND ---------------------- ---------------------- ---------------------- ---------------------- - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 2,909,841 $ 532,325 $ 13,996,787 $ 996,019 Interest Income 728,907 600,769 563,929 91,675 Securities lending income 33,811 6,921 114,999 1,798 Foreign taxes withheld 0 (6,941) (2,136,341) (104,546) ------------ ----------- ---------------------- ------------ Total investment income 3,672,559 1,133,074 12,539,374 984,946 ................................................................................................................................. EXPENSES: Investment advisory fee 4,070,715 229,768 3,774,106 398,517 Transfer and dividend disbursing agent fees 287,986 32,856 326,251 30,623 Other shareholder servicing fees 144,456 8,008 138,512 13,016 Reports to shareholders 122,962 14,820 165,427 16,391 Custody and accounting fees 58,323 24,257 432,012 76,482 Registration fees, net of reimbursements (105,245) 10,388 (44,514) 12,111 Trustee fees 24,858 18,586 26,294 18,724 Legal fees 10,055 7,898 10,629 7,943 Audit fees 14,050 13,550 16,644 15,597 Other 34,666 3,905 37,749 3,937 ------------ ----------- ---------------------- ------------ Total expenses 4,662,826 364,036 4,883,110 593,341 Expense reinbursement Expense offset arrangements (3,976) (18) (347) (101) ------------ ----------- ---------------------- ------------ Net expenses 4,658,850 364,018 4,882,763 593,240 ------------ ----------- ---------------------- ------------ ................................................................................................................................. NET INVESTMENT INCOME (LOSS): (986,291) 769,056 7,656,611 391,706 ................................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 8,177,983 3,094,125 (31,108,797) (2,097,425) Net realized gain (loss) on foreign currency transactions 0 (1,160) 3,371,071 (108,363) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 45,284,187 2,121,224 209,375,178 32,074,881 Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 9,810,143 1,173,225 Net change in appreciation (depreciation)--other 0 0 (848,679) (5,802) ------------ ----------- ---------------------- ------------ ................................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: 53,462,170 5,214,189 190,598,916 31,036,516 ------------ ----------- ---------------------- ------------ ................................................................................................................................. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 52,475,879 $ 5,983,245 $ 198,255,527 $ 31,428,222 ------------ ----------- ---------------------- ------------ ------------ ----------- ---------------------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 41 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 1999 ........................................................................
THE OAKMARK FUND ------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 1999 SEPTEMBER 30, 1998 - --------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 33,640,766 $ 94,480,595 Net realized gain (loss) on sale of investments 734,073,485 1,258,937,339 Net realized gain (loss) on foreign currency transactions -- (8,898) Net change in unrealized appreciation (depreciation) 33,887,254 (1,704,966,868) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 801,601,505 (351,557,832) ............................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income (89,027,299) (66,321,023) Net realized short-term gain (128,028,090) (25,210,618) Net realized long-term gain (195,968,414) (1,098,260,243) ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (413,023,803) (1,189,791,884) ............................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 525,301,024 2,836,315,983 Reinvestment of dividends and capital gain distributions 391,286,661 1,133,761,068 Payments for shares redeemed (2,492,607,364) (2,119,718,081) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (1,576,019,679) 1,850,358,970 ---------------------- ---------------------- ............................................................................................. TOTAL INCREASE IN NET ASSETS (1,187,441,977) 309,009,254 NET ASSETS: Beginning of period 6,923,957,882 6,614,948,628 ---------------------- ---------------------- End of period $5,736,515,905 $6,923,957,882 ---------------------- ---------------------- ---------------------- ---------------------- Undistributed net investment income $ 22,467,920 $ 77,854,452 ---------------------- ---------------------- ---------------------- ---------------------- * DISTRIBUTIONS PER SHARE: Net investment income 0.4401 0.3996 Net realized short-term gain 0.6329 0.1519 Net realized long-term gain 0.9686 5.8556 ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 2.0416 $ 6.4071 ---------------------- ---------------------- ---------------------- ----------------------
42 THE OAKMARK FAMILY OF FUNDS ........................................................................
THE OAKMARK SELECT FUND ------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 1999 SEPTEMBER 30, 1998 - --------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 10,374,278 $ 1,948,524 Net realized gain (loss) on sale of investments 316,560,438 69,415,172 Net realized gain (loss) on foreign currency transactions -- -- Net change in unrealized appreciation (depreciation) 72,226,050 (78,902,257) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 399,160,766 (7,538,561) ............................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income (3,491,671) -- Net realized short-term gain (497,653) (6,882,359) Net realized long-term gain (50,206,634) -- ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (54,195,958) (6,882,359) ............................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 348,812,227 1,440,695,723 Reinvestment of dividends and capital gain distributions 51,669,470 6,568,333 Payments for shares redeemed (356,883,900) (719,123,322) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 43,597,797 728,140,734 ---------------------- ---------------------- ............................................................................................. TOTAL INCREASE IN NET ASSETS 388,562,605 713,719,814 NET ASSETS: Beginning of period 1,227,894,386 514,174,572 ---------------------- ---------------------- End of period $1,616,456,991 $1,227,894,386 ---------------------- ---------------------- ---------------------- ---------------------- Undistributed net investment income $ 8,584,245 $ 1,701,638 ---------------------- ---------------------- ---------------------- ---------------------- * DISTRIBUTIONS PER SHARE: Net investment income 0.0491 -- Net realized short-term gain 0.0070 0.1678 Net realized long-term gain 0.7058 -- ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.7619 $ 0.1678 ---------------------- ---------------------- ---------------------- ----------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 43 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 1999 CONT. ........................................................................
THE OAKMARK SMALL CAP FUND ------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 1999 SEPTEMBER 30, 1998 - --------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ (986,291) $ (4,959,862) Net realized gain (loss) on sale of investments 8,177,983 124,757,914 Net realized gain (loss) on foreign currency transactions -- -- Net change in unrealized appreciation (depreciation) 45,284,187 (374,056,372) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 52,475,879 (254,258,320) ............................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income -- -- Net realized short-term gain -- (35,041,133) Net realized long-term gain (4,511,716) (129,772,888) ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,511,716) (164,814,021) ............................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 173,080,077 416,817,749 Reinvestment of dividends and capital gain distributions 4,282,238 156,645,973 Payments for shares redeemed (357,664,266) (1,049,792,259) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (180,301,951) (476,328,537) ---------------------- ---------------------- ............................................................................................. TOTAL INCREASE IN NET ASSETS (132,337,788) (895,400,878) NET ASSETS: Beginning of period 617,994,762 1,513,395,640 ---------------------- ---------------------- End of period $ 485,656,974 $ 617,994,762 ---------------------- ---------------------- ---------------------- ---------------------- Undistributed net investment income $ (7,906,792) $ (6,920,502) ---------------------- ---------------------- ---------------------- ---------------------- * DISTRIBUTIONS PER SHARE: Net investment income -- -- Net realized short-term gain -- 0.4738 Net realized long-term gain 0.0874 2.3874 ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.0874 $ 2.8612 ---------------------- ---------------------- ---------------------- ----------------------
44 THE OAKMARK FAMILY OF FUNDS ........................................................................
THE OAKMARK EQUITY AND INCOME FUND ------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 1999 SEPTEMBER 30, 1998 - --------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 769,056 $ 1,166,564 Net realized gain (loss) on sale of investments 3,094,125 1,578,730 Net realized gain (loss) on foreign currency transactions (1,160) -- Net change in unrealized appreciation (depreciation) 2,121,224 (2,325,892) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 5,983,245 419,402 ............................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income (855,395) (594,007) Net realized short-term gain -- (882,071) Net realized long-term gain (829,557) (599,021) ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,684,952) (2,075,099) ............................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 13,810,491 43,125,943 Reinvestment of dividends and capital gain distributions 1,610,146 1,964,129 Payments for shares redeemed (17,252,567) (19,151,033) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (1,831,930) 25,939,039 ---------------------- ---------------------- ............................................................................................. TOTAL INCREASE IN NET ASSETS 2,466,363 24,283,342 NET ASSETS: Beginning of period 57,745,855 33,462,513 ---------------------- ---------------------- End of period $ 60,212,218 $ 57,745,855 ---------------------- ---------------------- ---------------------- ---------------------- Undistributed net investment income $ 935,024 $ 1,021,363 ---------------------- ---------------------- ---------------------- ---------------------- * DISTRIBUTIONS PER SHARE: Net investment income 0.2118 0.2359 Net realized short-term gain -- 0.3503 Net realized long-term gain 0.2053 0.2379 ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.4171 $ 0.8241 ---------------------- ---------------------- ---------------------- ----------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 45 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 1998 CONT. ........................................................................
THE OAKMARK INTERNATIONAL FUND ------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 1999 SEPTEMBER 30, 1998 - --------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 7,656,611 $ 23,809,423 Net realized gain (loss) on sale of investments (31,108,797) 86,532,713 Net realized gain (loss) on foreign currency transactions (3,890,444) (108,363) Net change in unrealized appreciation (depreciation) 209,375,178 (502,914,491) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 9,773,311 (2,045,738) Net change in unrealized appreciation (depreciation)--other (811,847) 195,384 ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 198,255,527 (398,313,153) ............................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (16,587,329) (46,460,573) Net realized short-term gain (32,678,201) (57,985,224) Net realized long-term gain (20,071,535) (173,099,244) ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (69,337,065) (277,545,041) ............................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 103,602,841 482,976,228 Reinvestment of dividends and capital gain distributions 65,429,007 263,415,429 Payments for shares redeemed (324,055,349) (961,776,686) ---------------------- ---------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (155,023,501) (215,385,029) ---------------------- ---------------------- ............................................................................................. TOTAL INCREASE IN NET ASSETS (26,105,039) (891,243,223) NET ASSETS: Beginning of period 756,104,308 1,647,347,531 ---------------------- ---------------------- End of period $ 729,999,269 $ 756,104,308 ---------------------- ---------------------- ---------------------- ---------------------- Undistributed net investment income $ 29,808,142 $ 38,738,859 ---------------------- ---------------------- ---------------------- ---------------------- (1): DISTRIBUTIONS PER SHARE: Net investment income 0.2440 0.5758 Net realized short-term gain 0.4807 0.7186 Net realized long-term gain 0.2953 2.1453 ---------------------- ---------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.0200 $ 3.4397 ---------------------- ---------------------- ---------------------- ----------------------
46 THE OAKMARK FAMILY OF FUNDS ........................................................................
THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MARCH 31, 1999 SEPTEMBER 30, 1998 - --------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 391,706 $ 1,415,157 Net realized gain (loss) on sale of investments (2,097,425) (96,290) Net realized gain (loss) on foreign currency transactions (108,363) (162,499) Net change in unrealized appreciation (depreciation) 32,074,882 (27,728,327) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 1,178,598 (179,057) Net change in unrealized appreciation (depreciation)--other (11,175) 2,414 ------------ ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS 31,428,222 (26,748,602) ............................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (1,558,452) (308,015) Net realized short-term gain -- (3,477,982) Net realized long-term gain -- (3,890,139) ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,558,452) (7,676,136) ............................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 50,793,315 77,339,314 Reinvestment of dividends and capital gain distributions 1,468,342 7,427,846 Payments for shares redeemed (32,623,340) (64,544,647) ------------ ------------ NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 19,638,317 20,222,513 ------------ ------------ ............................................................................................. TOTAL INCREASE IN NET ASSETS 49,508,087 (14,202,225) NET ASSETS: Beginning of period 51,770,575 65,972,800 ------------ ------------ End of period $ 101,278,662 $ 51,770,575 ------------ ------------ ------------ ------------ Undistributed net investment income $ 462,329 $ 1,629,074 ------------ ------------ ------------ ------------ (1): DISTRIBUTIONS PER SHARE: Net investment income 0.2049 0.0559 Net realized short-term gain -- 0.6312 Net realized long-term gain -- 0.7060 ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2049 $ 1.3931 ------------ ------------ ------------ ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 47 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS ........................................................................ 1. SIGNIFICANT ACCOUNTING POLICIES The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. SECURITY VALUATION-- Investments are stated at current value. Securities traded on securities exchanges and securities traded on the NASDAQ National Market are valued at the last sales price on the day of valuation, or if lacking any reported sales that day, at the most recent bid quotation. Over-the-counter securities not so traded are valued at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the date of valuation are valued on an amortized cost basis which approximates market value. Securities for which quotations are not readily available are valued at a fair value as determined by the Pricing Committee appointed by the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS-- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. At March 31, 1999, only the International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:
INT'L INTERNATIONAL SMALL CAP - ----------------------------------------------------------------------------------------- Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $(777,048) $ 343 Unrealized appreciation (depreciation) on open securities purchases and sales 51,704 (5,558) Unrealized appreciation (depreciation) on transaction hedge purchases and sales (36,832) 5,373 Unrealized appreciation (depreciation) on tax expense payable 112,281 (77) --------------- ------ Net Unrealized Appreciation (Depreciation) - Other $(649,895) $ 81 --------------- ------ --------------- ------
SECURITY TRANSACTIONS AND INVESTMENT INCOME-- Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis. Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. FORWARD FOREIGN CURRENCY CONTRACTS-- At March 31, 1999, International and Int'l Small Cap had entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions. 48 THE OAKMARK FAMILY OF FUNDS The contractual amounts of forward foreign exchange contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counter parties to meet the terms of their contracts and from movements in currency values. The International Fund had the following outstanding contracts at March 31, 1999: PORTFOLIO HEDGES:
UNREALIZED APPRECIATION US DOLLARS PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE AT MARCH 31, 1999 - ----------------------------------------------------------------------------------------------------------------- $31,080,000 18,500,000 Pound Sterling April 1999 $1,219,666 8,073,500 5,000,000 Pound Sterling April 1999 364,500 37,444,500 22,500,000 Pound Sterling May 1999 1,130,046 29,682,000 18,000,000 Pound Sterling May 1999 631,702 18,883,917 2,236,800,000 Japanese Yen April 1999 2,164,356 25,000,000 2,760,500,000 Japanese Yen July 1999 1,386,672 20,000,000 2,174,400,000 Japanese Yen July 1999 1,397,649 ---------- $8,294,591 ---------- ----------
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
UNREALIZED APPRECIATION (DEPRECIATION) AT MARCH US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE 31, 1999 - ----------------------------------------------------------------------------------------------------------------- $ 351,681 326,568 Euro Currency April 1999 $ 1,420 20,760 19,278 Euro Currency April 1999 84 619,303 577,546 Euro Currency April 1999 5,169 275,322 169,680 Pound Sterling April 1999 (1,374) 993,543 612,315 Pound Sterling April 1999 (4,960) 2,189,018 1,349,413 Pound Sterling April 1999 (10,391) 696,023 5,797,872 Swedish Krona April 1999 9,915 ------- $ (137) ------- -------
THE OAKMARK FAMILY OF FUNDS 49 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ TRANSACTION HEDGES: FOREIGN CURRENCY SALES:
UNREALIZED APPRECIATION (DEPRECIATION) AT MARCH US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE 31, 1999 - ----------------------------------------------------------------------------------------------------------------- $ 109,392 101,694 Euro Currency April 1999 $ (564) 2,011,239 1,239,516 Pound Sterling April 1999 10,041 216,778 133,632 Pound Sterling April 1999 1,030 954,782 591,614 Pound Sterling April 1999 (378) 119,589 74,101 Pound Sterling April 1999 (47) 167,354 103,792 Pound Sterling April 1999 (218) 1,170,244 726,544 Pound Sterling April 1999 (2,761) 117,742 73,100 Pound Sterling April 1999 (278) 117,742 73,100 Pound Sterling April 1999 (278) 1,170,244 726,544 Pound Sterling April 1999 (2,761) 2,714,650 325,988,720 Japanese Yen April 1999 (38,285) 974,438 115,441,653 Japanese Yen April 1999 (453) 1,114,624 1,927,408 Singapore Dollar April 1999 (1,743) ------- $(36,695) ------- -------
The Int'l Small Cap Fund had the following outstanding contracts at March 31, 1999: PORTFOLIO HEDGES:
UNREALIZED APPRECIATION US DOLLARS PROCEEDS FOREIGN CURRENCY PURCHASED SETTLEMENT DATE AT MARCH 31, 1999 - --------------------------------------------------------------------------------------------------------------- $1,250,000 1,728,125 Brazilian Real April 1999 $261,935 7,389,000 4,500,000 Pound Sterling May 1999 126,203 2,500,000 281,487,500 Japanese Yen June 1999 98,592 1,500,000 165,630,000 Japanese Yen July 1999 83,200 2,000,000 217,440,000 Japanese Yen July 1999 139,765 3,157,241 335,520,000 Japanese Yen July 1999 284,473 -------- $994,168 -------- --------
50 THE OAKMARK FAMILY OF FUNDS TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
UNREALIZED APPRECIATION (DEPRECIATION) AT MARCH US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE 31, 1999 - ------------------------------------------------------------------------------------------------------------------ $494,211 747,000 Canadian Dollar April 1999 $ 655 85,677 79,692 Euro Currency April 1999 490 25,883 24,034 Euro Currency April 1999 105 486,871 453,030 Euro Currency April 1999 2,967 18,040 16,817 Euro Currency April 1999 144 10,894 10,090 Euro Currency April 1999 16 751,135 694,530 Euro Currency April 1999 (174) 47,148 43,666 Euro Currency April 1999 65 293,189 272,271 Euro Currency April 1999 1,203 565,496 523,075 Euro Currency April 1999 78 235,232 145,008 Pound Sterling April 1999 (1,117) 176,332 109,261 Pound Sterling April 1999 70 176,172 109,261 Pound Sterling April 1999 229 288,312 178,743 Pound Sterling April 1999 268 176,456 109,261 Pound Sterling April 1999 (55) 294,862 183,065 Pound Sterling April 1999 696 5,844 45,287 Hong Kong Dollar April 1999 (1) 54,618 423,233 Hong Kong Dollar April 1999 (3) 10,400 80,591 Hong Kong Dollar April 1999 (1) 1,652 63,861 Philippine Peso April 1999 (4) 8,581 331,228 Philippine Peso April 1999 (33) 358,443 618,673 Singapore Dollar April 1999 (104) ------ $ 5,494 ------ ------
TRANSACTION HEDGES: FOREIGN CURRENCY SALES:
UNREALIZED (DEPRECIATION) AT MARCH US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE 31, 1999 - ------------------------------------------------------------------------------------------------------------------ $260,927 30,912,052 Japanese Yen April 1999 $(121) ----- -----
At March 31, 1999, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. SECURITIES LENDING-- Each Fund except The Oakmark Fund may lend portfolio securities to broker- dealers and banks. As of December 31, 1998, the Funds are not participating in a securities lending program and any securities previously loaned to borrowers have been returned. FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- No provision is made for Federal income taxes since the Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. BANK LOANS-- The Funds have two unsecured lines of credit with a syndication of banks. One line of credit is a committed line of $350 million and the other is an uncommitted line of $250 million. Borrowings under this arrangement bear interest at .50% above the Federal Funds Effective Rate. As of March 31, 1999, there were no outstanding borrowings. 2. TRANSACTIONS WITH AFFILIATES Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets and .85% on the next THE OAKMARK FAMILY OF FUNDS 51 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ $5 billion of net assets and .80% on the excess of $10 billion of net assets. International pays 1% on the first $2.5 billion of net assets, .95% on the next $2.5 billion of net assets and .90% on the excess of $5 billion of net assets. Select pays 1% on the first $1 billion and .95% on the next $500 million, .90% on the next $500 million, .85% on the next $500 million, .80% on the next $2.5 million of net assets and .75% on the excess of $5 billion of net assets. Small Cap pays 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million, 1.10% on the next $500 million, 1.05% on the next $500 million, and 1% on the excess of $2.5 billion. Equity and Income pays .75% of net assets and Int'l Small Cap pays 1.25% of net assets. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% for domestic funds and 2.0% for international funds. In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International, approximately $7,283 each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to Select by the Adviser. These expenses are being amortized on a straight line basis through October, 2000 for Small Cap, Equity and Income and Int'l Small Cap, and October, 2001 for Select. Oakmark and International have fully amortized all organization expenses. During the six months ended March 31, 1999, the Funds incurred brokerage commissions of $2,188,897, $1,524,368, $1,507,906, $46,533, $1,383,915 and $172,048 of which $1,151,089, $552,563, $125,452, $24,154, $0 and $0 were paid by Oakmark, Select, Small Cap, Equity and Income, International and Int'l Small Cap, respectively, to an affiliate of the Adviser. The Funds' Trustees may participate in a Deferred Compensation Plan which may be terminated at any time. The obligations of the Plan are paid solely out of the assets of the Funds. 3. FUND SHARE TRANSACTIONS Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following number of shares (in thousands):
SIX MONTHS ENDED MARCH 31, 1999 ------------------------------------------------------------------------- INT'L SMALL EQUITY & SMALL OAKMARK SELECT CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------------------- Shares sold 14,515 17,430 12,530 948 9,040 5,375 Shares issued in reinvestment of dividends 10,299 2,852 298 112 6,003 178 Less shares redeemed (70,366) (18,773) (25,722) (1,182) (28,794) (3,639) -------- -------- -------- -------- ------ --------- Net increase (decrease) in shares outstanding (45,552) 1,509 12,894 122 (13,751) 1,914 -------- -------- -------- -------- ------ --------- -------- -------- -------- -------- ------ ---------
YEAR ENDED SEPTEMBER 30, 1998 ------------------------------------------------------------------------- INT'L SMALL EQUITY & SMALL OAKMARK SELECT 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 -------- -------- -------- -------- ------ --------- -------- -------- -------- -------- ------ ---------
52 THE OAKMARK FAMILY OF FUNDS 4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
INT'L EQUITY & SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------------------- Purchases $ 597,681 $767,113 $243,319 $18,455 $125,192 $ 30,213 Proceeds from sales 2,018,060 $725,705 $391,058 $18,242 $325,130 $ 18,502
5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the six months ended March 31, 1999 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK FUND
PURCHASES DIVIDEND MARKET AFFILIATES (COST) SALES (COST) INCOME VALUE - ------------------------------------------------------------------------------------------------ AC Nielsen Corporation - - - $ 129,223,500 Brunswick Corporation - - $ 1,820,200 138,790,250 Eaton Corporation $ 95,898,237 - 187,976 298,841,400 GC Companies, Inc. - - - 12,480,688 H & R Block, Inc. - $ 42,048,416 3,695,325 320,515,562 Juno Lighting, Inc. - - 217,000 24,344,688 Knight Ridder, Inc. 13,380,889 47,492,369 2,840,700 313,305,000 Polaroid Corporation - 421,331 1,361,970 90,830,963 R. H. Donnelley Corporation - 423,736 367,196 32,005,951 The Black & Decker Corporation - 79,705,558 1,860,840 379,192,500 The Dun & Bradstreet Corporation - 36,083,438 3,828,409 335,202,750 ------------ ------------ ----------- -------------- Totals 109,279,126 206,174,848 16,179,616 2,074,733,252
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
PURCHASES SALES DIVIDEND MARKET AFFILIATES (COST) (COST) INCOME VALUE - ---------------------------------------------------------------------------------------------- USG Corporation $45,557,754 $13,554,188 $ 541,720 $172,948,800 US Industries Inc. 22,691,449 2,682,483 788,770 140,770,750 ----------- ----------- ---------- --------------- Totals 68,249,203 16,236,671 1,330,490 313,719,550
THE OAKMARK FAMILY OF FUNDS 53 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
PURCHASES SALES DIVIDEND MARKET AFFILIATES (COST) (COST) INCOME VALUE - ------------------------------------------------------------------------------------------ Ascent Entertainment Group, Inc. - - - $16,406,250 Barry (R.G.) Corporation $ 683,865 - - 7,875,000 Binks Sames Corporation - - - 4,625,000 Columbus McKinnon Corporation 1,112,813 $5,257,106 $116,725 14,087,500 Duff & Phelps Credit Rating Co. - - 21,000 18,331,250 Finger Lakes Financial Corp. - - 22,560 2,138,500 Northwest Pipe Company - 1,677,942 - 6,600,000 Ugly Duckling Corporation 366,408 - - 9,679,687 ---------- ---------- -------- --------------- Totals 2,163,086 6,935,048 160,285 79,743,187
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASES SALES DIVIDEND MARKET AFFILIATES (COST) (COST) INCOME VALUE - --------------------------------------------------------------------------------------------- Banco Latinoamericano de Exportaciones, S.A. Class E $3,380,362 $ 6,440,554 $1,380,960 $ 32,112,600 Chargeurs SA 3,107,014 1,481,640 388,650 29,827,225 Cordiant Communications Group plc - 10,160,631 - 46,017,088 Dongah Tire Industry Company - - 140,181 5,841,156 European Vinyls Corporation International NV - 1,883,143 - 6,927,060 Fernz Corporation Limited - 14,034,949 458,024 26,607,215 Fila Holding S.p.A. 691,130 - - 21,860,850 Giordano International Limited - - - 21,463,269 Keumkang Ltd. - 1,555,011 307,101 13,255,868 Lotte Chilsung Beverage Company - - 36,291 5,212,714 Tae Young Corporation - 4,233,806 2,624,590 12,530,670 Usinas Siderugicas de Minas Gerais S.A., Preferred Class A - - - 11,064,586 ---------- ----------- ---------- --------------- Totals 7,178,506 39,789,734 5,335,797 232,720,301
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
PURCHASES SALES DIVIDEND MARKET AFFILIATES (COST) (COST) INCOME VALUE - ------------------------------------------------------------------------------------------ Designer Textiles (NZ) Limited - - $ 18,615 $ 490,778 Matichon Public Company Limited, Foreign Shares - - - 2,402,378 Parbury Limited $ 255,279 - 131,268 2,222,642 Royal Doulton plc 2,589,134 - 205,506 4,461,831 Solution 6 Holdings Limited - $1,672,006 - 4,584,707 Solution 6 Holdings Limited Rights 0 0 0 421,044 Yip's Hang Cheung Ltd. 281,712 - 73,565 1,544,714 ---------- ---------- -------- --------------- Totals 3,126,125 1,672,006 428,954 16,128,094
54 THE OAKMARK FAMILY OF FUNDS THE OAKMARK FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX ELEVEN PERIOD MONTHS YEAR MONTHS ENDED ENDED ENDED ENDED YEAR ENDED OCTOBER 31, OCT. MARCH 31, SEPTEMBER SEPTEMBER -------------------------------------------------------- 31, 1999 30, 1998 30, 1997 1996 1995 1994 1993 1992 1991(a) - ---------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.20 0.47 0.36 0.34 0.30 0.27 0.17 (0.03) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 3.95 (1.73) 10.67 4.70 4.66 1.76 7.15 5.04 2.11 --------- --------- --------- --------- --------- --------- --------- -------- ------- Total From Investment Operations: 4.15 (1.26) 11.03 5.04 4.96 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.44) (0.40) (0.34) (0.28) (0.23) (0.23) (0.04) -- -- Distributions (from capital gains) (1.60) (6.01) (1.87) (0.84) (1.47) (0.77) (0.21) -- -- --------- --------- --------- --------- --------- --------- --------- -------- ------- Total Distributions (2.04) (6.41) (2.21) (1.12) (1.70) (1.00) (0.25) -- -- --------- --------- --------- --------- --------- --------- --------- -------- ------- Net Asset Value, End of Period $ 35.65 $ 33.54 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $12.10 --------- --------- --------- --------- --------- --------- --------- -------- ------- --------- --------- --------- --------- --------- --------- --------- -------- ------- Total Return 12.00% (4.06)% 39.24%* 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $5,736.5 $6,924.0 $6,614.9 $ 3,933.9 $ 2,827.1 $ 1,677.3 $ 1,107.0 $ 114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.11% 1.08% 1.08%* 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets .98% 1.22% 1.19%* 1.13% 1.27% 1.19% 0.94% (0.24)% (0.66)%(c)* Portfolio Turnover Rate 9% 43% 17% 24% 18% 29% 18% 34% 0%
*Data has been annualized. (a) From August 5, 1991, the date on which Fund shares were first offered for sale to the public. (b) If the Fund had paid all of its expenses and there had been no reimbursement by the Adviser, this annualized ratio would have been 4.92% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 55 THE OAKMARK SELECT FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN SIX MONTHS MONTHS ENDED YEAR ENDED ENDED MARCH 31, SEPTEMBER SEPTEMBER 1999 30, 1998 30, 1997 - ----------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.76 $ 16.34 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.14 0.03 (0.01) Net Gains or Losses on Securities (both realized and unrealized) 5.48 0.56 6.35 ---------- ---------- ---------- Total From Investment Operations: 5.62 0.59 6.34 Less Distributions: Dividends (from net investment income) (0.05) -- -- Distributions (from capital gains) (0.71) (0.17) -- ---------- ---------- ---------- Total Distributions (0.76) (0.17) -- ---------- ---------- ---------- Net Asset Value, End of Period $ 21.62 $ 16.76 $ 16.34 ---------- ---------- ---------- ---------- ---------- ---------- Total Return 34.42% 3.64% 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 1,616.5 $ 1,227.9 $ 514.2 Ratio of Expenses to Average Net Assets (a) 1.15%* 1.22% 1.12%* Ratio of Net Income (Loss) to Average Net Assets (a) 1.46%* 17.00% (0.11)%* Portfolio Turnover Rate 57% 56% 37%
*Data has been annualized. 56 THE OAKMARK FAMILY OF FUNDS THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX ELEVEN MONTHS YEAR MONTHS YEAR ENDED ENDED ENDED ENDED MARCH 31, SEPTEMBER SEPTEMBER OCTOBER 1999 30, 1998 30, 1997 31, 1996 - ------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 12.63 $ 20.34 $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.08) (0.12) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) 1.01 (4.73) 7.16 3.21 --------- --------- ---------- --------- Total From Investment Operations: 0.93 (4.85) 7.15 3.19 Less Distributions: Dividends (from net investment income) -- -- -- -- Distributions (from capital gains) (0.09) (2.86) -- -- --------- --------- ---------- --------- Total Distributions (0.09) (2.86) -- -- --------- --------- ---------- --------- Net Asset Value, End of Period $ 13.47 $ 12.63 $ 20.34 $ 13.19 --------- --------- ---------- --------- --------- --------- ---------- --------- Total Return 7.30% (26.37)% 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 485.7 $ 618.0 $ 1,513.4 $ 218.4 Ratio of Expenses to Average Net Assets 1.49%* 1.45% 1.37%* 1.61% Ratio of Net Income (Loss) to Average Net Assets (0.31)%* (0.40)% (0.25)%* (0.29)% Portfolio Turnover Rate 41% 34% 27% 23%
*Data has been annualized. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS .................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX ELEVEN MONTHS YEAR MONTHS YEAR ENDED ENDED ENDED ENDED MARCH 31, SEPTEMBER SEPTEMBER OCTOBER 1999 30, 1998 30, 1997 31, 1996 - ----------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.99 $ 14.49 $ 11.29 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.20 0.29 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 1.26 0.04 3.24 1.19 --------- --------- --------- --------- Total From Investment Operations: 1.46 0.33 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.21) (0.24) (0.12) -- Distributions (from capital gains) (0.21) (0.59) (0.13) -- --------- --------- --------- --------- Total Distributions (0.42) (0.83) (0.25) -- --------- --------- --------- --------- Net Asset Value, End of Period $ 15.03 $ 13.99 $ 14.49 $ 11.29 --------- --------- --------- --------- --------- --------- --------- --------- Total Return 10.54% 2.57% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 60.2 $ 57.7 $ 33.5 $ 13.8 Ratio of Expenses to Average Net Assets 1.19%* 1.31% 1.50%*(a) 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.52%* 2.39% 2.38%*(a) 1.21%(a) Portfolio Turnover Rate 32% 46% 53% 66%
*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%
58 THE OAKMARK FAMILY OF FUNDS THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX ELEVEN PERIOD MONTHS YEAR MONTHS ENDED ENDED ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER MARCH SEPTEMBER SEPTEMBER -------------------------------------------- 31, 31, 1999 30, 1998 30, 1997 1996 1995 1994 1993 1992(a) - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.21 0.41 0.27 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) 2.80 (5.32) 3.74 2.90 (0.77) 0.43 4.48 (0.46) -------- -------- ----------- ----------- -------- -------- -------- -------- Total From Investment Operations: 3.01 (4.91) 4.01 2.99 (0.47) 0.64 4.54 (0.2) Less Distributions: Dividends (from net investment income) (0.24) (0.58) (0.16) -- -- (0.08) (0.25) -- Distributions (from capital gains) (0.78) (2.86) -- (1.04) (1.06) (0.15) -- -- -------- -------- ----------- ----------- -------- -------- -------- -------- Total Distributions (1.02) (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) -- -------- -------- ----------- ----------- -------- -------- -------- -------- Net Asset Value, End of Period $ 12.41 $ 10.42 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 -------- -------- ----------- ----------- -------- -------- -------- -------- -------- -------- ----------- ----------- -------- -------- -------- -------- Total Return 30.24% (29.90)% 29.63%* 24.90% (3.06)% 4.62% 47.49% (22.81)%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 730.0 $ 756.1 $ 1,647.3 $ 1,172.8 $ 819.7 $1,286.0 $ 815.4 $ 23.5 Ratio of Expenses to Average Net Assets 1.30%* 1.32% 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income (Loss) to Average Net Assets 2.04%* 1.95% 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 18% 43% 61% 42% 26% 55% 21% 0%
*Data has been annualized. (a) From September 30, 1992, the date on which Fund shares were first offered for sale to the public. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX ELEVEN MONTHS YEAR MONTHS YEAR ENDED ENDED ENDED ENDED MARCH 31, SEPTEMBER SEPTEMBER OCTOBER 1999 30, 1998 30, 1997 31, 1996 - ---------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 6.89 $ 12.20 $ 11.41 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.03 0.18 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) 4.02 (4.09) 1.10 1.37 --------- --------- --------- --------- Total From Investment Operations: 4.05 (3.91) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.20) (0.06) (0.08) -- Distributions (from capital gains) -- (1.34) (0.36) -- --------- --------- --------- --------- Total Distributions (0.20) (1.40) (0.44) -- --------- --------- --------- --------- Net Asset Value, End of Period $ 10.74 $ 6.89 $ 12.20 $ 11.41 --------- --------- --------- --------- --------- --------- --------- --------- Total Return 59.75% (35.20)% 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 101.3 $ 51.8 $ 66.0 $ 39.8 Ratio of Expenses to Average Net Assets 1.72%* 1.96% 1.93%* 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 1.13%* 2.17% 1.23%* 0.65%(a) Portfolio Turnover Rate 29% 69% 63% 27%
*Data has been annualized. (a) If the fund had paid all of its expenses and there had been no expense reimbursement by the investment advisor, the ratio of expenses to average net assets would have been 2.65% and the ratio of net income (loss) to average net assets would have been .50%. 60 THE OAKMARK FAMILY OF FUNDS THE OAKMARK FAMILY OF FUNDS TRUSTEES AND OFFICERS ........................................................................ TRUSTEES Michael J. Friduss Thomas H. Hayden Christine M. Maki Victor A. Morgenstern Allan J. Reich Marv Rotter Burton W. Ruder Peter S. Voss Gary Wilner, M.D. OFFICERS Victor A. Morgenstern--CHAIRMAN Robert M. Levy--PRESIDENT Robert J. Sanborn--EXECUTIVE VICE PRESIDENT David G. Herro--VICE PRESIDENT Clyde S. McGregor--VICE PRESIDENT William C. Nygren--VICE PRESIDENT Steven J. Reid--VICE PRESIDENT Michael J. Welsh--VICE PRESIDENT Donald Terao--VICE PRESIDENT--FINANCE Anita M. Nagler--SECRETARY Ann W. Regan--VICE PRESIDENT-- SHAREHOLDER OPERATIONS AND ASSISTANT SECRETARY Kristi L. Rowsell--TREASURER OTHER INFORMATION INVESTMENT ADVISER Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602-3790 TRANSFER AGENT State Street Bank and Trust Company Attention: The Oakmark Family of Funds P.O. Box 8510 Boston, Massachusetts 02266-8510 LEGAL COUNSEL Bell, Boyd & Lloyd Chicago, Illinois INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP Chicago, Illinois FOR MORE INFORMATION: Please call 1-800-OAKMARK (1-800-625-6275) or 617-328-5000 WEBSITE www.oakmark.com 24-HOUR NAV HOTLINE 1-800-GROWOAK (1-800-476-9625) This report, including the unaudited financial statements contained herein, is submitted for the general information of the shareholders of the Funds. The report is not authorized for distribution to prospective investors in the Funds unless it is accompanied or preceded by a currently effective prospectus of the Funds. No sales charge to the shareholder or to the new investor is made in offering the shares of the Funds. LOGO P.O. BOX 8510 BOSTON, MA 02266-8510 -----END PRIVACY-ENHANCED MESSAGE-----