-----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, OrBYCvU2nFS+rxe5unMJ+YMip6RlFD50oytzar5alDiiBIZvk2FNyyhUSjjOqzRK M5C30eIMvrXKXrJIOhra8w== 0001047469-98-028508.txt : 19980729 0001047469-98-028508.hdr.sgml : 19980729 ACCESSION NUMBER: 0001047469-98-028508 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980728 SROS: NONE 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: 98672260 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 FORM N-30D SEMI-ANNUAL REPORT MARCH 31, 1998 THE OAKMARK [BOX] FUND THE OAKMARK [BOX] SELECT FUND THE OAKMARK [BOX] SMALL CAP FUND THE OAKMARK [BOX] EQUITY AND INCOME FUND THE OAKMARK [BOX] INTERNATIONAL FUND [LOGO] THE OAKMARK [BOX] INTERNATIONAL MANAGED BY SMALL CAP FUND HARRIS ASSOCIATES L.P. [GRAPHIC] OAKMARK THE OAKMARK FAMILY OF FUNDS 1998 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 Manager......................... 25 International Diversification Chart....................... 27 Schedule of Investments................................... 28 THE OAKMARK INT'L SMALL CAP FUND Letter from the Portfolio Manager......................... 33 International Diversification Chart....................... 35 Schedule of Investments................................... 36 FINANCIAL STATEMENTS Statement of Assets and Liabilities....................... 40 Statement of Operations................................... 42 Statement of Changes in Net Assets........................ 44 Notes to Financial Statements............................. 50 TRUSTEES AND OFFICERS....................................... 63
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... ........................................................................ FELLOW SHAREHOLDERS: WE ARE PLEASED TO PRESENT THE SEMI-ANNUAL REPORT FOR THE OAKMARK FAMILY OF FUNDS. WITH ALL OF OUR FUNDS INCREASING IN VALUE, OUR LONG-TERM GOAL OF PROVIDING ATTRACTIVE RETURNS CONTINUES TO BE ACHIEVED. MORE IMPORTANT, WE REMAIN CONVINCED THAT OUR FUNDS SINGULARLY AND COLLECTIVELY CONTINUE TO BE WELL-POSITIONED TO HELP OUR SHAREHOLDERS MEET THEIR FINANCIAL GOALS. [PHOTO] AS INVESTORS, WE FEEL STRONGLY THAT OUR SHAREHOLDERS WILL BE BEST SERVED BY LONG-TERM COMMITMENTS TO OUR FUNDS. WE BELIEVE THAT THE KEYS TO MAINTAINING YOUR TRUST AND INVESTMENT IN OUR FUNDS ARE: INVESTMENT PHILOSOPHY, ATTRACTIVE LONG-TERM RETURNS AND INVESTOR SERVICE. THROUGH THE YEARS, WE ARE CONFIDENT THAT OUR SHAREHOLDERS HAVE BENEFITED FROM OUR DISCIPLINED INVESTMENT PHILOSOPHY AND THE RETURNS THAT HAVE BEEN GENERATED. IN THE INVESTOR SERVICE AREA, WHILE OUR SHAREHOLDERS SEEM TO BE PLEASED, WE THINK IT IS A GOOD IDEA TO EXPLORE SOME POTENTIAL CHANGES. OUR FOCUS ON THIS AREA IS NOT NEW. IN THE LAST YEAR WE HAVE STRENGTHENED OUR WEBSITE, ENHANCED OUR AUTOMATED PHONE SYSTEM AND STREAMLINED OUR MAILINGS. INCLUDED IN THIS PACKAGE ARE TWO ITEMS WHICH MAY BE OF INTEREST TO YOU. FIRST, WE ARE INTRODUCING "PAYROLL DEDUCTION" WHICH ENABLES YOU TO INVEST IN THE OAKMARK FUNDS DIRECTLY THROUGH YOUR EMPLOYER. THIS OPTION ALLOWS YOU TO DEDUCT YOUR INVESTMENT DIRECTLY FROM YOUR PAYCHECK. A PAYROLL DEDUCTION FORM IS ENCLOSED. THE SECOND ITEM ENCLOSED IS A BROCHURE FOR OUR NEWLY-NAMED AUTOMATED PHONE SYSTEM, "OAK LINK." THIS BROCHURE PROVIDES SHORTCUTS THROUGH THE SYSTEM FOR FASTER, MORE EFFICIENT SERVICE. OUR PROGRESS HAS BEEN NOTEWORTHY, BUT WE ARE NOT DONE. TO THIS END, OVER THE NEXT SEVERAL MONTHS WE WILL BE ASKING A NUMBER OF YOU FOR SUGGESTIONS ABOUT BROADENING OUR SERVICE. WE INTEND TO FOCUS ON REPORTING PRACTICES AND INFORMATION FLOWS BUT WE WILL BE OPEN TO OTHER IDEAS. WE HAVE A STRONG SERVICE ORIENTATION AND WHEN THE PROJECT IS COMPLETED, IT WILL BE EVEN BETTER. AS ALWAYS, WE REMAIN COMMITTED TO HELPING YOU MEET YOUR LONG-TERM GOALS. THANKS FOR YOUR SUPPORT AND CONFIDENCE IN US. VERY TRULY YOURS, /s/ Victor Morgenstern VICTOR MORGENSTERN CHAIRMAN /s/ Robert M. Levy ROBERT M. LEVY PRESIDENT 1 THE OAKMARK FAMILY OF FUNDS SUMMARY INFORMATION ........................................................................
THE OAKMARK THE OAKMARK PERFORMANCE FOR PERIOD ENDED FUND SELECT MARCH 31, 1998 FUND - ---------------------------------------------------------------------------------------- 3 MONTHS 10.0% 13.4% ........................................................................................ 6 MONTHS 14.4% 22.9% ........................................................................................ 1 YEAR 40.2% 65.4% ........................................................................................ AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 27.7% N/A ........................................................................................ 5 YEAR 23.2% N/A ........................................................................................ SINCE INCEPTION 30.7% 63.7% VALUE OF $10,000 $59,517 $20,078 FROM INCEPTION DATE (8/5/91) (11/1/96) - ---------------------------------------------------------------------------------------- TOP FIVE HOLDINGS Phillip Morris U.S. Industries, AS OF MARCH 31, 1998 Companies, Inc. 6.7% Inc. 12.6% Banc One Cablevision Systems Corporation 6.5% Corporation 9.8% COMPANY AND % OF TOTAL NET Mattel, Inc. 5.6% USG Corporation 9.3% ASSETS Nike, Inc. 5.4% Tele-Communications The Black & Decker Liberty Media, Class Corporation 4.9% A 8.8% PartnerRe Ltd. 7.8% - ---------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES Food & Beverage 16.9% Diversified AS OF MARCH 31, 1998 Other Consumer Goods & Conglomerates 12.6% Services 16.1% Building Materials & Banks 9.7% Construction 11.6% INDUSTRIES AND % OF TOTAL NET Publishing 8.1% Broadcasting & Cable ASSETS Other Financial 8.1% TV 9.8% Other Consumer Goods & Services 9.0% TV Programming 8.8%
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 7.1% 8.7% 14.4% 18.5% .................................................................................................................................. 6 MONTHS 6.8% 9.6% -1.2% -9.8% .................................................................................................................................. 1 YEAR 42.8% 33.6% 9.7% -5.4% .................................................................................................................................. AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR N/A N/A 19.2% N/A .................................................................................................................................. 5 YEAR N/A N/A 14.1% N/A .................................................................................................................................. SINCE INCEPTION 37.9% 22.2% 16.3% 5.7% VALUE OF $10,000 $21,732 $16,233 $22,994 $11,429 FROM INCEPTION DATE (11/1/95) (11/1/95) (9/30/92) (11/1/95) - ---------------------------------------------------------------------------------------------------------------------------------- TOP FIVE HOLDINGS People's Bank of U.S. Industries, Tomkins plc 5.5% Elevadores Atlas, AS OF MARCH 31, 1998 Bridgeport, CT 8.0% Inc. 4.7% Sedgwick Group SA 4.7% Cablevision Systems Catellus Development plc 4.4% JCG Holdings Ltd. 4.4% Corporation 7.7% Corporation 4.6% Quilmes Lambert Fenchurch COMPANY AND % OF TOTAL NET U.S. Industries, Chrysler Industrial SA 4.1% Group plc 4.4% ASSETS Inc. 7.4% Corporation 4.4% USIMINAS 4.0% Cewe Color RenaissanceRe Holdings Electronic Data Lion Nathan Holdings AG 4.3% Ltd 5.3% Systems Corp. 3.4% Limited 3.9% Cordiant Catellus Development Tele-Communications, Communications Corporation 5.2% Liberty Media Group plc 4.3% Class A 3.4% - ---------------------------------------------------------------------------------------------------------------------------------- TOP FIVE INDUSTRIES Other Industrial Goods U.S. Government Food & Beverage 18.4% Other Industrial Goods AS OF MARCH 31, 1998 & Services 15.0% Bonds 25.1% Other Industrial Goods & Services 10.7% Insurance 12.7% Banks 9.3% & Services 10.3% Other Financial 10.4% Banks 10.6% Automotive 7.7% Banks 7.7% Other Consumer INDUSTRIES AND % OF TOTAL NET Broadcasting & Cable Insurance 5.7% Marketing Goods & Services 8.0% ASSETS TV 9.8% Publishing 5.0% Services 7.0% Marketing Services 7.4% Other Consumer Goods & Consumer Food & Beverage 7.1% Services 9.6% Non-Durables 5.5%
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 (3/31/98) 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/98 TOTAL RETURN FROM FUND INCEPTION 3/31/98 NAV $44.43 LAST 3 MOS. 8/5/91 - ------------------------------------------------------------------ THE OAKMARK FUND 10.0% 30.7% Standard & Poor's 500 Stock Index w/inc** 14.0% 20.0% Dow Jones Industrial Average w/ inc** 11.7% 20.4% Value Line Composite Index** 10.0% 11.5%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The Dow Jones Average includes only 30 big companies. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results. PORTFOLIO UPDATE As we once again reach the mid-point of our fiscal year, it is my custom to review the portfolio and assess how we are doing. The temptation is to copy last year's semi-annual letter--that is how similar the environment is. On an absolute basis, your Fund has returned 10%, a few points behind the returns of the Standard & Poor's 500. While I (and you!) would love to "beat the market" all the time--an impossible goal-- my attitude towards the year to date is the same as that of movie mogul Samuel Goldwyn after viewing one of his studio's releases: "I was very pleasantly disappointed." These remain the most benign of times in which to own US stocks. During the last six months, long-term interest rates continued their decline, from 6.5 percent at the end of September to under 6.0 percent today. Even the Asian economic crisis has a beneficial impact in dampening any inflationary pressures. As I have written many times, the direction of inflation is the most important determinant of the direction of the prices of financial assets. Earnings continue strong, consumer confidence is at an all-time high, and so on. We're going to the moon, Alice! The continued appreciation of stock prices in the past year presents us with a problem, however. Our cash level is at twelve percent, our typical holding is closer to our sell target than our buy target, and we are having increasing difficulty finding holdings that meet our criteria. Buyers of entire companies apparently agree, as the dollar percentage of acquisitions done for stock (as opposed to cash) doubled in 1997 over 1996. Corporate chieftains are more comfortable trading one possibly over-valued stock for another. Over the past six months, we have made some fairly substantial changes to our portfolio. U.S. West Media Group attained our price target (90 percent of our estimate of value) and we have sold it. We have trimmed our other cable holdings, also. Our weighting in this industry has declined from 9.2 percent to less than 2.0 percent over the past six 4 THE OAKMARK FUND ............................................................................. months. I should note that when we were last buying these holdings, psychology towards the group was extremely negative--between re-regulation, satellites, and other competitive threats, its future to Wall Street appeared bleak. However, the consensus has done a complete turn and is now extremely positive. While we are not overt contrarians--specifically selling the hot stocks and buying the cold ones--we are closet contrarians, in that positive psychology towards a stock tends to drive it towards our sell target and negative psychology tends to drive a stock towards our buy target. As an example of the latter, we have increased our investments in Lockheed Martin and Boeing during the first half of the fiscal year, as short-term problems pushed both stocks to attractive valuation levels. Also, I have made large commitments to two franchise businesses, Mattel (now our third-largest holding), and Nike (discussed in last quarter's letter, and our fourth-largest position). While controversial to be sure, I regard both as very good businesses, with strong managements, and at attractive prices for the long term (buckle up for short-term turbulence, though!). While it is enticing to extrapolate the last few years of huge returns, we need to tell you that it is not possible to sustain them over the long term. With the "easy money" available in stocks, many investors forget about the downside. As value investors, we always focus on the downside. YOUR task is to review your entire portfolio and to assess whether it meets your risk/return parameters. Also, remind yourself that the money you have invested in equity investments such as The Oakmark Fund should: 1) not be needed for at least five years, and 2) can decline by, say, 30 percent at any given time without its affecting your lifestyle. It is far better to do this now than to do it when a decline does occur. MEDIA POTPOURRI I have read many articles over the last few months that highlight how we at The Oakmark Funds do things differently from so many of our competitors. Thus, I will summarize a few--without using names so as to protect the innocent--and give a brief response to each. - - Many of you have read about the group of sweet, mature women from small-town Illinois whose investment club seemingly generated huge, market-beating returns. A shrewd marketing campaign made them into a veritable multi-media industry. You, too, can beat the market using the ladies' tried-and-true methods!! Well, a reporter verifying the group's claims discovered that the actual annual returns of the ladies for the ten years ending 1993 was not 23.4 percent, but a market-trailing 9.1 percent. Once again, the lesson is: if it SEEMS too good to be true, it probably is. TO PUT IT INTO PERSPECTIVE, $100 INVESTED FOR THE TEN YEARS WOULD HAVE GENERATED $239 FOR THE LADIES, $313 FOR THE DOW, AND $819 IF THE LADIES HAD ACTUALLY EARNED WHAT THEY CLAIMED. AS AGENT 86 MAXWELL SMART USED TO SAY, "MISSED IT BY THAAAAAAT MUCH." - - An advertisement in the "New York Times" has the following headline: "X Fund Managers Plan To Manage The Fund For At Least Five Years-- Would Invest Own Money In Fund." In the news-article-style ad, one of the partners of X Fund's management company states that reports that he and his partner are looking to sell the company are true, and "...[I]n connection with any possible transaction, as a measure of our confidence in the future prospects of the X Fund, we would invest a significant amount of our own money in the Fund." WHERE TO BEGIN? IN THIS AGE OF "PRESERVE WIGGLE ROOM," THE KEY WORD ABOVE IS "WOULD." WOULD???? DOES THIS MEAN THAT THEY "WOULD NOT" INVEST IN THE FUND IF THE COMPANY IS NOT SOLD AND "DO NOT" CURRENTLY? HERE AT THE OAKMARK FUNDS, WE SEEK OUT OWNER-ORIENTED MANAGEMENTS WHO OWN THEIR OWN STOCK AND ARE MOTIVATED TO GROW ITS VALUE. IN TURN, WE ASSUME OUR SHAREHOLDERS EXPECT THE SAME OF US. EVERY FUND MANAGER OF THE OAKMARK FUNDS HAS A LARGE AMOUNT INVESTED IN HIS FUND, AND FIRMWIDE OWNERSHIP OF OUR FUNDS IS VERY SUBSTANTIAL AND HAS BEEN FROM DAY ONE. - - There was a "Wall Street Journal" article about a "onetime star manager" at a fund company (whose parent is a holding of your Fund!). Apparently, the star's recent performance has been weak and the fund company has, according to a company spokesperson, "taken a number of steps to improve performance." According to the spokesperson, these "steps" included selling some "riskier" stocks and "shifting to stocks with better short-term performance." THE PORTFOLIO MANAGERS OF THE OAKMARK FUNDS ARE NOT JUDGED ON SHORT-TERM PERFORMANCE. WE ARE NOT REQUIRED TO BUY THE OAKMARK FUND 5 ........................................................................ STOCKS WITH "BETTER NEAR-TERM PROSPECTS." WE ALL KNOW THAT STOCKS WITH THESE PROSPECTS ARE GENERALLY PRICED TO REFLECT THESE POSITIVES. WHEN MARKETING IMPERATIVES TRUMP THE INVESTING SIDE, THAT'S A SORRY DAY. AND A LESSON IN RATIONAL EXPECTATIONS Do you remember George Carlin's Hippy Dippy Weatherman? He would make the earth-shattering prediction that, say, in Chicago, it would get warm in the summer and then get cold in the winter. Well, duh. I think of him when I get letters questioning our controversial holdings. Your Fund has several holdings whose problems and challenges tend to earn mention in newspapers and other general interest publications. The letters go like this: "Why do we own Stock Y? Everyone knows Y is having a lot of problems right now. Why don't you buy stocks with better prospects?" Rational expectations refers to many economic or financial situations in which the outcome depends significantly upon what people EXPECT to happen. As an absurd example, take those TV ads for commodities that go like this: "As we enter the winter heating season, we expect demand for fuel to increase. This should cause heating oil prices to rise. A leveraged bet on this could yield $100,000 on an initial investment of $5,000." Now, I assume some people say: Wow, that sounds easy, I'm going to invest everything I've got in that. Now, back to the hippy-dippy weatherman. When everyone knows something--i.e., it gets cold in the winter--the opportunity for systematic profit potential disappears. In recurrent situations, the future tends to unfold pretty similarly compared to the past, and people adjust their forecasts to this reality. The concept of rational expectations asserts that outcomes do not differ systematically from expectations, and stems from the standard economic assumption that people act in ways that maximize their utility (or, happiness). Rational expectations play a key role in the theory of hyperinflation, efficient markets theory (which holds that stock prices reflect all public information), the permanent income hypothesis (which argues that people base their consumption not only on their income but on their expectations of future income), and in the design of macroeconomic policy. Now, back to the letters. When general interest publications reveal "problems" at a company, they have long been known in the professional investment community. (Wags often assert that when "Business Week" proclaims a problem, it's time to bet the other way). By the time you have read about them, we have long since factored them into our expectations. It does not mean that we won't ever be wrong, but that our analysis was educated. /s/ Robert J. Sanborn ROBERT J. SANBORN Portfolio Manager rsanborn@oakmark.com April 3, 1998 6 THE OAKMARK FUND THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--88.3% FOOD & BEVERAGE--16.9% Philip Morris Companies Inc. 14,310,700 $ 596,577,306 Anheuser-Busch Companies Inc. 9,205,400 426,325,087 H.J. Heinz Company 4,007,250 233,923,219 Nabisco Holdings Corporation 3,572,100 167,442,187 Gallaher Group Plc (a)(b) 3,835,500 82,942,688 -------------- 1,507,210,487 APPAREL--5.4% Nike, Inc., Class B 10,957,100 $ 484,851,675 RETAIL--2.2% American Stores Company 7,491,100 $ 194,768,600 OTHER CONSUMER GOODS & SERVICES--16.1% Mattel, Inc. 12,614,400 $ 499,845,600 The Black & Decker Corporation (c) 8,267,000 438,667,687 Polaroid Corporation (c) 4,552,400 200,305,600 Brunswick Corporation 3,578,800 124,810,650 Fortune Brands, Inc. 2,645,500 105,489,312 First Brands Corporation 1,070,400 26,693,100 Juno Lighting, Inc. (c) 1,085,000 22,920,625 GC Companies, Inc. (a)(c) 397,000 20,768,063 -------------- 1,439,500,637 BANKS--9.7% Banc One Corporation 9,100,548 $ 575,609,661 Mellon Bank Corporation 4,589,200 291,414,200 -------------- 867,023,861 INSURANCE--1.4% Old Republic International Corporation 2,748,620 $ 121,798,224 OTHER FINANCIAL--8.1% Ambac Financial Group, Inc. (c) 4,389,800 $ 256,528,938 Washington Mutual, Inc. 3,300,000 236,671,875 Fannie Mae 3,557,500 225,011,875 -------------- 718,212,688 BROADCASTING & CABLE TV--0.5% Tele-Communications, Inc., Class A (a) 1,450,000 $ 45,085,938 TV PROGRAMMING--1.3% Tele-Communications, Liberty Media, Class A (a) 3,411,611 $ 117,274,128
THE OAKMARK FUND 7 THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--88.3% (CONT.) PUBLISHING--8.1% Dun & Bradstreet Corporation (c) 9,741,300 $ 333,030,694 Knight-Ridder, Inc. (c) 4,650,000 259,818,750 ACNielsen Corporation (a)(c) 4,764,000 125,948,250 -------------- 718,797,694 MEDICAL CENTERS--4.9% Columbia/HCA Healthcare Corporation 13,601,000 $ 438,632,250 MANAGED CARE SERVICES--0.6% Foundation Health Systems, Inc. (a) 1,908,000 $ 52,589,250 MEDICAL PRODUCTS--0.9% Sybron International Corporation (a) 3,135,600 $ 81,917,550 AUTOMOTIVE--0.5% Chrysler Corporation 1,178,700 $ 48,989,719 AEROSPACE & DEFENSE--6.9% Lockheed Martin Corporation 3,625,000 $ 407,812,500 The Boeing Company 3,938,000 205,268,250 -------------- 613,080,750 OTHER INDUSTRIAL GOODS & SERVICES--1.7% SPX Corporation (a)(c) 875,200 $ 66,788,700 Bandag Incorporated, Class A (a) 1,104,100 58,862,331 The Geon Company 971,600 21,739,550 -------------- 147,390,581 FOREIGN SECURITIES--3.1% DeBeers Centenary AG (b) 6,546,000 $ 143,602,875 Unilever NV (b) 1,904,000 130,662,000 -------------- 274,264,875 TOTAL COMMON STOCKS (COST: $5,479,573,759) 7,871,388,907 SHORT TERM INVESTMENTS--15.9% GOVERNMENT AND AGENCY SECURITIES--5.6% U.S. GOVERNMENT AGENCIES--2.3% Federal Farm Credit Bank, 5.46% due 7/1/1998 $200,000,000 $ 199,892,000 U.S. GOVERNMENT BILLS--3.3% United States Treasury Bills, 4.98%-5.21% due 4/2/1998-8/13/1998 $300,000,000 $ 297,664,714 -------------- TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $497,656,840) 497,556,714
8 THE OAKMARK FUND THE OAKMARK FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--15.9% (CONT.) COMMERCIAL PAPER--8.7% American Express Credit Corp., 5.50%-5.54% due 4/3/1998-4/29/1998 $220,000,000 $ 220,000,000 Ford Motor Credit Corp., 5.49%-5.54% due 4/2/1998-4/28/1998 260,000,000 260,000,000 General Electric Capital Corporation, 5.52%-6.02% due 4/1/1998-4/27/1998 300,000,000 300,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $780,000,000) 780,000,000 REPURCHASE AGREEMENTS--1.6% State Street Repurchase Agreement, 5.75% due 4/1/1998 $140,535,000 $ 140,535,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $140,535,000) 140,535,000 TOTAL SHORT TERM INVESTMENTS (COST: $1,418,191,840) 1,418,091,714 Total Investments (Cost $6,897,765,599)--104.2% (d) $9,289,480,621 Other Liabilities In Excess Of Other Assets--(4.2)% (371,088,908) -------------- TOTAL NET ASSETS--100% $8,918,391,713 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At March 31, 1998, net unrealized appreciation of $2,391,715,022, for federal income tax purposes consisted of gross unrealized appreciation of $2,406,539,553 and gross depreciation of $14,824,531. 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 (3/31/98) 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/98 TOTAL RETURN FROM FUND INCEPTION 3/31/98 NAV $19.87 LAST 3 MOS. 11/1/96 - -------------------------------------------------------------------------------- THE OAKMARK SELECT FUND 13.4% 63.7% Standard & Poor's 500 Stock Index w/inc** 14.0% 39.6% Standard & Poor's MidCap 400 Index w/ inc** 11.0% 36.5% Value Line Composite Index** 10.0% 26.9%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The 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. UP, UP AND AWAY The Oakmark Select Fund increased in value by 13.4% in the quarter ended March 31. That increase nicely exceeded the 11% gain in the S&P 400, the midcap index that compares most closely to our portfolio, but slightly trailed the increase in the S&P 500. Our six-month increase of 22.9% was well above the market, regardless of which index one chooses. Strong gains achieved by cable TV stocks again helped our performance. Your Fund has now doubled in value since its inception 17 months ago! Although our entire research department is very proud of this record, we are certainly aware that these results have been possible only with the aid of an unbelievably powerful tailwind. In the last 25 years, the market's quarterly return exceeded 10% about once every ten quarters. Over the life of The Oakmark Select Fund, the market return has reached double-digit levels in three out of six quarters, five times the historical frequency. The strength of this market has been truly amazing! Stocks rallied further last month after Warren Buffett stated his opinion that stocks were not generally overvalued as long as interest rates remained low and businesses continued to earn exceptionally high returns on equity. Investors saw the positive "stocks not overvalued" rather than focusing on the risk of a change in our near-perfect economic environment. As stock prices and, therefore, risk levels keep rising, you need to remember that we are not market timers. We doubt that anyone is very good at predicting market moves, but we KNOW we are not. Since we will always find stocks that look inexpensive RELATIVE to prices paid for similar businesses, the Select Fund will remain fully invested. That means that the Fund's cash levels will almost always be low, a single-digit percentage. It also means that when the market goes down, if the Fund goes down less, we will view that outcome as consistent with our goal of achieving excellent long-term returns. Since we stay fully invested, it is our shareholders' responsibility to make sure their personal exposure to the stock market is appropriate for their individual situations. Although we do not advocate market timing, it is important to remember that when stock prices go up more than other asset prices do, the percentage of one's net- 10 THE OAKMARK SELECT FUND ........................................................................ worth exposed to stocks increases. Something I ask myself after a stock has risen is, "would I buy more if it declined in price by 20%?" If the answer is not a strong yes, I'll usually reduce the position size. I encourage all of our shareholders to review their various investments and make sure the amount invested in the stock market is still appropriate for their circumstances--only then can you take advantage of a market decline by buying more. KNOW YOUR MANAGER!! We see ads almost daily for services promising to make us better investors: "Now you can trade like a pro!" "Make money no matter which way the Dow goes!" "Discover tomorrow's winners today!" But the one that really caught my eye this quarter was the following offer for an astrological review of your portfolio. The astrologer claims: "I HAVE THE EXPERTISE TO GIVE YOU AN ASTROLOGICAL EVALUATION OF [your] STOCKS, AND OF THE MARKET AS A WHOLE. WHEN YOUR EXPERTISE AND MINE ARE BROUGHT TOGETHER, WE FORM A FILTER THAT ELIMINATES LOSERS AND ALLOWS ONLY WINNING STOCKS TO ENTER YOUR PORTFOLIO." These services prey on investors who aren't committed to a sound investment philosophy. When the inevitable periods of poor performance arrive, the services promise a quick-fix. What should concern you about this is that the astrological stock selection service claimed that its subscribers include "well-known fund managers." It is imperative that investors know the investment philosophy of their fund managers. Hot performers come and go, but understanding how managers make decisions creates the confidence to follow a successful, long-term investment approach. Since you will not find us relying on the stars to construct our portfolios, let me share with you our approach. Like all the funds in The Oakmark Family, The Oakmark Select Fund is a long-term value investor. We have an outstanding team of analysts who search for companies that sell at large discounts to intrinsic value. To us, a company's intrinsic value is the price a knowledgeable buyer would pay to acquire the entire business. Stocks are not just pieces of paper, they are fractional interests in businesses. Next, we look for companies that have values that grow with time. That means not only looking for growing sales and operating income, but identifying free cash flow that can be invested in the business, used to pay dividends, repurchase shares, pay down debt and so on. Lastly, we want managements that are owner-oriented. That means that through their economic incentives (share ownership, options, bonuses) we are assured that management's interests align with outside shareholders. When we find these companies, we buy them and patiently wait for their value to be recognized by others. When companies with growing values and owner-oriented managements are available at discounts to their true value, we do not have to predict WHEN the market will recognize that value, because the longer it takes, the greater will be our ultimate reward. Over time, we'll make our share of mistakes, but it will not be because of how Jupiter aligned with Mars! A BENEFICIAL PURCHASE During the quarter, your Fund added one new position, Beneficial Corporation. Because it was an unusual buy for us, I want to explain it. Beneficial is a consumer-finance company whose stock performance lagged behind its peers. We had been evaluating Beneficial for some time: quite confident of its undervaluation, less certain of management's owner-orientation. In February, Beneficial announced the sale of its Canadian operation at a price that was well above our estimate. The price they received showed us that Beneficial was more undervalued than we realized, but equally important, the willingness to sell off non-core assets to strategic buyers showed management's owner-orientation. Their focus was not on maximizing size, it was on maximizing their value. Unfortunately for us, almost simultaneously, Beneficial announced they were considering sale of the entire company. Beneficial stock immediately rose in price from $82 to $110. Normally, you will not find us buying stocks after a possible sale is announced because the stock price is usually quite close to estimated business value. In this case, however, we felt our valuation of Beneficial had been more thorough than other analysts and felt strongly that Beneficial was worth an absolute minimum of $120 and was quite possibly worth in excess of $150. Despite its price increase, Beneficial met all our criteria. We look forward to watching the bids come in and congratulate Beneficial management for realizing that their share price could be maximized only by finding a strategic partner. Thank you for your continuing support. /s/ Bill Nygren BILL NYGREN Portfolio Manager bnygren@oakmark.com April 2, 1998 P.S. On April 7, Household International announced an agreement to purchase Beneficial for stock valued at $150. (After the announcement, a decline in Household stock decreased the offer to $144.) Congratulations to our Jim Benson for his outstanding analysis of this company. THE OAKMARK SELECT FUND 11 THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--94.3% OTHER CONSUMER GOODS & SERVICES--9.0% Ralston Purina Group 581,000 $ 61,586,000 Brunswick Corporation 1,034,900 36,092,137 Polaroid Corporation 815,900 35,899,600 -------------- 133,577,737 BANKS--3.8% People's Bank of Bridgeport, Connecticut 1,496,000 $ 56,801,250 INSURANCE--7.8% PartnerRe Ltd. 2,356,100 $ 115,743,413 OTHER FINANCIAL--3.5% Beneficial Corporation 420,000 $ 52,211,250 BROADCASTING & CABLE TV--9.8% Cablevision Systems Corporation (a) 2,210,200 $ 145,320,650 TV PROGRAMMING--8.8% Tele-Communications, Liberty Media, Class A (a) 3,803,550 $ 130,747,031 PUBLISHING--6.1% Dun & Bradstreet Corporation 1,570,500 $ 53,691,469 ACNielsen Corporation (a) 1,425,100 37,676,081 -------------- 91,367,550 MEDICAL PRODUCTS--4.5% Amgen, Inc. (a) 1,110,000 $ 67,571,250 AEROSPACE & DEFENSE--3.8% Lockheed Martin Corporation 505,900 $ 56,913,750 BUILDING MATERIALS & CONSTRUCTION--11.6% USG Corporation (a)(c) 2,540,200 $ 137,647,087 Armstrong World Industries, Inc. 404,700 35,031,844 -------------- 172,678,931 OIL & NATURAL GAS--2.5% Union Texas Petroleum Holdings, Inc. 1,670,100 $ 36,950,963 OTHER INDUSTRIAL GOODS & SERVICES--6.1% Premark International, Inc. 1,538,600 $ 50,966,125 General Signal Corporation 836,200 39,092,350 -------------- 90,058,475 DIVERSIFIED CONGLOMERATES--12.6% U.S. Industries, Inc. (c) 6,220,000 $ 186,988,750
12 THE OAKMARK SELECT FUND THE OAKMARK SELECT FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--94.3% (CONT.) FOREIGN SECURITIES--4.4% Gucci Group (b) 1,380,700 $ 65,583,250 -------------- TOTAL COMMON STOCKS (COST: $1,088,223,426) 1,402,514,250 SHORT TERM INVESTMENTS--6.4% U.S. GOVERNMENT BILLS--2.0% United States Treasury Bills, 5.01%-5.21% due 4/2/1998-7/16/1998 $30,000,000 $ 29,815,644 -------------- TOTAL U.S. GOVERNMENT BILLS (COST: $29,814,319) 29,815,644 COMMERCIAL PAPER--3.1% American Express Credit Corp., 5.53%-5.55% due 4/3/1998-4/7/1998 $10,000,000 $ 10,000,000 Ford Motor Credit Corp., 5.54%-5.57% due 4/2/1998-4/6/1998 10,000,000 10,000,000 General Electric Capital Corporation, 6.02% due 4/1/1998 25,000,000 25,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $45,000,000) 45,000,000 REPURCHASE AGREEMENTS--1.3% State Street Repurchase Agreement, 5.75% due 4/1/1998 $19,467,000 $ 19,467,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $19,467,000) 19,467,000 TOTAL SHORT TERM INVESTMENTS (COST: $94,281,319) 94,282,644 TOTAL INVESTMENTS (COST $1,182,504,745)--100.7% (D) $1,496,796,894 Other Liabilities In Excess Of Other Assets--(0.7)% (9,932,893) -------------- TOTAL NET ASSETS--100% $1,486,864,001 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At March 31, 1998, net unrealized appreciation of $314,292,149, for federal income tax purposes consisted of gross unrealized appreciation of $315,843,337 and gross depreciation of $1,551,188. 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 (3/31/98) 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/98 TOTAL RETURN FROM FUND INCEPTION 3/31/98 NAV $20.80 LAST 3 MOS. 11/1/95 - -------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND 7.1% 37.9% Lipper Small Cap Fund Index** 10.7% 19.0% Russell 2000 w/ inc** 10.1% 23.9% S&P Small Cap 600 w/inc** 11.1% 27.2%
*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. HALFTIME The Oakmark Small Cap Fund's second fiscal quarter ended on March 31, 1998. During the quarter the Fund gained 7.1%, closing at an all-time high. For the second quarter the Fund's investment results did not match those of the relevant indices. Although The Oakmark Small Cap Fund has significantly outperformed the relevant indices since its inception, the short-term results are a minor disappointment. I have received numerous inquiries regarding the Fund's recent relative performance. Quite honestly, a 7% return in three months is a desirable outcome. As investors, we should focus on long-term results, but human nature tends to not let us forget about what happened yesterday, what's happening today, or what might happen tomorrow. Returns in the small cap universe were dominated by growth stocks as opposed to value stocks during the quarter. A precise definition of a growth stock, as well as a value stock, cannot be "written in stone." Let it suffice that the indices' returns were driven by technology and health care stocks, areas in which your Fund has very little exposure. This lack of exposure is a function of our investment philosophy. We have not found value in these areas. It is worth noting the time line of this quarter's performance was composed of three parts. During January, the Fund declined 4.5%, by the end of February performance was almost break-even, and in March all of the gains were made. Another concern of many shareholders is what changes are being made in the way the Fund is managed. The answer is none. Our mandate is to be consistent with our investment philosophy and not deviate from it. Over time we believe our value-oriented style of investing will produce the results we seek to meet our investment objectives. We are encouraged by the investment opportunities available in the marketplace. 14 THE OAKMARK SMALL CAP FUND ........................................................................ FIRST HALF HIGHLIGHTS During the quarter there were several positive events. Zurn Industries Inc. (ZRN) and U.S. Industries Inc. (USI), both holdings of your Fund, agreed to merge in a tax-free exchange of stock. ZRN, a producer of plumbing fixtures and supplies will be combined with USI's well known division, Jacuzzi. While we are certainly pleased by the 50% appreciation of our ZRN shares, the merged businesses are an equally exciting event. We, as well as management, believe that the combined companies will have greater presence in the marketplace and the opportunity to generate increased revenues and income. This combination could best be described as a situation where one plus one does not equal two, but probably at least two and one-half. We are confident that management can truly add value to this situation. Since payment for the purchase will be in the form of USI shares, our ownership of USI will increase. Another bright spot in the quarter was the 37% gain in the shares of Cablevision Systems Corporation (CVC). This is the second time in the last year that CVC has been one of the top-performing stocks in The Oakmark Small Cap Fund. It was also about one year ago that Wall Street viewed CVC as if it were on the verge of bankruptcy. Since then there have been several transactions confirming the value of cable TV systems and programming. Management has also taken steps that highlight and increase the value of the company. KUDOS What do R.G. Barry Corporation, Campbell Soup Company, and Whirlpool Corporation have in common? All three were named Vendor of the Year by Wal-Mart International. Although not a household name, many of R.G. Barry's slipper brand names such as EZ feet, Dearfoams and Angel Treads are widely known by consumers. Our congratulations go out to Barry's management team led by Chairman Gordon Zacks on being named Soft-Lines Vendor of the Year by the largest retailer in the world. Over the past few years Barry has demonstrated significant growth in sales and profits as they expanded into new markets and improved manufacturing efficiency. Despite Barry's success with slippers, the company is relatively unknown by Wall Street. This lack of visibility has allowed us to purchase these shares at a significant discount to the typical valuation that other consumer products companies sell for in the stock market. In addition, Barry has been developing several innovative new thermal retention products that are designed to keep products at constant temperatures without the need of an external power supply. As an example, the company has developed a pizza container that allows for the home delivery of fresh, hot pizza. Current products in the market only insulate the pizza. Barry's product, because it provides heat, is able to offer a superior delivery system. While not yet widely used we hope over the next year or two to highlight the benefits from Barry's success with these products. At the current valuation of the shares of R.G. Barry we have not paid a premium for these products. OUTLOOK Despite the recent El Nino-like volatility of The Oakmark Small Cap Fund, we continue to see very attractive investment opportunities in small cap stocks. There continues to be a broad divergence in valuation between large and small cap stocks with the shares of small companies trading at significant discounts to their larger brethren. Once again, I would like to thank everyone involved, especially our shareholders, for your support of The Oakmark Small Cap Fund. Go Bulls! /s/ Steven J. Reid STEVEN J. REID Portfolio Manager sreid@oakmark.com April 3, 1998 THE OAKMARK SMALL CAP FUND 15 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--95.1% FOOD & BEVERAGE--6.3% Ralcorp Holdings, Inc. (a)(b) 2,500,000 $ 51,875,000 International Multifoods Corporation (b) 1,000,000 29,937,500 M & F Worldwide Corp. (a) 917,600 8,315,750 -------------- 90,128,250 RETAIL--4.7% Cole National Corporation (a)(b) 1,250,000 $ 48,281,250 Ugly Duckling Corporation (a)(b) 1,750,000 18,921,875 -------------- 67,203,125 OTHER CONSUMER GOODS & SERVICES--9.6% Triarc Companies, Inc. (a)(b) 1,600,000 $ 42,000,000 Scotsman Industries, Inc. (b) 1,000,000 28,750,000 First Brands Corporation 1,000,000 24,937,500 GC Companies, Inc. (a) 300,000 15,693,750 Barry (R.G.) Corporation (a)(b) 800,000 11,000,000 P.H. Glatfelter Company 420,900 7,602,506 Libbey, Inc. 190,000 7,077,500 -------------- 137,061,256 BANKS--10.6% People's Bank of Bridgeport, Connecticut 3,000,000 $ 113,906,250 BankAtlantic Bancorp, Inc., Class A 1,125,001 15,398,451 Northwest Bancorp Inc. 550,000 9,246,875 PennFed Financial Services, Inc. 260,000 4,712,500 Pocahontas Federal Savings and Loan Association (b) 100,000 4,475,000 Savings Bank of the Finger Lakes (b) 188,000 3,666,000 -------------- 151,405,076 INSURANCE--12.7% RenaissanceRe Holdings Limited. (b) 1,500,000 $ 75,000,000 Financial Security Assurance Holdings Ltd. 900,000 49,162,500 Highlands Insurance Group, Inc. (a)(b) 1,150,000 30,906,250 PXRE Corporation (b) 750,000 23,250,000 Chartwell Re Corporation 110,000 3,726,250 -------------- 182,045,000 OTHER FINANCIAL--1.0% Duff & Phelps Credit Rating Co. (b) 296,800 $ 14,951,300 BROADCASTING & CABLE TV--9.8% Cablevision Systems Corporation (a) 1,669,400 $ 109,763,050 Ascent Entertainment Group, Inc. (a)(b) 2,000,000 20,625,000 Granite Broadcasting Corporation (a)(b) 800,000 9,250,000 -------------- 139,638,050 PUBLISHING--1.1% Lee Enterprises, Inc. 450,000 $ 15,103,125
16 THE OAKMARK SMALL CAP FUND THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) TELECOMMUNICATIONS--0.2% ROHN Industries, Inc. 500,000 $ 2,812,500 AUTOMOTIVE--2.1% Stoneridge, Inc. (a)(b) 1,500,000 $ 30,000,000 AEROSPACE & DEFENSE--2.8% Tracor, Inc. (a) 1,250,000 $ 40,078,125 MACHINERY & METAL PROCESSING--4.3% The Carbide/Graphite Group, Inc. (a)(b) 815,000 $ 24,450,000 DT Industries, Inc. 472,000 18,113,000 Northwest Pipe Company (a)(b) 600,000 13,050,000 Wolverine Tube, Inc. (a) 140,800 5,649,600 -------------- 61,262,600 OIL & NATURAL GAS--2.0% Titan Exploration, Inc. (a)(b) 3,000,000 $ 24,375,000 Nuevo Energy Company (a) 100,000 3,581,250 -------------- 27,956,250 OTHER INDUSTRIAL GOODS & SERVICES--15.0% SPX Corporation (a)(b) 700,000 $ 53,418,750 MagneTek, Inc. (a)(b) 2,500,000 47,031,250 Ferro Corporation 961,500 28,244,062 Columbus McKinnon Corporation (b) 876,900 24,114,750 Gardner Denver Machinery, Inc. (a) 750,000 22,218,750 Zurn Industries, Inc. 312,500 14,804,688 Binks Sames Corporation (b) 247,000 11,979,500 Standard Motor Products, Inc. 600,000 11,512,500 Binks Sames Corporation, Restricted Shares(b) 28,000 1,195,040 -------------- 214,519,290 COMMERCIAL REAL ESTATE--5.5% Catellus Development Corporation (a) 4,000,000 $ 74,250,000 Wellsford Real Properties Inc. (a) 341,500 4,951,750 -------------- 79,201,750 DIVERSIFIED CONGLOMERATES--7.4% U.S. Industries, Inc. 3,500,000 $ 105,218,750 -------------- TOTAL COMMON STOCKS (COST: $1,012,013,842) 1,358,584,447
THE OAKMARK SMALL CAP FUND 17 THE OAKMARK SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--5.2% U.S. GOVERNMENT BILLS--0.7% United States Treasury Bills, 5.02% due 4/2/1998 $10,000,000 $ 9,998,606 -------------- TOTAL U.S. GOVERNMENT BILLS (COST: $9,998,606) 9,998,606 COMMERCIAL PAPER--3.5% American Express Credit Corp., 5.52%-5.53% due 4/2/1998-4/9/1998 $15,000,000 $ 15,000,000 Ford Motor Credit Corp., 5.53%-5.54% due 4/3/1998-4/7/1998 15,000,000 15,000,000 General Electric Capital Corporation, 6.02% due 4/1/1998 20,000,000 20,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $50,000,000) 50,000,000 REPURCHASE AGREEMENTS--1.0% State Street Repurchase Agreement, 5.75% due 4/1/1998 $15,244,000 $ 15,244,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $15,244,000) 15,244,000 TOTAL SHORT TERM INVESTMENTS (COST: $75,242,606) 75,242,606 Total Investments (Cost $1,087,256,448)--100.3% (c) $1,433,827,053 Other Liabilities In Excess Of Other Assets--(0.3)% (4,865,029) -------------- TOTAL NET ASSETS--100% $1,428,962,024 -------------- --------------
(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, 1998, net unrealized appreciation of $346,570,605, for federal income tax purposes consisted of gross unrealized appreciation of $360,943,813 and gross depreciation of $14,373,208. 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 (3/31/98) 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 $14,209 3/98 $16,233 $15,331
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/98 TOTAL RETURN FROM FUND INCEPTION 3/31/98 NAV $14.95 LAST 3 MOS. 11/1/95 - -------------------------------------------------------------------------------- THE OAKMARK EQUITY & INCOME FUND 8.7% 22.2% Lipper Balanced Fund Index** 7.9% 19.3% Lehman Govt./ Corp. Bond** 1.5% 7.2% S&P 500 w/ inc** 14.0% 32.9%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Lipper Balanced Fund Index Composite is comprised of 30 balanced funds. The Lehman Govt./Corp. Bond Index includes the Lehman Government and Lehman Corporate indices. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. Past performance is no guarantee of future results. QUARTER UPDATE I am pleased to report that your Fund earned 8.7% in the January through March quarter. This quarter was the third best in the Fund's history, exceeded only by last year's second and third calendar quarters. Virtually all of this splendid outcome originated in the equity segment of the portfolio. Fixed income prices ended the quarter unchanged, meaning that the segment's only contribution to return was income. It has been uncommon in the 1990's for stock prices to march ahead without the aid of declining interest rates. In the first quarter, however, it would appear that equity investors regained the confidence that the fourth quarter's Asian market meltdown had shaken while fixed income investors fretted about the strength of the US economy. Highlights in the Fund in the quarter included Liberty Media, Banc One, Borg-Warner Automotive, Juno Lighting, and Old Republic International, all of which returned more than 20%. DIFFERENCES II For the last 20 years my position as an investment manager has required me to make presentations to trustees, board members, and every other kind of fiduciary that exists. Recently it became my privilege to sit on the other side of the table as I joined the investment committee of a charitable organization. In March, as part of my duties on that committee, I interviewed the principal manager of US common stocks for the charity. The investing process which the manager articulated for his organization is similar to the one in which I was trained at my first employer. His team divides the investing universe into industry groups, decides which groups should be emphasized, and then selects the most attractive 2 or 3 stocks from each industry. This firm's analysts become specialists in narrowly defined niches, and their job is to determine correctly which stocks will do the best within the area which they cover. The consulting community generally refers to this style as "core." THE OAKMARK EQUITY AND INCOME FUND 19 ........................................................................ Our methodology is quite different. We build our portfolios from the bottom up based on finding value on a security by security basis. Our analysts are all generalists who are merely charged with the responsibility of discovering undervaluation. The search for value does not begin with preconceived ideas of which industries might be fertile to exploit. Rather, the search begins with an insight as to how we might look at a business or an industry from a different perspective and thereby gain an edge in terms of valuing the associated securities. If we do not have that insight, if we cannot get our arms around a company and develop a firm understanding of its value, we will not invest in that company no matter how attractive its characteristics. Our approach often results in industries not being represented in the Fund. Usually technology issues are absent because we are uncomfortable valuing companies in businesses which can be obsolete tomorrow. It can also be the case that our analysis tells us that undervaluation is not to be found in a specific industry. This sometimes leads to questions relating to the issue of diversification. I believe that diversification is both overrated and misunderstood. The academic community argues that most benefits of diversification are achieved by the time an equity portfolio has 8-10 holdings. As the asset listing on the next four pages depicts, our process develops a portfolio with holdings in a wide variety of industries even though I have not built the portfolio with that intent. The securities markets exist to provide price information for intangible assets. The market periodically misprices securities. Our tactical mission is to exploit these mistakes wherever and whenever they occur. QUIET PERIOD Last year one of your Fund's holdings (General Signal) announced that it would have a "quiet period" while company leadership worked out plans for restructuring. The just completed quarter was a quiet period for your Fund, but in a different manner. The Fund ended the quarter with the same 23 equity issues with which it began the quarter. I added to many of the holdings as cash came into the Fund, but I did not initiate or eliminate any equity positions. Many years ago one of our firm's founding partners said to me that in our business sometimes the hardest thing to do is to do nothing. And, in fact, many mutual funds demonstrate this by reporting turnover ratios (measures of how many times in a 12-month period the dollars in the portfolio are "turning over" from one security to another) which exceed one or even two. In The Oakmark Equity and Income Fund I strive to keep equity turnover low. Low turnover generally implies low capital gains distributions, something which the Fund's taxable investors will appreciate. But perhaps more importantly, I believe that having a long-term investing horizon provides us with an edge. When I invest in a company's stock, I know that our analysis has measured a gap between the price of the shares and their fundamental value. Our analysis, however, is unable to determine when that gap will close. So, when you observe the Fund in a quiet period, understand that this is a normal outcome of our investing process. As always, please e-mail me with your questions or comments. [SIGNATURE] CLYDE S. MCGREGOR Portfolio Manager mcgregor@oakmark.com April 3, 1998 20 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) ........................................................................
SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.4% FOOD & BEVERAGE--1.6% Philip Morris Companies Inc. 20,000 $ 833,750 OFFICE EQUIPMENT--2.2% Lexmark International Group, Inc., Class A (a) 26,000 $ 1,173,250 OTHER CONSUMER GOODS & SERVICES--3.8% Juno Lighting, Inc. 61,300 $ 1,294,962 National Presto Industries, Inc. 17,000 732,063 -------------- 2,027,025 BANKS--4.4% Banc One Corporation 23,674 $ 1,497,380 Mellon Bank Corporation 13,400 850,900 -------------- 2,348,280 INSURANCE--5.7% PartnerRe Ltd. 32,500 $ 1,596,562 Old Republic International Corporation 33,000 1,462,313 -------------- 3,058,875 TV PROGRAMMING--3.4% Tele-Communications, Liberty Media, Class A (a) 52,800 $ 1,815,000 PUBLISHING--5.0% Dun & Bradstreet Corporation 45,000 $ 1,538,437 Lee Enterprises, Inc. 33,900 1,137,769 -------------- 2,676,206 COMPUTER SERVICES--3.4% Electronic Data Systems Corporation 40,000 $ 1,835,000 DATA STORAGE--3.2% Imation Corp. (a) 92,200 $ 1,705,700 AUTOMOTIVE--7.7% Chrysler Corporation 56,000 $ 2,327,500 Borg-Warner Automotive, Inc. 15,000 961,875 Lear Corporation (a) 15,000 845,625 -------------- 4,135,000 AEROSPACE & DEFENSE--2.5% The Boeing Company 25,800 $ 1,344,825 MACHINERY & METAL PROCESSING--2.0% General Signal Corporation 23,000 $ 1,075,250 BUILDING MATERIALS & CONSTRUCTION--1.6% Armstrong World Industries, Inc. 9,600 $ 831,000
THE OAKMARK EQUITY AND INCOME FUND 21 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
SHARES HELD/ PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.4% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--2.0% Premark International, Inc. 31,500 $ 1,043,438 COMMERCIAL REAL ESTATE--4.6% Catellus Development Corporation (a) 132,728 $ 2,463,763 DIVERSIFIED CONGLOMERATES--4.7% U.S. Industries, Inc. 84,250 $ 2,532,766 FOREIGN SECURITIES--1.6% DeBeers Centenary AG (b) 40,000 $ 877,500 TOTAL EQUITY AND EQUIVALENTS (COST: $23,467,531) 31,776,628 FIXED INCOME--34.5% PREFERRED STOCK--5.7% BANKS--4.9% PennFirst Capital Trust 1, Preferred, 8.625% 70,000 $ 726,250 BBC Capital Trust 1, Preferred, 9.50% 28,000 724,500 Pennfed Capital Trust, Preferred, 8.90% 27,500 701,250 RBI Capital Trust I, Preferred, 9.10% 42,500 451,562 -------------- 2,603,562 OTHER FINANCIAL--0.8% Fidelity Capital Trust I, Preferred, 8.375% 43,500 $ 445,875 TOTAL PREFERRED STOCK (COST: $2,970,738) 3,049,437 CORPORATE BONDS--3.1% OTHER CONSUMER GOODS & SERVICES--0.4% Samsonite Corp., 11.125% due 7/15/2005, Senior Subordinated Note Series B $200,000 $ 231,500 AEROSPACE & AUTOMOTIVE--0.4% Coltec Industries, Inc., 9.75% due 4/1/2000 $150,000 $ 159,375 Coltec Industries, Inc., 9.75% due 11/1/1999 25,000 26,406 -------------- 185,781 BUILDING MATERIALS & CONSTRUCTION--0.3% USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B $150,000 $ 162,938
22 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- FIXED INCOME--34.5% (CONT.) UTILITIES--0.3% Midland Funding Corporation, 11.75% due 7/23/2005 $150,000 $ 176,438 OTHER INDUSTRIAL GOODS & SERVICES--1.7% Scotsman Industries, Inc., 8.625% due 12/15/2007, Senior Subordinated Note $565,000 $ 574,181 UCAR Global Enterprises Inc., 12.00% due 1/15/2005, Senior Subordinated Note 300,000 336,750 -------------- 910,931 TOTAL CORPORATE BONDS (COST: $1,611,530) 1,667,588 GOVERNMENT AND AGENCY SECURITIES--25.7% U.S. GOVERNMENT BONDS--25.1% United States Treasury Notes, 7.50% due 5/15/2002 $5,000,000 $ 5,326,650 United States Treasury Notes, 7.875% due 11/15/2004 3,750,000 4,187,550 United States Treasury Notes, 7.125% due 9/30/1999 3,800,000 3,881,548 -------------- 13,395,748 U.S. GOVERNMENT AGENCIES--0.6% Federal Home Loan Bank, 6.405% due 4/10/2001, Consolidated Bond $300,000 $ 304,797 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $13,502,564) 13,700,545 TOTAL FIXED INCOME (COST: $18,084,832) 18,417,570
THE OAKMARK EQUITY AND INCOME FUND 23 THE OAKMARK EQUITY AND INCOME FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--7.0% COMMERCIAL PAPER--5.6% American Express Credit Corp., 5.52% due 4/2/1998-4/3/1998 $1,000,000 $ 1,000,000 Ford Motor Credit Corp., 5.54% due 4/6/1998 500,000 500,000 General Electric Capital Corporation, 6.02% due 4/1/1998 1,500,000 1,500,000 -------------- TOTAL COMMERCIAL PAPER (COST: $3,000,000) 3,000,000 REPURCHASE AGREEMENTS--1.4% State Street Repurchase Agreement, 5.75% due 4/1/1998 $729,000 $ 729,000 -------------- TOTAL REPURCHASE AGREEMENTS (COST: $729,000) 729,000 TOTAL SHORT TERM INVESTMENTS (COST: $3,729,000) 3,729,000 Total Investments (Cost $45,281,363)--100.9% (c) $ 53,923,198 Other Liabilities In Excess Of Other Assets--(0.9)% (468,113 ) -------------- TOTAL NET ASSETS--100% $ 53,455,085 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) At March 31, 1998, net unrealized appreciation of $8,641,836, for federal income tax purposes consisted of gross unrealized appreciation of $8,862,701 and gross depreciation of $220,865. 24 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK INTERNATIONAL FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS ........................................................................ [PHOTO] [PHOTO] - -------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/98) 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/98 TOTAL RETURN FROM FUND INCEPTION 3/31/98 NAV $14.68 LAST 3 MOS. 9/30/92 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND 14.4% 16.3% Morgan Stanley World ex U.S. w/inc.** 14.7% 12.5% Morgan Stanley EAFE w/ inc** 14.7% 12.3% Lipper Analytical International Fund Index** 14.9% 14.6%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The 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 quarter ended March 31, 1998 has been one marked by a rebound in international markets. This resulted in a strong gain of 14.4% for your Fund. More important, your Fund has generated an average annual rate of return of 16.3% since its inception. This compares quite favorably with returns for this same period of 12.3% and 14.6% for the EAFE and Lipper International indices, respectively. It is important to point out that our returns since inception confirm the benefits of maintaining a long-term value approach in overseas markets. Going forward, we continue to believe that the foreign markets are attractively priced and we are extremely comfortable with how your portfolio is positioned in terms of future appreciation potential. CHINA WILL TAKE ASIA HIGHER Though the world has been exclusively preoccupied with recent events in greater East Asia, it has missed the historical change that is occurring in China. Progressive reformer Zhu Rongji has now replaced party hardliner Li Peng as Prime Minister. Head of State is still Jiang Zemin. Zhu has been in the government as economic czar and was formerly mayor of Shanghai. He is known for his stands against corruption and bureaucracy as well as his adherence to free market economic policies. Though he has only recently been elected to his new position, he has entered the scene in dramatic fashion, promising to slice the bureaucracy in half, representing four million jobs. He has also vowed to reform and privatize the state-owned industries that have THE OAKMARK INTERNATIONAL FUND 25 ........................................................................ been holding China back and to implement new plans to stabilize and strengthen the banking system. More positive yet, listening to his economic philosophy, he sounds more like Adam Smith than even some Western leaders. The importance of sound leadership in China cannot be overestimated. China is a nation of nearly 1.3 billion people and has potential to be one of the world's largest economies. On the microeconomic side, its people have a strong work ethic and entrepreneurial drive. They are educated and have a strong family structure. Unencumbered, there is no telling what they will be able to accomplish in terms of economic advancement. We believe the current government will facilitate rather than impede this advancement. The strength of China will assist the rest of Asia. Given recent very positive political developments throughout the region, we are convinced that the stage is set for a strong recovery. With the exception of political laggards Indonesia and Japan, Asia is ready to resume growth on a more healthy and sustainable basis. CURRENCY CONCERNS One of the biggest areas of concern about China for many Wall Street strategists is the currency. They argue that because much of Asia has devalued, the renminbi and the Hong Kong dollar are next. While a devaluation is possible, we believe it is unlikely and also believe at current prices investors are more than compensated for devaluation risk by the extremely cheap valuations of companies in Hong Kong. The strength of a nation's currency is ultimately dependent on supply and demand. From the supply side, China's responsible monetary policy (as designed by new Prime Minister Zhu Rongji when he was Finance Minister) is keeping money supply growth at a reasonable rate. On the demand side, China is still running a sizeable trade surplus and is still attracting a great deal of foreign direct investment. While the growth of both have slowed, they are still hugely positive and mean continuing demand for the renminbi. Finally, China has over $140 billion in foreign reserves, an amount which ranks second in the world behind only Japan. AND NOW FOR THE STOCKS.... Your Fund is extremely well positioned to take advantage of what we see are improving conditions in East Asia, especially given the weakness in share prices since the summer of 1997. We are finding very reasonably priced, well-run businesses that will benefit over time from economic events. Examples in our portfolio include: hotel companies MANDARIN and HONG KONG AND SHANGHAI HOTEL CORP (Peninsula), airline and aero engine maintenance company HAECO, and pan Asian clothing retailer GIORDANO. Each are leaders in their respective fields, have sound managements and are attractively priced. All are down substantially from their highs. Along with our investments in Malaysia and Korea, we firmly believe these companies in Asia will be strong contributors to the growth in the Fund's net asset value over the next five years. AND, A WORD ABOUT A BLAST FROM THE PAST A few years back, there was a change in the board chairman at Saatchi & Saatchi Plc. Though this change caused some initial instability and weakness in the share price, things have dramatically changed for the better over the past few years. First, the holding company was renamed Cordiant Plc. Secondly, new management was put in place that is very focused on building the VALUE of the business rather than just the SIZE. Then, in December last year, in a move designed to unlock shareholder value, the holding company split into its two major advertising groups, Saatchi & Saatchi Advertising and Bates Worldwide. Bates has kept the name Cordiant while Saatchi & Saatchi was relisted as such. Both have been doing extremely well from a business perspective and their share prices on the stock exchange have reflected the change as well. In fact, Saatchi & Saatchi is up year-to-date a stunning 45%! We feel that the share prices of both (which remain large positions in the Fund) have a long way to go. /s/ David Herro DAVID HERRO Portfolio Manager 72242.772@compuserve.com /s/ Michael J. Welsh MICHAEL J. WELSH Co-Portfolio Manager 102521.2142@compuserve.com April 2, 1998 26 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--MARCH 31, 1998 ........................................................................ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC PACIFIC RIM 25.4% EUROPE 52.2% LATIN AMERICA 17.4%
% OF FUND NET ASSETS ------------------------------- EUROPE 52.2% Great Britain 25.5% France 8.7% Italy 5.7% Switzerland 3.9% Sweden 3.7% Netherlands 3.1% Finland 1.2% Germany 0.2% Spain 0.2% LATIN AMERICA 17.4% Brazil 10.2% Argentina 4.1% Panama 3.1% % OF FUND NET ASSETS ------------------------------- PACIFIC RIM 25.4% Hong Kong 6.8% New Zealand 6.7% Japan 3.6% Korea 3.0% Malaysia 1.9% Singapore 1.7% Australia 1.3% Thailand 0.4%
THE OAKMARK INTERNATIONAL FUND 27 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--95.0% CONSUMER NON-DURABLES--5.5% Fila Holding S.p.A. (Italy), (b)(e) Athletic Footwear Manufacturing 2,294,500 $ 53,777,344 Gucci Group (Netherlands), (b) Luxury Goods 325,000 15,437,500 Yue Yuen Industrial Holdings (Hong Athletic Footwear Manufacturing Kong) 3,245,600 6,324,664 BYC Co. Ltd. (Korea), (e) Textile Manufacturer 33,540 1,549,863 -------------- 77,089,371 FOOD & BEVERAGE--18.4% Quilmes Industrial SA (Argentina), Brewer (b)(e) 5,082,800 $ 58,134,525 Lion Nathan Limited (New Zealand) Brewer 21,462,700 55,283,949 Tate & Lyle PLC (Great Britain) Sugar Producer & Distributor 5,242,700 45,899,910 Pernod Ricard (France) Manufactures Wines, Spirits, & Fruit 602,579 40,933,563 Juices Montedison S.p.A. (Italy) Agro-industrial & Agricultural Services 17,486,000 25,754,202 Nestle SA (Switzerland) Producer of Foods & Drinks 8,440 16,127,071 Lotte Chilsung Beverage Company Manufacturer of Soft Drinks, Juices, & (Korea), (e) Sport Drinks 123,000 6,216,606 Lotte Confectionery Company (Korea) Confection Manufacturer 65,270 5,937,921 Bongrain SA (France) Dairy Procucts 8,812 4,493,089 -------------- 258,780,836 HOUSEHOLD PRODUCTS--2.1% Amway Japan Limited (Japan) Marketing of Household Products 1,866,700 $ 28,023,268 Amway Japan Limited (Japan), (b) Marketing of Household Products 152,400 1,228,725 -------------- 29,251,993 RETAIL--1.2% Giordano International Limited (Hong East Asian Clothing Retailer & Kong), (e) Manufacturer 67,299,000 $ 17,283,322
28 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--95.0% (CONT.) OTHER CONSUMER GOODS & SERVICES--4.5% Mandarin Oriental International Hotel Management Limited (Singapore) 29,039,000 $ 23,231,200 Sankyo Company, Ltd. (Japan) Pachinko Machine Manufacturer 1,172,800 21,567,723 The Hongkong and Shanghai Hotels, Hotel Operator Limited (Hong Kong) 23,233,000 19,039,019 -------------- 63,837,942 TELECOMMUNICATIONS--3.8% Technology Resources Industries Telecommunications Berhad (Malaysia) 22,810,000 $ 25,997,150 Telecomunicacoes Brasileiras S.A. Telecommunications (Brazil) 223,100,000 23,055,629 SK Telecom Co. Ltd. (Korea) Telecommunications 10,395 4,045,419 -------------- 53,098,198 TRANSPORTATION--3.7% Volvo AB, Class B (Sweden) Automobiles and Trucks 1,642,600 $ 52,284,623 TRANSPORTATION SERVICES--2.8% Danzas Holding AG (Switzerland), (a) Freight Distributor 149,950 $ 38,852,247 BANKS--7.7% Banco Latinoamericano de Multinational Bank Exportaciones, S.A., Class E (Panama), (b)(e) 1,148,600 $ 43,216,075 Uniao de Bancos Brasileiros S.A. Major Brazilian Bank (Brazil), (c) 1,155,000 41,868,750 Uniao de Bancos Brasileiros Major Brazilian Bank S.A.-units (Brazil) 291,912,500 21,001,268 Banco Popular Espanol SA (Spain) Large Spanish Bank 25,972 2,522,389 -------------- 108,608,482 OTHER FINANCIAL--4.4% Sedgwick Group plc (Great Britain) Insurance Broker, Financial Services 22,985,000 $ 61,370,595
THE OAKMARK INTERNATIONAL FUND 29 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--95.0% (CONT.) MARKETING SERVICES--7.0% Saatchi & Saatchi plc (Great Britain), Advertising Services (a)(e) 20,297,578 $ 54,025,212 Cordiant Communications Group plc Advertising Services (Great Britain), (e) 21,497,578 44,263,911 -------------- 98,289,123 BROADCASTING & PUBLISHING--1.6% Europe 1 Communication (France) Television Production 74,020 $ 19,682,930 Woongjin Publishing Company (Korea), Publisher (e) 148,410 3,182,511 -------------- 22,865,441 AEROSPACE--5.1% Rolls-Royce plc (Great Britain) Jet Engines 11,218,552 $ 52,254,893 Hong Kong Aircraft Engineering Company Commercial Aircraft Overhaul & Ltd. (Hong Kong), (e) Maintenance 10,208,900 19,762,221 -------------- 72,017,114 CHEMICALS--4.8% Fernz Corporation Limited (New Agricultural & Industrial Chemical Zealand), (e) Producer 14,044,900 $ 38,816,595 European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands), (e) 1,367,785 28,209,192 -------------- 67,025,787 COMPONENTS--2.2% Varitronix International Limited (Hong Liquid Crystal Displays Kong), (e) 15,538,000 $ 31,181,073 MACHINERY & METAL PROCESSING--0.2% The Rauma Group (Finland) Pulp Machinery 155,000 $ 2,871,163 MINING AND BUILDING MATERIALS--2.3% Pioneer International Limited Concrete Products, Aggregates (Australia) 6,585,176 $ 18,944,708 Keumkang Ltd. (Korea), (e) Building Materials 470,660 6,898,482 Siam City Cement Public Company Cement Producer Limited (Thailand) 2,082,349 5,556,459
30 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--95.0% (CONT.) MINING AND BUILDING MATERIALS--2.3% (CONT.) Asia Cement Manufacturing Company Ltd. Cement Producer (Korea) 40,350 $ 407,870 -------------- 31,807,519 OTHER INDUSTRIAL GOODS & SERVICES--10.3% Tomkins plc (Great Britain) Industrial Management Company 12,595,000 $ 76,798,502 Chargeurs SA (France), (e) Wool Production Holding Company 614,249 39,744,066 Kone Corporation, Class B (Finland) Elevators 103,870 14,060,362 Groupe Legris Industries SA (France) European Crane Manufacturer 217,815 9,489,318 Buderus AG (Germany), (a) Industrial Manufacturing Firm 7,600 3,418,778 Dongah Tire Industry Tire Manufacturer Company (Korea),(a) 35,000 1,490,975 -------------- 145,002,001 STEEL--4.1% USIMINAS (Brazil), (a)(e) Steel Production 7,011,370 $ 56,732,281 Pohang Iron & Steel Manufactures Steel Products Company Ltd. (Korea) 14,000 626,715 -------------- 57,358,996 DIVERSIFIED CONGLOMERATES--3.3% Securicor plc (Great Britain) Diversified Consumer Services Company 3,550,500 $ 24,249,613 Tae Young Corporation (Korea), (e) Heavy Construction 560,480 11,978,490 Compagnie Generale des Eaux (France) Industrial Services 50,000 8,116,176 Lamex Holdings Ltd. (Hong Kong), (e) Office Furniture Supplier 14,040,000 1,793,774 -------------- 46,138,053 TOTAL COMMON STOCKS (COST: $1,275,806,431) 1,335,013,879
THE OAKMARK INTERNATIONAL FUND 31 THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS--4.6% COMMERCIAL PAPER--3.6% American Express Credit Corp., 5.52%-5.53% due 4/13/1998-4/17/1998 $20,000,000 $ 20,000,000 Ford Motor Credit Corp., 5.53% due 4/3/1998-4/14/1998 10,000,000 10,000,000 General Electric Capital Corporation, 6.02% due 4/1/1998 20,000,000 20,000,000 -------------- 50,000,000 REPURCHASE AGREEMENTS--1.0% State Street Repurchase Agreement, 5.75% due 4/1/1998 $14,052,000 $ 14,052,000 TOTAL SHORT TERM INVESTMENTS (COST: $64,052,000) 64,052,000 Total Investments (Cost $1,339,858,431)--99.6% (f) $1,399,065,879 Foreign Currencies (Proceeds $1,158,033)--0.1% 1,149,513 Other Assets In Excess Of Other Liabilities--0.3% (d) 4,322,769 -------------- TOTAL NET ASSETS--100% $1,404,538,161 -------------- --------------
(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, 1998, net unrealized appreciation of $59,198,928, for federal income tax purposes consisted of gross unrealized appreciation of $217,932,134 and gross depreciation of $158,733,206. 32 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 (3/31/98) 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
AVERAGE ANNUAL TOTAL RETURN* THROUGH 3/31/98 TOTAL RETURN FROM FUND INCEPTION 3/31/98 NAV $9.59 LAST 3 MOS. 11/1/95 - -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND 18.5% 5.7% Morgan Stanley World ex U.S. w/inc.** 14.7% 12.9% Lipper Analytical International Small Cap Fund Average** 18.0% 14.3% Micropal International Small Co. Fund Index** 17.2% 13.6%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of 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 48 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: For the second fiscal quarter ended March 31, 1998, The International Small Cap Fund achieved its best ever quarterly return of 18.5%. This compares favorably with returns of 14.7% for the Morgan Stanley World ex-U.S. index and 17.2% for the Micropal International Small Cap Index. World equity markets have bounced back strongly from a difficult ending in 1997. European markets have been especially buoyant, though a stronger dollar has trimmed some of the gains for US investors. In addition, the bombed out markets of emerging Asia have started the year strongly. This is especially true of Korea and Thailand, which were both up over 40% in US dollars. Conversely, the Japanese equity market continues its dramatic underperformance of the rest of the world's developed markets. The equity markets, especially for small capitalization companies, continue to be sold down due to near-universal negative sentiment and to frustration with the paralysis of the country's politicians. While the short term remains uncertain, we believe that Japanese small caps currently are at some of the cheapest valuations in the world. In summary, although many overseas markets have performed well recently, we still see excellent value opportunities throughout the world, and remain especially excited by the prospects for the companies in your portfolio. THE OAKMARK INTERNATIONAL SMALL CAP FUND 33 ........................................................................ LONG-TERM INVESTING As you know, we invest the Fund's assets using a disciplined, long-term value approach. One of the many advantages of this approach is the ability to capitalize on the market's fixation with short run factors. Consistently, history has shown that the best investment opportunities arrive when the situation looks the most bleak (or, as John Templeton calls it, "at the point of maximum pessimism"). While many will pay lip service to this concept, very few investors have the discipline to implement it. In our last quarterly letter we described in great detail the specific company investments which had the biggest impact on the Fund's net asset value for the calendar year 1997. The five stocks with the largest negative impacts were all in Asia and each one experienced huge downward price volatility in the fourth quarter. As prices continued to plunge, we continued to buy as market prices reflected larger and larger discounts to underlying intrinsic value. Now, three months later, the picture has changed dramatically for 1997's five worst performers. These companies-- Woonjin Publishing (Korea), Hite Brewery (Korea), Matichon (Thailand), Daimon (Japan), and JCG Holdings (Hong Kong)--were up an impressive 60% on average for the quarter. And from their fourth quarter lows, their share prices were up nearly 100% on average in US dollar terms. In times of panic like the fourth quarter of 1997 in Asia, great investment opportunities emerge. As stock pickers, our job is to evaluate all the opportunities markets around the world have to offer, and to invest in those which meet our demanding value criteria. This is exactly the philosophy we used in the fourth quarter when many investors decided they simply wanted out of Asia regardless of price. ASIA THREE MONTHS LATER Make no mistake, neither the flow of negative news nor the short-term volatility in Asia are over. It appears, however, that at least the panic selling in the markets and the currencies has ended. There has even been an increasing trickle of positive news, mainly political in nature. The new leadership in Thailand and Korea have shown very encouraging signs of jettisoning the discredited ways of the past, freeing up their economies and implementing IMF reforms. Developments in China have also been positive, as we detail in this quarter's letter for The Oakmark International Fund. Conversely, politicians and the entrenched bureaucracy in Japan seem intent on continuing to play Nero, fiddling while their economy and financial system burn. Their time to dither appears to be running out and the positive changes we are seeing in the corporate sector (closer attention to returns, share buybacks, restructuring) should eventually translate into changes in the way the country is governed. Regardless, even considering pessimistic scenarios, the Fund's investments in Japan trade at significant discounts to underlying business value. While most Asian markets have snapped back from the lows, we are still very excited about the values we are finding for The Oakmark International Small Cap Fund. Your Fund's investments in the region represent 45% of the total portfolio and are composed of 8.1% in Hong Kong, 7.3% in South Korea, 11.5% in Japan, 13.1% in Australia and New Zealand, 2.7% in Thailand, and 1.9% in the Philippines. These businesses all trade at significant discounts to business value and are run by shareholder-oriented managements. [SIGNATURE] DAVID G. HERRO Portfolio Manager 72242.772@compuserve.com [SIGNATURE] MICHAEL J. WELSH Co-Portfolio Manager 102521.2142@compuserve.com April 2, 1998 34 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--MARCH 31, 1998 ........................................................................ EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC PACIFIC RIM 44.6% EUROPE 35.1% LATIN AMERICA 5.4% OTHER COUNTRIES 2.6%
% OF FUND NET ASSETS ------------------------------- PACIFIC RIM 44.6% Japan 11.5% Hong Kong 8.1% Korea 7.3% New Zealand 6.9% Australia 6.2% Thailand 2.7% Philippines 1.9% LATIN AMERICA 5.4% Brazil 4.7% Panama 0.7% % OF FUND NET ASSETS ------------------------------- EUROPE 35.1% Great Britain 19.2% Germany 5.6% Italy 3.1% France 3.1% Netherlands 2.8% Turkey 1.3% OTHER 2.6% Canada 2.6%
THE OAKMARK INTERNATIONAL SMALL CAP FUND 35 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--87.7% CONSUMER NON-DURABLES--0.8% Knit Fabrics Designer Textiles (NZ) Limited (New Zealand), (d) 2,960,000 $ 736,263 FOOD & BEVERAGE--7.1% Matthew Clark plc (Great Britain) Spirits & Drinks 984,000 $ 3,483,859 Alaska Milk Corporation Milk Producer (Philippines), (a) 28,587,000 1,639,991 Hite Brewery Company (Korea) Brewer 110,010 1,008,756 -------------- 6,132,606 HOUSEHOLD PRODUCTS--2.6% WMF (Germany) Tableware and Kitchenware 7,032 $ 1,121,592 Eczacibasi Yapi Gerecleri Sanayi ve Ceramic Bath Products Ticaret A.S. (Turkey), (a) 55,531,200 1,096,394 -------------- 2,217,986 RETAIL--6.9% Somerfield plc (Great Britain) Food Retailer 341,000 $ 2,040,730 Daimon (Japan), (d) Liquor Retailer & Distributor 577,200 1,646,358 Paris Miki Inc. (Japan) Optical Supplies Retailer 67,800 961,846 Giordano International Limited East Asian Clothing Retailer & (Hong Kong) Manufacturer 3,210,000 824,373 Jusco Stores (Hong Kong) Co., Limited (Hong Kong) Department Stores 2,906,000 555,038 -------------- 6,028,345 OTHER CONSUMER GOODS & SERVICES--8.0% CeWe Color Holding AG (Germany) Photo Equipment & Supplies 14,850 $ 3,733,476 Sanford Limited (New Zealand) Fisheries 1,604,940 2,350,896 Vardon plc (Great Britain) Bingo Clubs 285,000 889,772 -------------- 6,974,144 TELECOMMUNICATIONS--0.4% SK Telecom Co. Ltd. (Korea) Telecommunications 803 $ 312,503 PHARMACEUTICAL--3.1% Recordati (Italy) Pharmaceuticals 224,500 $ 2,715,428
36 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--87.7% (CONT.) BANKS--1.0% Banco Latinoamericano de Multinational Bank Exportaciones, S.A., Class E (Panama), (b) 15,300 $ 575,662 Shinhan Bank (Korea) Commercial Bank 47,765 249,686 Kookmin Bank (Korea) Commercial Bank 6,985 52,957 Kookmin Bank Rights (Korea) Commercial Bank 6,985 4,427 -------------- 882,732 INVESTMENT COMPANIES--0.9% Direct Capital Partners Limited Investment Fund for Unlisted (New Zealand) New Zealand Companies 2,237,000 $ 741,901 OTHER FINANCIAL--10.4% JCG Holdings Ltd. (Hong Kong) Investment Holding Company 7,508,000 $ 3,851,474 Lambert Fenchurch Group plc (Great Insurance Broker Britain) 2,031,000 3,824,878 Ichiyoshi Securities (Japan) Stock Broker 915,000 1,311,803 -------------- 8,988,155 COMPUTER SOFTWARE--4.7% Enix Corporation (Japan) Entertainment Software 130,200 $ 2,853,698 Koei (Japan) Computer Software 165,500 1,254,682 -------------- 4,108,380 COMPUTER SYSTEMS--2.7% Solution 6 Holdings Limited Systems Design & Consulting (Australia), (a)(d) 4,050,893 $ 2,303,990 MARKETING SERVICES--7.4% Cordiant Communications Group plc Advertising Services (Great Britain) 1,808,500 $ 3,723,735 Saatchi & Saatchi plc (Great Britain), (a) Advertising Services 1,022,500 2,721,545 -------------- 6,445,280 BROADCASTING & PUBLISHING--5.9% Woongjin Publishing Company (Korea), Publisher (d) 130,216 $ 2,792,358 Matichon Public Company Limited, Newspaper Publisher Foreign Shares (Thailand), (d) 1,468,100 2,238,526 Matichon Public Company Limited Newspaper Publisher (Thailand), (d) 70,400 72,010 -------------- 5,102,894
THE OAKMARK INTERNATIONAL SMALL CAP FUND 37 THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--87.7% (CONT.) CHEMICALS--2.8% European Vinyls Corporation PVC Manufacturer International N.V. (Netherlands) 117,100 $ 2,415,070 MACHINERY & METAL PROCESSING--0.7% Denyo Co., Ltd. (Japan) Welding Machines & Power Generators 114,000 $ 581,873 MINING AND BUILDING MATERIALS--4.0% Parbury Limited (Australia), (d) Building Products 11,019,712 $ 3,097,351 Asia Cement Manufacturing Company Cement Producer (Korea) Ltd. 36,150 365,415 -------------- 3,462,766 OTHER INDUSTRIAL GOODS & SERVICES--10.7% Elevadores Atlas, SA (Brazil) Elevators 279,200 $ 4,051,715 Yip's Hang Cheung Ltd. (Hong Kong) Paint & Solvents 23,218,000 1,558,094 Nishio Rent All Company (Japan) Construction Equipment Rental 159,200 1,422,015 Dongah Tire Industry Company (Korea), Tire Manufacturer (a) 29,900 1,273,719 Groupe Legris Industries SA (France) European Crane Manufacturer 17,400 758,048 Lamex Holdings Ltd. (Hong Kong) Office Furniture Supplier 2,110,000 269,577 -------------- 9,333,168 PRODUCTION EQUIPMENT--4.8% Skyjack Inc. (Canada), (a) Producer of Elevating Platforms & Lifts 118,700 $ 2,215,912 NSC Groupe (France) Manufacturer of Textile Equipment 14,895 1,970,779 -------------- 4,186,691 STEEL--2.8% Steel & Tube Holdings Ltd. (New Produces and Distributes Steel Zealand) 2,242,400 $ 2,169,102 Pohang Iron & Steel Company Ltd. Manufactures Steel Products (Korea) 6,580 294,556 -------------- 2,463,658 TOTAL COMMON STOCKS (COST: $83,833,573) 76,133,833
38 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND - -------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 1998 (UNAUDITED) CONT. ........................................................................
PRINCIPAL VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS--9.2% COMMERCIAL PAPER--6.9% American Express Credit Corporation, 5.53%-5.59% due 4/1/1998-4/8/1998 $2,000,000 $ 2,000,000 Ford Motor Credit Corp., 5.55%-5.57% due 4/3/1998-4/6/1998 1,500,000 1,500,000 General Electric Capital Corporation, 6.02% due 4/1/1998 2,500,000 2,500,000 -------------- 6,000,000 REPURCHASE AGREEMENTS--2.3% State Street Repurchase Agreement, 5.75% due 4/1/1998 $2,001,000 $ 2,001,000 TOTAL SHORT TERM INVESTMENTS (COST: $8,001,000) 8,001,000 Total Investments (Cost $91,834,573)--96.9% (e) $ 84,134,833 Foreign Currencies (Proceeds $11,921)--0.0% 11,921 Other Assets In Excess Of Other Liabilities--3.1% (c) 2,694,844 -------------- TOTAL NET ASSETS--100% $ 86,841,598 -------------- --------------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Includes transaction hedges. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At March 31, 1998, net unrealized depreciation of $7,699,659, for federal income tax purposes consisted of gross unrealized appreciation of $6,775,502 and gross depreciation of $14,475,161. THE OAKMARK INTERNATIONAL SMALL CAP FUND 39 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--MARCH 31, 1998 ........................................................................
THE OAKMARK THE OAKMARK SELECT FUND FUND - ------------------------------------------------------------------------------ ASSETS Investments, at value $9,289,480,621 $1,496,796,894 (cost: $1,087,256,448) (cost: $1,182,504,745) Cash 909 803 Foreign currency, at value 0 0 Collateral for securities loaned, at value 0 103,024,970 Receivable for: Forward foreign currency contracts 0 0 Securities sold 19,773,233 0 Fund shares sold 16,606,899 13,245,891 Dividends and interest 21,443,125 486,690 -------------------- -------------------- Total receivables 57,823,257 13,732,581 Other assets 0 2,540 -------------------- -------------------- Total assets $9,347,304,787 $1,613,557,788 -------------------- -------------------- -------------------- -------------------- .............................................................................. LIABILITIES AND NET ASSETS Payable for: Collateral for securities loaned, at value $ 0 $ 103,024,970 Securities purchased 411,535,249 21,317,645 Fund shares redeemed 8,269,287 747,878 Due to adviser 6,459,053 1,057,798 Forward foreign currency contracts 0 0 Other 2,649,485 545,496 -------------------- -------------------- Total liabilities 428,913,074 126,693,787 -------------------- -------------------- Net assets applicable to fund shares outstanding $8,918,391,713 $1,486,864,001 -------------------- -------------------- -------------------- -------------------- Fund shares outstanding 200,715,978 74,843,827 -------------------- -------------------- -------------------- -------------------- .............................................................................. PRICE OF SHARES Net asset value per share $ 44.43 $ 19.87 -------------------- -------------------- -------------------- -------------------- .............................................................................. ANALYSIS OF NET ASSETS Paid in capital $5,950,210,580 $1,163,238,683 Accumulated undistributed net realized gain on sale of investments, forward contracts and foreign currency exchange transactions 544,826,405 8,487,779 Net unrealized appreciation/depreciation of investments 2,391,715,022 314,292,149 Net unrealized depreciation of foreign currency portfolio hedges 0 0 Net unrealized appreciation/depreciation--other 0 0 Accumulated undistributed net investment income (loss) 31,639,706 845,390 -------------------- -------------------- Net assets applicable to Fund shares outstanding $8,918,391,713 $1,486,864,001 -------------------- -------------------- -------------------- --------------------
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 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value $1,433,827,053 $53,923,198 $1,399,065,879 $84,134,833 (cost: $1,087,256,448) (cost: $45,281,363) (cost: $1,339,858,431) (cost: $91,834,573) Cash 695 527 3,904,143 632 Foreign currency, at value 0 0 1,149,513 12,003 Collateral for securities loaned, at value 144,533,644 3,367,985 149,912,019 1,328,000 Receivable for: Forward foreign currency contracts 0 0 177,070 0 Securities sold 1,228,978 0 1,739,065 840,463 Fund shares sold 1,557,114 245,748 3,194,865 2,242,296 Dividends and interest 786,560 380,748 8,294,468 613,293 -------------------- -------------------- -------------------- -------------------- Total receivables 3,572,652 626,496 13,405,468 3,696,052 Other assets 3,766 3,766 0 3,767 -------------------- -------------------- -------------------- -------------------- Total assets $1,581,937,810 $57,921,972 $1,567,437,022 $89,175,287 -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- .............................................................................................................................. LIABILITIES AND NET ASSETS Payable for: Collateral for securities loaned, at value $ 144,533,644 $ 3,367,985 $ 149,912,019 $ 1,328,000 Securities purchased 3,242,413 971,764 8,567,044 721,276 Fund shares redeemed 3,319,014 49,183 1,237,053 68,558 Due to adviser 1,420,886 29,602 1,101,882 76,402 Forward foreign currency contracts 0 0 1,250,165 5,968 Other 459,829 48,353 830,698 133,485 -------------------- -------------------- -------------------- -------------------- Total liabilities 152,975,786 4,466,887 162,898,861 2,333,689 -------------------- -------------------- -------------------- -------------------- Net assets applicable to fund shares outstanding $ 1,428,962,024 $ 53,455,085 $ 1,404,538,161 $ 86,841,598 -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- Fund shares outstanding 68,713,861 3,576,587 95,692,819 9,059,700 -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- .............................................................................................................................. PRICE OF SHARES Net asset value per share $ 20.80 $ 14.95 $ 14.68 $ 9.59 -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- .............................................................................................................................. ANALYSIS OF NET ASSETS Paid in capital $ 1,053,623,090 $ 44,331,604 $ 1,307,485,365 $ 93,771,374 Accumulated undistributed net realized gain on sale of investments, forward contracts and foreign currency exchange transactions 33,564,804 114,832 15,096,240 110,463 Net unrealized appreciation/depreciation of investments 346,570,605 8,641,836 59,198,928 (7,699,659) Net unrealized depreciation of foreign currency portfolio hedges 0 0 (1,041,815) 0 Net unrealized appreciation/depreciation--other 0 0 (57,810) 7,037 Accumulated undistributed net investment income (loss) (4,796,475) 366,813 23,857,253 652,383 -------------------- -------------------- -------------------- -------------------- Net assets applicable to Fund shares outstanding $ 1,428,962,024 $ 53,455,085 $ 1,404,538,161 $ 86,841,598 -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 41 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--MARCH 31, 1998 ........................................................................
THE OAKMARK THE OAKMARK SELECT FUND FUND - ------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 62,534,109 $ 4,204,811 Interest Income 25,585,555 2,306,096 Securities lending income 0 27,365 Foreign taxes withheld (1,025,061) 0 -------------------- -------------------- Total investment income 87,094,603 6,538,272 .............................................................................. EXPENSES: Investment advisory fee 33,717,852 4,349,918 Transfer and dividend disbursing agent fees 1,903,507 381,831 Other shareholder servicing fees 1,430,693 284,566 Reports to shareholders 773,063 78,084 Custody and accounting fees 409,676 77,842 Registration and blue sky expenses 347,857 233,976 Trustees fees 23,028 7,306 Legal fees 24,443 6,212 Audit fees 11,783 9,290 Other 191,351 18,777 -------------------- -------------------- Total expenses 38,833,253 5,447,802 Expense offset arrangements (4,367) (1,806) -------------------- -------------------- Net expenses 38,828,886 5,445,996 -------------------- -------------------- .............................................................................. NET INVESTMENT INCOME (LOSS): 48,265,717 1,092,276 .............................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS and foreign currency transactions: Net realized gain on investments 633,222,207 10,299,431 Net realized loss on foreign currency transactions (8,898) 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 372,029,008 226,616,982 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: 1,005,242,317 236,916,413 -------------------- -------------------- .............................................................................. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,053,508,034 $ 238,008,689 -------------------- -------------------- -------------------- --------------------
42 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 $4,819,061 $331,902 $15,720,184 $1,007,674 Interest Income 2,107,212 442,370 1,472,442 110,067 Securities lending income 203,283 3,059 1,087,514 4,814 Foreign taxes withheld 0 0 (852,866) (98,308) ----------- ---------- ------------ ----------- Total investment income 7,129,556 777,331 17,427,274 1,024,247 .............................................................................................................................. EXPENSES: Investment advisory fee 8,829,969 147,225 6,775,248 377,130 Transfer and dividend disbursing agent fees 445,863 39,877 472,479 46,434 Other shareholder servicing fees 396,980 4,461 297,504 11,466 Reports to shareholders 159,128 7,562 188,510 15,159 Custody and accounting fees 101,028 23,996 690,517 88,054 Registration and blue sky expenses 18,861 18,356 20,156 15,640 Trustees fees 9,248 4,707 6,894 4,597 Legal fees 8,889 4,602 8,031 5,441 Audit fees 9,690 9,590 13,180 12,083 Other 33,613 5,005 99,564 10,057 ----------- ---------- ------------ ----------- Total expenses 10,013,269 265,381 8,572,083 586,061 Expense offset arrangements (47,877) (64) (72,897) (279) ----------- ---------- ------------ ----------- Net expenses 9,965,392 265,317 8,499,186 585,782 ----------- ---------- ------------ ----------- .............................................................................................................................. NET INVESTMENT INCOME (LOSS): (2,835,836) 512,014 8,928,088 438,465 .............................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain on investments 49,515,599 691,349 47,920,883 1,592,506 Net realized loss on foreign currency transactions 0 0 (2,651,824) (106,249) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 38,608,650 3,183,600 (94,851,410) (6,531,506) Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 (1,603,281) (5,968) Net change in appreciation (depreciation)--other 0 0 (29,929) 9,536 ----------- ---------- ------------ ----------- .............................................................................................................................. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: 88,124,249 3,874,949 (51,215,561) (5,041,681) ----------- ---------- ------------ ----------- .............................................................................................................................. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $85,288,413 $4,386,963 $(42,287,473) $(4,603,216) ----------- ---------- ------------ ----------- ----------- ---------- ------------ -----------
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, 1998 ........................................................................
THE OAKMARK FUND -------------------------------------------- SIX MONTHS ENDED ELEVEN MONTHS ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 - ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 48,265,717 $55,858,346 Net realized gain on sale of investments 633,222,207 239,442,987 Net realized loss on foreign currency transactions (8,898) (2,673) Net change in unrealized appreciation 372,029,008 1,231,138,352 -------------- -------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 1,053,508,034 1,526,437,012 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income (66,320,892) (41,659,757) Net realized short-term gain (25,210,568) (13,947,126) Net realized long-term gain (302,991,525) (212,039,549) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (394,522,985) (267,646,432) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 1,885,741,953 2,107,074,877 Reinvestment of dividends and capital gain distributions 376,564,699 256,384,877 Payments for shares redeemed (617,848,616) (941,237,366) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,644,458,036 1,422,222,388 -------------- -------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 2,303,443,085 2,681,012,968 NET ASSETS: Beginning of period 6,614,948,628 3,933,935,660 -------------- -------------- End of period $8,918,391,713 $6,614,948,628 -------------- -------------- -------------- -------------- Undistributed net investment income $ 31,639,706 $ 49,694,881 -------------- -------------- -------------- -------------- * DISTRIBUTIONS PER SHARE: Net investment income 0.3996 0.3441 Net realized short-term gain 0.1519 0.1152 Net realized long-term gain 1.8256 1.7514 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 2.3771 $ 2.2107 -------------- -------------- -------------- --------------
44 THE OAKMARK FAMILY OF FUNDS
.............................................................................. THE OAKMARK SELECT FUND -------------------------------------------- SIX MONTHS ENDED ELEVEN MONTHS ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 - ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income (loss) $ 1,092,276 $ (246,886) Net realized gain on sale of investments 10,299,431 5,070,435 Net change in unrealized appreciation 226,616,982 87,675,167 -------------- -------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 238,008,689 92,498,716 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income 0 0 Net realized short-term gain (6,882,086) 0 Net realized long-term gain 0 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (6,882,086) 0 .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 960,911,310 571,117,746 Reinvestment of dividends and capital gain distributions 6,562,085 -- Payments for shares redeemed (225,910,569) (149,441,890) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 741,562,826 421,675,856 -------------- -------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 972,689,429 514,174,572 NET ASSETS: Beginning of period 514,174,572 0 -------------- -------------- End of period $1,486,864,001 $ 514,174,572 -------------- -------------- -------------- -------------- Undistributed net investment income (loss) $ 845,390 $ (246,886) -------------- -------------- -------------- -------------- * DISTRIBUTIONS PER SHARE: Net investment income 0 0 Net realized short-term gain 0.1678 0 Net realized long-term gain 0 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1678 $ 0 -------------- -------------- -------------- --------------
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 SMALL CAP FUND -------------------------------------------- SIX MONTHS ENDED ELEVEN MONTHS ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 - ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment loss $ (2,835,836) $ (1,684,439) Net realized gain on sale of investments 49,515,599 46,501,798 Net change in unrealized appreciation 38,608,650 287,859,202 -------------- -------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 85,288,413 332,676,561 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income 0 0 Net realized short-term gain (35,041,338) 0 Net realized long-term gain (27,167,964) 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (62,209,302) 0 .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 316,443,701 1,289,718,462 Reinvestment of dividends and capital gain distributions 58,840,098 0 Payments for shares redeemed (482,796,526) (327,419,790) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (107,512,727) 962,298,672 -------------- -------------- .............................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS (84,433,616) 1,294,975,233 NET ASSETS: Beginning of period 1,513,395,640 218,420,407 -------------- -------------- End of period $1,428,962,024 $1,513,395,640 -------------- -------------- -------------- -------------- Undistributed net investment loss $ (4,796,475) $ (1,960,639) -------------- -------------- -------------- -------------- * DISTRIBUTIONS PER SHARE: Net investment income 0 0 Net realized short-term gain 0.4738 0 Net realized long-term gain 0.3674 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.8412 $ 0
46 THE OAKMARK FAMILY OF FUNDS
.............................................................................. THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------- SIX MONTHS ENDED ELEVEN MONTHS ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 - ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 512,014 $ 471,744 Net realized gain on sale of investments 691,349 904,824 Net change in unrealized appreciation 3,183,600 4,554,518 -------------- -------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 4,386,963 5,931,086 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income (594,007) (148,466) Net realized short-term gain (882,071) (162,188) Net realized long-term gain (599,021) 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (2,075,099) (310,654) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 23,850,818 24,903,007 Reinvestment of dividends and capital gain distributions 1,964,129 288,850 Payments for shares redeemed (8,134,239) (11,148,702) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 17,680,708 14,043,155 -------------- -------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 19,992,572 19,663,587 NET ASSETS: Beginning of period 33,462,513 13,798,926 -------------- -------------- End of period $ 53,455,085 $ 33,462,513 -------------- -------------- -------------- -------------- Undistributed net investment income $ 366,813 $ 448,806 -------------- -------------- -------------- -------------- * DISTRIBUTIONS PER SHARE: Net investment income 0.2359 0.1202 Net realized short-term gain 0.3503 0.1311 Net realized long-term gain 0.2379 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.8241 $ 0.2513
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 47 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 1998 CONT. ........................................................................
THE OAKMARK INTERNATIONAL FUND -------------------------------------------- SIX MONTHS ENDED ELEVEN MONTHS ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 - ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 8,928,088 $ 27,666,383 Net realized gain on sale of investments 47,920,883 217,090,057 Net realized gain (loss) on foreign currency transactions (2,651,824) 17,724,883 Net change in unrealized appreciation (depreciation) (94,851,410) 70,717,122 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (1,603,281) 3,426,674 Net change in unrealized appreciation (depreciation)--other (29,929) 197,532 -------------- -------------- NET INCREASE IN NET ASSETS FROM OPERATIONS (42,287,473) 336,822,651 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income (46,460,844) (12,477,945) Net realized short-term gain (57,985,562) 0 Net realized long-term gain (173,100,255) 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (277,546,661) (12,477,945) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 355,734,693 710,447,882 Reinvestment of dividends and capital gain distributions 263,407,668 11,903,359 Payments for shares redeemed (542,117,597) (572,115,610) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 77,024,764 150,235,631 -------------- -------------- .............................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS (242,809,370) 474,580,337 NET ASSETS: Beginning of period 1,647,347,531 1,172,767,194 -------------- -------------- End of period $1,404,538,161 $1,647,347,531 -------------- -------------- -------------- -------------- Undistributed net investment income $ 23,857,253 $ 61,390,009 -------------- -------------- -------------- -------------- * DISTRIBUTIONS PER SHARE: Net investment income 0.5758 0.1617 Net realized short-term gain 0.7186 0 Net realized long-term gain 2.1453 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 3.4397 $ 0.1617
48 THE OAKMARK FAMILY OF FUNDS
.............................................................................. THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------- SIX MONTHS ENDED ELEVEN MONTHS ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 - ------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 438,465 $ 646,048 Net realized gain on sale of investments 1,592,506 6,250,624 Net realized loss on foreign currency transactions (106,249) (232,740) Net change in unrealized depreciation (6,531,506) (1,464,546) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (5,968) 0 Net change in unrealized appreciation--other 9,536 5,257 -------------- -------------- NET INCREASE IN NET ASSETS FROM OPERATIONS (4,603,216) 5,204,643 .............................................................................. DISTRIBUTION TO SHAREHOLDERS FROM:* Net investment income (308,015) (279,216) Net realized short-term gain (3,477,982) (1,285,114) Net realized long-term gain (3,890,139) 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (7,676,136) (1,564,330) .............................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 53,050,486 63,012,100 Reinvestment of dividends and capital gain distributions 7,422,967 1,523,977 Payments for shares redeemed (27,325,303) (41,955,631) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 33,148,150 22,580,446 -------------- -------------- .............................................................................. TOTAL INCREASE IN NET ASSETS 20,868,798 26,220,759 NET ASSETS: Beginning of period 65,972,800 39,752,041 -------------- -------------- End of period $ 86,841,598 $ 65,972,800 -------------- -------------- -------------- -------------- Undistributed net investment income $ 652,383 $ 521,933 -------------- -------------- -------------- -------------- * DISTRIBUTIONS PER SHARE: Net investment income 0.0559 0.0777 Net realized short-term gain .6312 0.3581 Net realized long-term gain 0.7060 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.3931 $ 0.4358
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 49 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. 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 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, 1998, only the International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:
INTERNATIONAL SMALL INTERNATIONAL CAP - ----------------------------------------------------------------- Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $(60,285) $7,851 Unrealized appreciation on open securities purchases and sales 33,755 5,154 Unrealized depreciation on transaction hedge purchases and sales (31,280) (5,968) -------- -------- Net Unrealized Appreciation (Depreciation) - other $(57,810) $7,037 -------- -------- -------- --------
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, 1998, International and Int'l Small Cap had entered into forward foreign currency contracts under which it is 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. 50 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, 1998: PORTFOLIO HEDGES:
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 1998 - ----------------------------------------------------------------------------------------------------------------- $30,025,500 18,500,000 Pound Sterling April 1998 $ (902,886) 37,361,250 22,500,000 Pound Sterling May 1998 (235,499) 14,980,500 9,000,000 Pound Sterling May 1998 (56,265) 15,012,000 9,000,000 Pound Sterling May 1998 (24,112) 15,080,400 9,000,000 Pound Sterling May 1998 46,875 14,828,880 8,800,000 Pound Sterling May 1998 130,072 ----------- $(1,041,815) ----------- -----------
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES:
UNREALIZED DEPRECIATION AT US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 1998 - ----------------------------------------------------------------------------------------------------------------- $ 35,727 197,788 Finnish Markka April 1998 $ (499) 95,419 12,286,165 Japanese Yen April 1998 (3,198) 192,814 265,312,100 South Korean Won April 1998 (1,253) 1,201,669 2,126,848 New Zealand Dollar April 1998 (26,054) 95,926 173,307 New Zealand Dollar April 1998 (130) ------- $(31,134) ------- -------
FOREIGN CURRENCY SALES:
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 1998 - ----------------------------------------------------------------------------------------------------------------- $ 340,517 203,343 Pound Sterling April 1998 $ 122 1,398,401 2,549,775,158 Italian Lira April 1998 (268) ------- $ (146) ------- -------
THE OAKMARK FAMILY OF FUNDS 51 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ The Int'l Small Cap Fund had the following outstanding transaction hedges: FOREIGN CURRENCY PURCHASES:
UNREALIZED DEPRECIATION US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE AT MARCH 31, 1998 - ------------------------------------------------------------------------------------------------------------------ $ 35,227 52,515 Australian Dollar April 1998 $ (496) 29,085 43,169 Australian Dollar April 1998 (535) 2,874 4,328 Australian Dollar April 1998 (12) 25,614 38,698 Australian Dollar April 1998 (21) 5,128 9,476 Deutsche Mark April 1998 (5) 210,443 125,675 Pounds Sterling April 1998 (63) 6,924 53,634 Hong Kong Dollar April 1998 (2) 1,914 14,823 Hong Kong Dollar April 1998 (1) 30,314 3,903,264 Japanese Yen April 1998 (1,016) 85,639 11,145,888 Japanese Yen April 1998 (1,977) 25,710 3,423,557 Japanese Yen April 1998 (13) 172,068 310,872 New Zealand April 1998 (233) 12,029 453,980 Philippine Peso April 1998 (82) 24,488 911,444 Philippine Peso April 1998 (503) 38,917 1,451,210 Philippine Peso April 1998 (727) 20,713 782,339 Philippine Peso April 1998 (125) ------ $(5,811) ------ ------
FOREIGN CURRENCY SALES:
UNREALIZED DEPRECIATION US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE AT MARCH 31, 1998 - ------------------------------------------------------------------------------------------------------------------ $217,520 396,606,600 Italian Lira April 1998 $ (37) 622,787 1,135,558,115 Italian Lira April 1998 (120) ----- $(157) ----- -----
At March 31, 1998, 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. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The Funds receive income from lending securities by investing the collateral and continue to earn income on the loaned securities. Security loans are subject to the risk of failure by the borrower to return the loaned securities in which case the Funds could incur a loss. The market values (in thousands) of securities on loan to broker-dealers at March 31, 1998 are shown below.
INT'L SMALL EQUITY & SMALL SELECT CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------ Market Value of Securities Loaned $100,074 $140,279 $3,253 $143,433 $1,254 Collateral (Cash and U.S. Treasuries) 103,025 144,534 3,368 149,912 1,328
52 THE OAKMARK FAMILY OF FUNDS 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. 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 excess of $5 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 and .80% on the excess of $2.5 million 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 through January 3, 1999 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. Registration expenses of approximately $62,282, $56,751, $56,811 and $56,726 were advanced to Select, Small Cap, Equity and Income and Int'l Small Cap, respectively, by the Adviser. Registration expenses have been fully amortized for all funds. During the six months ended March 31, 1998, the Funds incurred brokerage commissions of $4,183,063, $905,263, $813,752, $23,504, $2,081,900 and $244,965 of which $754,519, $304,147, $80,328, $15,556, $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. 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, 1998 -------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------------- Shares sold 45,359 56,025 16,231 1,703 25,100 5,841 Shares issued in reinvestment of dividends 9,728 410 3,133 149 20,108 786 Less shares redeemed (14,896) (13,057) (25,068) (584) (37,257) (2,976) ------- ------- --------- -------- ------ ----- Net increase (decrease) in shares outstanding 40,191 43,378 (5,704) 1,268 7,951 3,651 ------- ------- --------- -------- ------ ----- ------- ------- --------- -------- ------ -----
ELEVEN MONTHS ENDED SEPTEMBER 30, 1997 -------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME INTERNATIONAL CAP - ------------------------------------------------------------------------------------------------------------- Shares sold 57,274 42,531 78,065 1,941 41,290 5,229 Shares issued in reinvestment of dividends 7,961 0 0 25 793 135 Less shares redeemed (26,163) (11,065) (20,201) (879) (32,948) (3,438) ------- ------- --------- -------- ------ ----- Net increase in shares outstanding 39,072 31,466 57,864 1,087 9,135 1,926 ------- ------- --------- -------- ------ ----- ------- ------- --------- -------- ------ -----
THE OAKMARK FAMILY OF FUNDS 53 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ 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 $2,302,458 $725,844 $197,956 $17,310 $254,391 $ 39,688 Proceeds from sales 1,317,117 35,817 321,357 3,420 422,432 20,230
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, 1998 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK FUND
MARKET PURCHASES SALES DIVIDEND VALUE AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998 - ------------------------------------------------------------------------------------------------------ ACNielsen Corporation - $ - - $ 125,948,250 Ambac Financial Group, Inc. - - $ 790,164 256,528,938 The Black & Decker Corporation $ 46,677,053 - 1,915,080 438,667,687 Dun & Bradstreet Corporation 92,554,603 - 3,335,552 333,030,694 GC Companies, Inc. - - - 20,768,063 Juno Lighting, Inc. - - 195,300 22,920,625 Knight Ridder, Inc. - - 1,860,000 259,818,750 Polaroid Corporation 11,171,805 - 1,365,720 200,305,600 SPX Corporation - - - 66,788,700 ------------ --- ------------- ----------------- Totals 150,403,461 - 9,461,816 1,724,777,307
54 THE OAKMARK FAMILY OF FUNDS SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
MARKET PURCHASES SALES DIVIDEND VALUE AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998 - -------------------------------------------------------------------------------------------------- USG Corporation $ 81,163,762 - - $137,647,087 US Industries Inc. 99,803,998 - $ 479,440 186,988,750 ------------ --- ----------- --------------- Totals 180,967,760 - 479,440 324,635,837
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
MARKET PURCHASES SALES DIVIDEND VALUE AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998 - ---------------------------------------------------------------------------------------------- Ascent Entertainment Group, Inc. $ 3,794,484 $ 6,255,329 - $ 20,625,000 Binks Sames Corporation 1,078,125 - $ 24,700 13,174,540 The Carbide/Graphite Group, Inc. 446,250 - - 24,450,000 Cole National Corporation 9,549,025 - - 48,281,250 Columbus McKinnon Corporation 1,859,814 - 113,701 24,114,750 Duff & Phelps Credit Rating Company - - 17,808 14,951,300 Granite Broadcasting Corporation - - - 9,250,000 Highlands Insurance Group, Inc. 1,378,000 - - 30,906,250 International Multifoods Corporation 2,045,420 2,700,261 416,980 29,937,500 MagneTek, Inc. 2,076,960 - - 47,031,250 Northwest Pipe Company 1,520,000 - - 13,050,000 Pocahontas Federal Savings and Loan Assn. - 1,748,504 54,000 4,475,000 PXRE Corporation - 13,457,697 572,750 23,250,000 Ralcorp Holdings, Inc. - 8,420,479 - 51,875,000 RenaissanceRe Holdings 9,657,585 6,255,329 812,500 75,000,000 Barry (R.G.) Corporation 2,693,179 - - 11,000,000 Savings Bank of the Finger Lakes - - 18,800 3,666,000 Scotsman Industries, Inc. - 1,197,045 51,038 28,750,000 SPX Corporation - 12,897,570 - 53,418,750 Stoneridge, Inc. 29,973,979 - - 30,000,000 Titan Exploration, Inc. 1,179,168 824,504 - 24,375,000 Triarc Companies, Inc. 1,959,905 3,672,971 - 42,000,000 Ugly Duckling Corporation 15,549,929 - - 18,921,875 ----------- ----------- ---------- --------------- Totals 84,761,823 57,429,689 2,082,277 642,503,465
THE OAKMARK FAMILY OF FUNDS 55 THE OAKMARK FAMILY OF FUNDS - -------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ........................................................................ SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
MARKET PURCHASES SALES DIVIDEND VALUE AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998 - ----------------------------------------------------------------------------------------------- Banco Latinoamericano de Exportaciones, S.A. Class E $ 28,457,211 - $ 849,888 $43,216,075 BYC Co. Ltd. - $ 329,484 9,894 1,549,863 Chargeurs International Sa - 3,923,390 - 39,744,066 Cordiant Communications Group plc 6,022,173 - - 44,263,911 European Vinyls Corporation Intl. N.V. - 639,518 - 28,209,192 Fernz Corporation Limited 6,460,313 - 735,821 38,816,595 Fila Holding S.p.A. 15,424,202 - - 53,777,344 Giordano International Limited 8,253,910 - - 17,283,322 Hong Kong Aircraft Engineering Company Ltd. 1,270,809 - - 19,762,221 Keumkang Ltd. 1,916,646 - 159,292 6,898,482 Lamex Holdings Ltd. - - 181,184 1,793,774 Lotte Chilsung 3,009,525 - 17,504 6,216,606 Quilmes Industrial SA 3,791,703 6,032,846 - 58,134,525 Saatchi & Saatchi plc - - - 54,025,212 Tae Young Corporation 12,839,562 - 88,024 11,978,490 USIMINAS 10,583,452 - 3,460,482 56,732,281 Varitronix International Limited 481,148 - 374,426 31,181,073 Woongjin Publishing Company 2,936,743 - 34,695 3,182,511 ------------ ----------- ---------- --------------- Totals 101,447,397 10,925,238 5,911,210 516,765,543
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
MARKET PURCHASES SALES DIVIDEND VALUE AFFILIATES (COST) (PROCEEDS) INCOME MARCH 31, 1998 - ------------------------------------------------------------------------------------------------ Daimon $ 515,519 - $ 30,252 $ 1,646,358 Designer Textiles (NZ) Limited - - 39,131 736,263 Matichon Public Company Limited 50,018 - - 2,238,526 Parbury Limited 2,870,863 - 65,550 3,097,351 Solution 6 Holdings Ltd. 368,718 - - 2,303,990 Woongjin Publishing Company 2,650,542 - 46,998 2,792,358 ---------- --- ----------- --------------- Totals 6,455,660 - 181,931 12,814,846
56 THE OAKMARK FAMILY OF FUNDS THE OAKMARK FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS
................................................................................................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD SIX MONTHS ELEVEN MONTHS YEAR ENDED OCTOBER 31, ENDED ENDED ------------------------------------------------------------- MARCH 31, 1998 SEPTEMBER 30, 1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10 Income From Investment Operations: Net Investment Income (Loss) 0.25 0.36 0.34 0.30 0.27 0.17 (0.03)(d) Net Gains or Losses on Securities (both realized and unrealized) 5.35 10.67 4.70 4.66 1.76 7.15 5.04 ------------ ---------- ---------- --------- --------- --------- ------- Total From Investment Operations: 5.60 11.03 5.04 4.96 2.03 7.32 5.01 Less Distributions: Dividends (from net investment income) (0.40) (0.34) (0.28) (0.23) (0.23) (0.04) -- Distributions (from capital gains) (1.98) (1.87) (0.84) (1.47) (0.77) (0.21) -- ------------ ---------- ---------- --------- --------- --------- ------- Total Distributions (2.38) (2.21) (1.12) (1.70) (1.00) (0.25) -- ------------ ---------- ---------- --------- --------- --------- ------- Net Asset Value, End of Period $ 44.43 $ 41.21 $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 ------------ ---------- ---------- --------- --------- --------- ------- ------------ ---------- ---------- --------- --------- --------- ------- Total Return 14.43% 39.24%* 18.07% 21.55% 8.77% 43.21% 41.40% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 8,918.4 $6,614.9 $ 3,933.9 $ 2,827.1 $1,677.3 $1,107.0 $ 114.7 Ratio of Expenses to Average Net Assets 1.03% 1.08%* 1.18% 1.17% 1.22% 1.32% 1.70% Ratio of Net Income (Loss) to Average Net Assets 1.29% 1.19%* 1.13% 1.27% 1.19% 0.94% (0.24)% Portfolio Turnover Rate 19.93% 17.3% 23.7% 18.0% 29.3% 18.0% 34.0% Average Brokerage Commission Paid $0.0568 $0.0537 $0.0530 n/a n/a n/a n/a PERIOD OCTOBER 31, 1991(a) - ----------------------------------------- Net Asset Value, Beginning of Period $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 2.11 ------- Total From Investment Operations: 2.10 Less Distributions: Dividends (from net investment income) -- Distributions (from capital gains) -- ------- Total Distributions -- ------- Net Asset Value, End of Period $ 12.10 ------- ------- Total Return 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $ 4.8 Ratio of Expenses to Average Net Assets 2.50%(b)* Ratio of Net Income (Loss) to Average Net Assets (0.66)%(b)* Portfolio Turnover Rate 0.0% Average Brokerage Commission Paid n/a
*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% and the annualized ratio of net income (loss) to average net assets would have been (3.08%). SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57 THE OAKMARK SELECT FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS ................................................................................ FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS ENDED ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 - --------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.34 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.02 (0.01) Net Gains or Losses on Securities (both realized and unrealized) 3.68 6.35 ------ -------- Total From Investment Operations: 3.70 6.34 Less Distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) (0.17) 0.00 ------ -------- Total Distributions (0.17) 0.00 ------ -------- Net Asset Value, End of Period $ 19.87 $ 16.34 ------ -------- ------ -------- Total Return 22.88% 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,486.86 $ 514.17 Ratio of Expenses to Average Net Assets 1.13% 1.12%* Ratio of Net Income (Loss) to Average Net Assets 0.23% (0.11)%* Portfolio Turnover Rate 4.04% 36.93% Average Commission Rate Paid $0.0567 $0.0573
*Data has been annualized. 58 THE OAKMARK FAMILY OF FUNDS THE OAKMARK SMALL CAP FUND - ----------------------------------------------------------------- FINANCIAL HIGHLIGHTS ................................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS YEAR ENDED ENDED ENDED OCTOBER 31, MARCH 31, 1998 SEPTEMBER 30, 1997 1996 - ----------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 20.34 $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.04) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) 1.34 7.16 3.21 --------- -------- -------- Total From Investment Operations: 1.30 7.15 3.19 Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 Distributions (from capital gains) (0.84) 0.00 0.00 --------- -------- -------- Total Distributions (0.84) 0.00 0.00 --------- -------- -------- Net Asset Value, End of Period $ 20.80 $ 20.34 $ 13.19 --------- -------- -------- --------- -------- -------- Total Return 6.84% 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $1,429.0 $1,513.4 $ 218.4 Ratio of Expenses to Average Net Assets 1.39% 1.37%* 1.61% Ratio of Net Income (Loss) to Average Net Assets (0.39)% (0.25)%* (0.29)% Portfolio Turnover Rate 14.51% 26.88% 23.15% Average Commission Rate Paid $0.0523 $0.0482 $0.0520
*Data has been annualized. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59 THE OAKMARK EQUITY AND INCOME FUND - ---------------------------------------------------------------- FINANCIAL HIGHLIGHTS ................................................................ FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS ENDED ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, OCTOBER 21, 1998 1997 1996 - -------------------------------------------------------------------------- Net Asset Value, Beginning of Period $14.49 $ 11.29 $10.00 Income From Investment Operations: Net Investment Income 0.15 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 1.14 3.24 1.19 ------ -------- -------- Total From Investment Operations: 1.29 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.24) (0.12) 0.00 Distributions (from capital gains) (0.59) (0.13) 0.00 ------ -------- -------- Total Distributions (0.83) (0.25) 0.00 ------ -------- -------- Net Asset Value, End of Period $14.95 $ 14.49 $11.29 ------ -------- -------- ------ -------- -------- Total Return 9.61% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $53.5 $ 33.46 $ 13.8 Ratio of Expenses to Average Net Assets 1.29% 1.50%*(a) 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 2.48% 2.38%*(a) 1.21%(a) Portfolio Turnover Rate 8.77% 53.10% 66.35% Average Commission Rate Paid $0.0594 $0.0554 $0.0581
*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 for the period ended September 30, 1997, and the year ended October 31, 1996, the ratios of expenses to average net assets would have been 1.70%* and 2.64% respectively, and the ratios of net income to average net assets would have been 2.18% and 1.08% respectively. 60 THE OAKMARK FAMILY OF FUNDS THE OAKMARK INTERNATIONAL FUND - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS
.................................................................................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD SIX MONTHS ELEVEN MONTHS YEAR ENDED OCTOBER 31, PERIOD ENDED ENDED ENDED ------------------------------------------- OCTOBER 31, MARCH31, 1998 SEPTEMBER 30, 1997 1996 1995 1994 1993 1992(a) - --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $18.77 $14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 $10.00 Income From Investment Operations: Net Investment Income 0.13 0.27 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) (0.78) 3.74 2.90 (0.77) 0.43 4.48 (0.46) -------- -------- --------- --------- --------- --------- -------- Total From Investment Operations: (0.65) 4.01 2.99 (0.47) 0.64 4.54 (0.2) Less Distributions: Dividends (from net investment income) (0.58) (0.16) 0.00 0.00 (0.08) (0.25) -- Distributions (from capital gains) (2.86) 0.00 (1.04) (1.06) (0.15) -- -- -------- -------- --------- --------- --------- --------- -------- Total Distributions (3.44) (0.16) (1.04) (1.06) (0.23) (0.25) -- -------- -------- --------- --------- --------- --------- -------- Net Asset Value, End of Period $14.68 $ 18.77 $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 -------- -------- --------- --------- --------- --------- -------- -------- -------- --------- --------- --------- --------- -------- Total Return (1.24)% 29.63%* 24.90% (3.06)% 4.62% 47.49% (22.81)%* Ratios/Supplemental Data: Net Assets, End of Period ($ million) $86.8 $1,647.3 $1,172.8 $ 819.7 $1,286.0 $ 815.4 $23.5 Ratio of Expenses to Average Net Assets 1.26% 1.26%* 1.32% 1.40% 1.37% 1.26% 2.04%* Ratio of Net Income (Loss) to Average Net Assets 1.31% 2.09%* 1.45% 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 19.68% 61% 42% 26% 55% 21% 0% Average Commission Rate Paid $0.0109 $0.0052 $0.0158 n/a n/a n/a n/a
*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 61 THE OAKMARK INTERNATIONAL SMALL CAP FUND - ------------------------------------------------------------------ FINANCIAL HIGHLIGHTS .................................................................. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
SIX MONTHS ELEVEN MONTHS ENDED ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, OCTOBER 21, 1998 1997 1996 - --------------------------------------------------------------------------- Net Asset Value, Beginning of Period $12.20 $11.41 $10.00 Income From Investment Operations: Net Investment Income 0.03 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) (1.25) 1.10 1.37 -------- -------- -------- Total From Investment Operations: (1.22) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.05) (0.08) 0.00 Distributions (from capital gains) (1.34) (0.36) 0.00 -------- -------- -------- Total Distributions (1.39) (0.44) 0.00 -------- -------- -------- Net Asset Value, End of Period $9.59 $12.20 $11.41 -------- -------- -------- -------- -------- -------- Total Return (9.81)% 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($ million) $86.84 $65.97 $39.8 Ratio of Expenses to Average Net Assets 1.83% 1.93%* 2.50%(a) Ratio of Net Income (Loss) to Average Net Assets 1.37% 1.23%* 0.65%(a) Portfolio Turnover Rate 34.35% 62.63% 27.44% Average Commission Rate Paid $0.0032 $0.0025 $0.0036
*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%. 62 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) 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] THE OAKMARK FAMILY OF FUNDS 63 [LOGO] 64 THE OAKMARK FAMILY OF FUNDS [LOGO] OAKMARK FAMILY OF FUNDS P.O BOX 8510 BOSTON, MA 02266-8510 -----END PRIVACY-ENHANCED MESSAGE-----