THE OAKMARK FAMILY OF FUNDS

Notes to Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

The following are the significant accounting policies of The Oakmark Fund ("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund ("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The Oakmark International Fund ("International"), and The Oakmark International Small Cap Fund ("Int'l Small Cap") collectively referred to as "the Funds", each a series of the Harris Associates Investment Trust (a Massachusetts business trust). These policies are in conformity with generally accepted accounting principles ("GAAP"). The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.

Security valuation—

Investments are stated at current value. Securities traded on securities exchanges and securities traded on the NASDAQ National Market are valued at the last sales price on the day of valuation, or if lacking any reported sales that day, at the most recent bid quotation. Over-the-counter securities not so traded are valued at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the date of valuation are valued on an amortized cost basis which approximates market value. Securities for which quotations are not readily available are valued at a fair value as determined by the Trustees.

Foreign currency translations—

Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions.

The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments.

Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges.

At September 30, 1998, only the International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:

	International	International Small Cap
Unrealized appreciation on dividends and dividend reclaims receivable	$238,449	$12,428
Unrealized depreciation on open securities purchases and sales	(17,431)	(6,912)
Unrealized appreciation (depreciation) on transaction hedge purchases and sales	(15,673)	1,660
Unrealized depreciation on tax expense payable	(6,561)	(1,293)
Net Unrealized Appreciation - Other	$198,784	$5,883

Security transactions and investment income—

Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Interest income and expenses are recorded on the accrual basis.

Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of regular trading on the New York Stock Exchange on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding.

Forward foreign currency contracts—

At September 30, 1998, International and Int'l Small Cap had entered into forward foreign currency contracts under which they are obligated to exchange currencies at specified future dates. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions.

The 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 September 30, 1998:

Portfolio Hedges:—

US Dollars Purchased	Foreign Currency Sold		Settlement Date	Unrealized Appreciation (Depreciation) at September 30, 1998
$25,000,000	31,235,000	Brazilian Real	January 1998	$1,310,201
20,000,000	24,992,000	Brazilian Real	January 1998	1,112,769
30,654,500	18,500,000	Pound Sterling	October 1998	(753,068)
37,289,250	22,500,000	Pound Sterling	November 1998	(894,688)
14,801,400	9,000,000	Pound Sterling	November 1998	(466,449)
14,794,200	9,000,000	Pound Sterling	November 1998	(473,649)
14,607,000	9,000,000	Pound Sterling	November 1998	(658,415)
14,233,120	8,800,000	Pound Sterling	November 1998	(692,253)
				$(1,515,552)

Transaction Hedges: Foreign Currency Sales—

US Dollars Purchased	Foreign Currency Sold		Settlement Date	Unrealized Appreciation (Depreciation) September 30, at 1998
$3,738,928	20,963,421	French Franc	October 1998	$(4,674)
3,143,545	1,865,827	Pound Sterling	October 1998	(28,545)
1,594,391	933,429	Pound Sterling	October 1998	7,468
3,223,084	1,886,499	Pound Sterling	October 1998	15,848
1,844,181	1,087,820	Pound Sterling	October 1998	(5,221)
472,144	278,043	Pound Sterling	October 1998	(556)
14,664	20,353,856	South Korean Won	October 1998	29
24,850	49,700	New Zealand Dollar	October 1998	(22)
				$(15,673)

The Int'l Small Cap Fund had the following outstanding contracts:

Portfolio Hedges—

US Dollars Purchased	Foreign Currency Sold		Settlement Date	Unrealized Appreciation (Depreciation) at September 30, 1998
$7,456,500	4,500,000	Pound Sterling	November 1998	$(179,057)

Transaction Hedges: Foreign Currency Sales—

US Dollars Purchased	Foreign Currency Sold		Settlement Date	Unrealized Appreciation (Depreciation) at September 30, 1998
$36,402	55,680	Canadian Dollar	October 1998	$(99)
441,298	259,480	Pound Sterling	October 1998	156
214,840	125,748	Pound Sterling	October 1998	1,057
7,541	1,025,913	Japanese Yen	October 1998	31
60,660	8,252,168	Japanese Yen	October 1998	251
92,447	12,576,472	Japanese Yen	October 1998	382
131,033	262,066	New Zealand Dollar	October 1998	(118)
				$1,660

At September 30, 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 lending Fund could incur a loss. The market values (in thousands) of securities on loan to broker-dealers at September 30, 1998 are shown below.

	Select	Small Cap	Equity & Income	International	Int’l Small Cap
Market Value of Securities Loaned	$153,993	$24,519	$1,696	$67,416	$2,988
Collateral (Cash and U.S. Treasuries)	159,033	26,009	1,759	73,675	3,219

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.

The Funds hereby designate the following long term capital gain distributions for purposes of the dividends received deduction (in thousands):

	Oakmark	Select	Small Cap	Equity & Income	International	Int’l Small Cap
Long Term Capital Gain	$1,111,813	$67,892	$124,758	$1,111	$23,108	$0

Bank Loans—

The Funds have two unsecured lines of credit with a syndication of banks. One line of credit is a committed line of $350 million and the other is an uncommitted line of $250 million. Borrowings under this arrangement bear interest at .50% above the Federal Funds Effective Rate. As of September 30, 1998, there were no outstanding borrowings.

2. TRANSACTIONS WITH AFFILIATES

Each fund has an investment advisory agreement with Harris Associates L.P. (Adviser). For management services and facilities furnished, the Funds pay the Adviser monthly fees at annual rates as follows. Oakmark pays 1% on the first $2.5 billion of net assets, .95% on the next $1.25 billion of net assets, .90% on the next $1.25 billion of net assets and .85% on the 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. Beginning October 1, 1998, additional breakpoints will be as follows: Oakmark will pay .80% on net assets in excess of $10 billion and Select will pay .75% on excess of $5 billion of net assets. The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% for domestic funds and 2.0% for international funds.

In connection with the organization of the Funds, expenses of approximately $146,500 and $47,000 were advanced to Oakmark and International, approximately $7,283 each to Small Cap, Equity and Income and Int'l Small Cap, and $3,500 to Select by the Adviser. These expenses are being amortized on a straight line basis through October, 2000 for Small Cap, Equity and Income and Int'l Small Cap, and October, 2001 for Select. Oakmark and International have fully amortized all organization expenses.

During the year ended September 30, 1998, the Funds incurred brokerage commissions of $7,658,348, $2,399,359, $1,956,260, $66,195, $4,295,208 and $384,909 of which $2,068,690, $589,570, $193,708, $41,979, $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):

		Year Ended September 30, 1998
		Oakmark	Select	Small Cap	Equity & Income	International	Int’l Small Cap
Shares sold		68,340	81,093	22,121	3,014	34,513	8,604
Shares issued in reinvestment of dividends		30,513	410	9,667	149	20,108	786
Less shares redeemed		(52,910)	(39,717)	(57,261)	(1,344)	(69,820)	(7,284)
Net increase (decrease) in shares outstanding		45,943	41,786	(25,473)	1,819	(15,199)	2,106

	Eleven Months Ended September 30, 1997
	Oakmark		Select	Small Cap	Equity & Income	International	Int’l Small Cap
Shares sold	57,226		42,529	78,065	1,941	41,288	5,229
Shares issued in reinvestment of dividends	7,962		0	0	25	793	135
Less shares redeemed	(26,115)		(11,063)	(20,201)	(880)	(32,946)	(3,438)
Net increase in shares outstanding	39,073		31,466	57,864	1,086	9,135	1,926

4. INVESTMENT TRANSACTIONS

Transactions in investment securities (excluding short term securities) were as follows (in thousands):

	Oakmark	Select	Small Cap	Equity & Income	International	Int’l Small Cap
Purchases	$3,681,990	$1,219,648	$391,185	$41,789	$502,915	$57,346
Proceeds from sales	2,991,049	601,544	968,060	20,783	923,456	41,576

5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS

Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the year ended September 30, 1998 is set forth below:

Summary of Transactions with Affiliated Companies
The Oakmark Fund

Affiliates	Purchase Cost	Sales Proceeds	Dividend Income	Market Value
AC Nielsen Corporation	$—	$—	$—	$105,999,000
Brunswick Corporation	47,321,680	—	1,789,400	94,195,350
GC Companies, Inc.	—	—	—	15,334,125
H & R Block, Inc.	340,780,489	—	2,941,950	317,172,475
Juno Lighting, Incorporated	—	—	390,600	24,276,875
Knight Ridder	128,013,079	—	4,480,340	308,358,300
Polaroid Corporation	11,171,805	—	2,731,440	111,818,325
R. H. Donnelley Corporation	10,418,862	—	1,835,978	25,965,967
SPX Corporation	—	—	—	36,156,700
The Black & Decker Corporation	46,677,053	—	3,899,160	344,113,875
The Dun & Bradstreet Corporation	107,175,516	—	6,115,747	283,265,100
TOTALS	$691,558,484	—	$24,184,615	$1,666,656,092

Summary of Transactions with Affiliated Companies
The Oakmark Select Fund

Affiliates	Purchase Cost	Sales Proceeds	Dividend Income	Market Value
USG Corporation	$96,334,193	$3,793,551	$26,492	$118,539,600
US Industries Inc.	148,983,455	16,251,897	1,212,415	113,179,625
TOTALS	$245,317,648	$20,045,448	$1,238,907	$231,719,225

Summary of Transactions with Affiliated Companies
The Oakmark Small Cap Fund

Affiliates	Purchase Cost	Sales Proceeds	Dividend Income	Market Value
Ascent Entertainment Group, Inc.	$3,794,484	$5,437,319	$—	$12,000,000
Barry (R.G.) Corporation	3,388,252	—	—	11,781,263
Binks Sames Corporation	1,078,125	—	24,700	4,675,000
Columbus McKinnon Corporation	5,432,270	1,724,192	249,816	17,325,000
Duff & Phelps Credit Rating Company	3,082,142	—	38,808	16,121,875
Finger Lakes Financial Corp.	—	—	41,360	2,068,000
Northwest Pipe Company	1,520,000	2,103,411	—	9,250,000
Ralcorp Holdings, Inc.	—	23,429,934	—	24,500,000
ROHN Industries, Inc.	17,335,121	—	50,000	5,812,500
Scotsman Industries, Inc.	—	1,664,975	100,612	22,240,375
Triarc Companies, Inc.	1,959,905	10,981,722	—	19,453,125
Ugly Duckling Corporation	20,320,181	8,194,979	—	8,695,288
TOTALS	$57,910,480	$53,536,532	$505,296	$153,922,426

Summary of Transactions with Affiliated Companies
The Oakmark International Fund

Affiliates	Purchase Cost	Sales Proceeds	Dividend Income	Market Value
Banco Latinoamericano de Exportaciones, S.A. Class E	$39,751,365	$3,301,540	$849,888	$21,146,282
Chargeurs International SA	—	9,934,608	1,430,885	25,752,067
Cordiant Communications Group PLC	2,891,044	—	420,931	40,015,927
Dongah Tire Industry Company	5,643,713	—	—	4,603,390
European Vinyls Corporation Intl. NV	—	3,188,031	1,951,039	15,126,783
Fernz Corporation Ltd.	6,718,676	2,115,546	1,574,294	33,797,841
Fila Holding S.p.A.	20,288,049	187,177	685,787	21,885,800
Giordano International Limited	8,556,185	98,829	89,476	9,391,028
Hong Kong Aircraft Engineering Company	3,216,275	607,632	1,026,373	13,175,134
Keumkang Ltd.	2,940,243	—	159,292	4,956,792
Lamex Holdings Ltd.	—	—	181,184	322,517
Lotte Chilsung Beverage Company	3,009,525	—	17,504	3,095,452
Saatchi & Saatchi PLC	523,408	7,666,881	492,036	31,699,125
Tae Young Corporation	13,975,221	1,023,976	88,023	4,770,261
USIMINAS	12,560,055	—	5,885,389	21,852,288
Woongjin Publishing Company	2,936,743	—	34,695	1,259,204
TOTALS	$123,010,502	$28,124,220	$14,886,796	$252,849,891

Summary of Transactions with Affiliated Companies
The Oakmark International Small Cap Fund

Affiliates	Purchase Cost	Sales Proceeds	Dividend Income	Market Value
Daimon	$836,251	$61,037	$63,270	$1,516,602
Designer Textiles (NZ) Limited	—	—	56,322	459,213
Matichon Public Company Limited, Foreign Shares	648,794	—	75,237	1,746,991
Parbury Limited	2,899,156	—	65,550	1,581,357
Solution 6 Holdings Ltd.	431,130	—	—	1,992,286
Yip’s Hang Cheung Ltd.	539,149	2,540	89,119	845,532
TOTALS	$5,354,480	$63,577	$349,498	$8,141,981

6. INTRODUCTION OF THE EURO

The European Monetary Union intends to establish a common European currency for participating countries to be called the "euro." Each participating country will supplement its existing currency with the euro on January 1, 1999 and replace its existing currency with the euro on July 2, 2002. The consequences of the euro conversion for foreign exchange rates, interest rates and the value of European securities are presently unclear. Uncertainties include whether operational systems of banks and other financial institutions will be ready by January 1, 1999; the application of exchange rates for existing currencies and the euro; the creation of suitable clearing and settlement systems for the new currency; the legal treatment of certain outstanding financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; and whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time. These and other factors, including economic and political risks, could cause market disruptions before or after the introduction of the euro, and could adversely affect the value of securities held by the Funds.