The Oakmark International Fund

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/99) COMPARED TO THE MORGAN STANLEY WORLD EX U.S. INDEX
3/31/99 NAV $12.41	Total Return Last 3 mos.	Average Annual Total Return* Through 3/31/99 From Fund Inception 9/30/92
The Oakmark International Fund	13.8%	12.3%
Morgan Stanley World ex U.S. w/inc.**	1.6%	11.3%
Morgan Stanley EAFE w/inc**	1.4%	11.3%
Lipper Analytical International Fund Index**	1.3%	12.1%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The Morgan Stanley World ex U.S. Index includes 19 country sub-indexes. The Morgan Stanley EAFE Free Index refers to Europe, Asia and the Far East and includes 18 country sub-indexes. The Lipper International Fund Index includes 30 mutual funds that invest in securities whose primary markets are outside the United States. Past performance is no guarantee of future results.

FELLOW SHAREHOLDERS,

The Oakmark International Fund had an outstanding first calendar quarter returning 13.8%. This compares to our peers and the EAFE index return of just over 1%. The average annual return since inception is 12.3%, which compares favorably to EAFE at 11.3% and our international peers averaging 12.1%.

This quarter's strong return is a continuation of the Fund's rebound in performance that began in September of 1998. From the fall of 1997 to the fall of 1998, the Fund's relatively weak performance was due primarily to our strategy of increasing our investments in areas such as Hong Kong, Singapore, Brazil and Britain. Their markets performed poorly yet provided us with irresistible value. Currently, we are reaping the rewards of our patience and, what is even more exciting, the portfolio still represents excellent value and future opportunity.

"TIMING" DOES NOT PAY!

We have long written in this space why one should adopt the stance of an investor versus that of a trader or market timer. In terms of cash outflow from the Fund, the times of greatest discontent, as measured by shareholders leaving the fund, invariably occurs at the bottom of a cycle. During the Fund's near seven-year history, we have experienced two very weak periods, in 1994 and 1998. Near the end of each period, we experienced substantial cash outflows. Subsequently, in each case, sustained periods of strong performance followed.

The result: some investors pulled out at a low point, made their paper losses real, and ultimately missed the subsequent huge recovery! Because of the abruptness of these cycles, discipline is the most important characteristic for true, long-term value investors.

The Fund's recent recovery has been extremely broad-based. In the developed markets, stocks such as UK advertising companies Saatchi and Saatchi and Cordiant Communications Group (Bates Advertising) have done extremely well, returning 51% and 48% respectively since the beginning of the year. In Brazil, Unibanco and all of our telecom stocks have soared. And in Hong Kong, one of our favorite Asian-based companies, retailer Giordano was up more than 60% over the last three months! When this stock was trading below HK$1.00, investors focused on its uncertain short-term prospects while ignoring its liquid balance sheet and its enviable market position, which improved every day as its competitors continued to go bankrupt. After a tremendous run, the shares are currently trading around HK$2.50, still a big discount to our estimate of business value of HK$4.00. The fact that Giordano is still significantly undervalued even after this run up gives you an idea of the bargains that were available in Asia over the past two years.

THE TRUTH ABOUT CORPORATE RESTRUCTURING

Today, many pundits are encouraging investors to jump into the continental European markets and, to some degree, Japan, because both areas are supposedly undertaking massive corporate restructuring plans similar to the restructuring plans of U.S. companies in the 80s and 90s. However, proponents of this theme are ignoring some major differences. First, our own corporate revolution occurred because shareholders became more proactive toward underperforming managements and larger concentrations of private pools of money took larger stakes of corporate America. Second, corporate America had the will and the legal ability to truly restructure.

Taking the second point first, a lot of "restructuring" simply means closing plants, laying off people, or selling off non-performing businesses. In the U.S., this is relatively easy to do. Though it seems mean-spirited in the short term, it is an example of what economist Joseph Schumpeter called "creative destruction." In order to move forward, it becomes necessary to tear down the past. Though this can be accomplished in the United Kingdom and in some of the smaller European countries, it is extremely difficult to do in the real economic engines of Europe, such as France, Germany, and Spain. We have seen some exceptions but the fact remains that there are prohibitive economic and political costs to laying off excess workers. In many cases, investors in "restructuring stories" are underestimating the time and costs involved and are overestimating management's tenacity and ability to implement.

On a more positive note, activist shareholders are starting to appear on occasion. As private pensions and the mutual fund industry take root in Europe, there is more owner pressure building. However, it's still at an early stage. From an investment perspective, true restructuring stories are more the exception than the rule. And, because of the cultural differences, it will not be a rapid transformation in some places.

There have been and will continue to be extremely successful restructurings in Europe and Japan. The Oakmark International Fund has benefited greatly over the past seven years from value being unlocked in Europe by aggressive restructuring, including such standouts as Volvo, Chargeurs, Philips Electronics, and Vivendi. The important difference now is that, typically, much of the potential restructuring is already fully reflected in the share price.

IN THE FUTURE ...

Going forward, we remain extremely bullish about the Fund's prospects. We are excited about the value and quality of our Fund's underlying investments, and are heartened that money is starting to flow into many of the forgotten markets of the Pacific Rim, Latin America and the United Kingdom, where we are heavily invested. As always, we appreciate your continued support.

DAVID G. HERRO
Portfolio Manager
72242.772@compuserve.com

MICHAEL J. WELSH
Portfolio Manager
102521.2142@compuserve.com
April 7, 1999

THE OAKMARK INTERNATIONAL FUND International Diversification—March 31, 1999

THE OAKMARK INTERNATIONAL FUND Schedule of Investments—March 31, 1999 (Unaudited)

(a) Non-income producing security.

(b) Represents an American Depository Receipt.

(c) Represents a Global Depository Receipt.

(d) Includes portfolio and transaction hedges.

(e) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers.

(f) At March 31, 1999, net unrealized depreciation of $139,488,976, for federal income tax purposes consisted of gross unrealized appreciation of $76,836,828 and gross unrealized depreciation of $216,325,804.