THE OAKMARK INTERNATIONAL FUND Report from David G. Herro and Michael J. Welsh, Portfolio Managers

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (12/31/99) COMPARED TO THE MSCI WORLD EX U.S. INDEX
12/31/99 NAV $14.70	Total Return Last 3 mos.	Average Annual Total Return* Through 12/31/99 From Fund Inception 9/30/92
The Oakmark International Fund	9.1%	14.1%
MSCI World ex U.S. w/inc.**	17.4%	13.6%
MSCI EAFE Index w/inc**	17.0%	13.5%
Lipper International Fund Index**	24.7%	15.6%
* Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions.
** Each of the three indexes or averages is an unmanaged group of stocks or funds whose composition is different from the Fund. The MSCI World ex U.S. Index includes 21 country sub-indexes. The MSCI EAFE Index refers to Europe, Asia and the Far East and includes 20 country sub-indexes. The Lipper International Fund Index includes 30 mutual funds that invest in securities whose primary markets are outside the United States. Past performance is no guarantee of future results.

Fellow Shareholders,

Performance for calendar 1999 was good for The Oakmark International Fund. For the twelve months ending December 31, 1999, your fund achieved a return of 39.5%. This compares favorably to both the EAFE Index (+27%) and our international peer group exemplified by the Lipper International Index (+37.8%). We remain extremely enthusiastic about prospects for our companies. With the triple positives of low valuations, corporate restructuring and improving economic fundamentals, opportunities remain excellent.

Headline: "Foreign Stocks Outperformed U.S. Equities/ Emerging Markets Post Biggest Gains"

This headline appeared on the front page of The New York Times' business page. Isn't it amazing what a difference one year makes? At the beginning of last year, many pundits were again questioning the rationale of international investing. Additionally, most argued against any emerging market exposure. And as usual and documented in this space in previous letters, the pundits were wrong. We have long argued that investment decisions should be based on the merits of the underlying investment itself. These merits include the price of the business, quality of management and prospects for long-term business success. To us, geography, share price momentum, industry sector and company size are not merits. As investors, we think it is pointless to try to micro-manage for short-term results and, therefore, we are not overly frightened about deviating in performance relative to our peers in the short-term if it means we are positioning ourselves for long-term outperformance.

An example of this has been our discipline in investing in Pacific Rim and Latin American companies. One year ago, most international investors had negligible weightings in these areas. We saw extraordinary opportunity and increased the Fund's exposure in 1998, when others were running for the exits. We were able to buy high quality, undervalued businesses for pennies on the dollar. Though this cost us some short-term under-performance in the first three-quarters of 1998, it positioned us for the future. The benefits of this strategy started to flow in the fourth quarter of 1998 and were felt throughout 1999, and we believe they will continue into the future.

1999 Results—The Good and The Bad

Fortunately, 1999 brought us much more "good" than "bad" in terms of company investments. Stock selection in two countries, South Korea and Brazil, provided the Fund with the biggest positive impact on net asset value. Our investments in South Korea added over $1.00 to the Fund highlighted by the performance of SK Telecom, up an astounding 600 percent for the year. If we were the editors of Time Magazine, it would have been the face of Korean President Kim Dae Jung on the 1999 "Person of the Year" cover, not Jeff Bezos. He has almost single-handedly, albeit with the wolf at the door, accomplished more in the last year and a half to open up and restructure the Korean economy than the Japanese have in the past decade.

Brazilian investments were also hugely additive to your Fund's performance this year, cumulatively adding over $1.00 to the NAV. Hedging the underlying currency, the Brazilian Real, allowed us to own these very undervalued companies while protecting us from a devaluation, which occurred in January of last year.

Our collection of "Baby Bras", the term coined to refer to the various privatized Telebras' spin-offs, were each up between 60 and 300 percent.

Unibanco of Brazil also added substantially to the Fund's NAV, the doubling of its share price added over $0.50. Panic sellers had driven the share price of this high-quality, financially strong institution to fire-sale levels at the beginning of 1999.

Our two UK media companies, Cordiant Communications and Saatchi & Saatchi, added over $0.95 to NAV in 1999. Both share prices were up around 150 percent, with Saatchi & Saatchi's performance earning it a back-to-back return trip to the annual winner's list. Long-time shareholders of The Oakmark International Fund will notice, for the first time in the Fund's history, they will no longer see that name among the holdings: Saatchi & Saatchi achieved its price target this quarter and was sold.

The single biggest contributor to performance this year was Giordano International, the Hong Kong-based pan-Asian clothing retailer. Its shares were up over 450 percent in 1999, contributing over $0.70 to the Fund's performance. Since the Asian crisis began, we've cited the company in our quarterly letters as an example of a world-class company unfairly punished because of investors' short-term fears. Opportunistically, the sellers' losses in 1997-1998 became our shareholders' gains in 1999.

With one exception, the losers had a much lighter impact on the Fund's performance. The exception was Somerfield plc, the UK grocery chain, which cost the Fund $0.68. Shareholders of The Oakmark International Small Cap Fund might remember the company as one of the Fund's biggest winners in 1998. The Oakmark International Fund invested in Somerfield in the first quarter of 1999.

In February of 1998, Somerfield acquired a similarly sized grocery chain, Kwik Save Group. Somerfield's integration of the Kwik Save acquisition has not gone well. Management underestimated the difficulties in converting the new stores into the very profitable Somerfield format. Unprecedented levels of price competition in UK food retailing, spurred in part by government charges of cartel-like behavior, have added to these difficulties. Furthermore, the entry of Wal-Mart into the UK food business, with its acquisition of Asda in August of this year, has caused pricing and stock market sentiment to go from bad to worse. Somerfield's shares were down nearly 50 percent in 1999.

As noted in last quarter's letter, we think the stock at these prices offers outstanding value, trading at our estimate of 3 to 4 times earnings power. The core Somerfield format continues to outperform in a weak market environment and management has recognized their overreaching in the Kwik Save deal by putting a number of the larger acquired stores on the selling block. The market value of the combined Somerfield-Kwik Save entity is now substantially below that of Somerfield alone just one year ago. We continue to add to our position at these prices.

Looking Forward

Your Fund has had a nice run of performance over the past five quarters, but given the under-valuation of the companies currently in the portfolio we remain very bullish about market prospects. Thank you as always for your continued support and confidence.

David Herro

Portfolio Manager
dherro@cs.com

Michael Welsh

Portfolio Manager
102521.2142@compuserve.com

January 7, 2000

(a) Non-income producing security.

(b) Represents an American Depository Receipt.

(c) Represents a Global Depository Receipt.