THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/00) COMPARED TO THE MSCI WORLD EX U.S. INDEX
3/31/00 NAV $14.67	Total Return Last 3 mos.	Average Annual Total Return* Through 3/31/00 From Fund Inception 9/30/92
The Oakmark International Fund	–0.2%	13.6%
MSCI World ex U.S. Index w/inc.**	0.6%	13.2%
MSCI EAFE Index w/inc.**	–0.1%	13.0%
Lipper International Fund Index**	0.6%	15.1%
*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 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.

For the first quarter of the year, your fund has achieved a return of –.2%. This compares to the MSCI World ex-U.S. Index which was up .6%. The Lipper International Fund Index also was up .6%.

Traveler's Log: Japan and Korea

Perceiving change in the Japanese economy is difficult for anyone using a time horizon shorter than a year. While there are numerous examples of specific companies which have started to restructure and focus more on shareholder returns (something we have found more common in smaller companies), in general, the changes have been masked by continued economic paralysis.

The quality of our company visits has certainly improved over the years. Management personnel dispatched to meet with investors are now higher up the ladder than they used to be and seem to better understand concepts like return and capital. However, many sociological impediments to enhancing shareholder returns still remain. For example, many companies are still tied to the tradition of using seniority as the primary criterion for advancement. Thankfully, there are some respected industry leaders such as Canon, Sony and Nomura which have started making promotion and compensation more dependent on performance. We are hopeful this trend will continue.

One very positive aspect of the rise of "new economy" companies in Japan (setting aside the absurd valuations the market is assigning many of them) is the freeing up of options for young people entering the labor market. The relaxation of listing requirements and the formation of alternative exchanges have opened the door to capital for many young firms. With the possibility of founding new startups or joining fast-growing service firms, many are no longer are forced into a life of mind-numbing conformity as "salary men".

It has been sad to watch the treatment of the Japanese taxpayer over the past decade. To say they have been poorly served by their government is too kind. The delays and half-actions of the 1990s have transformed the country's formerly rock-solid finances into an enormous pile of government debt (most estimate total government obligations at well over 100% of GDP). The government's favorite tool, fiscal stimulus primarily in construction, has been a recurring failure. Japanese earners continue to be exceptional savers and will continue to be so as long as they have little confidence in an economic turnaround.

In stark contrast the Koreans have made more progress in reforming their banking sector in the last six months than the Japanese have in the past decade. It helped, ironically, that their short-term problems were much more severe, i.e., the wolf was at the door and they had no choice. Because of the rapidity of reform the outlook for Korea has gone from bleak to bright in two years.

The burst of change and energy happening right now in Korea was jolting, framed as it was by our Japanese visit. Anecdotally, the immigration area designated for foreigners was packed by Americans, French, Germans and Indians (not ALL fund managers!); on previous visits there were usually only a handful of non-GI foreigners going through Kimpo Airport. On this trip you couldn't throw a rock in Seoul without hitting a foreigner trying to make a deal.

This has shown up in dramatic fashion in the foreign direct investment ("FDI") numbers. Before the crisis Korea used to be the outcast of Asian FDI, with regulations and nationalistic attitudes that were nearly xenophobic. Since the crisis the country has attracted more FDI capital than in the previous six years combined. President DJ Kim returned from Europe recently with a fist full of fresh investment commitments he received from French and German companies.

The dramatic adoption of change by the Korean people is most obvious in technology and telecoms. Cellular telephone penetration is now 50% (remember this country has 1/3 the GDP per capita of the US!), a rate that has DOUBLED since the crisis. The internet is also sweeping the country, from the share price mania of the KOSDAQ (Korea's equally high-octane version of our NASDAQ), to the embrace of on-line trading. "Cyber-trading", as its known, now accounts for nearly 50% of total share turnover, up from 5% at the beginning of last year, and currently the highest rate in the world.

Of course the dark side of this rush to embrace the future is that a financial bubble has developed in public companies identified with the internet. The KOSDAQ appears wildly overvalued (50% more expensive than the NASDAQ on a price/sales ratio) and share turnover on this market has increased an astounding 100-fold in the last 12 months. The terms "New economy" and "Cyber" routinely set-off desperate floods of money. The Asian Wall Street Journal recently related the story of a young entrepreneur, Jeong Seung Mo, who watched nearly US$7 million gush into his bank account in the first five minutes after he posted a notice for new investors in his software company. "I advertised on the Internet because I contacted friends, banks, and institutional investors in person, and no one would give me money, " Jeong said.

Our company meetings, most with "old economy" companies, were punctuated by management's disbelief in the under-valuation of their share prices, a sentiment that is all too familiar to value investors around the globe. Profitability for many of these "old" companies has been tremendous. Because many of these companies were over-levered as the crisis hit, they responded with deep and massive restructuring. With slimmed down cost structures and many weaker competitors bankrupt, margins exploded when the economy boomed last year. For instance, one of our investments, Keumkang, doubled their operating profit in 1999 on a 20% pick up in revenue.

The future looks very bright for Korea as long as it stays on the path of reform. They have jettisoned their former economic role model, Japan, and replaced it with a more open Anglo-American style of free market capitalism. The short-term could still be volatile and progress could very well be interrupted by a number of potential negatives, including: another Daewoo-sized bankruptcy damaging the recovering financial sector; a popping of the KOSDAQ bubble; an unfavorable outcome in the upcoming legislative elections; a strongly appreciating Korean currency; trouble with North Korea; or a resurgence in the country's formerly strong labor unions.

We appreciate your support and confidence.

David G. Herro

Portfolio Manager
dherro@cs.com

Michael J. Welsh

Portfolio Manager
102521.2142@compuserve.com

April 5, 2000