N-30D/A 1 a2031946zn-30da.txt N-30D/A [GRAPHIC] THE OAKMARK FUND THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK GLOBAL FUND THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND ANNUAL REPORT SEPTEMBER 30, 2000 MANAGED BY HARRIS ASSOCIATES L.P. [LOGO] THE OAKMARK FAMILY OF FUNDS 2000 ANNUAL REPORT ------------------------------------------------------------------------------- LETTER FROM THE CHAIRMAN AND PRESIDENT .......................................1 THE OAKMARK FUND Letter from the Portfolio Managers .........................................2 Schedule of Investments ....................................................5 THE OAKMARK SELECT FUND Letter from the Portfolio Managers .........................................8 Schedule of Investments ...................................................11 THE OAKMARK SMALL CAP FUND Letter from the Portfolio Managers ........................................13 Schedule of Investments ...................................................16 THE OAKMARK EQUITY AND INCOME FUND Letter from the Portfolio Managers ........................................19 Schedule of Investments ...................................................22 THE OAKMARK GLOBAL FUND Letter from the Portfolio Managers ........................................26 Global Diversification Chart ..............................................29 Schedule of Investments ...................................................30 THE OAKMARK INTERNATIONAL FUND Letter from the Portfolio Managers ........................................33 International Diversification Chart .......................................36 Schedule of Investments ...................................................37 THE OAKMARK INTERNATIONAL SMALL CAP FUND Letter from the Portfolio Managers ........................................41 International Diversification Chart .......................................44 Schedule of Investments ...................................................45 FINANCIAL STATEMENTS Statement of Assets and Liabilities .......................................50 Statement of Operations ...................................................52 Statement of Changes in Net Assets ........................................54 Notes to Financial Statements .............................................61 TRUSTEES AND OFFICERS .......................................................77 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) or (617) 578-1329. 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). TO COMMENT ON SHAREHOLDER SERVICES E-mail us at ServiceComments@oakmark.com. LETTER FROM THE CHAIRMAN AND PRESIDENT -------------------------------------------------------------------------------- DEAR FELLOW SHAREHOLDERS, We are pleased to present the Annual Report for The Oakmark Family of Funds. This past year has been noteworthy for value investors. At the end of 1999 and in early 2000 the market continued to favor growth and momentum investors. However, throughout the year there has been a quiet and long overdue turn toward value stocks, which has generally gone unnoticed. Value investors should take heart -- recent performance speaks for itself. From its high on March 10, 2000 through September 30, the NASDAQ declined 27.18%. Over that same time [PHOTO] period the S&P 500 gained only 3.60%. As investor focus on stock valuations intensifies our Funds benefit significantly -- illustrating that, over time, price and value do converge. We believe performance illustrates that there is compelling evidence that domestic value stocks are starting to return to favor. Since a NASDAQ market peak on March 10, our Funds have posted strong returns compared to major indices:
-------------------------------------- DOMESTIC FUNDS % RETURN FROM MARKET PEAK ON MARCH 10 TO SEPTEMBER 30, 2000 -------------------------------------- The Oakmark Fund 24.88% -------------------------------------- The Oakmark Select Fund 19.90% -------------------------------------- The Oakmark Small Cap Fund 18.06% -------------------------------------- The Oakmark Equity and Income Fund 14.82% -------------------------------------- S&P 500 3.60% -------------------------------------- NASDAQ Composite (27.18%) --------------------------------------
Putting aside these short-term performance results, we continue to have long-term optimism regarding our portfolio holdings. At a minimum, we believe investors should consider rebalancing their portfolios to increase their exposure to value funds, or, move more aggressively toward having a significant value weighting in their portfolio. Our confidence in our value style is confirmed through our hiring, as we have recently added more talent to our dedicated investment team. We are investing and staffing for a positive change. In November, three of our Funds celebrate their five-year anniversary -- Equity and Income, Small Cap, and International Small Cap. Each brings a level of diversification to investors without straying from our strict value approach. We are also very pleased to announce that effective November 6 we are capping the total annual fund operating expenses for The Oakmark Equity and Income Fund at 1.00%. Coupled with an excellent long-term performance record, we believe this makes the Fund even more appealing to all investors. Shareholders will be pleased with important additions we've made at www.oakmark.com. Specifically, investors who visit our MY ACCOUNT area will notice that we have enhanced its capabilities. Shareholders can now perform transactions -- purchases, exchanges, and redemptions -- and also change their address on-line. We will continue to post timely information on our site and regularly evaluate how to enhance it. We appreciate your continued investment. Our strongest statement is that we are increasing ours. /s/Victor A. Morgenstern VICTOR A. MORGENSTERN CHAIRMAN /s/Robert M. Levy ROBERT M. LEVY PRESIDENT October 6, 2000 [GRAPHIC] 1 THE OAKMARK FUND REPORT FROM BILL NYGREN AND KEVIN GRANT, PORTFOLIO MANAGERS -------------------------------------------------------------------------------- [PHOTO] [PHOTO] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (9/30/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
THE OAKMARK FUND S&P 500 8/91 $10,000 $10,000 12/91 $13,020 $10,909 3/92 $14,690 $10,634 6/92 $15,230 $10,836 9/92 $16,800 $11,178 12/92 $19,386 $11,741 3/93 $20,927 $12,253 6/93 $21,494 $12,313 9/93 $23,095 $12,631 12/93 $25,300 $12,924 3/94 $24,242 $12,434 6/94 $24,951 $12,486 9/94 $26,663 $13,097 12/94 $26,138 $13,095 3/95 $28,539 $14,370 6/95 $30,303 $15,741 9/95 $32,841 $16,992 12/95 $35,134 $18,015 3/96 $36,386 $18,982 6/96 $37,661 $19,834 9/96 $37,945 $20,447 12/96 $40,828 $22,152 3/97 $42,456 $22,746 6/97 $48,917 $26,716 9/97 $52,009 $28,717 12/97 $54,132 $29,542 3/98 $59,517 $33,663 6/98 $57,909 $34,775 9/98 $49,899 $31,316 12/98 $56,155 $37,985 3/99 $55,888 $39,877 6/99 $62,332 $42,688 9/99 $53,882 $40,023 12/99 $50,277 $45,977 3/00 $45,767 $47,032 6/00 $46,950 $45,783 9/00 $49,815 $45,339
AVERAGE ANNUAL TOTAL RETURN* 9/30/00 NAV $26.95 THROUGH 9/30/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS 8/5/91 ------------------------------------------------------------------------------------------ THE OAKMARK FUND 6.1% 19.2% Standard & Poor's 500 Stock Index w/inc** -1.0% 17.9% Dow Jones Industrial Average w/inc** 2.4% 17.4% Value Line Composite Index** 2.9% 6.2%
*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 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. The Oakmark Fund increased 6.1% for the quarter ended September 30. As with last quarter, we are pleased with this gain especially when compared to the loss in the S & P 500. Turning to the fiscal year, to just say our fund lost 8% of its value would miss the biggest financial story of the year. The year began with a mass exodus from traditional stocks into the "new economy" stocks in the NASDAQ. As the NASDAQ rose to its record high, from September 30, 1999 to March 10, 2000 your fund lost 26% of its value. But after March 10, the NASDAQ lost 27% and investors started returning to value stocks like those in The Oakmark Fund. From March 10 until September 30, your fund increased by 25%. Although we are not pleased with the full year results, we are pleased with the second half of the year and believe that our stocks will continue to benefit from this shift in investor sentiment. PORTFOLIO CHANGES During the quarter we added five new companies to the portfolio and sold a high profile stock. When we began managing the fund in March we were frequently asked about Philip Morris because it had been a long-term holding of The Oakmark Fund. We said that despite our concerns about tobacco litigation we felt that Philip Morris' ownership of Kraft was not being properly valued. We thought Philip Morris should sell in the $30's, not the $20's. Last quarter, Philip Morris did trade up into the $30's and we used that opportunity to eliminate the position. Here's a brief explanation of our new holdings: 2 THE OAKMARK FUND -------------------------------------------------------------------------------- JC PENNEY (JCP--12) In 1998, JCP sold at $78 per share. Since then the retailer has lost sales to discounters like Kohl's as well as to department stores like Macy's. Getting squeezed from both sides, the company is struggling to find its niche. In July, Allen Questrom was hired as CEO. Allen gained a reputation as perhaps the best merchant in retailing today by rescuing Federated Department Stores and Macy's from bankruptcy. We believe Questrom will also succeed in this turnaround.
--------------------------------------------------------------- TOTAL RETURNS AS OF SEPTEMBER 30, 2000 --------------------------------------------------------------- 3 Months 6.1% --------------------------------------------------------------- 6 Months 8.8% --------------------------------------------------------------- 1 Year (7.6%) --------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2000 --------------------------------------------------------------- 3 Year (1.4%) --------------------------------------------------------------- 5 Year 8.7% --------------------------------------------------------------- Since inception 19.2% ---------------------------------------------------------------
AT & T (T--29) AT&T stock peaked at $64 last year after cable TV acquisitions made them a "one-stop-shopping" provider of voice, data and video communications. After price wars in long distance reduced AT&T's earnings the stock sharply declined. We believe that the value of AT&T's various pieces including cable, wireless, long-distance and business services are worth twice the stock price. We also believe that AT&T's largest shareholder, John Malone (formerly of Tele-Communications, Inc.), will help the company devise a strategic plan to have that value recognized. ROCKWELL (ROK--30) This leader in electronic controls and industrial automation reached a stock price of $65 last year. A slowdown in industrial orders resulted in earnings reductions and the stock lost over half its value. The stock now sells at 8 times our estimate of next year's cash earnings, yields over 3% and should achieve secular EPS growth in excess of 10% annually. CVS CORPORATION (CVS--46) CVS is the largest drugstore chain in the US. The stock hit a high last year of $58 and a low last quarter of $35. ------------------------------------------------------------------------------ HIGHLIGHTS - WHILE THIS YEAR WAS DIFFICULT FOR US AND OUR INVESTORS, WE BELIEVE THE TURNAROUND THAT BEGAN SEVEN MONTHS AGO IS LIKELY TO CONTINUE. - THE TAX SITUATION FOR THE FUND IS EXTREMELY FAVORABLE FOR TAXABLE SHAREHOLDERS, AS WE EXPECT NO CAPITAL GAINS DISTRIBUTION THIS YEAR, NOR FOR THE NEXT COUPLE OF YEARS. - DESPITE CATEGORY LABELS, WE BELIEVE INVESTORS SHOULD LOOK AT OAKMARK AS A LARGE-COMPANY STOCK FUND, AND WE WILL CONTINUE BUYING STOCKS IN LARGE COMPANIES THAT WE BELIEVE ARE PRICED AT BARGAIN LEVELS. ------------------------------------------------------------------------------ Although both CVS and Walgreen's are expected to earn just over $700 million this year on sales just over $20 billion, and are each growing at about 15% per year, Walgreen's enterprise value (debt plus market value of its equity) is more than twice CVS's enterprise value! That spread strikes us as unwarranted, unlikely to persist, and therefore an opportunity. FORD (F--26) Ford stock fell from $43 last spring to $25 as interest rates rose, talk of economic slowing increased, and Firestone's tire problems hit the front page. We don't expect the Firestone recall to affect Ford's long-term value. We were pleased to see Ford make a tender offer last quarter to repurchase $10 billion of its stock. Ford is now selling at less than 7 times our estimate of next year's earnings. OAKMARK--A LARGE COMPANY FUND When investors categorize equity mutual funds, they generally look at two criteria: investment style and the size of the companies being purchased. For investment style growth -- or value --The Oakmark Fund is clearly a value fund. All our energy goes into identifying and buying inexpensive stocks, selling them when they are no longer inexpensive, and then repeating the process. To categorize us based on the size of companies we purchase is more difficult. Since larger companies tend to have longer operating histories and more predictable earnings streams, they THE OAKMARK FUND 3 --------------------------------------------------------------------------------
------------------------------------------------------- TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 2000 ------------------------------------------------------- Other Consumer INDUSTRIES Goods & Services 16.0% AND % OF Retail 9.6% TOTAL NET Information Services 7.8% ASSETS Household Products 7.0% Computer Services 5.7% -------------------------------------------------------
tend to be less risky investments. Therefore, many investors prefer mutual funds that focus on larger companies, as we do in The Oakmark Fund. We believe The Oakmark Fund has always invested primarily in large companies. That's because when we think of large, we think of fundamental characteristics that measure the size of underlying businesses. Using measures like sales, net income or shareholders' equity, most of our investments have been and still are in stocks that are among the 250 largest businesses in the United States. But most organizations that categorize mutual funds look instead at how Wall Street values those businesses. For example, Morningstar calls the 250 stocks with the biggest market capitalizations "large cap." Based on their definition, a "large cap fund" primarily buys stocks that have market capitalizations over $10 billion. Because we own many stocks with market caps below $10 billion, in the last quarter Morningstar moved The Oakmark Fund from the "large cap value" to the "mid cap value" category. This is important because we believe that investors who own funds that are still called "large cap" may not be getting the lower risk level they expect from investing in large companies. Last year, many small companies, mostly technology companies, had such high stock prices that they were categorized as large-cap stocks. By our count, the number of these small-company large-caps was five
----------------------------------------------------- TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000 ----------------------------------------------------- COMPANY Fortune Brands, Inc. 3.4% AND % OF Washington Mutual, Inc. 3.4% TOTAL NET Dun & Bradstreet ASSETS Corporation 3.2% Mattel, Inc. 3.2% ACNielsen Corporation 3.1% -----------------------------------------------------
times as high as it was a decade ago! These stocks have a much higher risk profile than is typically associated with large companies. Avoiding these stocks is what has reduced the average market capitalization of our stock positions. The Oakmark Fund will continue buying stocks in large companies that we believe are priced at bargain levels. We believe this is simply acting rationally in a market that has priced many securities irrationally. And, if that means that, in this environment, our "large company value" fund gets categorized as "mid cap value," it just shows we are doing our job! One last comment: the tax situation for The Oakmark Fund is now extremely favorable for taxable shareholders. As you can see in our financial statements, The Oakmark Fund has a realized loss of $4.74 per share. Because of that loss there will be no capital gain distribution this year (we will of course still distribute dividend income) and likely no gains distribution for at least a couple of more years. Thank you for your patience. This was a difficult year for us, but we believe the turnaround that began seven months ago is likely to continue. /s/William C. Nygren WILLIAM C. NYGREN, CFA Portfolio Manager bnygren@oakmark.com /s/Kevin G. Grant KEVIN G. GRANT, CFA Portfolio Manager kgrant@oakmark.com October 5, 2000 4 THE OAKMARK FUND -------------------------------------------------------------------------------- THE OAKMARK FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 ................................................................................
Shares Held Market Value ------------------------------------------------------------------------------------------------------ COMMON STOCKS--92.2% FOOD & BEVERAGE--2.0% H.J. Heinz Company 1,125,000 $ 41,695,313 APPAREL--3.0% Jones Apparel Group, Inc. (a) 1,257,000 $ 33,310,500 NIKE, Inc., Class B 681,400 27,298,588 -------------- 60,609,088 RETAIL--9.6% The Kroger Co. (a) 2,200,000 $ 49,637,500 Toys `R' Us, Inc. (a) 3,000,000 48,750,000 Tricon Global Restaurants, Inc. (a) 1,350,000 41,343,750 CVS Corporation 700,000 32,418,750 J.C. Penney Company, Inc. 1,950,000 23,034,375 -------------- 195,184,375 HOUSEHOLD PRODUCTS--7.0% Fort James Corporation 1,400,000 $ 42,787,500 Newell Rubbermaid Inc. 1,700,000 38,781,250 Energizer Holdings, Inc. (a) 1,500,000 36,750,000 The Dial Corporation 2,052,900 23,864,962 -------------- 142,183,712 HOUSEHOLD APPLIANCES--1.8% Maytag Corporation 1,160,400 $ 36,044,925 OFFICE EQUIPMENT--1.6% Xerox Corporation 2,150,000 $ 32,384,375 HARDWARE--3.9% The Black & Decker Corporation 1,522,200 $ 52,040,213 The Stanley Works 1,224,900 28,249,256 -------------- 80,289,469 OTHER CONSUMER GOODS & SERVICES--16.0% Fortune Brands, Inc. 2,605,200 $ 69,037,800 Mattel, Inc. 5,864,400 65,607,975 Brunswick Corporation 2,971,800 54,235,350 H&R Block, Inc. 1,275,300 47,265,806 Cendant Corporation (a) 3,300,100 35,888,588 Ralston Purina Group 1,400,000 33,162,500 Galileo International, Inc. 1,396,200 21,641,100 -------------- 326,839,119 BANKS & THRIFTS--5.1% Washington Mutual, Inc. 1,730,000 $ 68,875,625 Bank One Corporation 900,548 34,783,666 -------------- 103,659,291
THE OAKMARK FUND 5 -------------------------------------------------------------------------------- THE OAKMARK FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. ................................................................................
Shares Held Market Value ------------------------------------------------------------------------------------------------------ COMMON STOCKS--92.2% (CONT.) INSURANCE--1.4% MGIC Investment Corporation 475,000 $ 29,034,375 OTHER FINANCIAL--2.3% USA Education Inc. 1,000,000 $ 48,187,500 INFORMATION SERVICES--7.8% Dun & Bradstreet Corporation 1,907,500 $ 65,689,531 ACNielsen Corporation (a) 2,664,000 63,436,500 Equifax Inc. 1,300,000 35,018,750 Moody's Corporation, When Issued (a) (200,000) (5,262,500) -------------- 158,882,281 COMPUTER SERVICES--5.7% First Data Corporation 1,040,000 $ 40,625,000 Electronic Data Systems Corporation 940,000 39,010,000 SunGard Data Systems Inc. (a) 840,800 35,996,750 -------------- 115,631,750 TELECOMMUNICATIONS--3.6% AT&T Corp. 1,425,000 $ 41,859,375 Citizens Communications Company (a) 2,350,000 31,578,125 -------------- 73,437,500 PUBLISHING--1.7% Knight Ridder, Inc. (a) 692,000 $ 35,162,250 PHARMACEUTICALS--0.5% Chiron Corporation (a) 235,000 $ 10,575,000 MEDICAL PRODUCTS--2.0% Sybron International Corporation (a) 1,673,600 $ 40,166,400 AUTOMOBILES--1.9% Ford Motor Company 800,000 $ 20,250,000 DaimlerChrysler AG (b) 400,000 17,756,000 -------------- 38,006,000 AEROSPACE & DEFENSE--3.1% Lockheed Martin Corporation 1,000,000 $ 32,960,000 The B.F. Goodrich Company 770,000 30,174,375 -------------- 63,134,375 INSTRUMENTS--1.6% Rockwell International Corporation 1,067,300 $ 32,285,825 MACHINERY & INDUSTRIAL PROCESSING--4.5% Cooper Industries, Inc. 1,698,400 $ 59,868,600 Eaton Corporation 511,700 31,533,512 -------------- 91,402,112
6 THE OAKMARK FUND -------------------------------------------------------------------------------- THE OAKMARK FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. ................................................................................
Shares Held/ Par Value Market Value ------------------------------------------------------------------------------------------------------ COMMON STOCKS--92.2% (CONT.) BUILDING MATERIALS & CONSTRUCTION--1.8% Masco Corporation 1,933,000 $ 36,002,125 CHEMICALS--0.6% PolyOne Corporation 1,613,200 $ 11,796,525 UTILITIES--2.1% TXU Corp. 1,080,000 $ 42,795,000 RECREATION & ENTERTAINMENT--1.6% Carnival Corporation 1,350,000 $ 33,243,750 TOTAL COMMON STOCKS (COST: $1,847,268,947) 1,878,632,435 SHORT TERM INVESTMENTS--6.5% U.S. GOVERNMENT BILLS--1.2% United States Treasury Bills, 6.10% due 11/24/2000 $25,000,000 $ 24,771,250 TOTAL U.S. GOVERNMENT BILLS (COST: $24,771,250) 24,771,250 COMMERCIAL PAPER--3.4% American Express Credit Corporation, 6.55% due 10/4/2000 $10,000,000 $ 10,000,000 Ford Motor Credit Corp., 6.56% due 10/4/2000 10,000,000 10,000,000 General Electric Capital Corporation, 6.69% due 10/2/2000 50,000,000 50,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $70,000,000) 70,000,000 REPURCHASE AGREEMENTS--1.9% State Street Repurchase Agreement, 6.42% due 10/2/2000 $37,913,000 $ 37,913,000 TOTAL REPURCHASE AGREEMENTS (COST: $37,913,000) 37,913,000 TOTAL SHORT TERM INVESTMENTS (COST: $132,684,250) 132,684,250 Total Investments (Cost $1,979,953,197)--98.7% (c) $2,011,316,685 Other Assets In Excess Of Other Liabilities--1.3% 27,412,122 TOTAL NET ASSETS--100% $2,038,728,807 ==============
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) At September 30, 2000, net unrealized appreciation of $31,363,487, for federal income tax purposes, consisted of gross unrealized appreciation of $281,525,537 and gross unrealized depreciation of $250,162,050. THE OAKMARK FUND 7 THE OAKMARK SELECT FUND REPORT FROM BILL NYGREN AND HENRY BERGHOEF, PORTFOLIO MANAGERS ....................................................................... [PHOTO] [PHOTO] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (9/30/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX [GRAPH]
THE OAKMARK SELECT FUND S&P 500 10/96 $10,000 $10,000 12/96 $11,420 $10,543 03/97 $12,140 $10,828 06/97 $14,180 $12,715 09/97 $16,340 $13,668 12/97 $17,704 $14,060 03/98 $20,078 $16,021 06/98 $20,462 $16,551 09/98 $16,936 $14,904 12/98 $20,575 $18,078 03/99 $22,766 $18,979 06/99 $24,482 $20,317 09/99 $22,028 $19,048 12/99 $23,557 $21,882 03/00 $25,667 $22,384 06/00 $24,324 $21,790 09/00 $27,432 $21,578
9/30/00 NAV $21.45 AVERAGE ANNUAL TOTAL RETURN* THROUGH 9/30/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS 11/1/96 ----------------------------------------------------------------------------------- THE OAKMARK SELECT FUND 12.8% 29.4% Standard & Poor's 500 Stock Index w/inc** -1.0% 21.7% Standard & Poor's MidCap 400 Index w/inc** 12.2% 24.2% Value Line Composite Index** 2.9% 4.2%
*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 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. REVIEW OF 2000 PERFORMANCE Fiscal 2000 was another good year for The Oakmark Select Fund. In the last quarter, the Fund increased in value by 12.8%, bringing the gain for the fiscal year to 24.5%. That gain again placed The Oakmark Select Fund in the top quartile of funds classified by Morningstar as Midcap Value Funds. Since inception of The Oakmark Select Fund, not quite four years ago, the Fund has increased in value by 174%, outperforming all of our benchmark indices (S&P 500, 116%; S&P 400 Midcap, 134%; Value Line Composite, 18%). Not many funds have accomplished that, especially funds that utilize an approach similar to ours, namely, value investing. We want to thank the research department of Harris Associates for finding the stocks that have performed so well and, just as importantly, helping us avoid those that haven't performed well. Our investment process relies on extensive analysis of any company in which we consider investing. Just as in the TV ads for one of our competitors, our analysts aren't glued to their desks: they spend a great deal of time performing on-site visits, interviewing managements, and polling customers and competitors. We rely heavily on our analysts because we think they are the best in the business, and we could not have achieved these results without them. Looking back over the past year, our Fund's largest holding, WASHINGTON MUTUAL, was a strong performer, gaining 40% as interest rates stabilized in the second half. Acquisitions also had a positive effect on our performance. Corporate buyers purchased STERLING COMMERCE and TIMES MIRROR at substantial premiums to their market prices. In addi- 8 THE OAKMARK SELECT FUND ................................................................................ tion, stocks of CHIRON, ENERGIZER and THERMO ELECTRON significantly added to our Fund's results. Those positive results were somewhat offset by declines in USG, US INDUSTRIES, and REYNOLDS & REYNOLDS. All three of these BUSINESSES, not just the stocks, performed below our expectations. Because of this, we have allowed their portfolio weightings to decrease, although we continue to believe each stock is undervalued.
--------------------------------------- TOTAL RETURNS SEPTEMBER 30, 2000 --------------------------------------- 3 Months 12.8% --------------------------------------- 6 Months 6.9% --------------------------------------- 1 Year 24.5% --------------------------------------- AVERAGE ANNUAL TOTAL RETURNS SEPTEMBER 30, 2000 --------------------------------------- 3 Year 18.8% --------------------------------------- 5 Year N/A --------------------------------------- Since inception 29.4% ---------------------------------------
The end of this quarter marked an end and a new beginning for one of our investments, DUN & BRADSTREET. It was just over a year ago that Dun & Bradstreet reported poor operating results and we lost confidence in its top management. With the stock below $24 last August, we began a very public debate with Dun & Bradstreet about how to maximize its value. After their CEO resigned, we applauded the board's new plan to split the company in two, separating the high growth Moody's bond rating agency from the declining credit information business. That split-up went into effect October 2 this year. The old Dun & Bradstreet ended its corporate life with a stock price of $36, up 50% from last August. We are now very pleased with the management and outlook for both Moody's and "new Dun & Bradstreet," and you can see that we added to our holdings in the new Dun & Bradstreet shares. Their database of corporate credit histories is unparalleled and new CEO Allan Loren plans to make that database more profitable. In addition to cutting expenses, revenue can grow as D&B moves from just selling data to selling decisions -- helping its customers decide whether or not their potential customers -------------------------------------------------------------------------------- HIGHLIGHTS - FOR THE QUARTER ENDING 9/30 THE FUND WAS UP 12.8%, WITH A FISCAL YEAR GAIN OF 24.5%. THIS PLACED IT IN THE TOP QUARTILE OF ALL MID-CAP VALUE FUNDS, AS CLASSIFIED BY MORNINGSTAR. - SINCE THE FUND'S INCEPTION ON 11/1/96 THROUGH 9/30, IT'S RANKED #1 OUT OF ALL MID-CAP VALUE FUNDS BY LIPPER, INC. - OUR LARGEST HOLDING, WASHINGTON MUTUAL, GAINED 40% OVER THE PAST YEAR AS INTEREST RATES STABILIZED. ACQUISITIONS HAD A POSITIVE EFFECT AS CORPORATE BUYERS PURCHASED TWO HOLDINGS, STERLING COMMERCE AND TIMES MIRROR, AT SUBSTANTIAL PREMIUMS. -------------------------------------------------------------------------------- are credit-worthy. The stock market is pricing D&B as if this turnaround will fail -- we think the market is wrong. TRIVIA TIME What company is the largest Internet retailer? That's about as easy as a $100 question on "Who Wants to be a Millionaire?" With estimated sales this year of nearly $3 billion, the distant leader in e-tailing is Amazon.com. The stock market has certainly rewarded Amazon for this leadership. The company currently loses lots of money, and even the bulls don't expect it to have a profitable quarter until late 2002. Yet, the market value of Amazon.com's stock is $13 billion, over 4 times this year's expected revenue! Now, without phoning-a-friend, who is the second largest Internet retailer? The questions are getting tougher! The battle for second place is more competitive, but we believe the second largest Internet retailer, with sales reaching a run-rate by year-end of $1 billion, is OFFICE DEPOT. Surprised? So were we. But, as the largest office supply company, Office Depot has had a large catalog business for some time. The fulfillment infrastructure for an on-line business was basically in place before the terms B2B and B2C were invented. Transitioning the existing catalog and telephone orders to the Internet was a natural move, and THE OAKMARK SELECT FUND 9 ................................................................................
------------------------------------------------------------------------- TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 2000 ------------------------------------------------------------------------- INDUSTRIES Retail 16.7% AND % OF Banks & Thrifts 14.9% TOTAL NET Information Services 11.8% ASSETS Other Consumer Goods & Services 7.6% Computer Services 7.6% -------------------------------------------------------------------------
the reach of the Internet allowed for dramatic growth. Considering that Office Depot has "bricks and mortar" sales of nearly $11 billion, it's not so surprising that Internet sales are reaching $1 billion. And, unlike Amazon.com, Office Depot makes a profit on Internet sales!
------------------------------------------------------------------------- TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000 ------------------------------------------------------------------------- COMPANY Washington Mutual, Inc. 14.9% AND % OF Toys `R ' Us, Inc. 8.3% TOTAL NET The Reynolds & ASSETS Reynolds Company, Class A 6.7% Dun & Bradstreet Corporation 6.1% Ceridian Corporation 5.2% -------------------------------------------------------------------------
Office Depot has an enterprise value (market capitalization plus debt) of less than $3 billion -- 3 times its Internet revenue, but only 25% of its total revenue. Earnings this year are expected to be around 80(cent) per share. Because earnings haven't grown for two years, Office Depot stock has fallen from $26 last year to just $6. So, for less than 10 times earnings and about book value, we have taken a position in a large and rapidly growing e-tailer. New CEO Bruce Nelson, who came to Office Depot with their Viking Office Products acquisition in 1998, has a great track record of making sure his company provides exceptional customer service, while keeping expenses tightly controlled. Bruce personally bought more Office Depot stock this summer, shortly before we did. We are confident he will measure his success the same way we will, by looking at the stock price. Thank you for your support. /s/ Bill Nygren WILLIAM C. NYGREN, CFA Portfolio Manager bnygren@oakmark.com /s/ Henry Berghoef HENRY R. BERGHOEF, CFA Portfolio Manager berghoef@oakmark.com October 5, 2000 10 THE OAKMARK SELECT FUND
------------------------------------------------------------------------------------------ THE OAKMARK SELECT FUND ------------------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------ Shares Held Market Value ------------------------------------------------------------------------------------------ COMMON STOCKS--92.4% APPAREL--3.6% Liz Claiborne, Inc. 1,648,600 $ 63,471,100 RETAIL--16.7% Toys `R' Us, Inc. (a) 9,048,500 $147,038,125 Tricon Global Restaurants, Inc. (a) 2,615,400 80,096,625 Office Depot, Inc. (a) 9,046,000 70,671,875 ------------ 297,806,625 HOUSEHOLD PRODUCTS--4.2% Energizer Holdings, Inc. (a) 3,089,200 $ 75,685,400 OTHER CONSUMER GOODS & SERVICES--7.6% H&R Block, Inc. 1,956,000 $ 72,494,250 Mattel, Inc. 5,600,000 62,650,000 ------------ 135,144,250 BANKS & THRIFTS--14.9% Washington Mutual, Inc. 6,679,800 $265,939,537 OTHER FINANCIAL--1.9% MBIA, Inc. 465,800 $ 33,130,025 INFORMATION SERVICES--11.8% Dun & Bradstreet Corporation 3,143,600 $108,257,725 Ceridian Corporation 3,284,500 92,171,281 Dun & Bradstreet Corporation, When Issued (a) 536,400 9,118,800 ------------ 209,547,806 COMPUTER SERVICES--7.6% First Data Corporation 1,810,200 $ 70,710,938 Electronic Data Systems Corporation 1,545,000 64,117,500 ------------ 134,828,438 COMPUTER SOFTWARE--6.7% The Reynolds and Reynolds Company, Class A (b) 5,979,700 $118,846,538 PHARMACEUTICALS--1.7% Chiron Corporation (a) 668,900 $ 30,100,500 AUTOMOTIVE--3.5% Visteon Corporation 4,128,900 $ 62,449,613
THE OAKMARK SELECT FUND 11
----------------------------------------------------------------------------------------------- THE OAKMARK SELECT FUND ----------------------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. ----------------------------------------------------------------------------------------------- Shares Held/ Par Value Market Value ----------------------------------------------------------------------------------------------- COMMON STOCKS--92.4% (CONT.) MACHINERY & INDUSTRIAL PROCESSING--4.9% Thermo Electron Corporation (a) 3,369,000 $ 87,594,000 BUILDING MATERIALS & CONSTRUCTION--4.9% USG Corporation (b) 3,474,900 $ 87,089,681 DIVERSIFIED CONGLOMERATES--2.4% U.S. Industries, Inc. (b) 4,286,800 $ 42,600,075 TOTAL COMMON STOCKS (COST: $1,457,018,607) 1,644,233,588 SHORT TERM INVESTMENTS--7.4% U.S. GOVERNMENT BILLS--1.1% United States Treasury Bills, 6.10% due 11/24/2000 $ 20,000,000 $ 19,817,000 TOTAL U.S. GOVERNMENT BILLS (COST: $19,817,000) 19,817,000 COMMERCIAL PAPER--3.4% American Express Credit Corporation, 6.51% due 10/2/2000 $ 20,000,000 $ 20,000,000 Ford Motor Credit Corp., 6.56% due 10/4/2000 10,000,000 10,000,000 General Electric Capital Corporation, 6.69% due 10/2/2000 30,000,000 30,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $60,000,000) 60,000,000 REPURCHASE AGREEMENTS--2.9% State Street Repurchase Agreement, 6.42% due 10/2/2000 $ 51,597,000 $ 51,597,000 TOTAL REPURCHASE AGREEMENTS (COST: $51,597,000) 51,597,000 TOTAL SHORT TERM INVESTMENTS (COST: $131,414,000) 131,414,000 Total Investments (Cost $1,588,432,607)--99.8% (c) $1,775,647,588 Other Assets In Excess Of Other Liabilities--0.2% 3,088,886 TOTAL NET ASSETS--100% $1,778,736,474 ==============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At September 30, 2000, net unrealized appreciation of $187,214,980, for federal income tax purposes, consisted of gross unrealized appreciation of $302,941,071 and gross unrealized depreciation of $115,726,091. 12 THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND REPORT FROM JAMES P. BENSON AND CLYDE S. MCGREGOR, PORTFOLIO MANAGERS -------------------------------------------------------------------------------- [PHOTO] [PHOTO] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/00) AS COMPARED TO THE RUSSELL 2000 INDEX [GRAPH]
THE OAKMARK SMALL CAP FUND RUSSELL 2000 10/31/1995 $10,000 $10,000 12/31/1995 $10,330 $10,695 3/31/1996 $11,460 $11,241 6/30/1996 $12,470 $11,803 9/30/1996 $13,250 $11,843 12/31/1996 $14,440 $12,459 3/31/1997 $15,220 $11,815 6/30/1997 $17,660 $13,730 9/30/1997 $20,340 $15,774 12/31/1997 $20,290 $15,245 3/31/1998 $21,732 $16,779 6/30/1998 $20,467 $15,997 9/30/1998 $14,976 $12,774 12/31/1998 $17,620 $14,857 3/31/1999 $16,069 $14,051 6/30/1999 $18,205 $16,237 9/30/1999 $16,558 $15,210 12/31/1999 $16,224 $18,015 3/31/2000 $15,974 $19,292 6/30/2000 $15,926 $18,562 9/30/2000 $18,014 $18,768
AVERAGE ANNUAL TOTAL RETURN* 9/30/00 NAV $15.10 THROUGH 9/30/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS 11/1/95 -------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND 13.1% 12.7% Lipper Small Cap Fund Index** 3.4% 16.1% Russell 2000 w/inc** 1.1% 13.7% S&P Small Cap 600 w/inc.** 3.3% 14.8%
*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. The third calendar quarter of 2000 was a period where the portfolio actions that we undertook in the first half of 2000 began to bear fruit. For the quarter, your Fund was up 13.1% versus the Russell 2000 Index which rose by 1.1%. On a calendar year-to-date basis, your Fund is up 11.0% compared to the Russell 2000's rise of 4.2%. While pleased with recent results, we believe we can continue to improve our performance based upon the values that we can currently find among small cap stocks. We will continue to work to position your Fund to improve returns and liquidity while doing all we rationally can to minimize the Fund's taxable gains. BUILDING ON RECENT SUCCESS In last quarter's letter, we indicated that we were trying to invest not just in good companies trading at low valuations, but in companies that had a higher probability of experiencing a positive catalyst. A positive catalyst can help expose the undervaluation of a particular stock to a wider group of investors which often results in these investors bidding up the stock's price. These fortuitous events can sometime compound upon themselves resulting in excellent investment returns. A good example of this phenomenon from your Fund's portfolio has been our recent experience with DURA PHARMACEUTICALS. While it is unusual to find a pharmaceutical stock trading at levels that are comfortable for value investors, we often investigate stocks in this industry in the hopes that we can find value. Our work was rewarded early this year as we came to know Dura and, after our analytical work convinced us that the company's value greatly exceeded its THE OAKMARK SMALL CAP FUND 13 -------------------------------------------------------------------------------- stock price, we accumulated a position in the stock at just under $13 per share.
-------------------------------------------------------------------------------- TOTAL RETURNS AS OF SEPTEMBER 30, 2000 -------------------------------------------------------------------------------- 3 Months 13.1% -------------------------------------------------------------------------------- 6 Months 12.8% -------------------------------------------------------------------------------- 1 Year (a) 8.8% --------------------------------------------------------------------------------
(a) During the year ended September 30, 2000, Initial Public Offerings ("IPOs") contributed 1.10% to the performance of Small Cap. As the IPO environment changes and the total assets of the Fund grows, the impact of IPOs on performance will diminish.
-------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2000 -------------------------------------------------------------------------------- 3 Year (4.0%) -------------------------------------------------------------------------------- 5 Year N/A -------------------------------------------------------------------------------- Since inception 12.7% --------------------------------------------------------------------------------
What attracted us to Dura was that its rapidly growing drug business was being overshadowed in their financial results by sizeable investments in research and development for a new drug delivery technology. We believed that the drug business was worth far more than $13 per share and that the new drug delivery technology was likely to be additive to Dura's long-term value as well. Within months following our purchase, Dura announced a downsizing of the drug delivery research and development budget to improve profits. Strong quarterly financial results showed good growth in revenues and profits from the core drug business and, in September, Dura announced that Elan Pharmaceuticals was buying the company. Over a five-month period, Dura's stock rose from $13 to $39 due mainly to the combination of low initial valuation followed by positive catalysts. While we do not expect this type of performance to be repeated often, we believe that if we continue to invest in stocks with characteristics similar to Dura's, the portfolio should experience success over time. NEW INVESTMENTS As we start the fourth calendar quarter of 2000, the Fund's portfolio has expanded to forty-six stocks, up from forty stocks at June 30, 2000. During the last quarter we added -------------------------------------------------------------------------------- HIGHLIGHTS - The stock market has been a difficult place to make money this year, in part due to exaggerated moves in stock prices, with only moderate changes in business fundamentals. - For the third quarter 2000, Small Cap was up 13.1% versus the Russell 2000, which rose by only 1.1%. Calendar year-to-date the Fund was up 11.03% compared to the Russell 2000's rise of 4.2%. - At the beginning of the 4th quarter 2000, the Fund's portfolio has expanded to 46 stocks, up from 40 stocks on June 30. -------------------------------------------------------------------------------- ten stocks to the portfolio while four stocks exited the Fund (one company was purchased for cash while the other three stocks were sold). The stocks that we bought were: AMERICAN GREETINGS CORP.(greeting cards), CIBER, INC.(computer services), CONMED CORP.(medical instruments), GARDNER DENVER, INC. (compressors and petroleum equipment), GEORGIA GULF CORP. (chemical manufacturer), IMATION CORP. (computer storage products and services), INTEGRATED ELECTRICAL SERVICES, INC. (electrical and communications contracting), NCO GROUP, INC.(accounts receivable collection services), SCOTT TECHNOLOGIES, INC. (self-contained breathing apparatus manufacturer) and SHOPKO STORES, INC. (general retailer). While we believe each of these stocks has a compelling investment case, we would like to highlight two issues that seem particularly interesting at current prices. The two new stocks your Fund owns that we would like to discuss in detail are: American Greetings and Conmed. Both of these companies appear close to a turning point and, despite the fact that we might be a quarter or two early, we are excited about the long-term prospects for these firms. American Greetings is the number two greeting card company behind Hallmark and we believe the current uncertainty about the company's growth prospects has resulted in an undervalued security. A reduction in inventory at 14 THE OAKMARK SMALL CAP FUND --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 2000 -------------------------------------------------------------------------------- INDUSTRIES Real Estate 12.0% AND % OF Banks & Thrifts 8.6% TOTAL NET Educational Services 8.2% ASSETS Pharmaceuticals 7.0% Insurance 6.5% --------------------------------------------------------------------------------
American Greeting's retail customers has caused some near-term sluggishness in revenues, but this trend could be a longer-term positive as it should allow for more timely inventory being on the shelves at greeting card retailers. Additionally, the acquisition of Gibson Greetings has caused some unusual variations in American Greetings' financial results. However, we believe over time this acquisition will add to the firm's financial performance. Lastly, new accounting rules that have resulted in the shifting of some quarterly revenues and the losses associated with the building of the company's on-line offering have further confused investors. However, when we strip away all the aforementioned noise, we see a company that continues to build for the long-term and is trading at a low multiple of its cash flow.
------------------------------------------------------- TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000 ------------------------------------------------------- COMPANY AND ITT Educational % OF TOTAL Services, Inc. 8.2% NET ASSETS Dura Pharmaceuticals, Inc. 7.0% Catellus Development Corporation 6.3% National Data Corporation 5.7% The PMI Group, Inc. 5.2% -------------------------------------------------------
Conmed is a medical instruments company that specializes in arthroscopy and powered surgical instruments. This company experienced an earnings shortfall in the second quarter and its stock was promptly cut in half. Cash flow, however, remains robust since Conmed has large quarterly charges for goodwill. These non-cash charges hurt reported earnings per share but they do not impact cash generation. Since the key item that we evaluate is a company's free cash flow generation, we became interested in Conmed. OUTLOOK The stock market has been a difficult place to make money this year in part due to exaggerated moves in stock prices based upon only a moderate change in business fundamentals. These excessive price fluctuations can provide opportunities for long-term investors to acquire the stocks of good businesses at attractive prices. We find it fascinating that many investors believe that building a business is a linear process. It is not; indeed, almost every business experiences ups and downs. Our goal remains the same: buy good businesses at attractive prices and over time this should accrue to the benefit of our shareholders despite short-term price fluctuations. Once again we would like to thank you, our shareholders, for your support of The Oakmark Small Cap Fund. /s/ James P. Benson, CFA JAMES P. BENSON, CFA Portfolio Manager jbenson@oakmark.com /s/ Clyde S. McGregor, CFA CLYDE S. MCGREGOR, CFA Portfolio Manager mcgregor@oakmark.com October 5, 2000 THE OAKMARK SMALL CAP FUND 15 ------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 -------------------------------------------------------------------------------
Shares Held Market Value ----------------------------------------------------------------------------------------------- COMMON STOCKS-- 94.5% FOOD & BEVERAGE--6.2% Ralcorp Holdings, Inc. 465,000 $ 6,568,125 Del Monte Foods Company (a) 850,000 5,259,375 International Multifoods Corporation 127,500 2,215,312 M&F Worldwide Corp. (a) 225,000 1,307,813 ------------- 15,350,625 APPAREL--1.0% R.G. Barry Corporation (a)(c) 855,000 $ 2,565,000 RETAIL--6.2% Ugly Duckling Corporation (a)(c) 1,750,000 $ 10,171,875 ShopKo Stores, Inc. (a) 500,000 5,187,500 ------------- 15,359,375 OTHER CONSUMER GOODS & SERVICES--3.7% Department 56, Inc. (a) 525,000 $ 6,923,437 American Greetings Corporation, Class A 135,000 2,362,500 ------------- 9,285,937 BANKS & THRIFTS--8.6% People's Bank of Bridgeport, Connecticut 360,000 $ 7,582,500 Golden State Bancorp Inc. (a) 200,000 4,725,000 BankAtlantic Bancorp, Inc., Class A 1,020,000 4,271,250 PennFed Financial Services, Inc. 250,000 3,843,750 Finger Lakes Financial Corp. 160,000 1,080,000 ------------- 21,502,500 INSURANCE--6.5% The PMI Group, Inc. 190,000 $ 12,872,500 The MONY Group Inc. (a) 80,000 3,190,000 ------------- 16,062,500 OTHER FINANCIAL--0.5% NCO Group, Inc. (a) 100,000 $ 1,187,500 EDUCATIONAL SERVICES--8.2% ITT Educational Services, Inc. (a) 750,000 $ 20,343,750 INFORMATION SERVICES--5.7% National Data Corporation 435,000 $ 14,273,437 DATA STORAGE--0.9% Imation Corp. (a) 125,000 $ 2,328,125 COMPUTER SERVICES--0.7% CIBER, Inc. (a) 200,000 $ 1,650,000
16 THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
Shares Held Market Value ----------------------------------------------------------------------------------------------- COMMON STOCKS--94.5% (CONT.) COMPUTER SOFTWARE--4.1% Mentor Graphics Corporation (a) 280,000 $ 6,597,500 MSC.Software Corp. (a) 225,000 2,385,000 Symantec Corporation (a) 30,000 1,320,000 ------------- 10,302,500 COMPUTER SYSTEMS--3.0% Micron Electronics, Inc. (a) 825,000 $ 7,425,000 SECURITY SYSTEMS--1.7% Checkpoint Systems, Inc. (a) 550,000 $ 4,159,375 PHARMACEUTICALS--7.0% Dura Pharmaceuticals, Inc. (a) 490,000 $ 17,333,750 MEDICAL RESEARCH--0.7% Covance Inc. (a) 200,000 $ 1,637,500 MEDICAL PRODUCTS--2.9% Hanger Orthopedic Group, Inc. (a)(c) 1,150,000 $ 4,312,500 CONMED Corporation (a) 215,000 2,942,813 ------------- 7,255,313 AUTOMOTIVE--1.4% Stoneridge, Inc. (a) 177,800 $ 1,711,325 Standard Motor Products, Inc. 210,000 1,680,000 ------------- 3,391,325 AUTOMOBILE RENTALS--1.4% Dollar Thrifty Automotive Group, Inc. (a) 175,000 $ 3,456,250 TRANSPORTATION SERVICES--3.8% Teekay Shipping Corporation (b) 200,000 $ 9,387,500 MACHINERY & INDUSTRIAL PROCESSING--4.0% Columbus McKinnon Corporation 495,000 $ 6,713,437 Sames Corporation (a)(c) 235,000 3,201,875 ------------- 9,915,312 CHEMICALS--2.4% Ferro Corporation 155,000 $ 2,954,688 H.B. Fuller Company 70,000 2,012,500 Georgia Gulf Corporation 100,000 1,143,750 ------------- 6,110,938
THE OAKMARK SMALL CAP FUND 17 ------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
Shares Held/ Par Value Market Value ----------------------------------------------------------------------------------------------- COMMON STOCKS--94.5% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--0.8% Gardner Denver Inc. (a) 64,000 $ 1,040,000 Scott Technologies, Inc. (a) 45,000 797,344 Intergrated Electrical Services, Inc. (a) 37,500 257,812 ------------- 2,095,156 REAL ESTATE--12.0% Catellus Development Corporation (a) 900,000 $15,750,000 Prime Hospitality Corp. (a) 800,000 8,100,000 Trammell Crow Company (a) 400,000 6,000,000 ------------- 29,850,000 DIVERSIFIED CONGLOMERATES--1.1% U.S. Industries, Inc. 275,000 $ 2,732,813 TOTAL COMMON STOCKS (COST: $231,477,177) 234,961,481 SHORT TERM INVESTMENTS--5.8% COMMERCIAL PAPER--2.8% General Electric Capital Corporation, 6.69% due 10/2/2000 $ 7,000,000 $ 7,000,000 TOTAL COMMERCIAL PAPER (COST: $7,000,000) 7,000,000 REPURCHASE AGREEMENTS--3.0% State Street Repurchase Agreement, 6.42% due 10/2/2000 $ 7,598,000 $ 7,598,000 TOTAL REPURCHASE AGREEMENTS (COST: $7,598,000) 7,598,000 TOTAL SHORT TERM INVESTMENTS (COST: $14,598,000) 14,598,000 TOTAL INVESTMENTS (COST $246,075,178)--100.3% (D) $249,559,481 CALL OPTIONS WRITTEN--0.0% EQUITY OPTIONS--0.0% INSURANCE--0.0% The MONY Group Inc., November 40 Calls (21,000) $ (42,000) TOTAL CALL OPTION WRITTEN (COST: $(64,578)) (42,000) Other Liabilities In Excess Of Other Assets--(0.3)% (813,869) TOTAL NET ASSETS--100% $248,703,612 =============
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (d) At September 30, 2000, net unrealized appreciation of $3,506,881, for federal income tax purposes, consisted of gross unrealized appreciation of $50,635,465 and gross unrealized depreciation of $47,128,584. 18 THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND REPORT FROM CLYDE S. MCGREGOR AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS -------------------------------------------------------------------------------- [PHOTO] [PHOTO] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/00) AS COMPARED TO THE LIPPER BALANCED FUND INDEX [GRAPH]
THE OAKMARK LIPPER BALANCED EQUITY & INCOME FUND FUND INDEX 10/31/1995 $10,000 $10,000 12/31/1995 $10,240 $10,473 3/31/1996 $10,500 $10,707 6/30/1996 $11,040 $10,925 9/30/1996 $11,110 $11,213 12/31/1996 $11,805 $11,840 3/31/1997 $12,153 $11,895 6/30/1997 $13,430 $13,178 9/30/1997 $14,810 $14,024 12/31/1997 $14,941 $14,243 3/31/1998 $16,233 $15,370 6/30/1998 $16,320 $15,599 9/30/1998 $15,191 $14,701 12/31/1998 $16,792 $16,392 3/31/1999 $16,792 $16,655 6/30/1999 $18,457 $17,402 9/30/1999 $17,518 $16,682 12/31/1999 $18,119 $17,863 3/31/2000 $18,924 $18,396 6/30/2000 $18,886 $18,174 9/30/2000 $20,761 $18,535
9/30/00 NAV $16.50 AVERAGE ANNUAL TOTAL RETURN* THROUGH 9/30/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MOS. 11/1/95 ----------------------------------------------------------------------------- THE OAKMARK EQUITY & INCOME FUND 9.9% 16.0% Lipper Balanced Fund Index** 2.0% 13.4% Lehman Govt./Corp. Bond** 2.9% 6.1% S&P 500 w/inc.** -1.0% 22.2%
*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 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 AND ANNUAL REVIEW After a slow start, fiscal 2000 proved quite rewarding for The Oakmark Equity and Income Fund. The return for the 12 months was 18.5%, 7.4% better than the return which the Lipper Balanced Fund Index, our primary standard of comparison, registered. The result for the quarter ended September 30 was 9.9%, a handsome absolute return in any three month period but, in this case, well in excess of relevant competitive indices. While returns to the Fund's stocks were generally strong in the quarter, it was the financial stocks that blossomed in the period, an apparent outcome of the end of the Federal Reserve's effort to increase short term interest rates. As the Fund draws near to its five-year anniversary, it is satisfying to note that the annualized rate of return has been 16%. This means that $10,000 invested in the Fund at inception is now worth approximately $21,000 (ignoring taxes). And, this return has been achieved with less volatility than would be present in an all-stock portfolio. MIGHTY OAKS AWARDS In October, we hand out awards to members of our firm's research team for their important efforts in crafting the fiscal year's outcome. This task is particularly happy in a strong year like 2000. Successful ideas were plentiful, making the choice of award winners somewhat arbitrary. The final list is quite diverse. It includes "old economy" issues as well as new, the smallest market capitalization name in the portfolio as well as the largest, a company created by spin-off during the year, and a pure technology company. The list should also include CATELLUS DEVELOPMENT which Edward Studzinski follows. Ed, having put on the portfolio manager mantle during the year, is no longer THE OAKMARK EQUITY AND INCOME FUND 19 -------------------------------------------------------------------------------- eligible to receive the honor, but we thought it appropriate to point out the important role Catellus played in the Fund's fiscal 2000 success. Kevin Grant, of our research department and a manager of The Oakmark Fund, wins an award for two ideas. STERLING COMMERCE proved to be the largest contributor to Fund returns in the fiscal year, though it left the portfolio six months ago by way of a takeover. At Harris Associates, we all often labor under the misguided notion that, as value managers, we do not consider technology companies for investment. Our routine response to this comment is that we will consider investing in any industry as long as we can do it on terms that are biased to favor our shareholders. Our "eclecticness" is limited only by the willingness of the market to mis-price securities.
-------------------------------------- TOTAL RETURNS AS OF SEPTEMBER 30, 2000 -------------------------------------- 3 Months 9.9% -------------------------------------- 6 Months 9.7% -------------------------------------- 1 Year (a) 18.5% --------------------------------------
(a) During the year ended September 30, 2000, Initial Public Offerings ("IPOs") contributed 2.08% to the performance of Equity and Income. As the IPO environment changes and the total assets of the Fund grows, the impact of IPOs on performance will diminish.
-------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2000 -------------------------------------- 3 Year 11.9% -------------------------------------- 5 Year N/A -------------------------------------- Since inception 16.0% --------------------------------------
Sterling is a prototypical example of what can become available to us in technology. After the company's earnings disappointed investors, we were able to acquire a position in the stock for a modest multiple of earnings. The fact that the company's balance sheet had cash equal to more than one-quarter of the share price gave us great comfort. Eventually, SBC Communications agreed with -------------------------------------------------------------------------------- HIGHLIGHTS - THE FUND CELEBRATES ITS FIVE-YEAR ANNIVERSARY ON 11/1/00. - FOR THE 12 MONTHS ENDED 9/30 THE FUND WAS UP 18.5%, OUTPACING THE LIPPER BALANCED FUND INDEX BY MORE THAN 7%. - FINANCIAL STOCKS BLOSSOMED IN THE PAST QUARTER, AN APPARENT OUTCOME OF THE END OF THE FEDERAL RESERVE'S EFFORT TO INCREASE SHORT-TERM INTEREST RATES. - STERLING COMMERCE (BOUGHT OUT SIX MONTHS AGO) PROVED TO BE THE LARGEST CONTRIBUTOR TO THE FUND'S RETURN, AND IS A PROTOTYPICAL EXAMPLE OF AN ATTRACTIVELY PRICED STOCK IN THE TECHNOLOGY INDUSTRY. -------------------------------------------------------------------------------- our assessment and purchased Sterling at a substantial premium to our acquisition price. Kevin's second highly successful idea for the Fund was ENERGIZER, the battery company, which Ralston Purina spun off to its shareholders in April. Always a reticent company, Ralston spun off Energizer without spoon-feeding earnings guidance to Wall Street analysts. Soon thereafter Energizer surprised investors with its first report, and the stock swooned. We took advantage of this opportunity to initiate a position and were pleased to find out later that company insiders had aggressively increased their holdings at the same time. We do not expect that the recent rebound in the stock presages a similar rosy future for the company; the consumer spending environment is simply too chancy at present. We do believe, however, that the stock price had declined to a level that was significantly below absolute value and offered opportunity absent an economic depression. Greg Jackson, of our research department and a manager of The Global Fund, wins an award for his recommendation of CERIDIAN. Ceridian is in three businesses, the smaller two of which have been doing well but the largest, payroll processing, has suffered through a difficult period. 20 THE OAKMARK EQUITY AND INCOME FUND --------------------------------------------------------------------------------
------------------------------------------------------ TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 2000 ------------------------------------------------------ INDUSTRIES U.S. Government AND % OF Notes 24.9% TOTAL NET Information Services 8.0% ASSETS Real Estate 6.4% Medical Products 5.4% Banks & Thrifts 5.4%
We expect the company to restructure while the payroll division fixes its problems. Apparently the stock market agrees with our assessment as the strong return to the stock gives evidence. Last, but not least, is Jim Benson, an analyst and manager of The Small Cap Fund. Jim scored with a very small manufacturer, ALAMO GROUP, and a very large financial company, WASHINGTON MUTUAL. At this time last year, Alamo was a classic smaller value situation as the stock sold for less than book value and carried a low P/E ratio on depressed earnings. As well, an energetic new CEO came on board in mid-1999. All that happened over the last 12 months is a gradual return to historic trends in earnings, but the rebound in the stock has been substantial. Washington Mutual (WM) is the nation's largest savings and
------------------------------------------------------ TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000 ------------------------------------------------------ COMPANY The Reynolds & AND % OF Reynolds Company, TOTAL NET Class A 4.3% ASSETS Ceridian Corporation 4.1% NOVA Corporation 3.9% Catellus Development Corporation 3.7% Alamo Group Inc. 3.7%
loan with operations extending from Florida to Washington state. During the first part of the Fund's fiscal 2000, WM experienced a substantial decline in stock price. The rationale appeared to be that investors forecasted a limitless series of Federal Reserve moves to hike interest rates with the outcome that thrift institutions would see diminishing profit margins. Six months ago, the market began to sense the end of the series of interest rate hikes with the effect that WM has nearly doubled from its low. In closing, we would like to take this opportunity to thank our shareholders for their interest and support. In particular, we would like to thank our investors who have been with us from inception. While we are pleased with the cumulative outcome of the last five years, our effort is to ensure that the best is yet to come. As always, we welcome your e-mailed questions or comments. /s/Clyde S. Mcgregor CLYDE S. MCGREGOR, CFA Portfolio Manager mcgregor@oakmark.com /s/Edward A. Studzinski EDWARD A. STUDZINSKI, CFA Portfolio Manager estudzinski@oakmark.com October 6, 2000 THE OAKMARK EQUITY AND INCOME FUND 21 -------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 --------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------ EQUITY AND EQUIVALENTS--62.2% FOOD & BEVERAGE--2.9% UST Inc. 68,900 $ 1,576,088 RETAIL--4.3% Office Depot, Inc. (a) 200,000 $ 1,562,500 J.C. Penney Company, Inc. 67,500 797,344 ---------------- 2,359,844 HOUSEHOLD PRODUCTS--3.6% Energizer Holdings, Inc. (a) 80,000 $ 1,960,000 OTHER CONSUMER GOODS & SERVICES--2.3% H&R Block, Inc. 34,500 $ 1,278,656 BANKS & THRIFTS--3.4% Washington Mutual, Inc. 47,000 $ 1,871,187 OTHER FINANCIAL--2.6% Heller Financial, Inc. 50,000 $ 1,428,125 EDUCATIONAL SERVICES--1.2% ITT Educational Services, Inc. (a) 25,000 $ 678,125 INFORMATION SERVICES--8.0% Ceridian Corporation (a) 80,000 $ 2,245,000 NOVA Corporation (a) 125,000 2,140,625 ---------------- 4,385,625 COMPUTER SERVICES--3.4% Electronic Data Systems Corporation 30,000 $ 1,245,000 SunGard Data Systems Inc. (a) 15,000 642,187 ---------------- 1,887,187 COMPUTER SOFTWARE--4.2% The Reynolds and Reynolds Company, Class A 117,500 $ 2,335,312 TELECOMMUNICATIONS--2.6% Citizens Communications Company (a) 105,000 $ 1,410,938 MEDICAL PRODUCTS--5.4% Sybron International Corporation (a) 70,000 $ 1,680,000 Edwards Lifesciences Corporation (a) 60,000 1,308,750 ---------------- 2,988,750
22 THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------ EQUITY AND EQUIVALENTS--62.2% (CONT.) AUTOMOTIVE--1.7% Borg-Warner, Inc. 27,900 $ 924,188 TRANSPORTATION SERVICES--3.9% GATX Corporation 38,000 $ 1,591,250 Nordic American Tanker Shipping Limited 25,000 540,625 ---------------- 2,131,875 AGRICULTURAL EQUIPMENT--3.7% Alamo Group Inc. 159,150 $ 2,019,216 INSTRUMENTS--1.1% Rockwell International Corporation 20,000 $ 605,000 MACHINERY & INDUSTRIAL PROCESSING--0.5% Gardner Denver Inc. (a) 16,000 $ 260,000 REAL ESTATE--6.2% Catellus Development Corporation (a) 116,728 $ 2,042,740 The St. Joe Company 50,000 1,387,500 ---------------- 3,430,240 TOTAL EQUITY (COST: $26,552,422) 33,530,356 CONVERTIBLE PREFERRED STOCK--1.2% TELECOMMUNICATIONS--1.2% Metromedia International Group, Inc., Convertible Preferred, 7.25% 28,600 $ 650,650 TOTAL CONVERTIBLE PREFERRED STOCK (COST: $808,041) 650,650 TOTAL EQUITY AND EQUIVALENTS (COST: $27,360,463) 34,181,006 FIXED INCOME--35.2% PREFERRED STOCK--3.1% BANKS & THRIFTS--2.0% Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 598,125 Fidelity Capital Trust I, Preferred, 8.375% 43,500 372,469 BBC Capital Trust I, Preferred, 9.50% 6,000 114,000 ---------------- 1,084,594 TELECOMMUNICATIONS--0.9% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 503,750
THE OAKMARK EQUITY AND INCOME FUND 23 -------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Shares Held/ Par Value Market Value ------------------------------------------------------------------------------------------ FIXED INCOME--35.2% (CONT.) REAL ESTATE--0.2% Host Marriott Corporation, Preferred Class B, 10.00% 6,000 $ 141,750 TOTAL PREFERRED STOCK (COST: $1,847,110) 1,730,094 CORPORATE BONDS--3.5% RETAIL--1.1% Ugly Duckling Corporation, 12.00% due 10/15/2003, Subordinated Debenture $ 650,000 $ 585,000 BUILDING MATERIALS & CONSTRUCTION--1.4% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note $ 750,000 $ 630,000 USG Corporation, 9.25% due 9/15/2001, Senior Notes Series B 150,000 152,062 ---------------- 782,062 UTILITIES--1.0% Midland Funding Corporation, 11.75% due 7/23/2005 $ 500,000 $ 556,875 TOTAL CORPORATE BONDS (COST: $1,931,691) 1,923,937 GOVERNMENT AND AGENCY SECURITIES--28.6% U.S. GOVERNMENT NOTES--24.9% United States Treasury Notes, 6.50% due 10/15/2006 $ 3,000,000 $ 3,082,500 United States Treasury Notes, 5.25% due 8/15/2003 2,500,000 2,453,125 United States Treasury Notes, 6.50% due 2/15/2010 2,000,000 2,082,500 United States Treasury Notes, 6.50% due 2/28/2002 2,000,000 2,009,376 United States Treasury Notes, 5.25% due 5/15/2004 2,000,000 1,956,876 United States Treasury Notes, 9.125% due 5/15/2009 1,000,000 1,095,625 United States Treasury Notes, 7.875% due 8/15/2001 1,000,000 1,013,438 ---------------- 13,693,440 U.S. GOVERNMENT AGENCIES--3.7% Federal Home Loan Bank, 6.75% due 5/1/2002 $ 2,000,000 $ 2,007,832 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $15,489,609) 15,701,272 TOTAL FIXED INCOME (COST: $19,268,410) 19,355,303
24 THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Par Value Market Value ----------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--3.8% COMMERCIAL PAPER--1.8% General Electric Capital Corporation, 6.69% due 10/2/2000 $1,000,000 $ 1,000,000 TOTAL COMMERCIAL PAPER (COST: $1,000,000) 1,000,000 REPURCHASE AGREEMENTS--2.0% State Street Repurchase Agreement, 6.42% due 10/2/2000 $1,058,000 $ 1,058,000 TOTAL REPURCHASE AGREEMENTS (COST: $1,058,000) 1,058,000 TOTAL SHORT TERM INVESTMENTS (COST: $2,058,000) 2,058,000 Total Investments (Cost $48,686,873)--101.2% (b) 55,594,309 Other Liabilities In Excess Of Other Assets--(1.2)% (658,472) -------------- TOTAL NET ASSETS--100% $ 54,935,837 ==============
(a) Non-income producing security. (b) At September 30, 2000, net unrealized appreciation of $6,907,435, for federal income tax purposes, consisted of gross unrealized appreciation of $7,676,838 and gross unrealized depreciation of $769,403. THE OAKMARK EQUITY AND INCOME FUND 25 THE OAKMARK GLOBAL FUND REPORT FROM MICHAEL J. WELSH AND GREGORY L. JACKSON, PORTFOLIO MANAGERS -------------------------------------------------------------------------------- [PHOTO] [PHOTO] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION (8/4/99) TO PRESENT (9/30/00) AS COMPARED TO THE MSCI WORLD INDEX [GRAPH]
THE OAKMARK GLOBAL FUND MSCI WORLD INDEX 8/99 $10,000 $10,000 9/99 $9,180 $9,883 12/99 $9,981 $11,550 3/00 $10,061 $11,668 6/00 $10,381 $11,255 9/00 $10,922 $10,689
9/30/00 NAV $10.91 AVERAGE ANNUAL TOTAL RETURN* THROUGH 9/30/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS 8/4/99 -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND 5.2% 7.8% MSCI World Index w/inc.** -5.0% 5.9% Lipper Global Fund Index** -3.5% 15.2%
*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 whose composition is different from the Fund. The MSCI World Index includes 22 country sub-indexes. The Lipper Global Fund Index includes 30 mutual funds that invest in securities throughout the world. Past performance is no guarantee of future results. FELLOW SHAREHOLDERS, For the three-month period ending September 30, 2000, The Oakmark Global Fund achieved a return of 5.2%. This compares favorably to the -5.0% decline in the MSCI World Index and the -3.5% decline in the Lipper Global Fund Index. For the past twelve months, the Fund returned 19.0% compared with the 8.2% and the 19.2% returned by the MSCI World Index and the Lipper Global Fund Index, respectively. We are happy with the solid performance of the Fund during this time of exceptional market turbulence, both here and abroad. During the past quarter, the Fund completed its first full year in operation. We wish to thank all of you for the trust you have placed in us, and every one at Harris Associates, for their dedication to and enthusiasm for The Oakmark Global Fund. We look forward to searching the world for the most attractive value opportunities for many years. GROWTH AND VALUE Over the past few quarters (and continuing into the current quarter in which we are writing this letter) the tech-heavy NASDAQ has seen substantial drops in many of its most turbo-charged constituents. We must admit that, like other value investors, we take a good bit of pleasure in seeing the share prices of many momentum market darlings crash and burn. But our pleasure is more than mere schadenfreude (the German term that refers to a feeling of happiness at another's misfortune). We are actually hoping to be able to pick through some of the wreckage and pick up some excellent businesses at reasonable prices. 26 THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- We believe several of our current holdings have the growth prospects and sizzle of NASDAQ stocks but trade in the market at value prices. Companies in your portfolio like NOVA CORP, REYNOLDS & REYNOLDS, FIRST DATA in the United States, and TELEMIG in Brazil have prospects for profit growth which far outstrip that of the NASDAQ composite, yet they trade at fractions of the index's current, albeit lowered, valuation. It is the best possible scenario for us to be able to buy quality companies growing faster than the market at prices below market averages.
---------------------------------------------- TOTAL RETURNS AS OF SEPTEMBER 30, 2000 ---------------------------------------------- 3 Months 5.2% ---------------------------------------------- 6 Months 8.6% ---------------------------------------------- 1 Year (a) 19.0% ---------------------------------------------- (a) During the year ended September 30, 2000, Initial Public Offerings ("IPOs") contributed 11.86% to the performance of Global. As the IPO environment changes and the total assets of the Fund grows, the impact of IPOs on performance will diminish. ---------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2000 ---------------------------------------------- 3 Year N/A ---------------------------------------------- 5 Year N/A ---------------------------------------------- Since inception 7.8% ----------------------------------------------
In fact, dogmatic cleaving of the market into two camps, "value" and "growth," has always made us somewhat uncomfortable. Our philosophy of value investing is about finding companies trading at significant discounts to underlying business value. Our estimate of the growth rate is a critical component to determining underlying business value. We have nothing against growth - far from it. The difficulty in is developing a reasonable level of confidence in the sustainability of a fast growth rate for many "growth" companies. To us, where some growth investors ---------------------------------------------- HIGHLIGHTS - DURING THE PAST QUARTER THE FUND COMPLETED ITS FIRST FULL YEAR IN OPERATION. GLOBAL EQUITY MARKETS CONTINUE TO PROVIDE EXCEPTIONAL VALUE OPPORTUNITIES, EVEN MORE SO THAT WHEN WE STARTED IT IN AUGUST 1999. - FOR THE PAST TWELVE MONTHS, THE FUND RETURNED 19.0%, COMPARED WITH MSCI WORLD INDEX RETURN OF 8.2% AND LIPPER GLOBAL FUND INDEX OF 19.2%. - WE BELIEVE SEVERAL OF OUR CURRENT HOLDINGS HAVE THE GROWTH PROSPECTS AND SIZZLE OF NASAQ STOCKS, BUT TRADE IN THE MARKET AT VALUE PRICES. ---------------------------------------------- fail is by mindlessly projecting growth rates for businesses that may not have defendable franchises, or by ignoring the inevitable competition that is attracted to high economic returns, or even by ignoring simple truths like the law of large numbers and reversion to the mean. The focus on price is what sets value investors apart. For us, such measures as book value or current earnings may or may not be relevant to determining business value. A long-term disciplined value investing process is much more than robotically buying companies that are cheap on stated earnings. FIRST DATA ("FDC") is an example of a perfect combination of a quality, high-return business with a faster-than-average growth rate trading at a value price. Currently FDC trades around 8.5 times 2001 operating profit, and we have a high level of confidence that their annual growth rate over the next three years will be in the mid-teens percent. What gives us the confidence in the rapid growth rate? The defensibility of their position in payment processing and the inexorable expansion of electronic payments for THE OAKMARK GLOBAL FUND 27 --------------------------------------------------------------------------------
---------------------------------------------- TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 2000 ---------------------------------------------- INDUSTRIES Information Services 15.8% AND % OF Retail 15.1% TOTAL NET Other Consumer ASSETS Goods & Services 8.4% Food & Beverage 8.2% Educational Services 6.0% ----------------------------------------------
transactions (fueled further by the Internet). FDC has an unassailable low-cost position in high-volume transaction processing. Their economies of scale are difficult to replicate making it nearly impossible for a competitor to economically take business away from them.
---------------------------------------------- TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000 ---------------------------------------------- COMPANY NOVA Corporation 6.9% AND % OF ITT Educational TOTAL NET Services, Inc. 6.0% ASSETS The Reynolds & Reynolds Company, Class A 5.5% Somerfield plc 5.2% Ceridian Corporation 5.2% ----------------------------------------------
LOOKING FORWARD Global equity markets are currently providing exceptional value opportunities, even more so than when we started the Fund last August. We believe the current portfolio represents excellent long-term appreciation potential. Thank you for your continued confidence and support. /s/Michael J. Welsh MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com /s/Gregory L. Jackson GREGORY L. JACKSON Portfolio Manager gjackson@oakmark.com October 10, 2000 28 THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- GLOBAL DIVERSIFICATION--SEPTEMBER 30, 2000 -------------------------------------------------------------------------------- [PIE CHART] UNITED STATES 50.3% EUROPE 32.1% PACIFIC RIM 9.9% LATIN AMERICA 3.8%
% OF FUND NET ASSETS ------------------------------------- UNITED STATES 50.3% EUROPE 32.1% Great Britain 18.9% *France 4.3% *Germany 3.4% *Italy 2.9% *Finland 2.6%
% OF FUND NET ASSETS ------------------------------------- PACIFIC RIM 9.9% New Zealand 4.1% Korea 4.0% Hong Kong 1.7% Singapore 0.1% LATIN AMERICA 3.8% Panama 2.7% Brazil 1.1%
* Euro currency countries comprise 13.2% of the Fund. THE OAKMARK GLOBAL FUND 29 -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 --------------------------------------------------------------------------------
Description Shares Held Market Value --------------------------------------------------------------------------------------------------- COMMON STOCKS--94.5% FOOD & BEVERAGE--8.2% Diageo plc Beverages, Wines, & Spirits (Great Britain) Manufacturer 130,000 $ 1,161,233 Hite Brewery Co., Ltd. Brewer (Korea) 27,000 1,088,329 ----------- 2,249,562 APPAREL--2.9% Fila Holding S.p.A. Athletic Footwear & Apparel (Italy), (a)(b) 87,900 $ 802,087 RETAIL--13.5% Somerfield plc Food Retailer (Great Britain) 1,198,000 $ 1,408,520 House of Fraser Plc Department Store (Great Britain) 1,601,000 1,166,102 Toys `R' Us, Inc. Toy Retailer (United States), (a) 50,000 812,500 Ugly Duckling Automobile Retailer & Financier Corporation (United States), (a) 50,000 290,625 ----------- 3,677,747 OTHER CONSUMER GOODS & SERVICES--8.4% Royal Doulton plc Tableware & Giftware (Great Britain), (a) 700,000 $ 843,713 Department 56, Inc. Collectibles & Giftware Products (United States), (a) 60,000 791,250 H&R Block, Inc. Financial Services Provider (United States) 18,000 667,125 ----------- 2,302,088 BANKS & THRIFTS--4.1% Banco Latinoamericano Latin American Trade Bank de Exportaciones, S.A., Class E (Panama), (b) 26,300 $ 729,825 Washington Mutual, Inc. Thrift (United States) 10,000 398,125 ----------- 1,127,950 HOTELS & MOTELS--0.1% Mandarin Oriental Hotel Management International Limited (Singapore) 30,000 $ 19,500 HUMAN RESOURCES--1.3% Spherion Corporation Workforce Management Services (United States), (a) 30,000 $ 358,125
30 THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Description Shares Held Market Value --------------------------------------------------------------------------------------------------- COMMON STOCKS--94.5% (CONT.) EDUCATIONAL SERVICES--6.0% ITT Educational Services, Postsecondary Degree Programs Inc. (United States), (a) 60,000 $ 1,627,500 INFORMATION SERVICES--15.8% NOVA Corporation Transaction Processing Services (United States), (a) 110,000 $ 1,883,750 Ceridian Corporation Data Management Services (United States), (a) 50,000 1,403,125 Equifax Inc. Consumer Credit Information (United States) 37,000 996,687 Dun & Bradstreet Decision Support Services Corporation, When Issued (United States), (a) 1,500 25,500 ----------- 4,309,062 COMPUTER SERVICES--3.9% First Data Corporation Electronic Commerce Services (United States) 27,000 $ 1,054,687 COMPUTER SOFTWARE--5.5% The Reynolds and Information Management Systems Reynolds Company, Class A (United States) 75,000 $ 1,490,625 PRINTING--4.1% Valassis Communications, Product Promotions Printer Inc. (United States), (a) 50,000 $ 1,112,500 TELECOMMUNICATIONS--1.1% Telemig Celular Mobile Telecommunications Participacoes S.A. (Brazil), (a) 111,345,000 $ 290,597 MEDICAL PRODUCTS--1.4% Hanger Orthopedic Group, Orthotics & Prosthetics Inc. (United States), (a) Manufacturer 100,000 $ 375,000 MACHINERY & METAL PROCESSING--2.6% Metso Oyj (Finland) Paper & Pulp Machinery 69,500 $ 706,337 MINING & BUILDING MATERIALS--4.1% Fletcher Challenge Building Materials Manufacturer Building (New Zealand) 1,107,186 $ 1,110,307
THE OAKMARK GLOBAL FUND 31 -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Description Shares Held/ Par Value Market Value --------------------------------------------------------------------------------------------------- COMMON STOCKS--94.5% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--4.8% Chargeurs SA (France) Wool, Textile Production & Trading 9,900 $ 599,315 GFI Industries SA (France) Industrial Fastener Manufacturer 26,600 564,656 Tomkins plc (Great Britain) Diversified Engineering 57,432 140,569 ----------- 1,304,540 PRODUCTION EQUIPMENT--3.4% Krones AG (Germany) Production Machinery Manufacturer 33,400 $ 929,793 DIVERSIFIED CONGLOMERATES--3.3% First Pacific Company Diversified Operations Limited (Hong Kong) 1,540,000 $ 459,245 Enodis plc (Great Britain) Food Processing Equipment 150,000 431,469 ----------- 890,714 TOTAL COMMON STOCKS (COST: $23,392,410) 25,738,721 FIXED INCOME--1.6% RETAIL--1.6% Ugly Duckling Corporation, Subordinated Debenture, 11.00% due 4/15/2007 $ 605,000 $ 423,500 TOTAL FIXED INCOME (COST: $436,404) 423,500 SHORT TERM INVESTMENTS--3.6% COMMERCIAL PAPER--1.8% General Electric Capital Corporation, 6.69% due 10/2/2000 $ 500,000 $ 500,000 TOTAL COMMERCIAL PAPER (COST: $500,000) 500,000 REPURCHASE AGREEMENTS--1.8% State Street Repurchase Agreement, 6.42% due 10/2/2000 $ 473,000 $ 473,000 TOTAL REPURCHASE AGREEMENTS (COST: $473,000) 473,000 TOTAL SHORT TERM INVESTMENTS (COST: $973,000) 973,000 Total Investments (Cost $24,801,814)--99.7% (c) $27,135,222 Foreign Currencies (Proceeds $28)--0.0% 28 Other Assets In Excess Of Other Liabilities--0.3% (d) 91,989 TOTAL NET ASSETS--100% $27,227,239 ===========
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) At September 30, 2000, net unrealized appreciation of $2,333,407, for federal income tax purposes, consisted of gross unrealized appreciation of $3,679,374 and gross unrealized depreciation of $1,345,967. (d) Includes portfolio and transaction hedges. 32 THE OAKMARK GLOBAL 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 (9/30/00) COMPARED TO THE MSCI WORLD EX U.S. INDEX
THE OAKMARK MSCI WORLD EX INTERNATIONAL FUND U.S. INDEX 9/30/1992 $10,000 $10,000 12/31/1992 $10,043 $9,628 3/31/1993 $11,890 $10,766 6/30/1993 $12,300 $11,834 9/30/1993 $13,387 $12,562 12/31/1993 $15,424 $12,729 3/31/1994 $15,257 $13,133 6/30/1994 $14,350 $13,748 9/30/1994 $15,278 $13,830 12/31/1994 $14,026 $13,664 3/31/1995 $13,563 $13,924 6/30/1995 $14,749 $14,060 9/30/1995 $15,507 $14,631 12/31/1995 $15,193 $15,222 3/31/1996 $17,021 $15,681 6/30/1996 $18,383 $15,937 9/30/1996 $18,347 $15,950 12/31/1996 $19,450 $16,268 3/31/1997 $20,963 $16,016 6/30/1997 $22,700 $18,094 9/30/1997 $23,283 $18,027 12/31/1997 $20,097 $16,637 3/31/1998 $22,994 $19,083 6/30/1998 $20,253 $19,233 9/30/1998 $16,322 $16,404 12/31/1998 $18,688 $19,759 3/31/1999 $21,258 $20,070 6/30/1999 $25,728 $20,650 9/30/1999 $23,896 $21,535 12/31/1999 $26,065 $25,277 3/31/2000 $26,012 $25,416 6/30/2000 $27,856 $24,530 9/30/2000 $27,306 $22,663
AVERAGE ANNUAL TOTAL RETURN* 9/30/00 NAV $15.40 THROUGH 9/30/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS 9/30/92 ------------------------------------------------------------------------------------------------------ THE OAKMARK INTERNATIONAL FUND -2.0% 13.4% MSCI World ex U.S. Index w/inc.** -7.6% 10.8% MSCI EAFE Index w/inc.** -8.1% 10.5% Lipper International Fund Index** -7.3% 12.4%
*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, For the fiscal year 2000, The Oakmark International Fund produced a return of 14.3%. This compares very favorably to the MSCI EAFE Index, which was up 3.2%. Although the Fund was down 2.0% for the fourth quarter of the fiscal year, this compares favorably to the return of the MSCI EAFE Index that was -8.1% for the same quarter. Most importantly, since Oakmark International's inception eight years ago, it has averaged a 13.4% annual return. This exceeds the MSCI EAFE Index return of 10.5% and the Lipper International Fund Index return of 12.4%. Though we are pleased with these returns, there is room for improvement. Given the state of the portfolio today and boundless opportunities, we hope to build upon the return in the years to follow. WINNERS OF THE 4TH QUARTER Our top performer of the quarter was one of last year's worst performers, SOMERFIELD PLC. Somerfield is a UK based grocery store, which we know very well. Though the company has made some mistakes in the past, we are quite certain that the market has greatly overreacted in terms of the Somerfield share price. The share price does not reflect the company's business strengths and does not factor in the impact of a new, very experienced and competent management. Again, we believe patience is a virtue in the investment business and are pleased that our patience has generally benefited our shareholders (CORDIANT, CHARGEURS, TELMEX, ETC). Another 4th quarter winner, South Korean building materials company KUMKANG, was up almost 15% in the THE OAKMARK INTERNATIONAL FUND 33 -------------------------------------------------------------------------------- last quarter. This was achieved in an extremely weak equity environment in South Korea. ------------------------------------------------- TOTAL RETURNS AS OF SEPTEMBER 30, 2000 ------------------------------------------------- 3 Months (2.0%) ------------------------------------------------- 6 Months 5.0% ------------------------------------------------- 1 Year 14.3% ------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2000 ------------------------------------------------- 3 Year 5.5% ------------------------------------------------- 5 Year 12.0% ------------------------------------------------- Since inception 13.4% -------------------------------------------------
AND SOME LOSERS ENODIS PLC, a British-based maker of food preparation equipment, was hit as a few areas of their business showed some weakness. However, we are quite confident that, on whole, the business is extremely strong. It is a global leader in its industry and will benefit from growth in the restaurant business as well as its wide product line which provides marketing and distribution synergies. TOMKINS PLC, an engineering group which itself is being re-engineered, also disappointed us over the last three months although it has posted only good news. This one is a real puzzler: it has sold its lower profit businesses, managed its cyclical yet profitable businesses well, has bought back over 10% of its company, has lots of cash on its balance sheet, has grown its dividend 15% a year for the last 15 years and trades at 6 times earnings with a 11% YIELD! Although a downturn in the growth of the US economy would not be good for Tomkins, we believe the current price seems irrational. WITHER THE EURO??? The Euro, the new European currency unit, has been extremely weak versus the dollar, thus negatively impacting return of international equity funds like ours. As a refresher, the Euro was introduced with great fanfare 21 months ago at a price of E1.15. At this writing, it sits at E .87, a decline of around 25%. It's ironic that when it was introduced and rising, the pundits, as one would expect, were all over it claiming that E1.25 was a reasonable level. -------------------------------------------------------------------------------- HIGHLIGHTS - THE FUND RETURNED 14.3% FOR THE FISCAL YEAR ENDED 9/30, VERSUS THE MSCI EAFE INDEX RETURN OF 3.2% AND THE LIPPER INTERNATIONAL FUND INDEX RETURN OF 10.8%. - THIRD QUARTER TOP PERFORMER WAS ONE OF LAST YEAR'S WORST PERFORMERS -- SOMERFIELD PLC. ANOTHER WINNER, SOUTH KOREAN BUILDING MATERIALS COMPANY KUMKANG, WAS UP ALMOST 15% FOR THE QUARTER. - THE EURO, THE NEW EUROPEAN CURRENCY UNIT, HAS BEEN EXTREMELY WEAK VERSUS THE DOLLAR, THUS NEGATIVELY IMPACTING THE RETURNS OF INTERNATIONAL EQUITY FUNDS. HOWEVER, WITH POSITIVE CHANGES OCCURRING IN MANY COUNTRIES THROUGHOUT EUROPE, WE ARE ENCOURAGED BY ITS PROSPECTS. -------------------------------------------------------------------------------- Today, -25% later, the same people are saying that the Euro is dead. What is the truth??? You may recall from past quarterly reports how we have explained that long-term currency movements are ultimately derived from a nation's (or an area's) competitiveness. As desired goods and services are produced from a currency region, the demand for these goods and services will increase, as will the demand for their underlying currency. This is also true for longer-term investment in a particular region. If investors think a region is competitive, they will invest there for the long term. Remember back in the days of a very weak dollar (mid 90's), we argued that continued weakness was unsustainable because the US was the most competitive nation in the world. As the dollar dropped, foreign companies 34 THE OAKMARK INTERNATIONAL FUND
--------------------------------------------------------------------- TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 2000 --------------------------------------------------------------------- INDUSTRIES Banks & Thrifts 18.4% AND % OF Other Industrial TOTAL NET Goods & Services 9.1% ASSETS Food & Beverage 8.4% Apparel 6.4% Household Products 6.1% ---------------------------------------------------------------------
continued to buy US companies, land, equipment, etc. Even BMW and Mercedes now produce vehicles in the US! Today, it seems markets have again overreacted. Europe, which has done so much to become globally competitive, is not being rewarded for these efforts in the global currency markets. Whether one speaks of micro, on the plant floor changes, or macro, national economic changes, it is evident that Europe and its companies are truly changing for the better. As an example, Germany has made monumental changes in the areas of taxation and social welfare. France is attempting to do the same. Spain is reforming its labor markets. And, hostile takeovers are starting to happen. Who would have thought that a British phone company, Vodafone, would ever be allowed to take over a German national champion like Mannesman?
------------------------------------------------------------------- TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000 ------------------------------------------------------------------- COMPANY Somerfield plc 5.8% AND % OF Diageo plc 4.0% TOTAL NET Hunter Douglas N.V. 3.8% ASSETS Metso Oyj 3.8% Chargeurs SA 3.2% -------------------------------------------------------------------
These positive events, coupled with the current low price of the Euro, should represent investment opportunity over the medium and longer term. FUTURE OUTLOOK With the continued deflation of the technology stock bubble and the bargain basement prices of the stocks in our portfolio, we remain very enthusiastic about future prospects. Whether it be as extreme an example as exists in Tomkins or just the great values we are finding in financial services, consumer non-durables and in the many well-managed, very profitable companies across the industrial and geographic spectrum, we believe that future prospects are very promising. Again, going into our ninth year, we thank all of our shareholders for your trust and support. /s/ David G. Herro DAVID G. HERRO, CFA Portfolio Manager dherro@compuserve.com /s/ Michael J. Welsh MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com October 6, 2000 THE OAKMARK INTERNATIONAL FUND 35 -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND -------------------------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--SEPTEMBER 30, 2000 -------------------------------------------------------------------------------- [PIE CHART] EUROPE 66.8% PACIFIC RIM 15.7% LATIN AMERICA 10.1% OTHER COUNTRIES 3.1%
% OF FUND NET ASSETS ----------------------------------- EUROPE 66.8% Great Britain 24.4% * France 10.0% * Finland 6.3% Denmark 5.2% *Netherlands 5.2% Sweden 4.9% *Italy 3.0% *Germany 3.0% *Ireland 2.1% Switzerland 1.9% *Austria 0.8%
% OF FUND NET ASSETS ----------------------------------- LATIN AMERICA 10.1% Brazil 3.9% Panama 3.2% Argentina 2.7% Mexico 0.3% PACIFIC RIM 15.7% Korea 6.5% Singapore 3.3% Australia 2.7% Hong Kong 2.3% Japan 0.9% Other 3.1% Canada 3.1%
* Euro currency countries comprise 30.4% of the Fund. 36 THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 -------------------------------------------------------------------------------
Description Shares Held Market Value --------------------------------------------------------------------------------------------------- COMMON STOCKS--95.7% FOOD & BEVERAGE--8.4% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 3,520,000 $ 31,442,608 Quilmes Industrial Brewer S.A. (Argentina), (b) 2,032,000 21,336,000 Lotte Chilsung Beverage Soft Drinks, Juices, & Sport Company (Korea) (d) Drinks Manufacturer 88,080 9,399,202 Lotte Confectionery Co., Confection Manufacturer Ltd. (Korea) 37,270 3,275,308 ------------ 65,453,118 APPAREL--6.4% Fila Holding S.p.A. Athletic Footwear & Apparel (Italy), (a)(b)(d) 2,577,800 $ 23,522,425 Adidas-Salomon AG Worldwide Manufacturer/Marketer (Germany) of Sportswear 335,100 18,399,461 Giordano International Pacific Rim Clothing Retailer & Limited (Hong Kong) Manufacturer 14,286,000 8,291,432 ------------ 50,213,318 RETAIL--5.8% Somerfield plc Food Retailer (Great Britain) (d) 38,321,000 $ 45,054,993 HOUSEHOLD PRODUCTS--6.1% Hunter Douglas N.V. Window Coverings Manufacturer (Netherlands) 1,106,184 $ 30,012,009 Reckitt Benckiser plc Household Cleaners & Air (Great Britain) Fresheners 1,443,000 17,755,325 ------------ 47,767,334 OTHER CONSUMER GOODS & SERVICES--0.9% Shimano Inc. (Japan) Bicycle Components Manufacturer 345,000 $ 6,669,989 BANKS & THRIFTS--18.4% Banco Latinoamericano Latin American Trade Bank de Exportaciones, S.A., Class E (Panama), (b) 898,500 $ 24,933,375 Danske Bank Group Commercial Banking (Denmark), (a) 177,700 22,597,004 Uniao de Bancos Commercial Banking Brasileiros S.A. (Brazil), (c) 623,300 20,568,900 Nordic Baltic Holding Commercial Banking (NBH) AB (Denmark) 2,520,728 17,758,329 Bank of Ireland (Ireland) Commercial Banking 2,030,000 16,217,869 Canadian Imperial Bank of Commercial Banking Commerce (Canada) 335,000 11,001,460
THE OAKMARK INTERNATIONAL FUND 37 ------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
Description Shares Held Market Value --------------------------------------------------------------------------------------------------- COMMON STOCKS--95.7% (CONT.) BANKS & THRIFTS--18.4% (CONTINUED) BNP Paribas SA (France) Commercial Banking 108,500 $ 9,579,096 Svenska Handelsbanken AB Commercial Banking (Sweden) 502,500 8,100,624 Kookmin Bank (Korea) Commercial Banking 430,000 5,128,458 United Overseas Bank Commercial Banking Limited, Foreign Shares (Singapore) 583,968 4,197,223 National Australia Bank Commercial Banking Limited (Australia) 295,000 4,076,433 ------------ 144,158,771 INSURANCE--1.9% Swiss Re (Switzerland) Reinsurance Provider 7,700 $ 14,724,886 HOTELS & MOTELS--2.7% Mandarin Oriental Hotel Management International Limited (Singapore) 33,134,400 $ 21,537,360 PUBLISHING--1.4% Wolters Kluwer NV Reference Material Publisher (Netherlands) 535,000 $ 10,874,541 TELECOMMUNICATIONS--2.7% SK Telecom Co., Ltd. Mobile Telecommunications (Korea) 44,130 $ 10,763,897 Telemig Celular Mobile Telecommunications Participacoes S.A. (Brazil), (a) 2,297,800,000 5,996,971 Brasil Telecom Mobile Telecommunications Participacoes S.A. (Brazil), (a) 469,200,000 4,088,634 ------------ 20,849,502 PHARMACEUTICALS--2.5% Aventis S.A. (France) Pharmaceuticals 152,000 $ 11,418,047 Glaxo Wellcome plc Pharmaceuticals (Great Britain) 265,000 8,010,613 ------------ 19,428,660 AUTOMOTIVE--5.1% Autoliv, Inc (Sweden) Automotive Safety Systems Manufacturer 950,000 $ 18,723,349 Compagnie Generale des Tire Manufacturer Establissements Michelin (France) 644,000 17,927,748
38 THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
Description Shares Held Market Value --------------------------------------------------------------------------------------------------- COMMON STOCKS--95.7% (CONT.) AUTOMOTIVE--5.1% (CONTINUED) Dongah Tire Industry Innertube Manufacturer Company (Korea) (d) 166,290 $ 3,459,560 ------------ 40,110,657 AEROSPACE--2.1% Rolls-Royce plc Aviation & Marine Power (Great Britain) 6,638,702 $ 16,666,021 AIRPORT MAINTENANCE--1.1% Flughafen Wien AG Airport Management & Operations (Austria) 170,825 $ 6,189,629 Grupo Aeroportuario del Airport Operator Sureste S.A. de C.V. (Mexico), (a) (b) 170,000 2,581,875 ------------ 8,771,504 COMPONENTS--4.2% Morgan Crucible Crucible & Components Company plc Manufacturer (Great Britain) 4,396,424 $ 16,807,344 IMI plc (Great Britain) Components Manufacturer 5,140,000 15,982,256 ------------ 32,789,600 CHEMICALS--2.2% Nufarm Limited Agricultural & Industrial (Australia) (d) Chemical Producer 10,381,415 $ 17,097,359 OIL & NATURAL GAS--1.8% ISIS (France) Oil Services 200,950 $ 14,082,849 MACHINERY & METAL PROCESSING--3.8% Metso Oyj (Finland) Paper & Pulp Machinery 2,937,987 $ 29,859,122 MINING & BUILDING MATERIALS--2.4% Kumkang Korea Building Materials Chemical Co., Ltd. (Korea) 419,260 $ 18,798,367 OTHER INDUSTRIAL GOODS & SERVICES--9.1% Chargeurs SA (France) (d) Wool, Textile Production & Trading 418,930 $ 25,360,707 Tomkins plc (Great Britain) Diversified Engineering 8,698,685 21,290,731 Kone Corporation, Class B Elevators (Finland) 313,110 19,093,052 Buderus AG (Germany) Industrial Manufacturing 327,820 5,455,255 ------------ 71,199,745
THE OAKMARK INTERNATIONAL FUND 39 ------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
Shares Held/ Description Par Value Market Value --------------------------------------------------------------------------------------------------- COMMON STOCKS--95.7% (CONT.) STEEL--1.5% SSAB Svenskt Stal AB, Steel Producer Series A (Sweden) 1,451,920 $ 11,551,938 DIVERSIFIED CONGLOMERATES--5.2% Enodis plc (Great Britain) Food Processing Equipment 6,240,000 $ 17,949,120 Canadian Pacific Limited Diversified Operations (Canada) 517,000 13,411,199 First Pacific Company Diversified Operations Limited (Hong Kong) 31,760,868 9,471,431 ------------ 40,831,750 TOTAL COMMON STOCKS (COST: $792,892,042) 748,491,384 SHORT TERM INVESTMENTS--3.0% COMMERCIAL PAPER--1.3% General Electric Capital Corporation, 6.69% due 10/2/2000 $10,000,000 $ 10,000,000 TOTAL COMMERCIAL PAPER (COST: $10,000,000) 10,000,000 REPURCHASE AGREEMENTS--1.7% State Street Repurchase Agreement, 6.42% due 10/2/2000 $13,828,000 $ 13,828,000 TOTAL REPURCHASE AGREEMENTS (COST: $13,828,000) 13,828,000 TOTAL SHORT TERM INVESTMENTS (COST: $23,828,000) 23,828,000 Total Investments (Cost $816,720,042)--98.7% (e) $772,319,384 Foreign Currencies (Proceeds $76)--0.0% 76 Other Assets In Excess Of Other Liabilities--1.3% (f) 10,194,506 TOTAL NET ASSETS--100% $782,513,966 ============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a Global Depository Receipt. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At September 30, 2000, net unrealized depreciation of $44,400,657, for federal income tax purposes, consisted of gross unrealized appreciation of $88,414,759 and gross unrealized depreciation of $132,815,412. (f) Includes portfolio and transaction hedges. 40 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 (9/30/00) AS COMPARED TO THE MSCI WORLD EX U.S.
THE OAKMARK INTERNATIONAL SMALL CAP MSCI WORLD EX FUND U.S. INDEX 10/95 $10,000 $10,000 12/95 $9,630 $10,684 3/96 $10,970 $11,006 6/96 $11,570 $11,186 9/96 $11,590 $11,195 12/96 $12,038 $11,418 3/97 $12,080 $11,241 6/97 $13,181 $12,699 9/97 $12,672 $12,652 12/97 $9,642 $11,677 3/98 $11,429 $13,394 6/98 $9,892 $13,499 9/98 $8,211 $11,513 12/98 $10,529 $13,868 3/99 $13,118 $14,086 6/99 $15,317 $14,493 9/99 $15,439 $15,114 12/99 $16,190 $17,741 3/00 $15,387 $17,839 6/00 $15,529 $17,217 9/00 $14,908 $15,906
AVERAGE ANNUAL TOTAL RETURN* 9/30/00 NAV $11.51 THROUGH 9/30/00 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS 11/1/95 -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -4.0% 8.5% MSCI World ex U.S. Index w/inc.** -7.6% 9.9% Lipper International Small Cap Fund Average** -3.5% 18.5% Micropal Equity International Small Cap Index** -4.0% 18.5%
*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 indexes or funds whose composition is different from the Fund. The MSCI World ex U.S. Index includes 21 country sub-indexes. The Lipper International Small Cap Fund Average includes 76 mutual funds that invest in securities whose primary markets are outside the United States. The Micropal Equity International Small Cap Index 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 fourth quarter of the fiscal year, your fund was down 4.0%, compared to negative returns of 7.6% and 3.5% for the MSCI World ex US index and the Lipper International Small Cap Fund Average, respectively. For the nine months ended September 30, 2000, the Fund was down 7.9%, compared to negative returns of 10.3% and 2.5% for the MSCI World ex US Index and the Lipper International Small Cap Fund Average. The past quarter was a rough one for most of the world's equity markets. The areas of greatest market excess, the ubiquitous "T-M-T" favorites (Technology, Media and Telecommunications) shouldered the brunt of the declines, but weakness was nearly universal. As long-term shareholders remember, we believe it is often in times of volatile share price movements that exceptional long-term values are unearthed. PRIVATE EQUITY IN EUROPE--DRY POWDER For quite a few quarters now, we have written about the exceptional values we are finding among the small and mid-cap stocks in Europe. Even with the latest downturns in the market indices, a large valuation gap still exists between huge, liquid, index names and everything else. A good question to ask is: "what is going to change this?" One possibility is private equity -- money that is raised from pension funds, insurance companies, and other institutions, pooled with ample amounts of debt, and used to buy pieces of businesses or entire companies. A healthy private equity market helps maintain "honesty" in share prices by focusing on businesses that are priced by the market THE OAKMARK INTERNATIONAL SMALL CAP FUND 41 -------------------------------------------------------------------------------- at significant discounts to business value. These financial investors can make a bid for the entire enterprise, their non-core business lines, or under-performing operations. The trend is clear. We continue to see a pronounced increase in private equity, raised both in the US and Europe, that is earmarked for deals in the UK and Continental Europe. In the past quarter, some examples of private equity investors raising significant funds include BC Partners (Euro3.5 bill), KKR (US$3 bill), CVC Capital Partners (US$3.5 bill), and Schroder Ventures (Euro3 bill). Other firms actively involved in searching for European deals include Hicks Muse Tate & Furst, Carlyle Group, ABN-AMRO Holdings, Morgan Grenfell Private Equity, Texas Pacific Group, and Clayton, Dubilier, & Rice.
-------------------------------------------- TOTAL RETURNS AS OF SEPTEMBER 30, 2000 -------------------------------------------- 3 Months (4.0%) -------------------------------------------- 6 Months (3.1%) -------------------------------------------- 1 Year (3.4%) -------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2000 -------------------------------------------- 3 Year 5.6% -------------------------------------------- 5 Year N/A -------------------------------------------- Since inception 8.5% --------------------------------------------
This year, your fund had two companies that were bought out by private equity investors, each for similar reasons. The first, UK-based WASSALL, was purchased in the first quarter by KKR for $1 billion. KKR saw Wassall as the perfect first step in their plan to consolidate the fragmented European lighting business. Wassall management will remain intact to assist KKR in this consolidation effort. The second buyout was DE DIETRICH, one of the oldest industrial companies founded in France over three hundred years ago. In this instance, when one of the controlling families wanted to sell their ownership interest, ABN-AMRO Holdings approached management with a full takeover offer. As with KKR, the buyer wanted to keep the existing superb management intact and simply supply the funding needed to grow the business. -------------------------------------------------------------------------------- HIGHLIGHTS - THE PAST QUARTER WAS QUITE A ROUGH ONE FOR MOST OF THE WORLD'S EQUITY MARKETS. THE AREAS OF GREATEST MARKET EXCESS --THE TECHNOLOGY, MEDIA, AND TELECOMMUNICATIONS FAVORITES --SHOULDERED THE BRUNT OF THE DECLINES. - WE ARE FINDING EXCEPTIONAL VALUE IN SMALL AND MID-CAP STOCKS IN EUROPE. HOWEVER, EVEN WITH THE LATEST DOWNTRUNS IN MARKET INDICES, A LARGE VALUATION GAP STILL EXISTS BETWEEN LARGE, LIQUID, INDEX NAMES AND EVERYTHING ELSE. - WE ARE CONTINUING TO SEE A PRONOUNCED INCREASE IN PRIVATE EQUITY, RAISED BOTH IN THE U.S. AND IN EUROPE, BEING SPECIFICALLY EARMARKED FOR DEALS IN THE U.K. AND CONTINENTAL EUROPE. -------------------------------------------------------------------------------- In both cases, it was apparent to the management teams that the market was not giving them proper credit for substantial value creation, something that a deep-pocketed private equity buyer was happy to do. Both companies continue to operate as before, the only difference is they now have direct access to easy capital instead of a low stock market valuation. Another good example of a buyout by private equity investors occurred in the past few weeks with LAPORTE PLC, the UK chemicals group. Our analyst, Dan O'Keefe, was investigating the company for the Oakmark International Fund. Laporte plc announced the sale of a part of their business which they considered "non-core" to KKR for $1.2 billion, representing a huge valuation premium to the multiple for which the entire business was trading at the time. The share price, understandably, skyrocketed. As one market analyst put it: "Management has exploited the wide gulf between equity market multiples and the valuations that financial and trade buyers are willing to stomach." 42 THE OAKMARK INTERNATIONAL SMALL CAP FUND --------------------------------------------------------------------------------
------------------------------------------------------------- TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 2000 ------------------------------------------------------------- INDUSTRIES Retail 11.0% AND % OF Other Consumer TOTAL NET Goods & Services 10.1% ASSETS Food & Beverage 9.4% Diversified Conglomerates 6.5% Other Industrial Goods & Services 6.4% -------------------------------------------------------------
We believe there is a substantial crop of low-hanging fruit to be harvested in Europe by private equity buyers, especially considering the presence of plentiful and cheap debt financing. The primary reasons you are not seeing a greater volume of transactions are political and cultural. Unlike the United States, it is still very early in Europe for these types of transactions to take place and it will take more time and delicacy to overcome political problems. Culturally, it will take time for top European managers to realize that divestitures and sales do not always equal failure. Despite these obstacles, the size and number of private equity transactions likely will grow in the years ahead.
-------------------------------------------------------------- TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000 -------------------------------------------------------------- COMPANY Royal Doulton plc 5.5% AND % OF GFI Industries SA 4.9% TOTAL NET Hite Brewery Co., Ltd. 4.3% ASSETS Fletcher Challenge Building 4.2% Jarvis Hotels plc 4.1% --------------------------------------------------------------
LOOKING FORWARD We continue to find very attractive situations in the small cap area across the globe. While the turbulence may continue for a bit, we believe the portfolio represents terrific long-term value at current prices. We appreciate your continued support. /s/ David G. Herro DAVID G. HERRO, CFA Portfolio Manager dherro@cs.com /s/ Michael J. Welsh MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com October 10, 2000 THE OAKMARK INTERNATIONAL SMALL CAP FUND 43 -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--SEPTEMBER 30, 2000 -------------------------------------------------------------------------------- [PIE CHART] EUROPE 42.6% LATIN AMERICA 4.7% PACIFIC RIM 44.5% OTHER 2.9%
% OF FUND NET ASSETS ---------------------------------- EUROPE 42.6% Great Britain 18.7% * France 10.0% * Germany 4.3% * Italy 3.3% * Austria 2.9% * Finland 2.2% Sweden 1.2% LATIN AMERICA 4.7% Mexico 3.3% Brazil 1.4%
% OF FUND NET ASSETS ---------------------------------- PACIFIC RIM 44.5% Korea 10.3% Hong Kong 9.7% New Zealand 7.7% Japan 6.7% Singapore 5.3% Philippines 2.5% Thailand 2.3% Other 2.9% Bermuda 2.9%
* Euro currency countries comprise 22.7% of the Fund. 44 THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 --------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.7% FOOD & BEVERAGE--9.4% Hite Brewery Co., Ltd. Brewer (Korea) 95,531 $ 3,850,709 Alaska Milk Corporation Milk Producer (Philippines) 44,874,000 2,233,987 Grupo Continental, S.A. Soft Drink Manufacturer (Mexico) 1,213,000 1,477,389 Mikuni Coca-Cola Soft Drink Manufacturer Bottling Co., Ltd. (Japan) 87,000 968,056 ----------- 8,530,141 APPAREL--2.1% Kingmaker Footwear Athletic Footwear Manufacturer Holdings Limited (Hong Kong) 12,300,000 $ 1,861,605 RETAIL--11.0% House of Fraser Plc Department Store (Great Britain) 4,195,000 $ 3,055,464 Carpetright plc Carpet Retailer (Great Britain) 346,000 2,522,679 Denny's Japan Co., Restaurant Chain Ltd. (Japan) 110,000 2,111,364 York-Benimaru Co., Supermarket Chain Ltd. (Japan) 41,300 1,056,961 Jusco Stores Department Stores (Hong Kong) Co., Limited (Hong Kong) 6,996,000 807,593 Harvey Nichols plc High Fashion Clothing Retailer (Great Britain) 142,000 364,357 ----------- 9,918,418 OTHER CONSUMER GOODS & SERVICES--10.1% Royal Doulton plc Tableware & Giftware (Great Britain), (a) 4,129,219 $ 4,976,964 Il Shin Spinning Fabric & Yarn Manufacturer Company (Korea) 65,220 2,397,902 Dickson Concepts Jewlery Wholesaler & Retailer (International) Limited (Hong Kong) 1,315,000 877,060 Sanford Limited Fisheries (New Zealand) 358,334 642,729 Designer Textiles (NZ) Knit Fabrics Limited (New Zealand) (c) 1,960,000 191,758 ----------- 9,086,413
THE OAKMARK INTERNATIONAL SMALL CAP FUND 45 -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.7% (CONT.) INSURANCE--2.6% IPC Holdings, Ltd. Reinsurance Provider (Bermuda) 87,700 $ 1,622,450 Hannover Rueckversicherungs- Reinsurance Provider AG (Germany) 8,000 685,790 ----------- 2,308,240 OTHER FINANCIAL--5.6% JCG Holdings Ltd. Investment Holding Company (Hong Kong) 5,604,000 $ 3,162,650 Ichiyoshi Securities Co., Stock Broker Ltd. (Japan) 345,000 1,919,421 ----------- 5,082,071 HOTELS & MOTELS--4.1% Jarvis Hotels plc Hotel Operator (Great Britain) 2,537,000 $ 3,658,171 PUBLISHING--3.5% Matichon Public Newspaper Publisher Company Limited, Foreign Shares (Thailand) (c) 2,039,500 $2,105,571 VLT AB, Class B (Sweden) Newspaper Publisher 125,950 1,087,244 ----------- 3,192,815 PRINTING--2.3% Hung Hing Printing Printing Company Group Limited (Hong Kong) 5,498,000 $ 2,080,305 TELECOMMUNICATIONS--2.2% Telemig Celular Mobile Telecommunications Participacoes S.A. (Brazil), (a) 475,000,000 $ 1,239,691 SK Telecom Co., Mobile Telecommunications Ltd. (Korea) 2,960 721,983 ----------- 1,961,674 AUTOMOTIVE--0.8% Dongah Tire Industry Innertube Manufacturer Company (Korea) 34,400 $ 715,670 AUTOMOBILES--3.3% Ducati Motor Holding Motorcycle Manufacturer S.p.A. (Italy), (a) 1,287,000 $ 2,974,264
46 THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.7% (CONT.) TRANSPORTATION SERVICES--4.2% Mainfreight Limited Logistics Services (New Zealand) (c) 4,373,551 $ 2,317,741 DelGro Corporation Bus, Taxi, & Car Leasing Limited (Singapore) 572,000 1,466,878 ----------- 3,784,619 AIRPORT MAINTENANCE--4.6% Flughafen Wien AG Airport Management & Operations (Austria) 73,500 $ 2,663,180 Grupo Aeroportuario Airport Operator del Sureste S.A. de C.V. (Mexico), (a) (b) 100,000 1,518,750 ----------- 4,181,930 CHEMICALS--0.6% Kemira Oyj (Finland) Chemicals 111,000 $ 580,730 OIL & NATURAL GAS--3.8% ISIS (France) Oil Services 32,477 $ 2,276,032 Cairn Energy plc Oil & Natural Gas Producer (Great Britain), (a) 419,000 1,180,451 ----------- 3,456,483 INSTRUMENTS--0.1% Rotork plc Industrial Controls & (Great Britain) Instruments Supplier 32,000 $ 113,580 MINING & BUILDING MATERIALS--5.3% Fletcher Challenge Building Materials Manufacturer Building (New Zealand) 3,753,251 $ 3,763,831 Anglian Group plc Window & Door Manufacturer (Great Britain) 459,000 1,001,253 ----------- 4,765,084 OTHER INDUSTRIAL GOODS & SERVICES--6.4% GFI Industries SA Industrial Fastener Manufacturer (France) 208,400 $ 4,423,847 Vaisala Oyj, Class A Atmospheric Observation (Finland) Equipment 72,100 1,382,688 ----------- 5,806,535 PRODUCTION EQUIPMENT--6.2% Krones AG (Germany) Production Machinery Manufacturer 115,700 $ 3,220,870 NSC Groupe (France) Textile Equipment Manufacturer 23,630 2,340,985 ----------- 5,561,855
THE OAKMARK INTERNATIONAL SMALL CAP FUND 47 -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2000 CONT. --------------------------------------------------------------------------------
Shares Held/ Description Par Value Market Value ----------------------------------------------------------------------------------------------------- COMMON STOCKS--94.7% (CONT.) DIVERSIFIED CONGLOMERATES--6.5% Haw Par Corporation Healthcare & Leisure Products Ltd. (Singapore) 1,972,000 $ 3,288,273 Jardine Strategic Holdings Limited Diversified Operations (Bermuda) 340,700 994,844 Tae Young Corporation Heavy Construction (Korea) 64,000 1,601,220 ----------- 5,884,337 TOTAL COMMON STOCKS (COST: $92,815,393) 85,504,940 SHORT TERM INVESTMENTS--3.7% COMMERCIAL PAPER--1.6% General Electric Capital Corporation, 6.69% due 10/2/2000 $1,500,000 $ 1,500,000 TOTAL COMMERCIAL PAPER (COST: $1,500,000) 1,500,000 REPURCHASE AGREEMENTS--2.1% State Street Repurchase Agreement, 6.42% due 10/2/2000 $1,867,000 $ 1,867,000 TOTAL REPURCHASE AGREEMENTS (COST: $1,867,000) 1,867,000 TOTAL SHORT TERM INVESTMENTS (COST: $3,367,000) 3,367,000 Total Investments (Cost $96,182,393)--98.4% (d) $88,871,940 Foreign Currencies (Proceeds $75)--(0.0)% 70 Other Assets In Excess Of Other Liabilities--1.6% (e) 1,473,772 ----------- TOTAL NET ASSETS--100% $90,345,782 ===========
(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 September 30, 2000, net unrealized depreciation of $7,310,458, for federal income tax purposes, consisted of gross unrealized appreciation of $8,729,481 and gross unrealized depreciation of $16,039,939. (e) Includes portfolio and transaction hedges. 48 THE OAKMARK INTERNATIONAL SMALL CAP FUND (This page has been intentionally left blank.) [LOGO] THE OAKMARK FAMILY OF FUNDS 49 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--SEPTEMBER 30, 2000 -------------------------------------------------------------------------------
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND --------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value $ 2,011,316,685 $ 1,775,647,588 $ 249,559,481 (cost: 1,979,953,197) (cost: 1,588,432,607) (cost: 246,075,178) Cash 199 626 942 Foreign currency, at value 0 0 0 Receivable for: Forward foreign currency contracts 0 0 0 Securities sold 28,311,454 24,325,561 559,320 Fund shares sold 5,751,925 2,225,652 48,707 Dividends and interest 4,017,332 1,264,708 96,313 --------------- --------------- -------------- Total receivables 38,080,711 27,815,921 704,340 Other assets 158,764 30,591 19,752 --------------- --------------- -------------- Total assets $ 2,049,556,359 $ 1,803,494,726 $ 250,284,515 --------------- --------------- -------------- --------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND NET ASSETS Options sold, at fair value $ 0 $ 0 $ 42,000 (premiums received: 64,578) Payable for: Securities purchased 6,097,075 23,506,634 578,950 Fund shares redeemed 3,378,486 604,856 704,562 Forward foreign currency contracts 0 0 0 Other 1,351,991 646,762 255,391 --------------- --------------- -------------- Total liabilities 10,827,552 24,758,252 1,580,903 --------------- --------------- -------------- Net assets applicable to fund shares outstanding $ 2,038,728,807 $ 1,778,736,474 $ 248,703,612 =============== =============== ============== Fund shares outstanding 75,659,245 82,931,572 16,467,408 =============== =============== ============== --------------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NET ASSETS Paid in capital $ 2,327,702,018 $ 1,443,945,477 $ 234,310,878 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions (358,898,002) 138,991,711 10,885,853 Net unrealized appreciation (depreciation) of investments 31,363,487 187,214,980 3,506,881 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 0 Net unrealized appreciation (depreciation)--other 0 0 0 Accumulated undistributed net investment income (loss) 38,561,304 8,584,306 0 --------------- --------------- -------------- Net assets applicable to Fund shares outstanding $ 2,038,728,807 $ 1,778,736,474 $ 248,703,612 =============== =============== ============== --------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net asset value per share: Class I $ 26.95 $ 21.45 $ 15.10 Class I--Net assets $ 2,038,728,807 $ 1,771,965,140 $ 248,703,612 Class I--Shares outstanding 75,659,245 82,615,135 16,467,408 Net asset value per share: Class II $ 21.40 Class II--Net assets $ 6,771,334 Class II--Shares outstanding 316,437 50 THE OAKMARK FAMILY OF FUNDS ----------------------------------------------------------------------------------------------------------------------------------- THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value $ 55,594,309 $ 27,135,222 $ 772,319,384 $ 88,871,940 (cost: 48,686,873)(cost: 24,801,814) (cost: 816,720,042) (cost: 96,182,393) Cash 692 751 341 425 Foreign currency, at value 0 28 76 70 Receivable for: Forward foreign currency contracts 0 76,462 2,048,003 289,441 Securities sold 552,777 211,224 12,558,641 2,966,110 Fund shares sold 127,518 3,217 898,742 3,922 Dividends and interest 381,529 95,357 4,349,544 392,597 ------------ ------------ ------------- ------------ Total receivables 1,061,824 386,260 19,854,930 3,652,070 Other assets 1,370 10,706 29,368 7,147 ------------ ------------ ------------- ------------ Total assets $ 56,658,195 $ 27,532,967 $ 792,204,099 $ 92,531,652 ------------ ------------ ------------- ------------ ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND NET ASSETS Options sold, at fair value $ 0 $ 0 $ 0 $ 0 Payable for: Securities purchased 1,463,121 215,752 8,428,894 1,819,092 Fund shares redeemed 158,960 0 350,885 170,404 Forward foreign currency contracts 0 0 38,795 7,014 Other 100,277 89,976 871,559 189,360 ------------ ------------ ------------- ------------ Total liabilities 1,722,358 305,728 9,690,133 2,185,870 ------------ ------------ ------------- ------------ Net assets applicable to fund shares outstanding $ 54,935,837 $ 27,227,239 $ 782,513,966 $ 90,345,782 ============ ============ ============= ============ Fund shares outstanding 3,329,607 2,495,109 50,813,807 7,852,136 ============ ============ ============= ============ ----------------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NET ASSETS Paid in capital $ 42,415,052 $ 24,526,429 $ 773,453,511 $ 89,764,601 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 4,605,687 11,546 27,284,016 4,660,607 Net unrealized appreciation (depreciation) of investments 6,907,435 2,333,407 (44,400,657) (7,310,458) Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 76,462 2,048,003 289,441 Net unrealized appreciation (depreciation)--other 0 (1,515) (180,240) (25,686) Accumulated undistributed net investment income (loss) 1,007,663 280,910 24,309,333 2,967,277 ------------ ------------ ------------- ------------ Net assets applicable to Fund shares outstanding $ 54,935,837 $ 27,227,239 $ 782,513,966 $ 90,345,782 ============ ============ ============= ============ ----------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net asset value per share: Class I $ 16.50 $ 10.91 $ 15.40 $ 11.51 Class I--Net assets $ 54,494,455 $ 27,227,239 $ 782,416,127 $ 90,345,782 Class I--Shares outstanding 3,302,834 2,495,109 50,807,440 7,852,136 Net asset value per share: Class II $ 16.49 $ 15.37 Class II--Net assets $ 441,382 $ 97,839 Class II--Shares outstanding 26,773 6,367
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 51 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--SEPTEMBER 30, 2000 --------------------------------------------------------------------------------
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 62,217,821 $ 24,190,270 $ 2,270,400 Interest Income 11,152,574 6,316,298 868,545 Other Income 189,274 8,202 109 Foreign taxes withheld (153,721) 0 0 --------------- --------------- -------------- Total investment income 73,405,948 30,514,770 3,139,054 -------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 28,116,035 15,325,113 3,683,621 Transfer and dividend disbursing agent fees 2,144,292 959,533 282,517 Other shareholder servicing fees 1,407,173 1,058,557 144,292 Service Fee--Class II 0 10,765 0 Reports to shareholders 1,390,953 569,655 164,908 Custody and accounting fees 303,434 209,167 77,569 Registration and blue sky expenses 15,171 80,450 29,896 Trustee fees 117,583 67,881 36,760 Legal fees 37,929 25,327 10,729 Audit fees 24,116 23,005 22,105 Other 240,627 136,950 113,185 --------------- --------------- -------------- Total expenses 33,797,313 18,466,403 4,565,582 Expense reimbursement 0 0 (252,000) Expense offset arrangements (9,433) (6,506) (832) --------------- --------------- -------------- Net expenses 33,787,880 18,459,897 4,312,750 -------------------------------------------------------------------------------------------------------------------------------- Net Investment Income (loss): 39,618,068 12,054,873 (1,173,696) -------------------------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments (358,898,002) 161,052,611 25,233,378 Net realized gain (loss) on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (135,635,885) 159,978,754 (12,748,906) Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 0 Net change in appreciation (depreciation)--other 0 0 0 -------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency transactions: (494,533,887) 321,031,365 12,484,472 --------------- --------------- -------------- -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ (454,915,819) $ 333,086,238 $ 11,310,776 =============== =============== ==============
52 THE OAKMARK FAMILY OF FUNDS
----------------------------------------------------------------------------------------------------------------------------------- THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 1,149,410 $ 615,292 $ 25,208,892 $ 4,628,168 Interest Income 1,219,738 60,281 2,284,194 234,290 Other Income 911 0 0 0 Foreign taxes withheld (22,837) (56,319) (2,623,737) (579,417) ------------ ------------ ------------- ------------ Total investment income 2,347,222 619,254 24,869,349 4,283,041 ----------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 410,864 267,710 7,849,938 1,451,394 Transfer and dividend disbursing agent fees 57,692 46,375 596,790 112,558 Other shareholder servicing fees 13,549 4,638 358,338 65,130 Service Fee--Class II 165 0 251 0 Reports to shareholders 28,049 44,681 305,840 59,570 Custody and accounting fees 50,428 51,259 868,495 201,396 Registration and blue sky expenses 40,366 41,928 53,092 32,622 Trustee fees 27,682 26,900 50,812 29,502 Legal fees 8,381 10,047 16,642 9,028 Audit fees 20,005 21,057 27,222 24,116 Other 24,440 14,772 80,226 32,150 ------------ ------------ ------------- ------------ Total expenses 681,621 529,367 10,207,646 2,017,466 Expense reimbursement 0 (55,500) 0 0 Expense offset arrangements (1,017) (1,355) (2,912) (3,039) ------------ ------------ ------------- ------------ Net expenses 680,604 472,512 10,204,734 2,014,427 ----------------------------------------------------------------------------------------------------------------------------------- Net Investment Income (loss): 1,666,618 146,742 14,664,615 2,268,614 ----------------------------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 4,310,645 96,088 60,562,992 4,863,798 Net realized gain (loss) on foreign currency transactions (645) 132,840 10,609,055 991,046 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 3,084,969 4,122,450 13,902,115 (13,182,275) Net change in appreciation (depreciation) of forward currency exchange contracts 0 81,181 2,556,178 281,817 Net change in appreciation (depreciation)--other 159 (1,568) (111,145) (28,709) ----------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency transactions: 7,395,128 4,430,991 87,519,195 (7,074,323) ------------ ------------ ------------- ------------ ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 9,061,746 $ 4,577,733 $ 102,183,810 $ (4,805,709) ============ ============ ============= ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 53 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 2000 -------------------------------------------------------------------------------
---------------------------------------------- THE OAKMARK FUND ---------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 39,618,068 $ 63,903,129 Net realized gain (loss) on sale of investments (358,898,002) 748,595,189 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (135,635,885) (147,719,773) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (454,915,819) 664,778,545 ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (32,700,105) (89,026,890) Net realized short-term gain (100,782,239) (128,028,090) Net realized long-term gain (487,248,675) (195,972,927) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (620,731,019) (413,027,907) ---------------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 290,642,873 832,343,635 Reinvestment of dividends and capital gain distributions 603,462,527 391,307,098 Payments for shares redeemed, net of fees (2,552,562,124) (3,626,526,884) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (1,658,456,724) (2,402,876,151) --------------- --------------- ---------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (2,734,103,562) (2,151,125,513) NET ASSETS: Beginning of period 4,772,832,369 6,923,957,882 --------------- --------------- End of period $ 2,038,728,807 $ 4,772,832,369 =============== =============== Undistributed net investment income $ 38,561,304 $ 40,937,014 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.2632 $ 0.4401 Net realized short-term gain 0.8111 0.6329 Net realized long-term gain 3.9217 0.9686 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 4.9960 $ 2.0416 =============== ===============
54 THE OAKMARK FAMILY OF FUNDS -------------------------------------------------------------------------------
---------------------------------------------- THE OAKMARK SELECT FUND ---------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 12,054,873 $ 15,427,356 Net realized gain (loss) on sale of investments 161,052,611 301,413,442 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 159,978,754 18,463,317 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 333,086,238 335,304,115 ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income--Class I (14,709,648) (3,491,747) Net investment income--Class II 0 0 Net realized short-term gain (8,341,169) (497,653) Net realized long-term gain (268,872,301) (50,206,634) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (291,923,118) (54,196,034) ---------------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 628,490,960 688,865,887 Proceeds from shares sold--Class II 7,021,801 0 Reinvestment of dividends and capital gain distributions 287,179,516 51,676,128 Payments for shares redeemed, net of fees--Class I (823,014,435) (610,635,670) Payments for shares redeemed, net of fees--Class II (1,013,300) 0 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 98,664,542 129,906,345 --------------- --------------- ---------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 139,827,662 411,014,426 NET ASSETS: Beginning of period 1,638,908,812 1,227,894,386 --------------- --------------- End of period $ 1,778,736,474 $ 1,638,908,812 =============== =============== Undistributed net investment income $ 8,584,306 $ 13,170,342 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.1972 $ 0.0491 Net realized short-term gain 0.1118 0.0070 Net realized long-term gain 3.6040 0.7058 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 3.9130 $ 0.7619 =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 55 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
---------------------------------------------- THE OAKMARK SMALL CAP FUND ---------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income (loss) $ (1,173,696) $ (2,516,832) Net realized gain (loss) on sale of investments 25,233,378 (11,002,740) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (12,748,906) 82,350,204 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 11,310,776 68,830,632 ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 0 Net realized short-term gain 0 0 Net realized long-term gain 0 (4,508,112) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 (4,508,112) ---------------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 51,615,294 262,182,135 Reinvestment of dividends and capital gain distributions 0 4,278,943 Payments for shares redeemed, net of fees (251,361,737) (511,639,081) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (199,746,443) (245,178,003) --------------- --------------- ---------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (188,435,667) (180,855,483) NET ASSETS: Beginning of period 437,139,279 617,994,762 --------------- --------------- End of period $ 248,703,612 $ 437,139,279 =============== =============== Undistributed net investment income $ 0 $ 0 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0 $ 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0.0874 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0 $ 0.0874 =============== ===============
56 THE OAKMARK FAMILY OF FUNDS --------------------------------------------------------------------------------
---------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND ---------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 1,666,618 $ 1,640,639 Net realized gain (loss) on sale of investments 4,310,645 6,246,386 Net realized gain (loss) on foreign currency transactions (645) (1,597) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 3,084,969 690,123 Net change in unrealized appreciation (depreciation)--other 159 (159) --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 9,061,746 8,575,392 ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income--Class I (1,718,499) (855,395) Net investment income--Class II 0 0 Net realized short-term gain 0 0 Net realized long-term gain (5,192,802) (829,557) --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (6,911,301) (1,684,952) ---------------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 11,520,117 21,877,864 Proceeds from shares sold--Class II 418,255 0 Reinvestment of dividends and capital gain distributions 6,650,712 1,610,146 Payments for shares redeemed, net of fees--Class I (26,121,233) (27,806,714) Payments for shares redeemed, net of fees--Class II (50) 0 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (7,532,199) (4,318,704) --------------- --------------- ---------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (5,381,754) 2,571,736 NET ASSETS: Beginning of period 60,317,591 57,745,855 --------------- --------------- End of period $ 54,935,837 $ 60,317,591 =============== =============== Undistributed net investment income $ 1,007,663 $ 1,631,244 =============== =============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.4509 $ 0.2118 Net realized short-term gain 0 0 Net realized long-term gain 1.3625 0.2053 --------------- --------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.8134 $ 0.4171 =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
------------------------------------------------- THE OAKMARK GLOBAL FUND ----------------------------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999(a) ----------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 146,742 $ 32,032 Net realized gain (loss) on sale of investments 96,088 (84,542) Net realized gain (loss) on foreign currency transactions 132,840 (871) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 4,122,450 (1,789,042) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 81,181 (4,719) Net change in unrealized appreciation (depreciation)--other (1,568) 53 ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 4,577,733 (1,847,089) ----------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (29,834) 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0 ------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (29,834) 0 ----------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 12,896,002 25,938,577 Reinvestment of dividends and capital gain distributions 28,883 0 Payments for shares redeemed, net of fees (14,198,899) (138,134) ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (1,274,014) 25,800,443 ------------- -------------- ----------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 3,273,885 23,953,354 NET ASSETS: Beginning of period 23,953,354 0 ------------- -------------- End of period $ 27,227,239 $ 23,953,354 ============= ============== Undistributed net investment income $ 280,910 $ 31,161 ============= ============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.0098 $ 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0 ------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.0098 $ 0 ============= ==============
(a) The date which Fund shares were first offered to the public was August 4,1999. 58 THE OAKMARK FAMILY OF FUNDS --------------------------------------------------------------------------------
------------------------------------------------- THE OAKMARK INTERNATIONAL FUND ----------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ----------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 14,664,615 $ 15,632,479 Net realized gain (loss) on sale of investments 60,562,992 (28,187,781) Net realized gain (loss) on foreign currency transactions 10,609,055 11,558,024 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 13,902,115 290,561,381 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 2,556,178 1,014,015 Net change in unrealized appreciation (depreciation)--other (111,145) (274,516) ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 102,183,810 290,303,602 ----------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income--Class I (27,231,383) (16,590,763) Net investment income--Class II (1,053) 0 Net realized short-term gain 0 (32,678,201) Net realized long-term gain 0 (20,071,535) ------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (27,232,436) (69,340,499) ----------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 172,133,473 370,563,788 Proceeds from shares sold--Class II 143,284 0 Reinvestment of dividends and capital gain distributions 26,258,587 65,432,760 Payments for shares redeemed, net of fees--Class I (302,066,042) (601,921,972) Payments for shares redeemed, net of fees--Class II (48,697) 0 ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (103,579,395) (165,925,424) ------------- -------------- ----------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (28,628,021) 55,037,679 NET ASSETS: Beginning of period 811,141,987 756,104,308 ------------- -------------- End of period $ 782,513,966 $ 811,141,987 ============= ============== Undistributed net investment income $ 24,309,333 $ (3,080,259) ============= ============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.4861 $ 0.2440 Net realized short-term gain 0 0.4807 Net realized long-term gain 0 0.2953 ------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.4861 $ 1.0200 ============= ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--SEPTEMBER 30, 2000 CONT. -------------------------------------------------------------------------------
------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND ----------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ----------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 2,268,614 $ 2,541,981 Net realized gain (loss) on sale of investments 4,863,798 12,338,825 Net realized gain (loss) on foreign currency transactions 991,046 968,518 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (13,182,275) 34,768,296 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 281,817 186,436 Net change in unrealized appreciation (depreciation)--other (28,709) (2,615) ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (4,805,709) 50,801,441 ----------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (1,252,257) (1,558,450) Net realized short-term gain (3,278,736) 0 Net realized long-term gain (3,226,904) 0 ------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (7,757,897) (1,558,450) ----------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 39,669,014 253,467,836 Reinvestment of dividends and capital gain distributions 7,637,609 1,470,554 Payments for shares redeemed, net of fees (99,763,438) (200,585,753) ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (52,456,815) 54,352,637 ------------- -------------- ----------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (65,020,421) 103,595,628 NET ASSETS: Beginning of period 155,366,203 51,770,575 ------------- -------------- End of period $ 90,345,782 $ 155,366,203 ============= ============== Undistributed net investment income $ 2,967,277 $ 3,165,289 ============= ============== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.1135 $ 0.2049 Net realized short-term gain 0.2972 0 Net realized long-term gain 0.2923 0 ------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.7030 $ 0.2049 ============= ==============
60 THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ 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 Global Fund ("Global"), 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 accounting principles generally accepted in the United States ("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. CLASS DISCLOSURE-- Each Fund offers two classes of shares: Class I Shares and Class II Shares. Class I Shares are offered to the general public. Class II Shares are offered to certain retirement plans such as 401(k) and profit sharing plans. Class II Shares pay a service fee at the annual rate of .25% of average net assets of Class II Shares of the Fund. This service fee is paid to an administrator for performing the services associated with the administration of such retirement plans. Expenses of the Funds that are not directly attributable to a specific class of shares are prorated among the classes based on the relative net assets of each class. Expenses directly attributable to a class of shares are recorded to the specific class. At this time, expenses directly attributable to each class are transfer agent fees, service fees and other shareholder servicing fees. SECURITY VALUATION-- Investments are stated at market 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 Pricing Committee appointed by the Board of 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 2000, only the Global, International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation)-other includes the following components:
INT'L GLOBAL INTERNATIONAL SMALL CAP ----------------------------------------------------------------------------- Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $(1,594) $(191,459) $(25,844) Unrealized appreciation (depreciation) on open securities purchases and sales 0 22,322 1,041 Unrealized appreciation (depreciation) on transaction hedge purchases and sales 0 (29,882) (1,454) Unrealized appreciation (depreciation) on tax expense payable 79 18,779 571 ------- --------- -------- Net Unrealized Appreciation (Depreciation) - Other $(1,515) $(180,240) $(25,686) ======= ========= ========
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 THE OAKMARK FAMILY OF FUNDS 61 ------------------------------------------------------------------------------ THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (CONT.) ------------------------------------------------------------------------------ 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, 2000, Global, 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 Global Fund had the following outstanding contracts at September 30, 2000: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------- $1,185,825 750,000 Pound Sterling October 2000 $76,462 ------- $76,462 =======
The International Fund had the following outstanding contracts at September 30, 2000: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------- $15,811,000 10,000,000 Pound Sterling October 2000 $1,019,496 27,659,700 18,000,000 Pound Sterling November 2000 1,021,282 3,811,339 400,000,000 Japanese Yen February 2001 7,225 ---------- $2,048,003 ==========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------- $1,352,619 1,533,755 Euro Currency October 2000 $2,837 133,806 151,553 Euro Currency October 2000 129 1,153,383 1,306,357 Euro Currency October 2000 1,110 362,329 410,902 Euro Currency October 2000 805 2,020,755 2,289,808 Euro Currency October 2000 2,862 825,839 935,795 Euro Currency October 2000 1,170 ------ $8,913 ======
62 THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (CONT.) ------------------------------------------------------------------------------ TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------- $1,474,421 1,669,975 Euro Currency October 2000 $ (1,419) 3,043,854 3,448,735 Euro Currency October 2000 (3,965) 2,023,098 1,385,304 Pound Sterling October 2000 (25,629) 41,124 28,119 Pound Sterling October 2000 (461) 2,570,357 1,742,969 Pound Sterling October 2000 (7,321) -------- $(38,795) ========
The Int'l Small Cap Fund had the following outstanding contracts at September 30, 2000: PORTFOLIO HEDGES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR PROCEEDS FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------- $4,189,915 2,650,000 Pound Sterling October 2000 $270,166 2,882,398 300,000,000 Japanese Yen October 2000 19,275 -------- $289,441 ========
TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------- $302,964 207,311 Pound Sterling October 2000 $3,628 ------ $3,628 ======
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------- $1,348,240 2,029,291 Canadian Dollar October 2000 $ 1,932 25,616 29,013 Euro Currency October 2000 (25) 32,537 36,852 Euro Currency October 2000 (31) 1,002,315 1,137,057 Euro Currency October 2000 (2,558) 20,704 23,460 Euro Currency October 2000 (29) 154,457 175,023 Euro Currency October 2000 (219) 200,724 138,323 Pound Sterling October 2000 (3,841) 42,854 74,695 Singapore Dollar October 2000 (95) 32,896 57,420 Singapore Dollar October 2000 (120) 100,684 175,270 Singapore Dollar October 2000 (96) ------- $(5,082) =======
THE OAKMARK FAMILY OF FUNDS 63 ------------------------------------------------------------------------------ THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (CONT.) ---------------------------------------------------------------------------- At September 30, 2000, Global, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS-- No provision is made for Federal income taxes. 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 approximate long term capital gains for purposes of the dividends paid deduction (in thousands):
SMALL EQUITY & INT'L SMALL OAKMARK SELECT CAP INCOME GLOBAL INT'L CAP ------------------------------------------------------------------------ $0 $127,158 $10,886 $4,590 $0 $9,190 $4,864
Income dividends and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these tax and book differences are permanent in nature, such amounts are reclassified among paid in capital, undistributed net investment income and undistributed net realized gain (loss) on investments. These differences are primarily related to foreign currency transactions, deferral of losses on wash sales, and character of capital loss carryforwards. The Funds also utilize earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. BANK LOANS-- The Funds have an unsecured line of credit with a syndication of banks. It is a committed line of $300 million. Borrowings under this arrangement bear interest at .45% above the Federal Funds Effective Rate. As of September 30, 2000, there were no outstanding borrowings. ACCOUNTING FOR OPTIONS-- When the Fund writes an option, the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from writing options, which expire unexercised, are recorded by the Fund on the expiration date as realized gains from option transactions. The difference between the premium and the amount paid on effecting a closing purchase transaction including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or a loss. If a put option is exercised, the premium reduces the cost basis of the security or currency purchased by the Fund. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Fund could result in the Fund selling or buying a security or currency at a price different from the current market value. During the year ended September 30, 2000, Small Cap wrote option contracts. Portfolio securities valued at $837,375 were held in escrow by the custodian as cover for call options written by the Small Cap. 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, .85% on the next $5 billion of net assets, and .80% on the excess of $10 billion of net assets. Select pays 1% on the first $1 billion of net assets, .95% on the next $500 million of net assets, .90% on the next $500 million of net assets, .85% on the next $500 million of net assets, .80% on the next $2.5 million of net assets, and .75% on the excess of $5 billion of net assets. Small Cap pays 1.25% on the first $1 billion of net assets, 1.15% on the next $500 million of net assets, 1.10% on the next $500 million of net assets, 1.05% on the next $500 million of net assets, and 1% on the excess of $2.5 billion of net assets. Equity and Income pays .75% of net assets. Global pays 1.00% 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. 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 to reimburse the Funds to the extent that annual expenses, excluding certain expenses, exceed 1.5% for domestic funds, 2.0% for international funds, and 1.75% for the Global Fund. In connection with the organization of the Funds, expenses of approximately $7,283 were advanced 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. During the twelve months ended September 30, 2000, the Funds incurred brokerage commissions of $7,645,100, $4,102,031, $680,633, $200,588, $256,580, $2,905,834, and $469,454 of which $2,765,022, $1,112,365, $226,659, $100,258, $87,377, $0, and $0 were paid by Oakmark, Select, Small Cap, Equity and Income, Global, International and Int'l Small Cap, respectively, to an affiliate of the Adviser. The Funds' Trustees may participate in a Deferred Compensation Plan which may be terminated at any time. The obligations of the Plan are paid solely out of the assets of the Funds. 64 THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (CONT.) ---------------------------------------------------------------------------- 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):
TWELVE MONTHS ENDED SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL CAP -------------------------------------------------------------------------------------------------------------------- Shares sold 11,007 32,899 3,743 784 1,361 11,609 3,311 Shares issued in reinvestment of dividends 21,629 15,744 0 463 3 1,899 656 Less shares redeemed (95,833) (44,043) (18,761) (1,763) (1,477) (20,847) (8,406) ------- ------- ------- ------ ------ ------- ------ Net increase (decrease) in shares outstanding (63,197) 4,600 (15,018) (516) (113) (7,339) (4,439) ======= ======= ======= ====== ====== ======= ====== TWELVE MONTHS ENDED SEPTEMBER 30, 1999 -------------------------------------------------------------------------------------- EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL CAP -------------------------------------------------------------------------------------------------------------------- Shares sold 22,559 32,332 18,587 1,449 2,623 27,499 21,542 Shares issued in reinvestment of dividends 10,299 2,853 298 112 0 6,003 178 Less shares redeemed (100,457) (30,105) (36,338) (1,842) (15) (47,902) (16,944) -------- ------- ------- ------ ----- ------- ------- Net increase (decrease) in shares outstanding (67,599) 5,080 (17,453) (281) 2,608 (14,400) 4,776 ======= ======= ======= ====== ====== ======= ======
(a) The date which Fund shares were first offered for sale to the public was August 4, 1999. 4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
EQUITY & INT'L SMALL OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL CAP ------------------------------------------------------------------------------------------------------------------ Purchases $1,287,017 $1,007,676 $ 77,253 $45,616 $38,215 $473,207 $43,098 Proceeds from sales $3,249,901 $1,233,828 $285,248 $56,873 $39,785 $570,706 $95,650
Transactions in options written by Small Cap during the year ended September 30, 2000 were as follows:
NUMBER OF PREMIUMS CONTRACTS RECEIVED --------------------------------------------------------------------------------- Options outstanding at September 30, 1999 $ 0 $ 0 Options written 2,360 678,033 Options terminated in closing purchase transactions (200) (50,794) Options expired (1,750) (538,261) Options exercised (200) (24,400) ------- --------- Options outstanding at September 30, 2000 $ 210 $ 64,578 ======= =========
THE OAKMARK FAMILY OF FUNDS 65 ---------------------------------------------------------------------------- THE OAKMARK FAMILY OF FUNDS ---------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) ---------------------------------------------------------------------------- 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, 2000 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------- The Reynolds and Reynolds Company, Class A $71,680,613 $17,864,227 $2,363,801 $118,846,538 U.S. Industries, Inc. 2,912,258 55,191,225 1,248,195 42,600,075 USG Corporation 17,059,825 16,769,233 2,147,190 87,089,681 ----------- ----------- ---------- ------------ TOTALS $91,652,696 $89,824,685 $5,759,186 $248,536,294
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------- Hanger Orthopedic Group, Inc. $ 7,335,666 $ 61,472 $ 0 $ 4,312,500 R.G. Barry Corporation 49,200 192,456 0 2,565,000 Sames Corporation 0 242,030 0 3,201,875 Ugly Duckling Corporation 0 0 0 10,171,875 ----------- ----------- ---------- ------------ TOTALS $ 7,384,866 $ 495,958 $ 0 $ 20,251,250
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------- Chargeurs SA $ 0 $12,532,174 $1,336,880 $ 25,360,707 Dongah Tire Industry Company 0 0 222,263 3,459,560 Fila Holding S.p.A. 1,824,332 1,710,130 0 23,522,425 Lotte Chilsung Beverage Company 1,542,010 0 32,524 9,399,202 Nufarm Limited 32,936,973 0 0 17,097,359 Somerfield plc 42,112,018 12,444,936 813,479 45,054,993 ----------- ----------- ---------- ------------ TOTALS $78,415,333 $26,687,240 $2,405,146 $123,894,246
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------- Designer Textiles (NZ) Limited $ 0 $ 0 $ 20,634 $ 191,758 Mainfreight Limited 115,895 15,170 167,324 2,317,741 Matichon Public Company Limited, Foreign Shares 0 0 215,963 2,105,571 ----------- ----------- ---------- ------------ TOTALS $ 115,895 $ 15,170 $ 403,921 $ 4,615,070
66 THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ THE OAKMARK FUND ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------------ FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 1998 1997(d) ------------------------------------------------------------- Net Asset Value, Beginning of Period $ 34.37 $ 33.54 $ 41.21 $ 32.39 Income From Investment Operations: Net Investment Income (Loss) 0.49 0.36 0.47 0.36 Net Gains or Losses on Securities (both realized and unrealized) (2.91) 2.51 (1.73) 10.67 ------------- ------------- ------------- ------------- Total From Investment Operations: (2.42) 2.87 (1.26) 11.03 Less Distributions: Dividends (from net investment income) (0.26) (0.44) (0.40) (0.34) Distributions (from capital gains) (4.74) (1.60) (6.01) (1.87) ------------- ------------- ------------- ------------- Total Distributions (5.00) (2.04) (6.41) (2.21) ------------- ------------- ------------- ------------- Net Asset Value, End of Period $ 26.95 $ 34.37 $ 33.54 $ 41.21 ============= ============= ============= ============= Total Return (7.55%) 7.98% (4.06%) 39.24%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 2,038.7 $ 4,772.8 $ 6,924.0 $ 6,614.9 Ratio of Expenses to Average Net Assets 1.21% 1.11% 1.08% 1.08%* Ratio of Net Investment Income (Loss) to Average Net Assets 1.42% 1.02% 1.22% 1.19%* Portfolio Turnover Rate 50% 13% 43% 17% YEAR ENDED OCTOBER 31, PERIOD ENDED ------------------------------------------------------------------------ OCTOBER 31, 1996 1995 1994 1993 1992 1991(a) ----------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.34 0.30 0.27 0.17 (0.03) (0.01) Net Gains or Losses on Securities (both realized and unrealized) 4.70 4.66 1.76 7.15 5.04 2.11 ------------ ------------- ------------- ------------- ------------- --------- Total From Investment Operations: 5.04 4.96 2.03 7.32 5.01 2.10 Less Distributions: Dividends (from net investment income) (0.28) (0.23) (0.23) (0.04) 0 0 Distributions (from capital gains) (0.84) (1.47) (0.77) (0.21) 0 0 ------------ ------------- ------------- ------------- ------------- --------- Total Distributions (1.12) (1.70) (1.00) (0.25) 0 0 ------------ ------------- ------------- ------------- ------------- --------- Net Asset Value, End of Period $ 32.39 $ 28.47 $ 25.21 $ 24.18 $ 17.11 $ 12.10 ============ ============= ============= ============= ============= ========= Total Return 18.07% 21.55% 8.77% 43.21% 41.40% 87.10%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 3,933.9 $ 2,827.1 $ 1,677.3 $ 1,107.0 $ 114.7 $ 4.8 Ratio of Expenses to Average Net Assets 1.18% 1.17% 1.22% 1.32% 1.70% 2.50%(b)* Ratio of Net Investment Income (Loss) to Average Net Assets 1.13% 1.27% 1.19% 0.94% (0.24)% (0.66)%(c)* Portfolio Turnover Rate 24% 18% 29% 18% 34% 0%
* 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% for the period. (c) Computed giving effect to the Adviser's expense limitation undertaking. (d) A move to a September 30th fiscal year end from an October 31st fiscal year end resulted in an eleven-month fiscal year in 1997. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 65 -------------------------------------------------------------------------------- THE OAKMARK SELECT FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
DECEMBER 31, 1999 YEAR ENDED THROUGH SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 YEAR ENDED YEAR ENDED CLASS I CLASS II(a) SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ----------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 20.92 $ 18.42 $ 16.76 $ 16.34 Income From Investment Operations: Net Investment Income (Loss) 0.13 0.10 0.19 0.03 Net Gains or Losses on Securities (both realized and unrealized) 4.32 2.88 4.73 0.56 ------------ ------------ ------------ ------------ Total From Investment Operations: 4.45 2.98 4.92 0.59 Less Distributions: Dividends (from net investment income) (0.20) 0.00 (0.05) 0 Distributions (from capital gains) (3.72) 0.00 (0.71) (0.17) ------------ ------------ ------------ ------------ Total Distributions (3.92) 0.00 (0.76) (0.17) ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 21.45 $ 21.40 $ 20.92 $ 16.76 ============ ============ ============ ============ Total Return 24.53% 21.57%* 30.07% 3.64% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 1,772.0 $ 6.8 $ 1,638.9 $ 1,227.9 Ratio of Expenses to Average Net Assets 1.17% 1.41%* 1.16% 1.22% Ratio of Net Investment Income (Loss) to Average Net Assets 0.76% 0.59%* 0.98% .17% Portfolio Turnover Rate 69% 69% 67% 56% ELEVEN MONTHS ENDED SEPTEMBER 30, 1997(b) -------------------------------------------------------- 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) 6.35 ------------ Total From Investment Operations: 6.34 Less Distributions: Dividends (from net investment income) 0 Distributions (from capital gains) 0 ------------ Total Distributions 0 ------------ Net Asset Value, End of Period $ 16.34 ============ Total Return 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 514.2 Ratio of Expenses to Average Net Assets 1.12%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.11)%* Portfolio Turnover Rate 37%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was December 31, 1999. (b) A move to a September 30th fiscal year end from an October 31st fiscal year end resulted in an eleven-month fiscal year in 1997. 66 THE OAKMARK FAMILY OF FUNDS ------------------------------------------------------------------------------ THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------------ FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.88 $ 12.63 $ 20.34 Income From Investment Operations: Net Investment Income (Loss) 0.00 0.14 (0.12) Net Gains or Losses on Securities (both realized and unrealized) 1.22 1.20 (4.73) --------- --------- --------- Total From Investment Operations: 1.22 1.34 (4.85) Less Distributions: Dividends (from net investment income) 0.00 0.00 0 Distributions (from capital gains) 0.00 (0.09) (2.86) --------- --------- --------- Total Distributions 0.00 (0.09) (2.86) --------- --------- --------- Net Asset Value, End of Period $ 15.10 $ 13.88 $ 12.63 ========= ========= ========= Total Return 8.79% 10.56% (26.37%) Ratios/Supplemental Data: Net Assets, End of Period ($million) $248.7 $437.1 $618.0 Ratio of Expenses to Average Net Assets 1.50%(a) 1.48% 1.45% Ratio of Net Investment Income (Loss) to Average Net Assets (0.41)%(a) (0.44)% (0.40)% Portfolio Turnover Rate 28% 68% 34% ELEVEN MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1997(b) OCTOBER 31, 1996 ------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) 7.16 3.21 ------------ ----------- Total From Investment Operations: 7.15 3.19 Less Distributions: Dividends (from net investment income) 0 0 Distributions (from capital gains) 0 0 ------------ ----------- Total Distributions 0 0 ------------ ----------- Net Asset Value, End of Period $ 20.34 $ 13.19 ============ =========== Total Return 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 1,513.4 $ 218.4 Ratio of Expenses to Average Net Assets 1.37%* 1.61% Ratio of Net Investment Income (Loss) to Average Net Assets (0.25)%* (0.29)% Portfolio Turnover Rate 27% 23%
* Data has been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
September 30, 2000 -------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.59% Ratio of Net Income (Loss) to Average Net Assets (0.50)%
(b) A move to a September 30th fiscal year end from an October 31st fiscal year end resulted in an eleven-month fiscal year in 1997. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 67 -------------------------------------------------------------------------------- THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
JULY 13, 2000 YEAR ENDED THROUGH ELEVEN MONTHS SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED YEAR ENDED ENDED YEAR ENDED 2000 2000 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, CLASS I CLASS II (a) 1999 1998 1997(c) 1996 ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 15.68 $ 15.51 $ 13.99 $ 14.49 $ 11.29 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.35 0.30 0.39 0.29 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 2.28 0.68 1.72 0.04 3.24 1.19 -------- -------- -------- --------- --------- --------- Total From Investment Operations: 2.63 0.98 2.11 0.33 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.45) 0.00 (0.21) (0.24) (0.12) 0 Distributions (from capital gains) (1.36) 0.00 (0.21) (0.59) (0.13) 0 -------- -------- -------- --------- --------- --------- Total Distributions (1.81) 0.00 (0.42) (0.83) (0.25) 0 -------- -------- -------- --------- --------- --------- Net Asset Value, End of Period $ 16.50 $ 16.49 $ 15.68 $ 13.99 $ 14.49 $ 11.29 ======== ======== ======== ========= ========= ========= Total Return 18.51% 30.34%* 15.32% 2.57% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 54.5 $ 0.4 $ 60.3 $ 57.7 $ 33.5 $ 13.8 Ratio of Expenses to Average Net Assets 1.24% 1.32%* 1.18% 1.31% 1.50%*(b) 2.50%(b) Ratio of Net Investment Income (Loss) to Average Net Assets 3.04% 2.59%* 2.65% 2.39% 2.38%*(b) 1.21%(b) Portfolio Turnover Rate 87% 87% 81% 46% 53% 66%
*Data has been annualized. (a) The date which Class II shares were first sold to the public was July 13, 2000. (b) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
September 30, October 31, 1997 1996 --------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.70% 2.64% Ratio of Net Income (Loss) to Average Net Assets 2.18% 1.08%
(c) A move to a September 30th fiscal year end from an October 31st fiscal year end resulted in an eleven-month fiscal year in 1997. 68 THE OAKMARK FAMILY OF FUNDS -------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999(a) --------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 9.18 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.11 0.01 Net Gains or Losses on Securities (both realized and unrealized) 1.63 (0.83) ------- ------ Total From Investment Operations: 1.74 (0.82) Less Distributions: Dividends (from net investment income) (0.01) 0.00 Distributions (from capital gains) 0.00 0.00 ------- ------ Total Distributions (0.01) 0.00 ------- ------ Net Asset Value, End of Period $10.91 $ 9.18 ======= ====== Total Return 18.97% (51.60%)* Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 27.2 $ 24.0 Ratio of Expenses to Average Net Assets 1.75%(b) 1.75%*(b) Ratio of Net Investment Income (Loss) to Average Net Assets 0.54%(b) 0.98%*(b) Portfolio Turnover Rate 147% 7%
*Data has been annualized. (a) The date which Fund shares were first offered for sale to the public was August 4, 1999. (b) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
September 30, September 30, 2000 1999 --------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.96% 2.22% Ratio of Net Income (Loss) to Average Net Assets 0.34% 0.51%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 69 -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED NOVEMBER 4, ELEVEN MONTHS SEPTEMBER 30, 1999, THROUGH YEAR ENDED YEAR ENDED ENDED 2000 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I 2000 CLASS II(a) 1999 1998 1997(c) -------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning Of Period $ 13.95 $ 14.36 $ 10.42 $ 18.77 $ 14.92 Income From Investment Operations: Net Investment Income (Loss) 1.02 0.96 (0.34) 0.41 0.27 Net Gains or Losses on Securities (both realized and unrealized) 0.92 0.54 4.89 (5.32) 3.74 -------- -------- -------- -------- ------- Total From Investment Operations: 1.94 1.50 4.55 (4.91) 4.01 Less Distributions: Dividends (from net investment income) (0.49) (0.49) (0.24) (0.58) (0.16) Distributions (from capital gains) 0.00 0.00 (0.78) (2.86) 0 -------- -------- -------- -------- ------- Total Distributions (0.49) (0.49) (1.02) (3.44) (0.16) -------- -------- -------- -------- ------- Net Asset Value, End of Period $ 15.40 $ 15.37 $ 13.95 $ 10.42 $ 18.77 ======== ======== ======== ======== ======= Total Return 14.27% 11.77%* 46.41% (29.90)% 29.63%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 782.4 $ 0.1 $ 811.1 $ 756.1 $1,647.3 Ratio of Expenses to Average Net Assets 1.30% 1.50%* 1.29% 1.32% 1.26%* Ratio of Net Investment Income (Loss) to Average Net Assets 1.87% 1.98%* 1.94% 1.95% 2.09%* Portfolio Turnover Rate 64% 64% 54% 43% 61% YEAR ENDED OCTOBER 31, PERIOD ENDED ----------------------------------------- OCTOBER 31, 1996 1995 1994 1993 1992(b) ------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning Of Period $ 12.97 $ 14.50 $ 14.09 $ 9.80 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.09 0.30 0.21 0.06 0.26 Net Gains or Losses on Securities (both realized and unrealized) 2.90 (0.77) 0.43 4.48 (0.46) -------- --------- --------- -------- --------- Total From Investment Operations: 2.99 (0.47) 0.64 4.54 (0.2) Less Distributions: Dividends (from net investment income) 0 0 (0.08) (0.25) 0 Distributions (from capital gains) (1.04) (1.06) (0.15) 0 0 -------- --------- --------- -------- --------- Total Distributions (1.04) (1.06) (0.23) (0.25) 0 -------- --------- --------- -------- --------- Net Asset Value, End of Period $ 14.92 $ 12.97 $ 14.50 $ 14.09 $ 9.80 ======== ========= ========= ======== ========= Total Return 24.90% (3.06)% 4.62% 47.49% (22.81)%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,172.8 $ 819.7 $ 1,286.0 $ 815.4 $ 23.5 Ratio of Expenses to Average Net Assets 1.32% 1.40% 1.37% 1.26% 2.04%* Ratio of Net Investment Income (Loss) to Average Net Assets 1.45% 1.40% 1.44% 1.55% 37.02%* Portfolio Turnover Rate 42% 26% 55% 21% 0%
*Data has been annualized. (a) The date which Class II shares were first sold to the public was November 4, 1999. (b) The date which Fund shares were first offered for sale to the public was September 30, 1992. (c) A move to a September 30th fiscal year end from an October 31st fiscal year end resulted in an eleven-month fiscal year in 1997. 70 THE OAKMARK FAMILY OF FUNDS -------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997(b) OCTOBER 31, 1996 ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 12.64 $ 6.89 $ 12.20 $ 11.41 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.23 0.24 0.18 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) (0.66) 5.71 (4.09) 1.10 1.37 ---------- -------- --------- ---------- --------- Total From Investment Operations: (0.43) 5.95 (3.91) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.11) (0.20) (0.06) (0.08) 0 Distributions (from capital gains) (0.59) 0.00 (1.34) (0.36) 0 ---------- -------- --------- ---------- --------- Total Distributions (0.70) (0.20) (1.40) (0.44) 0 ---------- -------- --------- ---------- --------- Net Asset Value, End of Period $ 11.51 $ 12.64 $ 6.89 $ 12.20 $ 11.41 ========== ======== ========= ========== ========= Total Return (3.44)% 88.02% (35.20)% 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 90.3 $ 155.4 $51.8 $66.0 $39.8 Ratio of Expenses to Average Net Assets 1.76% 1.79% 1.96% 1.93%* 2.50%(a) Ratio of Net Investment Income (Loss) to Average Net Assets 1.98% 2.31% 2.17% 1.23%* 0.65%(a) Portfolio Turnover Rate 40% 126% 69% 63% 27%
*Data has been annualized. (a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
October 31, 1996 ------------------------------------------------------------------------------------------------------------------------------------ Ratio of Expenses to Average Net Assets 2.65% Ratio of Net Income (Loss) to Average Net Assets 0.50%
(b) A move to a September 30th fiscal year end from an October 31st fiscal year end resulted in an eleven-month fiscal year in 1997. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 71 THE OAKMARK FAMILY OF FUNDS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS -------------------------------------------------------------------------------- TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF HARRIS ASSOCIATES INVESTMENT TRUST: WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (EACH A SERIES OF HARRIS ASSOCIATES INVESTMENT TRUST), INCLUDING THE SCHEDULES OF INVESTMENTS ON PAGES 5-7, 11-12, 16-18, 22-25, 30-32, 37-40 AND 45-48, AS OF SEPTEMBER 30, 2000, AND THE RELATED STATEMENTS OF OPERATIONS, STATEMENTS OF CHANGES IN NET ASSETS AND THE FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON. THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE THE RESPONSIBILITY OF THE TRUST'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS. WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES INCLUDED CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 2000, BY CORRESPONDENCE WITH THE CUSTODIAN AND BROKERS. AS TO SECURITIES PURCHASED BUT NOT RECEIVED, WE REQUESTED CONFIRMATION FROM BROKERS, AND WHEN REPLIES WERE NOT RECEIVED, WE CARRIED OUT ALTERNATIVE AUDITING PROCEDURES. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION. IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITIONS OF THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND OF THE HARRIS ASSOCIATES INVESTMENT TRUST AS OF SEPTEMBER 30, 2000, THE RESULTS OF THEIR OPERATIONS, THE CHANGES IN THEIR NET ASSETS, AND THEIR FINANCIAL HIGHLIGHTS FOR THE PERIODS INDICATED THEREON IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES. ARTHUR ANDERSEN LLP Chicago, Illinois October 26, 2000 72 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 James P. Benson--VICE PRESIDENT Henry R. Berghoef--VICE PRESIDENT Kevin G. Grant--VICE PRESIDENT David G. Herro--VICE PRESIDENT Gregory L. Jackson--VICE PRESIDENT Clyde S. McGregor--VICE PRESIDENT William C. Nygren--VICE PRESIDENT Edward A. Studzinski--VICE PRESIDENT Michael J. Welsh--VICE PRESIDENT Anita M. Nagler--SECRETARY Ann W. Regan--VICE PRESIDENT-- SHAREHOLDER OPERATIONS AND ASSISTANT SECRETARY Kristi L. Rowsell--TREASURER John J. Kane--ASSISTANT TREASURER OTHER INFORMATION INVESTMENT ADVISER Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602-3790 TRANSFER AGENT Nvest Services Company, Inc. 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) or 617-578-1329 WEBSITE www.oakmark.com 24-HOUR NAV HOTLINE 1-800-GROWOAK (1-800-476-9625) E-MAIL ADDRESS ServiceComments@oakmark.com This report, including the audited 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. P.O. BOX 8510 BOSTON, MA 02266-8510 [LOGO] 1-800-OAKMARK www.oakmark.com OARKMARK SELECT FUND CLASS II SHARES CUMULATIVE RETURN: $10,000 INVESTMENT TOTAL RETURN SINCE INCEPTION (12/31/99): 16.18%
Oakmark Select S&P 500 class II shares W/INC Dec-99 $10,000.00 $10,000.00 Jan-00 $9,457.00 $10,261.00 Feb-00 $9,549.00 $10,067.00 Mar-00 $10,885.00 $11,052.00 Apr-00 $10,847.00 $10,719.00 May-00 $10,939.00 $10,500.00 Jun-00 $10,309.00 $10,758.00 Jul-00 $10,651.00 $10,590.00 Aug-00 $11,520.00 $11,248.00 Sep-00 $11,618.00 $10,654.00
OAKMARK INTERNATIONAL FUND CLASS II SHARES CUMULATIVE RETURN: $10,000 INVESTMENT TOTAL RETURN SINCE INCEPTION (11/04/99): 10.79%
Oakmark International class II MSCI shares WORLD EX U.S. Oct-99 $10,000.00 $10,000.00 Nov-99 $9,825.00 $10,350.00 Dec-99 $10,596.00 $11,301.00 Jan-00 $10,286.00 $10,615.00 Feb-00 $9,991.00 $10,916.00 Mar-00 $10,567.00 $11,364.00 Apr-00 $10,366.00 $10,774.00 May-00 $10,632.00 $10,513.00 Jun-00 $11,303.00 $10,967.00 Jul-00 $11,108.00 $10,548.00 Aug-00 $11,274.00 $10,686.00 Sep-00 $11,079.00 $10,132.00