N-30D 1 a2045334zn-30d.txt N-30D [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 SEMI-ANNUAL REPORT MARCH 31, 2001 ADVISED BY HARRIS ASSOCIATES L.P. [OAKMARK FAMILY OF FUNDS LOGO] THE OAKMARK FAMILY OF FUNDS 2001 SEMI-ANNUAL REPORT ...............................................................................
LETTER FROM THE PRESIDENT ................................................. 2 THE OAKMARK FUND Letter from the Portfolio Managers ..................................... 3 Schedule of Investments ................................................ 6 THE OAKMARK SELECT FUND Letter from the Portfolio Managers ..................................... 10 Schedule of Investments ................................................ 13 THE OAKMARK SMALL CAP FUND Letter from the Portfolio Managers ..................................... 15 Schedule of Investments ................................................ 18 THE OAKMARK EQUITY AND INCOME FUND Letter from the Portfolio Managers ..................................... 21 Schedule of Investments ................................................ 24 THE OAKMARK GLOBAL FUND Letter from the Portfolio Managers ..................................... 28 Global Diversification Chart ........................................... 31 Schedule of Investments ................................................ 32 THE OAKMARK INTERNATIONAL FUND Letter from the Portfolio Managers ..................................... 36 International Diversification Chart .................................... 39 Schedule of Investments ................................................ 40 THE OAKMARK INTERNATIONAL SMALL CAP FUND Letter from the Portfolio Managers ..................................... 45 International Diversification Chart .................................... 48 Schedule of Investments ................................................ 49 FINANCIAL STATEMENTS Statement of Assets and Liabilities .................................... 54 Statement of Operations ................................................ 56 Statement of Changes in Net Assets ..................................... 58 Notes to Financial Statements .......................................... 65 TRUSTEES AND OFFICERS ..................................................... 81
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) 449-6274. 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. DOONESBURY BY G.B. TRUDEAU [GRAPHIC] DOONESBURY(C) 2001 G.B. TRUDEAU. REPRINTED WITH PERMISSION OF UNIVERSAL PRESS SYNDICATE. ALL RIGHTS RESERVED. Turn the page for a First Quarter Update from the President -------------> 1 LETTER FROM THE PRESIDENT ................................................................................ DEAR FELLOW SHAREHOLDERS, We are pleased that our disciplined investment style continues to reward our shareholders. Investors who remained committed to value outperformed once again in the first quarter, as the market continued to favor reasonably priced companies. The correction that many companies experienced last year--and this year--accentuates our belief that stock price will ultimately reflect underlying business value. The past quarter has been a robust period for value investors, and we believe this strength is sustainable for the foreseeable future. Valuations continue to be attractive, and the quality of our holdings--and our confidence in them--remains strong. We have often talked about the depth of our firm's investment talent. The following two paragraphs, which address overall market conditions, include excerpts from a letter written by portfolio manager Ed Loeb, one of our partners: As of late, it's been hard to avoid hearing that dreaded word: recession. Whether we are in a recession or not, the combination of high stock prices, speculation and overly optimistic forecasts created a froth that inevitably had to correct itself (as difficult as that may be for investors). The U.S. economy is by no means perfect, but an extended downturn is unlikely given the economy's breadth, the self-correcting nature of the stock market and an attentive Federal Reserve Board. From our perspective, the events of the past year were not surprising. An uncertain atmosphere is the hallmark of any rapid stock market decline. This is precisely when bottom-up, fundamental analysis and a focus on risk can protect portfolios and provide attractive long-term investment returns. We remain committed to our core value philosophy, open-minded to new ideas and opportunistic in this uncertain environment. Technology companies are becoming of interest to value investors, and we are selectively looking at tech stocks -- at the right price and right valuation. A year ago we were investing in companies that employed technology to make their business model better. Now, we are investigating companies that are direct plays on technology. However, while these stocks have fallen significantly from recent highs, we still believe that, as a whole, technology is relatively overvalued. [PHOTO OF ROBERT M. LEVY] We are pleased to announce that toward the end of summer 2001, current shareholders and new investors will be able to open new accounts online. Through a secure area of oakmark.com, investors can complete an online agreement and account application, and have money electronically transferred from their personal bank account to open a new Oakmark account. We remain dedicated to website enhancements that make investing easier and help keep you informed. We are excited about the opportunities being presented to us as value investors, and we want to thank you for your continued trust. /s/ Robert M. Levy ROBERT M. LEVY PRESIDENT April 4, 2001 [OAKMARK FAMILY OF FUNDS LOGO] 2 THE OAKMARK FUND REPORT FROM BILL NYGREN AND KEVIN GRANT, PORTFOLIO MANAGERS ------------------------------------------------------------------------------- [PHOTO OF BILL NYGREN] [PHOTO OF KEVIN GRANT] ------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (3/31/01) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(1) [CHART]
THE OAKMARK FUND S&P 500 08/01/91 $10,000 $10,000 12/31/91 $13,020 $10,909 03/31/92 $14,690 $10,634 06/30/92 $15,230 $10,836 09/30/92 $16,800 $11,178 12/31/92 $19,386 $11,741 03/31/93 $20,927 $12,253 06/30/93 $21,494 $12,313 09/30/93 $23,095 $12,631 12/31/93 $25,300 $12,924 03/31/94 $24,242 $12,434 06/30/94 $24,951 $12,486 09/30/94 $26,663 $13,097 12/31/94 $26,138 $13,095 03/31/95 $28,539 $14,370 06/30/95 $30,303 $15,741 09/30/95 $32,841 $16,992 12/31/95 $35,134 $18,015 03/31/96 $36,386 $18,982 06/30/96 $37,661 $19,834 09/30/96 $37,945 $20,447 12/31/96 $40,828 $22,152 03/31/97 $42,456 $22,746 06/30/97 $48,917 $26,716 09/30/97 $52,009 $28,717 12/31/97 $54,132 $29,542 03/31/98 $59,517 $33,663 06/30/98 $57,909 $34,775 09/30/98 $49,899 $31,316 12/31/98 $56,155 $37,985 03/31/99 $55,888 $39,877 06/30/99 $62,332 $42,688 09/30/99 $53,882 $40,023 12/31/99 $50,277 $45,977 03/31/00 $45,767 $47,032 06/30/00 $46,950 $45,783 09/30/00 $49,815 $45,339 12/31/00 $56,201 $41,791 03/31/01 $60,342 $36,837
3/31/01 NAV(2) $32.20 AVERAGE ANNUAL TOTAL RETURN(3) THROUGH 3/31/01 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS* 8/5/91 ----------------------------------------------------------------------------------------------- THE OAKMARK FUND 7.37% 20.45% Standard & Poor's 500 Stock Index w/inc -11.86% 14.45% Dow Jones Industrial Average w/inc(4) -8.00% 15.63% Lipper Large Cap Value Fund Index(5) -7.76% 13.72%
*Not annualized. The Oakmark Fund increased 7% for the quarter ended March 31, marking four consecutive quarters during which the Fund increased in value while the S&P 500 declined. Over those four quarters, The Oakmark Fund has increased in value by 32% while the S&P 500 has declined by 22%. Also during the last quarter, The Oakmark Fund achieved a new all-time high price, adjusted for distributions. As other funds report losses of capital, we are especially pleased to report to our loyal shareholders that we reached new high ground. Some people refer to value investing as an ugly way to invest, but as Penn State's football coach, Joe Paterno, said, "I get a kick out of people saying, you're winning ugly. I think you end with the word win." Over the past year, investors' renewed focus on business value contributed to much of our success. Corporate buyers specifically have continued to buy undervalued companies. Although we never select stocks based on acquisition possibilities, our selection criteria often overlap with merger and acquisition departments' criteria. Like us, they search out undervalued, yet growing, businesses that are led by owner-oriented management. During the last quarter, Nestle agreed to purchase one of our holdings, Ralston Purina, for $33.50 per share. Prior to that announcement, Ralston stock traded below $25. Ralston's dominant pet food brands combined with Nestle's size should increase sales while decreasing costs, creating a powerhouse. Congratulations to CEO, Pat McInnis, for finding the right partner to maximize Ralston's value. THE OAKMARK FUND 3 ------------------------------------------------------------------------------- Five of Oakmark's fifty holdings were acquired in the last twelve months: Ralston, Union Pacific Resources, Nabisco, Fort James and ACNielsen. Each transaction paid shareholders substantial premiums to pre-acquisition stock prices, thereby contributing significantly to our strong returns. Although a 10% acquisition rate is unusual, we expect acquisitions to continue to benefit the Fund over the long term. When the stock market doesn't care about undervalued companies, corporate buyers exploit the opportunity, and we benefit. Last quarter, we added seven new holdings to the portfolio -- all old-line companies, except for Motorola. We continue to find most technology companies too expensive compared to non-technology stocks. Despite the NASDAQ(6) 100's 66% decline since its peak, the median P/E(7) ratio on those stocks is 50x, still about two-and-a-half times the median P/E ratio of the S&P 500. Here are brief descriptions of our new names:
------------------------------------------------------------- TOTAL RETURNS AS OF MARCH 31, 2001 ------------------------------------------------------------- 3 Months* 7.37% ------------------------------------------------------------- 6 Months* 21.13% ------------------------------------------------------------- 1 Year 31.85% -------------------------------------------------------------
*Not annualized
AVERAGE ANNUAL TOTAL RETURNS AS OF MARCH 31, 2001 ------------------------------------------------------ 3 Year 0.46% ------------------------------------------------------ 5 Year 10.64% ------------------------------------------------------ Since inception 20.45% ------------------------------------------------------
BURLINGTON RESOURCES (BR--45) CONOCO (COC'A--28) Typically, we find opportunities when the market overreacts to negative news. However, we believe the stock prices of Burlington Resources and Conoco under-reacted to favorable news: higher energy prices. At the end of 1998, a barrel of oil sold for $18 on the long-term futures market, and a thousand cubic feet of natural gas sold at just over $2. Today, the long-term oil price has risen to $21, and the price of natural gas has doubled. Therefore, the profitability of oil and gas producers, like Burlington Resources and Conoco, is now much higher than a couple of years ago. At the end of 1998, Burlington Resources sold at $36, and Conoco sold at $21. Though both stocks have risen, we believe their stock prices still do not reflect their increased business values. -------------------------------------------------------------------------------- HIGHLIGHTS - The Fund increased 7% for the quarter ended March 31, marking four consecutive quarters during which the Fund increased in value while the S&P 500 declined. - Our stock selection criteria often overlap with Merger and Acquisition departments' criteria. When the stock market doesn't care about undervalued companies, corporate buyers exploit the opportunity, and we benefit. - Taxable investors should note that our undistributed realized loss is $3.95 per share. That practically guarantees no capital gain distribution again this year. -------------------------------------------------------------------------------- CLOROX (CLX--31) Due largely to unexpected costs from Clorox's acquisition of First Brands, its stock has fallen from $66 in early 1999. We believe Clorox is among the best managed, highest quality consumer product companies, so its current price of just over 16x estimated calendar 2001 cash earnings appears very attractive. MOTOROLA (MOT--14) As Motorola lost its position as the leading cellular telephone manufacturer, its stock fell from a peak of $61 last spring. Excluding the still-valuable cellular phone business, we estimate that Motorola's other businesses alone justify its current stock price. Although fear and 4 THE OAKMARK FUND ------------------------------------------------------------------------------- embarrassment aren't our favorite motivators, intense shareholder pressure has caused CEO Chris Galvin to become more focused on rebuilding Motorola's value.
-------------------------------------------------------------------------------- TOP FIVE INDUSTRIES AS OF MARCH 31, 2001 -------------------------------------------------------------------------------- INDUSTRIES Retail 11.9% AND % OF Other Consumer Goods TOTAL NET and Services 10.4% ASSETS Household Products 5.9% Computer Services 5.8% Telecommunications 4.4% --------------------------------------------------------------------------------
PARK PLACE ENTERTAINMENT (PPE--10) The world's largest casino company, Park Place Entertainment, was spun-off from Hilton in late 1998. It owns casinos that use the brand names Hilton, Bally's, and Caesar's World. Despite its higher earnings, its stock fell from a high last year of $15. Park Place currently trades at just over 11x estimated 2001 cash earnings.
-------------------------------------------------------------------------------- TOP FIVE HOLDINGS(25) AS MARCH 31, 2001 -------------------------------------------------------------------------------- COMPANY Washington Mutual, Inc. 3.8% AND % OF Fortune Brands, Inc. 3.1% TOTAL NET Toys `R' Us, Inc. 3.0% ASSETS The Kroger Company 2.9% H&R Block, Inc. 2.7% --------------------------------------------------------------------------------
SPRINT (FON--22) Sprint stock peaked at $76 in 1999. Their exposure to the declining consumer long distance market has caused disappointing earnings and stock performance. Aside from long distance, Sprint also supplies local service for 8.3 million lines. Local lines have recently sold for $3,000 to $4,000 per line. Using the low end of that range, we estimate the value of Sprint's local business alone equals its current stock price. STARWOOD HOTELS & RESORTS (HOT--33) Starwood owns, manages, and franchises luxury hotels under brands such as Westin, Sheraton, and W. Starwood stock traded as high as $63 in 1997 and as low as $18 in 1998. Starwood's ability to increase rates, occupancy, and customer satisfaction is impressive. We also like CEO Barry Sternlicht's management of their hotel portfolio. When hotel buyers have been willing to pay trophy prices for specific Starwood properties, Sternlicht has been willing to part with them. Starwood sells at less than 7x cash flow while sales of luxury hotel properties have frequently occurred at over 10x cash flow. We are proud of the past year's results and believe our portfolio continues to be well-positioned for good absolute, as well as relative, returns. Taxable investors should note that our current undistributed realized loss is $3.95 per share. That means we are in a very favorable tax position and practically guarantees that like last year, we will have no capital gain distribution this year. Thank you for your continuing support. /s/ Bill Nygren WILLIAM C. NYGREN, CFA Portfolio Manager bnygren@oakmark.com /s/ Kevin Grant KEVIN G. GRANT, CFA Portfolio Manager kgrant@oakmark.com April 5, 2001 THE OAKMARK FUND 5 THE OAKMARK FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) --------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.4% FOOD & BEVERAGE--3.8% H.J. Heinz Company 1,360,000 $ 54,672,000 Sara Lee Corporation 1,907,400 41,161,692 -------------- 95,833,692 APPAREL--2.0% Jones Apparel Group, Inc. (a) 1,327,000 $ 50,160,600 RETAIL--11.9% Toys `R' Us, Inc. (a) 3,000,000 $ 75,300,000 The Kroger Co. (a) 2,875,000 74,146,250 J.C. Penney Company, Inc. 3,781,200 60,461,388 Tricon Global Restaurants, Inc. (a) 1,450,000 55,375,500 CVS Corporation 630,000 36,848,700 -------------- 302,131,838 HOUSEHOLD PRODUCTS--5.9% Newell Rubbermaid Inc. 1,800,000 $ 47,700,000 Energizer Holdings, Inc. (a) 1,546,400 38,660,000 The Clorox Company 1,210,000 38,054,500 The Dial Corporation 2,052,900 25,661,250 -------------- 150,075,750 HOUSEHOLD APPLIANCES--1.5% Maytag Corporation 1,160,400 $ 37,422,900 OFFICE EQUIPMENT--0.9% Xerox Corporation 3,850,000 $ 23,061,500 HARDWARE--3.8% The Black & Decker Corporation 1,522,200 $ 55,940,850 The Stanley Works 1,224,900 40,360,455 -------------- 96,301,305 OTHER CONSUMER GOODS & SERVICES--10.4% Fortune Brands, Inc. 2,273,000 $ 78,191,200 H&R Block, Inc. 1,340,300 67,095,418 Cendant Corporation (a) 4,195,100 61,206,509 Mattel, Inc. 3,146,700 55,822,458 -------------- 262,315,585 BANK & THRIFTS--3.8% Washington Mutual, Inc. 1,750,000 $ 95,812,500 INSURANCE--1.9% MGIC Investment Corporation 700,000 $ 47,894,000
6 THE OAKMARK FUND THE OAKMARK FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. --------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.4% (CONT.) HOTELS & MOTELS--1.0% Starwood Hotels & Resorts Worldwide, Inc. 726,600 $ 24,711,666 INFORMATION SERVICES--4.4% Equifax Inc. 1,520,500 $ 47,515,625 Moody's Corporation 1,489,400 41,047,864 The Dun & Bradstreet Corporation (a) 953,750 22,470,350 -------------- 111,033,839 COMPUTER SERVICES--5.8% First Data Corporation 1,040,000 $ 62,098,400 Electronic Data Systems Corporation 940,000 52,508,400 SunGard Data Systems Inc. (a) 640,800 31,546,584 -------------- 146,153,384 SEMICONDUCTORS--1.1% Teradyne, Inc. (a) 850,000 $ 28,050,000 TELECOMMUNICATIONS--4.4% AT&T Corp. 3,025,000 $ 64,432,500 Citizens Communications Company (a) 2,650,000 33,522,500 Sprint Corporation 636,000 13,985,640 -------------- 111,940,640 TELECOMMUNICATIONS EQUIPMENT--1.4% Motorola, Inc. 2,400,000 $ 34,224,000 TV PROGRAMMING--1.8% AT&T Corp. - Liberty Media Group, Class A (a) 3,200,000 $ 44,800,000 PUBLISHING--3.1% Knight-Ridder, Inc. 977,000 $ 52,474,670 Gannett Co., Inc. 434,500 25,948,340 -------------- 78,423,010 PHARMACEUTICALS--1.4% Chiron Corporation (a) 824,000 $ 36,153,000 MEDICAL PRODUCTS--0.8% Apogent Technologies Inc. (a) 1,011,700 $ 20,476,808 AUTOMOBILES--2.2% Ford Motor Company 1,500,000 $ 42,180,000 DaimlerChrysler AG (b) 300,000 13,374,000 -------------- 55,554,000
THE OAKMARK FUND 7 THE OAKMARK FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. --------------------------------------------------------------------------------
Shares Held/ Par Value Market Value ------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.4% (CONT.) AEROSPACE & DEFENSE--3.1% The B.F. Goodrich Company 1,120,000 $ 42,974,400 Lockheed Martin Corporation 1,000,000 35,650,000 -------------- 78,624,400 INSTRUMENTS--1.5% Rockwell International Corporation 1,067,300 $ 38,796,355 MACHINERY & INDUSTRIAL PROCESSING--2.9% Eaton Corporation 602,900 $ 41,298,650 Cooper Industries, Inc. 929,400 31,088,430 -------------- 72,387,080 BUILDING MATERIALS & CONSTRUCTION--1.8% Masco Corporation 1,933,000 $ 46,662,620 UTILITIES--2.2% TXU Corp. 1,315,000 $ 54,335,800 OIL & NATURAL GAS--3.3% Burlington Resources Inc. 1,150,000 $ 51,462,500 Conoco Inc., Class A 1,100,000 30,910,000 -------------- 82,372,500 DIVERSIFIED CONGLOMERATES--2.2% Textron, Inc. 1,000,000 $ 56,840,000 RECREATION & ENTERTAINMENT--4.1% Brunswick Corporation 3,076,700 $ 60,395,621 Carnival Corporation 800,000 22,136,000 Park Place Entertainment Corporation (a) 2,100,000 21,525,000 -------------- 104,056,621 TOTAL COMMON STOCKS (COST: $1,999,806,396) 2,386,605,393 SHORT TERM INVESTMENTS--5.9% U.S. GOVERNMENT BILLS--1.5% United States Treasury Bills, 4.77% - 6.03% due 5/17/2001- 7/26/2001 $40,000,000 $ 39,627,600 TOTAL U.S. GOVERNMENT BILLS (COST: $39,538,500) 39,627,600 COMMERCIAL PAPER--2.8% American Express Credit Corporation, 4.95% due 4/3/2001 $20,000,000 $ 20,000,000 General Electric Capital Corporation, 5.35% due 4/2/2001 50,000,000 50,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $70,000,000) 70,000,000
8 THE OAKMARK FUND THE OAKMARK FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. --------------------------------------------------------------------------------
Par Value Market Value ------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS--5.9% (CONT.) REPURCHASE AGREEMENTS--1.6% State Street Repurchase Agreement, 5.18% due 4/2/2001 $40,220,000 $ 40,220,000 TOTAL REPURCHASE AGREEMENTS (COST: $40,220,000) 40,220,000 TOTAL SHORT TERM INVESTMENTS (COST: $149,758,500) 149,847,600 Total Investments (Cost $2,149,564,896)--100.3% (c) $2,536,452,993 Other Liabilities In Excess Of Other Assets--(0.3)% (7,384,741) -------------- TOTAL NET ASSETS--100% $2,529,068,252 ==============
(a) Non-income producing security. (b) Represents foreign domiciled corporation. (c) At March 31, 2001, net unrealized appreciation of $386,888,097, for federal income tax purposes, consisted of gross unrealized appreciation of $458,277,204 and gross unrealized depreciation of $71,389,107. THE OAKMARK FUND 9 THE OAKMARK SELECT FUND REPORT FROM BILL NYGREN AND HENRY BERGHOEF, PORTFOLIO MANAGERS ------------------------------------------------------------------------------- [PHOTO OF BILL NYGREN] [PHOTO OF HENRY BERGHOEF] ------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (3/31/01) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(1) [CHART]
THE OAKMARK SELECT FUND S&P 500 ----------- ------- 10/31/96 $10,000 $10,000 12/31/96 $11,420 $10,543 03/31/97 $12,140 $10,826 06/30/97 $14,180 $12,715 09/30/97 $16,340 $13,668 12/31/97 $17,704 $14,060 03/31/98 $20,078 $16,021 06/30/98 $20,462 $16,551 09/30/98 $16,936 $14,904 12/31/98 $20,575 $18,078 03/31/99 $22,766 $18,979 06/30/99 $24,482 $20,317 09/30/99 $22,028 $19,048 12/31/99 $23,557 $21,882 03/31/00 $25,667 $22,384 06/30/00 $24,324 $21,790 09/30/00 $27,432 $21,578 12/31/00 $29,637 $19,890 03/31/01 $32,826 $17,532
3/31/01 NAV(2) $23.98
AVERAGE ANNUAL TOTAL RETURN(3) THROUGH 3/31/01 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS* 11/1/96 ------------------------------------------------------------------------------------- THE OAKMARK SELECT FUND 10.76% 30.88% Standard & Poor's 500 Stock Index w/inc -11.86% 13.56% Standard & Poor's MidCap 400 Index w/inc(8) -10.77% 17.04% Lipper Mid Cap Value Fund Index(9) -3.86% 9.95%
*Not annualized. The Oakmark Select Fund gained 11% last quarter and 28% in the last year. These returns are very good in both absolute and relative terms. In fact, for the quarter, the most relevant indices the S&P Mid Cap 400 and the S&P 500 lost 11% and 12% respectively. Our second largest position, Toys 'R' Us, gained 50% this quarter and had the greatest impact on our performance. Excellent Christmas sales in a tough retail environment highlighted their successful remodeling and remerchandising effort. Despite the price gain, we haven't sold a share. We continue to believe Toys 'R' Us is undervalued relative to the earnings that should be achieved when the turnaround is complete. Further, we expect increased investor interest this fall when Toys 'R' Us opens its new flagship store in Times Square. As both shareholders and consumers, we can't wait! Media reports about the stock market decline in both the quarter and year sound miserable. The CHICAGO TRIBUNE'S quarter-end business section headline reads "The Longest Quarter, 3 Months of Misery." Yes, it was tough -- last quarter the S&P 500 fell 12% and the NASDAQ(6) fell more than twice that. For the trailing year, the S&P 500 is off over 20% and the NASDAQ is off 60%. But one has to be careful in drawing conclusions from these numbers. Large capitalization stocks are given the highest weightings in these market indices. In 1998 and 1999, large capitalization stocks were the top performers, which caused large gains in the market indices. Over the last year, there has been a reversal -- the largest capitalization stocks have been the worst performers. If the 10 THE OAKMARK SELECT FUND -------------------------------------------------------------------------------
TOTAL RETURNS(10) MARCH 31, 2001 ------------------------------------------------------ 3 Months* 10.76% ------------------------------------------------------ 6 Months* 19.66% ------------------------------------------------------ 1 Year 27.89% ------------------------------------------------------ *Not annualized. AVERAGE ANNUAL TOTAL RETURNS(10) MARCH 31, 2001 ------------------------------------------------------ 3 Year 17.79% ------------------------------------------------------ 5 Year N/A ------------------------------------------------------ Since inception 30.88% ------------------------------------------------------
S&P 500 stocks were weighted equally instead of by market capitalization, the S&P would have lost only 3% last quarter, and would actually have gained 6% over the last year. Because we don't weight our positions based on their market capitalizations, our performance is more strongly influenced by how the median stock performs than by how the market averages perform. So, we continue to be out-of-sync with this market. A year ago, we talked about incredible values while the media focused on indices at new highs. Now the media is focused on lost fortunes, while we look back at a very good year and current valuations that are just a little less attractive than a year ago. Sometimes, being out of sync isn't so bad! SELLING In our quarterlies, we normally focus on our buys rather than our sells. Last quarter, we sold more stocks than we bought, so we'd like to focus this report on our sales. We sell stocks for two different reasons. Our preferred reason to sell is when a stock price has reached our sell target, 90% of our estimated business value. Unfortunately, we also need to sell stocks when businesses perform worse than we anticipated. We have two examples of each. Last quarter, we finished selling Thermo Electron. We started buying Thermo in December 1998 and paid an average price of $16 per share. During the time we owned the stock, new CEO Dick Syron did a wonderful job simplifying the corporate structure and improving operating margins. But after gaining 60%, Thermo stock met our sell criteria, so it was sold. We also sold our position in MBIA. In March a year ago, our analyst Ed Studzinski was meeting with CEO Jay Brown at MBIA headquarters when the announcement broke that a competitor, FSA, was being acquired. The meeting convinced Ed that Jay is the type of CEO with whom we want to invest, and he also figured out that if MBIA were acquired in a deal similar to FSA, it would be worth twice its stock price. Our only mistake with MBIA was not buying more. We waited for our shares to go long-term and sold them for a gain of over 70%. HIGHLIGHTS - The Fund gained 11% last quarter, outperforming its relevent indices. - Toys 'R' Us, gained 50% this past quarter and had the greatest impact on our performance. Despite the price gain, however, we haven't sold a share. - The shareholder letter explains sales of Thermo Electron, MBIA, US Industries, and USG Corp. Our two other sales were our mistakes. We sold our position in US Industries at a substantial loss. We have high regard for the way CEO David Clark approached his job, managing a portfolio of businesses like an investor -- trying to buy low and sell high. However, it now appears that the quality of those business units is well below what we originally thought. Our last sale, USG Corp., was also at a large loss. We continue to admire CEO Bill Foote's excellent management of USG and the strength of their business. However, their losses from asbestos litigation greatly exceeded our estimates. Our midwestern common sense, normally a highly valuable asset, didn't help in the legal analysis. THE OAKMARK SELECT FUND 11 --------------------------------------------------------------------------------
TOP FIVE INDUSTRIES AS OF MARCH 31, 2001 --------------------------------------------------------- INDUSTRIES Banks & Thrifts 15.4% AND % OF Retail 15.3% TOTAL NET Information Services 10.2% ASSETS Other Consumer Goods and Services 9.7% Computer Services 8.5% ---------------------------------------------------------
While we hate selling at a loss, we have learned that often the best thing to do is to take the loss and move on. As Warren Buffett says, "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."
TOP FIVE HOLDINGS(25) AS OF MARCH 31, 2001 --------------------------------------------------------- COMPANY Washington Mutual, Inc. 15.4% AND % OF Toys 'R' Us, Inc. 7.8% TOTAL NET H&R Block, Inc. 6.1% ASSETS AT&T Corporation 4.8% First Data Corporation 4.3% ---------------------------------------------------------
Finally, we encourage you to be mindful of something sportscaster Beano Cook once said: "You only have to bat 1.000 in two things -- flying and heart transplants. Everything else you can go four for five." Fortunately for all of us, in investing, you don't even need four for five! Thank you for your support. /s/ Bill Nygren WILLIAM C. NYGREN Portfolio Manager bnygren@oakmark.com /s/ Henry Berghoef HENRY R. BERGHOEF, CFA Portfolio Manager berghoef@oakmark.com April 5, 2001 12 THE OAKMARK SELECT FUND THE OAKMARK SELECT FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) -------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------------------ COMMON STOCKS--91.8% APPAREL--3.6% Liz Claiborne, Inc. 2,373,200 $ 111,659,060 RETAIL--15.3% Toys 'R' Us, Inc. (a) 9,598,500 $ 240,922,350 Tricon Global Restaurants, Inc. (a) 3,215,400 122,796,126 Office Depot, Inc. (a) 12,546,000 109,777,500 -------------- 473,495,976 HOUSEHOLD PRODUCTS--3.6% Energizer Holdings, Inc. (a) 4,388,800 $ 109,720,000 OTHER CONSUMER GOODS & SERVICES--9.7% H&R Block, Inc. 3,769,400 $ 188,696,164 Mattel, Inc. 6,290,000 111,584,600 -------------- 300,280,764 BANK & THRIFTS--15.4% Washington Mutual, Inc. 8,679,800 $ 475,219,050 INFORMATION SERVICES--10.2% Moody's Corporation 4,143,600 $ 114,197,616 Ceridian Corporation 5,834,500 107,938,250 The Dun & Bradstreet Corporation (a) 3,940,700 92,842,892 -------------- 314,978,758 COMPUTER SERVICES--8.5% First Data Corporation 2,210,200 $ 131,971,042 Electronic Data Systems Corporation 2,347,400 131,125,764 -------------- 263,096,806 COMPUTER SOFTWARE--3.7% The Reynolds and Reynolds Company, Class A (b) 5,979,700 $ 115,109,225 TELECOMMUNICATIONS--6.5% AT&T Corp. 6,918,000 $ 147,353,400 Sprint Corporation 2,500,000 54,975,000 -------------- 202,328,400 PUBLISHING--4.3% Knight-Ridder, Inc. 2,450,000 $ 131,589,500 PHARMACEUTICALS--4.1% Chiron Corporation (a) 2,867,400 $ 125,807,175
THE OAKMARK SELECT FUND 13 THE OAKMARK SELECT FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. -------------------------------------------------------------------------------
Shares Held/ Par Value Market Value ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--91.8% (CONT.) AUTOMOTIVE--2.9% Visteon Corporation 5,984,400 $ 90,005,376 OIL & NATURAL GAS--4.0% Burlington Resources Inc. 2,750,000 $ 123,062,500 TOTAL COMMON STOCKS (COST: $2,203,925,848) 2,836,352,590 COMMON STOCKS SOLD SHORT--(1.5%) TELECOMMUNICATIONS--(1.5%) AT&T Wireless Group (2,500,000) $ (47,950,000) TOTAL COMMON STOCKS SOLD SHORT (PROCEEDS: $(49,357,331)) (47,950,000) SHORT TERM INVESTMENTS--7.7% U.S. GOVERNMENT BILLS--1.9% United States Treasury Bills, 4.59% - 6.03% due 5/17/2001 - 9/6/2001 $60,457,000 $ 59,723,288 TOTAL U.S. GOVERNMENT BILLS (COST: $59,598,208) 59,723,288 COMMERCIAL PAPER--3.6% American Express Credit Corporation, 4.94% - 5.15% due 4/2/2001 - 4/4/2001 $50,000,000 $ 50,000,000 General Electric Capital Corporation, 4.94% - 5.35% due 4/2/2001 60,000,000 60,000,000 -------------- TOTAL COMMERCIAL PAPER (COST: $110,000,000) 110,000,000 REPURCHASE AGREEMENTS--2.2% State Street Repurchase Agreement, 5.18% due 4/2/2001 $69,169,000 $ 69,169,000 TOTAL REPURCHASE AGREEMENTS (COST: $69,169,000) 69,169,000 TOTAL SHORT TERM INVESTMENTS (COST: $238,767,208) 238,892,288 Total Investments (Cost $2,393,335,725)--98.0% (c) $3,027,294,878 Other Assets In Excess Of Other Liabilities--2.0% 62,064,510 -------------- TOTAL NET ASSETS--100% $3,089,359,388 ==============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) At March 31, 2001, net unrealized appreciation of $633,959,153, for federal income tax purposes, consisted of gross unrealized appreciation of $649,430,630 and gross unrealized depreciation of $15,471,477. 14 THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND REPORT FROM JAMES P. BENSON AND CLYDE S. MCGREGOR, PORTFOLIO MANAGERS ------------------------------------------------------------------------------- [PHOTO OF JAMES P. BENSON] [PHOTO OF CLYDE S. MCGREGOR] ------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/01) AS COMPARED TO THE RUSSELL 2000 INDEX(11) [CHART]
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 12/31/2000 $17,471 $16,939 3/31/2001 $17,816 $16,335
3/31/01 NAV(2) $14.40
AVERAGE ANNUAL TOTAL RETURN(3) THROUGH 3/31/01 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS* 11/1/95 ------------------------------------------------------------------------------- THE OAKMARK SMALL CAP FUND 5.19% 11.25% Lipper Small Cap Value Fund Index(12) 2.48% 11.77% Russell 2000 w/inc -6.51% 9.48% S&P Small Cap 600 w/inc.(13) -6.57% 12.20%
*Not annualized. We are pleased to report that your Fund had a gain of 5.2% for the past quarter, thus we outperformed our benchmark index by just under 12%. The first quarter of calendar 2001 was disappointing to many investors as most of the major market indices posted losses for the period. The Russell 2000 small cap index dropped 6.5% for the just ended quarter as profit warnings from numerous companies overwhelmed the interest rate reductions engineered by the Federal Reserve. The key to our relative success comes, we believe, from our adherence to fundamental analysis of a company's value versus momentum investing, which became very popular about three years ago. Momentum investors tend to focus on recent stock price movements rather than asking the logical question: what is a business worth? Our analysts concentrate their entire effort in estimating a company's private market value and when we find a company that is trading at 60% or less of our estimated valuation we purchase that stock. While our approach to investing does not eliminate owning stocks that sometimes go down, we believe that a diversified portfolio of fundamentally inexpensive stocks should be able to perform well over time for our shareholders. SMALL CAP RELATIVE VALUATIONS Over the past four years we have seen a technology boom, a technology bust, a telecommunications boom, a telecommunications bust, a move by investors to large cap stocks and the ignoring of small cap stocks. Beginning in 1997, a clear divergence in valuations between large cap stocks and small cap stocks began and this valuation gap has not yet begun to meaningfully close. In 1997, both THE OAKMARK SMALL CAP FUND 15 ------------------------------------------------------------------------------- large and small cap stocks traded at equivalent levels relative to trailing 12-month earnings or revenues: 15x-18x earnings and just under 1.5x revenues. Since 1997, small caps have fallen to about 13x-15x earnings and about 1.3x revenues while large cap valuations expanded to 23x-25x earnings and about 2x sales. Put a different way, small caps used to trade near parity with large caps but now trade at a discount of about 40% to their large cap peers. We find this wide relative valuation gap interesting since smaller companies typically have several advantages vis-a-vis large companies. Smaller companies have less bureaucracy and thus more focus on customers and they are often more nimble with product introductions. This can result in smaller companies growing at faster rates, yet as a group, these stocks are far cheaper than the larger companies. Additionally, if this valuation gap persists, it would seem likely that many larger companies will turn to smaller companies as acquisition targets since it may be less expensive to buy a successful small company than it would be to develop a new product or service internally. Overall, we view the future of small cap stocks as bright and we believe this sector is one of the best places to invest.
TOTAL RETURNS(10) AS OF MARCH 31, 2001 ------------------------------------------------------- 3 Months* 5.19% ------------------------------------------------------- 6 Months* -1.10% ------------------------------------------------------- 1 Year 11.53% ------------------------------------------------------- *Not annualized AVERAGE ANNUAL TOTAL RETURNS(10) AS OF MARCH 31, 2001 ------------------------------------------------------- 3 Year -6.40% ------------------------------------------------------- 5 Year 9.22% ------------------------------------------------------- Since inception 11.25% -------------------------------------------------------
PORTFOLIO CHANGES During the first calendar quarter of 2001 the Fund's portfolio expanded from forty-three stocks to forty-six stocks. Since the beginning of 2001, we sold National Data and Scott Technologies for solid gains after National Data achieved our price target and Scott Technologies announced its acquisition by Tyco International. The stocks that we purchased included: Berry Petroleum, Central Parking Corp., IDEXX Laboratories, InFocus Corp., Sensient Technologies and Spherion Corp. HIGHLIGHTS - Your Fund had a gain of 5.2% for the past quarter, outperforming our benchmark index, the Russell 2000 Index, by just under 12%. - Several years ago, small cap stocks traded near parity with large caps; they now trade at a discount of about 40% to their large cap peers. We find this wide relative valuation gap very compelling, and believe the small cap sector is one of the best places to invest. - Portfolio changes include the sale of National Data and Scott Technologies for solid gains, and the addition of Berry Petroleum and IDEXX Labs. HIGHLIGHTED NEWCOMERS Two new stocks that your Fund owns that we would like to discuss are Berry Petroleum and IDEXX Labs. Berry is a California based producer of heavy crude oil. Increases over the past year in crude oil prices have aided Berry's outlook, but the stock plunged late last Fall as the California electrical crisis hit. This impacted Berry since one of the by-products of the company's steam injected oil recovery operations is the production of surplus electricity. This electricity is usually sold to California's public electric utilities and Berry makes a nice profit from its co-generation facilities. However, both large California utilities are now in dire financial condition brought on by buying high priced electricity on the spot market and selling it at much lower regulated prices to consumers. This has led to a stoppage in payments to electric providers 16 THE OAKMARK SMALL CAP FUND -------------------------------------------------------------------------------
TOP FIVE INDUSTRIES AS OF MARCH 31, 2001 --------------------------------------------------------- INDUSTRIES Real Estate 12.5% AND % OF Banks & Thrifts 11.2% TOTAL NET Educational Services 7.9% ASSETS Food & Beverage 7.2% Other Consumer Goods and Services 4.8% ---------------------------------------------------------
such as Berry and in turn Berry has stopped supplying electricity to the utilities. We viewed the 30% plus sell-off in Berry's shares caused by the utility impasse as an opportunity to acquire a high quality business with good management and undervalued assets. It is hard to imagine a scenario where electrical generation capacity in California is not a good asset. Additionally, we would expect a political solution soon with regard to the unpaid bills of the California public utilities. Therefore, with a timeframe measured in years and not days or months, we believe Berry represents a solid long-term investment for your Fund. IDEXX Labs principally produces veterinary pharmaceuticals and test kits. This is a high return business and we believe IDEXX has a bright future with over a dozen products in the FDA registration process. Additionally, the company has a debt-free balance sheet and they have consistently been using their excess cash flow to repurchase stock. Veterinary medicine is a very attractive business since the customers (i.e. pet owners) pay cash for their veterinary products and services unlike human healthcare where either the government or an insurance company pays the bills. This creates a more market driven environment with less red tape and we believe IDEXX has the potential to thrive in this type of market.
TOP FIVE HOLDINGS(25) AS OF MARCH 31, 2001 --------------------------------------------------------- COMPANY ITT Educational AND % OF Services, Inc. 7.9% TOTAL NET Catellus Development ASSESS Corporation 6.0% The PMI Group, Inc. 4.6% Prime Hospitality Corporation 4.0% Ralcorp Holdings, Inc. 3.9% ---------------------------------------------------------
OUTLOOK As the above stocks demonstrate, there are numerous small cap stocks that are selling at compelling valuations. Thus, we expect that the rebound in small cap value stocks that began in 2000 will accelerate in 2001 albeit, with some volatility. Once again we would like to thank you for your support of The Oakmark Small Cap Fund. At current valuations small cap value stocks appear to be an above average sector in which to invest and we will endeavor to achieve good returns on your behalf. /s/ James P. Benson JAMES P. BENSON, CFA Portfolio Manager jbenson@oakmark.com /s/ Clyde S. Mcgregor CLYDE S. MCGREGOR, CFA Portfolio Manager mcgregor@oakmark.com April 4, 2001 THE OAKMARK SMALL CAP FUND 17 THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) ------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.1% FOOD & BEVERAGE--7.2% Ralcorp Holdings, Inc. 500,000 $ 8,950,000 Del Monte Foods Company (a) 805,900 6,560,026 M & F Worldwide Corp. (a) 225,000 1,102,500 ------------ 16,612,526 APPAREL--1.0% R.G. Barry Corporation (a)(d) 891,000 $ 2,227,500 RETAIL--3.5% ShopKo Stores, Inc. (a) 850,000 $ 6,800,000 Ugly Duckling Corporation (a) 370,000 1,295,000 ------------ 8,095,000 OTHER CONSUMER GOODS & SERVICES--4.8% Department 56, Inc. (a)(d) 650,000 $ 5,785,000 American Greetings Corporation, Class A 300,000 3,180,000 Central Parking Corporation 123,200 2,242,240 ------------ 11,207,240 BANK & THRIFTS--11.2% People's Bank of Bridgeport, Connecticut 325,000 $ 8,368,750 BankAtlantic Bancorp, Inc., Class A 1,054,100 6,746,240 Golden State Bancorp Inc. (a) 200,000 5,576,000 PennFed Financial Services, Inc. 250,000 5,250,000 ------------ 25,940,990 INSURANCE--4.6% The PMI Group, Inc. 165,000 $ 10,721,700 OTHER FINANCIAL--2.2% NCO Group, Inc. (a) 200,000 $ 5,112,500 HUMAN RESOURCES--0.5% Spherion Corporation (a) 150,000 $ 1,041,000 EDUCATIONAL SERVICES--7.9% ITT Educational Services, Inc. (a) 670,000 $ 18,157,000 DATA STORAGE--1.2% Imation Corp. (a) 125,000 $ 2,803,750 COMPUTER EQUIPMENT--1.4% Infocus Corporation (a) 200,000 $ 3,275,000 COMPUTER SERVICES--2.1% CIBER, Inc. (a) 1,000,000 $ 4,880,000
18 THE OAKMARK SMALL CAP FUND THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.1% (CONT.) COMPUTER SOFTWARE--3.1% MSC.Software Corp. (a) 600,000 $ 6,150,000 Symantec Corporation (a) 25,000 1,045,312 ------------ 7,195,312 COMPUTER SYSTEMS--0.5% Micron Electronics, Inc. (a) 650,000 $ 1,092,000 SECURITY SYSTEMS--2.9% Checkpoint Systems, Inc. (a) 703,000 $ 6,643,350 PHARMACEUTICALS--2.8% Elan Corporation plc (a)(b) 125,000 $ 6,531,250 MEDICAL RESEARCH--1.1% Covance Inc. (a) 200,000 $ 2,570,000 MEDICAL PRODUCTS--2.3% CONMED Corporation (a) 215,000 $ 4,125,313 Hanger Orthopedic Group, Inc. (a) 820,000 1,221,800 ------------ 5,347,113 AUTOMOTIVE--1.4% Standard Motor Products, Inc. 190,000 $ 2,014,000 Stoneridge, Inc. (a) 170,000 1,249,500 ------------ 3,263,500 AUTOMOBILE RENTALS--2.0% Dollar Thrifty Automotive Group, Inc. (a) 219,400 $ 4,519,640 TRANSPORTATION SERVICES--4.0% Teekay Shipping Corporation (c) 200,000 $ 8,520,000 Frontline Limited (b) 40,000 717,500 ------------ 9,237,500 INSTRUMENTS--1.0% IDEXX Laboratories, Inc. (a) 100,000 $ 2,193,750 MACHINERY & INDUSTRIAL PROCESSING--2.7% Columbus McKinnon Corporation 525,000 $ 4,101,563 Sames Corporation (a)(d) 235,000 2,209,000 ------------ 6,310,563
THE OAKMARK SMALL CAP FUND 19 THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. -------------------------------------------------------------------------------
Shares Held/ Par Value Market Value ------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.1% (CONT.) CHEMICALS--3.0% H.B. Fuller Company 70,000 $ 2,948,750 Sensient Technologies Corporation 100,000 2,278,000 Georgia Gulf Corporation 100,000 1,741,000 ------------ 6,967,750 OIL & NATURAL GAS--1.1% Berry Petroleum Company, Class A 200,000 $ 2,600,000 OTHER INDUSTRIAL GOODS & SERVICES--1.4% Intergrated Electrical Services, Inc. (a) 350,000 $ 1,995,000 Gardner Denver Inc. (a) 65,000 1,274,000 ------------ 3,269,000 REAL ESTATE--12.5% Catellus Development Corporation (a) 875,000 $ 13,781,250 Prime Hospitality Corp. (a) 850,000 9,180,000 Trammell Crow Company (a) 500,000 5,950,000 ------------ 28,911,250 DIVERSIFIED CONGLOMERATES--0.7% U.S. Industries, Inc. 275,000 $ 1,606,000 TOTAL COMMON STOCKS (COST: $220,236,237) 208,332,184 SHORT TERM INVESTMENTS--9.9% COMMERCIAL PAPER--6.9% American Express Credit Corporation, 4.98% due 4/2/2001 $6,000,000 $ 6,000,000 Ford Motor Credit Corp., 4.93% due 4/3/2001 3,000,000 3,000,000 General Electric Capital Corporation, 5.35% due 4/2/2001 7,000,000 7,000,000 ------------ TOTAL COMMERCIAL PAPER (COST: $16,000,000) 16,000,000 REPURCHASE AGREEMENTS--3.0% State Street Repurchase Agreement, 5.18% due 4/2/2001 $6,764,000 $ 6,764,000 TOTAL REPURCHASE AGREEMENTS (COST: $6,764,000) 6,764,000 TOTAL SHORT TERM INVESTMENTS (COST: $22,764,000) 22,764,000 TOTAL INVESTMENTS (COST $243,000,237)--100.0% (e) $231,096,184 Other Assets In Excess Of Other Liabilities--0.0% 43,564 ------------ TOTAL NET ASSETS--100% $231,139,748 ============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents foreign domiciled corporation. (d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (e) At March 31, 2001, net unrealized depreciation of $11,904,053, for federal income tax purposes, consisted of gross unrealized appreciation of $42,972,060 and gross unrealized depreciation of $54,876,113. 20 THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND REPORT FROM CLYDE S. MCGREGOR AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS -------------------------------------------------------------------------------- [PHOTO OF CLYDE S. MCGREGOR] [PHOTO OF EDWARD A. STUDZINSKI] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/01) AS COMPARED TO THE LIPPER BALANCED FUND INDEX(14) [CHART]
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 12/31/2000 $21,723 $18,290 3/31/2001 $22,621 $17,374
3/31/01 NAV(2) $16.62
AVERAGE ANNUAL TOTAL RETURN(3) THROUGH 3/31/01 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS* 11/1/95 -------------- ------------------------------ THE OAKMARK EQUITY & INCOME FUND 4.14% 16.26% Lipper Balanced Fund Index -5.01% 10.73% Lehman Govt./Corp. Bond(15) 3.20% 6.97% S&P 500 w/inc.(1) -11.86% 15.42%
*Not annualized. QUARTER AND MID-YEAR REVIEW Returns to the Oakmark Equity and Income Fund have been surprisingly consistent over the past six months despite the volatile experience of the market averages. The Fund returned 4.1% in the quarter ended March 31, which compares to a LOSS of 5.0% for the Lipper Balanced Fund Index. For the six months, the result was a positive 9.0%, again a favorable comparison to the 6.3% which the Lipper lost in the period. While we are happy that the Fund looks good relative to its competitive benchmark, the positive rate of return pleases us more. Our primary goal for Oakmark Equity and Income is to generate positive rates of return in all environments. If we can keep the Fund moving forward most of the time, we know that the relative outcomes will take care of themselves. IGNORE THE MEDIA! If you have been watching a lot of business television over the last few years, you will certainly answer the following question incorrectly: "In which year did more New York Stock Exchange issues decline in price, 1999 or 2000?" The correct answer was 1999 by a landslide. Two-thirds of NYSE(16) issues lost money in 1999 while only 43% suffered this outcome in 2000. What seems to be a paradox is explained by the fact that in 1999 the issues with the largest market capitalizations excelled while they lagged last year. Measures of market breadth began to improve midway through 2000 even as the market averages were rolling over. As an example of what we mean, on most days when the averages sank in the just-ended quarter, the NYSE reported more stocks hitting new highs than new lows. Two years ago some analysts wrote of a "stealth bear market." Given all of the gloom and doom on the media these days it THE OAKMARK EQUITY AND INCOME FUND 21 -------------------------------------------------------------------------------- is clear that the bull market we are describing is equally stealthy. In his letter to shareholders in the 2000 annual report for Berkshire Hathaway famed investor Warren Buffett wrote that there are no bargains in the market currently. We are sympathetic to this point of view and believe that the stealth bull market described above explains this outcome. It also explains the higher than typical percentage of cash in the Fund. We do differ from Buffett in one respect. He writes that he is "content with what we own, but far from excited by it." In the Oakmark Equity and Income Fund we are still reasonably excited by what we own, and reasonably excited is about all one can hope for from two 50-ish portfolio managers. TOTAL RETURNS AS OF MARCH 31, 2001 ---------------------------------------------------------- 3 Months* 4.14% ---------------------------------------------------------- 6 Months* 8.96% ---------------------------------------------------------- 1 Year 19.54%(6) ---------------------------------------------------------- *Not annualized. AVERAGE ANNUAL TOTAL RETURNS AS OF MARCH 31, 2001 ---------------------------------------------------------- 3 Year 11.68% ---------------------------------------------------------- 5 Year 16.58% ---------------------------------------------------------- Since inception 16.26% ---------------------------------------------------------- TIPS No, we are not referring to the next hot stock idea. The most significant new position to enter the Equity and Income Fund portfolio in the quarter was our first ever commitment to Treasury Inflation Protection Securities, often referred to as "TIPS". While other nations have issued inflation-indexed securities for many years, the US Treasury's initial foray into this market occurred in 1997. TIPS carry coupons that are lower than traditional Treasury notes of comparable maturity, but these coupons represent real returns because the principal value of the notes is adjusted daily based on the rate of inflation (CPI) which was experienced over the preceding half year. Since the principal grows with inflation, the cash interest we receive from these notes is above and beyond the inflation rate in the US economy and is a "real" return on the Fund's money. HIGHLIGHTS - The Fund returned 4.1% in the quarter ended March 31, which compares to a loss of 5.0% for the Lipper Balanced Fund Index. - For the past six months, the Fund returned 9.0% versus -6.3% for the Lipper Index. We are happy that the Fund has performed well versus its peers, but even more pleased at the positive rate of return. - A significant new position to the Fund's portfolio is Treasury Inflation Protected Securities, or TIPS. TIPS carry coupons that are lower than traditional Treasury notes, but represent real returns because the principal value of the notes is adjusted daily based on the rate of inflation. Why buy TIPS rather than traditional Treasury notes? One should favor TIPS if your expectation for CPI inflation is higher than that which is implied in the TIPS price. Subtracting the cash yield on TIPS from the yield on Treasury notes of similar maturity gives a reading on the market's expectation for consumer prices. When we began to purchase TIPS for the Fund, Treasury notes and TIPS were priced on the assumption that inflation would average 1.7% for the next seven years, a meaningful decline from the 3.4% increase in the CPI in 2000. If inflation were to average more than 1.7% per year over the remaining life of the issue, then the return to the TIPS would exceed that of a similar maturity Treasury note. In considering the investment in TIPS for the Fund, we are not making a macroeconomic "call." We do not have an inflation forecast that guides us. Instead, we are merely trying to obtain something for free, a tactic which often helps us in our equity investing. In this case, we have obtained without cost the possibility that inflation merely continues on its historic path. The most negative environment for TIPS was the one which prevailed when the Fed was tightening monetary policy thereby pushing 22 THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- ---------------------------------------------------------- TOP FIVE INDUSTRIES AS OF MARCH 31, 2001 ---------------------------------------------------------- INDUSTRIES U.S. Government Notes 28.1% AND % OF Medical Products 5.6% TOTAL NET Retail 5.3% ASSETS Computer Software 5.2% Information Services 5.0% ---------------------------------------------------------- yields up and inflation expectations down. We do not expect those conditions to return soon. In closing, we would like to welcome our new shareholders. You should know that the culture of Harris Associates demands that we managers eat our own cooking and that we make ourselves available to our shareholders who have entrusted us with their hard-earned money. We both have substantial proportions of our net worth invested in this ---------------------------------------------------------- TOP FIVE EQUITY HOLDINGS(25) AS OF MARCH 31, 2001 ---------------------------------------------------------- COMPANY The PMI Group, Inc. 3.0% AND % OF UST Inc. 3.0% TOTAL NET J.C.Penney Company, Inc. 3.0% ASSETS The Reynolds and Reynolds Company, Class A 2.9% GATX Corporation 2.9% ---------------------------------------------------------- fund and have additional assets committed to other funds in the Oakmark family. And, we welcome your e-mailed questions or comments at the addresses below. /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 April 4, 2001 THE OAKMARK EQUITY AND INCOME FUND 23 THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) --------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.9% FOOD & BEVERAGE--3.0% UST Inc. 160,300 $ 4,817,015 RETAIL--5.0% J.C. Penney Company, Inc. 300,000 $ 4,797,000 Office Depot, Inc. (a) 380,000 3,325,000 ---------------- 8,122,000 HOUSEHOLD PRODUCTS--1.2% Energizer Holdings, Inc. (a) 80,000 $ 2,000,000 OTHER CONSUMER GOODS & SERVICES--1.7% H&R Block, Inc. 56,000 $ 2,803,360 BANK & THRIFTS--0.6% Washington Mutual, Inc. 17,000 $ 930,750 INSURANCE--3.0% The PMI Group, Inc. 75,000 $ 4,873,500 OTHER FINANCIAL--2.9% GATX Corporation 110,000 $ 4,670,600 MARKETING SERVICES--2.6% Harte-Hanks Incorporated 185,000 $ 4,184,700 INFORMATION SERVICES--5.0% NOVA Corporation (a) 245,000 $ 4,517,800 Ceridian Corporation (a) 155,000 2,867,500 Equifax Inc. 25,000 781,250 ---------------- 8,166,550 COMPUTER SERVICES--1.5% Electronic Data Systems Corporation 30,000 $ 1,675,800 SunGard Data Systems Inc. (a) 15,000 738,450 ---------------- 2,414,250 COMPUTER SOFTWARE--5.2% The Reynolds and Reynolds Company, Class A 245,000 $ 4,716,250 Novell, Inc. (a) 750,000 3,750,000 ---------------- 8,466,250
24 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. --------------------------------------------------------------------------------
Shares Held Market Value ------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.9% (CONT.) TELECOMMUNICATIONS--2.7% Telephone and Data Systems, Inc. 47,500 $ 4,441,250 TV PROGRAMMING--0.5% AT&T Corp. - Liberty Media Group, Class A (a) 60,000 $ 840,000 PHARMACEUTICALS--2.5% Chiron Corporation (a) 92,500 $ 4,058,438 MEDICAL PRODUCTS--5.6% Apogent Technologies Inc. (a) 200,000 $ 4,048,000 Edwards Lifesciences Corporation (a) 175,000 3,430,000 Sybron Dental Specialties, Inc. (a) 76,666 1,609,986 ---------------- 9,087,986 TRANSPORTATION SERVICES--0.4% Nordic American Tanker Shipping Limited 32,500 $ 646,750 AGRICULTURAL EQUIPMENT--1.3% Alamo Group Inc. 141,900 $ 2,029,170 INSTRUMENTS--2.3% Rockwell International Corporation 100,000 $ 3,635,000 REAL ESTATE--2.8% Catellus Development Corporation (a) 265,728 $ 4,185,216 The St. Joe Company 17,600 401,456 ---------------- 4,586,672 DIVERSIFIED CONGLOMERATES--4.1% Viad Corp. 175,000 $ 4,170,250 Textron, Inc. 42,000 2,387,280 ---------------- 6,557,530 TOTAL EQUITY AND EQUIVALENTS (COST: $78,956,882) 87,331,771
THE OAKMARK EQUITY AND INCOME FUND 25 THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. --------------------------------------------------------------------------------
Par Value Market Value ------------------------------------------------------------------------------------------------------- FIXED INCOME--33.2% PREFERRED STOCK--1.5% BANK & THRIFTS--1.1% Pennfed Capital Trust, Preferred, 8.90% 27,500 $ 718,437 BBC Capital Trust I, Preferred, 9.50% 30,000 705,000 Fidelity Capital Trust I, Preferred, 8.375% 43,500 424,125 ---------------- 1,847,562 TELECOMMUNICATIONS--0.3% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 518,000 REAL ESTATE--0.1% Host Marriott Corporation, Preferred Class B, 10.00% 6,000 $ 152,700 TOTAL PREFERRED STOCK (COST: $2,400,072) 2,518,262 CORPORATE BONDS--1.1% RETAIL--0.3% Ugly Duckling Corporation, 12.00% due 10/15/2003, Subordinated Debenture 650,000 $ 513,500 BUILDING MATERIALS & CONSTRUCTION--0.4% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note 750,000 $ 690,000 UTILITIES--0.4% Midland Funding Corporation, 11.75% due 7/23/2005 500,000 $ 558,125 TOTAL CORPORATE BONDS (COST: $1,777,076) 1,761,625 GOVERNMENT AND AGENCY SECURITIES--30.6% U.S. GOVERNMENT NOTES--28.1% United States Treasury Notes, 3.375% due 1/15/2007, Inflation Indexed $19,885,140 $ 20,096,420 United States Treasury Notes, 6.125% due 8/15/2007 5,000,000 5,353,515 United States Treasury Notes, 5.25% due 5/15/2004 5,000,000 5,117,480 United States Treasury Notes, 5.25% due 8/15/2003 5,000,000 5,107,545 United States Treasury Notes, 6.50% due 2/28/2002 5,000,000 5,102,380 United States Treasury Notes, 6.375% due 8/15/2002, Stripped Principal Payment 5,000,000 4,719,495 ---------------- 45,496,835
26 THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. --------------------------------------------------------------------------------
Par Value Market Value ------------------------------------------------------------------------------------------------------- FIXED INCOME--33.2% (CONT.) U.S. GOVERNMENT AGENCIES--2.5% Federal Home Loan Bank, 6.75% due 5/1/2002 $2,000,000 $ 2,046,460 Federal Home Loan Bank, 6.50% due 10/19/2001 1,000,000 1,009,700 Federal Home Loan Mortgage Corporation, 7.00% due 2/23/2016 1,000,000 998,938 ---------------- 4,055,098 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $48,953,951) 49,551,933 TOTAL FIXED INCOME (COST: $53,131,099) 53,831,820 SHORT TERM INVESTMENTS--13.8% COMMERCIAL PAPER--9.3% American Express Credit Corporation, 4.98% - 5.15% due 4/2/2001 - 4/4/2001 $6,000,000 $ 6,000,000 Ford Motor Credit Corp., 4.80% due 4/3/2001 2,000,000 2,000,000 General Electric Capital Corporation, 5.35% due 4/2/2001 7,000,000 7,000,000 ---------------- TOTAL COMMERCIAL PAPER (COST: $15,000,000) 15,000,000 REPURCHASE AGREEMENTS--4.5% State Street Repurchase Agreement, 5.18% due 4/2/2001 $7,328,000 $ 7,328,000 TOTAL REPURCHASE AGREEMENTS (COST: $7,328,000) 7,328,000 TOTAL SHORT TERM INVESTMENTS (COST: $22,328,000) 22,328,000 Total Investments (Cost $154,415,981)--100.9% (b) $ 163,491,591 Other Liabilities In Excess Of Other Assets--(0.9)% (1,534,525) ---------------- TOTAL NET ASSETS--100% $ 161,957,066 ================
(a) Non-income producing security. (b) At March 31, 2001, net unrealized appreciation of $9,075,609, for federal income tax purposes, consisted of gross unrealized appreciation of $11,052,368 and gross unrealized depreciation of $1,976,759. THE OAKMARK EQUITY AND INCOME FUND 27 THE OAKMARK GLOBAL FUND REPORT FROM MICHAEL J. WELSH AND GREGORY L. JACKSON, PORTFOLIO MANAGERS -------------------------------------------------------------------------------- [PHOTO OF MICHAEL J. WELSH] [PHOTO OF GREGORY L. JACKSON] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION (8/4/99) TO PRESENT (3/31/01) AS COMPARED TO THE MSCI WORLD INDEX(17) [CHART]
THE OAKMARK GLOBAL FUND MSCI WORLD INDEX 08/01/99 $10,000 $10,000 09/30/99 $9,180 $9,883 12/31/99 $9,981 $11,550 03/31/00 $10,061 $11,668 06/30/00 $10,381 $11,255 09/30/00 $10,922 $10,689 12/31/00 $11,562 $10,082 03/31/01 $11,480 $8,739
3/31/01 NAV(2) $11.23
AVERAGE ANNUAL TOTAL RETURN(3) THROUGH 3/31/01 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS* 8/4/99 ---------------------------------------------------------------------------------------- THE OAKMARK GLOBAL FUND -0.71% 8.62%(18) MSCI World Index w/inc. -12.85% -7.76% Lipper Global Fund Index(19) -12.34% -1.30%
*Not annualized. FELLOW SHAREHOLDERS, The Oakmark Global Fund declined 0.7% for the three-month period ending March 31, 2001. While we are never satisfied when the Fund is even marginally down, this period the Fund's performance on a relative basis was very strong, as the MSCI World Index and the Lipper Global Fund Index both posted much more substantial losses of 12.9% and 12.3%, respectively. From inception, the Oakmark Global Fund has achieved annualized returns of 8.6% compared to losses of 7.8% and 1.3% for the MSCI World Index and the Lipper Global Fund Index respectively. Your Fund has weathered the extreme volatility in global equity markets well. We continue to believe that this volatility is good for long-term value investors as it results in greater gaps between business value and market value. In other words, the opportunity the market is currently providing would not be as abundant if share prices were more stable. A SHORT HISTORY LESSON Your fund was launched in August of 1999, timed almost to the day of the parabolic surge upward of the NASDAQ(6) market. Given our style of investing and 20-20 hindsight, the timing could have been better. It was a period of unparalleled optimism and confidence in the global marketplace. Pundits claimed that the new technology-led paradigm was to transform the global economy. Stock market investors believed high rates of growth were sustainable into perpetuity and earnings and cash flow were unimportant. There was no stronger reflection of this optimism than the technology filled indices such as the U.S. 28 THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- TOTAL RETURNS(10) AS OF MARCH 31, 2001 ---------------------------------------------------------- 3 Months* -0.71% ---------------------------------------------------------- 6 Months* 5.11% ---------------------------------------------------------- 1 Year 14.11%(18) ---------------------------------------------------------- *Not annualized AVERAGE ANNUAL TOTAL RETURNS(10) AS OF MARCH 31, 2001 ---------------------------------------------------------- 3 Year N/A ---------------------------------------------------------- 5 Year N/A ---------------------------------------------------------- Since inception 8.62%(18) ---------------------------------------------------------- NASDAQ, Europe's EASDAQ, and Korea's KOSDAQ. These "new economy" indices soared to spectacular gains. In Germany, the Neu Market created a new avenue for young companies to access capital. Companies with short histories, limited float, and even more limited profitability sported market valuations in excess of some of the most entrenched and profitable "old economy" companies. Even in Japan, where economic fundamentals remained difficult, this segment of the stock market showed substantial gains. The quintessential Japanese "tech" stock was Hikari Tsushin, a cellular service retailer with a few internet investments which surged to a US$68 billion market valuation at its peak (it's now worth less than 1% of that number). No region of the world was immune from the mania. In Europe, given the relative lack of technology companies, investors clamored for any business that could be considered even a close substitute, such as telecommunications and media companies. Suddenly, former government owned telephone companies facing new competition were considered high growth technology companies. As with other investment fads, the lure of generating huge gains in a short period of time pushed capital into "new economy" stocks, and the receding tide of money left the share prices of many quality businesses at undeserved discounts to value. HIGHLIGHTS - Your Fund has weathered the extreme volatility in the global equity markets quite well. From inception Oakmark Global returned 8.6% compared to returns of -7.8% and -1.3% for the MSCI World Index and the Lipper Global Fund Index, respectively. - For the 12 months ended March 31, 2001, the Fund returned 14.1% versus -25.1% for the MSCI World Index and -23.3% for the Lipper Global Index. - A year ago, the collective amnesia regarding investment fundamentals started to fade, as share prices of legitimate businesses generating economic returns began to outperform those of over-hyped concepts. As value investors, we viewed this moment as a tremendous opportunity to invest at bargain prices. Companies with long-term track records of profitable growth, able management, and competitive market positions were available at prices significantly below our view of intrinsic worth. Although troubling economic signs were on the horizon, valuations had completely detached from fundamentals, whether macro or microeconomic. THE OAKMARK GLOBAL FUND 29 -------------------------------------------------------------------------------- About a year ago, for a variety of reasons, this all began to change. The collective amnesia toward investment fundamentals started to fade. The share prices of legitimate businesses began to outperform those of over-hyped concepts. This change in sentiment is best shown in the strong investment results of your Fund. For the twelve months ended March 31, 2001, the Oakmark Global Fund was up 14.1%, compared with large declines of 25.1% and 23.3% in the MSCI World Index and in the Lipper Global Fund Index respectively. PHILOSOPHY AND DISCIPLINE For a value philosophy to be successful it must be implemented with discipline. We search for companies that are priced at a substantial discount to their true business value and are run by managers who think and act as owners. We base our investment decisions on our own intensive, independent, fundamental research. The portfolio is focused and is constructed and monitored with strict buy and sell targets and investments are made with a long-term horizon. This disciplined execution of our value philosophy has successfully preserved capital and generated superior investment returns over many market cycles. We will continue to manage the portfolio using the same value discipline described above. We remain excited about the values in the portfolio and believe that over the long-term it will continue to provide superior investment returns. We thank you for your 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 April 5, 2001 ---------------------------------------------------------- TOP FIVE INDUSTRIES AS OF MARCH 31, 2001 ---------------------------------------------------------- INDUSTRIES Information Services 12.4% AND % OF Educational Services 11.8% TOTAL NET Computer Software 11.1% ASSETS Food & Beverage 8.7% Other Consumer Goods and Services 6.1% ---------------------------------------------------------- TOP FIVE HOLDINGS(25) AS OF MARCH 31, 2001 ---------------------------------------------------------- COMPANY ITT Educational AND % OF Services, Inc. 9.5% TOTAL NET Novell, Inc. 6.7% ASSETS NOVA Corporation 6.2% The Reynolds and Reynolds Company, Class A 4.4% Somerfield plc 4.2% ---------------------------------------------------------- 30 THE OAKMARK GLOBAL FUND THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- GLOBAL DIVERSIFICATION--MARCH 31, 2001 -------------------------------------------------------------------------------- [CHART]
% OF FUND % OF FUND NET ASSETS NET ASSETS -------------------------------------------------------------------------------- UNITED STATES 50.5% PACIFIC RIM 12.9% Korea 6.1% EUROPE 30.0% Japan 3.4% Great Britain 12.6% New Zealand 2.2% * France 4.2% Hong Kong 1.2% * Italy 4.0% * Netherlands 3.1% LATIN AMERICA 2.5% * Finland 3.0% Panama 2.2% * Germany 1.7% Brazil 0.3% Switzerland 1.4%
* Euro currency countries comprise 16.0% of the Fund. THE OAKMARK GLOBAL FUND 31 THE OAKMARK GLOBAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) ------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.8% FOOD & BEVERAGE--8.7% Hite Brewery Co., Ltd. Brewer 43,000 $ 1,421,488 (Korea) Diageo plc Beverages, Wines, & Spirits (Great Britain) Manufacturer 130,000 1,303,372 Lotte Chilsung Beverage Soft Drinks, Juices, & Sport Drinks Company (Korea) Manufacturer 5,000 510,894 ----------- 3,235,754 APPAREL--1.2% Fila Holding S.p.A Athletic Footwear & Apparel (Italy), (a)(b) 87,900 $ 443,895 RETAIL--5.9% Somerfield plc Food Retailer (Great Britain) 1,198,000 $ 1,572,576 House of Fraser Plc Department Store (Great Britain) 585,000 622,630 ----------- 2,195,206 HOUSEHOLD PRODUCTS--3.1% Hunter Douglas N.V. Window Coverings (Netherlands) Manufacturer 44,800 $ 1,166,553 OTHER CONSUMER GOODS & SERVICES--6.1% H&R Block, Inc. Financial Services Provider (United States) 18,000 901,080 Royal Doulton plc Tableware & Giftware (Great Britain), (a) 1,110,000 850,608 Cendant Corporation Diversified Consumer & Business (United States), (a) Services 35,000 510,650 ----------- 2,262,338 BANK & THRIFTS--2.2% Banco Latinoamericano Latin American Trade Bank de Exportaciones, S.A., Class E (Panama), (b) 26,300 $ 809,777 OTHER FINANCIAL--1.7% GATX Corporation Transportation Financial Services (United States) 15,000 $ 636,900 EDUCATIONAL SERVICES--11.8% ITT Educational Services, Postsecondary Degree Programs Inc. (United States), (a) 130,000 $ 3,523,000
32 THE OAKMARK GLOBAL FUND THE OAKMARK GLOBAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.8% (CONT.) EDUCATIONAL SERVICES--11.8% (CONTINUED) Learning Tree , Computer Related Education International, Inc. (United States), (a) 42,500 $ 880,547 ----------- 4,403,547 MARKETING SERVICES--0.0% Arbitron Inc. Media & Marketing Research (United States) 300 $ 6,900 INFORMATION SERVICES--12.4% NOVA Corporation Transaction Processing Services (United States), (a) 125,000 $ 2,305,000 Ceridian Corporation Data Management Services (United States), (a) 75,000 1,387,500 Equifax Inc. (United States) Consumer Credit Information 30,000 937,500 ----------- 4,630,000 COMPUTER SERVICES--3.4% Meitec Corporation Software Engineering Services (Japan) 35,400 $ 1,255,019 COMPUTER SOFTWARE--11.1% Novell, Inc. Network & Internet Integration (United States), (a) Software 500,000 $ 2,500,000 The Reynolds and Reynolds Information Management Systems Company, Class A (United States) 85,000 1,636,250 ----------- 4,136,250 TELECOMMUNICATIONS--0.3% Telemig Celular Mobile Telecommunications Participacoes S.A. (Brazil), (a) 36,000,000 $ 123,623 PRINTING--3.7% Valassis Communications, Product Promotions Printer Inc. (United States), (a) 47,000 $ 1,363,000 MEDICAL PRODUCTS--2.1% Edwards Lifesciences Respiratory Products Corporation (United States), (a) 40,000 $ 784,000
THE OAKMARK GLOBAL FUND 33 THE OAKMARK GLOBAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Shares Held/ Description Par Value Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.8% (CONT.) AUTOMOBILES--2.8% Ducati Motor Holding Motorcycle Manufacturer S.p.A. (Italy), (a) 610,000 $ 1,038,354 MACHINERY & INDUSTRIAL PROCESSING--2.9% Metso Oyj (Finland) Paper & Pulp Machinery 124,000 $ 1,101,736 BUILDING MATERIALS & CONSTRUCTION--2.2% Fletcher Building Limited Buildings Material Manufacturer (New Zealand) 882,186 $ 818,307 CHEMICALS--1.4% Givaudan Fragrance & Flavor Compound (Switzerland), (a) Manufacturer 2,100 $ 530,068 PRODUCTION EQUIPMENT--1.7% Krones AG (Germany) Production Machinery Manufacturer 19,400 $ 648,515 OTHER INDUSTRIAL GOODS & SERVICES--5.1% GFI Industries SA (France) Industrial Fastener Manufacturer 31,500 $ 839,630 Chargeurs SA (France) Wool, Textile Production & Trading 9,900 720,237 Enodis plc (Great Britain) Food Processing Equipment 224,700 349,164 ----------- 1,909,031 DIVERSIFIED CONGLOMERATES--5.0% Viad Corp. (United States) Payment Services & Convention Organizer 45,000 $ 1,072,350 First Pacific Company Diversified Operations Limited (Hong Kong) 1,795,936 444,376 Tae Young Corporation Heavy Construction (Korea) 16,900 339,016 ----------- 1,855,742 TOTAL COMMON STOCKS (COST: $33,170,520) 35,354,515 FIXED INCOME--1.1% CORPORATE BONDS--1.1% RETAIL--1.1% Ugly Duckling Corporation, Subordinated Debenture, 11.00% due 4/15/2007 $ 555,000 $ 388,500 TOTAL CORPORATE BONDS (COST: $400,338) 388,500 TOTAL FIXED INCOME (COST: $400,338) 388,500
34 THE OAKMARK GLOBAL FUND THE OAKMARK GLOBAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Description Par Value Market Value ----------------------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--4.1% REPURCHASE AGREEMENTS--4.1% State Street Repurchase Agreement, 5.18% due 4/2/2001 $ 1,544,000 $ 1,544,000 TOTAL REPURCHASE AGREEMENTS (COST: $1,544,000) 1,544,000 TOTAL SHORT TERM INVESTMENTS (COST: $1,544,000) 1,544,000 Total Investments (Cost $35,114,858)--100.0% (c) $37,287,015 Foreign Currencies (Proceeds $3,038)--(0.0)% $ 2,877 Other Liabilities In Excess Of Other Assets--(0.0)% (d) (8,605) ----------- TOTAL NET ASSETS--100% $37,281,287 ----------- -----------
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) At March 31, 2001, net unrealized appreciation of $2,171,995, for federal income tax purposes, consisted of gross unrealized appreciation of $5,040,121 and gross unrealized depreciation of $2,868,126. (d) Includes transaction hedges. THE OAKMARK GLOBAL FUND 35 THE OAKMARK INTERNATIONAL FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS ------------------------------------------------------------------------------ [PHOTO OF DAVID G. HERRO] [PHOTO OF MICHAEL J. WELSH] ------------------------------------------------------------------------------ THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/01) COMPARED TO THE MSCI WORLD EX U.S. INDEX(20) [CHART]
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 12/31/2000 $29,324 $21,897 3/31/2001 $26,763 $18,825
AVERAGE ANNUAL TOTAL RETURN(3) 3/31/01 NAV(2) $14.11 THROUGH 03/31/01 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS* 9/30/92 ---------------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL FUND -8.73% 12.27% MSCI World ex U.S. Index w/inc. -14.03% 7.72% MSCI EAFE Index w/inc.(21) -13.73% 7.57% Lipper International Fund Index(22) -13.05% 9.25%
*Not annualized. FELLOW SHAREHOLDERS, Your Fund declined 8.7% for the quarter ending March 31, 2001 comparing favorably to the MSCI World ex U.S. Index, which was down 14.0% and the Lipper International Fund Index, which was down 13.1%. More importantly, since inception, your Fund has returned an annual average of 12.3%, again comparing very favorably to returns of 7.7% and 9.3% for the MSCI World ex U.S. Index and the Lipper International Fund Index, respectively. Global equity markets across the globe had a rough time in the first quarter. Fears of economic slowdown in the U.S. and the popping of the global tech bubble have taken their toll on investor confidence. However, we remain enthusiastic about the Fund's prospects. WHY WE ARE BULLISH The Oakmark International Fund is a value international fund. After a few years of being considered old fashioned and out of date, the markets now appear to be rediscovering investing fundamentals. As you have read on these pages year after year, we believe that a company's worth is solely dependent on the cash flow that its assets generate and how the excess cash is deployed. This type of intuitive thinking was ignored at the end of the 90's as investors sought ways to connect technological innovations with share prices in the stock market. As this occurred, people forgot that the purpose of a business enterprise was to make money and judged an investment opportunity not by its profit potential but by the sexiness of its business and the ascent of its stock chart. Thankfully, this type of thinking has come to a crashing halt. Investors are now 36 THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------
TOTAL RETURNS(10) AS OF MARCH 31, 2001 ---------------------------------------------------- 3 Months* -8.73% ---------------------------------------------------- 6 Months* -1.99% ---------------------------------------------------- 1 Year 2.89% ----------------------------------------------------
*Not annualized
AVERAGE ANNUAL TOTAL RETURNS(10) AS OF MARCH 31, 2001 ---------------------------------------------------- 3 Year 5.18% ---------------------------------------------------- 5 Year 9.47% ---------------------------------------------------- Since inception 12.27% ----------------------------------------------------
going back to basics, which will benefit the Fund as quality, growing, well-managed, undervalued businesses, the type we strive to own, continue to receive investor attention. The second major factor that causes us to be so bullish is the rate of positive structural change in overseas markets, combined with low stock market prices for attractive businesses. "Structural change" includes but is not limited to policies that are advantageous to owners of capital. Whether it is tax and pension reform in Europe, shareholders rights' legislation in Brazil, a strong, clean corporate governance movement in South Korea or the break-up of cross-company shareholdings in Japan and Germany, the momentum towards better treatment of shareholders is moving in our favor. With the exception of Japan, most major countries are moving at a good pace to institute liberalized policies with anticipated favorable consequences for holders of stocks. The combination of the return to fundamentals with the opportunities available in the overseas markets, lead us to believe this is an especially good time to be value investors in foreign stocks. AND THEN THERE IS JAPAN.... For many years we have under-weighted Japan in the Fund. When this Fund first started in 1992, Japan accounted for over 40% of the MS EAFE index and most of our peers had close to 40% in Japan and we either had a low or zero weighting. Now Japan represents slightly above 20% of the index and we still have difficulty finding HIGHLIGHTS - After a few years of being considered old fashioned, the markets now appear to be rediscovering investing fundamentals. Investors forgot that the purpose of a business enterprise was to make money and judged opportunity not by profit potential but by the sexiness of its business. Thankfully, this type of thinking has come to a crashing halt. - Though fears of economic slowdown in the U.S. and the popping of the global tech bubble have taken their toll on investor confidence, we remain extremely enthusiastic about the Fund's prospects. - Most major countries are moving at a good pace to institute liberalization policies that will have very favorable consequences for holders of stocks. worthwhile companies in which to invest. Though, Japan now represents close to 7% of Fund assets, keep in mind that it is the second largest economy in the world. It is such a large market, we have two analysts, Rob Taylor and N. David Samra, spending a substantial amount of time analyzing Japanese prospects. Yet, we still can't find a lot of stocks to buy. The number one reason for this remains the same: it is STILL incredibly hard to find Japanese companies that are truly run for the benefit of their owners. Such things as maintaining face, refusing to lay off surplus labor, poor capital allocation, bad general expense management, and a general lack of interest in generating proper returns from their assets continue to plague Japanese companies. Because of this, the majority of companies over time destroy value rather than create it. We will pay NO PRICE for companies that behave in this way. We will keep watching closely for signs of change, but until legitimate movement occurs, it's probably a market which will remain underrepresented in the Fund. THE OAKMARK INTERNATIONAL FUND 37 ------------------------------------------------------------------------------
---------------------------------------------------- TOP FIVE INDUSTRIES AS OF MARCH 31, 2001 ---------------------------------------------------- INDUSTRIES Other Industrial Goods AND % OF and Services 11.7% TOTAL NET Food & Beverage 10.9% ASSETS Banks and Thrifts 10.0% Publishing 7.5% Household Products 5.4% ----------------------------------------------------
---------------------------------------------------- TOP FIVE HOLDINGS(25) AS OF MARCH 31, 2001 ---------------------------------------------------- COMPANY Somerfield plc 4.8% AND % OF Hunter Douglas N.V. 4.0% TOTAL NET Diageo plc 4.0% ASSETS Metso Oyj 4.0% Enodis plc 3.5% ----------------------------------------------------
LAST WORDS Though, as of this writing, global equity markets are in a bit of turmoil, we are convinced that we have a lot to offer our fellow shareholders. As value investors with strong past performance, we are enthusiastic about our medium and long-term prospects. As markets go through these periods, it is important to do what we do: stay focused on the prospects and the valuation of our underlying investments. As time passes and the storm fades away, one will look back and realize that this was an advantageous time to be putting money to work in foreign markets. /s/ David G. Herro, CFA DAVID G. HERRO, CFA Portfolio Manager dherro@compuserve.com /s/ Michael J. Welsh, CFA, CPA MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com April 5, 2001 38 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------ INTERNATIONAL DIVERSIFICATION--MARCH 31, 2001 ------------------------------------------------------------------------------ [CHART]
% OF FUND NET ASSETS -------------------------------------- EUROPE 59.4% Great Britain 21.1% *France 7.8% *Netherlands 7.3% *Finland 6.8% Sweden 6.0% *Italy 3.0% Switzerland 2.6% *Ireland 2.6% *Greece 0.9% *Germany 0.8% *Austria 0.5% PACIFIC RIM 21.8% Japan 6.6% Korea 5.2% Australia 3.9% Singapore 3.1% Hong Kong 3.0% LATIN AMERICA 13.7% Mexico 5.2% Brazil 3.6% Panama 2.7% Argentina 2.2% OTHER 1.3% Canada 1.3%
* Euro currency countries compromise 29.7% of the Fund. THE OAKMARK INTERNATIONAL FUND 39 THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) ------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% FOOD & BEVERAGE--10.9% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 3,104,000 $ 31,120,521 Fomento Economico Soft Drink & Beer Manufacturer Mexicano, S.A. de C.V. (Mexico), (b) 647,400 22,989,174 Quilmes Industrial S.A. Brewer (Argentina), (b) 1,871,200 17,458,296 Lotte Chilsung Beverage Soft Drinks, Juices, & Sport Drinks Company (Korea), (d) Manufacturer 93,000 9,502,630 Lotte Confectionery Co., Confection Manufacturer Ltd. (Korea) 37,270 3,640,195 ------------ 84,710,816 APPAREL--3.8% Giordano International Pacific Rim Clothing Retailer & Limited (Hong Kong) Manufacturer 32,888,000 $ 16,127,666 Fila Holding S.p.A. Athletic Footwear & Apparel (Italy), (a)(b)(d) 2,636,800 13,315,840 ------------ 29,443,506 RETAIL--4.8% Somerfield plc Food Retailer (Great Britain), (d) 28,617,000 $ 37,564,605 HOUSEHOLD PRODUCTS--5.4% Hunter Douglas N.V. Window Coverings Manufacturer (Netherlands) 1,206,984 $ 31,428,806 Reckitt Benckiser plc Household Cleaners & (Great Britain) Air Fresheners 601,200 7,712,593 Kimberly-Clark de Mexico, S.A. de C.V., Class A Hygiene Products Manufacturer (Mexico), (a) 1,182,000 3,345,988 ------------ 42,487,387 OTHER CONSUMER GOODS & SERVICES--0.7% Shimano Inc. (Japan) Bicycle Components Manufacturer 345,000 $ 5,279,995 BANK & THRIFTS--10.0% Banco Latinoamericano Latin American Trade Bank de Exportaciones, S.A., Class E (Panama), (b) 688,100 $ 21,186,599 Uniao de Bancos Brasileiros Commercial Banking S.A. (Brazil), (c) 796,000 16,238,400 BNP Paribas SA (France) Commercial Banking 153,000 12,826,820
40 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) BANKS & THRIFTS--10.0% (CONTINUED) Banca Popolare di Verona Commercial Banking (Italy) 965,700 $ 9,854,506 Svenska Handelsbanken Commercial Banking AB (Sweden) 362,700 5,189,666 Kookmin Bank (Korea) Commercial Banking 430,000 4,393,689 United Overseas Bank Commercial Banking Limited, Foreign Shares (Singapore) 583,968 4,109,944 Bank of Ireland (Ireland) Commercial Banking 453,000 3,745,939 National Australia Bank Commercial Banking Limited (Australia) 65,000 907,842 ------------ 78,453,405 OTHER FINANCIAL--2.9% Daiwa Securities Stock Broker Group Inc. (Japan) 2,424,000 $ 22,922,944 HOTELS & MOTELS--2.5% Mandarin Oriental Hotel Management International Limited (Singapore) 33,134,400 $ 19,880,640 HUMAN RESOURCES--0.7% Michael Page Recruitment Consultancy International plc Services (Great Britain), (a) 2,000,000 $ 5,108,760 COMPUTER SERVICES--3.0% Meitec Corporation Software Engineering Services (Japan) 667,200 $ 23,653,919 TELECOMMUNICATIONS--3.1% Telemig Celular Mobile Telecommunications Participacoes S.A. (Brazil), (a) 2,293,200,000 $ 7,874,782 Panafon Hellenic Mobile Telecommunications Telecom S.A. (Greece) 1,231,000 6,627,415 SK Telecom Co., Ltd. Mobile Telecommunications (Korea) 45,370 6,237,949 Brasil Telecom Mobile Telecommunications Participacoes S.A. (Brazil), (a) 469,200,000 3,763,116 ------------ 24,503,262
THE OAKMARK INTERNATIONAL FUND 41 THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) BROADCASTING & CABLE TV--1.2% Grupo Televisa S.A. Television Production & (Mexico), (a)(c) Broadcasting 283,500 $ 9,471,735 PUBLISHING--7.5% John Fairfax Holdings Newspaper Publisher Limited (Australia) 9,874,500 $ 17,263,516 Independent News & Newspaper Publisher Media PLC (Ireland) 7,234,400 16,228,462 Wolters Kluwer NV Reference Material Publisher (Netherlands) 634,000 15,889,724 N.V. Holdingmaatschappij Newspaper Publisher De Telegraaf (Netherlands) 595,100 9,318,470 ------------ 58,700,172 MEDICAL PRODUCTS--2.5% Gambro AB, Class A Manufacturer of Dialysis (Sweden) Procucts 3,066,000 $ 19,349,906 AUTOMOTIVE--4.2% Compagnie Generale des Tire Manufacturer Establissements Michelin (France) 632,000 $ 20,509,751 Autoliv, Inc (Sweden) Automotive Safety Systems Manufacturer 611,700 9,341,856 Dongah Tire Industry Innertube Manufacturer Company (Korea), (d) 166,290 2,998,467 ------------ 32,850,074 AEROSPACE--2.7% Rolls-Royce plc Aviation & Marine Power (Great Britain) 6,814,702 $ 21,106,397 AIRPORT MAINTENANCE--1.1% Grupo Aeroportuario del Airport Operator Sureste S.A. de C.V. (Mexico), (a) (b) 242,000 $ 4,685,120 Flughafen Wien AG Airport Management & Operations (Austria) 125,522 4,184,983 ------------ 8,870,103 AIRLINES--0.3% SAirGroup Airline Operator (Switzerland) 19,000 $ 1,943,524
42 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Description Shares Held Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) MACHINERY & INDUSTRIAL PROCESSING--4.0% Metso Oyj Paper & Pulp Machinery (Finland) 3,480,600 $ 30,925,031 BUILDING MATERIALS & CONSTRUCTION--1.8% Kumkang Korea Building Materials Chemical Co., Ltd. (Korea) 377,840 $ 13,909,962 COMPONENTS--3.2% IMI plc (Great Britain) Components Manufacturer 5,140,000 $ 18,344,847 Morgan Crucible Crucible & Components Company plc Manufacturer (Great Britain) 1,556,000 6,237,938 ------------ 24,582,785 CHEMICALS--4.0% Givaudan Fragrance & Flavor Compound (Switzerland), (a) Manufacturer 74,100 $ 18,703,818 Nufarm Limited Agricultural & Industrial (Australia), (d) Chemical Producer 10,381,415 12,674,408 ------------ 31,378,226 OIL & NATURAL GAS--0.3% ISIS (France) Oil Services 23,427 $ 2,128,882 OTHER INDUSTRIAL GOODS & SERVICES--11.7% Enodis plc Food Processing Equipment (Great Britain), (d) 17,494,500 $ 27,184,956 Chargeurs SA Wool, Textile Production & (France), (d) Trading 350,067 25,467,795 Kone Corporation, Elevators Class B (Finland) 348,310 21,908,197 Tomkins plc Diversified Engineering (Great Britain) 3,428,341 7,176,109 Buderus AG (Germany) Industrial Manufacturing 327,820 6,459,786 FKI plc (Great Britain) Industrial Manufacturing 1,236,315 3,254,513 ------------ 91,451,356 STEEL--1.6% SSAB Svenskt Stal AB, Steel Producer Series A (Sweden) 1,575,920 $ 12,754,953
THE OAKMARK INTERNATIONAL FUND 43 THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Shares Held/ Description Par Value Market Value ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) DIVERSIFIED CONGLOMERATES--2.3% Canadian Pacific Limited Diversified Operations (Canada) 286,700 $ 10,425,620 First Pacific Company Diversified Operations Limited (Hong Kong) 31,087,934 7,692,221 ------------ 18,117,841 TOTAL COMMON STOCKS (COST: $829,750,970) 751,550,186 SHORT TERM INVESTMENTS--3.8% COMMERCIAL PAPER--2.0% American Express Credit Corporation, 4.98% due 4/3/2001 $ 5,000,000 $ 5,000,000 General Electric Capital Corporation, 5.35% due 4/2/2001 10,000,000 10,000,000 ------------ TOTAL COMMERCIAL PAPER (COST: $15,000,000) 15,000,000 REPURCHASE AGREEMENTS--1.8% State Street Repurchase Agreement, 5.18% due 4/2/2001 $14,158,000 $ 14,158,000 TOTAL REPURCHASE AGREEMENTS (COST: $14,158,000) 14,158,000 TOTAL SHORT TERM INVESTMENTS (COST: $29,158,000) 29,158,000 Total Investments (Cost $858,908,970)--100.0% (e) $780,708,186 Foreign Currencies (Proceeds $277,993)--0.0% $ 277,679 Other Assets In Excess Of Other Liabilities--0.0% (f) 4,500 ------------ TOTAL NET ASSETS--100% $780,990,365 ------------ ------------
(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 March 31, 2001, net unrealized depreciation of $78,201,097, for federal income tax purposes, consisted of gross unrealized appreciation of $80,478,825 and gross unrealized depreciation of $158,679,922. (f) Includes transaction hedges. 44 THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS ------------------------------------------------------------------------------- [PHOTO OF DAVID G. HERRO] [PHOTO OF MICHAEL J. WELSH] -------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/01) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX(20) [CHART]
THE OAKMARK MSCI WORLD EX INTERNATIONAL U.S. INDEX SMALL CAP FUND 10/31/95 $10,000 $10,000 12/31/95 $9,630 $10,684 03/31/96 $10,970 $11,006 06/30/96 $11,570 $11,186 09/30/96 $11,590 $11,195 12/31/96 $12,038 $11,418 03/31/97 $12,080 $11,241 06/30/97 $13,181 $12,699 09/30/97 $12,672 $12,652 12/31/97 $9,642 $11,677 03/31/98 $11,429 $13,394 06/30/98 $9,892 $13,499 09/30/98 $8,211 $11,513 12/31/98 $10,529 $13,868 03/31/99 $13,118 $14,086 06/30/99 $15,317 $14,493 09/30/99 $15,439 $15,114 12/31/99 $16,190 $17,741 03/31/00 $15,387 $17,839 06/30/00 $15,529 $17,217 09/30/00 $14,908 $15,906 12/31/00 $14,756 $14,765 03/31/01 $15,232 $13,213
3/31/01 NAV(2) $10.89 AVERAGE ANNUAL TOTAL RETURN(3) THROUGH 3/31/01 TOTAL RETURN FROM FUND INCEPTION LAST 3 MONTHS* 11/1/95 ---------------------------------------------------------------------------------- THE OAKMARK INTERNATIONAL SMALL CAP FUND 3.22% 8.07% MSCI World ex U.S. Index w/inc. -14.03% 5.28% Lipper International Small Cap Fund Average(23) -13.74% 11.66% Micropal Equity International Small Cap Index(24) -13.92% 10.75%
*Not annualized. FELLOW SHAREHOLDERS, The Oakmark International Small Cap Fund had an excellent quarter ending March 31, 2001. Your fund returned 3.2% compared to a decline in the Lipper International Small Cap Average of 13.7% and a decline in the MSCI World ex U.S. Index of 14.0%. Since inception, Oakmark International Small Cap has returned 8.1% annually compared to 11.7% and 5.3% average annual returns for the Lipper and Morgan Stanley indices, respectively. We are especially proud of our recent performance given the fact that very few global equity investment vehicles achieved positive results during this period. Given the opportunities we see in the international small cap sector, we remain optimistic about the Fund's prospects. WHERE HAVE ALL THE BILLBOARDS GONE? I usually commute to work via a brisk 20-minute walk to our offices in Chicago's business district known as "The Loop". I remember last summer passing one billboard after another advertising a different dot.com service. Whether it was jobs, travel, personal shopping, or toys, most of these billboards pitched a web site of some dot.com company. Knowing these prime billboards rent for a king's ransom, I often wondered how such fledgling businesses could afford such expensive advertising. I wondered how long it would be before dot.coms gave way to more traditional and economically sound advertisers. Well, my wait is over. Gone are the dot.coms and back are the ads selling television shows and beer. Of course, this story has deeper meaning than the changing landscape of LaSalle Street in Chicago. Those dot.com companies financed THE OAKMARK INTERNATIONAL SMALL CAP FUND 45 ----------------------------------------------------------------------------- their advertising by selling shares, not by earning profits. During the height of the tech craze days, these companies wildly peddled their goods in national and local papers, billboards and even on the Super Bowl. Advertising and media companies were the huge beneficiaries of the way these companies burned through the money they continually raised in the stock market. Outside the US technology companies are generally more scarce and of lower quality, so in some ways the overseas bubble was even more pronounced. Any company with a technology connection, no matter how tenuous, was awarded a rich valuation. While technology shares were besieged with speculator interest, small, well-run, undervalued foreign stocks were shunned. The valuations of these businesses were flattened as assets shifted out of stable, high quality but "boring" companies.
--------------------------------------------------------------------- TOTAL RETURNS(10) AS OF MARCH 31, 2001 --------------------------------------------------------------------- 3 Months* 3.22% --------------------------------------------------------------------- 6 Months* 2.18% --------------------------------------------------------------------- 1 Year -1.01% --------------------------------------------------------------------- *Not annualized
AVERAGE ANNUAL TOTAL RETURNS(10) AS OF MARCH 31, 2001 --------------------------------------------------------------------- 3 Year 10.04% --------------------------------------------------------------------- 5 Year 6.78% --------------------------------------------------------------------- Since inception 8.07% ---------------------------------------------------------------------
Thankfully, and very beneficially for holders of foreign small companies, this trend is over. We continue to see the return of investor interest in quality foreign small cap companies. As mentioned in a previous quarterly letter about private equity, M & A activity continues to heat up as bottom fishers are trying to make their mark before prices rise too quickly. This quarter, the Fund had one of its larger positions, Anglian Group in the UK, taken over by a private equity group at a hefty premium to the market price. We have since sold the position for a large profit (kudos to analyst Dan O'Keefe!). All of this spells opportunity as international small caps, and value investing, return to favor. ------------------------------------------------------------------------------- HIGHLIGHTS - Your Fund returned 3.2% for the quarter versus the Lipper International Small Cap Average's return of -13.7%, and a return of -14.0% for the MSCI World ex U.S. Index. - Outside the U.S., in general, technology companies are more scarce and of lower quality, so in some ways the overseas bubble was even worse--causing even higher valuations on any company with a technology connection, no matter how tenuous. - Merger and acquisition activity continues to heat up as bottom fishers are trying to make their mark before prices rise too quickly. ------------------------------------------------------------------------------- THE LAND OF INVESTMENT OPPORTUNITY It has been a few years since the Asian economic crisis ended. In its wake, there has been one, real star reformer: South Korea. Currently, The Oakmark International Small Cap Fund has close to 8% of its assets there because not only are there plenty of undervalued companies that are soundly managed, but strong change is transforming South Korea into a far more investor friendly place. While we have previously written about this transformation, we felt compelled to highlight it again because of the abundant opportunity. South Korea is one of the top ten economies of the world. Its work force is highly educated and productive and its fiscal finances are in order. Before the crisis, crony capitalism and "Japanese style" industrial planning were the order of the day. Today, South Korea is starting to transform itself into a transparent, open economy. As an example, when there is a relapse, the likes of Jang Ha Sung spring into action. Professor Jang is South Korea's leading shareholder rights activist with a devoted following, who has not been shy about hectoring (and enraging) backsliding managements when things are not right. He is an important watchdog for minority shareholders that believe Korea cannot progress until the old-style "chaebol" way of doing business is discredited. We view his 46 THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------
------------------------------------------------------------------------------- TOP FIVE INDUSTRIES AS OF MARCH 31, 2001 ------------------------------------------------------------------------------- INDUSTRIES AND % OF TOTAL NET ASSETS Retail 11.9% Food & Beverage 9.3% Diversified Conglomerates 7.8% Airport Maintenance 6.1% Building Materials and Construction 5.3%
presence and the fact that he has been somewhat successful as an extremely positive sign. ------------------------------------------------------------------------------- It will continue to be a battle, and there are still some warts. The government, whose reform effort has generally been outstanding, has had occasional lapses. It recently agreed to invest some pension money in the market in hopes of stopping plunging equity prices and at times has propped up businesses that should have been allowed go under. Hyundai Engineering is the latest, though at least the equity holders, including the founding family, will be wiped out in a debt-for-equity swap. New incidents of management misbehavior continue to appear, but they are no longer greeted with a mere shrug of a shoulder as in the past.
------------------------------------------------------------------------------- TOP FIVE HOLDINGS(25) AS OF MARCH 31, 2001 ------------------------------------------------------------------------------- COMPANY AND % OF TOTAL NET ASSETS Jarvis Hotels plc 4.2% Ducati Motor Holding S.p.A. 3.7% Hite Brewery Co., Ltd. 3.7% GFI Industries SA 3.6% Royal Doulton plc 3.4%
------------------------------------------------------------------------------- Prior to the reforms, the lack of transparency in corporate Korea and the influence of overly-powerful family shareholders polluted the investment environment. Today, because of people like President Kim Dae Jung and Professor Jang, the investment environment has vastly improved. Combine this with current compelling equity valuations and we can see great medium and long-term investment potential. If only Japan would follow suit! A PLEASANT FUTURE With opportunities in places like South Korea and the state of depressed stock prices of foreign small cap companies, we remain hopeful about future prospects. Though global markets are still experiencing turbulence, the many attractions of international small cap investing give us confidence in the Fund's future prospects. /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 April 5, 2001 THE OAKMARK INTERNATIONAL SMALL CAP FUND 47 THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------------------------------- INTERNATIONAL DIVERSIFICATION--MARCH 31, 2001 ------------------------------------------------------------------------------- [CHART]
% OF FUND NET ASSETS ---------- EUROPE 43.5% Great Britain 15.1% *France 8.0% *Italy 5.5% *Austria 3.1% *Finland 2.7% *Ireland 2.1% *Netherlands 1.8% *Belguim 1.6% Sweden 1.2% *Germany 1.0% Switzerland 0.9% Denmark 0.5% PACIFIC RIM 42.9% Japan 9.4% Hong Kong 9.2% Korea 7.9% New Zealand 5.1% Singapore 5.0% Australia 2.7% Thailand 2.1% Philippines 1.5% LATIN AMERICA 5.3% Mexico 4.6% Brazil 0.7% OTHER 3.1% Bermuda 3.1%
* Euro currency countries comprise 25.8% of the Fund. 48 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) -------------------------------------------------------------------------------
Description Shares Held Market Value ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.8% FOOD & BEVERAGE--9.3% Hite Brewery Co., Ltd. Brewer (Korea) 106,600 $3,523,967 Grupo Continental, S.A. Soft Drink Manufacturer (Mexico) 1,469,000 2,010,292 Mikuni Coca-Cola Soft Drink Manufacturer Bottling Co., Ltd. (Japan) 192,000 1,934,990 Alaska Milk Corporation Milk Producer (Philippines) 44,894,000 1,468,517 ---------- 8,937,766 APPAREL--2.1% Kingmaker Footwear Athletic Footwear Manufacturer Holdings Limited (Hong Kong) 11,000,000 $2,030,756 RETAIL--11.9% House of Fraser Plc Department Store (Great Britain) 2,272,000 $2,418,146 Carpetright plc Carpet Retailer (Great Britain) 189,000 1,666,924 Dickson Concepts Jewlery Wholesaler & Retailer (International) Limited (Hong Kong) 4,233,500 1,465,433 Denny's Japan Co., Ltd. Restaurant Chain (Japan) 88,000 1,311,026 York-Benimaru Co., Ltd. Supermarket Chain (Japan) 53,100 1,264,890 MFI Furniture Group Household Furniture Retailer plc (Great Britain) 658,000 905,755 Harvey Nichols plc High Fashion Clothing Retailer (Great Britain) 356,400 885,093 Jusco Stores Department Stores (Hong Kong) Co., Limited (Hong Kong) 6,996,000 843,102 Dairy Farm International Supermarket Chain Holdings Limited (Singapore) 1,637,100 769,437 ---------- 11,529,806
THE OAKMARK INTERNATIONAL SMALL CAP FUND 49 THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------------------------------ SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. ------------------------------------------------------------------------------
Description Shares Held Market Value ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.8% (CONT.) OFFICE EQUIPMENT--2.5% Neopost SA (France), (a) Mailroom Equipment Supplier 105,600 $2,415,305 OTHER CONSUMER GOODS & SERVICES--4.9% Royal Doulton plc Tableware & Giftware (Great Britain), (a)(c) 4,287,000 $3,285,188 Il Shin Spinning Fabric & Yarn Manufacturer Company (Korea) 54,200 1,415,064 --------- 4,700,252 INSURANCE--2.0% IPC Holdings, Ltd. Reinsurance Provider (Bermuda) 87,700 $1,962,287 OTHER FINANCIAL--4.3% Ichiyoshi Securities Co., Stock Broker Ltd. (Japan) 614,000 $2,455,608 JCG Holdings Ltd. Consumer Finance (Hong Kong) 3,321,000 1,703,066 --------- 4,158,674 HOTELS & MOTELS--4.2% Jarvis Hotels plc Hotel Operator (Great Britain) 2,684,000 $4,018,352 HUMAN RESOURCES--3.4% United Services Group Temporary Staffing Services NV (Netherlands) 98,300 $1,790,023 Creyf's NV (Belgium) Temporary Staffing Services 68,000 1,525,400 --------- 3,315,423 MARKETING SERVICES--2.2% Asatsu-DK Inc. (Japan) Advertising Services Provider 97,500 $2,159,417 TELECOMMUNICATIONS--0.7% Telemig Celular Mobile Telecommunications Participacoes S.A. (Brazil), (a) 190,000,000 $ 652,454 BROADCASTING & CABLE TV--0.0% ABS-CBN Broadcasting Television & Broadcasting Operator Corporation (Philippines) 5,000 $ 4,392
50 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. -------------------------------------------------------------------------------
Description Shares Held Market Value ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.8% (CONT.) PUBLISHING--4.3% Matichon Public Newspaper Publisher Company Limited, Foreign Shares (Thailand), (c) 2,039,500 $2,016,167 VLT AB, Class B (Sweden) Newspaper Publisher 153,450 1,205,008 Edipresse S.A. (Switzerland) Newspaper & Magazine Publisher 2,760 887,526 --------- 4,108,701 PRINTING--1.6% Hung Hing Printing Group Limited (Hong Kong) Printing Company 4,198,000 $1,587,695 AUTOMOTIVE--0.6% Dongah Tire Industry Company (Korea) Innertube Manufacturer 34,400 $ 620,285 AUTOMOBILES--3.7% Ducati Motor Holding S.p.A. (Italy), (a) Motorcycle Manufacturer 2,094,000 $3,564,448 TRANSPORTATION SERVICES--4.1% DelGro Corporation Bus, Taxi, & Car Leasing Limited (Singapore) 680,000 $2,204,489 Mainfreight Limited Logistics Services (New Zealand), (c) 3,993,551 1,755,553 --------- 3,960,042 AIRPORT MAINTENANCE--6.1% Flughafen Wien AG Airport Management & Operations (Austria) 89,300 $2,977,319 Grupo Aeroportuario Airport Operator del Sureste S.A. de C.V. (Mexico), (a)(b) 124,900 2,418,064 Kobenhavns Lufthavne Airport Management & Operations A/S (Copnehagen Airports A/S) (Denmark) 5,700 483,697 --------- 5,879,080
THE OAKMARK INTERNATIONAL SMALL CAP FUND 51 THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. -------------------------------------------------------------------------------
Description Shares Held Market Value ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.8% (CONT.) INSTRUMENTS--1.8% Rotork plc Industrial Controls & (Great Britain) Instruments Supplier 182,000 $ 848,437 Halma plc Detection Systems Producer (Great Britain) 335,000 613,264 Vaisala Oyj, Class A Atmospheric Observation Equipment (Finland) 11,200 270,948 --------- 1,732,649 MACHINERY & INDUSTRIAL PROCESSING--1.3% ASM Pacific Technology Semiconductor Machinery Limited (Hong Kong) 755,000 $1,268,005 BUILDING MATERIALS & CONSTRUCTION--5.3% Fletcher Building Limited Buildings Material Manufacturer (New Zealand) 3,392,000 3,146,385 Grafton Group plc Building Materials Distributor (Ireland) 72,300 2,003,473 --------- 5,149,858 CHEMICALS--2.4% Kemira Oyj (Finland) Chemicals 413,400 $2,309,292 PRODUCTION EQUIPMENT--4.7% NSC Groupe Textile Equipment Manufacturer (France) 19,843 $1,790,974 Interpump Group Spa Pump and Piston Manufacturer (Italy) 483,000 1,780,311 Krones AG Production Machinery Manufacturer (Germany) 29,300 979,458 --------- 4,550,743 OTHER INDUSTRIAL GOODS & SERVICES--3.6% GFI Industries SA Industrial Fastener Manufacturer (France) 131,000 $3,491,794
52 THE OAKMARK INTERNATIONAL SMALL CAP FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS--MARCH 31, 2001 (UNAUDITED) CONT. -------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ Shares Held/ Description Par Value Market Value ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--94.8% (CONT.) DIVERSIFIED CONGLOMERATES--7.8% Pacific Dunlop Limited Diversified Manufacture (Australia) 4,176,626 2,569,966 Tae Young Corporation Heavy Construction (Korea) 106,600 2,138,407 Haw Par Corporation Ltd. Healthcare & Leisure Products (Singapore) 903,000 1,831,521 Jardine Strategic Holdings Diversified Operations Limited (Bermuda) 340,700 991,437 ---------- 7,531,331 TOTAL COMMON STOCKS (COST: $99,502,118) 91,638,807 SHORT TERM INVESTMENTS--6.2% COMMERCIAL PAPER--3.1% General Electric Capital Corporation, 5.35% due 4/2/2001 $3,000,000 $ 3,000,000 TOTAL COMMERCIAL PAPER (COST: $3,000,000) 3,000,000 REPURCHASE AGREEMENTS--3.1% State Street Repurchase Agreement, 5.18% due 4/2/2001 $2,999,000 $ 2,999,000 TOTAL REPURCHASE AGREEMENTS (COST: $2,999,000) 2,999,000 TOTAL SHORT TERM INVESTMENTS (COST: $5,999,000) 5,999,000 Total Investments (Cost $105,501,118)--101.0% (d) $97,637,807 Foreign Currencies (Proceeds $17,788)--0.0% 17,756 Other Liabilities In Excess Of Other Assets--(1.0)% (e) (972,595) ----------- TOTAL NET ASSETS--100% $96,682,968 ===========
(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 March 31, 2001, net unrealized depreciation of $7,863,342, for federal income tax purposes, consisted of gross unrealized appreciation of $8,992,152 and gross unrealized depreciation of $16,855,494. (e) Includes transaction hedges. THE OAKMARK INTERNATIONAL SMALL CAP FUND 53 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--MARCH 31, 2001 --------------------------------------------------------------------------------
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value $ 2,536,452,993 $ 3,027,294,878 $ 231,096,184 (cost: 2,149,564,896) (cost: 2,393,335,725) (cost: 243,000,237) Cash 329 733 91 Foreign currency, at value 0 0 0 Receivable for: Securities sold 0 49,357,331 0 Fund shares sold 3,183,526 17,344,066 706,758 Dividends and interest 3,906,294 2,439,216 66,738 --------------- --------------- --------------- Total receivables 7,089,820 69,140,613 773,496 Other Assets 158,764 30,237 19,628 --------------- --------------- --------------- Total assets $ 2,543,701,906 $ 3,096,466,461 $ 231,889,399 --------------- --------------- --------------- ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND NET ASSETS Payable for: Securities purchased 0 5,188,000 311,897 Fund shares redeemed 13,436,832 864,294 196,170 Other 1,196,822 1,054,779 241,584 --------------- --------------- --------------- Total liabilities 14,633,654 7,107,073 749,651 --------------- --------------- --------------- Net assets applicable to fund shares outstanding $ 2,529,068,252 $ 3,089,359,388 $ 231,139,748 =============== =============== =============== Fund shares outstanding 78,535,599 128,826,996 16,052,790 =============== =============== =============== ----------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net Asset Value Per Share--Class I $ 32.20 $ 23.98 $ 14.40 Net Asset Value Per Share--Class II $ 23.93 ----------------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NET ASSETS Paid in capital $ 2,444,680,064 $ 2,514,658,315 $ 233,881,901 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions (311,896,235) (63,495,258) 9,161,900 Net unrealized appreciation (depreciation) of investments 386,888,097 633,959,153 (11,904,053) 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) 9,396,326 4,237,178 0 --------------- --------------- --------------- Net assets applicable to Fund shares outstanding $ 2,529,068,252 $ 3,089,359,388 $ 231,139,748 =============== =============== =============== ----------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net asset value per share: Class I $ 32.20 $ 23.98 $ 14.40 Class I--Net assets $ 2,529,068,252 $ 3,071,077,878 $ 231,139,748 Class I--Shares outstanding 78,535,599 128,063,078 16,052,790 Net asset value per share: Class II $ 23.93 Class II--Net assets $ 18,281,510 Class II Shares outstanding 763,918
54 THE OAKMARK FAMILY OF FUNDS --------------------------------------------------------------------------------
THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INCOME FUND FUND ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value $ 163,491,591 $ 37,287,015 (cost: 154,415,981) (cost: 35,114,858) Cash 527 6,744 Foreign currency, at value 0 2,877 Receivable for: Securities sold 146,857 509,505 Fund shares sold 1,499,969 134,773 Dividends and interest 630,088 165,111 --------------- --------------- Total receivables 2,276,914 809,389 Other Assets 1,246 10,731 --------------- --------------- Total assets $ 165,770,278 $ 38,116,756 --------------- --------------- ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND NET ASSETS Payable for: Securities purchased 3,580,205 713,712 Fund shares redeemed 97,577 9,935 Other 135,430 111,822 --------------- --------------- Total liabilities 3,813,212 835,469 --------------- --------------- Net assets applicable to fund shares outstanding $ 161,957,066 $ 37,281,287 =============== =============== Fund shares outstanding 9,746,837 3,319,320 =============== =============== ---------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net Asset Value Per Share--Class I $ 16.62 $ 11.23 Net Asset Value Per Share--Class II $ 16.59 ---------------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NET ASSETS Paid in capital $ 149,481,144 $ 34,557,334 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 2,120,439 553,573 Net unrealized appreciation (depreciation) of investments 9,075,609 2,171,995 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 Net unrealized appreciation (depreciation)--other 0 (1,615) Accumulated undistributed net investment income (loss) 1,279,874 0 --------------- --------------- Net assets applicable to Fund shares outstanding $ 161,957,066 $ 37,281,287 =============== =============== ---------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net asset value per share: Class I $ 16.62 $ 11.23 Class I--Net assets $ 161,067,857 $ 37,281,287 Class I--Shares outstanding 9,693,246 3,319,320 Net asset value per share: Class II $ 16.59 Class II--Net assets $ 889,209 Class II Shares outstanding 53,591 THE OAKMARK THE OAKMARK INTERNATIONAL INTERNATIONAL FUND SMALL CAP FUND ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value $ 780,708,187 $ 97,637,807 (cost: 858,908,970) (cost: 105,501,118) Cash 10 66 Foreign currency, at value 277,679 17,756 Receivable for: Securities sold 5,335,677 239,631 Fund shares sold 2,569,134 536,042 Dividends and interest 5,578,036 515,459 --------------- --------------- Total receivables 13,482,847 1,291,132 Other Assets 73,168 4,148 --------------- --------------- Total assets $ 794,541,891 $ 98,950,909 --------------- --------------- ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND NET ASSETS Payable for: Securities purchased 11,625,907 2,006,810 Fund shares redeemed 581,051 24,586 Other 1,344,568 236,545 --------------- --------------- Total liabilities 13,551,526 2,267,941 --------------- --------------- Net assets applicable to fund shares outstanding $ 780,990,365 $ 96,682,968 =============== =============== Fund shares outstanding 55,362,092 8,880,841 =============== =============== ---------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net Asset Value Per Share--Class I $ 14.11 $ 10.89 Net Asset Value Per Share--Class II $ 14.09 $ 10.88 ---------------------------------------------------------------------------------------------------------------------------------- ANALYSIS OF NET ASSETS Paid in capital $ 849,740,013 $ 102,934,939 Accumulated undistributed net realized gain (loss) on sale of investments, forward contracts and foreign currency exchange transactions 6,413,814 1,057,339 Net unrealized appreciation (depreciation) of investments (78,201,097) (7,863,342) Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 Net unrealized appreciation (depreciation)--other (134,487) (16,820) Accumulated undistributed net investment income (loss) 3,172,122 570,852 --------------- --------------- Net assets applicable to Fund shares outstanding $ 780,990,365 $ 96,682,968 =============== =============== ---------------------------------------------------------------------------------------------------------------------------------- PRICE OF SHARES Net asset value per share: Class I $ 14.11 $ 10.89 Class I--Net assets $ 780,800,105 $ 96,652,444 Class I--Shares outstanding 55,348,590 8,878,035 Net asset value per share: Class II $ 14.09 $ 10.88 Class II--Net assets $ 190,261 $ 30,524 Class II Shares outstanding 13,503 2,806
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 55 THE OAKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--MARCH 31, 2001 --------------------------------------------------------------------------------
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends $ 16,798,660 $ 10,973,290 $ 763,911 Interest Income 5,817,029 5,981,985 410,080 Other Income 405,714 250 0 Foreign taxes withheld 0 0 0 ------------- ------------- ------------- Total investment income 23,021,403 16,955,525 1,173,991 ---------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 11,101,319 10,314,809 1,128,445 Transfer and dividend disbursing agent fees 942,655 556,789 138,369 Other shareholder servicing fees 368,380 763,187 51,170 Service Fee--Class II 0 12,017 0 Reports to shareholders 359,500 260,202 50,100 Custody and accounting fees 134,392 138,144 33,704 Registration and blue sky expenses 61,470 259,840 14,957 Trustee fees 92,063 63,886 29,805 Legal fees 18,228 17,681 6,569 Audit fees 12,210 10,177 10,176 Other 115,000 116,204 16,940 ------------- ------------- ------------- Total expenses 13,205,217 12,512,936 1,480,235 Expense reimbursement 0 Expense offset arrangements (7,114) (7,609) (1,072) ------------- ------------- ------------- Net expenses 13,198,103 12,505,327 1,479,163 ---------------------------------------------------------------------------------------------------------------------------------- Net Investment Income (loss): 9,823,300 4,450,198 (305,172) ---------------------------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 47,001,766 (62,842,619) 9,261,621 Net realized gain (loss) on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 355,524,610 446,744,173 (15,410,934) 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: 402,526,376 383,901,554 (6,149,313) ------------- ------------- ------------- ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 412,349,676 $ 388,351,752 $ (6,454,485) ============= ============= =============
56 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 $ 645,087 $ 314,880 $ 10,647,143 $ 1,314,597 Interest Income 1,141,069 69,145 980,406 110,895 Other Income 1,544 0 0 0 Foreign taxes withheld 22,297 (37,810) (1,323,139) (205,364) ------------ ------------ ------------ ------------ Total investment income 1,809,997 346,215 10,304,410 1,220,128 ----------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 288,377 148,597 4,001,164 554,521 Transfer and dividend disbursing agent fees 34,133 23,306 273,918 58,841 Other shareholder servicing fees 16,811 2,506 205,502 18,453 Service Fee--Class II 751 0 169 18 Reports to shareholders 10,010 9,100 160,405 18,200 Custody and accounting fees 35,674 32,146 436,543 91,970 Registration and blue sky expenses 32,720 30,411 29,695 15,191 Trustee fees 23,505 22,665 43,407 24,479 Legal fees 5,144 4,904 10,073 5,154 Audit fees 10,177 12,271 13,253 12,210 Other 9,572 4,193 44,344 9,840 ------------ ------------ ------------ ------------ Total expenses 466,874 290,099 5,218,473 808,877 Expense reimbursement (34,960) (20,200) Expense offset arrangements (43) (238) (1,791) (689) ------------ ------------ ------------ ------------ Net expenses 431,871 269,661 5,216,682 808,188 ----------------------------------------------------------------------------------------------------------------------------------- Net Investment Income (loss): 1,378,126 76,554 5,087,728 411,940 ----------------------------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on investments 2,086,298 674,807 7,912,605 1,268,875 Net realized gain (loss) on foreign currency transactions (518) 85,631 2,746,119 671,822 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 2,168,174 (161,412) (33,800,440) (552,884) Net change in appreciation (depreciation) of forward currency exchange contracts 0 (76,462) (2,048,003) (289,441) Net change in appreciation (depreciation)--other 0 (100) 45,753 8,866 ----------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency transactions: 4,253,954 522,464 (25,143,966) 1,107,238 ------------ ------------ ------------ ------------ ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 5,632,080 $ 599,018 $(20,056,238) $ 1,519,178 ============ ============ ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 57 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2001 -------------------------------------------------------------------------------
THE OAKMARK FUND ---------------------------------------------------- PERIOD ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 9,823,300 $ 39,618,068 Net realized gain (loss) on sale of investments 47,001,766 (358,898,002) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 355,524,610 (135,635,885) ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 412,349,676 (454,915,819) -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (28,565,025) (32,700,105) Net realized short-term gain 0 (100,782,239) Net realized long-term gain 0 (487,248,675) ------------------ ------------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (28,565,025) (620,731,019) -------------------------------------------------------------------------------------------------------------------------- FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 496,942,654 290,642,873 Reinvestment of dividends and capital gain distributions 27,793,631 603,462,527 Payments for shares redeemed, net of fees (418,181,491) (2,552,562,124) ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 106,554,794 (1,658,456,724) ------------------ ------------------ -------------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 490,339,445 (2,734,103,562) NET ASSETS: Beginning of period 2,038,728,807 4,772,832,369 ------------------ ------------------ End of period $ 2,529,068,252 $ 2,038,728,807 ================== ================== Undistributed net investment income $ 9,396,326 $ 38,561,304 ================== ================== (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.3872 $ 0.2632 Net realized short-term gain 0 0.8111 Net realized long-term gain 0 3.9217 ------------------ ------------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.3872 $ 4.9960 ================== ==================
58 THE OAKMARK FAMILY OF FUNDS ................................................................................
THE OAKMARK SELECT FUND ----------------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 ----------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 4,450,198 $ 12,054,873 Net realized gain (loss) on sale of investments (62,842,619) 161,052,611 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 446,744,173 159,978,754 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 388,351,752 333,086,238 ................................................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income -- Class I (7,393,194) (14,709,648) Net investment income -- Class II (21,607) 0 Net realized short-term gain (23,966,532) (8,341,169) Net realized long-term gain (93,493,183) (268,872,301) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (124,874,516) (291,923,118) ................................................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold -- Class I 1,085,904,181 628,490,960 Proceeds from shares sold -- Class II 11,850,186 7,021,801 Reinvestment of dividends and capital gain distributions 121,465,765 287,179,516 Payments for shares redeemed, net of fees -- Class I (170,421,864) (823,014,435) Payments for shares redeemed, net of fees -- Class II (1,652,590) (1,013,300) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,047,145,678 98,664,542 -------------- -------------- ................................................................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS 1,310,622,914 139,827,662 NET ASSETS: Beginning of period 1,778,736,474 1,638,908,812 -------------- -------------- End of period $3,089,359,388 $1,778,736,474 ============== ============== Undistributed net investment income $ 4,237,178 $ 8,584,306 ============== ============== (1) DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.0861 $ 0.1972 Net realized short-term gain 0.2779 0.1118 Net realized long-term gain 1.0832 3.6040 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.4472 $ 3.9130 ============== ============== DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.0593 Net realized short-term gain 0.2667 Net realized long-term gain 1.0732 -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.3992 ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 59 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2001 CONT. .............................................................................
THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income (loss) $ (305,172) $ (1,173,696) Net realized gain (loss) on sale of investments 9,261,621 25,233,378 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (15,410,934) (12,748,906) ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (6,454,485) 11,310,776 ................................................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income 0 0 Net realized short-term gain 0 0 Net realized long-term gain (8,165,107) 0 ------------ ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (8,165,107) 0 ................................................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 45,640,929 51,615,294 Reinvestment of dividends and capital gain distributions 8,045,937 0 Payments for shares redeemed, net of fees (56,631,138) (251,361,737) ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (2,944,272) (199,746,443) ------------ ------------- ................................................................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS (17,563,864) (188,435,667) NET ASSETS: Beginning of period 248,703,612 437,139,279 ------------ ------------- End of period $231,139,748 $ 248,703,612 ============ ============= 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 0.5102 0 ------------ ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.5102 $ 0 ============ =============
60 THE OAKMARK FAMILY OF FUNDS ................................................................................
THE OAKMARK EQUITY AND INCOME FUND ---------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 1,378,126 $ 1,666,618 Net realized gain (loss) on sale of investments 2,086,298 4,310,645 Net realized gain (loss) on foreign currency transactions (518) (645) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 2,168,174 3,084,969 Net change in unrealized appreciation (depreciation)--other 0 159 ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 5,632,080 9,061,746 .............................................................................................................. DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income -- Class I (897,529) (1,718,499) Net investment income -- Class II (7,433) 0 Net realized short-term gain 0 0 Net realized long-term gain (3,733,470) (5,192,802) ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,638,432) (6,911,301) .............................................................................................................. FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold -- Class I 137,311,176 11,520,117 Proceeds from shares sold -- Class II 407,339 418,255 Reinvestment of dividends and capital gain distributions 4,457,698 6,650,712 Payments for shares redeemed, net of fees -- Class I (36,133,030) (26,121,233) Payments for shares redeemed, net of fees -- Class II (15,602) (50) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 106,027,581 (7,532,199) ------------ ------------- .............................................................................................................. TOTAL INCREASE (DECREASE) IN NET ASSETS 107,021,229 (5,381,754) NET ASSETS: Beginning of period 54,935,837 60,317,591 ------------ ------------ End of period $161,957,066 $ 54,935,837 ============ ============ Undistributed net investment income $ 1,279,874 $ 1,007,663 ============ ============ (1) DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.2427 $ 0.4509 Net realized short-term gain 0 0 Net realized long-term gain 1.0013 1.3625 ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.2440 $ 1.8134 ============ ============ DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.2368 Net realized short-term gain 0 Net realized long-term gain 0.9967 ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.2335 ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 61 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2001 CONT. ............................................................................
THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 76,554 $ 146,742 Net realized gain (loss) on sale of investments 674,807 96,088 Net realized gain (loss) on foreign currency transactions 85,631 132,840 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (161,412) 4,122,450 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (76,462) 81,181 Net change in unrealized appreciation (depreciation)--other (100) (1,568) ----------- ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 599,018 4,577,733 ............................................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (435,138) (29,834) Net realized short-term gain (92,927) 0 Net realized long-term gain (37,007) 0 ----------- ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (565,072) (29,834) ............................................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 15,749,046 12,896,002 Reinvestment of dividends and capital gain distributions 560,498 28,883 Payments for shares redeemed, net of fees (6,289,442) (14,198,899) ----------- ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 10,020,102 (1,274,014) ----------- ------------ ............................................................................................................... TOTAL INCREASE (DECREASE) IN NET ASSETS 10,054,048 3,273,885 NET ASSETS: Beginning of period 27,227,239 23,953,354 ------------ ------------ End of period $ 37,281,287 $ 27,227,239 ============ ============ Undistributed net investment income $ 0 $ 280,910 ============ ============ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.1742 $ 0.0098 Net realized short-term gain 0.0372 0 Net realized long-term gain 0.0145 0 ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2259 $ 0.0098 ============ ============
62 THE OAKMARK FAMILY OF FUNDS ................................................................................
THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 5,087,728 $ 14,664,615 Net realized gain (loss) on sale of investments 7,912,605 60,562,992 Net realized gain (loss) on foreign currency transactions 2,746,119 10,609,055 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (33,800,440) 13,902,115 Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (2,048,003) 2,556,178 Net change in unrealized appreciation (depreciation)--other 45,753 (111,145) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (20,056,238) 102,183,810 ...................................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income -- Class I (24,851,611) (27,231,383) Net investment income -- Class II (3,245) (1,053) Net realized short-term gain (16,422,539) 0 Net realized long-term gain (8,281,127) 0 ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (49,558,522) (27,232,436) ...................................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold -- Class I 125,885,443 172,133,473 Proceeds from shares sold -- Class II 121,312 143,284 Reinvestment of dividends and capital gain distributions 47,893,259 26,258,587 Payments for shares redeemed, net of fees -- Class I (105,790,680) (302,066,042) Payments for shares redeemed, net of fees -- Class II (18,175) (48,697) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 68,091,159 (103,579,395) ------------- ------------- ...................................................................................................... TOTAL INCREASE (DECREASE) IN NET ASSETS (1,523,601) (28,628,021) NET ASSETS: Beginning of period 782,513,966 811,141,987 ------------- ------------- End of period $ 780,990,365 $ 782,513,966 ============= ============= Undistributed net investment income $ 3,172,122 $ 24,309,333 ============= ============= (1) DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.5074 $ 0.4861 Net realized short-term gain 0.3353 0 Net realized long-term gain 0.1690 0 ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 1.0117 $ 0.4861 ============= ============= DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.4869 Net realized short-term gain 0.3217 Net realized long-term gain 0.1621 ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.9707 =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 63 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2001 CONT. .............................................................................
THE OAKMARK INTERNATIONAL SMALL CAP FUND ---------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 411,940 $ 2,268,614 Net realized gain (loss) on sale of investments 1,268,875 4,863,798 Net realized gain (loss) on foreign currency transactions 671,822 991,046 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (552,884) (13,182,275) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts (289,441) 281,817 Net change in unrealized appreciation (depreciation)--other 8,866 (28,709) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 1,519,178 (4,805,709) .................................................................................................... DISTRIBUTION TO SHAREHOLDERS FROM (1): Net investment income (2,566,081) (1,252,257) Net realized short-term gain 0 (3,278,736) Net realized long-term gain (3,663,066) (3,226,904) ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (6,229,147) (7,757,897) .................................................................................................... FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold -- Class I 20,628,332 39,669,014 Proceeds from shares sold -- Class II 29,972 Reinvestment of dividends and capital gain distributions 6,071,794 7,637,609 Payments for shares redeemed, net of fees (15,682,944) (99,763,438) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 11,047,154 (52,456,815) ------------ ------------ .................................................................................................... TOTAL INCREASE (DECREASE) IN NET ASSETS 6,337,185 (65,020,421) NET ASSETS: Beginning of period 90,345,783 155,366,203 ------------ ------------ End of period $ 96,682,968 $ 90,345,782 ============ ============ Undistributed net investment income $ 570,852 $ 2,967,277 ============ ============ (1) DISTRIBUTIONS PER SHARE: Net investment income $ 0.3402 $ 0.1135 Net realized short-term gain 0 0.2972 Net realized long-term gain 0.4853 0.2923 ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.8255 $ 0.7030 ============ ============
64 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 Committees 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 March 31, 2001, 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 $(1,844) $(133,291) $(15,495) Unrealized appreciation (depreciation) on open securities purchases and sales 0 17,103 9,919 Unrealized appreciation (depreciation) on transaction hedge purchases and sales 25 (29,532) (13,110) Unrealized appreciation (depreciation) on tax expense payable 204 11,233 1,866 ------- --------- -------- Net Unrealized Appreciation (Depreciation) - Other $(1,615) $(134,487) $(16,820) ======= ========= ========
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 65 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 March 31, 2001, 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 March 31, 2001: TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 2001 ----------------------------------------------------------------------------------- $2,901 3,270 Euro Currency April 2001 $25 --- $25 ===
The International Fund had the following outstanding contracts at March 31, 2001: TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2001 ------------------------------------------------------------------------------------------ $ 996,762 1,127,353 Euro Currency April 2001 $ (2,029) 328,471 372,754 Euro Currency April 2001 (559) 4,527,495 3,150,000 Pound Sterling April 2001 (57,330) 505,313 352,454 Pound Sterling April 2001 (5,146) 1,495,003 1,042,759 Pound Sterling April 2001 (15,224) 1,191,148 12,376,027 Swedish Krona April 2001 1,320 1,664,986 17,299,204 Swedish Krona April 2001 1,845 776,177 8,040,419 Swedish Krona April 2001 (1,459) 222,552 2,305,418 Swedish Krona April 2001 (418) -------- $(79,000) ========
66 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 MARCH 31, 2001 ------------------------------------------------------------------------------------------------- $912,101 1,026,910 Euro Currency April 2001 $ 8,729 2,145,922 1,495,416 Pound Sterling April 2001 23,777 1,672,929 1,166,861 Pound Sterling April 2001 17,036 567,488 399,950 Pound Sterling April 2001 (80) 86,705 676,255 Hong Kong Dollar April 2001 6 ------- $ 49,468 ========
The Int'l Small Cap Fund had the following outstanding contracts at March 31, 2001: TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2001 ------------------------------------------------------------------------------------------------ $496,298 1,002,216 Australian Dollar April 2001 $ (6,865) 369,303 637,972 Swiss Franc April 2001 (1,650) 201,221 140,980 Pound Sterling April 2001 (1,156) 26,528 206,906 Hong Kong Dollar April 2001 (2) 345,927 2,698,059 Hong Kong Dollar April 2001 (24) 8,882 69,279 Hong Kong Dollar April 2001 0 294,397 36,187,230 Japanese Yen April 2001 (6,098) -------- $(15,795) =========
TRANSACTION HEDGES: FOREIGN CURRENCY SALES--
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 2001 ------------------------------------------------------------------------------------------------------------------------ $242,316 168,861 Pound Sterling April 2001 $2,685 ------ $2,685 ======
THE OAKMARK FAMILY OF FUNDS 67 THE OAKMARK FAMILY OF FUNDS -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONT.) -------------------------------------------------------------------------------- At March 31, 2001, 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. 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 $250 million. Borrowings under this arrangement bear interest at .45% above the Federal Funds Effective Rate. As of March 31, 2001, 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 six-months ended March 31, 2001, Small Cap wrote option contracts. 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 billion of net assets, .90% on the next $1 billion of net assets, .80% on the next $2 billion of net assets, and .75% on the excess of $5 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 1.00% 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 billion of net assets, .95% on the next $1 billion of net assets, and .85% on the excess of $3 billion of net assets. Int'l Small Cap pays 1.25% on the first $500 million and 1.10% on the excess of $500 million 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, for Class I shares exceed 1.5% for domestic funds, 2.0% for international funds, 1.75% for the Global Fund and 1.0% for the Equity and Income Fund or, for Class II shares, exceed 1.75% for domestic funds, 2.25% for international funds, 2% for the Global Fund and 1.25% for the Equity & Income Fund. In connection with the organization of the Funds, expenses of approximately $3,500 were advanced to Select by the Adviser. These expenses are being amortized on a straight line basis through October, 2001. During the six months ended March 31, 2001, the Funds incurred brokerage commissions of $2,450,724, $2,384,816, $256,184, $169,968, $91,010, $1,681,904, and $215,996 of which $909,864, $676,789, $64,132, $91,473, $22,842, $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. 68 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):
SIX MONTHS ENDED MARCH 31, 2001 ---------------------------------------------------------------------------------------------------------------- EQUITY & INT'L OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL CAP ---------------------------------------------------------------------------------------------------------------- Shares sold 15,667 47,646 3,084 8,318 1,344 8,306 1,890 Shares issued in reinvestment of dividends 993 5,908 585 293 53 3,303 588 Less shares redeemed (13,784) (7,658) (4,085) (2,194) (573) (7,061) (1,450) ------- ------ ------ ------ ----- ------ ------ Net increase (decrease) in shares outstanding 2,876 45,896 (416) 6,417 824 4,548 1,028 ======= ====== ===== ====== ===== ====== ======
TWELVE MONTHS ENDED SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------------------ EQUITY & INT'L OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL 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) ======= ====== ====== === === ===== =====
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 $720,136 $1,109,160 $40,377 $123,716 $20,214 $302,675 $33,675 Proceeds from sales $614,600 $ 348,767 $60,814 $ 40,464 $11,149 $273,770 $28,257
Transactions in options written by Small Cap during the six months ended March 31, 2001 were as follows:
NUMBER OF PREMIUMS CONTRACTS RECEIVED ----------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2000 $ 210 $ 64,578 Options written 4,250 428,173 Options terminated in closing purchase transactions (2,000) (67,502) Options expired (2,460) (425,249) Options exercised 0 0 ------- -------- Options outstanding at March 31, 2001 $ 0 $ 0 ======= ========
THE OAKMARK FAMILY OF FUNDS 69 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 six months ended March 31, 2001 is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2001 -------------------------------------------------------------------------------------------------- The Reynolds and Reynolds Company, Class A $ 0 $ 0 $657,767 $115,109,225 ------ ------ -------- ------------ TOTALS $ 0 $ 0 $657,767 $115,109,225
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2001 -------------------------------------------------------------------------------------------------- Department 56 $1,635,914 $ 60,478 $ 0 $ 5,785,000 R.G. Barry Corporation 91,220 0 0 2,227,500 Sames Corporation 0 0 0 2,209,000 ---------- ---------- -------- ------------- TOTALS $1,727,134 $ 60,478 $ 0 $ 10,221,500
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2001 ------------------------------------------------------------------------------------------------ Chargeurs SA $ 0 $ 4,647,299 $ 0 $ 25,467,795 Dongah Tire Industry Company 0 0 130,117 2,998,467 Enodis plc 24,662,985 0 1,325,669 27,184,956 Fila Holding S.P.A. 378,190 0 0 13,315,840 Lotte Chilsung Beverage Company 422,181 0 61,854 9,502,630 Nufarm Limited 0 0 597,528 12,674,408 Somerfield plc 0 13,465,067 0 37,564,605 ----------- ----------- ---------- ------------ TOTALS $25,463,356 $18,112,366 $2,115,168 $128,708,701
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2001 ------------------------------------------------------------------------------------------------------------------------ Royal Doulton plc $ 444,480 $ 378,841 $ 0 $ 3,285,188 Mainfreight Limited 0 196,511 59,600 1,755,553 Matichon Public Company Limited, Foreign Shares 0 0 0 2,016,167 ----------- ----------- ---------- ------------ TOTALS $ 444,480 $ 575,352 $ 59,600 $ 7,056,908
70 THE OAKMARK FAMILY OF FUNDS THE OAKMARK FUND ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 1998 1997(d) ---------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 26.95 $ 34.37 $ 33.54 $ 41.21 $ 32.39 Income From Investment Operations: Net Investment Income (Loss) 0.00 0.48 0.36 0.47 0.36 Net Gains or Losses on Securities (both realized and unrealized) 5.64 (2.91) 2.51 (1.73) 10.67 -------- --------- --------- -------- -------- Total From Investment Operations: 5.64 (2.43) 2.87 (1.26) 11.03 Less Distributions: Dividends (from net investment income) (0.39) (0.26) (0.44) (0.40) (0.34) Distributions (from capital gains) 0.00 (4.73) (1.60) (6.01) (1.87) -------- --------- --------- -------- -------- Total Distributions (0.39) (5.00) (2.04) (6.41) (2.21) -------- --------- --------- -------- -------- Net Asset Value, End of Period $ 32.20 $ 26.95 $ 34.37 $ 33.54 $ 41.21 -------- --------- --------- -------- -------- -------- --------- --------- -------- -------- Total Return 21.13% (7.55)% 7.98% (4.06)% 39.24%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $2,529.1 $2,038.7 $4,772.8 $6,924.0 $6,614.9 Ratio of Expenses to Average Net Assets 1.16%* 1.21% 1.11% 1.08% 1.08%* Ratio of Net Investment Income (Loss) to Average Net Assets 0.86%* 1.42% 1.02% 1.22% 1.19%* Portfolio Turnover Rate 29% 50% 13% 43% 17%
PERIOD YEAR ENDED OCTOBER 31, 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) 0.00 0.00 Distributions (from capital gains) (0.84) (1.47) (0.77) (0.21) 0.00 0.00 -------- --------- -------- --------- --------- ------ Total Distributions (1.12) (1.70) (1.00) (0.25) 0.00 0.00 -------- --------- -------- --------- --------- ------ 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 71 THE OAKMARK SELECT FUND ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
DECEMBER 31, 1999 PERIOD ENDED PERIOD ENDED YEAR ENDED THROUGH ELEVEN MONTHS MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED YEAR ENDED ENDED 2001 2001 2000 2000 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II(a) 1999 1998 1997(b) ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 21.45 $21.40 $ 20.92 $18.42 $16.76 $16.34 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.02 (0.01) 0.13 0.10 0.19 0.03 (0.01) Net Gains or Losses on Securities (both realized and unrealized) 3.96 3.94 4.32 2.88 4.73 0.56 6.35 --------- ------- -------- -------- ------- ------- ------ Total From Investment Operations: 3.98 3.93 4.45 2.98 4.92 0.59 6.34 Less Distributions: Dividends (from net investment income) (0.09) (0.06) (0.20) 0.00 (0.05) 0.00 0.00 Distributions (from capital gains) (1.36) (1.34) (3.72) 0.00 (0.71) (0.17) 0.00 --------- ------- -------- -------- ------- ------- ------ Total Distributions (1.45) (1.40) (3.91) 0.00 (0.76) (0.17) 0.00 --------- ------- -------- -------- ------- ------- ------ Net Asset Value, End of Period $ 23.98 $23.93 $ 21.45 $21.40 $ 20.92 $16.76 $ 16.34 --------- ------- -------- -------- ------- ------- ------ --------- ------- -------- -------- ------- ------- ------ Total Return 19.66% 19.44% 24.53% 21.57%* 30.07% 3.64% 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $3,071.1 $18.3 $1,772.0 $ 6.8 $1,638.9 $1,227.9 $514.2 Ratio of Expenses to Average Net Assets(a) 1.09%* 1.39%* 1.17% 1.41%* 1.16% 1.22% 1.12%* Ratio of Net Investment Income (Loss) to Average Net Assets(a) 0.39%* 0.05%* 0.76% 0.59%* 0.98% 0.17% (0.11)%* Portfolio Turnover Rate 17% 17% 69% 69% 67% 56% 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. 72 THE OAKMARK FAMILY OF FUNDS THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 2001 2000 1999 1998 1997(b) 1996 ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 15.10 $ 13.88 $ 12.63 $ 20.34 $ 13.19 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.00 0.00 0.14 (0.12) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) (0.19) 1.22 1.20 (4.73) 7.16 3.21 --------- --------- --------- --------- ---------- -------- Total From Investment Operations: (0.19) 1.22 1.34 (4.85) 7.15 3.19 Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 0.00 0.00 0.00 Distributions (from capital gains) (0.51) 0.00 (0.09) (2.86) 0.00 0.00 --------- --------- --------- --------- ---------- -------- Total Distributions (0.51) 0.00 (0.09) (2.86) 0.00 0.00 --------- --------- --------- --------- ---------- -------- Net Asset Value, End of Period $ 14.40 $ 15.10 $ 13.88 $ 12.63 $ 20.34 $ 13.19 --------- --------- --------- --------- ---------- -------- --------- --------- --------- --------- ---------- -------- Total Return (1.10)% 8.79% 10.56% (26.37)% 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($million) $231.1 $248.7 $437.1 $618.0 $1,513.4 $218.4 Ratio of Expenses to Average Net Assets 1.31%* 1.50%(a) 1.48% 1.45% 1.37%* 1.61% Ratio of Net Investment Income (Loss) to Average Net Assets (0.13)%* (0.41)%(a) (0.44)% (0.40)% (0.25)%* (0.29)% Portfolio Turnover Rate 19% 28% 68% 34% 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 73 THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED PERIOD ENDED YEAR ENDED JULY 13, 2000 MARCH 31, MARCH 31, SEPTEMBER 30, THROUGH YEAR ENDED YEAR ENDED 2001 2001 2000 SEPTEMBER 30, 2000 SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II(a) 1999 1998 ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.50 $16.49 $15.68 $15.51 $13.99 $14.49 Income From Investment Operations: Net Investment Income (Loss) 0.13 0.07 0.35 0.30 0.39 0.29 Net Gains or Losses on Securities (both realized and unrealized) 1.23 1.27 2.28 0.68 1.72 0.04 ------- ------ ------ ------ ------ ------ Total From Investment Operations: 1.36 1.34 2.63 0.98 2.11 0.33 Less Distributions: Dividends (from net investment income) (0.24) (0.24) (0.45) 0.00 (0.21) (0.24) Distributions (from capital gains) (1.00) (1.00) (1.36) 0.00 (0.21) (0.59) ------- ------ ------ ------ ------ ------ Total Distributions (1.24) (1.24) (1.81) 0.00 (0.42) (0.83) ------- ------ ------ ------ ------ ------ Net Asset Value, End of Period $ 16.62 $16.59 $16.50 $16.49 $15.68 $13.99 ======= ====== ====== ====== ====== ====== Total Return 8.96% 8.76% 18.51% 30.34%* 15.32% 2.57% Ratios/Supplemental Data: Net Assets, End of Period ($million) $161.1 $ 0.9 $54.5 $ 0.4 $60.3 $57.7 Ratio of Expenses to Average Net Assets 1.00%*(b) 1.25%*(b) 1.25% 1.32%* 1.18% 1.31% Ratio of Net Investment Income (Loss) to Average Net Assets 3.10%*(b) 2.91%*(b) 3.04% 2.59%* 2.65% 2.39% Portfolio Turnover Rate 51% 51% 87% 87% 81% 46% ELEVEN MONTHS YEAR ENDED ENDED SEPTEMBER 30, OCTOBER 31, 1997(c) 1996 ------------------------------ Net Asset Value, Beginning of Period $11.29 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.21 0.10 Net Gains or Losses on Securities (both realized and unrealized) 3.24 1.19 ------ ------ Total From Investment Operations: 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.12) 0.00 Distributions (from capital gains) (0.13) 0.00 ------- ------ Total Distributions (0.25) 0.00 ------ ------ Net Asset Value, End of Period $14.49 $11.29 ====== ====== Total Return 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $33.5 $13.8 Ratio of Expenses to Average Net Assets 1.50%*(b) 2.50%(b) Ratio of Net Investment Income (Loss) to Average Net Assets 2.38%*(b) 1.21%(b) Portfolio Turnover Rate 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:
March 31, 2001 March 31, 2001 September 30, October 31, Class I Class II 1997 1996 --------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.09% 1.33% 1.70% 2.64% Ratio of Net Income (Loss) to Average Net Assets 3.02% 2.83% 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. 74 THE OAKMARK FAMILY OF FUNDS THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31, 2001 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999(a) -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.91 $ 9.18 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.06 0.11 0.01 Net Gains or Losses on Securities (both realized and unrealized) 0.49 1.63 (0.83) ------ ------ ------ Total From Investment Operations: 0.55 1.74 (0.82) Less Distributions: Dividends (from net investment income) (0.17) (0.01) 0.00 Distributions (from capital gains) (0.06) 0.00 0.00 ------ ------ ------ Total Distributions (0.23) (0.01) 0.00 ------ ------ ------ Net Asset Value, End of Period $11.23 $10.91 $ 9.18 ====== ====== ====== Total Return 5.11% 18.97% (51.60)%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $37.3 $27.2 $24.0 Ratio of Expenses to Average Net Assets 1.75%*(b) 1.75%(b) 1.75%*(b) Ratio of Net Investment Income (Loss) to Average Net Assets 0.50%*(b) 0.54%(b) 0.98%*(b) Portfolio Turnover Rate 37% 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:
March 31, September 30, September 30, 2001 2000 1999 ----------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.88% 1.96% 2.22% Ratio of Net Income (Loss) to Average Net Assets 0.37% 0.34% 0.51%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 75 THE OAKMARK INTERNATIONAL FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NOVEMBER 4, 1999 ELEVEN PERIOD ENDED PERIOD ENDED YEAR ENDED THROUGH MONTHS MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED YEAR ENDED ENDED 2001 2001 2000 2000 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II(a) 1999 1998 1997(c) --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 15.40 $15.37 $ 13.95 $14.36 $ 10.42 $ 18.77 $ 14.92 Income From Investment Operations: Net Investment Income (Loss) 0.09 0.07 1.02 0.96 (0.34) 0.41 0.27 Net Gains or Losses on Securities (both realized and unrealized) (0.37) (0.38) 0.92 0.53 4.89 (5.32) 3.74 ------- ------ -------- ------ ------- ------- --------- Total From Investment Operations: (0.28) (0.31) 1.94 1.50 4.55 (4.91) 4.01 Less Distributions: Dividends (from net investment income) (0.51) (0.49) (0.49) (0.49) (0.24) (0.58) (0.16) Distributions (from capital gains) (0.50) (0.48) 0.00 0.00 (0.78) (2.86) 0.00 ------- ------ -------- ------ ------- ------- --------- Total Distributions (1.01) (0.97) (0.49) (0.49) (1.02) (3.44) (0.16) ------- ------ -------- ------ ------- ------- --------- Net Asset Value, End of Period $ 14.11 $14.09 $ 15.40 $15.37 $ 13.95 $ 10.42 $ 18.77 ======= ====== ======== ====== ======= ======= ========= Total Return (1.99)% (2.20)% 14.27% 11.77%* 46.41% (29.90)% 29.63%* Ratios/Supplemental Data:% Net Assets, End of Period ($million) $780.8 $ 0.2 $782.4 $ 0.1 $811.1 $756.1 $1,647.3 Ratio of Expenses to Average Net Assets 1.31%* 1.58%* 1.30% 1.50%* 1.29% 1.32% 1.26%* Ratio of Net Investment Income (Loss) to Average Net Assets 1.28%* 1.33%* 1.87% 1.98%* 1.94% 1.95% 2.09%* Portfolio Turnover Rate 36% 36% 64% 64% 54% 43% 61% PERIOD YEAR ENDED OCTOBER 31, 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) 0.00 0.00 (0.08) (0.25) 0.00 Distributions (from capital gains) (1.04) (1.06) (0.15) 0.00 0.00 --------- ------- --------- ------- ------ Total Distributions (1.04) (1.06) (0.23) (0.25) 0.00 --------- ------- --------- ------- ------ 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. 76 THE OAKMARK FAMILY OF FUNDS THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31, 2001 MARCH 31, 2001 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II(c) 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $11.51 $10.73 $12.64 $ 6.89 $12.20 Income From Investment Operations: Net Investment Income (Loss) 0.03 0.07 0.23 0.24 0.18 Net Gains or Losses on Securities (both realized and unrealized) 0.18 0.08 (0.66) 5.71 (4.09) ------- ------ ------ -------- ------ Total From Investment Operations: 0.21 0.15 (0.43) 5.95 (3.91) Less Distributions: Dividends (from net investment income) (0.34) 0.00 (0.11) (0.20) (0.06) Distributions (from capital gains) (0.49) 0.00 (0.59) 0.00 (1.34) ------- ------ ------ -------- ------ Total Distributions (0.83) 0.00 (0.70) (0.20) (1.40) ------- ------ ------ -------- ------ Net Asset Value, End of Period $10.89 $10.88 $11.51 $ 12.64 $ 6.89 ======= ====== ====== ======== ====== Total Return 2.18% 1.40% (3.44)% 88.02% (35.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $96.7 $ 0.0 $90.3 $155.4 $51.8 Ratio of Expenses to Average Net Assets 1.80%* 1.84%* 1.77% 1.79% 1.96% Ratio of Net Investment Income (Loss) to Average Net Assets 0.92%* 1.19%* 1.99% 2.31% 2.17% Portfolio Turnover Rate 33% 33% 40% 126% 69% ELEVEN MONTHS ENDED YEAR ENDED SEPTEMBER 30, OCTOBER 31, 1997(b) 1996 ----------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.41 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) 1.10 1.37 ------ ------ Total From Investment Operations: 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.08) 0.00 Distributions (from capital gains) (0.36) 0.00 ------ ------ Total Distributions (0.44) 0.00 ------ ------ Net Asset Value, End of Period $12.20 $11.41 ====== ====== Total Return 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $66.0 $39.8 Ratio of Expenses to Average Net Assets 1.93%* 2.50%(a) Ratio of Net Investment Income (Loss) to Average Net Assets 1.23%* 0.65%(a) Portfolio Turnover Rate 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. (c) The date which Class II shares were first sold to the public was January 9, 2001. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. THE OAKMARK FAMILY OF FUNDS 77 This material must be preceded or accompanied by a prospectus. To order a prospectus, which explains management fees and expenses and the special risks of investing in the funds, visit www.oakmark.com or call 1-800-OAKMARK. Please read the prospectus carefully before investing. The discussion of investments and investment strategy of the funds represents the investments of the funds and the views of fund managers and Harris Associates L.P., the funds' investment adviser, at the time of this article, and are subject to change without notice. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. INVESTING IN VALUE STOCKS PRESENTS THE RISK THAT VALUE STOCKS MAY FALL OUT OF FAVOR WITH INVESTORS AND UNDERPERFORM GROWTH STOCKS DURING GIVEN PERIODS. BECAUSE THE OAKMARK SELECT FUND IS NON-DIVERSIFIED, THE PERFORMANCE OF EACH HOLDING WILL HAVE A GREATER IMPACT ON THE FUND'S TOTAL RETURN, AND MAY MAKE THE FUND'S RETURN MORE VOLATILE THAN A MORE DIVERSIFIED FUND. INVESTING IN FOREIGN SECURITIES REPRESENTS RISKS WHICH IN SOME WAY MAY BE GREATER THAN IN U.S. INVESTMENTS. THOSE RISKS INCLUDE: CURRENCY FLUCTUATION; DIFFERENT REGULATION, ACCOUNTING STANDARDS, TRADING PRACTICES AND LEVELS OF AVAILABLE INFORMATION; GENERALLY HIGHER TRANSACTION COSTS; AND POLITICAL RISKS. THE STOCKS OF SMALLER COMPANIES OFTEN INVOLVE MORE RISK THAN THE STOCKS OF LARGER COMPANIES. STOCKS OF SMALL COMPANIES TEND TO BE MORE VOLATILE AND HAVE A SMALLER PUBLIC MARKET THAN STOCKS OF LARGER COMPANIES. SMALL COMPANIES MAY HAVE A SHORTER HISTORY OF OPERATIONS THAN LARGER COMPANIES, MAY NOT HAVE AS GREAT AN ABILITY TO RAISE ADDITIONAL CAPITAL AND MAY HAVE A LESS DIVERSIFIED PRODUCT LINE, MAKING THEM MORE SUSCEPTIBLE TO MARKET PRESSURE. THE OAKMARK EQUITY & INCOME FUND INVESTS IN MEDIUM AND LOWER-QUALITY DEBT SECURITIES WHICH HAVE HIGHER YIELD POTENTIAL BUT PRESENT GREATER INVESTMENT AND CREDIT RISK THAN HIGHER-QUALITY SECURITIES. 1 The S&P 500 Index is a broad market-weighted average of U.S. blue-chip companies. 2 NAV stands for Net Asset Value. NAV is the dollar value of a single mutual fund share, based on the value of the underlying assets of the fund minus its liabilities divided by the number of shares outstanding. 3 Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. 4 The Dow Jones Industrial Average is an unmanaged index that includes only 30 big companies. 5 The Lipper Large Cap Value Fund Index measures the performance of the thirty largest U.S. large-cap value funds tracked by Lipper. 6 The NASDAQ Composite Index is a market value weighted index of all common stocks listed on NASDAQ. 7 The Price-Earnings Ratio ("P/E") is the most common measure of how expensive a stock is. 8 The S&P MidCap 400 is an unmanaged broad market-weighted index of 400 stocks that are in the next tier down from the S&P 500 and that are chosen for market size, liquidity, and industry group representation. 9 The Lipper Mid Cap Value Fund Index measures the performance of the thirty largest U.S. mid-cap value funds tracked by Lipper. 10 The performance information for this Fund does not reflect the imposition of a 2% redemption fee on shares held by an investor less than 90 days. The purpose of this redemption fee is to deter market timers. 11 The Russell 2000 Index is an unmanaged, market-weighted index, with dividends reinvested, of 2,000 small companies, formed by taking the largest 3,000 small companies and eliminating the largest 1,000 of those companies. 12 The Lipper Small Cap Value Fund Index measures the performance of the thirty largest U.S. small-cap value funds tracked by Lipper. 78 THE OAKMARK FAMILY OF FUNDS 13 The S&P Small Cap 600 Index measures the performance of selected U.S. stocks with small market capitalizations. 14 The Lipper Balanced Fund Index measures the performance of the thirty largest U.S. balanced funds. 15 The Lehman Govt./Corp. Bond Index is an unmanaged index that includes the Lehman Government and Lehman Corporate indices. 16 The NYSE refers to the New York Stock Exchange. 17 The MSCI World Index is made up of 20 country sub-indexes, including the stock exchanges of the U.S., Europe, Canada, Australia and New Zealand and the Far East. This index is unmanaged and investors cannot actually make investments in this index. 18 During the one-year period ended March 31, 2001, IPOs contributed 0.50% to the performance of the Global Fund, and an annualized 5.16% since the Fund's inception (8/4/99). As the IPO environment changes and the total net assets of the Fund grow, the impact of IPOs on performance is expected to diminish. "IPO" stands for Initial Public Offering, which is the first sale of stock by a company to the public. 19 The Lipper Global Fund Index is an unmanaged index that includes 30 mutual funds that invest in securities throughout the world. 20 The MSCI World Ex U.S. Index is an unmanaged index made up of 19 country sub-indexes, excluding the U.S. 21 The MSCI EAFE Index is the Morgan Stanley Europe, Australia, and Far East Index, which is an unmanaged, market-value weighted index designed to measure the overall condition of overseas markets. 22 The Lipper International Fund Index measures the performance of the thirty largest mutual funds that invest in securities whose primary markets are outside the U.S. 23 The Lipper International Small Cap Average includes 79 mutual funds that invest in securities whose primary markets are outside the U.S. 24 The Micropal Equity International Small Cap Index is an unmanaged, unweighted index comprised of all funds within the international small company fund sector. 25 Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks. THE OAKMARK FAMILY OF FUNDS 79 [THE OAKMARK FAMILY OF FUNDS LOGO] 80 THE OAKMARK FAMILY OF FUNDS THE OAKMARK FAMILY OF FUNDS TRUSTEES AND OFFICERS ------------------------------------------------------------------------------- TRUSTEES Victor A. Morgenstern--CHAIRMAN Michael J. Friduss Thomas H. Hayden Christine M. Maki Allan J. Reich Marv Rotter Burton W. Ruder Peter S. Voss Gary Wilner, M.D. OFFICERS Robert M. Levy--PRESIDENT Anita M. Nagler--EXECUTIVE VICE PRESIDENT AND SECRETARY 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 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 CDC IXIS Asset Management Services, Inc. Attention: The Oakmark Family of Funds P.O. Box 8510 Boston, Massachusetts 02266-8510 LEGAL COUNSEL Bell, Boyd & Lloyd LLC Chicago, Illinois INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP Chicago, Illinois FOR MORE INFORMATION: Please call 1-800-OAKMARK (1-800-625-6275) or 617-449-6274 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 unaudited 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 [OAKMARK FAMILY OF FUNDS LOGO] 1-800-OAKMARK www.oakmark.com The Oakmark Funds are distributed by Harris Associates Securities L.P., Member NASD. Date of first use: May 2001.