N-30D/A 1 a2081772zn-30da.txt N-30D/A 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, 2002 ADVISED BY HARRIS ASSOCIATES L.P. [LOGO] OAKMARK FAMILY OF FUNDS THE OAKMARK FAMILY OF FUNDS 2002 SEMI-ANNUAL REPORT LETTER FROM THE PRESIDENT 1 SUMMARY INFORMATION 2 COMMENTARY ON THE OAKMARK AND OAKMARK SELECT FUNDS 4 THE OAKMARK FUND Letter from the Portfolio Managers 6 Schedule of Investments 7 THE OAKMARK SELECT FUND Letter from the Portfolio Managers 11 Schedule of Investments 12 THE OAKMARK SMALL CAP FUND Letter from the Portfolio Managers 14 Schedule of Investments 17 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 30 Global Diversification Chart 33 Schedule of Investments 34 COMMENTARY ON THE INTERNATIONAL AND INTERNATIONAL SMALL CAP FUNDS 39 THE OAKMARK INTERNATIONAL FUND Letter from the Portfolio Managers 41 International Diversification Chart 42 Schedule of Investments 43 THE OAKMARK INTERNATIONAL SMALL CAP FUND Letter from the Portfolio Managers 48 International Diversification Chart 49 Schedule of Investments 50 FINANCIAL STATEMENTS Statement of Assets and Liabilities 56 Statement of Operations 58 Statement of Changes in Net Assets 60 Notes to Financial Statements 67 OAKMARK PHILOSOPHY & PROCESS 83 OAKMARK GLOSSARY 84 TRUSTEES AND OFFICERS 85
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. LETTER FROM THE PRESIDENT DEAR FELLOW SHAREHOLDERS: After a volatile and emotional 2001, we continue to remain focused on our primary task: generating investment returns that help our shareholders meet their long-term investment goals. THE GLOBAL ECONOMY It appears that a global recovery is developing, and while valuation levels are still high, markets in general are not dramatically overvalued. Unfortunately, a general lack of pricing power and rising cost pressures raise questions about the magnitude of the profit rebound in a recovery. Thus, we expect the rest of 2002 to be a challenging investment environment, but one where we believe the strength of our value philosophy and process can provide satisfactory results. REALISTIC EXPECTATIONS When assessing how we have done for our investors, we hold ourselves to two standards. First, are we generating positive rates of return? Second, what are our returns versus the benchmarks over time? As you can see from the performance charts in the subsequent pages, we continue to generate positive answers to both questions. We use two standards to help us keep the proper perspective in managing your funds. We are confident that common stocks over the long term will be excellent vehicles for meeting financial goals. However, the important lesson of the last 2 years is that risk assessment has to be part of the investment process. Because of the very strong market of the 1990's, many investors were mesmerized by the potential for large gains without considering possible risks. They forgot that the only true impediment to long-term wealth accumulation is loss of capital: one or two down years negates the benefits of compounding. Capital preservation is a focus of our philosophy and process and our shareholders have and will benefit from this emphasis. AVOIDING ENRONS The complex situation with Enron raised numerous questions about corporate integrity. We do not believe this event is symptomatic of system-wide problems. It does highlight, among other things, the importance of thorough analysis to investment success. At Oakmark, we have always performed extensive analysis of ALL THREE financial statements: the balance sheet, the income statement, and the cash flow statement -- not simply a cursory look at a summary statistic like earnings-per-share (EPS). Our firm is driven by its analytical strength, and issues relating to accounting and the goals of company management have always been critical to our process. [PHOTO OF ROBERT M. LEVY] MORNINGSTAR MANAGER OF THE YEAR In early January, Bill Nygren, portfolio manager of The Oakmark and Oakmark Select Funds, received Morningtar's(1) Domestic-Equity Manager of the Year award. This is a well deserved honor for Bill, and as Bill himself acknowledges, this also reflects on the strength of our analyst team. Our investment analyst group is talented and experienced. We continue to believe our key strength -- in addition to a strict adherence to value investing -- is the depth and quality of the people in our firm. Thank you for your continued investment with The Oakmark Family of Funds. /s/ ROBERT M. LEVY ROBERT M. LEVY PRESIDENT AND CEO April 5, 2002 1 THE OAKMARK FAMILY OF FUNDS SUMMARY INFORMATION
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP PERFORMANCE FOR PERIOD(2) FUND FUND FUND ENDED MARCH 31, 2002 3 MONTHS* 4.17% 2.53% 12.26% 6 MONTHS* 15.44% 11.04% 33.22% 1 YEAR 14.76% 16.69% 34.79% AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 7.40% 18.92% 14.32% 5 YEAR 10.27% 25.82% 9.54% 10 YEAR 16.76% N/A N/A SINCE INCEPTION 19.90% 28.14% 14.62% VALUE OF $10,000 FROM INCEPTION DATE $69,250 $38,306 $24,014 (8/5/91) (11/1/96) (11/1/95) TOP FIVE HOLDINGS(3) AS OF MARCH 31, 2002 Washington Washington MSC.Software Corp. 3.7% Mutual, Inc. 3.7% Mutual, Inc. 15.8% eFunds Corp. 3.5% H&R Block, Inc. 2.8% H&R Block, Inc. 7.0% ITT Educational COMPANY AND % OF TOTAL AT&T Corp. 2.6% Tricon Global Restaurants Services, Inc. 3.5% NET ASSETS The Kroger Co. 2.5% Restaurants, Inc. 4.8% ShopKo Stores, Inc. 3.3% TXU Corp. 2.4% Electronic Data IDEXX Laboratories, Systems Corporation 4.8% Inc. 3.2% IMS Health Incorporated 4.6% TOP FIVE INDUSTRIES Retail 14.9% Retail 18.1% Computer Software 7.0% AS OF MARCH 31, 2002 Other Consumer Goods Banks and Thrifts 15.8% Banks and Thrifts 6.7% and Services 7.8% Other Consumer Goods Food and Beverage 5.7% INDUSTRIES AND % OF TOTAL Food and Beverage 6.3% and Services 11.4% Medical Products 4.8% NET ASSETS Banks and Thrifts 6.0% Computer Services 8.9% Real Estate 4.2% Computer Services 5.5% Telecommunications 8.5%
2
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL PERFORMANCE FOR PERIOD(2) INCOME FUND FUND FUND SMALL CAP FUND ENDED MARCH 31, 2002 3 MONTHS* 4.19% 10.86% 11.46% 10.19% 6 MONTHS* 12.45% 38.99% 30.67% 31.34% 1 YEAR 18.07% 34.04% 15.85% 20.60% AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 16.71% N/A 13.39% 11.87% 5 YEAR 17.05% N/A 8.14% 8.74% 10 YEAR N/A N/A N/A N/A SINCE INCEPTION 16.54% 17.53% 12.64% 9.94% VALUE OF $10,000 FROM INCEPTION DATE $26,708 $15,387 $31,006 $18,370 (11/1/95) (8/4/99) (9/30/92) (11/1/95) TOP FIVE HOLDINGS(3) AS OF MARCH 31, 2002 First Health Synopsys, Inc. 5.1% Hunter Douglas N.V. 3.4% Gurit-Heberlien AG 4.3% Group Corp. 3.2% Novell, Inc. 5.0% Banca Popolare Pacific Dunlop UST Inc. 2.9% eFunds Corporation 4.4% di Verona 3.2% Limited 3.9% COMPANY AND % OF TOTAL IMS Health Hunter Douglas N.V. 4.0% Cordiant Communications Grupo Aeroportuario NET ASSETS Incorporated 2.8% Michael Page Group plc 3.2% del Sureste S.A. de SAFECO Corporation 2.6% International plc 4.0% Somerfield plc 2.9% C.V. 3.8% Century Tel, Inc. 2.6% Meitec Corporation 2.9% Kobenhavns Lufthavne A/S 3.6% Solvus S.A. 3.2% TOP FIVE INDUSTRIES U.S. Government Computer Software 10.1% Banks and Thrifts 10.2% Food and Beverage 8.6% AS OF MARCH 31, 2002 Notes 30.2% Banks and Thrifts 7.8% Food and Beverage 8.9% Diversified Oil and Natural Gas 5.9% Information Services 7.5% Other Industrial Goods Conglomerates 8.2% INDUSTRIES AND % OF TOTAL Health Care Services 5.6% Retail 7.3% and Services 7.4% Airport Maintenance 7.4% NET ASSETS Retail 5.3% Marketing Services 4.9% Publishing 7.1% Retail 6.6% Telecommunications 4.7% Chemicals 5.9% Human Resources 5.6%
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. * Not annualized 3 THE OAKMARK AND OAKMARK SELECT FUNDS At Oakmark, we look for stocks with prices less than 60% of intrinsic value, with intrinsic value that is likely to grow and with management that acts in the interest of outside shareholders. The combination of these factors creates OUR BIGGEST COMPETITIVE ADVANTAGE--THE ABILITY TO BE MORE PATIENT THAN MOST INVESTORS. [PHOTO OF WILLIAM C. NYGREN] I just returned from a Spring Break vacation with my children at a resort where the primary means of transportation was by golf cart. For kids who are just a few years away from driving cars, driving golf carts was the coolest part of the vacation! When I first rode in the carts with them, cutting something of a zig-zag path down the road, I was reminded of what a problem over-steering is for inexperienced drivers. When driving too far to the left, the temptation is to make a sharp turn to the right, but then the car ends up too far to the right and again needs correcting. Every drivers education course teaches that the best way to combat over-steering is to move one's field of vision further down the road. Effectively, the further down the road you are watching, the easier it is to drive straight. For experienced drivers, over-steering isn't an issue because it is second-nature to watch a long way down the road. Even for experienced stock market investors, however, over-steering continues to influence their investment choices. Stock prices react sharply to minor changes in short-term expectations, creating opportunities for investors looking further down the road. As one extends the timeframe, one's focus also changes. In your personal life, if you are thinking about tomorrow, you might be focused on your appointments, the food you will eat, or even what the weather might be. But, if instead you think five years into the future, those issues all become trivial and the focus shifts to more substantial issues like your physical and financial well-being and spending time with the people you care about. The same holds true in the stock market. The investor trying to predict how a stock price will change this week focuses on stock charts that may help assess recent buying and selling interest, the release of economic statistics, or earnings results that are a penny different than expectations. The focus is very much on data that reflect the academic definition of risk--stock price volatility. But as Peter Bernstein wrote in his book, AGAINST THE GODS--THE REMARKABLE STORY OF RISK, (yes, vacation reading was this exciting!), "Once we introduce the element of time, the linkage between risk and volatility begins to diminish." Our greatest competitive advantage at The Oakmark Family of Funds is that we are in a shrinking group of investors who make decisions based on long-term expectations. Our approach has always been to think about how a business might change over the next five years. When one extends the investment timeframe to five years, just as in one's personal life, the key issues become more meaningful. The focus moves from stock market data to an analysis of the business--its competitive position, financial strength, growth prospects, quality of management and so on. Risk shifts from price volatility to the inaccuracy of our long-term business forecasts. Using one of our holdings, Washington Mutual, as an example, we can see how the analysis changes. Most Wall Street reports advise on a very short time horizon. These reports are now focused on how first quarter earnings will compare to consensus expectations of 97 CENTS, and whether or not the Fed will raise interest rates at their next meeting. Thinking about our five-year horizon, we focus on a company that is likely to be much more valuable because it will gain further competitive advantage from lowering its cost structure, and will grow its earnings and dividends by 60-100% (10-15% annual growth). If we are right, it will also likely benefit from a higher P/E(4) ratio--its current relative P/E ratio of 30% compared to the S&P 500(5) is near historic lows. Over our time horizon, the short-term volatility becomes trivial--a result of minor deviations from [SIDENOTE] HIGHLIGHTS - Our investments are based on how a business may change over five years. - We attempt to take advantage of market over-reaction to short-term events. - Mutual Fund investors could also benefit from using a longer time horizon. 4 expectations; instead, the accuracy of our long-term forecasts becomes critical. Peter Bernstein goes on to say that "For true long-term investors, that small group of people like Warren Buffett who can shut their eyes to short-term fluctuations...volatility represents opportunity rather than risk." By using a long-term horizon we benefit in several ways. First, our analysis looks at current intrinsic value and the likely changes to future intrinsic value. Second, we believe we are more skilled at analyzing variables that affect intrinsic value than we are at analyzing short-term stock market data. Third, our portfolios enjoy the lower costs that are associated with below-average turnover (and the related tax advantages). Conventional wisdom says long-term investing is a defensive, old-fashioned way to invest. We find, to the contrary, that investing for the long-term is our best offensive weapon--it allows us to take advantage of opportunities created by others who over-steer, or over-react to short-term events. Mutual fund investors also hurt themselves by "over-steering." Investors obsessively monitor short-term performance and "correct" their portfolios by increasing exposure to what has recently been successful. A study of mutual fund investors, published last quarter by the Dalbar consulting firm, showed that in the last fifteen years mutual fund investors achieved annual returns of nearly ten percentage points less than returns achieved by the S&P 500. The great majority of the shortfall was not caused by underperformance of mutual funds themselves, but rather by the tendency of investors to oversteer. They zig-zagged down the road, investing in funds they wished they had owned only to find those funds no longer produced attractive returns, and then they kept repeating the process. We have always encouraged our shareholders to take a long-term view and to use our funds as part of a balanced approach to managing their assets. Two years ago, we were strongly suggesting that the high returns in growth funds meant that investors who wanted to stay balanced needed to reduce holdings in growth funds and increase holdings in value funds. Unfortunately, many investors did just the opposite. Now, following two very good years for value investors (and difficult years for growth) we are often asked if that same advice doesn't suggest that investors should now reduce value holdings. Despite the intuitive appeal of that logic, there are two reasons why we say "no." First, investors have not yet compensated for their "over-steering" in the growth direction. According to figures compiled by Lipper, assets in growth funds still exceed assets in value funds by more than 10%. In general, investors who desire a balance between growth and value still need to steer in the direction of value. Second, the holdings in our portfolios are not static and look quite different than they did two years ago. Since growth stocks have fallen, and have begun to meet our valuation criteria, our portfolios now have heavier weightings in companies that enjoy above-average growth. Because stock prices direct changes in our portfolios, our shareholders need to rebalance less frequently. By taking the long-term view, we hope our shareholders and prospective shareholders stay focused on the importance of our investment approach--our unrelenting focus on business value--rather than merely focusing on our recent results. We continue to believe the market is allowing us to construct portfolios that have above-average growth prospects at below-average prices. We also continue to believe that technology stocks are generally priced at unattractive values. Last quarter, BARRON'S increased their tech coverage, further anecdotal evidence of too much interest in technology stocks. Maybe when BARRON'S introduces a "Savings & Loan" pull-out section, it will be time to sell Washington Mutual, currently the largest holding in both funds! /s/ BILL NYGREN WILLIAM C. NYGREN, CFA PORTFOLIO MANAGER bnygren@oakmark.com April 3, 2002 5 THE OAKMARK FUND REPORT FROM BILL NYGREN AND KEVIN GRANT, PORTFOLIO MANAGERS [PHOTO OF WILLIAM C. NYGREN] [PHOTO OF KEVIN GRANT] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (3/31/02) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(5)
THE OAKMARK FUND S & P 500 8/1/1991 $10,000 $10,000 12/31/1991 $13,020 $10,909 3/31/1992 $14,690 $10,634 6/30/1992 $15,230 $10,836 9/30/1992 $16,800 $11,178 12/31/1992 $19,386 $11,741 3/31/1993 $20,927 $12,253 6/30/1993 $21,494 $12,313 9/30/1993 $23,095 $12,631 12/31/1993 $25,300 $12,924 3/31/1994 $24,242 $12,434 6/30/1994 $24,951 $12,486 9/30/1994 $26,663 $13,097 12/31/1994 $26,138 $13,095 3/31/1995 $28,539 $14,370 6/30/1995 $30,303 $15,741 9/30/1995 $32,841 $16,992 12/31/1995 $35,134 $18,015 3/31/1996 $36,386 $18,982 6/30/1996 $37,661 $19,834 9/30/1996 $37,945 $20,447 12/31/1996 $40,828 $22,152 3/31/1997 $42,456 $22,746 6/30/1997 $48,917 $26,716 9/30/1997 $52,009 $28,717 12/31/1997 $54,132 $29,542 3/31/1998 $59,517 $33,663 6/30/1998 $57,909 $34,775 9/30/1998 $49,899 $31,316 12/31/1998 $56,155 $37,985 3/31/1999 $55,888 $39,877 6/30/1999 $62,332 $42,688 9/30/1999 $53,882 $40,023 12/31/1999 $50,277 $45,977 3/31/2000 $45,767 $47,032 6/30/2000 $46,950 $45,783 9/30/2000 $49,815 $45,339 12/31/2000 $56,201 $41,791 3/31/2001 $60,342 $36,837 6/30/2001 $65,927 $38,993 9/30/2001 $59,986 $33,269 12/31/2001 $66,479 $36,824 3/31/2002 $69,250 $36,926
AVERAGE ANNUAL TOTAL RETURNS(2) (as of 3/31/02)
TOTAL RETURN 1-YEAR 5-YEAR 10-YEAR SINCE LAST 3 MONTHS* INCEPTION (8/5/91) OAKMARK FUND 4.17% 14.76% 10.27% 16.76% 19.90% S&P 500 0.27% 0.24% 10.17% 13.25% 13.04% Dow Jones Average(6) 4.32% 7.17% 11.44% 14.85% 14.81% Lipper Large Cap 1.92% 1.02% 9.43% 12.39% 12.46% Value Index(7)
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. * Not annualized The Oakmark Fund increased in value by 4% last quarter, allowing the Fund to achieve a new all-time high price. We are pleased with that performance based on absolute returns, relative to market indices and relative to the other large-cap value funds with which we compete. We added only one new holding last quarter--Schering Plough. It is another in our growing list of large-cap, growth-stock, fallen angels. SCHERING PLOUGH (SGP--$31) Schering Plough is a worldwide manufacturer of prescription and over-the-counter drugs. In 1999, Schering reached a stock price of $61 as their earnings hit an all-time high of $1.42 per share. Despite higher earnings--EPS are estimated to be $1.75 this year--the analysis of Schering is now focused on the upcoming expiration of some of the U.S. patent protection on their largest selling drug, Claritin. Claritin's U.S. sales account for less than 30% of revenues, and generic competition will certainly reduce Claritin's profitability. However, we believe a 50% reduction in the stock price has more than compensated for this loss. With the stock now selling at about eighteen times next year's estimated earnings, we believe Schering is selling at a large discount to its intrinsic value. Perhaps the market view of Schering will change as attention shifts to next year's expected launch of a new anti-cholesterol compound. If not, we believe Schering could be an attractive acquisition candidate for other large pharmaceutical companies. Finally, an update on the Fund's tax position. The Oakmark Fund has produced a cumulative return of 38% since the beginning of calendar year 2000. Despite that gain, we have made no taxable capital gain distributions because of the loss-carry forward the Fund enjoys. The Fund continues to have a loss-carry forward of over 75 CENTS per share, so it is our expectation that there will be no capital gains distribution again this year. /s/ Bill Nygren ---------------------- WILLIAM C. NYGREN, CFA Portfolio Manager bnygren@oakmark.com /s/ Kevin Grant ------------------ KEVIN GRANT, CFA Portfolio Manager kgrant@oakmark.com 6 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2002 (UNAUDITED)
NAME SHARES HELD MARKET VALUE ---- ----------- ---------------- COMMON STOCKS--90.5% FOOD & BEVERAGE--6.3% General Mills, Inc. 1,805,000 $ 88,174,250 Kraft Foods Inc. 2,195,000 84,836,750 H.J. Heinz Company 2,010,000 83,415,000 ---------------- 256,426,000 RETAIL--4.9% The Kroger Co. (a) 4,640,000 $ 102,822,400 Tricon Global Restaurants, Inc. (a) 1,450,000 85,231,000 J.C. Penney Company, Inc. 4,027,900 83,417,809 The Gap, Inc. 5,425,000 81,592,000 Safeway Inc. (a) 1,627,000 73,247,540 McDonald's Corporation 2,300,000 63,825,000 CVS Corporation 1,805,000 61,965,650 Toys `R' Us, Inc. (a) 3,125,000 56,125,000 ---------------- 608,226,399 HOUSEHOLD PRODUCTS--3.3% Newell Rubbermaid Inc. 2,275,000 $ 72,709,000 The Clorox Company 1,440,200 62,835,926 ---------------- 135,544,926 OFFICE EQUIPMENT--1.8% Xerox Corporation 6,664,900 $ 71,647,675 HARDWARE--1.8% The Black & Decker Corporation 1,622,200 $ 75,497,188 OTHER CONSUMER GOODS & SERVICES--7.8% H&R Block, Inc. 2,541,700 $ 112,978,565 Fortune Brands, Inc. 1,745,600 86,180,272 Mattel, Inc. 3,465,000 72,210,600 Cendant Corporation (a) 2,395,100 45,985,920 ---------------- 317,355,357 BANK & THRIFTS--6.0% Washington Mutual, Inc. 4,587,300 $ 151,977,249 U.S. Bancorp 4,200,000 94,794,000 ---------------- 246,771,249 INSURANCE--1.9% MGIC Investment Corporation 1,137,900 $ 77,866,497 OTHER FINANCIAL--2.2% Fannie Mae 1,135,000 $ 90,663,800
7
NAME SHARES HELD MARKET VALUE ---- ----------- ---------------- COMMON STOCKS--90.5% (CONT.) HOTELS & MOTELS--0.2% Starwood Hotels & Resorts Worldwide, Inc. 235,000 $ 8,838,350 MARKETING SERVICES--1.8% The Interpublic Group of Companies, Inc. 2,200,000 $ 75,416,000 COMPUTER SERVICES--5.5% Electronic Data Systems Corporation 1,544,500 $ 89,565,555 First Data Corporation 840,000 73,290,000 SunGard Data Systems Inc. (a) 1,931,600 63,684,852 ---------------- 226,540,407 TELECOMMUNICATIONS--4.2% AT&T Corp. 6,635,000 $ 104,169,500 Sprint Corporation 4,496,000 68,743,840 ---------------- 172,913,340 TELECOMMUNICATIONS EQUIPMENT--3.4% General Motors Corporation, Class H (Hughes Electronics Corporation) (a) $ 75,670,000 Motorola, Inc. 4,475,000 63,545,000 ---------------- 139,215,000 TV PROGRAMMING--1.9% Liberty Media Corporation, Class A (a) 6,300,000 $ 79,632,000 PUBLISHING--3.3% Gannett Co., Inc. 934,500 $ 71,115,450 Knight-Ridder, Inc. 916,000 62,920,040 ---------------- 134,035,490 PHARMACEUTICALS--4.5% Merck & Co., Inc. 1,400,000 $ 80,612,000 Chiron Corporation (a) 1,172,000 53,783,080 Schering-Plough Corporation 1,525,000 47,732,500 ---------------- 182,127,580 MEDICAL PRODUCTS--2.3% Guidant Corporation (a) 2,158,000 $ 93,484,560 AUTOMOBILES--1.4% Ford Motor Company 3,575,000 $ 58,951,750 AEROSPACE & DEFENSE--1.9% Honeywell International Inc. 1,550,000 $ 59,318,500 Rockwell Collins 681,100 17,177,342 ---------------- 76,495,842
8
SHARES HELD/ NAME PAR VALUE MARKET VALUE ---- ------------ ---------------- COMMON STOCKS--90.5% (CONT.) WASTE DISPOSAL--2.1% Waste Management, Inc. 3,135,300 $ 85,436,925 BUILDING MATERIALS & CONSTRUCTION--1.9% Masco Corporation 2,833,000 $ 77,765,850 UTILITIES--2.4% TXU Corp. 1,765,000 $ 96,210,150 OIL & NATURAL GAS--5.2% Phillips Petroleum Company 1,192,700 $ 74,901,560 Conoco Inc. 2,550,000 74,409,000 Burlington Resources Inc. 1,550,500 62,159,545 ---------------- 211,470,105 OTHER INDUSTRIAL GOODS & SERVICES--0.7% Illinois Tool Works Inc. 404,200 $ 29,243,870 RECREATION & ENTERTAINMENT--1.8% Carnival Corporation 1,500,000 $ 48,975,000 Brunswick Corporation 826,700 22,585,444 ---------------- 71,560,444 TOTAL COMMON STOCKS (COST: $3,104,376,638) 3,699,336,754 SHORT TERM INVESTMENTS--9.5% U.S. GOVERNMENT BILLS--3.9% United States Treasury Bills, 1.71% - 1.99% due 4/4/2002 - 9/5/2002 $160,000,000 $ 159,433,220 TOTAL U.S. GOVERNMENT BILLS (COST: $159,452,679) 159,433,220 COMMERCIAL PAPER--2.9% ChevronTexaco Corporation, 1.75% - 1.79% due 4/5/2002 - 4/22/2002 $ 40,000,000 $ 40,000,000 Citicorp, 1.80% due 4/4/2002 20,000,000 20,000,000 American Express Credit Corporation, 1.72% - 1.80% due 4/2/2002 - 4/8/2002 60,000,000 60,000,000 TOTAL COMMERCIAL PAPER (COST: $120,000,000) 120,000,000
9
NAME PAR VALUE MARKET VALUE ---- ------------ --------------- SHORT TERM INVESTMENTS--9.5% (CONT.) REPURCHASE AGREEMENTS--2.7% State Street Repurchase Agreement, 1.75% due 4/1/2002, repurchase price $109,875,361 collateralized by U.S. Treasury Bonds $109,854,000 $ 109,854,000 TOTAL REPURCHASE AGREEMENTS (COST: $109,854,000) 109,854,000 TOTAL SHORT TERM INVESTMENTS (COST: $389,306,679) 389,287,220 Total Investments (Cost $3,493,683,317)--100.0% (b) $4,088,623,974 Other Assets In Excess Of Other Liabilities--0.0% 581,881 ---------------- TOTAL NET ASSETS--100% $4,089,205,855 ================
(a) Non-income producing security. (b) At March 31, 2002, net unrealized appreciation of $594,940,657, for federal income tax purposes, consisted of gross unrealized appreciation of $680,504,385 and gross unrealized depreciation of $85,563,728. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 10 THE OAKMARK SELECT FUND REPORT FROM BILL NYGREN AND HENRY BERGHOEF, PORTFOLIO MANAGERS [PHOTO OF WILLIAM C. 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 (3/31/02) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(5) [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 06/30/01 $35,865 $18,558 09/30/01 $34,496 $15,834 12/31/2001 $37,359 $17,526 3/31/2002 $38,306 $17,574
AVERAGE ANNUAL TOTAL RETURNS(2) (AS OF 3/31/02) TOTAL RETURN 1-YEAR 5-YEAR SINCE LAST 3 MONTHS* INCEPTION (11/1/96) -------------------------------------------------------------------------- OAKMARK SELECT FUND 2.53% 16.69% 25.82% 28.14% S&P 500 0.27% 0.24% 10.17% 10.97% S&P MidCap 400(8) 6.72% 18.89% 17.98% 17.38% Lipper Mid Cap 6.23% 17.94% 11.51% 11.38% Value Index(9) --------------------------------------------------------------------------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. * Not annualized The Oakmark Select Fund increased in value by 3% for the quarter. That increase put the Fund's NAV(10) at another new quarter-end high. Since our goal is to compound wealth at above-average returns over a long time period, it is always rewarding to report that during the quarter we reached new high prices. On a relative basis, the Fund outperformed the S&P 500 but lagged some of our value peers. The main reason for this was the continued strong performance of smaller, more cyclical companies. As you know, The Oakmark Select Fund's portfolio has been shifting away from those names as they have achieved price targets and has been reinvesting in higher quality, larger-cap companies because we believe those stocks have become undervalued. During the quarter we completed sales of Liz Claiborne, Reynolds & Reynolds, and Ceridian. With those positions eliminated, the Fund is back down to its target of twenty or fewer positions. Your Fund's largest position continues to be Washington Mutual, the largest savings and loan in the country, which is priced at just above eight times estimated earnings. Questions were raised last quarter about the quality of Washington Mutual's earnings, the gains they have taken on financial hedges, and the vulnerability of their earnings to interest rate increases. These are all issues we had considered long before Enron put accounting analysis in the spotlight. We continue to believe that Washington Mutual uses appropriate accounting, and that hedging activity reduces their vulnerability to interest rate changes. It is our largest position because it is the single stock we are most confident is significantly undervalued. Thank you for your support. /s/ WILLIAM C. NYGREN WILLIAM C. NYGREN, CFA Portfolio Manager bnygren@oakmark.com /s/ HENRY BERGHOEF HENRY BERGHOEF, CFA Portfolio Manager berghoef@oakmark.com April 4, 2002 11 SCHEDULE OF INVESTMENTS--MARCH 31, 2002 (UNAUDITED) --------------------------------------------------------------------------------
NAME SHARES HELD MARKET VALUE -------------------------------------------------------------------------------- COMMON STOCKS--91.2% RETAIL--18.1% Tricon Global Restaurants, Inc. (a) 4,126,800 $242,573,304 Toys `R' Us, Inc. (a)(b) 12,798,500 229,861,060 The Kroger Co. (a) 10,262,500 227,417,000 Office Depot, Inc. (a) 10,471,000 207,849,350 ------------ 907,700,714 HOUSEHOLD PRODUCTS--1.2% Energizer Holdings, Inc. (a) 2,649,200 $ 62,918,500 OFFICE EQUIPMENT--3.0% Xerox Corporation 13,854,000 $148,930,500 OTHER CONSUMER GOODS & SERVICES--11.4% H&R Block, Inc. 7,938,800 $352,879,660 Mattel, Inc. 10,554,000 219,945,360 ------------ 572,825,020 BANK & THRIFTS--15.8% Washington Mutual, Inc. 23,905,200 $791,979,276 INFORMATION SERVICES--8.1% The Dun & Bradstreet Corporation (a)(b) 5,422,400 $216,950,224 Moody's Corporation 4,584,000 188,402,400 ------------ 405,352,624 COMPUTER SERVICES--8.9% Electronic Data Systems Corporation 4,150,900 $240,710,691 First Data Corporation 2,365,200 206,363,700 ------------ 447,074,391 TELECOMMUNICATIONS--8.5% AT&T Corp. 14,748,000 $231,543,600 Sprint Corporation 12,791,500 195,582,035 ------------ 427,125,635 PUBLISHING--3.7% Knight-Ridder, Inc. 2,727,000 $187,317,630 PHARMACEUTICALS--4.1% Chiron Corporation (a) 4,504,400 $206,706,916 HEALTH CARE SERVICES--4.6% IMS Health Incorporated 10,392,000 $233,300,400
12
SHARES HELD/ NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------- COMMON STOCKS--91.2% (CONT.) OIL & NATURAL GAS--3.8% Burlington Resources Inc. 4,734,500 $ 189,806,105 TOTAL COMMON STOCKS (COST: $3,486,921,567) 4,581,037,711 SHORT TERM INVESTMENTS--9.5% U.S. GOVERNMENT BILLS--3.3% United States Treasury Bills, 1.71% - 1.99% due 4/18/2002 - 9/5/2002 $ 170,000,000 $ 169,354,290 TOTAL U.S. GOVERNMENT BILLS (COST: $169,374,575) 169,354,290 COMMERCIAL PAPER--3.2% Chevrontexaco Corporation, 1.78% - 1.80% due 4/1/2002 - 4/5/2002 $ 60,000,000 60,000,000 Citicorp, 1.78% - 1.82% due 4/2/2002 - 4/4/2002 60,000,000 60,000,000 American Express Credit Corporation, 1.79% - 1.80% due 4/5/2002 - 4/22/2002 40,000,000 40,000,000 TOTAL COMMERCIAL PAPER (COST: $160,000,000) 160,000,000 REPURCHASE AGREEMENTS--3.0% State Street Repurchase Agreement, 1.75% due 4/1/2002, repurchase price $149,348,034 collateralized by U.S. Treasury Bonds $ 149,319,000 149,319,000 TOTAL REPURCHASE AGREEMENTS (COST: $149,319,000) 149,319,000 TOTAL SHORT TERM INVESTMENTS (COST: $478,693,575) 478,673,290 Total Investments (Cost $3,965,615,142)--100.7% (c) $ 5,059,711,001 Other Liabilities In Excess Of Other Assets--(0.7)% (33,898,772) --------------- TOTAL NET ASSETS--100% $ 5,025,812,229 ===============
(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, 2002, net unrealized appreciation of $1,094,095,859, for federal income tax purposes, consisted of gross unrealized appreciation of $1,162,573,510 and gross unrealized depreciation of $68,477,651. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 13 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 (3/31/02) AS COMPARED TO THE RUSSELL 2000 INDEX(11) [CHART]
THE OAKMARK SMALL CAP FUND RUSSELL 2000 10/31/95 $10,000 $10,000 12/31/95 $10,330 $10,695 03/31/96 $11,460 $11,241 06/30/96 $12,470 $11,803 09/30/96 $13,250 $11,843 12/31/96 $14,440 $12,459 03/31/97 $15,220 $11,815 06/30/97 $17,660 $13,730 09/30/97 $20,340 $15,774 12/31/97 $20,290 $15,245 03/31/98 $21,732 $16,779 06/30/98 $20,467 $15,997 09/30/98 $14,976 $12,774 12/31/98 $17,620 $14,857 03/31/99 $16,069 $14,051 06/30/99 $18,205 $16,237 09/30/99 $16,558 $15,210 12/31/99 $16,224 $18,015 03/31/00 $15,974 $19,292 06/30/00 $15,926 $18,562 09/30/00 $18,014 $18,768 12/31/00 $16,937 $17,471 03/31/01 $17,816 $16,335 06/30/01 $21,218 $18,688 09/30/01 $18,026 $14,788 12/31/2001 $21,391 $17,906 3/31/2002 $24,014 $18,619
AVERAGE ANNUAL TOTAL RETURNS(2) (AS OF 3/31/02) TOTAL RETURN 1-YEAR 5-YEAR SINCE LAST 3 MONTHS* INCEPTION (11/1/95) -------------------------------------------------------------------------- OAKMARK SMALL CAP 12.26% 34.79% 9.54% 14.62% FUND Russell 2000 3.98% 13.98% 9.52% 10.17% S&P Small Cap 600(12) 6.97% 21.97% 13.44% 13.67% Lipper Small Cap 7.98% 23.50% 12.49% 13.52% Value Index(13) --------------------------------------------------------------------------
Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. * Not annualized During the first calendar quarter of 2002, your Fund produced a gain of 12% as small cap stocks continued their above average relative performance. The Russell 2000 Small Cap Index rose 4% for the just ended quarter, thus your Fund outperformed the Russell 2000 by over 8% for the calendar quarter ending March 31, 2002. While the strength in smaller cap stock prices over the past two quarters would indicate that investors have begun to rediscover smaller company stocks, we continue to believe we can find more attractively priced smaller cap stocks vis-a-vis larger cap stocks. However, we also believe as investor money gravitates towards small cap stocks it is becoming more difficult to find the wonderful small cap stock bargains we were able to uncover a year or two ago. Looking forward, we believe that when the economy recovers, significant upside still exists for small cap stocks, but we would not expect the quarterly gains to be as strong as we have achieved during the past two quarters. FINDING VALUE IN TODAY'S STOCK MARKET As our analysts survey the investment landscape to uncover stocks in which your Fund can invest, we are struck by how few traditional manufacturing companies we are excited about owning. Smaller manufacturers have been a sector we have looked to for investments, yet in today's economy we can find only a relative few that we view as good values. Our principal investment thesis is that we want to own good businesses that have an above average probability of growing the value of their business over time and we want to pay a rational price for that business. In recent years we have largely concluded that many small manufacturers face a multitude of hurdles 14 that inhibit the growth of their business value over time. These hurdles include severe pricing pressure from their customers (often large assemblers like the auto manufacturers or large retailers such as Wal-Mart or Home Depot), stiff foreign competition from companies in low-wage countries and legacy legal problems like asbestos or other EPA related problems. Given these issues, we believe it is difficult (but not impossible) for smaller manufacturers to grow their business value over our investment time horizon of three to five years. Therefore, we have been concentrating our investments into businesses that largely do not face the aforementioned problems. In so doing, we have ventured into some industries that are not thought of as traditional for value investors, but we would disagree since we continue to adhere to the principle of trying to buy good businesses at attractive prices. RECENT PORTFOLIO CHANGES The Fund's portfolio remained steady at forty-nine stocks over the past quarter as we bought four new companies and sold four of our holdings. We sold American Greetings, Georgia Gulf Corporation and Standard Motor Products after these stocks appreciated to our sell targets while we sold Oratec Interventions after the company agreed to be acquired at a nice premium. We initiated positions in Insituform Technologies, Oakley Inc., Sensient Technologies and Surebeam Corp. Our new purchases are companies in diverse industries (sewer pipe restorations, sunglasses & sporting apparel, food flavorings & inks and food irradiation processing, respectively) with well above average businesses that we believe have bright futures. Insituform is a firm that has a dominant share of repairing and replacing municipal sewer pipes using a trenchless technique. The trenchless method is less disruptive than the older trench technique and can be less expensive as well. With municipal sewer systems aging and the EPA becoming more active in encouraging cities to fix their leaking sewer systems, we believe demand for Insituform's products and services is likely to experience solid growth over the next five years. This growth profile, combined with a good balance sheet, projected growth in cash flow and a stock trading at an attractive level prompted us to add this company to your Fund. DISRUPTION CREATES OPPORTUNITY Oakley Inc. is a company with a well known brand (especially among younger consumers) whose stock suffered a setback after Sunglass Hut stopped selling Oakley products last year. This created an opportunity for us to buy this stock at what we believe are attractive prices. Simultaneous to our investment, a surge of activity occurred at Oakley where the management team aggressively pursued additional outlets for its products. Given Oakley's brand strength, numerous quality retailers quickly agreed to sell Oakley's products. This created enough pressure on Sunglass Hut to resume selling Oakley products in early 2002. This impressive display of Oakley's brand strength is buttressed by the innovation and style that Oakley builds into its products. Oakley's innovative products are protected by over 400 patents worldwide, and their engineers and designers have excellent track records producing cutting edge designs. We believe the stocks of most producers of premium consumer goods trade at multiples of earnings and cash flow that fully value the underlying business, however we do not believe that is the case with respect to Oakley. OUR OUTLOOK FOR SMALL CAPS After two consecutive quarters of double digit percentage returns we are finding it somewhat more difficult to find stocks we are sufficiently enthused about to buy. Six months ago it was like shooting fish in a barrel, now it is like shooting fish in a lake--you can still be successful, but you have a higher probability of missing. Our analysts, however, are working hard to uncover additional small cap investment opportunities, and given our style of fairly low-turnover portfolios, we do not need a plethora of new ideas, but rather just a few per quarter. Therefore, we continue to believe small caps have further upside potential, [SIDENOTE] HIGHLIGHTS - Even with significant strength in small cap stock prices over the past two quarters, we continue to believe we can find attractively priced small caps stocks. We estimate that small caps have further upside potential, but the rate of gain is likely to slow from the recent torrid pace. - The Fund's portfolio remained steady at 49 stocks over the past quarter, as we bought four new companies and sold four of our holdings. - New purchases are in diverse industries--sewer pipe restorations, sunglasses & sporting apparel, food flavorings & inks, and food irradiation processing--with well above-average businesses that we believe have bright futures. 15 but the rate of gain is likely to slow from the recent torrid pace. We would like to sincerely thank our long time shareholders for your ongoing interest in and your support of The Oakmark Small Cap Fund. Additionally, we welcome all of our new shareholders and we look forward to communicating with all of you over the next several years. /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 3, 2002 16 SCHEDULE OF INVESTMENTS--MARCH 31, 2002 (UNAUDITED)
NAME SHARES HELD MARKET VALUE ------------------------------------------------------------------------------ COMMON STOCKS--85.6% FOOD & BEVERAGE--5.7% Ralcorp Holdings, Inc. (a) 579,000 $15,748,800 Del Monte Foods Company (a) 1,300,000 12,649,000 ----------- 28,397,800 APPAREL--3.3% Oakley, Inc. (a) 600,000 $10,740,000 R.G. Barry Corporation (a)(d) 907,000 5,469,210 ----------- 16,209,210 RETAIL--3.3% ShopKo Stores, Inc. (a) 900,000 $16,290,000 HOUSEHOLD PRODUCTS--3.1% Tupperware Corporation 673,700 $15,326,675 OFFICE EQUIPMENT--4.1% InFocus Corporation (a) 750,000 $13,657,500 MCSi, Inc. (a) 550,000 6,550,500 ----------- 20,208,000 OTHER CONSUMER GOODS & SERVICES--3.4% Department 56, Inc. (a)(d) 800,000 $11,200,000 Central Parking Corporation 250,000 5,747,500 ----------- 16,947,500 BANK & THRIFTS--6.7% BankAtlantic Bancorp, Inc., Class A 1,000,000 $13,000,000 People's Bank of Bridgeport, Connecticut 360,000 8,874,000 Golden State Bancorp Inc. 250,000 7,422,500 PennFed Financial Services, Inc. 150,000 4,087,500 ----------- 33,384,000 INSURANCE--3.0% The PMI Group, Inc. 200,000 $15,152,000 OTHER FINANCIAL--3.1% NCO Group, Inc. (a) 560,000 $15,545,600 HOTELS & MOTELS--2.1% Prime Hospitality Corp. (a) 810,000 $10,651,500 EDUCATIONAL SERVICES--3.5% ITT Educational Services, Inc. (a) 385,000 $17,325,000
17
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------- COMMON STOCKS--85.6% (CONT.) MARKETING SERVICES--0.1% Grey Global Group Inc. 1,000 $ 681,000 INFORMATION SERVICES--3.5% eFunds Corporation (a) 1,100,000 $17,655,000 DATA STORAGE--1.2% Imation Corp. (a) 219,300 $ 5,818,029 COMPUTER SERVICES--2.5% CIBER, Inc. (a) 1,000,000 $ 9,150,000 Interland, Inc. (a) 1,250,000 3,200,000 ----------- 12,350,000 COMPUTER SOFTWARE--7.0% MSC.Software Corp. (a) 800,000 $18,400,000 Mentor Graphics Corporation (a) 610,000 12,895,400 SilverStream Software, Inc. (a) 750,000 3,690,000 ----------- 34,985,400 COMPUTER SYSTEMS--1.1% Optimal Robotics Corp., Class A (a) 300,000 $ 5,376,000 SECURITY SYSTEMS--3.0% Checkpoint Systems, Inc. (a) 925,000 $14,753,750 PHARMACEUTICALS--0.3% Elan Corporation plc (a)(b) 115,000 $ 1,599,650 MEDICAL RESEARCH--0.8% Covance Inc. (a) 200,000 $ 4,056,000 MEDICAL PRODUCTS--4.8% Hanger Orthopedic Group, Inc. (a)(d) 960,000 $ 9,936,000 CONMED Corporation (a) 350,000 8,750,000 Sybron Dental Specialties, Inc. (a) 250,000 5,025,000 ----------- 23,711,000 AUTOMOBILE RENTALS--1.3% Dollar Thrifty Automotive Group, Inc. (a) 305,600 $ 6,463,440 TRANSPORTATION SERVICES--2.1% Teekay Shipping Corporation (c) 250,000 $ 9,530,000 Frontline Limited (c) 100,000 1,120,000 ----------- 10,650,000
18
SHARES HELD/ NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------- COMMON STOCKS--85.6% (CONT.) INSTRUMENTS--3.8% IDEXX Laboratories, Inc. (a) 600,000 $ 16,104,000 Measurement Specialties, Inc. (a) 550,000 2,866,875 ------------ 18,970,875 MACHINERY & INDUSTRIAL PROCESSING--2.8% SureBeam Corporation, Class A (a) 1,410,000 $ 7,811,400 Columbus McKinnon Corporation 500,000 6,400,000 ------------ 14,211,400 BUILDING MATERIALS & CONSTRUCTION--1.1% Insituform Technologies, Inc., Class A (a) 214,200 $ 5,412,834 CHEMICALS--1.2% H.B. Fuller Company 140,000 $ 4,193,000 Sensient Technologies Corporation 72,700 1,673,554 ------------ 5,866,554 OIL & NATURAL GAS--2.9% St. Mary Land & Exploration Company 250,000 $ 5,427,500 Cabot Oil & Gas Corporation, Class A 200,000 4,952,000 Berry Petroleum Company, Class A 250,000 3,862,500 ------------ 14,242,000 OTHER INDUSTRIAL GOODS & SERVICES--0.6% Intergrated Electrical Services, Inc. (a) 650,000 $ 3,250,000 REAL ESTATE--4.2% Catellus Development Corporation (a) 700,000 $ 13,769,000 Trammell Crow Company (a) 500,000 7,250,000 ------------ 21,019,000 TOTAL COMMON STOCKS (COST: $339,648,207) 426,509,217 SHORT TERM INVESTMENTS--14.3% U.S. GOVERNMENT BILLS--9.0% United States Treasury Bills, 1.71% - 1.76% due 4/4/2002 - 5/2/2002 $45,000,000 $ 44,967,488 TOTAL U.S. GOVERNMENT BILLS (COST: $44,967,694) 44,967,488 COMMERCIAL PAPER--2.8% ChevronTexaco Corporation, 1.79% due 4/5/2002 $ 6,000,000 $ 6,000,000 American Express Credit Corporation, 1.80% due 4/11/2002 8,000,000 8,000,000 TOTAL COMMERCIAL PAPER (COST: $14,000,000) 14,000,000
19
PAR VALUE/ NAME SHARES SUBJECT TO CALL MARKET VALUE ---------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--14.3% (CONT.) REPURCHASE AGREEMENTS--2.5% State Street Repurchase Agreement, 1.75% due 4/1/2002, repurchase price $12,152,363 collateralized by U.S. Treasury Bonds $12,150,000 $ 12,150,000 TOTAL REPURCHASE AGREEMENTS (COST: $12,150,000) 12,150,000 TOTAL SHORT TERM INVESTMENTS (COST: $71,117,694) 71,117,488 Total Investments (Cost $410,765,901)--99.9% (e) $497,626,705 CALL OPTIONS WRITTEN--(0.1%) RETAIL--0.0% ShopKo Stores, Inc., September 17.50 Calls (70,000) $ (140,000) EDUCATIONAL SERVICES--(0.1%) ITT Educational Services, Inc., May 50 Calls (10,000) $ (10,000) ITT Educational Services, Inc., July 45 Calls (40,000) (140,000) ------------ (150,000) TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED: $(305,768))--(0.1%) (290,000) Other Assets In Excess Of Other Liabilities--0.2% $ 868,256 ------------ TOTAL NET ASSETS--100% $498,204,961 ============
(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, 2002, net unrealized appreciation of $86,876,572, for federal income tax purposes, consisted of gross unrealized appreciation of $107,304,707 and gross unrealized depreciation of $20,428,135. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 20 THE OAKMARK EQUITY AND INCOME FUND REPORT FROM CLYDE S. MCGREGOR AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS [PHOTO] [PHOTO] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/02) AS COMPARED TO THE LIPPER BALANCED FUND INDEX(14) [CHART]
THE OAKMARK LIPPER EQUITY AND BALANCED INCOME FUND FUND INDEX ----------- ---------- 10/31/95 $10,000 $10,000 12/31/95 $10,240 $10,473 03/31/96 $10,500 $10,707 06/30/96 $11,040 $10,925 09/30/96 $11,110 $11,213 12/31/96 $11,805 $11,840 03/31/97 $12,153 $11,895 06/30/97 $13,430 $13,178 09/30/97 $14,810 $14,024 12/31/97 $14,941 $14,243 03/31/98 $16,233 $15,370 06/30/98 $16,320 $15,599 09/30/98 $15,191 $14,701 12/31/98 $16,792 $16,392 03/31/99 $16,792 $16,655 06/30/99 $18,457 $17,402 09/30/99 $17,518 $16,682 12/31/99 $18,119 $17,863 03/31/00 $18,924 $18,396 06/30/00 $18,886 $18,174 09/30/00 $20,761 $18,535 12/31/00 $21,723 $18,290 03/31/01 $22,621 $17,374 06/30/01 $24,445 $17,984 09/30/01 $23,751 $16,621 12/31/01 $25,635 $17,698 03/31/02 $26,708 $17,805
AVERAGE ANNUAL TOTAL RETURNS(1) (AS OF 3/31/02) TOTAL RETURN 1-YEAR 5-YEAR SINCE LAST 3 MONTHS* INCEPTION (11/1/95) --------------------------------------------------------------------------- OAKMARK EQUITY AND 4.19% 18.07% 17.05% 16.54% INCOME FUND S&P 500(5) 0.27% 0.24% 10.17% 12.92% Lehman Govt./ -0.47% 4.64% 7.45% 6.60% Corp. Bond(15) Lipper Balanced Fund Index 0.60% 2.48% 8.40% 9.40% ---------------------------------------------------------------------------
Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. * Not annualized QUARTER REVIEW After the extreme volatility experienced in the second half of calendar 2001, the March quarter was comparatively calm in the securities markets. This proved to be a favorable environment for The Oakmark Equity and Income Fund. The Fund returned 4% which contrasts with 1% for the Lipper Balanced Fund Index, our primary standard of comparison. The Fund's equities earned virtually all of the return in the quarter as the bond market began to anticipate future tightening actions by the Federal Reserve. During the quarter we were active, scooping up shares of companies that had lost investor favor for a variety of reasons. Often these issues had been featured in the portfolios of growth-oriented investors. Morningstar, the leading company evaluating mutual funds, observed this development and declared that the fund was now a "blend" fund rather than value. (Blend funds have characteristics of both value and growth.) Some have asked whether this change offends or troubles us. In fact, the whole growth/value dialectic bores us. Famed investor Warren Buffett has commented extensively on this issue, and we agree with him that growth is simply a factor that helps to determine value. As investors, we look for value wherever we may find it. Two years ago we were primarily able to discover undervalued securities in sectors that had historically been associated with value investors. Today the situation is quite different as we are finding undervalued stocks in many high quality, higher growth businesses. For example, an emerging "theme" in the portfolio is companies from various segments of the health care industry, an industry normally featured in growth funds. Portfolio 21 holdings Apogent Technologies, Caremark, Chiron, Edwards Lifesciences, First Health, Guidant, IMS Health, Omnicare, Techne, Watson Pharmaceuticals, and even CVS, the drug store chain, would seem to indicate that we have targeted the health care sector as an attractive investing opportunity. In fact, we have not made this determination at all - the stocks simply declined to levels where we evaluated them to be selling cheaply. In virtually every case the shares met our price criteria after the companies had disappointed investors counting on steady or accelerating growth. We are perfectly happy to recycle "growth" companies that have lost their former cachet. As we wrote in last quarter's letter, we believe that investor expectations became excessive in the late 1990's because of the unprecedented returns earned then. The March quarter may be representative of the investing environment for the next few years. If so, we believe that our eclectic value philosophy will serve the Fund well. AVOIDING MISTAKES An unfortunate reality of the investment business is that the range of investing possibilities far exceeds the intellectual grasp of any individual or even any institution. Investors react to this complexity by making various simplifying assumptions. For example, many investors choose only to own stocks from the S&P 500 or the Dow Jones Industrials believing that those who construct the indices have already performed a useful filtering function. In the March quarter the integrity of corporate accounting became the issue on the front of investors' minds, an outcome of the Enron experience. Shareholders complimented our firm for avoiding Enron while the media repeatedly asked how we knew it would go down. The answer, of course, is that we did not foresee the collapse in Enron's share price. We simply did not have an opinion one way or the other. The simplifying assumption that guided us is this: if we do not understand it, we move on. At any moment in time the market contains thousands of issues that we believe to be overvalued and probably just as many that we do not understand how to value. In the case of Enron, we looked at the stock fairly early in its ascent and could neither understand the nature of the revolution Enron was allegedly initiating nor justify the price investors were paying for the company's activities. Our best advice will always be to "do what you understand." This pertains to individual securities and to mutual funds. If our style of value investing makes sense to you, you will probably make sensible decisions about your investment in our funds. If, rather, you have invested in our funds because of recent results or the managers' pictures, you will be less likely to be satisfied with your experience. IS THE FED DONE REDUCING INTEREST RATES? Actually, the title to this section is merely a hook, as we do not have an investment opinion on the question of what the Fed will do. Investors in the Fund, however, are questioning us regularly about our fixed income holdings in view of the barrage of articles suggesting that interest rate increases are inevitable. Some of the questions appear to reflect some uncertainty as to our Fund's charter and purpose, so some review is first in order. The Oakmark Equity and Income Fund is a balanced fund and is to be the least volatile fund in The Oakmark Funds group. Oakmark E&I will always have at least 25% of its [SIDENOTE] HIGHLIGHTS - During the quarter we were active, scooping up shares of companies that had lost investor favor for a variety of reasons. Often these issues had been featured in the portfolios of growth-oriented investors. - We are keeping the overall maturity of the fixed-income portion fairly short, and continue to emphasize Treasury inflation-indexed securities (TIPS)--instruments we believe offer the best income-generating potential without risking excessive capital loss. - An emerging portfolio theme is companies from various segments of the health care industry, an industry normally featured in "growth" funds. However, our approach was not in targeting the sector overall, rather, the stocks simply declined to levels where we evaluated them to be selling cheaply. 22 assets invested in US Treasury securities. The Treasurys buffer the volatility of return while enhancing income generation. We choose to take our risks in the equity portion of the portfolio, which is not to exceed 65% of total fund assets. If equities are at 65%, the remaining 35% of the portfolio will be composed of Treasurys, debt of the various government agencies, corporate bonds, preferred stocks, and short term investments. If conditions warrant, the commitment to Treasury securities could far exceed 25%, but we will not fall below that level for any meaningful time period. With that background, how do we invest the fixed income assets in the Fund as we face the likelihood that the previous cycle of Federal Reserve easing has ended? We first inventory the current conditions. While rates increased modestly in the March quarter, they are still historically low. According to government statistics, inflation is minimal and the economy still has meaningful slack. The futures markets for bonds, however, forecast significant future interest rate increases. Our tactical response has been to keep our overall maturity structure fairly short and to emphasize the Treasury inflation-indexed securities (TIPS). We have written extensively on TIPS in previous shareholder letters, so we will only reiterate that these instruments offer what we believe is the best compromise between our desire to earn income for our shareholders without risking excessive capital loss. As always, we thank you for your interest in our Fund and welcome your comments and questions. /s/ CLYDE S. MCGREGOR, CFA CLYDE S. MCGREGOR, CFA Portfolio Manager mcgregor@oakmark.com /s/ EDWARD A. STUDZINSKI, CFA EDWARD A. STUDZINSKI, CFA Portfolio Manager estudzinski@oakmark.com April 1, 2002 23 THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2002 (UNAUDITED)
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--60.9% FOOD & BEVERAGE--2.9% UST Inc. 1,350,000 $ 52,555,500 RETAIL--4.6% CVS Corporation 1,000,000 34,330,000 J.C. Penney Company, Inc. 1,000,000 20,710,000 Office Depot, Inc. (a) 980,000 19,453,000 Albertson's, Inc. 252,200 8,357,908 BJ's Wholesale Club, Inc. (a) 20,000 894,000 ---------------- 83,744,908 HOUSEHOLD PRODUCTS--0.1% Energizer Holdings, Inc. (a) 80,000 $ 1,900,000 ELECTRONICS--0.6% KEMET Corporation (a) 575,000 $ 11,137,750 BANK & THRIFTS--0.4% U.S. Bancorp 280,703 $ 6,335,467 INSURANCE--4.1% SAFECO Corporation 1,500,000 $ 48,060,000 PartnerRe Ltd. (b) 485,600 26,513,760 ---------------- 74,573,760 OTHER FINANCIAL--1.5% GATX Corporation 846,900 $ 26,931,420 MARKETING SERVICES--0.9% The Interpublic Group of Companies, Inc. 500,000 $ 17,140,000 INFORMATION SERVICES--1.7% Ceridian Corporation (a) 1,422,200 $ 31,359,510 COMPUTER SOFTWARE--3.2% Novell, Inc. (a) 8,000,000 $ 31,120,000 Synopsys, Inc. (a) 500,000 27,580,000 ---------------- 58,700,000 COMPUTER SYSTEMS--1.9% The Reynolds and Reynolds Company, Class A 1,164,000 $ 34,920,000 TELECOMMUNICATIONS--4.6% CenturyTel, Inc. 1,400,000 $ 47,600,000 Citizens Communications Company (a) 3,362,800 36,150,100 ---------------- 83,750,100
24
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--60.9% (CONT.) PRINTING--0.9% Valassis Communications, Inc. (a) 399,400 $ 15,428,822 PHARMACEUTICALS--3.7% Watson Pharmaceuticals, Inc. (a) 1,401,400 $ 37,963,926 Chiron Corporation (a) 648,100 29,741,309 ---------------- 67,705,235 MANAGED CARE SERVICES--3.2% First Health Group Corp. (a) 2,420,000 $ 58,394,600 HEALTH CARE SERVICES--5.6% IMS Health Incorporated 2,300,000 $ 51,635,000 Omnicare, Inc. 1,025,000 26,537,250 Caremark Rx, Inc. (a) 1,239,200 24,164,400 ---------------- 102,336,650 MEDICAL PRODUCTS--2.3% Guidant Corporation (a) 457,500 $ 19,818,900 Techne Corporation (a) 400,000 11,028,000 Edwards Lifesciences Corporation (a) 275,000 7,686,250 Apogent Technologies Inc. (a) 150,000 3,702,000 ---------------- 42,235,150 TRANSPORTATION SERVICES--0.1% Nordic American Tanker Shipping Limited 154,900 $ 2,365,323 AEROSPACE & DEFENSE--2.3% Rockwell Collins 1,649,200 $ 41,592,824 AGRICULTURAL EQUIPMENT--0.1% Alamo Group Inc. 141,900 $ 2,305,875 INSTRUMENTS--1.4% Varian Inc. (a) 673,200 $ 25,541,208 MACHINERY & INDUSTRIAL PROCESSING--3.2% Cooper Industries, Inc. 849,000 $ 35,615,550 Rockwell International Corporation 1,150,000 23,069,000 ---------------- 58,684,550 FORESTRY PRODUCTS--1.7% Plum Creek Timber Company, Inc. 1,059,644 $ 31,482,023
25
SHARES HELD/ NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--60.9% (CONT.) OIL & NATURAL GAS--5.9% Burlington Resources Inc. 1,125,000 $ 45,101,250 XTO Energy, Inc. 1,378,000 27,628,900 St. Mary Land & Exploration Company 1,030,000 22,361,300 Cabot Oil & Gas Corporation 500,000 12,380,000 Berry Petroleum Company 43,000 664,350 ---------------- 108,135,800 REAL ESTATE--2.8% Catellus Development Corporation (a) 1,881,500 $ 37,009,105 Hospitality Properties Trust 200,000 6,866,000 Legacy Hotels Real Estate Investment Trust (b) 1,125,000 6,142,911 ---------------- 50,018,016 RECREATION & ENTERTAINMENT--1.2% International Game Technology (a) 345,000 $ 21,500,400 TOTAL EQUITY AND EQUIVALENTS (COST: $976,411,768) 1,110,774,891 FIXED INCOME--33.7% PREFERRED STOCK--0.2% BANK & THRIFTS--0.1% BBC Capital Trust I, Preferred, 9.50% 48,000 $ 1,200,000 Pennfed Capital Trust, Preferred, 8.90% 27,500 690,250 Fidelity Capital Trust I, Preferred, 8.375% 43,500 430,215 ---------------- 2,320,465 TELECOMMUNICATIONS--0.1% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 503,600 TOTAL PREFERRED STOCK (COST: $2,715,763) 2,824,065 CORPORATE BONDS--1.6% RETAIL--0.7% The Gap, Inc., 6.90% due 9/15/2007 9,187,000 $ 8,035,134 Rite Aid Corporation, 7.625% due 4/15/2005, Senior Notes 4,900,000 3,883,250 Ugly Duckling Corporation, 12.00% due 10/15/2003, Subordinated Debenture 650,000 552,500 ---------------- 12,470,884 OFFICE EQUIPMENT--0.1% Xerox Capital Europe Plc, 5.75% due 5/15/2002 1,500,000 $ 1,492,455
26
NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- FIXED INCOME--33.7% (CONT.) HOTELS & MOTELS--0.4% HMH Properties, 7.875% due 8/1/2005, Senior Note Series A 3,450,000 $ 3,432,750 Park Place Entertainment, 7.00% due 7/15/2004, Senior Notes 2,750,000 2,749,785 Prime Hospitality Corporation, 9.25% due 1/15/2006, 2006 1st Mortgage Note 413,000 425,906 Park Place Entertainment, 7.375% due 6/1/2002, Senior Notes 320,000 321,041 ---------------- 6,929,482 TV PROGRAMMING--0.4% Liberty Media Corporation, 8.25% due 2/1/2030, Debenture 7,225,000 $ 6,767,867 MACHINERY & INDUSTRIAL PROCESSING--0.0% Columbus McKinnon Corporation New York, 8.50% due 4/1/2008 1,000,000 $ 970,000 BUILDING MATERIALS & CONSTRUCTION--0.0% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note 750,000 $ 780,000 UTILITIES--0.0% Midland Funding Corporation, 11.75% due 7/23/2005 500,000 $ 541,697 TOTAL CORPORATE BONDS (COST: $29,876,387) 29,952,385 GOVERNMENT AND AGENCY SECURITIES--31.9% U.S. GOVERNMENT NOTES--30.2% United States Treasury Notes, 3.375% due 1/15/2007, Inflation Indexed 143,037,440 $ 145,965,273 United States Treasury Notes, 3.375% due 1/15/2012, Inflation Indexed 139,592,600 140,094,296 United States Treasury Notes, 8.75% due 11/15/2008 50,000,000 54,035,150 United States Treasury Notes, 5.75% due 11/15/2005 50,000,000 51,966,800 United States Treasury Notes, 3.00% due 11/30/2003 50,000,000 49,628,900 United States Treasury Notes, 7.875% due 11/15/2004 25,000,000 27,315,425 United States Treasury Notes, 5.25% due 5/15/2004 25,000,000 25,750,975 United States Treasury Notes, 3.00% due 1/31/2004 25,000,000 24,738,275 United States Treasury Notes, 3.00% due 2/29/2004 25,000,000 24,698,250 United States Treasury Notes, 7.25% due 8/15/2004 5,000,000 5,370,310 ---------------- 549,563,654
27
NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- FIXED INCOME--33.7% (CONT.) U.S. GOVERNMENT AGENCIES--1.7% Fannie Mae, 7.25% due 4/12/2005 6,500,000 $ 6,509,997 Federal Home Loan Mortgage Corporation, 4.75% due 8/23/2004 5,000,000 5,038,815 Federal Home Loan Bank, 5.03% due 6/21/2006 5,000,000 4,966,565 Fannie Mae, 3.875% due 9/7/2004 5,000,000 4,952,110 Federal Home Loan Bank, 5.10% due 12/26/2006 2,035,000 2,014,638 Federal Home Loan Bank, 7.85% due 6/7/2004, Consolidated Bond 1,250,000 1,263,024 Federal Home Loan Bank, 4.50% due 12/26/2008 1,135,000 1,094,891 Fannie Mae, Principal Only, Zero Coupon, due 10/3/2011 1,065,000 1,010,962 Federal Home Loan Bank, 5.77% due 4/12/2004 1,000,000 1,001,090 Federal Farm Credit Bank, 6.00% due 6/27/2008 1,000,000 998,558 Federal Home Loan Bank, 3.875% due 12/15/2004 1,000,000 987,781 Federal Home Loan Bank, 4.10% due 12/7/2004 600,000 594,748 Federal Home Loan Bank, 5.125% due 8/6/2002 500,000 493,061 Federal Farm Credit Bank, 6.24% due 12/29/2008 175,000 175,011 ---------------- 31,101,251 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $580,454,081) 580,664,905 TOTAL FIXED INCOME (COST: $613,046,231) 613,441,355 SHORT TERM INVESTMENTS--4.2% U.S. GOVERNMENT BILLS--1.1% United States Treasury Bills, 1.75% - 1.76% due 4/4/2002 - 4/18/2002 20,000,000 $ 19,990,420 TOTAL U.S. GOVERNMENT BILLS (COST: $19,990,432) 19,990,420 COMMERCIAL PAPER--1.6% Citicorp, 1.77% due 4/8/2002 10,000,000 $ 10,000,000 American Express Credit Corporation, 1.79% - 1.80% due 4/4/2002 - 4/11/2002 20,000,000 20,000,000 TOTAL COMMERCIAL PAPER (COST: $30,000,000) 30,000,000 REPURCHASE AGREEMENTS--1.5% State Street Repurchase Agreement, 1.75% due 4/1/2002, repurchase price $26,693,189 collateralized by U.S. Treasury Bonds 26,688,000 $ 26,688,000 TOTAL REPURCHASE AGREEMENTS (COST: $26,688,000) 26,688,000 TOTAL SHORT TERM INVESTMENTS (COST: $76,678,432) 76,678,420 Total Investments (Cost $1,666,136,431)--98.8% (c) 1,800,894,666
28
NAME SHARES SUBJECT TO CALL MARKET VALUE ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--4.2% (CONT.) CALL OPTIONS WRITTEN--0.0% MARKETING SERVICES--0.0% The Interpublic Group of Companies, Inc., July 35 Calls (351,000) $ (631,800) TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED: $(683,457))--(0.0%) (631,800) Other Assets In Excess Of Other Liabilities--1.2% $ 21,923,353 -------------- TOTAL NET ASSETS--100% $1,822,186,219 ==============
(a) Non-income producing security. (b) Represents foreign domiciled security. (c) At March 31, 2002, net unrealized appreciation of $134,809,891, for federal income tax purposes, consisted of gross unrealized appreciation of $154,250,593 and gross unrealized depreciation of $19,440,702. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 THE OAKMARK GLOBAL FUND REPORT FROM GREGORY L. JACKSON AND MICHAEL J. WELSH, PORTFOLIO MANAGERS [PHOTO OF GREGORY L. JACKSON] [PHOTO OF MICHAEL J. WELSH] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION (8/4/99) TO PRESENT (3/31/02) AS COMPARED TO THE MSCI WORLD INDEX(16)
THE OAKMARK GLOBAL FUND MSCI WORLD INDEX 8/1/1999 $10,000 $10,000 9/30/1999 $9,180 $9,883 12/31/1999 $9,981 $11,550 3/31/2000 $10,061 $11,668 6/30/2000 $10,381 $11,255 9/30/2000 $10,922 $10,689 12/31/2000 $11,562 $10,028 3/31/2001 $11,480 $8,739 6/30/2001 $13,289 $8,959 9/30/2001 $11,071 $7,676 12/31/2001 $13,880 $8,335 3/31/2002 $15,387 $8,364
AVERAGE ANNUAL TOTAL RETURNS(2) (AS OF 3/31/02) TOTAL RETURN 1-YEAR SINCE LAST 3 MONTHS* INCEPTION (8/4/99) ------------------------------------------------------------------------------ OAKMARK GLOBAL FUND 10.86% 34.04% 17.53%(3) MSCI World 0.34% -4.24% -6.48% Lipper Global Fund Index(17) 0.96% -2.98% -1.93% ------------------------------------------------------------------------------
Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. * Not annualized FELLOW SHAREHOLDERS, The Oakmark Global Fund continued its strong performance this quarter, gaining 11% for the three-month period ending March 31, 2002. The Fund's performance compares favorably with that of the MSCI World and the Lipper Global Fund indices, which were up 0.3% and 1%, respectively. Over the past twelve months ending March 31, 2002, The Oakmark Global Fund returned a positive 34% compared to declines of 4% and 3%, respectively, for the MSCI World Index and the Lipper Global Fund Index. We believe this significant out-performance of your Fund amidst turbulent global markets is a reflection of our focus on downside protection in the portfolio as well as capital appreciation. We are also pleased to report that as of quarter-end, your Fund was ranked the #1 global fund in the Lipper(18) Universe (219 Funds) since our inception in August, 1999. INVESTMENT ENVIRONMENT As we write this letter we are in the midst of a global bear market, a notion that would have been considered quaint when this Fund was launched at the height of the internet bubble in August, 1999. As long-term investors however, we are not overly concerned about the market's decline to date. On the contrary, we consider much of what has happened and what is currently happening in the markets as rational behavior. It is a natural and healthy process when speculation and excesses are wrung out of the market. Last year we wrote about the bursting of the global bubble in technology, media and telecom companies. While the bubble continues to burst, the market has also found new issues 30 to obsess over. For example, share prices of companies using aggressive accounting are falling. In addition, the credit markets refuse to lend to companies with excessive debt or to companies that fail to generate free cash flow. Further, outside of bankruptcy proceedings, capital intensive telecommunications businesses with commodity--like products are having difficulty attracting capital. One should not be surprised at the market's reaction. It is rational to apply a risk premium where risk exists. As value investors, we have of course always critically assessed each business we invest in, attempting to avoid exactly these issues. Those employing momentum strategies and investors unwilling to take the time to read through boring annual reports, regulatory filings and industry analysis are caught holding the bag. There is no doubt however, that in addition to continued problems in those industries, the current market is reflecting a decline in corporate profitability. On a macro level, the U.S. and European economies have slowed to a growth rate of just above 1% in 2001. The world's second largest economy, Japan, fell into recession. The impact on profits, especially in the U.S., has been dramatic. Profits have also declined in Europe but at a much lower rate. Based on our micro view, part of the decline in profits is permanent, as excess or even artificial levels of demand for certain products and services will likely not be seen again. Another part of the decline has to do with snap reactions such as inventory and personnel reductions in expectation of lower demand. We would expect the latter part of the reduction to accrue back to corporate income statements. Either way, return on equity for the markets as a whole have declined and the market has reacted by selling. That said, a snapshot of the U.S. economy--if you can remove yourself from the psychology of the last two years--looks relatively healthy. The unemployment rate at 5.6% is what just a few years ago would have been considered to be the long-term frictional rate. Consumer spending continues to grow evidenced by strong retail sales and housing figures. Further, business inventories and payrolls are lean while the banking system is showing close to record levels of common equity to loans outstanding. Considering the terrorist attacks and the war in Afghanistan, the economy to date has held up remarkably well. PORTFOLIO UPDATE The Oakmark Global Fund is managed using a value philosophy. 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, fundamental research. The portfolio is focused, and is constructed and monitored with strict buy and sell disciplines. Investments are made with a long-term horizon. This approach has successfully preserved capital, and should generate superior investment returns over the market cycle. We have made significant changes in the Fund's holdings over the past six months. Although significant changes in portfolio composition over a short period is not what we would expect in a normal environment, the overall decline in the markets has allowed a significant upgrade in the quality of the companies held in the portfolio. Over the past two quarters we have added some terrific new situations to the Fund's holdings. In the U.S., for example, we have added First Health and IMS Health in the healthcare industry, as well as blue-chips Waste Management, Kroger, and Gap. Overseas we have added three very high quality European blue-chips: Wolters Kluwer (Netherlands), Henkel (Germany), and LM Ericsson (Sweden). [SIDENOTE] HIGHLIGHTS - We have made significant changes in the Fund's holdings over the past six months as the overall market decline has allowed for what we believe is a considerable upgrade in the quality of the companies held in the portfolio. - Flexibility is our mandate, as we can pick from our entire investment team's best ideas--small, medium, large caps, foreign or domestic. As short-term market volatility provides new long-term opportunities, we won't hesitate to switch out of companies that are at higher valuations or lower quality, and into new alternatives. - The Fund celebrates its three-year anniversary this August, and we're pleased that for the period ending March 31, 2002, it ranked the #1 global fund in the Lipper universe (219 funds) since inception in August, 1999. 31 Our value strategy dictates two main reasons for selling a stock. First, when a stock hits its target price, our sell discipline requires that it be sold. Over the last few quarters, especially within the U.S., market volatility pushed up the price of several holdings which were subsequently disposed (e.g. NOVA Corporation). Second, when there are substantially more attractive alternatives than the current holdings we take the opportunity to sell an existing position and purchase the shares of the more attractive company. We feel very fortunate to have the flexibility to be able to pick from the best ideas throughout Harris Associates, be they small, medium, or large caps, or foreign or domestic. When we see short-term market volatility provide new long-term opportunities we won't hesitate to switch out of companies that are either at higher valuations or lower quality than new alternatives. LOOKING FORWARD We will continue to manage the portfolio using the same value discipline described above. Although we would not expect to achieve the same exceptional level of relative out-performance, we remain excited about the values in the portfolio and expect that over the long-term we could provide superior investment returns. We thank you for your continued support. /s/ GREGORY L. JACKSON GREGORY L. JACKSON Portfolio Manager gjackson@oakmark.com /s/ MICHAEL J. WELSH MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com April 4, 2002 32 GLOBAL DIVERSIFICATION--MARCH 31, 2002 [CHART]
% OF FUND NET ASSETS UNITED STATES 44.8% EUROPE 32.3% Great Britain 11.8% * Netherlands 6.1% * Italy 4.5% * Germany 3.1% Sweden 2.3% * Ireland 2.1% * France 1.6% Switzerland 0.8% PACIFIC RIM 11.3% Japan 5.8% Korea 4.3% Australia 1.2% LATIN AMERICA 4.5% Mexico 4.5%
*Euro currency countries comprise 17.4% of the Fund. 33 SCHEDULE OF INVESTMENTS--MARCH 31, 2002 (UNAUDITED)
NAME DESCRIPTION SHARES HELD MARKET VALUE ------------------------------------------------------------------------------------------------ COMMON STOCKS--93.2% FOOD & BEVERAGE--4.8% Hite Brewery Co., Brewer Ltd. (Korea) 48,700 $ 3,002,307 Lotte Chilsung Beverage Soft Drinks, Juices, & Sport Drinks Co., Ltd. (Korea) Manufacturer 4,800 2,512,557 Diageo plc Beverages, Wines, & Spirits (Great Britain) Manufacturer 116,300 1,520,311 ----------- 7,035,175 RETAIL--7.5% The Kroger Co. Supermarkets (United States), (a) 185,000 $ 4,099,600 The Gap, Inc. Apparel Retailer (United States) 230,000 3,459,200 Somerfield plc Food Retailer (Great Britain) 2,121,000 3,450,698 ----------- 11,009,498 HOME FURNISHINGS--4.0% Hunter Douglas N.V Window Coverings Manufacturer (Netherlands) 200,500 $ 5,899,631 BANK & THRIFTS--7.8% U.S. Bancorp Commercial Bank (United States) 220,000 $ 4,965,400 Banca Popolare di Verona Commercial Banking (Italy) 301,500 3,443,617 Washington Mutual, Inc. Thrift (United States) 90,000 2,981,700 ----------- 11,390,717 OTHER FINANCIAL--3.0% Daiwa Securities Stock Broker Group Inc. (Japan) 402,000 $ 2,376,205 Ichiyoshi Securities Co., Stock Broker Ltd. (Japan) 523,000 1,999,178 ----------- 4,375,383 HOTELS & MOTELS--0.8% Jarvis Hotels plc Hotel Operator (Great Britain) 705,000 $ 1,109,332 HUMAN RESOURCES--4.0% Michael Page International Recruitment Consultancy Services plc (Great Britain) 2,236,000 $ 5,874,600 EDUCATIONAL SERVICES--0.9% ITT Educational Services, Postsecondary Degree Programs Inc. (United States), (a) 30,000 $ 1,350,000
34
NAME DESCRIPTION SHARES HELD MARKET VALUE ------------------------------------------------------------------------------------------------- MARKETING SERVICES--5.0% Cordiant Communications Advertising & Media Services Group plc (Great Britain) 3,310,000 $ 4,454,202 The Interpublic Group Advertising & Marketing Services of Companies, Inc. (United States) 85,000 2,913,800 ----------- 7,368,002 INFORMATION SERVICES--7.5% eFunds Corporation Electronic Debit Payment Services (United States), (a) 400,000 $ 6,420,000 Ceridian Corporation Data Management Services (United States), (a) 205,000 4,520,250 ----------- 10,940,250 COMPUTER SERVICES--2.8% Meitec Corporation Software Engineering Services (Japan) 139,600 $ 4,167,949 COMPUTER SOFTWARE--10.1% Synopsys, Inc. Electonic Design Automation (United States), (a) 135,000 $ 7,446,600 Novell, Inc. Network & Internet Integration (United States), (a) Software 1,886,000 7,336,540 ----------- 14,783,140 COMPUTER SYSTEMS--3.6% The Reynolds and Information Management Systems Reynolds Company, Class A (United States) 100,000 $ 3,000,000 Lectra (France), (a) Manufacturing Process Systems 477,000 2,304,651 ----------- 5,304,651 TELECOMMUNICATIONS--2.3% Sprint Corporation Telecommunications (United States) 175,000 $ 2,675,750 SK Telecom Co., Ltd. Mobile Telecommunications (Korea) 3,500 773,071 ----------- 3,448,821 TELECOMMUNICATIONS EQUIPMENT--2.3% Telefonaktiebolaget LM Mobile & Wired Ericsson, Class B Telecommunications Products (Sweden), (a) 800,400 $ 3,380,016 BROADCASTING & CABLE TV--2.4% Grupo Televisa S.A Television Production & (Mexico), (a)(b) Broadcasting 72,900 $ 3,536,379
35
NAME DESCRIPTION SHARES HELD MARKET VALUE --------------------------------------------------------------------------------------------------------- PUBLISHING--4.2% Independent News & Newspaper Publisher Media PLC (Ireland) 1,612,000 $ 3,087,319 Wolters Kluwer NV Reference Material Publisher (Netherlands) 144,000 3,008,621 ------------ 6,095,940 PRINTING--1.3% Valassis Communications, Product Promotions Printer Inc. (United States), (a) 50,000 $ 1,931,500 MANAGED CARE SERVICES--3.8% First Health Group Corp. Health Benefits Company (United States), (a) 230,000 $ 5,549,900 HEALTH CARE SERVICES--2.0% IMS Health Incorporated Pharmaceutical Market Research (United States) 130,000 $ 2,918,500 AUTOMOBILES--2.1% Ducati Motor Holding Motorcycle Manufacturer S.p.A. (Italy), (a) 1,933,500 $ 3,147,600 AIRPORT MAINTENANCE--2.1% Grupo Aeroportuario del Sureste S.A. de C.V Airport Operator (Mexico), (a)(b) 199,900 $ 3,018,490 WASTE DISPOSAL--3.2% Waste Management, Waste Management Services Inc. (United States) 170,000 $ 4,632,500 CHEMICALS--3.9% Henkel KGaA (Germany) Chemical Products Manufacturer 80,000 $ 4,561,682 Givaudan Fragrance & Flavor Compound (Switzerland), (a) Manufacturer 3,800 1,218,166 ------------ 5,779,848 OTHER INDUSTRIAL GOODS & SERVICES--0.6% Enodis plc (Great Britain) Food Processing Equipment 557,000 $ 701,954 Enodis plc, Rights Food Processing Equipment (Great Britain) 334,200 183,222 ------------ 885,176 DIVERSIFIED CONGLOMERATES--1.2% Pacific Dunlop Limited Diversified Manufacturer (Australia) 2,795,000 $ 1,819,693 TOTAL COMMON STOCKS (COST: $117,392,448) 136,752,691
36
PAR VALUE/ NAME DESCRIPTION SHARES SUBJECT TO CALL MARKET VALUE --------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--6.8% U.S. GOVERNMENT BILLS--2.7% United States Treasury Bills, 1.71% - 1.76% due 4/4/2002 - 4/18/2002 $4,000,000 $ 3,998,084 TOTAL U.S. GOVERNMENT BILLS (COST: $3,998,085) 3,998,084 COMMERCIAL PAPER--1.4% American Express Credit Corporation, 1.79% due 4/4/2002 $2,000,000 $ 2,000,000 TOTAL COMMERCIAL PAPER (COST: $2,000,000) 2,000,000 REPURCHASE AGREEMENTS--2.7% State Street Repurchase Agreement, 1.75% due 4/1/2002, repurchase price $4,010,780 collateralized by U.S. Treasury Bonds $4,010,000 $ 4,010,000 TOTAL REPURCHASE AGREEMENTS (COST: $4,010,000) 4,010,000 TOTAL SHORT TERM INVESTMENTS (COST: $10,008,085) 10,008,084 Total Investments (Cost $127,400,533)--100.0% (c) $146,760,775 CALL OPTIONS WRITTEN--(0.2%) RETAIL--(0.1%) The Gap, Inc., June 15 Apparel Retailer Calls (United States) (130,000) $ (169,000) EDUCATIONAL SERVICES--0.0% ITT Educational Services, Postsecondary Degree Programs Inc., April 45 Calls (United States) (27,000) $ (40,500) MARKETING SERVICES--(0.1%) The Interpublic Group of Advertising & Marketing Services Companies, Inc., April 35 Calls (United States) (30,000) $ (21,000) The Interpublic Group of Advertising & Marketing Services Companies, Inc., July 35 Calls (United States) (55,000) (99,000) ------------ (120,000) COMPUTER SOFTWARE--(0.0%) Synopsys Incorporated, Electonic Design Automation Jun 60 Calls (United States) (25,000) $ (46,250) TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED: $(365,174)--(0.2%) (375,750)
37
NAME DESCRIPTION SHARES SUBJECT TO CALL MARKET VALUE ------------------------------------------------------------------------------------------------- PUT OPTIONS WRITTEN--(0.1%) RETAIL--(0.1%) The Gap, Inc., Apparel Retailer June 12.50 Puts (United States) (130,000) $ (58,500) EDUCATIONAL SERVICES--0.0% ITT Educational Postsecondary Degree Programs Services, Inc., April 35 Puts (United States) (2,000) $ (1,800) MARKETING SERVICES--0.0% The Interpublic Group of Advertising & Marketing Services Companies, Inc., April 25 Puts (United States) (30,000) $ (21,000) COMPUTER SOFTWARE--0.0% Synopsys Incorporated, Electonic Design Automation Jun 45 Puts (United States) (25,000) $ (36,250) TOTAL PUT OPTIONS WRITTEN (PREMIUMS RECEIVED: $(177,257))--(0.1%) (117,550) Foreign Currencies (Proceeds $0)--0.0% $ 0 Other Assets In Excess Of Other Liabilities--0.3% (d) 537,504 ------------ TOTAL NET ASSETS--100% $146,804,979 ============
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) At March 31, 2002, net unrealized appreciation of $19,409,373, for federal income tax purposes, consisted of gross unrealized appreciation of $20,834,051 and gross unrealized depreciation of $1,424,678. (d) Includes transaction hedges. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 38 THE OAKMARK INTERNATIONAL AND OAKMARK INTERNATIONAL SMALL CAP FUNDS ------------------------------------------------------------------------------- FELLOW SHAREHOLDERS, We are happy to report that both of your Funds, Oakmark International and Oakmark International Small Cap, had outstanding quarters. The Oakmark International Fund returned 11% over the last three months, comparing favorably to the 1% and 2% returns posted by the MSCI World ex-U.S.(19) and the Lipper International Fund(20) indices, respectively. Meanwhile, International Small Cap climbed 10% over the last quarter, as compared to a 6% increase for the MSCI Small Cap World ex-U.S. index(21) and a 5% return for the Lipper International Small Cap Average.(22) Based on the attractive valuations of the businesses we own in the portfolios we continue to remain excited about future prospects. Stocks around the world are attractively priced, economic growth is accelerating, and in general, corporate governance continues to strengthen. WHAT IS ENRON-ITIS? The world has been a buzz about the scandal at Enron for some time now. Sadly, in our opinion, the Enron mess is nothing new. We view the events as "more of the same", but on a grander scale. What is "more of the same?" People investing in companies solely because they see share prices going up. The Enron fiasco was another spectacular instance of speculation, not investing. Despite our industry being littered with MBAs, CFAs, CPAs and even PhDs, greed almost always seems to get in the way of a little common sense. The financial community knew Enron's financial statements were "opaque"--a polite euphemism for intentionally complicated and incomplete. Any investment professional that took the time to analyze Enron's statements could figure out the company generated poor returns and no free cash flow. Industry competitors called Enron "the crooked E." And yet Enron's share price continued climbing, seemingly immune to economic reality. The price, which traded around $20 in mid-1998, soared to over $80 in mid-2000. A share will now cost you a few pennies. We are sometimes asked whether it is difficult to deal with foreign accounting standards and statements. Often the question is posed in a condescending way, the clear implication being that standards for foreign companies are lax relative to their US peers. One lesson we have learned over the past 16 years is that the integrity of any accounting statement, especially the income statement, is a reflection of the company's management. Companies run by prudent and honest management teams usually have clear and often "understated" financial statements; those run by aggressive, self-promotional managers tend to have very opaque or incomplete accounting statements that sometimes don't quite add up. [PHOTO] [PHOTO] HIGHLIGHTS - Both Funds had outstanding performance in a troublesome quarter, which we believe is a reflection of our strict adherence to value. We believe the discount to intrinsic value we require before investing gives us a margin of safety, cushioning the blow of down markets. - Two significant geographical shifts took place in Oakmark International over the past year--a lower weighting in Latin America and a higher weighting in Japan. Latin America declined to 7.5% of the portfolio from 14% at the end of 2000; our weighting in Japan increased to nearly 9%, from less than 2% at year-end 2000. - The biggest weighting increase in Oakmark Int'l. Small Cap was Switzerland, which jumped to 12% from 7% in December 2001. We have steadily accumulated shares of all our Swiss companies, and added a new name during the quarter, Schindler Holding. To us, we have always viewed the analysis of a company's management team as a major part of our job. It is critical to understand their motivations, incentives, and, to the extent possible, integrity. 39 And the key in understanding and hopefully avoiding faulty accounting? As we have said from the beginning, watch the CASH. EUROPEAN RESTRUCTURING A new company in The International Small Cap Fund is Schindler Holding. The Schindler story is in microcosm the story of what has occurred in Europe over the past ten years. This is a company that for most of the 90's was very uncommunicative (and, on occasion, hostile) to outside investors and their questions. We still remember one meeting in particular in 1994, one that took weeks of pleading and negotiating to arrange. Many questions were met with answers dripping with arrogant evasion or outright refusal. They viewed our questions about the controlling family and their indifferent treatment of minority shareholders with unabashed hostility. This line of questioning provoked a classic old-school European response: "Look, the Family has much more at risk than you do! They can't just go out and sell their shares the next day like you can!" They already did sell shares, we replied, and now they have an obligation of fair treatment to those outside investors. End of meeting. This mentality has changed dramatically. Senior management has been replaced; both the CEO and CFO are Americans. They have repurchased a significant number of shares and just recently announced an authorization to repurchase an additional 10% of the shares outstanding, as well as make a tax-free capital repayment to shareholders. Along with restructuring the balance sheet, they are also focusing on revamping operations. The restructuring plans they have announced include measures to increase the operational competitiveness of the company, with the goal of reducing complexity and costs. THE OAKMARK WAY Everyone makes mistakes. But, our mistakes tend to be caused by misjudging the ability of a company's management to allocate capital or not properly weighting a factor that ends up being more important to a company's success. Even though we are not perfect, our mistakes are our own: we rely on our own, independent thorough research. We start with the premise that a company's value is determined by its ability to generate free cash flow and end with an assessment of a management team's ability to drive its assets for profit and invest capital wisely. This forms the basis for an investment decision. Note the difference: price movements drive a speculator's actions; our actions are determined by value assessment. Adherence to this discipline is what has led to our strong performance since inception, and why we think our process will continue to lead to good results. Thank you for your continued confidence and support. /s/ David G. Herro DAVID G. HERRO, CFA Portfolio Manager dherro@oakmark.com /s/ Michael J. Welsh MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com April 4, 2002 40 THE OAKMARK INTERNATIONAL FUND REPORT FROM DAVID G. HERRO AND MICHAEL J.WELSH, PORTFOLIO MANAGERS -------------------------------------------------------------------- [PHOTO] [PHOTO] ------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/02) COMPARED TO THE MSCI WORLD EX U.S. INDEX(19) [CHART]
THE OAKMARK MSCI WORLD INTERNATIONAL FUND EX 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 6/30/2001 $29,437 $18,629 9/30/2001 $23,728 $16,062 12/31/2001 $27,819 $17,212 3/31/2002 $31,006 $17,310
AVERAGE ANNUAL TOTAL RETURNS(2) (AS OF 3/31/02) TOTAL RETURN 1-YEAR 5-YEAR SINCE LAST 3 MONTHS* INCEPTION (9/30/92) ------------------------------------------------------------------------------ OAKMARK 11.46% 15.85% 8.14% 12.64% INTERNATIONAL FUND MSCI World ex. U.S. 0.57% -8.08% 1.57% 5.94% MSCI EAFE(23) 0.51% -8.50% 1.32% 5.76% Lipper International 2.46% -4.95% 2.75% 7.66% Fund Index(20) ------------------------------------------------------------------------------
Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. * Not annualized The long-term performance of your Fund has been strong, and we are particularly pleased with the resiliency the Fund has shown in down markets. Over the past three years your Fund has returned 13% on an annualized basis, while all of the major international indices are negative. The discount to intrinsic value that we require before investing in a company gives us a margin of safety we believe helps to cushion the blow of down markets. PORTFOLIO UPDATE The two most significant geographical shifts in The Oakmark International Fund since the end of 2000 have been a lower weighting in Latin America (declining to 7.5% from 14%) and a higher weighting in Japan (increased to 9% from 2%). We have added a number of high-quality Japanese businesses to the portfolio in the past year including Meitec, Tokyo Broadcasting and, last quarter, Takeda Pharmaceutical. All three of these businesses generate good economic returns, are run by shareholder-oriented management, and trade at significant discounts to our estimate of intrinsic value. Even with these additions to the Fund, Japan still remains significantly underrepresented in your Fund relative to the indices; it still comprises roughly 20% of the EAFE and World ex-U.S. indices. We will continue, as we have over the past ten years, to search for quality companies trading at prices that provide real opportunity. /s/ David G. Herro DAVID G. HERRO, CFA Portfolio Manager dherro@oakmark.com /s/ Michael J. Welsh MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com April 4, 2002 41 INTERNATIONAL DIVERSIFICATION--MARCH 31, 2002 ------------------------------------------------------------------------------- [CHART]
% OF FUND NET ASSETS ------------------------------------ EUROPE 64.1% Great Britain 22.2% * Netherlands 9.1% * France 7.5% Sweden 6.4% * Finland 5.5% * Italy 4.2% * Ireland 2.8% Switzerland 2.8% * Germany 2.5% * Greece 1.1% PACIFIC RIM 21.1% Japan 8.7% Korea 5.6% Australia 2.4% Hong Kong 2.4% Singapore 2.0% LATIN AMERICA 7.5% Mexico 4.3% Brazil 2.3% Panama 0.9% OTHER 2.9% Israel 2.9%
*Euro currency countries comprise 32.6% of the Fund. 42 SCHEDULE OF INVESTMENTS--MARCH 31, 2002 (UNAUDITED)
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.4% FOOD & BEVERAGE--8.9% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 2,410,000 $ 31,504,300 Lotte Chilsung Beverage Soft Drinks, Juices, & Co., Ltd. (Korea) Sport Drinks Manufacturer 55,700 29,156,127 Pernod-Ricard SA (France) Manufactures Wines, Spirits, & Fruit Juices 328,100 26,134,914 Fomento Economico Mexicano, S.A. de C.V. (Mexico), (b) Soft Drink & Beer Manufacturer 549,400 25,904,210 ---------------- 112,699,551 APPAREL--1.0% Fila Holding S.p.A. (Italy), (a)(b)(d) Athletic Footwear & Apparel 5,894,760 $ 12,968,472 RETAIL--5.3% Somerfield plc (Great Britain) Food Retailer 22,714,000 $ 36,953,871 Giordano International Limited (Hong Kong) Pacific Rim Clothing Retailer & Manufacturer 50,401,000 30,047,713 ---------------- 67,001,584 HOME FURNISHINGS--3.4% Hunter Douglas N.V. (Netherlands) Window Coverings Manufacturer 1,435,484 $ 42,238,532 OTHER CONSUMER GOODS & SERVICES--0.3% Shimano Inc. (Japan) Bicycle Components Manufacturer 350,600 $ 4,308,651 BANK & THRIFTS--10.2% Banca Popolare di Verona (Italy) Commercial Banking 3,493,000 $ 39,895,708 Uniao de Bancos Brasileiros S.A. (Brazil), (c) Commercial Banking 939,300 22,965,885 BNP Paribas SA (France) Commercial Banking 354,000 17,843,317 United Overseas Bank Limited, Foreign Shares (Singapore) Commercial Banking 1,426,968 11,762,745 Kookmin Bank (Korea) Commercial Banking 269,968 11,333,755 Banco Latinoamericano de Exportaciones, S.A., Class E (Panama), (b) Latin American Trade Bank 515,400 11,313,030
43
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.4% (CONT.) BANK & THRIFTS--10.2% (CONT.) Svenska Handelsbanken AB (Sweden) Commercial Banking 508,000 $ 7,273,236 DePfa Bank plc (Ireland) Mortgage Bank 83,000 5,563,685 ---------------- 127,951,361 OTHER FINANCIAL--3.8% Daiwa Securities Group Inc. (Japan) Stock Broker 4,076,000 $ 24,093,066 Euronext (Netherlands) Stock Exchange 1,236,500 23,261,764 ---------------- 47,354,830 HOTELS & MOTELS--1.1% Mandarin Oriental International Limited (Singapore) Hotel Management 32,381,400 $ 13,600,188 HUMAN RESOURCES--2.8% Michael Page International plc (Great Britain) Recruitment Consultancy Services 13,386,000 $ 35,168,780 MARKETING SERVICES--5.6% Cordiant Communications Group plc (Great Britain), (d) Advertising & Media Services 29,611,070 $ 39,847,036 Aegis Group plc (Great Britain) Media Services 16,962,000 30,131,983 ---------------- 69,979,019 COMPUTER SERVICES--2.9% Meitec Corporation (Japan) Software Engineering Services 1,234,000 $ 36,842,761 TELECOMMUNICATIONS--4.3% Telefonaktiebolaget LM Ericsson, Class B (Sweden), (a) Mobile & Wired Telecommunications Products 4,826,100 $ 20,380,176 Panafon Hellenic Telecom S.A. (Greece) Mobile Telecommunications 2,817,000 14,076,429 SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 39,620 8,751,165
44
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS - 95.4% (CONT.) TELECOMMUNICATIONS--4.3% (CONT.) Telemig Celular Participacoes S.A. (Brazil) Mobile Telecommunications 2,273,095,600 $ 6,357,625 Cable & Wireless plc (Great Britain) Telecommunications 1,600,000 5,120,705 ---------------- 54,686,100 BROADCASTING & CABLE TV--4.2% Tokyo Broadcasting System, Inc. (Japan) Television & Radio Broadcasting 1,511,000 $ 28,537,375 Grupo Televisa S.A. (Mexico), (a)(b) Television Production & Broadcasting 504,000 24,449,040 ---------------- 52,986,415 PUBLISHING--7.1% John Fairfax Holdings Limited (Australia) Newspaper Publisher 14,211,500 $ 30,032,515 Wolters Kluwer NV (Netherlands) Reference Material Publisher 1,418,500 29,637,007 Independent News & Media PLC (Ireland) Newspaper Publisher 15,299,965 29,302,648 ---------------- 88,972,170 PHARMACEUTICALS--4.8% GlaxoSmithKline plc (Great Britain) Pharmaceuticals 1,380,200 $ 32,350,572 Takeda Chemical Industries, Ltd. (Japan) Pharmaceuticals & Food Supplemenets 378,000 15,304,104 Novartis AG (Switzerland) Pharmaceuticals 298,500 11,722,039 Aventis S.A. (France) Pharmaceuticals 22,300 1,537,531 ---------------- 60,914,246 MEDICAL PRODUCTS--2.0% Gambro AB, Class A (Sweden) Manufacturer of Dialysis Products 4,122,000 $ 25,434,632 AUTOMOTIVE--4.1% Autoliv, Inc (Sweden) Automotive Safety Systems Manufacturer 1,163,000 $ 27,920,073 Compagnie Generale des Etablissements Michelin (France) Tire Manufacturer 632,000 23,955,170 ---------------- 51,875,243
45
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.4% (CONT.) AEROSPACE--2.7% Rolls-Royce plc (Great Britain) Aviation & Marine Power 12,546,995 $ 33,321,816 AIRPORT MAINTENANCE--0.3% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico), (a)(b) Airport Operator 242,000 $ 3,654,200 INSTRUMENTS--2.8% Orbotech, Ltd. (Israel), (a) Optical Inspection Systems 1,139,200 $ 35,793,664 MACHINERY & INDUSTRIAL PROCESSING--2.8% Metso Corporation (Finland) Paper & Pulp Machinery 2,942,100 $ 35,601,311 BUILDING MATERIALS & CONSTRUCTION--1.7% Kumkang Korea Chemical Co., Ltd. (Korea) Building Materials 180,140 $ 21,257,065 CHEMICALS--5.9% Henkel KGaA (Germany) Chemical Products Manufacturer 553,700 $ 31,572,544 Givaudan (Switzerland), (a) Fragrance & Flavor Compound Manufacturer 73,200 23,465,717 Akzo Nobel N.V. (Netherlands) Chemical Producer 425,500 19,854,462 ---------------- 74,892,723 OTHER INDUSTRIAL GOODS & SERVICES--7.4% Kone Corporation, Class B (Finland) Elevators 361,980 $ 33,087,780 Enodis plc (Great Britain), (d) Food Processing Equipment 20,381,200 25,685,210 Chargeurs SA (France), (d) Wool, Textile Production & Trading 350,067 24,837,195 Enodis plc, Rights (Great Britain) Food Processing Equipment 12,228,720 6,704,275 FKI plc (Great Britain) Industrial Manufacturing 1,020,000 2,741,557 ---------------- 93,056,017 TOTAL COMMON STOCKS (COST: $1,116,600,021) 1,202,559,331
46
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--4.3% U.S. GOVERNMENT BILLS--1.2% United States Treasury Bills, 1.71% - 1.76% due 4/4/2002 - 4/18/2002 $15,000,000 $ 14,992,835 TOTAL U.S. GOVERNMENT BILLS (COST: $14,992,864) 14,992,835 REPURCHASE AGREEMENTS--3.1% State Street Repurchase Agreement, 1.75% due 4/1/2002, repurchase price $39,131,607 collateralized by U.S. Treasury Bonds $39,124,000 $ 39,124,000 TOTAL REPURCHASE AGREEMENTS (COST: $39,124,000) 39,124,000 TOTAL SHORT TERM INVESTMENTS (COST: $54,116,864) 54,116,835 Total Investments (Cost $1,170,716,885)--99.7% (e) $ 1,256,676,166 Foreign Currencies (Proceeds $818,576)--0.1% $ 813,223 Other Assets In Excess Of Other Liabilities--0.2% (f) 2,582,294 ---------------- TOTAL NET ASSETS--100% $ 1,260,071,683 ================ (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, 2002, net unrealized appreciation of $85,953,929, for federal income tax purposes, consisted of gross unrealized appreciation of $212,763,850 and gross unrealized depreciation of $126,809,921. (f) Includes transaction hedges.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 47 THE OAKMARK INTERNATIONAL SMALL CAP FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS ------------------------------------------------------------------------------- [PHOTO] [PHOTO] ------------------------------------------------------------------------------- THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/02) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX(19) [CHART]
THE OAKMARK INTERNATIONAL MSCI WORLD SMALL CAP FUND EX U.S. INDEX 10/31/1995 $10,000 $10,000 12/31/1995 $9,630 $10,684 3/31/1996 $10,970 $11,006 6/30/1996 $11,570 $11,186 9/30/1996 $11,590 $11,195 12/31/1996 $12,038 $11,418 3/31/1997 $12,080 $11,241 6/30/1997 $13,181 $12,699 9/30/1997 $12,672 $12,652 12/31/1997 $9,642 $11,677 3/31/1998 $11,429 $13,394 6/30/1998 $9,892 $13,499 9/30/1998 $8,211 $11,513 12/31/1998 $10,529 $13,868 3/31/1999 $13,118 $14,086 6/30/1999 $15,317 $14,493 9/30/1999 $15,439 $15,114 12/31/1999 $16,190 $17,741 3/31/2000 $15,387 $17,839 6/30/2000 $15,529 $17,217 9/30/2000 $14,908 $15,906 12/31/2000 $14,756 $15,369 3/31/2001 $15,232 $13,213 6/30/2001 $15,777 $13,075 9/30/2001 $13,987 $11,273 12/30/2001 $16,671 $12,080 3/31/2002 $18,370 $12,149
AVERAGE ANNUAL TOTAL RETURNS(2) (AS OF 3/31/02) TOTAL RETURN 1-YEAR 5-YEAR SINCE LAST 3 MONTHS* INCEPTION (11/1/95) ------------------------------------------------------------------------------- OAKMARK INTERNATIONAL 10.19% 20.60% 8.74% 9.94% SMALL CAP FUND MSCI World ex. U.S. 0.57% -8.08% 1.57% 3.08% Lipper International 4.55% -4.98% 5.76% 9.72% Small Cap Average(22) ------------------------------------------------------------------------------
Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. - Not annualized PORTFOLIO UPDATE The biggest country weighting increase from last quarter was in Switzerland, which jumped to 12% of the Fund from a little over 7% at the end of December. The share prices of Swiss small caps were hit in the aftermath of September 11th, and many failed to participate in the subsequent Continental European market rallies. This has led to a good buying opportunity. We have been steadily accumulating shares of all our Swiss companies and added a new name during the quarter, Schindler Holding. Schindler is the world's second largest elevator company, just ahead of Kone (a long-time Oakmark International Fund holding). The share price has stagnated due primarily to lagging technology, slowdowns in their Brazilian and Chinese operations, and the legacy of an insular family-company culture. Despite the strong performance of your Fund over the past few years, we still believe there are significant opportunities in the market, and that the portfolio remains undervalued. We want to thank you for your continued confidence. /s/ David G. Herro DAVID G. HERRO, CFA Portfolio Manager DGH100@earthlink.net /s/ Michael J. Welsh MICHAEL J. WELSH, CFA, CPA Portfolio Manager 102521.2142@compuserve.com April 4, 2002 48 INTERNATIONAL DIVERSIFICATION--MARCH 31, 2002 ------------------------------------------------------------------------------ [CHART]
% OF FUND NET ASSETS [_] EUROPE 56.5% Switzerland 12.1% Great Britain 11.0% * Italy 9.5% * France 6.2% Denmark 3.6% * Belguim 3.2% * Spain 2.9% * Netherlands 2.4% * Germany 2.3% Norway 1.1% * Finland 0.9% * Ireland 0.8% Sweden 0.5% [_] PACIFIC RIM 29.3% Japan 8.5% Hong Kong 5.3% Australia 3.9% New Zealand 3.7% Korea 2.9% Philippines 2.4% Singapore 1.7% Thailand 0.9% [_] LATIN AMERICA 7.3% Mexico 4.7% Panama 2.6% [_] OTHER 1.9% Bermuda 1.1% United States 0.8%
*Euro currency countries comprise 28.1% of the Fund. 49 SCHEDULE OF INVESTMENTS--MARCH 31, 2002 (UNAUDITED)
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.0% FOOD & BEVERAGE--8.6% Mikuni Coca-Cola Soft Drink Manufacturer Bottling Co., Ltd. (Japan) 923,000 $ 6,993,742 Campari Group (Italy), (a) Soft Drinks, Wines, & Spirits Producer 256,300 6,983,718 Baron De Ley, S.A. Wines & Spirits Manufacturer (Spain), (a) 194,985 5,075,352 Hite Brewery Co., Ltd. Brewer (Korea) 65,700 4,050,340 Grupo Continental, S.A. Soft Drink Manufacturer (Mexico) 1,728,000 3,161,689 Alaska Milk Corporation Milk Producer (Philippines), (c) 49,394,000 2,033,073 ------------ 28,297,914 APPAREL--1.1% Kingmaker Footwear Athletic Footwear Manufacturer Holdings Limited (Hong Kong) 13,505,000 $ 3,636,078 RETAIL--6.6% Carpetright plc Carpet Retailer (Great Britain) 915,700 $ 8,462,682 House of Fraser Plc Department Store (Great Britain) 4,376,000 5,982,169 Jusco Stores Department Stores (Hong Kong) Co., Limited (Hong Kong) 5,486,000 2,532,081 Dairy Farm International Supermarket Chain Holdings Limited (Singapore), (a) 2,502,000 1,801,440 Harvey Nichols plc High Fashion Clothing Retailer (Great Britain) 493,400 1,608,958 Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 79,000 671,916 Signet Group plc Jewelry Retailer (Great Britain) 389,000 661,954 ------------ 21,721,200 HOUSEHOLD PRODUCTS--2.0% D.F.S. Furniture Furniture Retailer & Manufacturer Company plc (Great Britain) 966,600 $ 6,586,260 HOME FURNISHINGS--2.4% Industrie Natuzzi S.p.A. Home Furniture Manufacturer (Italy), (b) 522,900 $ 7,712,775 OFFICE EQUIPMENT--1.4% Nepost SA (France), (a) Supplier 139,300 $ 4,729,437
50
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.0% (CONT.) OTHER CONSUMER GOODS & SERVICES--0.8% Ilshin Spinning Co., Ltd. Fabric & Yarn Manufacturer (Korea) 44,550 $ 1,839,962 Royal Doulton plc Tableware & Giftware (Great Britain), (a)(c) 4,387,000 531,003 Royal Doulton plc, Rights Tableware & Giftware (Great Britain) 13,161,000 93,706 ------------ 2,464,671 BANK & THRIFTS--2.6% Banco Latinoamericano Multinational Bank de Exportaciones, S.A., Class E (Panama), (b) 390,600 $ 8,573,670 INSURANCE--0.9% IPC Holdings, Ltd. Reinsurance Provider (Bermuda) 87,700 $ 2,853,758 OTHER FINANCIAL--3.7% Ichiyoshi Securities Co., Stock Broker Ltd. (Japan) 1,861,000 $ 7,113,710 JCG Holdings Limited Consumer Finance (Hong Kong) 8,291,000 4,996,019 ------------ 12,109,729 HOTELS & MOTELS--3.1% Jarvis Hotels plc Hotel Operator (Great Britain) 6,395,000 $ 10,062,663 HUMAN RESOURCES--5.6% Solvus S.A. (Belgium) Temporary Staffing Services 566,445 $ 10,577,397 United Services Group NV Temporary Staffing Services (Netherlands) 388,747 7,699,140 ------------ 18,276,537 MARKETING SERVICES--2.5% Asatsu-DK Inc. (Japan) Advertising Services Provider 381,400 $ 8,022,814 COMPUTER SOFTWARE--0.8% Enix Corporation (Japan) Entertainment Software 146,600 $ 2,542,165 COMPUTER SYSTEMS--1.6% Lectra (France), (a) Manufacturing Process Systems 1,084,000 $ 5,237,403 BROADCASTING & CABLE TV--1.7% ABS-CBN Broadcasting Television & Broadcasting Operator Corporation (Philippines) 8,678,000 $ 5,698,020
51
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS-95.0% (CONT.) BROADCASTING & PUBLISHING--0.9% Tamedia AG (Switzerland) TV Broadcasting & Publishing 42,200 $ 2,931,078 PUBLISHING--5.4% Edipresse S.A. (Switzerland) Newspaper & Magazine Publisher 18,274 $ 5,749,611 Recoletos Grupo de Comunicacion, S.A. Publisher (Spain), (a) 880,000 4,443,288 Matichon Public Company Newspaper Publisher Limited, Foreign Shares (Thailand), (c) ` 2,039,500 2,999,265 Hollinger International Inc. Newspaper Publisher (United States) 210,000 2,753,100 VLT AB, Class B (Sweden) Newspaper Publisher 182,250 1,634,135 ------------ 17,579,399 AUTOMOBILES--2.6% Ducati Motor Holding Motorcycle Manufacturer S.p.A. (Italy), (a) 5,177,200 $ 8,428,112 TRANSPORTATION SERVICES--2.8% Mainfreight Limited Logistics Services (New Zealand), (c) 6,228,551 $ 4,118,319 Bergesen d.y. ASA, Tanker Operator Class A Shares (Norway) 187,000 3,550,472 DelGro Corporation Bus, Taxi, & Car Leasing Limited (Singapore) 1,066,000 1,520,421 ------------ 9,189,212 AIRPORT MAINTENANCE--7.4% Grupo Aeroportuario Airport Operator del Sureste S.A. de C.V. (Mexico), (a)(b) 814,300 $ 12,295,930 Kobenhavns Lufthavne Airport Management & Operations A/S (Copenhagen Airports A/S) (Denmark) 166,000 11,863,394 ------------ 24,159,324 INSTRUMENTS--0.9% Vaisala Oyj, Class A Atmospheric Observation Equipment (Finland) 126,000 $ 2,961,611 MACHINERY & INDUSTRIAL PROCESSING--4.8% Pfeiffer Vacuum Vacuum Pump Manufacturer Technology AG (Germany) 212,500 $ 7,492,172 ASM Pacific Technology Semiconductor Machinery Limited (Hong Kong) 2,482,000 6,046,091 Carbone Lorraine SA Electrical Systems Manufacturer (France) 72,700 2,151,826 ------------ 15,690,089
52
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.0% (CONT.) BUILDING MATERIALS & CONSTRUCTION--3.2% Fletcher Building Limited Building Materials Manufacturer (New Zealand) 6,349,000 $ 7,920,151 Grafton Group plc Building Materials Distributor (Ireland) 723,000 2,454,690 ------------ 10,374,841 CHEMICALS--5.3% Gurit-Heberlien AG Chemical Producer (Switzerland) 20,764 $ 14,175,482 Taiyo Ink Mfg. Co., Ltd. Manufacturer of Resist Inks (Japan) 96,000 3,228,107 ------------ 17,403,589 PRODUCTION EQUIPMENT--2.6% Interpump Group S.p.A. Pump and Piston Manufacturer (Italy) 1,780,200 $ 7,299,338 NSC Groupe (France) Textile Equipment Manufacturer 17,466 1,368,452 ------------ 8,667,790 OTHER INDUSTRIAL GOODS & SERVICES--5.5% Schindler Holding AG Elevator & Escalator Manufacturer (Switzerland) 5,310 $ 9,299,199 GFI Industries SA (France) Industrial Fastener Manufacturer 296,271 6,705,887 Coats plc (Great Britain) Textile Manufacturer 2,872,000 2,075,537 ------------ 18,080,623 DIVERSIFIED CONGLOMERATES--8.2% Pacific Dunlop Limited Diversified Manufacturer (Australia) 19,754,626 $ 12,861,311 Pargesa Holding AG Diversified Operations (Switzerland) 3,384 7,362,636 Haw Par Corporation Healthcare & Leisure Products Limited (Singapore) 903,000 2,076,368 Jardine Strategic Holdings Diversified Operations Limited (Bermuda) 340,700 902,855 Tae Young Corp. (Korea) Heavy Construction 106,600 3,547,958 ------------ 26,751,128 TOTAL COMMON STOCKS (COST: $282,324,079) 310,741,890
53
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--6.3% U.S. GOVERNMENT BILLS--3.4% United States Treasury Bills, 1.71% - 1.76% due 4/4/2002 - 4/25/2002 11,000,000 $ 10,991,361 TOTAL U.S. GOVERNMENT BILLS (COST: $10,991,460) 10,991,361 COMMERCIAL PAPER--1.2% ChevronTexaco Corporation, 1.79% due 4/5/2002 4,000,000 $ 4,000,000 TOTAL COMMERCIAL PAPER (COST: $4,000,000) 4,000,000 REPURCHASE AGREEMENTS--1.7% State Street Repurchase Agreement, 1.75% due 4/1/2002, repurchase price $5,723,113 collateralized by U.S. Treasury Bonds 5,722,000 5,722,000 TOTAL REPURCHASE AGREEMENTS (COST: $5,722,000) 5,722,000 TOTAL SHORT TERM INVESTMENTS (COST: $20,713,460) 20,713,361 Total Investments (Cost $303,037,539)--101.3% (d) $ 331,455,251 Foreign Currencies (Proceeds $65,441)--0.0% $65,370 Other Liabilities In Excess Of Other Assets--(1.3)% (e) (4,435,109) ------------- TOTAL NET ASSETS--100% $327,085,512 =============
(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, 2002, net unrealized appreciation of $28,417,642, for federal income tax purposes, consisted of gross unrealized appreciation of $38,942,553 and gross unrealized depreciation of $10,524,911. (e) Includes transaction hedges. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 54 [LOGO] OAKMARK FAMILY OF FUNDS (This page has been intentionally left blank.) 55 THE OAKMARK FAMILY OF FUNDS STATEMENT OF ASSETS AND LIABILITIES--MARCH 31, 2002
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND -------------------------------------------------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value $ 4,088,623,974 $ 4,612,899,717 $ 471,021,494 (cost: 3,493,683,317) (cost: 3,653,255,928) (cost: 384,074,621) Investments in affiliated securities, at value 0 446,811,284 26,605,210 (cost: 0) (cost: 312,359,214) (cost: 26,691,280) Cash 4,174,847 1,459,678 9,975,892 Foreign currency, at value 0 0 0 Receivable for: Forward foreign currency contracts 0 0 0 Securities sold 8,870,957 3,213,776 0 Fund shares sold 7,117,248 2,529,258 3,039,861 Dividends and interest 4,893,038 2,725,850 153,801 --------------- -------------- ------------- Total receivables 20,881,243 8,468,884 3,193,662 Other Assets 191,031 71,430 22,538 --------------- -------------- ------------- Total assets $ 4,113,871,095 $ 5,069,710,993 $ 510,818,796 LIABILITIES AND NET ASSETS Options sold, at fair value $ 0 $ 0 $ 290,000 (premiums received: (premiums received: (premiums received: $0) $0) $305,768) Payable for: Securities purchased 22,869,999 41,850,556 11,985,429 Fund shares redeemed 0 0 0 Due to advisor 285,963 340,066 32,252 Forward foreign currency contracts 0 0 0 Other 1,509,278 1,708,142 306,154 --------------- -------------- ------------- Total liabilities 24,665,240 43,898,764 12,613,835 --------------- -------------- ------------- Net assets applicable to fund shares outstanding $ 4,089,205,855 $ 5,025,812,229 $ 498,204,961 =============== =============== ============= Fund shares outstanding 111,316,185 179,983,467 25,669,296 =============== =============== ============= ANALYSIS OF NET ASSETS Paid in capital $ 3,589,918,544 $ 3,845,740,865 $ 406,322,595 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (102,616,467) 84,429,516 5,005,794 Net unrealized appreciation (depreciation) of investments 594,940,657 1,094,095,859 86,876,572 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) 6,963,121 1,545,989 0 --------------- -------------- ------------- Net assets applicable to Fund shares outstanding $ 4,089,205,855 $ 5,025,812,229 $ 498,204,961 =============== =============== ============= PRICE OF SHARES Net asset value per share: Class I $ 36.74 $ 27.93 $ 19.41 =============== =============== ============= Class I - Net assets 4,088,670,383 4,942,461,276 498,204,961 Class I - Shares outstanding 111,301,596 176,988,787 25,669,296 Net asset value per share: Class II $ 36.71 $ 27.83 =============== =============== Class II - Net assets 535,471 83,350,953 Class II Shares outstanding 14,588 2,994,680 56 THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND -------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value $ 1,800,894,666 $ 146,760,775 $ 1,153,338,253 $ 321,773,591 (cost: 1,666,136,431) (cost: 127,400,533) (cost: 983,509,702) (cost: 286,280,476) Investments in affiliated securities, at value 0 0 103,337,913 9,681,660 (cost: 0) (cost: 0) (cost: 187,207,183) (cost: 16,757,063) Cash 12,014,401 1,699,994 4,256,432 3,242,182 Foreign currency, at value 0 0 813,223 65,370 (cost: 0) (cost: 818,576) (cost: 65,441) Receivable for: Forward foreign currency contracts 0 0 0 0 Securities sold 310,790 0 3,568,818 56,903 Fund shares sold 9,794,547 1,347,864 2,552,659 2,537,278 Dividends and interest 8,842,800 291,009 8,153,958 636,561 --------------- ------------- --------------- -------------- Total receivables 18,948,137 1,638,873 14,275,435 3,230,742 Other Assets 10,185 11,531 28,910 3,185 --------------- ------------- --------------- -------------- Total assets $ 1,831,867,389 $ 150,111,173 $ 1,276,050,166 $ 337,996,730 LIABILITIES AND NET ASSETS Options sold, at fair value $ 631,800 $ 493,300 $ 0 $ 0 (premiums received: (premiums received: (premiums received: (premiums received: $683,457) $542,431) $0) $0) Payable for: Securities purchased 8,315,461 2,603,025 14,287,273 10,507,314 Fund shares redeemed 0 0 0 0 Due to advisor 89,614 8,679 754,334 25,097 Forward foreign currency contracts 0 0 0 0 Other 644,295 201,190 936,876 378,807 --------------- ------------- -------------- -------------- Total liabilities 9,681,170 3,306,194 15,978,483 10,911,218 --------------- ------------- -------------- -------------- Net assets applicable to fund shares outstanding $ 1,822,186,219 $ 146,804,979 $ 1,260,071,683 $ 327,085,512 =============== ============= =============== ============= Fund shares outstanding 93,859,703 9,985,158 78,005,179 25,625,241 =============== ============= =============== ============= ANALYSIS OF NET ASSETS Paid in capital $ 1,692,006,869 $ 124,484,512 $ 1,179,879,287 $ 295,723,989 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (11,433,761) 2,911,479 (9,971,437) 2,945,471 Net unrealized appreciation (depreciation) of investments 134,809,891 19,409,373 85,953,929 28,417,642 Net unrealized appreciation (depreciation) of foreign currency portfolio hedges 0 0 0 0 Net unrealized appreciation (depreciation) other (237) (385) (10,442) (1,590) Accumulated undistributed net investment income (loss) 6,803,457 0 4,220,346 0 ---------------- -------------- ------------- -------------- Net assets applicable to Fund shares outstanding $ 1,822,186,219 $ 146,804,979 $ 1,260,071,683 $ 327,085,512 =============== ============= =============== ============= PRICE OF SHARES Net asset value per share: Class I 19.41 $ 14.70 $ 16.15 $ 12.76 =============== ============= =============== ============= Class I - Net assets 1,769,886,768 146,114,965 1,229,329,767 326,849,563 Class I - Shares outstanding 91,163,512 9,938,137 76,100,024 25,606,739 Net asset value per share: Class II 19.40 $ 14.67 $ 16.14 $ 12.75 =============== ============= =============== ============= Class II - Net assets 52,299,451 690,014 30,744,585 235,950 Class II Shares outstanding 2,696,192 47,021 1,905,155 18,502
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 57 AKMARK FAMILY OF FUNDS STATEMENT OF OPERATIONS--MARCH 31, 2002
THE OAKMARK THE OAKMARK THE OAKMARK FUND SELECT SMALL CAP FUND FUND -------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 23,896,136 $ 22,181,314 $ 783,436 Dividends from affiliated securities 0 0 0 Interest Income 3,583,960 4,189,781 307,946 Other Income 0 0 0 Foreign taxes withheld 0 0 0 ------------ ------------ ----------- Total investment income 27,480,096 26,371,095 1,091,382 EXPENSES: Investment advisory fee 16,482,658 19,895,065 1,607,331 Transfer and dividend disbursing agent fees 1,267,611 1,073,681 175,419 Other shareholder servicing fees 1,369,619 2,132,369 120,930 Service Fee - Class II 229 66,470 0 Reports to shareholders 696,061 537,928 91,426 Custody and accounting fees 216,819 271,833 41,966 Registration and blue sky expenses (440,154) 105,076 (61,880) Trustee fees 140,649 140,094 50,922 Legal fees 48,299 58,117 16,068 Audit fees 12,251 11,626 9,633 Other 92,877 117,941 13,527 ------------ ------------ ----------- Total expenses 19,886,919 24,410,200 2,065,342 Expense reimbursement 0 0 0 Expense offset arrangements (11,500) (7,059) (1,098) ------------ ------------ ----------- Net expenses 19,875,419 24,403,141 2,064,244 NET INVESTMENT INCOME (LOSS): 7,604,677 1,967,954 (972,862) NETREALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities 55,239,969 128,081,080 4,596,533 Net realized gain (loss) on affiliated securities 0 0 0 Net realized gain (loss) on options 5,254,439 3,809,912 433,874 Net realized gain (loss) on short sales (197,816) (510,036) 0 Net realized gain (loss) on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 437,447,110 342,809,776 93,845,396 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: 497,743,702 474,190,732 98,875,803 ------------ ------------ ----------- Net increase (decrease) in net assets resulting from operations $505,348,379 $476,158,686 $97,902,941 ============ ============ =========== 58 THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends from unaffiliated securities $ 5,761,181 $ 394,685 $ 6,471,550 $ 1,358,769 Dividends from affiliated securities 0 0 5,650,112 157,199 Interest Income 8,381,047 62,503 408,684 118,324 Other Income 0 0 1,229 579 Foreign taxes withheld (21,786) (13,173) (590,146) (190,258) ------------ ----------- ------------ ----------- Total investment income 14,120,442 444,015 11,941,429 1,444,613 EXPENSES: Investment advisory fee 3,862,301 368,912 5,254,863 1,105,100 Transfer and dividend disbursing agent fees 234,103 62,309 370,945 65,110 Other shareholder servicing fees 561,425 34,923 383,569 83,737 Service Fee - Class II 26,045 464 17,521 126 Reports to shareholders 124,219 31,418 191,118 31,766 Custody and accounting fees 101,347 51,980 485,500 154,844 Registration and blue sky expenses 254,222 26,838 38,653 36,923 Trustee fees 65,705 43,051 66,725 44,491 Legal fees 23,068 13,951 20,899 14,711 Audit fees 9,633 12,251 11,754 13,323 Other 31,887 7,770 27,484 10,097 ------------ ----------- ------------ ----------- Total expenses 5,293,955 653,867 6,869,031 1,560,228 Expense reimbursement 0 (95) 0 0 Expense offset arrangements (3,701) (392) (1,150) (167) ------------ ----------- ------------ ----------- Net expenses 5,290,254 653,380 6,867,881 1,560,061 NET INVESTMENT INCOME (LOSS): 8,830,188 (209,365) 5,073,548 (115,448) NETREALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities (12,520,847) 2,586,760 12,379,283 3,909,454 Net realized gain (loss) on affiliated securities 0 0 (7,523,169) 0 Net realized gain (loss) on options 1,087,465 331,758 0 0 Net realized gain (loss) on short sales 0 0 0 0 Net realized gain (loss) on foreign currency transactions (2,663) (9,042) (530,008) (83,081) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 133,003,511 21,977,231 248,392,211 48,088,211 Net change in appreciation (depreciation) of forward currency exchange contracts 0 0 0 0 Net change in appreciation (depreciation)other (237) (570) 215 (4,358) Net realized and unrealized gain (loss) on investments and foreign currency transactions: 121,567,229 24,886,137 252,718,532 51,910,226 ------------ ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations $130,397,417 $24,676,772 $257,792,080 $51,794,778 ============ =========== ============ ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 59 THE OAKMARK FAMILY OF FUNDS STATEMENT OF CHANGES IN NET ASSETS--MARCH 31, 2002
THE OAKMARK FUND ------------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2002 SEPTEMBER 30, 2001 ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 7,604,677 $ 19,416,042 Net realized gain (loss) on investments 60,296,592 195,984,944 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 437,447,110 126,130,060 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 505,348,379 341,531,046 FROM DISTRIBUTIONS TO SHAREHOLDERS OF: (a) Net investment income-- Class I (19,630,178) (28,565,025) Net investment income-- Class II (447) 0 Net realized short-term gain-- Class I 0 0 Net realized short-term gain-- Class II 0 0 Net realized long-term gain-- Class I 0 0 Net realized long-term gain-- Class II 0 0 -------------- -------------- TOTAL DISTRIBUTION TO SHAREHOLDERS (19,630,625) (28,565,025) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold-- Class I 870,722,901 1,499,450,622 Proceeds from shares sold-- Class II 584,413 122,635 Reinvestment of dividends and capital gain distributions 19,106,131 27,842,716 Payments for shares redeemed, net of fees-- Class I (395,971,957) (769,874,783) Payments for shares redeemed, net of fees-- Class II (181,890) (7,515) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 494,259,598 757,533,675 -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 979,977,352 1,070,499,696 NET ASSETS: Beginning of period 3,109,228,503 2,038,728,807 End of period $4,089,205,855 $3,109,228,503 ============== ============== Undistributed net investment income $ 6,963,121 $ 18,989,069 ============== ============== (a)DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.1969 $ 0.3872 Net realized short-term gain 0 0 Net realized long-term gain 0 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1969 $ 0.3872 ============== ============== DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.1715 Net realized short-term gain 0 Net realized long-term gain 0 -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1715 ==============
60
THE OAKMARK SELECT FUND ------------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2002 SEPTEMBER 30, 2001 ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 1,967,954 $ 8,224,650 Net realized gain (loss) on investments 131,380,956 (46,951,440) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 342,809,776 564,071,103 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 476,158,686 525,344,313 FROM DISTRIBUTIONS TO SHAREHOLDERS OF: (a) Net investment income-- Class I (8,379,997) (7,393,194) Net investment income-- Class II 0 (21,608) Net realized short-term gain-- Class I 0 (23,966,532) Net realized short-term gain-- Class II 0 0 Net realized long-term gain-- Class I 0 (93,492,833) Net realized long-term gain-- Class II 0 0 -------------- -------------- TOTAL DISTRIBUTION TO SHAREHOLDERS (8,379,997) (124,874,167) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold-- Class I 693,295,310 2,438,122,791 Proceeds from shares sold-- Class II 50,844,384 33,209,296 Reinvestment of dividends and capital gain distributions 7,956,922 121,465,993 Payments for shares redeemed, net of fees-- Class I (382,293,988) (569,095,434) Payments for shares redeemed, net of fees-- Class II (8,509,919) (6,168,435) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 361,292,709 2,017,534,211 -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 829,071,398 2,418,004,357 NET ASSETS: Beginning of period 4,196,740,831 1,778,736,474 End of period $5,025,812,229 $4,196,740,831 ============== ============== Undistributed net investment income $ 1,545,989 $ 7,958,033 ============== ============== (a)DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.0501 $ 0.0861 Net realized short-term gain 0 0.2779 Net realized long-term gain 0 1.0832 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.0501 $ 1.4472 ============== ============== DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0 $ 0.0593 Net realized short-term gain 0 0.2667 Net realized long-term gain 0 1.0732 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0 $ 1.3992 ============== ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 61
THE OAKMARK SMALL CAP FUND ------------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2002 SEPTEMBER 30, 2001 ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ (972,862) $ (710,637) Net realized gain (loss) on investments 5,030,407 1,334,090 Net realized gain (loss) on foreign currency transactions 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 93,845,396 (10,475,705) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 97,902,941 (9,852,252) FROM DISTRIBUTIONS TO SHAREHOLDERS OF: (a) Net investment income 0 0 Net realized short-term gain 0 0 Net realized long-term gain 0 (8,165,109) ------------- ------------- TOTAL DISTRIBUTION TO SHAREHOLDERS 0 (8,165,109) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 173,570,751 133,704,823 Reinvestment of dividends and capital gain distributions 0 8,045,937 Payments for shares redeemed, net of fees (37,880,936) (107,824,806) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 135,689,815 33,925,954 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 233,592,756 15,908,593 Net assets: Beginning of period 264,612,205 248,703,612 End of period $ 498,204,961 $ 264,612,205 ============= ============= Undistributed net investment income $ 0 $ 0 ============= ============= (a) DISTRIBUTIONS PER SHARE: Net investment income $ 0 $ 0 Net realized short-term gain 0 0 Net realized long-term gain 0 0.5102 ============= ============= TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0 $ 0.5102 ============= =============
62
THE OAKMARK EQUITY AND INCOME FUND ------------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2002 SEPTEMBER 30, 2001 ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 8,830,188 $ 5,055,874 Net realized gain (loss) on investments (11,433,382) 1,909,621 Net realized gain (loss) on foreign currency transactions (2,663) (518) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 133,003,511 (5,101,055) Net change in unrealized appreciation (depreciation) -- other (237) 0 --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 130,397,417 1,863,923 FROM DISTRIBUTIONS TO SHAREHOLDERS OF: (a) Net investment income-- Class I (7,013,868) (897,529) Net investment income-- Class II (7,433) (7,433) Net realized short-term gain-- Class I 0 0 Net realized short-term gain-- Class II 0 0 Net realized long-term gain-- Class I (1,870,660) (3,733,470) Net realized long-term gain-- Class II (33,869) 0 --------------- -------------- TOTAL DISTRIBUTION TO SHAREHOLDERS (8,925,830) (4,638,432) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold-- Class I 1,225,813,388 682,515,057 Proceeds from shares sold-- Class II 50,784,082 2,887,484 Reinvestment of dividends and capital gain distributions 8,611,522 4,457,698 Payments for shares redeemed, net of fees-- Class I (203,112,329) (118,553,446) Payments for shares redeemed, net of fees-- Class II (4,738,428) (111,704) --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,077,358,235 571,195,069 --------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,198,829,822 568,420,559 NET ASSETS: Beginning of period 623,356,397 54,935,837 --------------- -------------- End of period $ 1,822,186,219 $ 623,356,396 =============== ============== Undistributed net investment income $ 6,803,457 $ 5,004,490 =============== ============== (a)DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.1542 $ 0.2427 Net realized short-term gain 0 0 Net realized long-term gain 0.0416 1.0013 --------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1958 $ 1.2440 =============== ============== DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.1107 $ 0.2368 Net realized short-term gain 0 0 Net realized long-term gain 0.0416 0.9967 --------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1523 $ 1.2335 =============== ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 63
THE OAKMARK GLOBAL FUND ------------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2002 SEPTEMBER 30, 2001 ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ (209,365) $ (55) Net realized gain (loss) on investments 2,918,518 1,479,943 Net realized gain (loss) on foreign currency transactions (9,042) 71,444 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 21,977,231 (4,901,265) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (76,462) Net change in unrealized appreciation (depreciation) -- other (570) 1,700 ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 24,676,772 (3,424,695) FROM DISTRIBUTIONS TO SHAREHOLDERS OF: (a) Net investment income-- Class I (11,774) (435,138) Net investment income-- Class II (61) 0 Net realized short-term gain-- Class I 0 (92,927) Net realized short-term gain-- Class II 0 0 Net realized long-term gain-- Class I (1,361,493) (37,007) Net realized long-term gain-- Class II (7,099) 0 ------------- ------------- TOTAL DISTRIBUTION TO SHAREHOLDERS (1,380,427) (565,072) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold-- Class I 82,404,960 42,948,303 Proceeds from shares sold-- Class II 601,860 Reinvestment of dividends and capital gain distributions 1,321,517 560,498 Payments for shares redeemed, net of fees-- Class I (8,997,020) (18,542,262) Payments for shares redeemed, net of fees-- Class II (26,694) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 75,304,623 24,966,539 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 98,600,968 20,976,772 NET ASSETS: Beginning of period 48,204,011 27,227,239 ------------- ------------- End of period $ 146,804,979 $ 48,204,011 ============= ============= Undistributed net investment income $ 0 $ (159,043) ============= ============= (a)DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.0025 $ 0.1742 Net realized short-term gain 0 0.0372 Net realized long-term gain 0.2891 0.0145 ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2916 $ 0.2259 ============= ============= DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.0025 Net realized short-term gain 0 Net realized long-term gain 0.2891 ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2916 =============
64
THE OAKMARK INTERNATIONAL FUND ------------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2002 SEPTEMBER 30, 2001 ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 5,073,548 $ 11,508,911 Net realized gain (loss) on investments 4,856,114 (13,334,222) Net realized gain (loss) on foreign currency transactions (530,008) 2,323,657 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 248,392,211 (118,037,625) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (2,048,003) Net change in unrealized appreciation (depreciation) -- other 215 169,583 --------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 257,792,080 (119,417,699) FROM DISTRIBUTIONS TO SHAREHOLDERS OF: (a) Net investment income-- Class I (10,170,790) (24,851,611) Net investment income-- Class II (76,332) (3,245) Net realized short-term gain-- Class I 0 (16,422,539) Net realized short-term gain-- Class II Net realized long-term gain-- Class I 0 (8,281,127) Net realized long-term gain-- Class II --------------- ------------- TOTAL DISTRIBUTION TO SHAREHOLDERS (10,247,122) (49,558,522) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold-- Class I 353,620,828 282,295,504 Proceeds from shares sold-- Class II 28,790,132 2,588,328 Reinvestment of dividends and capital gain distributions 9,818,490 47,893,421 Payments for shares redeemed, net of fees-- Class I (115,985,251) (205,510,100) Payments for shares redeemed, net of fees-- Class II (4,194,398) (327,974) --------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 272,049,801 126,939,179 --------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 519,594,759 (42,037,042) NET ASSETS: Beginning of period 740,476,924 782,513,966 --------------- ------------- End of period $ 1,260,071,683 $ 740,476,924 =============== ============= Undistributed net investment income $ 4,220,346 $ 9,923,928 =============== ============= (a)DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.1649 $ 0.5074 Net realized short-term gain 0 0.3353 Net realized long-term gain 0 0.1690 --------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1649 $ 1.0117 =============== ============= DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.1229 $ 0.4869 Net realized short-term gain 0 0.3217 Net realized long-term gain 0 0.1621 --------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.1229 $ 0.9707 =============== =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 65
THE OAKMARK INTERNATIONAL SMALL CAP FUND ------------------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED MARCH 31, 2002 SEPTEMBER 30, 2001 ------------------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ (115,448) $ 1,844,218 Net realized gain (loss) on investments 3,909,454 1,136,757 Net realized gain (loss) on foreign currency transactions (83,081) 591,541 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 48,088,211 (12,360,111) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (289,441) Net change in unrealized appreciation (depreciation) -- other (4,358) 28,453 ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 51,794,778 (9,048,583) FROM DISTRIBUTIONS TO SHAREHOLDERS OF: (a) Net investment income-- Class I (2,120,585) (2,566,080) Net investment income-- Class II (921) 0 Net realized short-term gain-- Class I (1,891,258) 0 Net realized short-term gain-- Class II (1,136) 0 Net realized long-term gain-- Class I 0 (3,663,064) Net realized long-term gain-- Class II 0 0 ------------- ------------- TOTAL DISTRIBUTION TO SHAREHOLDERS (4,013,900) (6,229,144) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold-- Class I 176,736,276 72,931,617 Proceeds from shares sold-- Class II 193,894 39,964 Reinvestment of dividends and capital gain distributions 3,875,760 6,071,794 Payments for shares redeemed, net of fees-- Class I (20,383,797) (35,203,678) Payments for shares redeemed, net of fees-- Class II (25,251) 0 ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS 160,396,882 43,839,697 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 208,177,760 28,561,970 NET ASSETS: Beginning of period 118,907,752 90,345,782 ------------- ------------- End of period $ 327,085,512 $ 118,907,752 ============= ============= Undistributed net investment income $ 0 $ 1,922,975 ============= ============= (a)DISTRIBUTIONS PER SHARE -- CLASS I: Net investment income $ 0.1600 $ 0.3402 Net realized short-term gain 0.1427 0 Net realized long-term gain 0 0.4853 ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.3027 $ 0.8255 ============= ============= DISTRIBUTIONS PER SHARE -- CLASS II: Net investment income $ 0.1157 Net realized short-term gain 0.1427 Net realized long-term gain 0 ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS $ 0.2584 =============
66 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, securities traded on the NASDAQ National Market, and Over-the-counter securities 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. Debt obligations and money market instruments maturing in more than 60 days from the date of purchase shall be valued at the latest bid quotation. Debt obligations and money market instruments maturing in less than 61 days from the date of purchase are valued on an amortized cost basis which approximates market value. Options are valued at the last reported sale price on the day of valuation, or if lacking any reported sales that day, at the mean of the most recent bid and ask quotations. Securities for which quotations are not readily available are valued at a fair value as determined by the Pricing Committee appointed by the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS -- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from investments. Net realized gains on foreign currency transactions arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. At March 31, 2002, 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 $ 652 $ (6,971) $ 1,298 Unrealized appreciation (depreciation) on open securities purchases and sales 58 9,549 21,058 Unrealized appreciation (depreciation) on transaction hedge purchases and sales (1,075) (13,554) (23,609) Unrealized appreciation (depreciation) on tax expense payable (20) 535 (337) ------- -------- -------- Net Unrealized Appreciation (Depreciation) - Other $ (385) $(10,441) $ (1,590) ======= ======== ======== 67 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 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, 2002, 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, 2002: TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES --
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2002 -------------------------------------------------------------------------------------------- $ 57,202 65,195 Euro Currency April 2002 $ (368) 218,610 29,013,912 Japanese Yen April 2002 49 346,689 3,583,380 Swedish Krona April 2002 (756) ------- $(1,075) =======
The International Fund had the following outstanding contracts at March 31, 2002: TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES --
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLAR SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2002 -------------------------------------------------------------------------------------------- $ 142,924 162,988 Euro Currency April 2002 $ (1,035) 57,233 65,559 Euro Currency April 2002 (161) 86,368 98,876 Euro Currency April 2002 (291) 2,008,479 1,406,793 Pound Sterling April 2002 (5,205) 1,977,180 20,436,128 Swedish Krona April 2002 (6,862) -------- $(13,554) ========
68 The Int'l Small Cap Fund had the following outstanding contracts at March 31, 2002: TRANSACTION HEDGES: FOREIGN CURRENCY PURCHASES --
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS SOLD FOREIGN CURRENCY PURCHASED SETTLEMENT DATE MARCH 31, 2002 -------------------------------------------------------------------------------------------- $1,511,483 2,545,338 Swiss Franc April 2002 $ (449) 457,080 3,872,842 Danish Krone April 2002 (3,347) 489,457 4,163,513 Danish Krone April 2002 (1,669) 160,234 182,790 Euro Currency April 2002 (1,106) 103,784 118,461 Euro Currency April 2002 (657) 255,041 291,110 Euro Currency April 2002 (1,616) 193,512 220,677 Euro Currency April 2002 (1,401) 797,691 913,212 Euro Currency April 2002 (2,694) 1,006,794 1,152,597 Euro Currency April 2002 (3,400) 193,194 221,173 Euro Currency April 2002 (652) 476,180 545,141 Euro Currency April 2002 (1,608) 147,566 169,441 Euro Currency April 2002 (59) 91,496 105,059 Euro Currency April 2002 (37) 1,020,475 714,769 Pound Sterling April 2002 (2,644) 1,061,352 743,712 Pound Sterling April 2002 (2,305) 8,228 64,170 Hong Kong Dollar April 2002 0 26,439 206,206 Hong Kong Dollar April 2002 (2) 144,951 1,130,471 Hong Kong Dollar April 2002 (14) 809,860 6,316,101 Hong Kong Dollar April 2002 (78) 22,649 3,006,000 Japanese Yen April 2002 15 15,117 2,004,000 Japanese Yen April 2002 (9) -------- $(23,732) ========
TRANSACTION HEDGES: FOREIGN CURRENCY SALES --
UNREALIZED APPRECIATION (DEPRECIATION) AT US DOLLARS PURCHASED FOREIGN CURRENCY SOLD SETTLEMENT DATE MARCH 31, 2002 -------------------------------------------------------------------------------------------- $57,027 39,960 Pound Sterling April 2002 $123 ---- $123 ====
At March 31, 2002, Global, International and Int'l Small Cap Funds each had sufficient cash and/or securities to cover any commitments under these contracts. 69 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 Investors Bank & Trust. 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, 2002, 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, 2002, Oakmark, Select, Small Cap, Equity & Income, and Global wrote option contracts. At March 31, 2002, Small Cap, Equity & Income, and Global had outstanding option contracts. Portfolio securities valued at $3,517,000, $12,032,280, and $11,610,710 were being held in escrow by the custodian as cover for call options and put options written by Small Cap, Equity & Income, and Global. 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 billion 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 and Income Fund. During the six months ended March 31, 2002, the Funds incurred brokerage commissions of $3,582,251, $3,596,465, $209,756, $1,741,694, $227,420, $1,429,127, and $588,314 of which $988,741, $570,563, $39,811, $405,399, $52,225, $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. 70 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, 2002 ------------------------------------------------------------------------ EQUITY & INT'L OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL CAP ------------------------------------------------------------------------------------------------ Shares sold 25,065 27,772 9,766 68,983 6,115 26,562 15,151 Shares issued in reinvestment of dividends 563 300 0 483 109 726 375 Less shares redeemed (11,448) (14,636) (2,260) (11,332) (689) (8,452) (1,796) ------- ------- ------ ------- ----- ------ ------ Net increase (decrease) in shares outstanding 14,180 13,436 7,506 58,134 5,535 18,836 13,730 ======= ======= ====== ======= ===== ====== ======
TWELVE MONTHS ENDED SEPTEMBER 30, 2001 ------------------------------------------------------------------------ EQUITY & INT'L OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL CAP ------------------------------------------------------------------------------------------------ Shares sold 44,685 101,275 8,459 39,023 3,516 18,926 6,680 Shares issued in reinvestment of dividends 994 5,908 585 293 53 3,303 588 Less shares redeemed (24,202) (23,567) (7,348) (6,921) (1,614) (13,874) (3,226) ------- ------- ------ ------ ------ ------- ------ Net increase (decrease) in shares outstanding 21,477 83,616 1,696 32,395 1,955 8,355 4,042 ======= ======= ====== ====== ====== ======= ======
4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term securities) were as follows (in thousands):
EQUITY & INT'L OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL CAP ------------------------------------------------------------------------------------------------------ Purchases $1,224,883 $971,676 $102,173 $1,586,021 $86,533 $382,426 $168,651 Proceeds from sales $ 833,400 $697,282 $ 23,014 $ 524,155 $18,448 $133,936 $ 21,139
Transactions in options written by Oakmark during the period ended March 31, 2002 were as follows:
NUMBER OF CONTRACTS PREMIUMS RECEIVED -------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 Options written 83,645 7,552,732 Options terminated in closing purchase transactions (8,910) (670,772) Options expired (50,745) (5,804,083) Options exercised (23,990) (1,077,877) ------- ----------- Options outstanding at March 31, 2002 0 $ 0
71 Transactions in options written by Select during the period ended March 31, 2002 were as follows:
NUMBER OF CONTRACTS PREMIUMS RECEIVED -------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 Options written 39,935 4,004,963 Options terminated in closing purchase transactions (2,700) (139,207) Options expired (25,389) (3,500,703) Options exercised (11,846) (365,053) ------- ----------- Options outstanding at March 31, 2002 0 $ 0
Transactions in options written by Small Cap during the period ended March 31, 2002 were as follows:
NUMBER OF CONTRACTS PREMIUMS RECEIVED -------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 Options written 4,925 868,639 Options terminated in closing purchase transactions (200) (47,318) Options expired (3,325) (413,956) Options exercised (200) (101,597) ------ --------- Options outstanding at March 31, 2002 1,200 $ 305,768
Transactions in options written by Equity & Income during the period ended March 31, 2002 were as follows:
NUMBER OF CONTRACTS PREMIUMS RECEIVED -------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 Options written 22,510 2,465,968 Options terminated in closing purchase transactions (9,775) (780,319) Options expired (9,194) (999,677) Options exercised (31) (2,515) ------- ---------- Options outstanding at March 31, 2002 3,510 $ 683,457
Transactions in options written by Global during the period ended March 31, 2002 were as follows:
NUMBER OF CONTRACTS PREMIUMS RECEIVED -------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 450 $ 141,020 Options written 6,760 943,288 Options terminated in closing purchase transactions (1,010) (241,427) Options expired (1,610) (291,350) Options exercised (50) (9,100) ------ --------- Options outstanding at March 31, 2002 4,540 $ 542,431
72 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 period ended March 31, 2002 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, 2002 --------------------------------------------------------------------------------------------- The Dun & Bradstreet Corporation $109,946,411 $0 $0 $216,950,224 Toys `R' Us, Inc. 202,412,803 0 0 229,861,060 ------------ -- -- ------------ TOTALS $312,359,214 $0 $0 $446,811,284
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2002 --------------------------------------------------------------------------------------------- Department 56, Inc. $10,772,852 $0 $0 $11,200,000 Hanger Orthopedic Group, Inc. 5,061,010 0 0 9,936,000 R.G. Barry Corporation 10,857,418 0 0 5,469,210 ------------ -- -- ----------- TOTALS $26,691,280 $0 $0 $26,605,210
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2002 --------------------------------------------------------------------------------------------- Chargeurs SA $ 19,034,755 $ 0 $ 0 $ 24,837,195 Cordiant Communications Group plc 48,310,385 0 0 39,847,036 Enodis plc 35,994,642 5,578,340 5,650,112 25,685,210 Fila Holding S.p.A. 83,867,401 205,149 0 12,968,472 ------------ ---------- ---------- ------------ TOTALS $187,207,183 $5,783,489 $5,650,112 $103,337,913
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL SMALL CAP FUND
PURCHASE SALES DIVIDEND MARKET VALUE AFFILIATES (COST) PROCEEDS INCOME MARCH 31, 2002 --------------------------------------------------------------------------------------------- Alaska Milk Corporation $ 3,024,829 $0 $107,461 $2,033,073 Royal Doulton plc 4,055,329 0 0 531,003 Mainfreight Limited 6,228,551 0 49,738 4,118,319 Matichon Public Company Limited, Foreign Shares 3,448,354 0 0 2,999,265 ----------- -- -------- ---------- TOTALS $16,757,063 $0 $157,199 $9,681,660
73 THE OAKMARK FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
APRIL 5, 2001 PERIOD ENDED PERIOD ENDED YEAR ENDED THROUGH YEAR YEAR YEAR MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, ENDED ENDED ENDED 2002 2002 2001 2001 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II (a) 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 32.01 $ 31.97 $ 26.95 $32.09 $ 34.37 $ 33.54 $ 41.21 Income From Investment Operations: Net Investment Income (Loss) 0.06 0.04 0.07 0.05 0.48 0.36 0.47 Net Gains or Losses on Securities (both realized and unrealized) 4.87 4.87 5.38 (0.17) (2.91) 2.51 (1.73) -------- ------- -------- ------ -------- -------- -------- Total From Investment Operations: 4.93 4.91 5.45 (0.12) (2.43) 2.87 (1.26) Less Distributions: Dividends (from net investment income) (0.20) (0.17) (0.39) 0.00 (0.26) (0.44) (0.40) Distributions (from capital gains) 0.00 0.00 0.00 0.00 (4.73) (1.60) (6.01) -------- ------- -------- ------ -------- -------- -------- Total Distributions (0.20) (0.17) (0.39) 0.00 (5.00) (2.04) (6.41) Net Asset Value, End of Period $ 36.74 $ 36.71 $ 32.01 $31.97 $ 26.95 $ 34.37 $ 33.54 ======== ======= ======== ====== ======== ======== ======== Total Return 15.44% 15.41% 20.42% (0.37)% (7.55)% 7.98% (4.06)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $4,088.7 $ 0.5 $3,109.1 $ 0.1 $2,038.7 $4,772.8 $6,924.0 Ratio of Expenses to Average Net Assets 1.11%* 1.14%* 1.15% 1.32%* 1.21% 1.11% 1.08% Ratio of Net Investment Income to Average Net Assets 0.42%* 0.12%* 0.73% 0.46%* 1.42% 1.02% 1.22% Portfolio Turnover Rate 24% 24% 57% 57% 50% 13% 43% ELEVEN YEAR MONTHS ENDED ENDED SEPTEMBER 30, OCTOBER 31 1997 (b) 1996 ---------------------------------------------------------- Net Asset Value, Beginning of Period $ 32.39 $ 28.47 Income From Investment Operations: Net Investment Income (Loss) 0.36 0.34 Net Gains or Losses on Securities (both realized and unrealized) 10.67 4.70 -------- -------- Total From Investment Operations: 11.03 5.04 Less Distributions: Dividends (from net investment income) (0.34) (0.28) Distributions (from capital gains) (1.87) (0.84) -------- -------- Total Distributions (2.21) (1.12) Net Asset Value, End of Period $ 41.21 $ 32.39 ======== ======== Total Return 39.24%* 18.07% Ratios/Supplemental Data: Net Assets, End of Period ($million) $6,614.9 $3,933.9 Ratio of Expenses to Average Net Assets 1.08%* 1.18% Ratio of Net Investment Income to Average Net Assets 1.19%* 1.13% Portfolio Turnover Rate 17% 24%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was April 5, 2001. (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. 74 THE OAKMARK SELECT FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
DECEMBER 31, PERIOD PERIOD 1999 ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED 2002 2002 2001 2001 2000 2000 SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II CLASS I CLASS II (a) 1999 ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 25.20 $25.10 $ 21.45 $21.40 $ 20.92 $18.42 $ 16.76 Income From Investment Operations: Net Investment Income (Loss) 0.01 0.00 0.03 0.00 0.13 0.10 0.19 Net Gains or Losses on Securities (both realized and unrealized) 2.77 2.73 5.17 5.10 4.32 2.88 4.73 -------- ------ -------- ------ ------- ------ -------- Total From Investment Operations: 2.78 2.73 5.20 5.10 4.45 2.98 4.92 Less Distributions: Dividends (from net investment income) (0.05) 0.00 (0.09) (0.06) (0.20) 0.00 (0.05) Distributions (from capital gains) 0.00 0.00 (1.36 (1.34) (3.72) 0.00 (0.71) -------- ------ -------- ------ ------- ------ -------- Total Distributions (0.05) 0.00 (1.45) (1.40) (3.91) 0.00 (0.76) Net Asset Value, End of Period $ 27.93 $27.83 $ 25.20 $25.10 $ 21.45 $21.40 $ 20.92 ======== ====== ======== ====== ======= ====== ======== Total Return 11.04% 10.88% 25.75% 25.28% 24.53% 16.18% 30.07% Ratios/Supplemental Data: Net Assets, End of Period ($million) $4,942.5 $ 83.4 $4,161.4 $ 35.4 $1,772.0 $ 6.8 $1,638.9 Ratio of Expenses to Average Net Assets 1.06%* 1.30%* 1.08% 1.40% 1.17% 1.41%* 1.16% Ratio of Net Investment Income (Loss) to Average Net Assets 0.09%* (0.16)%* 0.26% (0.08)% 0.76% 0.59%* 0.98 Portfolio Turnover Rate 13% 13% 21% 21% 69% 69% 67% ELEVEN YEAR ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997(b) --------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.34 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.03 (0.01) Net Gains or Losses on Securities (both realized and unrealized) 0.56 6.35 -------- ------ Total From Investment Operations: 0.59 6.34 Less Distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) (0.17) 0.00 -------- ------ Total Distributions (0.17) 0.00 Net Asset Value, End of Period $ 16.76 $16.34 ======== ====== Total Return 3.64% 69.16%* Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,227.9 $514.2 Ratio of Expenses to Average Net Assets 1.22% 1.12%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.17)% (0.11)%* Portfolio Turnover Rate 56% 37%
Notes ----- * 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. 75 THE OAKMARK SMALL CAP FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
ELEVEN MONTHS PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 2002 2001 2000 1999 1998 1997 (b) 1996 ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $14.57 $ 15.10 $13.88 $12.63 $20.34 $ 13.19 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.00 0.00 0.00 0.14 (0.12) (0.01) (0.02) Net Gains or Losses on Securities (both realized and unrealized) 4.84 (0.02) 1.22 1.20 (4.73) 7.16 3.21 ------ ------- ------ ------ ------ -------- ------ Total From Investment Operations: 4.84 (0.02) 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 0.00 Distributions (from capital gains) 0.00 0.00 0.00 (0.09) (2.86) 0.00 0.00 ------ ------- ------ ------ ------ -------- ------ Total Distributions 0.00 (0.51) 0.00 (0.09) (2.86) 0.00 0.00 Net Asset Value, End of Period $19.41 $ 14.57 $15.10 $13.88 $12.63 $ 20.34 $13.19 ====== ======= ====== ====== ====== ======== ====== Total Return 33.22% 0.07% 8.79% 10.56% (26.37)% 59.14%* 31.94% Ratios/Supplemental Data: Net Assets, End of Period ($million) $498.2 $264.6 $248.7 $437.1 $618.0 $1,513.4 $218.4 Ratio of Expenses to Average Net Assets 1.19%* 1.27% 1.50%(a) 1.48% 1.45% 1.37%* 1.61% Ratio of Net Investment Income (Loss) to Average Net Assets (0.56)%* (0.28)% (0.41)%(a) (0.44)% (0.40)% (0.25)%* (0.29)% Portfolio Turnover Rate 6% 47% 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. 76 THE OAKMARK EQUITY AND INCOME FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD PERIOD JULY 13, 2000 ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED 2002 2002 2001 2001 2000 2000 SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II CLASS I CLASS II(a) 1999 ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 17.45 $17.40 $16.50 $16.49 $15.68 $15.51 $13.99 Income From Investment Operations: Net Investment Income (Loss) 0.09 0.04 0.08 0.07 0.35 0.30 0.39 Net Gains or Losses on Securities (both realized and unrealized) 2.07 2.11 2.11 2.07 2.28 0.68 1.72 -------- ------ ------ ------ ------ ------ ------ Total From Investment Operations: 2.16 2.15 2.19 2.15 2.63 0.98 2.11 Less Distributions: Dividends (from net investment income) (0.16) (0.11) (0.24) (0.24) (0.45) 0.00 (0.21) Distributions (from capital gains) (0.04) (0.04) (1.00) (1.00) (1.36) 0.00 (0.21) -------- ------ ------ ------ ------ ------ ------ Total Distributions (0.20) (0.15) (1.24) (1.23) (1.81) 0.00 (0.42) Net Asset Value, End of Period $ 19.41 $19.40 $17.45 $17.40 $16.50 $16.49 $15.68 ======== ====== ====== ====== ====== ====== ====== Total Return 12.45% 12.44% 14.40% 14.07% 18.51% 6.32% 15.32% Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,769.9 $52.3 $620.1 $ 3.3 $ 54.5 $ 0.4 $ 60.3 Ratio of Expenses to Average Net Assets 0.92%* 1.22%* 0.98% 1.23% 1.25% 1.32%* 1.18% Ratio of Net Investment Income (Loss) to Average Net Assets 1.55%* 1.39%* 2.07% 1.95% 3.04% 2.59%* 2.65% Portfolio Turnover Rate 50% 50% 124% 124% 87% 87% 81% ELEVEN MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 1998 1997(c) 1996 ------------------------------------------ Net Asset Value, Beginning of Period $14.49 $11.29 $10.00 Income From Investment Operations: Net Investment Income (Loss) Net Gains or Losses on Securities (both realized and unrealized) 0.04 3.24 1.19 ------ ------ ------ Total From Investment Operations: 0.33 3.45 1.29 Less Distributions: Dividends (from net investment income) (0.24) (0.12) 0.00 Distributions (from capital gains) (0.59) (0.13) 0.00 ------ ------ ------ Total Distributions (0.83) (0.25) 0.00 Net Asset Value, End of Period $13.99 $14.49 $11.29 ====== ====== ====== Total Return 2.57% 34.01%* 12.91% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 57.7 $ 33.5 $ 13.8 Ratio of Expenses to Average Net Assets 1.31% 1.50%*(b) 2.50%(b) Ratio of Net Investment Income (Loss) to Average Net Assets 2.39% 2.38%*(b) 1.21%(b) Portfolio Turnover Rate 46% 53% 66%
Notes ----- * Data has been annualized. (a) The date which Class II shares were first sold to the public was July 13, 2000. (b) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
SEPTEMBER 30, SEPTEMBER 30, 1997 1996 --------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.70% 2.64% Ratio of Net Income (Loss) to Average Net Assets 2.18% 1.08%
(c) A move to a September 30th fiscal year end from an October 31st fiscal year end resulted in an eleven-month fiscal year in 1997. 77 THE OAKMARK GLOBAL FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD OCTOBER 10, 2001
OCTOBER 10, 2001 PERIOD ENDED THROUGH MARCH 31, MARCH 31, YEAR ENDED YEAR ENDED YEAR ENDED 2002 2002 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II (a) 2001 2000 1999 (c) ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.83 $11.25 $10.91 $ 9.18 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.04 0.00 0.03 0.11 0.01 Net Gains or Losses on Securities (both realized and unrealized) 4.12 3.71 0.13 1.63 (0.83) ------ ------ ------ ------ ------- Total From Investment Operations: 4.16 3.71 0.15 1.74 (0.82) Less Distributions: Dividends (from net investment income) (0.00) (0.00) (0.17) (0.01) 0.00 Distributions (from capital gains) (0.29) (0.29) (0.06) 0.00 0.00 ------ ------ ------ ------ ------- Total Distributions (0.29) (0.29) (0.23) (0.01) 0.00 Net Asset Value, End of Period $14.70 $14.67 $10.83 $10.91 $ 9.18 ====== ====== ====== ====== ====== Total Return 38.99% 33.62% 1.37% 18.97% (8.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $146.1 $ 0.7 $ 48.2 $ 27.2 $ 24.0 Ratio of Expenses to Average Net Assets 1.55%* 2.00% *(b) 1.75%(b) 1.75%(b) 1.75%*(b) Ratio of Net Investment Income (Loss) to Average Net Assets (0.50)%* (0.86)%*(b) 0.00%(b) 0.54%(b) 0.98%*(b) Portfolio Turnover Rate 19% 19% 114% 147% 7%
Notes ----- * Data has been annualized (a) The date which Class II shares were first sold to the public was October 10, 2001. (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, SEPTEMBER 30, 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 2.05% 1.80% 1.96% 2.22%* Ratio of Net Income (Loss) to Average Net Assets (0.91)% (0.05)% 0.34% 0.51%*
(c) The date which Fund shares were first offered for sale to the public was August 4, 1999. 78 THE OAKMARK INTERNATIONAL FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NOVEMBER 4, PERIOD PERIOD 1999 ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED 2002 2002 2001 2001 2000 2000 SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II CLASS I CLASS II (a) 1999 ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.51 $ 12.47 $ 15.40 $ 15.37 $ 13.95 $14.36 $10.42 Income From Investment Operations: Net Investment Income (Loss) 0.05 0.01 0.20 0.18 1.02 0.96 (0.34) Net Gains or Losses on Securities (both realized and unrealized) 3.76 3.78 (2.07) (2.10) 0.92 0.54 4.89 -------- -------- ------- ------- ------- ------ ------ Total From Investment Operations: 3.81 3.79 (1.87) (1.93) 1.94 1.50 4.55 Less Distributions: Dividends (from net investment income) (0.17) (0.12) (0.51) (0.49) (0.49) (0.49) (0.24) Distributions (from capital gains) 0.00 0.00 (0.50) (0.48) 0.00 0.00 (0.78) -------- -------- ------- ------- ------- ------ ------ Total Distributions (0.17) (0.12) (1.01) (0.97) (0.49) (0.49) (1.02) Net Asset Value, End of Period $ 16.15 $ 16.14 $ 12 $ 12.47 $ 15.40 $15.37 $13.95 ======== ======== ======= ======= ======= ====== ====== Total Return 30.67% 30.6 (13.10)% (13.44)% 14.27% 10.79% 46.41% Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,229.3 $ 30.7 $ 738.5 $ 1.9 $ 782.4 $ 0.1 $811.1 Ratio of Expenses to Average Net Assets 1.41%* 1.87%* 1.30% 1.64% 1.30% 1.50%* 1.29% Ratio of Net Investment Income (Loss) to Average Net Assets 1.04%* 1.37%* 1.40% 0.62% 1.87% 1.98%* 1.94% Portfolio Turnover Rate 14% 14% 58% 58% 64% 64% 54% ELEVEN MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 1998 1997 (b) 1996 ---------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 18.77 $ 14.92 $ 12.97 Income From Investment Operations: Net Investment Income (Loss) 0.41 0.27 0.09 Net Gains or Losses on Securities (both realized and unrealized) (5.32) 3.74 2.90 ------- -------- -------- Total From Investment Operations: (4.91) 4.01 2.99 Less Distributions: Dividends (from net investment income) (0.58) (0.16) 0.00 Distributions (from capital gains) (2.86) 0.00 (1.04) ------- -------- -------- Total Distributions (3.44) (0.16) (1.04) Net Asset Value, End of Period $ 10.42 $ 18.77 $ 14.92 ======= ======== ======== Total Return (29.90)% 29.63%* 24.90% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 756.1 $1,647.3 $1,172.8 Ratio of Expenses to Average Net Assets 1.32% 1.26%* 1.32% Ratio of Net Investment Income (Loss) to Average Net Assets 1.95% 2.09%* 1.45% Portfolio Turnover Rate 43% 61% 42%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was November 4, 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. 79 THE OAKMARK INTERNATIONAL SMALL CAP FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD PERIOD
PERIOD PERIOD JANUARY 9, 2001 ENDED ENDED YEAR ENDED THROUGH MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED YEAR ENDED 2002 2002 2001 2001 SEPTEMBER 30, SEPTEMBER 30, CLASS I CLASS II CLASS I CLASS II (a) 2000 1999 -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.00 $ 9.97 $11.51 $10.73 $12.64 $ 6.89 Income From Investment Operations: Net Investment Income (Loss) 0.00 0.00 0.12 0.15 0.23 0.24 Net Gains or Losses on Securities (both realized and unrealized) 3.06 3.04 (0.81) (0.91) (0.66) 5.71 ------ ------ ------ ------ ------ ------ Total From Investment Operations: 3.06 3.04 (0.68) (0.76) (0.43) 5.95 Less Distributions: Dividends (from net investment income) (0.16) (0.12) (0.34) 0.00 (0.11) (0.20) Distributions (from capital gains) (0.14) (0.14) (0.49) 0.00 (0.59) 0.00 ------ ------ ------ ------ ------ ------ Total Distributions (0.30) (0.26) (0.83) 0.00 (0.70) (0.20) Net Asset Value, End of Period $12.76 $12.75 $10.00 $ 9.97 $11.51 $12.64 ====== ====== ====== ====== ====== ====== Total Return 31.34% 31.08% (6.18)% (7.08)% (3.44)% 88.02% Ratios/Supplemental Data: Net Assets, End of Period ($million) $326.8 $ 0.2 $118.9 $ 0.0 $ 90.3 $155.4 Ratio of Expenses to Average Net Assets 1.57%* 1.68%* 1.74% 1.97%* 1.77% 1.79% Ratio of Net Investment Income (Loss) to Average Net Assets (0.12)%* (0.21)%* 1.83% 1.76%* 1.99% 2.31% Portfolio Turnover Rate 9% 9% 49% 49% 40% 126% ELEVEN YEAR ENDED MONTHS ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, OCTOBER 31, 1998 1997 (b) 1996 ---------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.20 $11.41 $10.00 Income From Investment Operations: Net Investment Income (Loss) 0.18 0.13 0.04 Net Gains or Losses on Securities (both realized and unrealized) (4.09) 1.10 1.37 ------- ------ ------ Total From Investment Operations: (3.91) 1.23 1.41 Less Distributions: Dividends (from net investment income) (0.06) (0.08) 0.00 Distributions (from capital gains) (1.34) (0.36) 0.00 ------- ------ ------ Total Distributions (1.40) (0.44) 0.00 Net Asset Value, End of Period $ 6.89 $12.20 $11.41 ======= ====== ====== Total Return (35.20)% 12.07%* 14.15% Ratios/Supplemental Data: Net Assets, End of Period ($million) $326.8 $ 51.8 $ 66.0 $ 39.8 Ratio of Expenses to Average Net Assets 1.96% 1.93%* 2.50%(c) Ratio of Net Investment Income (Loss) to Average Net Assets 2.17% 1.23%* 0.65%(c) Portfolio Turnover Rate 69% 63% 27%
Notes ----- * Data has been annualized. (a) The date which Class II shares were first sold to the public was January 9, 2001. (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) 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%
80 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 AND 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. According to Morningstar, the Morningstar Manager of the Year award is presented to portfolio managers based on the managers' (i) "ability to generate exceptional returns;" (ii) "willingness to align their interests with shareholders;" and (iii) "courage to stay with their strategies in order to produce superior risk-adjusted returns in the end. 2. Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. The performance information for The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Global Fund, The Oakmark International Fund and The Oakmark International Small Cap 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. 3. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks. 4. The Price-Earnings Ratio ("P/E") is the most common measure of how expensive a stock is. 5. The S&P 500 Index is a broad market-weighted average of U.S. blue-chip companies. 6. The Dow Jones Industrial Average is an unmanaged index that includes only 30 big companies. 7. The Lipper Large Cap Value Fund Index measures the performance of the thirty largest U.S. large-cap value funds tracked by Lipper. 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. 81 10. 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 outstanding shares. 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 S&P Small Cap 600 Index measures the performance of selected U.S. stocks with small market capitalizations. 13. The Lipper Small Cap Value Fund Index measures the performance of the thirty largest U.S. small-cap value funds tracked by Lipper. 14. The Lipper Balanced Fund Index measures the performance of the thirty largest U.S. balanced funds tracked by Lipper. 15. The Lehman Govt./Corp. Bond Index is an unmanaged index that includes the Lehman Government and Lehman Corporate indices. 16. 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. 17. The Lipper Global Fund Index is an unmanaged index that includes 30 mutual funds that invest in securities throughout the world. 18. Lipper, Inc. is an independent monitor of mutual fund performance. For the period ended 12/31/01, Global ranked #1 of 290 funds for the 1-year period, #1 of 231 for the 2-year period, and #1 of 222 since inception (8/4/99). 19. The MSCI World Ex U.S. Index is an unmanaged index made up of 19 country sub-indexes, excluding the U.S. 20. The Lipper International Fund Index is an unmanaged index that includes 30 mutual funds that invest in securities whose primary markets are outside the U.S. 21. The Morgan Stanley Small Cap World Ex US Index includes stocks having market capitalizations between $200-$800 million across 23 developed markets. This index is unmanaged and investors cannot actually make an investment in this index. 22. The Lipper International Small Cap Average includes 76 mutual funds that invest in securities whose primary markets are outside the U.S. 23. 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. 82 THE OAKMARK FAMILY OF FUNDS INVESTMENT PHILOSOPHY All Oakmark managers follow a consistent investment philosophy--to invest in companies they believe are trading at a substantial discount to underlying business value. Critical to this philosophy is to invest with management teams who are committed to maximizing the company's business value. THREE KEY TENETS OF OUR INVESTMENT PHILOSOPHY: 1 Buy businesses trading at a significant discount to our estimate of true business value. 2 Invest in companies expected to grow shareholder value over time. 3 Invest with management teams who think and act as owners. INVESTMENT PROCESS We seek to identify undervalued companies through an intensive, in-house research process. This process is not based on macro-economic factors, such as the performance of the economy or the direction of interest rates. Nor is it based on technical factors, such as the performance of the stock market itself. And, while some value managers might use only one summary statistic--such as price-earnings ratio--our investment professionals take a more in-depth approach using a range of valuation measures appropriate for a specific company or industry. From the universe of thousands of equity securities, our team generates investment ideas through a variety of methods. If a security appears attractive, detailed quantitative and qualitative research follows. This careful process of identifying undervalued stocks results in an "approved list." THE RESULT: a unified effort aimed at identifying the best values in the marketplace. From the list of approved stocks, each fund manager constructs a relatively focused portfolio, built on a stock-by-stock basis from the bottom up. WHO SHOULD INVEST Any investor who is seeking a disciplined value manager for the purposes of growing and diversifying a portfolio should consider one of the Oakmark funds, keeping in mind that all equity investments should be considered long-term investments. As value investors, we recognize that patience is a virtue and believe that, over the long term, investors are rewarded for their patience. We generally hold the companies in which we invest for three to five years, a time horizon that we encourage our shareholders to consider as well. HOW TO USE VALUE FUNDS IN AN OVERALL PORTFOLIO Investment styles tend to move in cycles. One style may be in favor for a few years while the other is out of favor, and vice versa. Diversifying the stock portion of your portfolio to include value and momemtum/growth investment styles may help reduce overall volatility--and potentially provide more consistent returns over time. [GRAPHIC] BOTTOM-UP INVESTMENT PROCESS 83 THE OAKMARK GLOSSARY BOOK VALUE - A company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. A company's book value often differs substantially from economic value, especially in industries such as media. BUSINESS VALUE/INTRINSIC VALUE - The perceived or estimated actual value of a security, as opposed to its current market price or book value. Business value can be evaluated based on what a knowledgeable buyer would pay for a business if the company were sold in its entirety. GROWTH INVESTING - Investors who look for companies based on whether the stock of a company is growing earnings and/or revenue faster than the industry as a whole or the overall market. Growth investors generally expect high rates of growth to persist, and the stock, in turn, to deliver returns exceeding the market's. A growth mutual fund is generally one that emphasizes stocks believed to offer above-average growth prospects, with little to no emphasis on the stock's current price. M & A (MERGERS & ACQUISITIONS) - Merger: the combining of two or more entities into one, through a purchase acquisition or a pooling of interests. Acquisition: can also be called a takeover, and is defined as acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly. MARKET CAPITALIZATION (MARKET CAP OR CAP) - The market price of an entire company on any given day, calculated by multiplying the number of shares outstanding by the price per share. MOMENTUM INVESTING - Approach to investing based on the belief that stock price trends are likely to continue. Momentum investors tend to buy stocks that have been outperforming the market and to sell those stocks when their relative performance deteriorates. Momentum investors do not consider a company's underlying value or fundamentals in their investment decisions. MULTIPLE - A ratio used to measure a stock's valuation, usually greater than 1. Sometimes used to mean price/earnings ratio. P/B OR PRICE-TO-BOOK RATIO - A stock's capitalization divided by its book value. The value is the same whether the calculation is done for the whole company or on a per-share basis. P/E OR PRICE-TO-EARNINGS RATIO - The most common measure of a stock's valuation. It is equal to a stock's capitalization divided by its after-tax earnings over a 12-month period. The value is the same whether the calculation is done for the whole company or on a per-share basis. Equivalently, the cost an investor in a given stock must pay per dollar of current annual earnings. Also called earnings multiple. SHARE REPURCHASE - Program through which a corporation buys back its own shares in the open market, typically an indication that the corporation's management believes the stock price is undervalued. VALUE INVESTING - Investors who utilize valuation measures such as business value (including growth rate), price/earnings ratio, price/book ratio, and yield to gauge the attractiveness of a company. Managers who employ a value investment style believe that the true, underlying value of a company is not reflected in its current share price, and, over time, the price has potential to increase as the market recognizes the overall value of the business. Value stocks sell at relatively low prices in relation to their underlying business value, earnings, or book value. Stocks become undervalued for a variety of reasons, including an overall market decline, or when a specific industry falls into disfavor and investors view all companies in that industry in the same light. Consequently, an individual company's stock price may fall, even though it may be only temporarily affected by the industry's problems and its underlying value has remained unchanged. "X TIMES EARNINGS" ("12 TIMES EARNINGS") - Another way to express a stock's price-to-earnings (P/E) ratio. A stock with a P/E ratio of 12 sells at 12 times earnings. 84 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 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 Anita M. Nagler--VICE PRESIDENT William C. Nygren--VICE PRESIDENT John R. Raitt--VICE PRESIDENT Janet L. Reali--VICE PRESIDENT AND SECRETARY Ann W. Regan--VICE PRESIDENT-- SHAREHOLDER OPERATIONS AND ASSISTANT SECRETARY Edward A. Studzinski--VICE PRESIDENT Michael J. Welsh--VICE PRESIDENT 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 [LOGO] OAKMARK FAMILY OF FUNDS 1-800-OAKMARK www.oakmark.com The Oakmark Funds are distributed by Harris Associates Securities L.P., member NASD. Date of first use: May 2002.