-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PktG+MPOCO/t4Rn4wSH0+GQmEbH+GoS6Vlpy1yLxohCaoSB/e/I3C+BeB9EIbBMw pQI9ntnERxE1ZZL7RfwNnQ== 0001047469-03-022080.txt : 20030624 0001047469-03-022080.hdr.sgml : 20030624 20030624131223 ACCESSION NUMBER: 0001047469-03-022080 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20030624 EFFECTIVENESS DATE: 20030624 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-38953 FILM NUMBER: 03754741 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO N LASALLE ST STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 BUSINESS PHONE: 8004769625 MAIL ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 497 1 a2113474z497.txt 497 STATEMENT OF ADDITIONAL INFORMATION JANUARY 29, 2003 As Supplemented May 5, 2003 and June 24, 2003 THE OAKMARK FAMILY OF FUNDS No-Load Funds Two North LaSalle Street Chicago, Illinois 60602-3790 Telephone 1-800-OAKMARK (1-800-625-6275) www.oakmark.com This Statement of Additional Information relates to The Oakmark Fund ("Oakmark Fund"), The Oakmark Select Fund ("Select Fund"), The Oakmark Small Cap Fund ("Small Cap Fund"), The Oakmark Equity and Income Fund, ("Equity and Income Fund"), The Oakmark Global Fund ("Global Fund"), The Oakmark International Fund ("International Fund") and The Oakmark International Small Cap Fund ("International Small Cap Fund"), each a series of Harris Associates Investment Trust (the "Trust"). This Statement of Additional Information is not a prospectus but provides information that should be read in conjunction with the Funds' prospectus dated the same date as this Statement of Additional Information and any supplement thereto. You may obtain a prospectus or semi-annual or annual report from the Funds at no charge by writing, telephoning or accessing the Funds at their address, telephone number or website shown above. TABLE OF CONTENTS THE FUNDS 2 INVESTMENT RESTRICTIONS 2 HOW THE FUNDS INVEST 4 PERFORMANCE INFORMATION 13 INVESTMENT ADVISER 19 CODE OF ETHICS 21 TRUSTEES AND OFFICERS 22 PRINCIPAL SHAREHOLDERS 28 PURCHASING AND REDEEMING SHARES 30 ADDITIONAL TAX INFORMATION 32 DISTRIBUTOR 33 PORTFOLIO TRANSACTIONS 33 DECLARATION OF TRUST 36 CUSTODIAN AND TRANSFER AGENT 36 INDEPENDENT AUDITORS 36 APPENDIX A -- BOND RATINGS A-1 APPENDIX B -- FINANCIAL STATEMENTS B-1
THE FUNDS Oakmark Fund, Select Fund, Small Cap Fund, Global Fund, International Fund and International Small Cap Fund seek long-term capital appreciation. Equity and Income Fund seeks high current income and preservation and growth of capital. The Funds are series of the Trust, an open-end management investment company, and each Fund other than Select Fund is diversified. The Trust is a Massachusetts business trust organized under an Agreement and Declaration of Trust dated February 1, 1991 (the "Declaration of Trust"). All shares issued will be fully paid and non-assessable and will have no preemptive or conversion rights. Each Fund's shares are divided into two share classes: Class I Shares and Class II Shares. Class I Shares of each Fund are offered to members of the general public. As described more fully in the prospectus, Class II Shares of each Fund are offered to certain retirement and profit sharing plans. Class II Shares of a Fund pay a service fee at the annual rate of .25% of the 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. The shares of each class of a Fund represent an interest in the same portfolio of investments of the Fund. All shares of a Fund have equal voting rights (except as to matters affecting the interests of only one class) and the shares of each class are entitled to participate pro rata in any dividends and other distributions declared by the Trust's board of trustees. All shares of a Fund of a given class have equal rights in the event of liquidation of that class. INVESTMENT RESTRICTIONS In pursuing their respective investment objectives no Fund will: 1. [THIS RESTRICTION DOES NOT APPLY TO SELECT FUND] In regard to 75% of its assets, invest more than 5% of its assets (valued at the time of investment) in securities of any one issuer, except in U.S. government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at the time of investment) in securities of companies in any one industry, except that this restriction does not apply to investments in U.S. government obligations; 4. Borrow money except from banks for temporary or emergency purposes in amounts not exceeding 10% of the value of the Fund's assets at the time of borrowing [the Fund will not purchase additional securities when its borrowings, less receivables from portfolio securities sold, exceed 5% of the value of the Fund's total assets]; 5. Issue any senior security except in connection with permitted borrowings; 6. Underwrite the distribution of securities of other issuers; however the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 7. Make loans, but this restriction shall not prevent the Fund from (a) investing in debt obligations, (b) investing in repurchase agreements,(1) or (c) [FUNDS OTHER THAN OAKMARK FUND] lending its portfolio securities - ---------- (1) A repurchase agreement involves a sale of securities to a Fund with the concurrent agreement of the seller (bank or securities dealer) to repurchase the securities at the same price plus an amount equal to an agreed-upon interest rate within a specified time. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses. No Fund may invest more than 15% of its net assets in repurchase agreements maturing in more than seven days and other illiquid securities. 2 [the Fund will not lend securities having a value in excess of 33% of its assets, including collateral received for loaned securities (valued at the time of any loan)]; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into forward foreign currency contracts; 10. Acquire securities of other investment companies except (a) by purchase in the open market, where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission or (b) where the acquisition results from a dividend or a merger, consolidation or other reorganization;(2) 11. Make margin purchases or participate in a joint or on a joint or several basis in any trading account in securities; 12. Invest in companies for the purpose of management or the exercise of control; 13. Invest more than 15% of its net assets (valued at the time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; 14. [OAKMARK FUND, SELECT FUND, SMALL CAP FUND AND EQUITY AND INCOME FUND ONLY] Invest more than 2% of its net assets (valued at the time of investment) in warrants not listed on the New York or American stock exchanges, valued at cost, nor more than 5% of its net assets in all warrants, provided that warrants acquired in units or attached to other securities shall be deemed to be without value for purposes of this restriction; [INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND ONLY] Invest more than 10% of its net assets (valued at the time of investment) in warrants valued at the lower of cost or market, provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction; 15. [OAKMARK FUND, SELECT FUND, SMALL CAP FUND AND EQUITY AND INCOME FUND ONLY] Invest more than 25% of its total assets (valued at the time of investment) in securities of non-U.S. issuers (other than securities represented by American Depositary Receipts);(3) 16. Make short sales of securities unless (i) the Fund owns at least an equal amount of such securities, or of securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into at least an equal amount of such securities with no restriction other than the payment of additional consideration or (ii) immediately after such a short sale, the aggregate value of all securities that the Fund is short (excluding short sales against-the-box(4)) does not exceed 5% of the value of the Fund's net assets, and the Fund covers such a short sale as required by the current rules and positions of the Securities and Exchange Commission or its staff; - ---------- (2) In addition to this investment restriction, the Investment Company Act of 1940 provides that a Fund may neither purchase more than 3% of the voting securities of any one investment company nor invest more than 10% of the Fund's assets (valued at the time of investment) in all investment company securities purchased by the Fund. Investment in the shares of another investment company would require the Fund to bear a portion of the management and advisory fees paid by that investment company, which might duplicate the fees paid by the Fund. (3) Although securities represented by American Depositary Receipts ("ADRs") are not subject to restriction 15, none of these Funds has any present intention to invest more than the indicated percentage of its total assets in ADRs and securities of foreign issuers. (4) A short sale "against the box" involves the sale of a security with respect to which the Fund already owns or has the right to acquire an equivalent amount of such security in kind amount, or securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into at least an equal amount of such securities with no restriction other than the payment of additional consideration. 3 17. Purchase a call option or a put option if, immediately thereafter, the aggregate market value of all call and put options then held would exceed 10% of its net assets; 18. Write any call option or put option unless the option is covered* and immediately thereafter the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund would not exceed 15% of its net assets; 19. Invest in futures or options on futures, except that it may invest in forward foreign currency contracts. The first 10 restrictions listed above, except the bracketed portions and the footnotes related to the restrictions, are fundamental policies and may be changed only with the approval of the holders of a "majority of the outstanding voting securities" of the respective Fund, which is defined in the Investment Company Act of 1940 (the "1940 Act") as the lesser of (i) 67% of the shares of the Fund present at a meeting if more than 50% of the outstanding shares of the Fund are present in person or represented by proxy or (ii) more than 50% of the outstanding shares of the Fund. Those restrictions not designated as "fundamental," and a Fund's investment objective, may be changed by the board of trustees without shareholder approval. A Fund's investment objective will not be changed without at least 30 days' notice to shareholders. Notwithstanding the foregoing investment restrictions, a Fund may purchase securities pursuant to the exercise of subscription rights, provided, in the case of each Fund other than Select Fund, that such purchase will not result in the Fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in a Fund's interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, a Fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of a Fund's portfolio securities with the result that the Fund would be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising the rights. HOW THE FUNDS INVEST BOTTOM-UP INVESTMENT PROCESS All portfolio managers at Harris Associates L.P., investment adviser to The Oakmark Family of Funds (the "Adviser"), strive to abide by a consistent philosophy and process. This process involves a collective, unified effort at identifying what the managers believe are the best values in the marketplace. - ---------- * In the case of a call option, the option is covered if the Fund owns (a) the securities underlying the option, (b) other securities with respect to which the Fund anticipates receiving the underlying securities as a dividend or distribution or upon a conversion or exchange and liquid assets held by the Fund having a value at least equal to the value of such underlying securities are segregated on the books of the Fund's custodian or (c) an absolute and immediate right to acquire the underlying security without additional consideration (or, if additional consideration is required, liquid assets held by the Fund having a value at least equal to that amount are segregated on the books of the Fund's custodian) upon conversion or exchange of other securities held in its portfolio. In the case of a put option, the option is covered if assets having a value at least equal to the exercise price of the option are segregated on the books of the Fund's custodian on a daily basis. For purposes of this restriction, the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund is the aggregate value of all securities held to cover call options written plus the value of all liquid assets required to be so segregated in connection with call and put options written. 4 Each manager typically constructs a focused portfolio from a list of approved stocks, built on a stock by stock basis from the bottom up. The following chart illustrates this bottom-up investment process: BOTTOM-UP INVESTMENT PROCESS UNIVERSE OF THOUSANDS OF EQUITY SECURITIES (ALL STOCKS AVAILABLE FOR INVESTMENT.) CRITERIA SCREENS (MANAGERS AND RESEARCH TEAM SCREEN FOR STOCKS THAT THEY BELIEVE ARE WORTH FURTHER CONSIDERATION.) QUANTITATIVE AND QUALITATIVE RESEARCH (RIGOROUS ANALYSIS IS PERFORMED TO ENSURE THAT THE STOCK MEETS CERTAIN "VALUE" STANDARDS.) APPROVED LIST (APPROXIMATELY 125-150 SECURITIES.) INVEST (MANAGERS SELECT STOCKS FROM THE APPROVED LIST FOR THEIR SPECIFIC FUNDS.) SMALL CAP SECURITIES Under normal market conditions, the Small Cap Fund and International Small Cap Fund each invests at least 80% of its net assets (plus any borrowings for investment purposes) in the stocks of "small cap companies." A small cap company is one whose market capitalization is no larger than the largest market capitalization of the companies included in the S&P Small Cap 600 Index ($2.686 billion as of December 31, 2002). The mean market capitalization of companies included in the S&P Small Cap 600 Index was $542 million as of December 31, 2002. Over time, the largest market capitalization of the companies included in the S&P Small Cap 600 Index will change. As it does, the size of the companies in which each Fund invests may change. Each Fund will notify shareholders at least 60 days prior to any change in its 80% policy. SECURITIES OF NON-U.S. ISSUERS International Fund and International Small Cap Fund invest primarily in securities of non-U.S. issuers, Global Fund typically invests between 40-80% of its total assets in securities of non-U.S. issuers and the other Funds each may invest up to 25% of their assets in securities of non-U.S. issuers. International investing permits an investor to take advantage of the growth in markets outside the United States. Investing in securities of non-U.S. issuers may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. The Funds may invest in securities of non-U.S. issuers directly or in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company and trading in U.S. markets evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. Generally ADRs, in registered form, are designed for use in the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. GDRs are receipts that may trade in U.S. or non-U.S. markets. The Funds may invest in both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a sponsored depositary receipt, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to depositary receipt holders. An unsponsored depositary receipt is created independently of the issuer of the underlying security. The depositary receipt holders generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. With respect to portfolio securities of non-U.S. issuers or denominated in foreign currencies, a Fund's investment performance is affected by the strength or weakness of the U.S. dollar against these currencies. For 5 example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions." You should understand and consider carefully the risks involved in international investing. Investing in securities of non-U.S. issuers, which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different accounting, auditing and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility; imposition of foreign taxes; and sometimes less advantageous legal, operational and financial protections applicable to foreign subcustodial arrangements. Although the Funds try to invest in companies located in countries having stable political environments, there is the possibility of expropriation of assets, confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other political, social or diplomatic developments that could adversely affect investment in these countries. PRIVATIZATIONS. Some governments have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises ("privatizations"). The Adviser believes that privatizations may offer opportunities for significant capital appreciation, and intends to invest assets of International Fund, International Small Cap Fund and Global Fund in privatizations in appropriate circumstances. In certain of those markets, the ability of foreign entities such as International Fund, International Small Cap Fund and Global Fund to participate in privatizations may be limited by local law, and/or the terms on which such Funds may be permitted to participate may be less advantageous than those afforded local investors. There can be no assurance that governments will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. EMERGING MARKETS. Investments in emerging markets securities include special risks in addition to those generally associated with foreign investing. Many investments in emerging markets can be considered speculative, and the value of those investments can be more volatile than in more developed foreign markets. This difference reflects the greater uncertainties of investing in less established markets and economies. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have not kept pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets is uninvested and no return is earned thereon. The inability to make intended security purchases due to settlement problems could cause a Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to a Fund due to subsequent declines in the value of those securities or, if a Fund has entered into a contract to sell a security, in possible liability to the purchaser. Costs associated with transactions in emerging markets securities are typically higher than costs associated with transactions in U.S. securities. Such transactions also involve additional costs for the purchase or sale of foreign currency. Certain foreign markets (including emerging markets) may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. A Fund could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. The risk also exists that an emergency situation may arise in one or more emerging markets. As a result, trading of securities may cease or may be substantially curtailed and prices for a Fund's securities in such markets may not be readily available. A Fund may suspend redemption of its shares for any period during which an emergency exists, as determined by the Securities and Exchange Commission (the "SEC"). Accordingly, if a Fund believes that appropriate circumstances exist, it will promptly apply to the SEC for a determination that such an 6 emergency is present. During the period commencing from a Fund's identification of such condition until the date of the SEC action, that Fund's securities in the affected markets will be valued at fair value determined in good faith by or under the direction of the Trust's board of trustees. Income from securities held by a Fund could be reduced by taxes withheld from that income, or other taxes that may be imposed by the emerging market countries in which the Fund invests. Net asset value of a Fund may also be affected by changes in the rates or methods of taxation applicable to the Fund or to entities in which the Fund has invested. Many emerging markets have experienced substantial rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain emerging market countries. In an attempt to control inflation, certain emerging market countries have imposed wage and price controls. Of these countries, some, in recent years, have begun to control inflation through prudent economic policies. Emerging market governmental issuers are among the largest debtors to commercial banks, foreign governments, international financial organizations and other financial institutions. Certain emerging market governmental issuers have not been able to make payments of interest or principal on debt obligations as those payments have come due. Obligations arising from past restructuring agreements may affect the economic performance and political and social stability of those issuers. Governments of many emerging market countries have exercised and continue to exercise substantial influence over many aspects of the private sector through ownership or control of many companies. The future actions of those governments could have a significant effect on economic conditions in emerging markets, which in turn, may adversely affect companies in the private sector, general market conditions and prices and yields of certain of the securities in a Fund's portfolio. Expropriation, confiscatory taxation, nationalization, political, economic and social instability have occurred throughout the history of certain emerging market countries and could adversely affect Fund assets should any of those conditions recur. CURRENCY EXCHANGE TRANSACTIONS. Each Fund may enter into currency exchange transactions either on a spot (I.E., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest, and serve as hedges against possible variations in the exchange rate between these currencies. A Fund's currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or actual or anticipated portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to specific receivables or payables of a Fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to an actual or anticipated portfolio security position denominated or quoted in a particular currency. When a Fund owns or anticipates owning securities in countries whose currencies are linked, the Fund may aggregate such positions as to the currency hedged. If a Fund enters into a forward contract hedging an anticipated or actual holding of portfolio securities, liquid assets of the Fund, having a value at least as great as the amount of the excess, if any, of the Fund's commitment under the forward contract over the value of the portfolio position being hedged, will be segregated on the books of the Fund and held by the Fund's custodian and marked to market daily, while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may sell the portfolio security related to such contract and make delivery of the currency received from the sale, or it may retain the security and either purchase the currency on the spot market or terminate its contractual obligation to deliver the currency by entering into an offsetting contract with the same currency trader for the purchase on the same maturity date of the same amount of the currency. It is impossible to forecast precisely the market value of a portfolio security being hedged with a forward currency contract. Accordingly, at the maturity of a contract it may be necessary for a Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less 7 than the amount of currency the Fund is obligated to deliver under the forward contract and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if the sale proceeds exceed the amount of currency the Fund is obligated to deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between the Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. DEBT SECURITIES Each Fund may invest in debt securities, including lower-rated securities (I.E., securities rated BB or lower by Standard & Poor's, a division of the McGraw-Hill Companies ("S&P"), or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk bonds") and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by a Fund or the portion of a Fund's assets that may be invested in debt securities in a particular ratings category, except that each of International Fund and International Small Cap Fund will not invest more than 10% of its respective total assets in securities rated below investment grade, Equity and Income Fund will not invest more than 20% of its total assets in such securities, and each of the other Funds will not invest more than 25% of its total assets in such securities. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- and lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, issuers of such bonds may experience difficulty in making their principal and interest payments. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio securities. See "Investing with The Oakmark Family of Funds - Share Price" in the prospectus. The market value of those securities and their liquidity may be affected by adverse publicity and investor perceptions. A description of the characteristics of bonds in each ratings category is included in Appendix A to this statement of additional information. 8 WHEN-ISSUED, DELAYED-DELIVERY AND OTHER SECURITIES Each Fund may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time a Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. A Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if the Adviser deems it advisable for investment reasons. A Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed-delivery basis. At the time a Fund enters into a binding obligation to purchase securities on a when-issued basis, liquid assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a Fund, may increase net asset value fluctuation. A Fund may also enter into a contract with a third party that provides for the sale of securities held by the Fund at a set price, with a contingent right for the Fund to receive additional proceeds from the purchaser upon the occurrence of designated future events, such as a tender offer for the securities of the subject company by the purchaser, and satisfaction of any applicable conditions. Under such an arrangement, the amount of contingent proceeds that the Fund will receive from the purchaser, if any, will generally not be determinable at the time such securities are sold. The Fund's rights under such an arrangement will not be secured and the Fund may not receive the contingent payment if the purchaser does not have the resources to make the payment. The Fund's rights under such an arrangement also generally will be illiquid and subject to the limitations on ownership of illiquid securities. ILLIQUID SECURITIES No Fund may invest in illiquid securities if, as a result, such securities would comprise more than 15% of the value of the Fund's assets. If, through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% of the value of its net assets are invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity. Illiquid securities may include restricted securities, which may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where a Fund holds restricted securities and registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in good faith by or under the direction of the board of trustees. Notwithstanding the above, each Fund may purchase securities that, although privately placed, are eligible for purchase and sale under Rule 144A under the 1933 Act. This rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities even though such securities are not registered under the 1933 Act. The Adviser, under the supervision of the board of trustees, may consider whether securities purchased under Rule 144A are liquid and thus not subject to the Fund's restriction of investing no more than 15% of its assets in illiquid securities. (See restriction 13 under "Investment Restrictions.") A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination the Adviser will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Adviser could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, (4) and the nature of the security and of market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and, if as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% of its assets in illiquid securities. 9 Investing in Rule 144A securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. PRIVATE PLACEMENTS Each Fund may acquire securities in private placements. Because an active trading market may not exist for such securities, the sale of such securities may be subject to delay and additional costs. No Fund will purchase such a security if more than 15% of the value of such Fund's net assets would be invested in illiquid securities. SHORT SALES Each Fund may make short sales of securities if (a) the Fund owns at least an equal amount of such securities, or of securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into at least an equal amount of such securities with no restriction other than the payment of additional consideration or (b) immediately after such a short sale, the aggregate value of all securities that the Fund is short (excluding the value of securities sold short against-the-box, as defined below) does not exceed 5% of the value of the Fund's net assets, and the Fund covers such short sales as described in the following paragraph. A short sale against-the-box involves the sale of a security with respect to which the Fund already owns or has the right to acquire an equivalent security in kind and amount, or securities that are convertible or exchangeable, or anticipated to be convertible or exchangeable, into such securities with no restriction other than the payment of additional consideration. In a short sale, a Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Fund, to the purchaser of such securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to such broker-dealer the securities sold short. In addition, the Fund is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, in order to cover its short positions, the Fund must deposit and continuously maintain in a separate account with the Fund's custodian either (1) an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration or (2) cash, U.S. government securities or other liquid securities having a value equal to the excess of (a) the market value of the securities sold short over (b) the value of any cash, U.S. government securities or other liquid securities deposited as collateral with the broker in connection with the short sale. A Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. A Fund may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time a Fund replaces the borrowed security, the Fund will incur a loss and if the price declines during this period, the Fund will realize a short-term capital gain. Any realized short-term capital gain will be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Fund may have to pay in connection with such short sale. Certain provisions of the Internal Revenue Code may limit the degree to which a Fund is able to enter into short sales. There is no limitation on the amount of each Fund's assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. 10 LENDING OF PORTFOLIO SECURITIES Each Fund except Oakmark Fund may lend its portfolio securities to broker-dealers and banks to the extent indicated in restriction 7 under "Investment Restrictions." Any such loan must be continuously secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to the market value of the securities loaned by a Fund. The Fund would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned, and would also receive an additional return that may be in the form of a fixed fee or a percentage of the earnings on the collateral. The Fund would have the right to call the loan and obtain the securities loaned at any time on notice of not more than five business days. In the event of bankruptcy or other default of the borrower, the Fund could experience delays in liquidating the loan collateral or recovering the loaned securities and incur expenses related to enforcing its rights. In addition, there could be a decline in the value of the collateral or in the value of the securities loaned while the Fund seeks to enforce its rights thereto and the Fund could experience subnormal levels of income and lack of access to income during this period. FOREIGN INVESTMENT COMPANIES Certain markets are closed in whole or in part to direct equity investments by foreigners. A Fund may be able to invest in such markets solely or primarily through foreign government-approved or authorized investment vehicles, which may include other investment companies. A Fund may also invest in other investment companies that invest in foreign securities. As a shareholder in an investment company, a Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time the Fund would continue to pay its own management fees and other expenses. In addition, investing through such vehicles may be subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may invest up to 10% of its assets in shares of investment companies and up to 5% of its assets in any one investment company, as long as the Fund does not own more than 3% of the voting stock of any one investment company. The Funds do not intend to invest in such vehicles or funds unless, in the judgment of the Adviser, the potential benefits of the investment justify the payment of any applicable fee, premium or sales charge. OPTIONS Each Fund may purchase and sell both call options and put options on securities. An option on a security is a contract that gives the purchaser (holder) of the option, in return for a premium, the right to buy from (call) or sell to (put) the seller (writer) of the option the security underlying the option at a specified exercise price at any time during the term of the option. The writer of an option on an individual security has the obligation upon exercise of a call option to deliver the underlying security upon payment of the exercise price or upon exercise of a put option to pay the exercise price upon delivery of the underlying security. A Fund will not write any call option or put option unless the option is covered and immediately thereafter the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund would not exceed 15% of its net assets. In the case of a call option, the option is covered if the Fund owns (a) the securities underlying the option, (b) other securities with respect to which the Fund anticipates receiving the underlying securities as a dividend or distribution or upon a conversion or exchange and liquid assets held by the Fund having a value at least equal to the value of such underlying securities are segregated on the books of the Fund's custodian or (c) an absolute and immediate right to acquire the underlying security without additional consideration (or, if additional consideration is required, liquid assets held by the Fund having a value at least equal to that amount are segregated on the books of the Fund's custodian) upon conversion or exchange of other securities held in its portfolio. In the case of a put option, the option is covered if assets having a value at least equal to the exercise price of the option are segregated on the books of the Fund's custodian on a daily basis. For purposes of this restriction, the aggregate market value of all portfolio securities or currencies required to cover such options written by the Fund is the aggregate value of all securities held to cover call options written plus the value of all liquid assets required to be so segregated in connection with call and put options written. If an option written by a Fund expires, the Fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by a Fund expires, the Fund realizes a capital loss equal to the premium paid. 11 Prior to the earlier of exercise or expiration, the writer may close out the option by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when a Fund desires. If a Fund closes out an option it has written, it will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date. A put or call option purchased by a Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received for an option written by a Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the last reported sale price, or, if no sale price is available, at the mean between the last bid and asked prices, or if the mean is not available, at the most recent bid quotation. There are several risks associated with transactions in options. For example, there are significant differences between the securities markets and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. If a Fund was unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a Fund was unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, a Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. If trading were suspended in an option purchased or written by a Fund, that Fund would not able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it has purchased. TEMPORARY STRATEGIES Each Fund has the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the Adviser may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers, and most or all of the investments of International Fund, International Small Cap Fund and Global Fund may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when or for how long a Fund will employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, each Fund temporarily may hold cash (U.S. dollars, foreign currencies or multinational currency units) and may invest any portion of its assets in money market instruments. 12 PERFORMANCE INFORMATION From time to time the Funds may quote total return figures in sales material. "Total return" for a period is the percentage change in value during the period of an investment in Fund shares, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. Total return figures quoted by the Funds will assume reinvestment of all dividends and distributions, but will not take into account income taxes payable by shareholders. Total return is not intended to indicate future performance. "Average Annual Total Return" is the average annual compounded rate of change in value represented by the total return for the period. Average Annual Total Return will be computed as follows: ERV = P(1+T) (POWER OF n) Where: P = the amount of an assumed initial investment in Fund shares T = average annual total return n = number of years from initial investment to the end of the period ERV = ending redeemable value of shares held at the end of the period The Funds may also quote after-tax total returns to show the impact of assumed federal income taxes on an investment in a Fund. A Fund's total return "after taxes on distributions" shows the effect of taxable distributions, but not any taxable gain or loss, on an investment in shares of the Fund for a specified period of time. A Fund's total return "after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss realized by the shareholder upon the sale of fund shares at the end of a specified period. To determine these figures, all income, short-term capital gain distributions, and long-term capital gains distributions are assumed to have been taxed at the highest marginal individualized federal tax rate then in effect. Those maximum tax rates are applied to distributions prior to reinvestment and the after-tax portion is assumed to have been reinvested in the Fund. State and local taxes are ignored. Actual after-tax returns depend on a shareholder's tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. Average Annual Total Return (After Taxes on Distributions) will be computed as follows: ATV (BASE OF D) = P(1+T) (POWER OF n) Where: P = a hypothetical initial investment of $1,000 T = average annual total return (after taxes on distributions) n = number of years ATV (BASE OF D) = ending value of a hypothetical $1,000 investment made at the beginning of the period, at the end of the period (or fractional portion thereof), after taxes on fund distributions but not after taxes on redemptions. Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) will be computed as follows: ATV (BASE OF DR) = P(1+T) (POWER OF n) Where: P = a hypothetical initial investment of $1,000 T = average annual total return (after taxes on distributions) n = number of years ATV (BASE OF DR) = ending value of a hypothetical $1,000 investment made at the beginning of the period, at the end of the period (or fractional portion thereof), after taxes on fund distributions but not after taxes on redemptions. 13 Each Fund's Average Annual Total Return before and, for Class I Shares, after taxes for various periods ended December 31, 2002 are shown in the tables below. No information is provided for Class II Shares of Small Cap Fund because Class II Shares have not been sold to investors for a full calendar year. The Funds' returns may vary greatly over short periods of time and may be materially different by the time you receive this statement of additional information. FOR MORE CURRENT PERFORMANCE INFORMATION, VISIT www.oakmark.com. OAKMARK FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -14.41% 1.00% 11.36% AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -14.53% -0.64% 9.50% AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -8.84% 0.44% 9.01%
OAKMARK FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR --------------------------------------------------------------------- Average Annual Total Return -14.55% 0.78% 11.11%
* The Fund commenced operations on August 5, 1991, but until April 5, 2001, offered only Class I Shares. The historical performance of Class II Shares for the periods prior to April 5, 2001 is based on the performance of Class I Shares. The Class II Shares returns for the periods prior to April 5, 2001 are restated to reflect the differences in expenses between the Class I and Class II Shares (the expenses for Class II Shares are higher than the expenses for Class I Shares for additional shareholder servicing). SELECT FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -12.47% 13.05% 21.17% AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -12.50% 11.59% 19.83% AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -7.66% 10.44% 17.80%
* From the date the Class I Shares were first offered for sale (November 1, 1996). SELECT FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND** --------------------------------------------------------------------- Average Annual Total Return -12.73% 12.73% 20.84% ---------------------------------------------------------------------
* The Fund commenced operations on November 1, 1996, but until December 31, 1999, offered only Class I Shares. The historical performance of Class II Shares for the periods prior to December 31, 1999 is based on the performance of Class I Shares. The Class II Shares returns for the periods prior to December 31, 1999 are restated to reflect the differences in expenses between the Class I Shares and Class II Shares (the expenses for Class II Shares are higher than the expenses for Class I Shares for additional shareholder servicing). ** From the date Class I Shares were first offered for sale (November 1, 1996). 14 SMALL CAP FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -13.07% -1.73% 9.03% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -13.07% -2.73% 8.33% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -8.03% -1.40% 7.46% --------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). EQUITY AND INCOME FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.14% 10.91% 13.68% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.64% 9.51% 12.23% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -1.31% 8.52% 10.96% --------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). EQUITY AND INCOME FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND** --------------------------------------------------------------------- Average Annual Total Return -2.31% 10.75% 13.49% ---------------------------------------------------------------------
* The Fund commenced operations on November 1, 1995, but until July 13, 2000, offered only Class I Shares. The historical performance of Class II Shares for the periods prior to July 13, 2000 is based on the performance of Class I Shares. The Class II Shares returns for the periods prior to July 13, 2000 are restated to reflect the differences in expenses between the Class I Shares and Class II Shares (the expenses for Class II Shares are higher than the expenses for Class I Shares for additional shareholder servicing). ** From the date Class I Shares were first offered for sale (November 1, 1995). GLOBAL FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.11% 9.40% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.11% 9.01% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -1.30% 7.54% -------------------------------------------------------------------- * From the date Class I Shares were first offered for sale (August 4, 1999).
15 GLOBAL FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR LIFE OF FUND** -------------------------------------------------------------------- Average Annual Total Return -2.49% 9.07% --------------------------------------------------------------------
* The Fund commenced operations on August 4, 1999, but until October 10, 2001, offered only Class I Shares. The historical performance of Class II Shares for the period prior to October 10, 2001 is based on the performance of Class I Shares. The Class II Shares returns for the period prior to October 10, 2001 are restated to reflect the differences in expenses between the Class I Shares and Class II Shares (the expenses for Class II Shares are higher than the expenses for Class I Shares for additional shareholder servicing). ** From the date Class I Shares were first offered for sale (August 4, 1999). INTERNATIONAL FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -8.46% 4.85% 9.75% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -8.69% 3.49% 7.73% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -5.09% 3.39% 7.36% --------------------------------------------------------------------
INTERNATIONAL FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR -------------------------------------------------------------------- Average Annual Total Return -8.77% 4.57% 9.47% --------------------------------------------------------------------
* The Fund commenced operations on September 30,1992, but until November 4, 1999, offered only Class I Shares. The historical performance of Class II Shares for the periods prior to November 4, 1999 is based on the performance of Class I Shares. The Class II Shares returns for the periods prior to November 4, 1999 are restated to reflect the differences in expenses between the Class I Shares and Class II Shares (the expenses for Class II Shares are higher than the expenses for Class I Shares for additional shareholder servicing). INTERNATIONAL SMALL CAP FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -5.12% 10.40% 6.60% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -5.74% 9.20% 5.01% -------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* -------------------------------------------------------------------- Average Annual Total Return -2.55% 8.30% 4.85% --------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). 16 INTERNATIONAL SMALL CAP FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND** -------------------------------------------------------------------- Average Annual Total Return -5.50% 10.19% 6.38% --------------------------------------------------------------------
* The Fund commenced operations on November 1, 1995, but until January 8, 2001, offered only Class I Shares. The historical performance of Class II Shares for the period prior to January 8, 2001 is based on the performance of Class I Shares. The Class II Shares returns are restated to reflect the differences in expenses between the Class I Shares (the expenses for Class II Shares are higher than the expenses for Class I Shares for additional shareholder servicing). ** From the date Class I Shares were first offered for sale (November 1, 1995). The Funds also may, from time to time, quote their yield. Yield is based on historical earnings and is not intended to indicate future performance. The yield of a Fund refers to the income generated by an investment in that Fund over a one-month period (which period will be stated in the sales material). This income is then "annualized." That is, the amount of income generated by the investment during the month is assumed to be generated each month over a 12 month period and is shown as a percentage of the investment. Yield quotations are based on a 30-day (or one month) period, and are computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: a-b Yield = 2 [( ----- +1) (POWER OF 6) - 1] cd Where: a = dividends and interest earned during the period b = expenses accrued for the period (net of reimbursements) c = the average daily number of shares outstanding during the period that were entitled to receive dividends d = the maximum offering price per share on the last day of the period Although they may do so in the future, each Fund typically does not calculate or advertise its yield. The Funds impose no sales charge and pay no distribution ("12b-1") expenses. Performance figures quoted by the Funds are not necessarily indicative of future results. Each Fund's performance is a function of conditions in the securities markets, portfolio management, and operating expenses. Although information such as yield and total return is useful in reviewing a Fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. The Funds may invest in initial public offerings (IPOs). IPOs and other investment techniques may have a magnified performance impact on a Fund with a small asset base and similar performance may not continue as assets grow. In advertising and sales literature, the performance of a Fund may be compared with that of other mutual funds, indexes or averages of other mutual funds, indexes of related financial assets or data, and other competing investment and deposit products available from or through other financial institutions. The composition of these indexes or averages differs from that of the Funds. Comparison of a Fund to an alternative investment should consider differences in features and expected performance. Various newspapers and publications including those listed below may also make mention of a Fund's portfolio managers. Portfolio managers and other members of the Adviser's staff may make presentations at conferences or trade shows, appear on television or radio programs, or conduct or participate in telephone conference calls, and the Funds may announce those presentations, appearances or calls to some or all shareholders, or to potential investors in the Funds. Biographical and other information about a Fund's portfolio managers, including information about awards received by those portfolio managers or mentions of the managers in the media, may also be described or quoted in Fund advertisements or sales literature. William C. Nygren, one of the portfolio managers of Oakmark Select Fund, was named "Morningstar Domestic Stock Manager of the Year for 2001" by Morningstar, Inc. ("Morningstar"). According to Morningstar, the award is presented to a portfolio 17 manager based on, the manager's (i) "ability to generate exceptional returns;" (ii) "willingness to align [his] interests with shareholders;" and (iii) "courage to stay with [his]strategies in order to produce superior risk-adjusted returns in the end." All of the indexes and averages noted below will be obtained from the indicated sources or reporting services, which the Funds generally believe to be accurate. The Funds may also refer to publicity (including performance rankings) in newspapers, magazines, or other media from time to time. However, the Funds assume no responsibility for the accuracy of such data. Newspapers and magazines that might mention the Funds include, but are not limited to, the following: Barron's Business Week Changing Times Chicago Tribune Chicago Sun-Times Crain's Chicago Business Consumer Reports Consumer Digest Financial World Forbes Fortune Global Finance Investor's Business Daily Kiplinger's Personal Finance Los Angeles Times Money Mutual Fund Letter Mutual Funds Magazine Morningstar Newsweek The New York Times Pensions and Investments Personal Investor Smart Money Stanger Reports Time USA Today U.S. News and World Report The Wall Street Journal Worth A Fund may compare its performance to the Consumer Price Index (All Urban), a widely recognized measure of inflation. The performance of a Fund may also be compared to the following indexes or averages: Dow-Jones Industrial Average* Standard & Poor's 500 Stock Index* Standard & Poor's 400 Industrials Standard & Poor's Small Cap 600* Standard & Poor's Mid Cap 400* Russell 2000 Wilshire 5000 New York Stock Exchange Composite Index American Stock Exchange Composite Index NASDAQ Composite NASDAQ Industrials In addition, each of Oakmark Fund, Select Fund, Small Cap Fund and Equity and Income Fund may compare its performance to the following indexes and averages: Value Line Index; Lipper Balanced Fund Index; Lipper Capital Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small Company Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds Average; Lipper Small-Cap Growth Index; Lipper Small-Cap Value Index; Lipper Small-Cap Core Index; Lipper Small Cap Fund Index; and Lehman Brothers Government/Corporate Bond Index. Each of International Fund, International Small Cap Fund and Global Fund may compare its performance to the following indexes and averages: Lipper International & Global Funds Average; Lipper Global Fund Index; Lipper International Fund Index; Lipper International Equity Funds Average; Micropal International Small Company Fund Index; Morgan Stanley Capital International World ex U.S. Index; Morgan Stanley Capital International EAFE (Europe, Australia and Far East Index); Morningstar Growth Average; Morningstar Small-Cap Funds Average; Morningstar U.S. Diversified Average; Morningstar Equity Fund Average; Morningstar Hybrid Fund Average; Morningstar All Equity Funds Average; Morningstar General Equity Average; and Morningstar International Stock Average. - ---------- * With dividends reinvested. 18 Lipper Indexes and Averages are calculated and published by Lipper, Inc. ("Lipper"), an independent service that monitors the performance of more than 1,000 funds. The Funds may also use comparative performance as computed in a ranking by Lipper or category averages and rankings provided by another independent service. Should Lipper or another service reclassify a Fund to a different category or develop (and place a Fund into) a new category, that Fund may compare its performance or ranking against other funds in the newly assigned category, as published by the service. Each Fund may also compare its performance or ranking against all funds tracked by Lipper or another independent service, including Morningstar, Inc. The Funds may cite their ratings, recognition, or other mention by Morningstar or any other entity. For each Fund with at least a three-year history, Morningstar calculates a Morningstar Rating(TM) metric each month by subtracting the return on a 90-day U.S. Treasury Bill from the Fund's load-adjusted return for the same period, and then adjusting this excess return for risk. The top 10% of funds in each broad asset class receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating is derived from a weighted average of the performance figures associated with the Fund's three-, five- and ten-year (if applicable) Morningstar Rating metrics. To illustrate the historical returns on various types of financial assets, the Funds may use historical data provided by Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains) very long-term (since 1926) total return data (including, for example, total return indexes, total return percentages, average annual total returns and standard deviations of such returns) for the following asset types: common stocks; small company stocks; long-term corporate bonds; long-term government bonds; intermediate-term government bonds; U.S. Treasury bills; and Consumer Price Index. INVESTMENT ADVISER The Adviser furnishes continuing investment supervision to the Funds and is responsible for overall management of the Funds' business affairs pursuant to investment advisory agreements relating to the respective Funds (the "Agreements"). The Adviser furnishes office space, equipment and personnel to the Funds, and assumes the expenses of printing and distributing the Funds' prospectus, profiles and reports to prospective investors. Each Fund pays the cost of its custodial, stock transfer, dividend disbursing, bookkeeping, audit and legal services. Each Fund also pays other expenses such as the cost of proxy solicitations, printing and distributing notices and copies of the prospectus and shareholder reports furnished to existing shareholders, taxes, insurance premiums, the expenses of maintaining the registration of that Fund's shares under federal and state securities laws and the fees of trustees not affiliated with the Adviser. For its services as investment adviser, the Adviser receives from each Fund a monthly fee based on that Fund's net assets at the end of the preceding month. Basing the fee on net assets at the end of the preceding month has the effect of (i) delaying the impact of changes in assets on the amount of the fee and (ii) in the first year of a fund's operation, reducing the amount of the aggregate fee by providing for no fee in the first month of operation. The annual rates of fees as a percentage of each Fund's net assets are as follows:
FUND FEE ---- -------------------------------------------------- Oakmark 1.00% up to $2.0 billion; .90% on the next $1.0 billion; .80% on the next $2.0 billion; and .75% on net assets in excess of $5.0 billion Select 1.00% up to $1.0 billion; .95% on the next $500 million; .90% on the next $500 million; .85% on the next $500 million; .80% on the next $2.5 billion; and .75% on net assets in excess of $5.0 billion Small Cap 1.00% Equity and Income .75% Global 1.00%
19
FUND FEE ---- -------------------------------------------------- International 1.00% up to $2.0 billion; .95% on the next $1.0 billion; and .85% on net assets in excess of $3 billion International Small 1.25% up to $500 million; and 1.10% on net Cap assets in excess of $500 million
The table below shows gross advisory fees paid by the Funds and any expense reimbursements by the Adviser to them, which are described in the prospectus.
TYPE OF YEAR ENDED YEAR ENDED YEAR ENDED FUND PAYMENT SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------------------------- Oakmark Advisory fee $ 34,848,853 $ 25,662,135 $ 28,116,035 Select Advisory fee 40,838,462 27,774,016 15,325,113 Small Cap Advisory fee 4,121,533 2,490,470 3,683,621 Reimbursement -- -- 252,000 Equity and Income Advisory fee 12,099,581 1,591,905 410,864 Global Advisory fee 1,333,497 387,377 267,710 Reimbursement -- 20,815 55,500 International Advisory fee 12,048,977 8,269,717 7,849,938 International Small Cap Advisory fee 3,860,436 1,238,024 1,451,394
The Agreement for each Fund was for an initial term that expired on October 31, 2001. Each Agreement continues from year to year thereafter so long as such continuation is approved at least annually by (1) the board of trustees or the vote of a majority of the outstanding voting securities of the Fund, and (2) a majority of the trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Agreement may be terminated at any time, without penalty, by either the Trust or the Adviser upon 60 days' written notice, and automatically terminates in the event of its assignment as defined in the 1940 Act. At a meeting of the board of trustees of the Trust held on October 16, 2002, called in part for the purpose of voting on the renewal of the Agreements, the Agreements were renewed through October 31, 2003 by the unanimous vote of the trustees present at the meeting, and the unanimous vote of the "non-interested" trustees of the Trust voting separately. The trustees considered information about, among other things: - the Adviser and its personnel (including particularly those personnel with responsibilities for providing services to the Funds), resources and investment processes; - the terms of each Agreement; - the scope and quality of services that the Adviser has been providing to the Funds; - the investment performance of each Fund and of comparable funds managed by other advisers over various periods; - the advisory fee rates payable by each Fund to the Adviser and by comparable funds managed by other advisers; - the total expense ratio of each Fund and of comparable funds managed by other advisers; - the compensation payable by the Funds to affiliates of the Adviser for other services; 20 - the profitability of the Adviser and its affiliates from their relationships with the Funds; and - the Adviser's use of the Funds' portfolio brokerage transactions to obtain research benefiting the Funds or other clients of the Adviser at a cost that may be in excess of the amount other brokers would charge. The Adviser is a limited partnership managed by its general partner, Harris Associates, Inc. ("HAI"), whose directors are Robert M. Levy, Anita M. Nagler, John R. Raitt, Kristi L. Rowsell, G. Neal Ryland and Peter S. Voss. Mr.Raitt is the president and chief executive officer of HAI. HAI is a wholly-owned subsidiary of CDC IXIS Asset Management North America, L.P. ("CDC IXIS AMNA"). CDC IXIS AMNA owns 99.67% of the limited partnership interests in the Adviser and, through its wholly-owned subsidiary, CDC IXIS Asset Management Holdings, Inc. ("CDC IXIS Holdings"), all of the outstanding shares of HAI. CDC IXIS AMNA is a limited partnership that owns investment management and related firms, including CDC IXIS Asset Management Services, Inc., the Funds' transfer agent. CDC IXIS AMNA is an indirect wholly owned subsidiary of CDC IXIS Asset Management ("CDC AM"), which in turn is owned by CDC IXIS, a direct and indirect subsidiary of France's Caisse de Depots et Consignations ("CDC"). Founded in 1816, CDC is a major diversified financial institution with a strong global presence in the banking, insurance, investment banking, asset management and global custody industries. CDC owns approximately 44% of CDC IXIS directly and 53% of CDC IXIS indirectly through its subsidiaries Eulia and Caisse Nationale des Caisses D'Epargne. CDC owns 50% of Eulia and 35% of Caisse Nationale des Caisses D'Epargne, which itself owns 50% of Eulia. Eulia owns 53% of CDC IXIS, which owns 80% of CDC IXIS AM. In addition to its ownership of CDC IXIS AM through CDC IXIS, CDC owns approximately 40% of CNP Assurances, a leading French insurance company, which itself owns 20% of CDC IXIS AM. The main place of business of CDC AM is 7, place des Cinq Martyrs du Lycee Buffon, 75015 Paris, France. The registered address of CDC IXIS is 56, rue de Lille, 75007 Paris, France. The registered address of CNP Assurances is 4, place Raoul Dautry, 75015 Paris, France. The registered address of Caisse National des Caisses d'Epargne is 5, rue Masseran, 75007 Paris, France. The Adviser has contractually agreed to reimburse Class I Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class I Shares: 1.50% in the case of Oakmark Fund, Select Fund or Small Cap Fund; 1.00% in the case of Equity and Income Fund; 1.75% in the case of Global Fund; and 2.00% in the case of International Fund and International Small Cap Fund. The Adviser has also contractually agreed to reimburse Class II Shares of each Fund to the extent that the annual ordinary operating expenses of that class exceed the following percentages of the average net assets of Class II Shares: Oakmark Fund, Select Fund or Small Cap Fund, 1.75% (1.50% + .25%); Equity and Income Fund, 1.25% (1.00% + .25%); Global Fund, 2.00% (1.75% + .25%); and International Fund and International Small Cap Fund, 2.25% (2.00% + .25%). Each such agreement is effective through January 31, 2004. For the purpose of determining whether a share class of a Fund is entitled to any reduction in advisory fee or expense reimbursement, the pro rata portion of the Fund's expenses attributable to a share class of that Fund is calculated daily and any reduction in fee or reimbursement is made monthly. CODE OF ETHICS The 1940 Act and rules thereunder require that the Trust, the Adviser and the Funds' distributor, Harris Associates Securities L.P. ("HASLP"), establish standards and procedures for the detection and prevention of certain conflicts of interest, including activities by which persons having knowledge of the investments and investment intentions of the Trust might take advantage of that knowledge for their own benefit. The Trust, the Adviser and HASLP have adopted codes of ethics to meet those concerns and legal requirements. Although the codes do not prohibit employees who have knowledge of the investments and investment intentions of any of the Funds from engaging in personal securities investing, it does regulate such personal securities investing by these employees as a part of the effort by the Trust, the Adviser and HASLP to detect and prevent conflicts of interest. 21 TRUSTEES AND OFFICERS The board of trustees has overall responsibility for the Funds' operations. Each of the trustees and officers serves until the election and qualification of his or her successor, or until he or she sooner dies, resigns, or is removed or disqualified. The retirement age for trustees is 72. Information regarding the trustees and officers of the Trust including their principal business activities during the past five years is set forth below: TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE TRUST
NUMBER OF DATE FIRST PRINCIPAL PORTFOLIOS OTHER ELECTED OR OCCUPATION(S) IN FUND DIRECTORSHIPS NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING OVERSEEN HELD BY DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE - ---------------------------- ------------------ -------------- ----------------------- ---------- ------------- VICTOR A. MORGENSTERN, 60 Trustee and 1991 Chairman of the Board 7 Director, Bio-Sante Chairman of the and Chief Executive Pharmaceuticals Inc. Board of Trustees Officer, Resolute (developer of hormone Advisors (private therapy products) investment management firm); Principal, Valor Equity Partners, LLC (private equity fund); Chairman of the Board, HAI, 1996 - 2000; President and Chief Executive Officer prior thereto; Chairman, Harris Partners, L.L.C., 1995 - 2000 MICHAEL J. FRIDUSS, 60 Trustee 1995 Principal, MJ Friduss & 7 None Associates, Inc. (telecommunications consultants) THOMAS H. HAYDEN, 51 Trustee 1995 Executive Vice 7 None President, Campbell Mithun (advertising and marketing communication agency) CHRISTINE M. MAKI, 42 Trustee 1996 Vice President--Tax, 7 None Hyatt Corporation (hotels and resorts); Director, Illinois CPA Society ALLAN J. REICH, 54 Trustee 1993 Vice Chairman of the 7 None law firm D'Ancona & Pflaum LLC MARV R. ROTTER, 56 Trustee 1996 Senior Advisor to 7 None President and Chief Executive Officer, AXA Advisors, LLC (formerly named Rotter & Associates), since 1999, and General Manager prior thereto (financial services firm)
22
NUMBER OF DATE FIRST PRINCIPAL PORTFOLIOS OTHER ELECTED OR OCCUPATION(S) IN FUND DIRECTORSHIPS NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING OVERSEEN HELD BY DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE - ---------------------------- ------------------ -------------- ----------------------- ---------- ------------- BURTON W. RUDER, 58 Trustee 1995 President, The 7 None Academy Financial Group (venture capital investment and transaction financing firm; Manager, Cedar Green Associates (real estate management firm) GARY N. WILNER, M.D., 62 Trustee 1993 Senior Attending 7 Director, North Physician, Evanston American Scientific, Hospital; Medical Inc. (developer of Director - radioisotopic products CardioPulmonary for the treatment and Wellness Program, diagnosis of disease) Evanston Hospital Corporation
TRUSTEE WHO IS AN INTERESTED PERSON OF THE TRUST
NUMBER OF DATE FIRST PRINCIPAL PORTFOLIOS OTHER ELECTED OR OCCUPATION(S) IN FUND DIRECTORSHIPS NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING OVERSEEN HELD BY DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE - ---------------------------- ------------------ --------------- ----------------------- ---------- ------------- PETER S. VOSS*, 56 Trustee 1995 President and Chief 7 Chairman, AEW Real Executive Officer, Estate Income Fund CDC IXIS Asset (closed-end investment Management North company); Chairman and America, L.P., Chief Executive formerly known as Officer, CDC Nvest Nvest Companies, Funds (open-end L.P. and its investment company - predecessor firms 14 portfolios) (investment management); Director, HAI
OFFICERS OF THE TRUST
DATE FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# - ---------------------------- ------------------ --------------- ----------------------- ROBERT LEVY, 52 President 2001 Chairman, HAI; Chief Investment Officer, HALP, since 2001; President and Chief Executive Officer, HAI, HALP and HASLP, 1997 - 2002; Portfolio Manager, HALP
23
DATE FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# - ---------------------------- ------------------ --------------- --------------------- JOHN R. RAITT, 48 Executive Vice 2003 President and Chief President Executive Officer, HAI, HASLP and HALP, since 2003; Chief Operating Officer, HALP 2001- 2002; Director of Research, HALP 1998 - 2002; and Associate Director of Research, HALP, prior thereto JAMES P. BENSON, 45 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Small Cap Fund) HENRY R. BERGHOEF, 53 Vice President and 2000 Director of Domestic Portfolio Manager Research, HALP, (The Oakmark since 2003; Select Fund), Associate Director of Research, 2001 - 2002; Portfolio Manager and Analyst, HALP KEVIN G. GRANT, 38 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Fund) DAVID G. HERRO, 42 Vice President and 1992 Director of Portfolio Manager International (The Oakmark Equities; Portfolio International Fund Manager and Analyst, and The Oakmark HALP International Small Cap Fund) GREGORY L. JACKSON, 36 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP, (The Oakmark since July 1998; Global Fund) Portfolio Manager and Analyst, Yacktman Asset Management Inc., prior thereto JOHN J. KANE, 31 Assistant 1999 Manager - Fund Treasurer Accounting, HALP CLYDE S. MCGREGOR, 50 Vice President and 1995 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Small Cap Fund and The Oakmark Equity and Income Fund)
24
DATE FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2002 TRUST CURRENT OFFICE PAST FIVE YEARS# - ---------------------------- ------------------ --------------- --------------------- ANITA M. NAGLER, 46 Vice President 2001 Managing Director of Alternative & International Investing Group, HAI since 2001; Chief Operating Officer, HAI, HALP and HASLP, 1999-2001; prior thereto, Vice President and General Counsel, HAI, HALP and HASLP WILLIAM C. NYGREN, 44 Vice President and 1996 Portfolio Manager Portfolio Manager and Analyst, HALP; (The Oakmark Fund former Director of and The Oakmark Research, HALP Select Fund) JANET L. REALI, 51 Vice President and 2001 Vice President, Secretary General Counsel and Secretary, HAI, HALP and HASLP since 2001; Senior Executive Vice President, General Counsel and Secretary, Everen Capital Corp. and Everen Securities, Inc. 1995-1999 (broker/dealer) ANN W. REGAN, 54 Vice President- 1996 Director of Mutual Shareholder Fund Operations, HALP Operations and Assistant Secretary KRISTI L. ROWSELL, 36 Treasurer 1997 Director, Chief Financial Officer and Treasurer, HAI; Chief Financial Officer, HALP and HASLP since 1999; prior thereto, Assistant Treasurer, HALP EDWARD A. STUDZINSKI, 53 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Equity and Income Fund) MICHAEL J. WELSH, 39 Vice President and 1997 Director of Portfolio Manager International (The Oakmark Equities; Portfolio Global Fund, The Manager and Analyst, Oakmark HALP International Fund and The Oakmark International Small Cap Fund)
- ---------- + Unless otherwise noted, the business address of each officer and trustee listed in the table is Two North LaSalle Street, Suite 500, Chicago, Illinois 60602-3790. 25 # As used in this table, "HALP," "HAI" and "HASLP" refer to the Adviser, the general partner of the Adviser, and the Fund's distributor, respectively. * Mr. Voss is a trustee who is an "interested person" of the Trust as defined in the 1940 Act because he is an officer of the Adviser's parent company. There are several committees of the board of trustees including an executive committee, audit committee, governance committee and management contracts committee. The following table identifies the members of these committees, the function of each committee, and the number of meetings of each committee held during the fiscal year ended September 30, 2002.
NUMBER OF MEETINGS MEMBERS OF DURING FISCAL YEAR ENDED COMMITTEE COMMITTEE SEPTEMBER 30, 2002 PRINCIPAL FUNCTIONS OF COMMITTEE - --------- ---------- ------------------------ -------------------------------- EXECUTIVE Victor A. Morgenstern* 12** The executive committee generally has the COMMITTEE Peter S. Voss authority to exercise the powers of the board Gary N. Wilner, M.D. during intervals between meetings. AUDIT Michael J. Friduss 6 The principal responsibilities of the audit COMMITTEE Thomas H. Hayden committee include the following: Christine M. Maki* - to oversee the accounting and financial Allan J. Reich reporting policies and practices of the Trust, its internal controls and, as appropriate, the internal controls of certain service providers; - to oversee the quality and objectivity of the financial statements of the Funds and the independent audits thereof; - to act as liaison between the independent auditors of the Funds and the full board of trustees; and - to oversee the portfolio transaction policies and practices of the Funds. GOVERNANCE Christine M. Maki 4 The governance committee makes recommendations COMMITTEE Victor A. Morgenstern to the board regarding board committees and Allan J. Reich committee assignments, the composition of the Burton W. Ruder* board, candidates for election as Gary N. Wilner, M.D. non-interested trustees and compensation of non-interested trustees, and oversees the process for evaluating the functioning of the board. MANAGEMENT Michael J. Friduss* 6 The committee on management contracts is CONTRACTS Thomas H. Hayden responsible for reviewing in the first COMMITTEE Victor A. Morgenstern instance, and making recommendations to the Marv R. Rotter board regarding, investment advisory agreements Burton W. Ruder and any other agreements relating to the management or administration of any Fund of the Trust.
* Chairperson of the committee. ** The executive committee held one meeting and took action by unanimous written consent of the committee members eleven times. 26 The following table shows the compensation paid by the Trust for the fiscal year ended September 30, 2002 to each trustee who was not an "interested person" of the Trust:
AGGREGATE AVERAGE COMPENSATION COMPENSATION NAME OF TRUSTEE FROM THE TRUST* PER FUND --------------- --------------- ------------ Victor A. Morgenstern $ 133,800 $ 19,114 Michael J. Friduss 92,000 13,143 Thomas H. Hayden 90,200 12,886 Christine M. Maki 89,800 12,829 Allan J. Reich 87,800 12,543 Marv R. Rotter 69,300 9,900 Burton W. Ruder 89,800 12,829 Gary N. Wilner, M.D. 80,000 11,429
- ---------- * The Trust is not part of a fund complex. ** Includes compensation that was deferred pursuant to a deferred compensation plan. As of September 30, 2002, the total amounts accrued under the plan were $241,480 for Mr. Friduss, $185,744 for Mr. Hayden, $175,395 for Ms. Maki, $183,558 for Mr. Rotter, $233,735 for Mr. Ruder and $228,047 for Dr. Wilner. Other trustees who are "interested persons" of the Trust, as well as the officers of the Trust, are compensated by the Adviser and not by the Trust. The Trust does not provide any pension or retirement benefits to its trustees. The Trust has a deferred compensation plan (the "Plan") that permits any trustee who is not an "interested person" of the Trust to elect to defer receipt of all or a portion of his or her compensation as a trustee for two or more years. The deferred compensation of a participating trustee is credited to a book reserve account of the Trust when the compensation would otherwise have been paid to the trustee. The value of the trustee's deferral account at any time is equal to the value that the account would have had if contributions to the account had been invested and reinvested in shares of one or more of the Oakmark Funds or the Goldman Sachs Institutional Liquid Assets Government Portfolio as designated by the trustee. At the time for commencing distributions from a trustee's deferral account, which is no later than when the trustee ceases to be a member of the board of trustees, the trustee may elect to receive distributions in a lump sum or over a period of five years. Each Fund's obligation to make distributions under the Plan is a general obligation of that Fund. No Fund will be liable for any other Fund's obligations to make distributions under the Plan. The following table illustrates the dollar range of any equity securities "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the Securities Exchange Act of 1934) by the trustees of the Trust in any of the Funds of the Trust. The dollar range for the securities represented in the table was determined using the net asset value of a share of each Fund as of December 31, 2002. 27
SMALL EQUITY AND INTERNATIONAL OAKMARK SELECT CAP INCOME GLOBAL INTERNATIONAL SMALL CAP TRUSTEE FUND FUND FUND FUND FUND FUND FUND - ------------------- ---------- ---------- ---------- ---------- ---------- ------------- ------------- VICTOR A. over over over $1 - over over over MORGENSTERN $100,000 $100,000 $100,000 $10,000 $100,000 $100,000 $100,000 MICHAEL J. FRIDUSS over over $10,001 - $50,001 - $50,001 - $10,001 - $50,001 - $100,000 $100,000 $50,000 $100,000 $100,000 $50,000 $100,000 THOMAS H. HAYDEN $10,001 - $50,001 - none $10,001 - $10,001 - none none $50,000 $100,000 $50,000 $50,000 CHRISTINE M. MAKI $10,001 - $50,001 - $10,001 - $10,001 - $1 - $10,001 - $10,001 - $50,000 $100,000 $50,000 $50,000 $10,000 $50,000 $50,000 ALLAN J. REICH $50,001 - over $1 - $50,001 - $10,001 - $10,001 - $1 - $100,000 $100,000 $10,000 $100,000 $50,000 $50,000 $10,000 MARVIN R. ROTTER none over none none none none none $100,000 BURTON W. RUDER none $10,001 - $50,001 - $1 - over over over $50,000 $100,000 $10,000 $100,000 $100,000 $100,000 PETER S. VOSS over over $50,001 - none none over $50,001 - $100,000 $100,000 $100,000 $100,000 $100,000 GARY N. WILNER, over $50,001 - $50,001 - $1 - $10,001 - $50,001 - $10,001 - M.D. $100,000 $100,000 $100,000 $10,000 $50,000 $100,000 $50,000
At December 31, 2002 the trustees and officers as a group owned beneficially less than 1% of the outstanding Class II shares of each Fund and Class I shares of Oakmark Fund, Small Cap Fund, Equity and Income Fund and International Fund and the following percentages of the outstanding Class I shares of each of the other Funds: Select, 1.10%; Global, 4.11%; and International Small Cap, 2.13%. PRINCIPAL SHAREHOLDERS The only persons known by the Trust to own of record or "beneficially" (within the meaning of that term as defined in rule 13d-3 under the Securities Exchange Act of 1934) 5% or more of the outstanding shares of any Fund as of December 31, 2002 were:
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ------------------------- Charles Schwab & Co. Inc.(1) Oakmark, Class I 26.69% 101 Montgomery Street Select, Class I 28.52 San Francisco, CA 94104-4122 Small Cap, Class I 27.12 Equity and Income, Class I 41.62 International, Class I 41.66 International Small Cap, Class I 43.24 Global, Class I 29.54 Connecticut General Life Insurance Co.(1) Select, Class II 11.62% 280 Trumbull Street Hartford, CT 06103-3509
28
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ------------------------- Fidelity Investments Inst. Operations(1) Select, Class 1 7.11% 100 Magellan Way #KW1C Covington, KY 41015-1999 Great West Life Annuity Insurance Co.(1) Select, Class II 6.73% 8515 East orchard Road International, Class II 26.65 Greenwood Village, CO 80111-5037 Merrill Lynch Pierce Fenner & Smith Inc.(1) Oakmark, Class II 79.66% 4800 Deer Lake Drive E., 3rd Floor Select, Class II 47.66 Jacksonville, FL 32246-6484 Small Cap, Class II 100.00 Equity and Income, Class II 78.94 International, Class II 65.74 International Small Cap, Class II 44.55 Global, Class II 48.74 Metlife Trust Company NA(1) Select, Class II 7.23% 2 Montgomery Street, 3rd Floor Equity and Income, Class II 9.11 Jersey City, NJ 07302-3802 National Financial Services Corp.(1) Oakmark, Class I 21.08% P.O. Box 3908 Select, Class I 16.64 Church Street Station Small Cap, Class I 16.23 New York, NY 10008-3908 Equity and Income, Class I 19.61 International, Class I 11.71 International Small Cap, Class I 17.48 National Financial Services Corp.(1) Select, Class II 10.87% 200 Liberty Street International Small Cap, Class II 54.86 One World Financial Center New York, NY 10281-1003 National Investor Services Corp.(1) Global, Class I 5.98% 55 Water Street, Floor 32 New York, NY 10041-0026 Nationwide Trust Company, FSB(1) Oakmark, Class II 18.46% PO Box 182029 Global, Class II 50.42 Columbus, OH 43218-2029 Northern Trust C/F(1) Global, Class I 5.23% Muriel M. Kauffman Foundation 26-13343 PO Box 92956 Chicago, IL 60675-2956 Reliance Trust Co.(1) Select, Class II 12.35% FBO MetLife Defined Contribution Group 2 Montgomery Street, 3rd Floor Jersey City, NJ 07302-3803
(1) Shares are held for accounts of customers. 29 PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the Funds' prospectus under the headings "Investing with The Oakmark Family of Funds," "How to Buy Class I Shares," "How to Sell Class I Shares" and "Shareholder Services." NET ASSET VALUE The net asset value per Class I Share or per Class II Share of each Fund is determined by the Trust's custodian. The net asset value of Class I Shares of a Fund is determined by dividing the value of the assets attributable to Class I Shares of the Fund, less liabilities attributable to that class, by the number of Class I Shares outstanding. Similarly, the net asset value of Class II Shares of a Fund is determined by dividing the value of the assets attributable to Class II Shares of the Fund, less liabilities attributable to that class, by the number of Class II Shares outstanding. Domestic securities traded on securities exchanges are generally valued at the last sale price on the exchange where the security is principally traded, or lacking a reported sale at the time of valuation, at the most recent bid quotation. Each over-the-counter security traded on the NASDAQ National Market System, shall be valued at the NASDAQ Official Closing Price ("NOCP"), or lacking a NOCP at the time of valuation, at the most recent bid quotation. Other over-the-counter securities are valued at the last sales prices at the time of valuation or, lacking any reported sales on that day, at the most recent bid quotations. The values of securities of non-U.S. issuers that are traded on an exchange are generally based upon market quotations which, depending upon local convention or regulation, may be last sale price, last bid or asked price, the mean between last bid and asked prices, an official closing price, or may be valued based on a pricing composite. The market value of exchange-traded securities is determined by using prices provided by one or more professional pricing services, or, as needed, by obtaining market quotations from independent broker-dealers. Debt obligations and money market instruments maturing in more than 60 days from the date of purchase are valued at the latest bid quotation. Debt obligations and money market instruments with a maturity of 60 days or less from the date of purchase are valued on an amortized cost basis. Securities for which quotations are not available and any other assets are valued at a fair value as determined in good faith by or under the direction of the board of trustees. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by any major bank or dealer. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by or under the direction of the board of trustees. The Funds' net asset values are determined only on days on which the New York Stock Exchange (the "NYSE") is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in January and February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving and Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Trading in the portfolio securities of International Fund, International Small Cap Fund or Global Fund (and of any other Fund, to the extent it invests in securities of non-U.S. issuers) takes place in various foreign markets on certain days (such as Saturday) when the Fund is not open for business and does not calculate its net asset value. In addition, trading in the Fund's portfolio securities may not occur on days when the Fund is open. Therefore, the calculation of net asset value does not take place contemporaneously with the determinations of the prices of many of the Fund's portfolio securities and the value of the Fund's portfolio may be significantly affected on days when shares of the Fund may not be purchased or redeemed. Even on days on which both the foreign markets and the NYSE are open, several hours may have passed between the time when trading in a foreign market closes and the NYSE closes and the Funds calculate their net asset values. The Funds monitor for significant events in foreign markets. A Fund may price a security of a non-U.S. issuer at a fair value determined according to procedures adopted by the board of trustees if it appears that the value of the security has been materially affected by events occurring between the close of the primary market or exchange on which the security is traded and the time for computing net asset value. Computation of net asset value (and the sale and redemption of a Fund's shares) may be suspended or postponed during any period when (a) trading on the NYSE is restricted, as determined by the SEC, or that exchange is closed for other than customary weekend and holiday closings, (b) the SEC has by order permitted such suspension, or (c) an emergency, as determined by the SEC, exists making disposal of portfolio securities or valuation of the net assets of a Fund not reasonably practicable. 30 SHARES PURCHASED THROUGH INTERMEDIARIES Class I Shares of any of the Funds may be purchased through certain financial service companies, who are agents of the Funds for the limited purpose of completing purchases and sales. For services provided by such a company with respect to Fund shares held by that company for its customers, the company may charge a fee of up to 0.40% of the annual average value of such shares. Each Fund may pay a portion of those fees, not to exceed the estimated fees that the Fund would pay to its own transfer agent if those shares were registered directly in the customers' names on the books of the Fund's transfer agent. The balance of those fees are paid by the Adviser. To buy and sell Class II Shares, you must do so through an intermediary, such as a broker-dealer, bank, retirement plan service provider or retirement plan sponsor ("Intermediary"). The Intermediary accepts purchase and sale orders for Class II Shares as an authorized agent of the Trust pursuant to a written agreement. The Intermediary is required to segregate any orders received on a business day after the close of regular session trading on the NYSE and transmit those orders separately for execution at the net asset value next determined after that business day. Purchases through Intermediaries that are authorized agents of the Trust are made at the net asset value next determined after receipt and acceptance of the orders by such Intermediaries. A purchase through an Intermediary that is not an authorized agent of the Trust for the receipt of orders is made at the net asset value next determined after receipt and acceptance of your order by the Trust's transfer agent. The Trust reserves the right to waive minimum balance requirements for purchases made through Intermediaries. REDEMPTION IN KIND Each Fund elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day period for any one shareholder. Redemptions in excess of those amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of marketable securities. Brokerage costs may be incurred by a shareholder who receives securities and desires to convert them to cash. REDEMPTION OF SMALL ACCOUNTS Due to the relatively high cost of maintaining small accounts, each Fund reserves the right to redeem at net asset value the shares of any shareholder whose account in the Fund has a value as a result of redemptions of less than the minimum amount specified by the board of trustees, which currently is $1,000. Before such a redemption, the shareholder will be notified that the account value is less than the minimum and will be allowed at least 30 days to bring the value of the account up to the minimum. The agreement and declaration of trust also authorizes the Trust to redeem shares under certain other circumstances as may be specified by the board of trustees. 90-DAY REDEMPTION FEE - CLASS I SHARES Each Fund except Oakmark Fund and Equity and Income Fund imposes a short-term trading fee on redemptions of Class I Shares held for 90 days or less to offset two types of costs to the Fund caused by short-term trading: portfolio transaction and market impact costs associated with erratic redemption activity and administrative costs associated with processing redemptions. The fee is 2% of the redemption value and is deducted from the redemption proceeds. The "first-in, first-out" (FIFO) method is used to determine the holding period, which means that if you bought shares on different days, the shares purchased first will be redeemed first for purposes of determining whether the short-term trading fee applies. No Fund imposes a redemption fee on a redemption of: - shares acquired by reinvestment of dividends or distributions of a Fund; or - shares held in an account of certain retirement plans or profit sharing plans or purchased through certain Intermediaries. 31 MONEY MARKET EXCHANGE FUND The Adviser acts as a Service Organization for the Institutional Liquid Assets Service Units ("Units") of the Government Portfolio of Goldman Sachs Trust, which Units may be purchased directly or by exchanging shares of a Fund. For its services, the Adviser receives fees at a rate of .50% of the average annual net assets of the portfolio, pursuant to a 12b-1 plan adopted by the Goldman Sachs Trust. MUTUAL FUND ANTI-MONEY LAUNDERING DISCLOSURE The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, a Fund may be required to "freeze" the account of a shareholder if the shareholder appears to be involved in suspicious activity or if certain account information matches information on government lists of known terrorists or other suspicious persons, or the Fund may be required to transfer the account or proceeds of the account to a government agency. ADDITIONAL TAX INFORMATION GENERAL Each Fund intends to continue to qualify to be taxed as a regulated investment company under the Internal Revenue Code of 1986, as amended, so as to be relieved of federal income tax on its capital gains and net investment income currently distributed to its shareholders. At the time of your purchase, a Fund's net asset value may reflect undistributed income, capital gains or net unrealized appreciation of securities held by that Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as dividends or capital gain distributions. INTERNATIONAL FUND AND INTERNATIONAL SMALL CAP FUND Dividends and distributions paid by International Fund and International Small Cap Fund are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of such Funds' income consists of dividends paid by United States corporations. Capital gain distributions paid by the Funds are never eligible for this deduction. Certain foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations are taxable as ordinary income. If the net effect of these transactions is a gain, the dividend paid by any of these Funds will be increased; if the result is a loss, the income dividend paid by any of these Funds will be decreased. Income received by a Fund from sources within various foreign countries will be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of the Fund's total assets at the close of its taxable year comprise securities issued by foreign corporations, the Fund may file an election with the Internal Revenue Service to "pass through" to the Fund's shareholders the amount of foreign income taxes paid by the Fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. International Fund, International Small Cap Fund and Global Fund intend to meet the requirements of the Code to "pass through" to their shareholders foreign income taxes paid, but there can be no assurance that they will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of a Fund, if the foreign taxes paid by the Fund will "pass through" for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. 32 DISTRIBUTOR Shares of the Funds are offered for sale by Harris Associates Securities L.P. without any sales commissions, 12b-1 fees, or other charges to the Funds or their shareholders. HASLP is an affiliate of the Adviser. All distribution expenses relating to the Funds are paid by the Adviser, including the payment or reimbursement of any expenses incurred by HASLP. The Distribution Agreement was for an initial term that expired January 1, 2002 and continues in effect from year to year thereafter provided such continuance is approved annually (i) by a majority of the trustees or by a majority of the outstanding voting securities of the Funds and (ii) by a majority of the trustees who are not parties to the Distribution Agreement or interested persons of any such party. The Trust has agreed to pay all expenses in connection with registration of its shares with the SEC and any auditing and filing fees required in compliance with various state securities laws. The Adviser bears all sales and promotional expenses, including the cost of prospectuses and other materials used for sales and promotional purposes by HASLP. HASLP offers the Funds' shares only on a best efforts basis. HASLP is located at Two North LaSalle Street, Chicago, Illinois 60602-3790. PORTFOLIO TRANSACTIONS Portfolio transactions for each Fund are placed with those securities brokers and dealers that the Adviser believes will provide the best value in transaction and research services for that Fund, either in a particular transaction or over a period of time. Subject to that standard, portfolio transactions for each Fund may be executed through HASLP, a registered broker-dealer and an affiliate of the Adviser. In valuing brokerage services, the Adviser makes a judgment as to which brokers are capable of providing the most favorable net price (not necessarily the lowest commission) and the best execution in a particular transaction. Best execution connotes not only general competence and reliability of a broker, but specific expertise and effort of a broker in overcoming the anticipated difficulties in fulfilling the requirements of particular transactions, because the problems of execution and the required skills and effort vary greatly among transactions. Although some transactions involve only brokerage services, many involve research services as well. In valuing research services, the Adviser makes a judgment of the usefulness of research and other information provided by a broker to the Adviser in managing a Fund's investment portfolio. In some cases, the information, e.g., data or recommendations concerning particular securities, relates to the specific transaction placed with the broker, but for the greater part the research consists of a wide variety of information concerning companies, industries, investment strategy and economic, financial and political conditions and prospects, useful to the Adviser in advising the Funds. The Adviser is the principal source of information and advice to the Funds, and is responsible for making and initiating the execution of the investment decisions for each Fund. However, the board of trustees recognizes that it is important for the Adviser, in performing its responsibilities to the Funds, to continue to receive and evaluate the broad spectrum of economic and financial information that many securities brokers have customarily furnished in connection with brokerage transactions, and that in compensating brokers for their services, it is in the interest of the Funds to take into account the value of the information received for use in advising the Funds. Consequently, the commission paid to brokers (other than HASLP) providing research services may be greater than the amount of commission another broker would charge for the same transaction. The extent, if any, to which the obtaining of such information may reduce the expenses of the Adviser in providing management services to the Funds is not determinable. In addition, it is understood by the board of trustees that other clients of the Adviser might also benefit from the information obtained for the Funds, in the same manner that the Funds might also benefit from information obtained by the Adviser in performing services to others. HASLP may act as broker for a Fund in connection with the purchase or sale of securities by or to the Fund if and to the extent permitted by procedures adopted from time to time by the board of trustees of the Trust. The board of trustees, including a majority of the trustees who are not "interested" trustees, has determined that portfolio transactions for a Fund may be executed through HASLP if, in the judgment of the Adviser, the use of HASLP is likely to result in prices and execution at least as favorable to the Fund as those available from other qualified brokers and if, in such transactions, HASLP charges the Fund commission rates at least as favorable to 33 the Fund as those charged by HASLP to comparable unaffiliated customers in similar transactions. The board of trustees also has adopted procedures that are reasonably designed to provide that any commission, fee or other remuneration paid to HASLP is consistent with the foregoing standard. The Funds will not effect principal transactions with HASLP. In executing transactions through HASLP, the Funds will be subject to, and intend to comply with, section 17(e) of the 1940 Act and rules thereunder. The reasonableness of brokerage commissions paid by the Funds in relation to transaction and research services received is evaluated by the staff of the Adviser on an ongoing basis. The general level of brokerage charges and other aspects of the Funds' portfolio transactions are reviewed periodically by the board of trustees. The following table shows the aggregate brokerage commissions (excluding the gross underwriting spread on securities purchased in initial public offerings) paid by each Fund during the periods indicated, as well as the aggregate commissions paid to affiliated persons of the Trust.
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ------------------ ------------------ ------------------ Oakmark Fund Aggregate commissions $ 6,781,317 $ 6,311,185 $ 7,645,100 Commissions paid to affiliate 1,944,752 2,113,214 2,765,022 Percentage of aggregate commissions paid to affiliate* 28.7% 33.5% 36.2% Select Fund Aggregate commissions 7,103,618 4,322,185 4,102,031 Commissions paid to affiliate 1,010,255 1,343,463 1,112,365 Percentage of aggregate commissions paid to affiliate* 14.2% 31.0% 27.1% Small Cap Fund Aggregate commissions 653,272 461,236 646,845 Commissions paid to affiliate 72,603 133,319 233,479 Percentage of aggregate commissions paid to affiliate* 11.1% 28.9% 36.1% Equity and Income Fund Aggregate commission 4,727,984 988,715 173,265 Commissions paid to affiliate 789,756 447,443 100,258 Percentage of aggregate commissions paid to affiliate* 16.7% 45.3% 57.9% Global Fund Aggregate commissions 896,555 228,526 211,245 Commissions paid to affiliate 197,233 51,708 87,377 Percentage of aggregate commissions paid to affiliate* 22.0% 22.6% 41.4% International Fund Aggregate commissions 3,824,992 2,608,018 2,853,134 Commissions paid to affiliate -- -- -- Percentage of aggregate commissions paid to affiliate* -- -- -- International Small Cap Fund Aggregate commissions 1,687,897 408,886 404,559 Commissions paid to affiliate -- -- -- Percentage of aggregate commissions paid to affiliate* -- -- --
34 - ---------- * The percent of the dollar amount of each Fund's aggregate transactions involving the payment of brokerage commissions that were executed through the affiliate for each of the periods is shown below.
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED FUND SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ---- ------------------ ------------------ ------------------- Oakmark 31.4% 40.6% 67.4% Select 18.2 33.6 56.3 Small Cap 4.6 24.3 36.9 Equity and Income 9.8 26.7 51.4 Global 20.3 24.2 56.3 International - - - International Small Cap - - -
Most options transactions are executed by non-affiliated brokers but are processed through the affiliate. The affiliate remits the commission on those transactions to the executing broker and does not retain any portion thereof. Such commissions are not included in commissions paid to affiliates. For the fiscal year ended September 30, 2002, those commission amounts were: Oakmark Fund, $422,165; Select Fund, $228,979; Small Cap Fund, $17,040; Equity and Income Fund, $186,516; and Global Fund, $74,035; and the aggregate dollar amounts involved in those transactions for the respective Funds were: $20,073,951; $10,960,499; $941,486; $6,730,964; and $3,310,379, respectively. For the fiscal year ended September 30, 2001, those commission amounts were: Oakmark Fund, $51,750; Select Fund, $3,000; Small Cap Fund, $40,609; and Global Fund, $750; and the aggregate dollar amounts involved in those transactions for the respective Funds were: $1,704,540; $155,121; $1,595,761; and $107,500, respectively. For the fiscal year ending September 30, 2000, there were no such transactions. Of the aggregate brokerage transactions during the year ended September 30, 2002, the Funds paid the following commissions on transactions directed to brokers because of research services they provided: Oakmark Fund, $875,102; Select Fund, $1,104,925; Small Cap Fund, $62,512; Equity and Income Fund, $656,153; Global Fund, $113,355; International Fund, $757,989; and International Small Cap Fund, $372,599; and the aggregate dollar amounts involved in those transactions for the respective Funds were $422,830,659, $424,340,551, $19,541,142, $303,692,792, $41,473,612, $276,760,905 and $110,118,237, respectively. There were substantial increases in the aggregate commissions paid by all of the Funds except Oakmark Fund for the fiscal year ended September 30, 2002 as compared to the fiscal year ended September 30, 2001. In the case of Small Cap Fund, Equity and Income Fund, Global Fund, International Fund and International Small Cap Fund, those increases in aggregate commissions resulted primarily from substantial increases in net assets from Fund share transactions. In the case of Select Fund, the increase in aggregate commissions resulted primarily from an increase in the portfolio turnover rate. For Select Fund, Small Cap Fund, and Equity and Income Fund, the percentage of aggregate commissions paid to the affiliate decreased substantially for the fiscal year ended September 30, 2002 as compared to the fiscal year ending September 30, 2001. Those decreases resulted primarily from increased market volatility during the fiscal year ended September 30, 2002, which necessitated more frequent use of large, non-affiliated brokers with specific expertise and abilities to facilitate best execution of particular transactions. Transactions of the Funds in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. Although the Adviser makes investment decisions for the Funds independently from those for other investment advisory clients of the Adviser, it may occur that the same investment decision is made for both a Fund and one or more other advisory clients. If both a Fund and another client purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each over time. 35 The Funds do not purchase securities with a view to rapid turnover. However, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons, including general conditions in the securities market, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. A high rate of portfolio turnover would result in increased transaction expense, which must be borne by the Fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. The portfolio turnover rates for the Funds are set forth in the prospectus under "Financial Highlights." DECLARATION OF TRUST The Declaration of Trust disclaims liability of the shareholders, trustees and officers of the Trust for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or contract entered into or executed by the Trust or the board of trustees. The Declaration of Trust provides for indemnification out of the Trust's assets for all losses and expenses of any shareholder held personally liable for obligations of the Trust. Thus, although shareholders of a business trust may, under certain circumstances, be held personally liable under Massachusetts law for the obligations of the Trust, the risk of a shareholder incurring financial loss on account of shareholder liability is believed to be remote because it is limited to circumstances in which the disclaimer is inoperative and the Trust itself is unable to meet its obligations. The Trust and the Adviser believe that the risk to any one series of sustaining a loss on account of liabilities incurred by another series is remote. CUSTODIAN AND TRANSFER AGENT Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, P.O. Box 9130, Boston, Massachusetts 02117-9130, is the custodian for the Trust and, as such, performs certain services for the Funds as directed by authorized persons of the Trust. For example, as custodian, IBT is responsible for holding all securities and cash of each Fund, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments and making all payments covering expenses of the Funds. IBT also performs certain portfolio accounting and administrative services for the Funds, such as monitoring each Fund's compliance with its investment guidelines, testing each Fund's compliance with Subchapter M of the Internal Revenue Code, calculating each Fund's periodic dividend rates and total returns, preparing certain tax forms, preparing financial information for presentation to the Adviser, the Trust's board of trustees and each Fund's shareholders and for filing with the Securities and Exchange Commission, and calculating each Fund's excise tax distributions. Each Fund pays the custodian a monthly fee for the provision of such services. The custodian does not exercise any supervisory function in such matters as the purchase and sale of portfolio securities, payment of dividends, or payment of expenses of a Fund. The Trust has authorized the custodian to deposit certain portfolio securities of each Fund in central depository systems as permitted under federal law. The Funds may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. CDC IXIS Asset Management Services, Inc. ("CIS"), an affiliate of the Adviser, 399 Boylston Street, 5th Floor, Boston, Massachusetts 02116, performs transfer agency services for the Funds. CIS maintains shareholder accounts and prepares and mails shareholder account statements, processes shareholder transactions, mails shareholders reports, prepares and mails distribution payments, maintains records of Fund transactions and provides blue sky reporting services. The Trust pays CIS for its services based on the number of open shareholder accounts. INDEPENDENT AUDITORS Deloitte & Touche LLP, 180 N. Stetson Avenue, Chicago, IL 60601-6779, audits and reports on the Funds' annual financial statements, reviews certain regulatory reports and the Funds' federal income tax returns, and performs other professional accounting, auditing, tax and advisory services when engaged to do so by the Trust. 36 APPENDIX A -- BOND RATINGS A rating by a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the credit-worthiness of an issuer. Consequently, the Adviser believes that the quality of debt securities in which the Fund invests should be continuously reviewed and that individual analysts give different weightings to the various factors involved in credit analysis. A rating is not a recommendation to purchase, sell, or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the rating services from other sources which they consider reliable. Ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's, a division of The McGraw-Hill Companies ("S&P"). RATINGS BY MOODY'S: Aaa. Bonds rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such bonds. Aa. Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in the Aaa bonds, fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa bonds. A. Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa. Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba. Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class. B. Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa. Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca. Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C. Bonds rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. A-1 RATINGS BY S&P: Aaa. Debt rated AAA has the highest rating. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. A. Debt rated A has a very strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions, or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB-B-CCC-CC. Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C. This rating is reserved for income bonds on which no interest is being paid. D. Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears. NOTE: The ratings from AA to B may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. A-2 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.5% FOOD & BEVERAGE--6.4% General Mills, Inc. 1,755,000 $ 77,957,100 Kraft Foods Inc. 1,895,000 69,091,700 H.J. Heinz Company 1,910,000 63,736,700 ------------------- 210,785,500 HOUSEHOLD PRODUCTS--2.4% The Clorox Company 1,390,200 $ 55,858,236 Newell Rubbermaid, Inc. 775,000 23,924,250 ------------------- 79,782,486 OTHER CONSUMER GOODS & SERVICES--7.8% H&R Block, Inc. 2,453,300 $ 103,063,133 Fortune Brands, Inc. 1,645,600 77,820,424 Mattel, Inc. 3,216,300 57,925,563 Cendant Corporation (a) 1,895,100 20,391,276 ------------------- 259,200,396 BROADCASTING & PROGRAMMING--2.5% Liberty Media Corporation, Class A (a) 8,201,400 $ 58,886,052 The Walt Disney Company 1,500,000 22,710,000 ------------------- 81,596,052 BUILDING MATERIALS & CONSTRUCTION--1.9% Masco Corporation 3,133,000 $ 61,250,150 CABLE SYSTEMS & SATELLITE TV--6.2% AOL Time Warner Inc. (a) 6,766,600 $ 79,169,219 General Motors Corporation, Class H (Hughes Electronics Corporation) (a) 5,100,000 46,665,000 EchoStar Communications Corporation (a) 2,475,000 42,817,500 Comcast Corporation (a) 1,800,000 37,548,000 ------------------- 206,199,719 HARDWARE--2.1% The Black & Decker Corporation 1,622,200 $ 68,018,846 MARKETING SERVICES--1.5% The Interpublic Group of Companies, Inc. 3,165,000 $ 50,165,250 PUBLISHING--3.5% Gannett Co., Inc. 884,500 $ 63,843,210 Knight-Ridder, Inc. 916,000 51,671,560 ------------------- 115,514,770 RECREATION & ENTERTAINMENT--1.1% Carnival Corporation 1,500,000 $ 37,650,000
B-1
NAME SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.5% (CONT.) RETAIL--14.3% Yum! Brands, Inc (a) 2,439,000 $ 67,584,690 J.C. Penney Company, Inc. 3,902,900 62,134,168 The Kroger Co. (a) 4,390,000 61,899,000 McDonald's Corporation 3,300,000 58,278,000 Safeway Inc. (a) 2,527,000 56,352,100 The Home Depot, Inc. 2,100,000 54,810,000 CVS Corporation 1,605,000 40,686,750 The Gap, Inc. 3,599,000 39,049,150 Toys `R' Us, Inc. (a) 3,125,000 31,812,500 ------------------- 472,606,358 BANK & THRIFTS--5.8% Washington Mutual, Inc. 3,937,300 $ 123,906,831 U.S. Bancorp 3,700,000 68,746,000 ------------------- 192,652,831 INSURANCE--1.8% MGIC Investment Corporation 1,437,900 $ 58,709,457 OTHER FINANCIAL--2.1% Fannie Mae 1,170,000 $ 69,661,800 MEDICAL PRODUCTS--2.4% Guidant Corporation (a) 2,396,100 $ 77,417,991 PHARMACEUTICALS--10.6% Bristol-Myers Squibb Company 3,250,000 $ 77,350,000 Abbott Laboratories 1,850,000 74,740,000 Merck & Co., Inc. 1,600,000 73,136,000 Schering-Plough Corporation 3,225,000 68,757,000 Chiron Corporation (a) 1,622,000 56,672,680 ------------------- 350,655,680 TELECOMMUNICATIONS--1.2% Sprint Corporation 4,421,000 $ 40,319,520 TELECOMMUNICATIONS EQUIPMENT--0.9% Motorola, Inc. 2,975,000 $ 30,285,500 COMPUTER SERVICES--4.3% First Data Corporation 2,400,000 $ 67,080,000 SunGard Data Systems, Inc. (a) 2,801,600 54,491,120 Electronic Data Systems Corporation 1,501,000 20,983,980 ------------------- 142,555,100
B-2
SHARES HELD/ NAME PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.5% (CONT.) COMPUTER SYSTEMS--0.9% Sun Microsystems, Inc. (a) 12,000,000 $ 31,080,000 OFFICE EQUIPMENT--1.1% Xerox Corporation (a) 7,427,400 $ 36,765,630 AEROSPACE & DEFENSE--2.3% Honeywell International, Inc. 1,950,000 $ 42,237,000 The Boeing Company 1,000,000 34,130,000 ------------------- 76,367,000 OTHER INDUSTRIAL GOODS & SERVICES--1.1% Illinois Tool Works Inc. 604,200 $ 35,242,986 WASTE DISPOSAL--1.8% Waste Management, Inc. 2,574,300 $ 60,032,676 OIL & NATURAL GAS--4.2% ConocoPhillips 1,635,335 $ 75,617,890 Burlington Resources Inc. 1,671,100 64,103,396 ------------------- 139,721,286 ELECTRIC UTILITIES--3.3% TXU Corp. 1,565,000 $ 65,276,150 Duke Energy Corporation 2,220,000 43,401,000 ------------------- 108,677,150 TOTAL COMMON STOCKS (COST: $3,433,430,323) 3,092,914,134 SHORT TERM INVESTMENTS--6.4% U.S. GOVERNMENT BILLS--4.8% United States Treasury Bills, 1.58% - 1.665% due 10/3/2002 - 11/29/2002 $160,000,000 $ 159,873,818 TOTAL U.S. GOVERNMENT BILLS (COST: $159,870,861) 159,873,818
B-3
NAME PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--6.4% (CONT.) REPURCHASE AGREEMENTS--1.6% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $50,002,431 collateralized by U.S. Government Agency Securities $50,000,000 $ 50,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,886,022 collateralized by a U.S. Government Agency Security 1,885,964 1,885,964 -------------- TOTAL REPURCHASE AGREEMENT (COST: $51,885,964) 51,885,964 TOTAL SHORT TERM INVESTMENTS (COST: $211,756,825) 211,759,782 Total Investments (Cost $3,645,187,148)--99.9% $3,304,673,916 Other Assets In Excess Of Other Liabilities--0.1% 4,007,917 -------------- TOTAL NET ASSETS--100% $3,308,681,833 ==============
(a) Non-income producing security. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-4 THE OAKMARK SELECT FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - --------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% OTHER CONSUMER GOODS & SERVICES--13.1% H&R Block, Inc. 7,738,800 $ 325,106,988 Mattel, Inc. 9,554,000 172,067,540 ------------------- 497,174,528 CABLE SYSTEMS & SATELLITE TV--4.0% AOL Time Warner Inc. (a) 13,000,000 $ 152,100,000 INFORMATION SERVICES--9.8% Moody's Corporation 3,984,000 $ 193,224,000 The Dun & Bradstreet Corporation (a)(b) 5,321,300 178,848,893 ------------------- 372,072,893 PUBLISHING--3.9% Knight-Ridder, Inc. 2,606,500 $ 147,032,665 RETAIL--16.5% Yum! Brands, Inc (a) 7,422,000 $ 205,663,620 The Kroger Co. (a) 10,362,500 146,111,250 Office Depot, Inc. (a) 11,434,900 141,106,666 Toys `R' Us, Inc. (a)(b) 12,698,500 129,270,730 ------------------- 622,152,266 BANK & THRIFTS--17.8% Washington Mutual, Inc. 21,351,400 $ 671,928,558 INVESTMENT MANAGEMENT--2.9% Stilwell Financial Inc 9,030,400 $ 108,996,928 HEALTH CARE SERVICES--4.1% IMS Health Incorporated 10,392,000 $ 155,568,240 PHARMACEUTICALS--4.4% Chiron Corporation (a) 4,811,400 $ 168,110,316 TELECOMMUNICATIONS--3.3% Sprint Corporation 13,727,500 $ 125,194,800 COMPUTER SERVICES--5.3% First Data Corporation 5,430,400 $ 151,779,680 Electronic Data Systems Corporation 3,451,500 48,251,970 ------------------- 200,031,650 OFFICE EQUIPMENT--2.8% Xerox Corporation (a) 21,547,700 $ 106,661,115
B-5
SHARES HELD/ NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% (CONT.) OIL & NATURAL GAS--4.3% Burlington Resources Inc. 4,201,800 $ 161,181,048 TOTAL COMMON STOCKS (COST: $3,372,614,639) 3,488,205,007 SHORT TERM INVESTMENTS--7.4% U.S. GOVERNMENT BILLS--4.1% United States Treasury Bills, 1.58% - 1.975% due 10/3/2002 - 12/12/2002 $155,000,000 $ 154,792,889 TOTAL U.S. GOVERNMENT BILLS (COST: $154,782,375) 154,792,889 REPURCHASE AGREEMENTS--3.3% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $121,005,882 collateralized by U.S. Government Agency Securities $121,000,000 $ 121,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $2,118,317 collateralized by a U.S. Government Agency Security 2,118,252 2,118,252 ------------------- TOTAL REPURCHASE AGREEMENT (COST: $123,118,252) 123,118,252 TOTAL SHORT TERM INVESTMENTS (COST: $277,900,627) 277,911,141 Total Investments (Cost $3,650,515,266)--99.6% $ 3,766,116,148 Other Assets In Excess Of Other Liabilities--0.4% 15,936,183 ------------------- TOTAL NET ASSETS--100% $ 3,782,052,331 ===================
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-6 THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.7% FOOD & BEVERAGE--6.3% Ralcorp Holdings, Inc. (a) 579,000 $ 12,315,330 Del Monte Foods Company (a) 1,230,000 10,049,100 ---------------- 22,364,430 HOUSEHOLD PRODUCTS--3.9% Tupperware Corporation 850,000 $ 14,127,000 OTHER CONSUMER GOODS & SERVICES--5.1% Department 56, Inc. (a)(b) 760,000 $ 7,942,000 Callaway Golf Company 500,000 5,200,000 Central Parking Corporation 250,000 5,035,000 ---------------- 18,177,000 SECURITY SYSTEMS--3.4% Checkpoint Systems, Inc. (a) 1,000,000 $ 12,350,000 APPAREL--3.2% Oakley, Inc. (a) 750,000 $ 7,537,500 R.G. Barry Corporation (a)(b) 900,000 3,744,000 ---------------- 11,281,500 AUTOMOBILE RENTALS--1.5% Dollar Thrifty Automotive Group, Inc. (a) 325,000 $ 5,216,250 BUILDING MATERIALS & CONSTRUCTION--3.0% Insituform Technologies, Inc., Class A (a) 750,000 $ 10,762,500 EDUCATIONAL SERVICES--2.7% ITT Educational Services, Inc. (a) 509,500 $ 9,563,315 HOTELS & MOTELS--1.9% Prime Hospitality Corp. (a) 810,000 $ 6,642,000 INFORMATION SERVICES--3.5% eFunds Corporation (a) 1,327,600 $ 12,454,216 MARKETING SERVICES--0.2% Grey Global Group Inc. 1,000 $ 590,000 RETAIL--3.9% ShopKo Stores, Inc. (a) 740,000 $ 9,664,400 Pathmark Stores Inc (a) 471,500 4,314,225 ---------------- 13,978,625
B-7
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.7% (CONT.) BANK & THRIFTS--5.9% BankAtlantic Bancorp, Inc., Class A 1,000,000 $ 8,980,000 People's Bank of Bridgeport, Connecticut 360,000 8,074,800 PennFed Financial Services, Inc. 150,000 4,123,500 ---------------- 21,178,300 INSURANCE--3.0% The PMI Group, Inc. 400,000 $ 10,884,000 OTHER FINANCIAL--1.9% NCO Group, Inc. (a) 600,000 $ 6,882,000 REAL ESTATE--4.7% Catellus Development Corporation (a) 650,000 $ 11,992,500 Trammell Crow Company (a) 495,000 4,880,700 ---------------- 16,873,200 MEDICAL PRODUCTS--7.4% Hanger Orthopedic Group, Inc. (a) 960,000 $ 15,264,000 CONMED Corporation (a) 350,000 7,052,500 Sybron Dental Specialties, Inc. (a) 300,000 4,197,000 ---------------- 26,513,500 PHARMACEUTICALS--3.4% Pharmaceutical Resources Inc (a) 424,300 $ 11,871,914 Elan Corporation plc (a)(c) 115,000 221,950 ---------------- 12,093,864 COMPUTER SERVICES--3.3% CIBER, Inc. (a) 1,805,000 $ 10,487,050 Interland, Inc. (a) 600,000 1,230,000 ---------------- 11,717,050 COMPUTER SOFTWARE--6.7% Sybase Inc (a) 1,000,000 $ 11,620,000 MSC.Software Corp. (a) 1,100,000 9,372,000 Mentor Graphics Corporation (a) 587,000 2,864,560 ---------------- 23,856,560 COMPUTER SYSTEMS--1.6% Optimal Robotics Corp., Class A (a)(b)(d) 763,500 $ 5,833,140 DATA STORAGE--2.0% Imation Corp. (a) 250,000 $ 7,082,500
B-8
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.7% (CONT.) OFFICE EQUIPMENT--3.7% InFocus Corporation (a) 1,000,000 $ 7,620,000 MCSi, Inc. (a) 1,125,000 5,568,750 ---------------- 13,188,750 INSTRUMENTS--2.3% IDEXX Laboratories, Inc. (a) 255,000 $ 7,891,740 Measurement Specialties, Inc. (a)(e) 550,000 412,500 ---------------- 8,304,240 MACHINERY & INDUSTRIAL PROCESSING--2.1% SureBeam Corporation, Class A (a) 3,100,000 $ 5,580,000 Columbus McKinnon Corporation (a) 365,000 1,919,900 ---------------- 7,499,900 OTHER INDUSTRIAL GOODS & SERVICES--0.7% Integrated Electrical Services, Inc. (a) 650,000 $ 2,431,000 TRANSPORTATION SERVICES--1.6% Teekay Shipping Corporation (d) 203,400 $ 5,796,900 CHEMICALS--2.8% Sensient Technologies Corporation 292,800 $ 6,186,864 H.B. Fuller Company 140,000 3,724,000 ---------------- 9,910,864 OIL & NATURAL GAS--5.0% St. Mary Land & Exploration Company 350,000 $ 8,365,000 Cabot Oil & Gas Corporation 250,000 5,375,000 Berry Petroleum Company 250,000 4,247,500 ---------------- 17,987,500 TOTAL COMMON STOCKS (COST: $404,024,443) 345,540,104
B-9
NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--3.3% REPURCHASE AGREEMENTS--3.3% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $10,000,486 collateralized by U.S. Government Agency Securities $10,000,000 $ 10,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,896,864 collateralized by a U.S. Government Agency Security 1,896,806 1,896,806 ---------------- TOTAL REPURCHASE AGREEMENT (COST: $11,896,806) 11,896,806 TOTAL SHORT TERM INVESTMENTS (COST: $11,896,806) 11,896,806 Total Investments (Cost $415,921,249)--100.0% $ 357,436,910 Other Liabilities In Excess Of Other Assets--0.0% (42,821) ---------------- TOTAL NET ASSETS--100% $ 357,394,089 ================
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) Represents an American Depository Receipt. (d) Represents a foreign domiciled corporation. (e) Security valued at a fair value as determined by the Pricing Committee appointed by the Board of Trustees. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-10 THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2002
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.2% COMMON STOCKS--52.5% FOOD & BEVERAGE--0.5% UST Inc. 400,000 $ 11,284,000 BROADCASTING & PUBLISHING--0.7% Gemstar-TV Guide International Inc. (b) 7,000,000 $ 17,640,000 CABLE SYSTEMS & SATELLITE TV--0.8% General Motors Corporation, Class H (Hughes Electronics Corporation) (a) 2,000,000 $ 18,300,000 INFORMATION SERVICES--2.4% Ceridian Corporation (a) 3,900,000 $ 55,575,000 MARKETING SERVICES--0.5% The Interpublic Group of Companies, Inc. 800,000 $ 12,680,000 PRINTING--0.2% Valassis Communications, Inc. (a) 150,000 $ 5,260,500 RECREATION & ENTERTAINMENT--1.0% International Game Technology (a) 345,000 $ 23,853,300 RETAIL--4.1% J.C. Penney Company, Inc. 2,200,000 $ 35,024,000 Albertson's, Inc. 1,200,000 28,992,000 BJ's Wholesale Club, Inc. (a) 1,100,000 20,911,000 Office Depot, Inc. (a) 980,000 12,093,200 ------------------- 97,020,200 INSURANCE--3.6% SAFECO Corporation 2,200,000 $ 69,916,000 PartnerRe, Ltd. (c) 200,000 9,636,000 RenaissanceRe Holdings Ltd. 174,700 6,601,913 ------------------- 86,153,913 OTHER FINANCIAL--0.5% GATX Corporation 600,000 $ 11,880,000 REAL ESTATE--2.0% Catellus Development Corporation (a) 1,881,500 $ 34,713,675 Hospitality Properties Trust 200,000 6,624,000 Legacy Hotels Real Estate Investment Trust (c) 1,125,000 5,909,851 ------------------- 47,247,526
B-11
NAME SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.2% (CONT.) HEALTH CARE SERVICES--2.0% IMS Health Incorporated 2,300,000 $ 34,431,000 Caremark Rx, Inc. (a) 750,000 12,750,000 ------------------- 47,181,000 MANAGED CARE SERVICES--2.3% First Health Group Corp. (a) 2,000,000 $ 54,240,000 MEDICAL PRODUCTS--4.9% Guidant Corporation (a) 1,855,000 $ 59,935,050 Apogent Technologies Inc. (a) 1,750,000 32,655,000 Techne Corporation (a) 525,000 17,214,750 Edwards Lifesciences Corporation (a) 275,000 7,037,250 ------------------- 116,842,050 PHARMACEUTICALS--4.3% Watson Pharmaceuticals, Inc. (a) 2,100,000 $ 51,471,000 Bristol-Myers Squibb Company 2,000,000 47,600,000 Chiron Corporation (a) 41,800 1,460,492 ------------------- 100,531,492 TELECOMMUNICATIONS--0.1% CenturyTel, Inc. 159,800 $ 3,584,314 COMPUTER SOFTWARE--3.6% Synopsys, Inc. (a) 1,485,000 $ 56,652,750 Novell, Inc. (a) 8,000,000 16,800,000 Mentor Graphics Corporation (a) 2,300,000 11,224,000 ------------------- 84,676,750 COMPUTER SYSTEMS--1.1% The Reynolds and Reynolds Company, Class A 1,164,000 $ 26,120,160 AEROSPACE & DEFENSE--3.5% Rockwell Collins, Inc. 1,863,800 $ 40,891,772 Honeywell International, Inc. 1,875,000 40,612,500 ------------------- 81,504,272 AGRICULTURAL EQUIPMENT--0.1% Alamo Group Inc. 141,900 $ 1,753,884 INSTRUMENTS--1.9% Varian Inc. (a) 1,599,400 $ 44,159,434 MACHINERY & INDUSTRIAL PROCESSING--2.5% Rockwell Automation International Corporation 1,964,500 $ 31,962,415 Cooper Industries, Ltd. 880,700 26,729,245 ------------------- 58,691,660
B-12
SHARES HELD/ NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--53.2% (CONT.) TRANSPORTATION SERVICES--0.1% Nordic American Tanker Shipping Limited (c) 154,900 $ 1,645,038 AGRICULTURAL OPERATIONS--1.8% Monsanto Company 2,800,000 $ 42,812,000 FORESTRY PRODUCTS--1.7% Plum Creek Timber Company, Inc. 1,809,644 $ 40,916,051 OIL & NATURAL GAS--6.3% Burlington Resources Inc. 2,000,000 $ 76,720,000 XTO Energy, Inc. 1,528,000 31,492,080 St. Mary Land & Exploration Company 1,030,000 24,617,000 Cabot Oil & Gas Corporation 750,000 16,125,000 ------------------- 148,954,080 TOTAL COMMON STOCKS (COST: $1,385,836,462) 1,240,506,624 CONVERTIBLE BONDS--0.7% CABLE SYSTEMS & SATELLITE TV--0.5% EchoStar Communications Corporation, 4.875% due 1/1/2007 $ 15,000,000 $ 11,343,750 PHARMACEUTICALS--0.2% Sepracor Inc., 7.00% due 12/15/2005 $ 7,285,000 $ 4,498,487 TOTAL CONVERTIBLE BONDS (COST: $17,579,387) 15,842,237 TOTAL EQUITY AND EQUIVALENTS (COST: $1,403,415,849) 1,256,348,861 FIXED INCOME--40.2% PREFERRED STOCKS--0.1% BANK & THRIFTS --0.1% BBC Capital Trust I, Preferred, 9.50% 48,000 $ 1,200,480 Pennfed Capital Trust, Preferred, 8.90% 27,500 694,375 Fidelity Capital Trust I, Preferred, 8.375% 43,500 437,175 ------------------- 2,332,030 TELECOMMUNICATIONS--0.0% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 470,000 TOTAL PREFERRED STOCKS (COST: $2,715,763) 2,802,030
B-13
NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- FIXED INCOME--40.2% (CONT.) CORPORATE BONDS--1.8% BROADCASTING & PROGRAMMING--0.5% Liberty Media Corporation, 8.25% due 2/1/2030, Debenture $ 12,900,000 $ 12,740,453 BUILDING MATERIALS & CONSTRUCTION--0.0% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note $ 750,000 $ 768,750 CABLE SYSTEMS & SATELLITE TV--0.1% CSC Holdings Inc., 7.875% due 12/15/2007 $ 3,000,000 $ 2,475,000 HOTELS & MOTELS--0.3% HMH Properties, 7.875% due 8/1/2005, Senior Note Series A $ 3,450,000 $ 3,329,250 Park Place Entertainment, 7.00% due 7/15/2004, Senior Notes 2,750,000 2,778,212 ------------------- 6,107,462 RETAIL--0.5% The Gap, Inc., 6.90% due 9/15/2007 $ 9,187,000 $ 8,084,560 Rite Aid Corporation, 7.625% due 4/15/2005, Senior Notes 4,900,000 3,626,000 Ugly Duckling Corporation, 12.00% due 10/23/2003, Subordinated Debenture 650,000 585,000 ------------------- 12,295,560 MEDICAL PRODUCTS--0.3% CONMED Corporation, 9.00% due 3/15/2008 $ 5,610,000 $ 5,666,100 MACHINERY & INDUSTRIAL PROCESSING--0.1% Columbus McKinnon Corporation New York, 8.50% due 4/1/2008 $ 3,000,000 $ 2,490,000 ELECTRIC UTILITIES--0.0% Midland Funding Corporation, 11.75% due 7/23/2005 $ 500,000 $ 506,250 TOTAL CORPORATE BONDS (COST: $43,397,142) 43,049,575
B-14
NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------- GOVERNMENT AND AGENCY SECURITIES--38.3% U.S. GOVERNMENT NOTES--37.9% United States Treasury Notes, 3.375% due 1/15/2007, Inflation Indexed $156,864,600 $ 170,859,903 United States Treasury Notes, 3.375% due 1/15/2012, Inflation Indexed 141,993,600 157,058,269 United States Treasury Notes, 5.75% due 11/15/2005 100,000,000 111,070,300 United States Treasury Notes, 4.75% due 11/15/2008 100,000,000 109,824,200 United States Treasury Notes, 3.50% due 11/15/2006 100,000,000 104,250,000 United States Treasury Notes, 3.00% due 11/30/2003 75,000,000 76,315,425 United States Treasury Notes, 7.875% due 11/15/2004 25,000,000 28,171,875 United States Treasury Notes, 5.00% due 8/15/2011 25,000,000 27,764,650 United States Treasury Notes, 5.25% due 5/15/2004 25,000,000 26,454,100 United States Treasury Notes, 2.875% due 6/30/2004 25,000,000 25,522,450 United States Treasury Notes, 3.00% due 2/29/2004 25,000,000 25,500,000 United States Treasury Notes, 3.00% due 1/31/2004 25,000,000 25,475,575 United States Treasury Notes, 7.25% due 8/15/2004 5,000,000 5,514,060 ------------------- 893,780,807 U.S. GOVERNMENT AGENCIES--0.4% Fannie Mae, 3.875% due 9/7/2004 $ 5,000,000 $ 5,045,315 Federal Home Loan Bank, 5.10% due 12/26/2006 2,035,000 2,108,769 Fannie Mae, Principal Only, Zero Coupon, due 10/3/2011 1,065,000 1,066,354 Federal Home Loan Bank, 3.875% due 12/15/2004 1,000,000 1,038,045 ------------------- 9,258,483 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $861,911,517) 903,039,290 TOTAL FIXED INCOME (COST: $908,024,422) 948,890,895 SHORT TERM INVESTMENTS--5.7% U.S. GOVERNMENT BILLS--3.2% United States Treasury Bills, 1.55% - 1.62% $ 75,000,000 $ 74,944,321 due 10/10/2002 - 10/31/2002 TOTAL U.S. GOVERNMENT BILLS (COST: $74,944,321) 74,944,321
B-15
PAR VALUE/ NAME SHARES SUBJECT TO CALL MARKET VALUE SHORT TERM INVESTMENTS--5.7% (CONT.) REPURCHASE AGREEMENTS--2.5% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $58,002,819 collateralized by U.S. Government Agency Securities $ 58,000,000 $ 58,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,636,138 collateralized by a U.S. Government Agency Security 1,636,088 1,636,088 ------------------- TOTAL REPURCHASE AGREEMENT (COST: $59,636,088) 59,636,088 TOTAL SHORT TERM INVESTMENTS (COST: $134,580,409) 134,580,409 Total Investments (Cost $2,446,020,680)--99.1% $ 2,339,820,165 CALL OPTIONS WRITTEN--0.0% BROADCASTING & PUBLISHING--0.0% Gemstar-TV Guide International Inc., November 7.50 Calls (1,019,000) $ (50,950) TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED: $(638,100))--0.0% (50,950) Other Assets In Excess Of Other Liabilities--0.9% $ 20,817,788 ------------------- TOTAL NET ASSETS--100% $ 2,360,587,003 ===================
(a) Non-income producing security. (b) A portion of this security has been segregated to cover written option contracts. See footnote number one in the Notes to Financial Statements regarding accounting for options. (c) Represents a foreign domiciled corporation. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-16 THE OAKMARK GLOBAL FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME DESCRIPTION SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% FOOD & BEVERAGE--1.6% Lotte Chilsung Beverage Co., Ltd. (Korea) Soft Drinks, Juices & Sports Drinks Manufacturer 4,800 $ 2,826,532 HOUSEHOLD PRODUCTS--3.7% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 118,000 $ 6,584,329 AUTOMOBILES--1.7% Ducati Motor Holding S.p.A. (Italy)(a) Motorcycle Manufacturer 1,933,500 $ 3,055,239 BROADCASTING & PROGRAMMING--6.6% Liberty Media Corporation, Class A (United States) (a) Broadcast Services & Programming 1,000,000 $ 7,180,000 Grupo Televisa S.A. (Mexico) (a)(b) Television Production & Broadcasting 173,700 4,427,613 ----------- 11,607,613 BROADCASTING & PUBLISHING--1.4% Gemstar-TV Guide International Inc. (United States) (a) Electronic Program Guide Services 1,000,000 $ 2,520,000 EDUCATIONAL SERVICES--1.7% ITT Educational Services, Inc. (United States) (a) Postsecondary Degree Programs 161,600 $ 3,033,232 HOME FURNISHINGS--4.3% Hunter Douglas N.V. (Netherlands) Window Coverings Manufacturer 285,600 $ 7,615,581 HUMAN RESOURCES--4.0% Michael Page International plc (Great Britain) Recruitment Consultancy Services 3,740,000 $ 6,985,884 INFORMATION SERVICES--9.9% eFunds Corporation (United States) (a) Electronic Debit Payment Services 1,225,000 $11,491,725 Ceridian Corporation (United States) (a) Data Management Services 425,000 6,056,250 ----------- 17,547,975
B-17
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) MARKETING SERVICES--3.8% The Interpublic Group of Companies, Inc. (United States) Advertising & Marketing Services 344,000 $ 5,452,400 Cordiant Communications Group plc (Great Britain) (a) Advertising & Media Services 2,097,000 1,267,249 ----------- 6,719,649 RETAIL--3.1% Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 897,700 $ 2,978,870 Somerfield plc (Great Britain) (a) Food Retailer 1,403,000 2,361,880 ----------- 5,340,750 BANK & THRIFTS--7.6% U.S. Bancorp (United States) Commercial Bank 275,000 $ 5,109,500 Washington Mutual, Inc. (United States) Thrift 135,000 4,248,450 Banco Popolare di Verona e Novara Scrl (Italy) Commercial Bank 351,100 4,004,920 ----------- 13,362,870 OTHER FINANCIAL--2.5% Daiwa Securities Group Inc. (Japan) Stock Broker 807,000 $ 4,451,866 MANAGED CARE SERVICES--3.7% First Health Group Corp. (United States) (a) Health Benefits Company 240,000 $ 6,508,800 MEDICAL PRODUCTS--6.2% Cytyc Corporation (United States) (a) Diagnostic Equipment 400,000 $ 4,288,000 Ansell Limited (Australia) (a) Protective Rubber & Plastics Products 934,000 3,499,418 Guidant Corporation (United States) (a) Medical Instruments 100,000 3,231,000 ----------- 11,018,418 PHARMACEUTICALS--6.2% GlaxoSmithKline plc (Great Britain) Pharmaceuticals 362,400 $ 6,911,420 Abbott Laboratories (United States) Pharmaceuticals 100,000 4,040,000 ----------- 10,951,420
B-18
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--96.2% (CONT.) TELECOMMUNICATIONS EQUIPMENT--3.1% Telefonaktiebolaget LM Ericsson, Class B (Sweden) (a) Mobile & Wired Telecommunications Products 14,923,000 $ 5,419,470 COMPUTER SERVICES--5.2% First Data Corporation (United States) Data Processing & Management 175,000 $ 4,891,250 Meitec Corporation (Japan) Software Engineering Services 181,900 4,263,223 ----------- 9,154,473 COMPUTER SOFTWARE--7.2% Synopsys, Inc. (United States) (a) Electronic Design Automation 220,000 $ 8,393,000 Novell, Inc. (United States) (a) Network & Internet Integration Software 2,000,000 4,200,000 ----------- 12,593,000 AIRPORT MAINTENANCE--2.2% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b) Airport Operator 355,000 $ 3,905,000 DIVERSIFIED CONGLOMERATES--6.3% Vivendi Universal SA (France) Multimedia 983,400 $11,023,186 INSTRUMENTS--1.9% Orbotech, Ltd. (Israel) (a) Optical Inspection Systems 225,000 $ 3,318,750 CHEMICALS--2.3% Givaudan (Switzerland) Fragrance & Flavor Compound Manufacturer 8,970 $ 4,010,161 TOTAL COMMON STOCKS (COST: $202,352,125) 169,554,198
B-19
NAME DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--3.0% REPURCHASE AGREEMENTS--3.0% IBT Repurchase Agreement, 1.75% Due 10/1/2002, repurchase price $4,000,194 collateralized by a U.S. Government Agency Security $4,000,000 $ 4,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $1,187,300 collateralized by U.S. Government Agency Securities 1,187,263 1,187,263 ------------ TOTAL REPURCHASE AGREEMENT (COST: $5,187,263) 5,187,263 TOTAL SHORT TERM INVESTMENTS (COST: $5,187,263) 5,187,263 Total Investments (Cost $207,539,388)--99.2% $174,741,461 Other Assets In Excess Of Other Liabilities--0.8% 1,472,340 ------------ Total Net Assets--100% $176,213,801 ============
(a) Non-income producing security. (b) Represents an American Depository Receipt. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-20 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% FOOD & BEVERAGE--8.4% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 3,150,200 $ 38,865,432 Pernod-Ricard SA (France) Manufactures Wines, Spirits, & Fruit Juices 363,300 32,650,352 Lotte Chilsung Beverage Co., Ltd. (Korea) Soft Drinks, Juices & Sports Drinks Manufacturer 49,700 29,266,378 Fomento Economico Mexicano S.A. de C.V. (Mexico) (b) Soft Drink & Beer Manufacturer 600,400 20,293,520 ------------ 121,075,682 HOUSEHOLD PRODUCTS--2.9% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 755,000 $ 42,128,547 APPAREL--0.2% Fila Holdings S.p.A. (Italy) (a)(b)(c) Athletic Footwear & Apparel 5,894,760 $ 3,006,328 AUTOMOBILES--0.7% Bayerische Motoren Werke (BMW) AG (Germany) Luxury Automobile Manufacturer 313,100 $ 10,052,663 AUTOMOTIVE--3.1% Autoliv Inc (Sweden) (d) Automotive Safety Systems Manufacturer 1,248,000 $ 26,225,268 Compagnie Generale des Etablissements Michelin (France) Tire Manufacturer 664,500 18,650,915 ------------ 44,876,183 BROADCASTING & PROGRAMMING--3.3% Grupo Televisa S.A. (Mexico) (a)(b) Television Production & Broadcasting 1,003,100 $ 25,569,019 Tokyo Broadcasting System, Inc. (Japan) Television & Radio Broadcasting 1,511,000 22,017,198 ------------ 47,586,217 BUILDING MATERIALS & CONSTRUCTION--1.1% Kumkang Korea Chemical Co., Ltd. (Korea) Building Materials 162,140 $ 15,515,155
B-21
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) HOME FURNISHINGS--3.0% Hunter Douglas N.V. (Netherlands) Window Coverings Manufacturer 1,638,584 $43,693,170 HUMAN RESOURCES--2.8% Michael Page International plc (Great Britain) (c) Recruitment Consultancy Services 21,562,900 $40,276,985 MARKETING SERVICES--5.3% Aegis Group plc (Great Britain) Media Services 31,735,500 $34,122,335 Publicis Groupe (France) Advertising & Media Services 1,461,700 27,572,281 Cordiant Communications Group plc (Great Britain) (a)(c) Advertising & Media Services 24,209,270 14,630,031 ----------- 76,324,647 PUBLISHING--6.7% Wolters Kluwer NV (Netherlands) Reference Material Publisher 2,430,200 $43,921,199 John Fairfax Holdings Limited (Australia) Newspaper Publisher 23,642,600 36,459,726 Independent News & Media PLC (Ireland) Newspaper Publisher 14,132,000 18,143,792 ----------- 98,524,717 RETAIL--4.0% Somerfield plc (Great Britain) (a) Food Retailer 15,128,500 $25,468,068 Giordano International Limited (Hong Kong) Pacific Rim Clothing Retailer & Manufacturer 63,102,300 24,676,515 Signet Group plc (Great Britain) Jewelry Retailer 6,245,100 7,891,110 ----------- 58,035,693 BANK & THRIFTS--7.5% Banco Popolare di Verona e Novara Scrl (Italy) Commercial Banking 2,742,200 $31,279,672 BNP Paribas SA (France) Commercial Banking 758,300 24,698,626 Sanpaolo IMI S.p.A. (Italy) Banking Services 3,732,800 20,976,261 United Overseas Bank Limited, Foreign Shares (Singapore) Commercial Banking 1,426,968 9,552,991 Kookmin Bank (Korea) Commercial Banking 231,168 8,460,594 Svenska Handelsbanken AB (Sweden) Commercial Banking 508,000 6,322,902
B-22
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) BANK & THRIFTS--7.5% (CONT.) Uniao de Bancos Brasileiros S.A. (Brazil) (e) Commercial Banking 784,000 $ 5,566,400 Banco Latinoamericano de Exportaciones, S.A., Class E (Panama) (b) Latin American Trade Bank 515,400 $ 1,061,724 ------------ 107,919,170 OTHER FINANCIAL--5.6% Daiwa Securities Group Inc. (Japan) Stock Broker 7,285,000 $ 40,188,154 Euronext (Netherlands) Stock Exchange 2,125,200 40,087,988 ------------ 80,276,142 MEDICAL PRODUCTS--1.7% Gambro AB, Class A (Sweden) Manufacturer of Dialysis Products 6,144,000 $ 24,431,398 PHARMACEUTICALS--9.6% GlaxoSmithKline plc (Great Britain) Pharmaceuticals 3,418,800 $ 65,200,781 Aventis S.A. (France) Pharmaceuticals 613,300 32,101,839 Takeda Chemical Industries, Ltd. (Japan) Pharmaceuticals & Food Supplements 739,000 29,786,890 Novartis AG (Switzerland) Pharmaceuticals 298,500 11,777,840 ------------ 138,867,350 TELECOMMUNICATIONS--3.1% Panafon Hellenic Telecom S.A. (Greece) Mobile Telecommunications 6,717,900 $ 29,722,999 SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 64,860 12,572,029 Telemig Celular Participacoes S.A. (Brazil) Mobile Telecommunications 1,806,000,000 1,949,866 ------------ 44,244,894 TELECOMMUNICATIONS EQUIPMENT--2.8% Telefonaktiebolaget LM Ericsson, Class B (Sweden) (a) Mobile & Wired Telecommunications Products 109,949,200 $ 39,929,394 COMPUTER SERVICES--2.3% Meitec Corporation (Japan) Software Engineering Services 1,402,000 $ 32,858,925
B-23
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) AEROSPACE--1.4% Rolls-Royce plc (Great Britain) Aviation & Marine Power 12,558,195 $ 19,711,971 AIRPORT MAINTENANCE--0.2% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b) Airport Operator 242,000 $ 2,662,000 DIVERSIFIED CONGLOMERATES--3.5% Vivendi Universal SA (France) Multimedia 4,551,100 $ 51,014,463 INSTRUMENTS--1.9% Orbotech, Ltd. (Israel) (a)(c) Optical Inspection Systems 1,841,200 $ 27,157,700 MACHINERY & INDUSTRIAL PROCESSING--2.1% Metso Corporation (Finland) Paper & Pulp Machinery 3,490,700 $ 30,337,255 OTHER INDUSTRIAL GOODS & SERVICES--4.2% Enodis plc (Great Britain) (c) Food Processing Equipment 33,585,320 $ 26,095,013 Chargeurs SA (France) (c) Wool, Textile Production & Trading 1,050,201 24,632,990 FKI plc (Great Britain) Industrial Manufacturing 8,299,300 10,519,299 -------------- 61,247,302 TRANSPORTATION SERVICES--2.5% Associated British Ports Holdings Plc (Great Britain) Port Operator 5,533,899 $ 35,744,061 CHEMICALS--5.6% Givaudan (Switzerland) Fragrance & Flavor Compound Manufacturer 95,600 $ 42,739,281 Akzo Nobel N.V. (Netherlands) Chemical Producer 1,152,800 37,115,272 -------------- 79,854,553 TOTAL COMMON STOCKS (COST: $1,739,391,715) 1,377,352,565
B-24
NAME DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--5.5% U.S. GOVERNMENT BILLS--2.1% United States Treasury Bills, 1.615% - 1.67% due 10/3/2002 - 10/17/2002 $30,000,000 $ 29,987,835 TOTAL U.S. GOVERNMENT BILLS (COST: $29,987,835) 29,987,835 REPURCHASE AGREEMENTS--3.4% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $47,002,285 collateralized by U.S. Government Agency Securities $47,000,000 $ 47,000,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $2,554,729 collateralized by a U.S. Government Agency Security 2,554,650 2,554,650 -------------- TOTAL REPURCHASE AGREEMENT (COST: $49,554,650) 49,554,650 TOTAL SHORT TERM INVESTMENTS (COST: $79,542,485) 79,542,485 Total Investments (Cost $1,818,934,200)--101.0% $1,456,895,050 Foreign Currencies (Cost $2,256,583)--0.2% $ 2,275,134 Other liabilities In Excess Of Other Assets--(1.2%) (16,906,490) -------------- TOTAL NET ASSETS--100% $1,442,263,694 ==============
(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) Represents a Swedish Depository Receipt. (e) Represents a Global Depository Receipt. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-25 THE OAKMARK INTERNATIONAL SMALL CAP FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2002
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% FOOD & BEVERAGE--6.4% Campari Group (Italy) (a) Soft Drinks, Wines, & Spirits Producer 235,200 $ 7,642,128 Grupo Continental, S.A. (Mexico) Soft Drink Manufacturer 2,760,000 4,596,845 Baron De Ley, S.A. (Spain) (a) Wines & Spirits Manufacturer 150,985 3,917,193 Hite Brewery Co., Ltd. (Korea) Brewer 57,700 2,784,248 Alaska Milk Corporation (Philippines) (b) Milk Producer 49,394,000 1,997,430 Mikuni Coca-Cola Bottling Co., Ltd. (Japan) Soft Drink Manufacturer 310,000 1,822,107 ----------- 22,759,951 OTHER CONSUMER GOODS & SERVICES--0.5% Royal Doulton plc (Great Britain) (a)(b) Tableware & Giftware 22,373,000 $ 1,755,889 APPAREL--0.3% Kingmaker Footwear Holdings Limited (Hong Kong) Athletic Footwear Manufacturer 4,395,000 $ 1,127,010 AUTOMOBILES--2.3% Ducati Motor Holding S.p.A. (Italy) (a) Motorcycle Manufacturer 5,177,200 $ 8,180,804 BROADCASTING & PROGRAMMING--1.4% ABS-CBN Broadcasting Corporation (Philippines) (a) Television & Broadcasting Operator 11,920,000 $ 5,002,194 BROADCASTING & PUBLISHING--1.8% Tamedia AG (Switzerland) (a) TV Broadcasting & Publishing 146,880 $ 6,466,978 BUILDING MATERIALS & CONSTRUCTION--3.2% Fletcher Building Limited (New Zealand) Building Materials Manufacturer 8,129,200 $11,420,319 HOME FURNISHINGS--3.3% Natuzzi S.p.A. (Italy) (c) Home Furnishings 1,078,300 $11,775,036
B-26
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) HOTELS & MOTELS--1.8% Jarvis Hotels plc (Great Britain) Hotel Operator 3,845,700 $ 6,338,223 HUMAN RESOURCES--1.2% Solvus S.A. (Belgium) Temporary Staffing Services 623,254 $ 4,308,680 INFORMATION SERVICES--2.0% Baycorp Advantage Limited (Australia) Credit Reference Services 4,213,500 $ 7,275,619 MARKETING SERVICES--2.3% Asatsu-DK, Inc. (Japan) Advertising Services Provider 445,100 $ 8,349,165 PUBLISHING--3.6% Edipresse S.A. (Switzerland) Newspaper & Magazine Publisher 18,274 $ 5,019,377 Recoletos Grupo de Comunicacion, S.A. (Spain) Publisher 880,000 3,563,261 Matichon Public Company Limited, Foreign Shares (Thailand) (b) Newspaper Publisher 2,039,500 2,733,156 VLT AB, Class B (Sweden) Newspaper Publisher 178,450 1,480,737 ----------- 12,796,531 RETAIL--10.4% Carpetright plc (Great Britain) Carpet Retailer 1,589,200 $15,715,273 D.F.S. Furniture Company plc (Great Britain) Furniture Retailer & Manufacturer 1,972,100 11,933,179 Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 2,904,600 9,638,439 ----------- 37,286,891 BANK & THRIFTS--5.9% Jyske Bank A/S (Denmark) (a) Commercial Banking 441,900 $10,898,925 Vontobel Holding AG (Switzerland) Commercial Banking 662,536 8,078,065 Banco Latinoamericano de Exportaciones, S.A., Class E (Panama) (b)(c) Multinational Bank 1,153,100 2,375,386 ----------- 21,352,376 FINANCIAL SERVICES--4.6% Van der Moolen Holding N.V. (Netherlands) International Trading Firm 528,400 $ 8,740,951
B-27
NAME DESCRIPTION SHARES HELD MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) FINANCIAL SERVICES--4.6% (CONT.) Julius Baer Holding Ltd., Zurich (Switzerland) Asset Management 41,100 $ 7,934,363 ----------- 16,675,314 OTHER FINANCIAL--3.5% Ichiyoshi Securities Co., Ltd. (Japan) Stock Broker 2,480,000 $ 6,738,743 JCG Holdings Limited (Hong Kong) Consumer Finance 12,851,000 5,684,533 ----------- 12,423,276 MEDICAL PRODUCTS--3.1% Ansell Limited (Australia) (a) Protective Rubber & Plastics Products 2,949,425 $11,050,611 COMPUTER SERVICES--2.5% Morse Plc (Great Britain) Business & Technology Solutions 4,369,800 $ 9,088,250 COMPUTER SYSTEMS--1.5% Lectra (France) (a) Manufacturing Process Systems 1,668,500 $ 5,536,644 OFFICE EQUIPMENT--3.8% Neopost SA (France) (a) Mailroom Equipment Supplier 401,200 $13,511,277 AIRPORT MAINTENANCE--8.1% Kobenhavns Lufthavne A/S (Copenhagen Airports A/S) (Denmark) Airport Management & Operations 274,895 $16,447,319 Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (c) Airport Operator 1,129,000 12,419,000 ----------- 28,866,319 DIVERSIFIED CONGLOMERATES--2.0% Pargesa Holding AG (Switzerland) Diversified Operations 4,784 $ 7,129,174 INSTRUMENTS--1.2% Vaisala Oyj, Class A (Finland) Atmospheric Observation Equipment 206,800 $ 4,268,526 MACHINERY & INDUSTRIAL PROCESSING--5.4% Pfeiffer Vacuum Technology AG (Germany) (b) Vacuum Pump Manufacturer 545,100 $ 9,178,710 Alfa Laval (Sweden) (a) Filtration & Separation Equipment 959,700 7,963,371 Carbone Lorraine SA (France) Electrical Systems Manufacturer 92,964 2,065,753 ----------- 19,207,834
B-28
SHARES HELD/ NAME DESCRIPTION PAR VALUE MARKET VALUE - ----------------------------------------------------------------------------------------------------- COMMON STOCKS--95.5% (CONT.) OTHER INDUSTRIAL GOODS & SERVICES--4.3% Schindler Holding AG (Switzerland) Elevator & Escalator Manufacturer 67,800 $ 11,940,662 GFI Industries SA (France) Industrial Fastener Manufacturer 241,813 3,510,573 ------------ 15,451,235 PRODUCTION EQUIPMENT--3.1% Interpump Group S.p.A. (Italy) Pump & Piston Manufacturer 2,588,800 $ 10,150,095 NSC Groupe (France) Textile Equipment Manufacturer 12,316 1,155,512 ------------ 11,305,607 TRANSPORTATION SERVICES--2.0% Mainfreight Limited (New Zealand) (b) Logistics Services 7,765,726 $ 4,013,599 DelGro Corporation Limited (Singapore) Bus, Taxi, & Car Leasing 3,502,700 3,093,718 ------------ 7,107,317 CHEMICALS--4.0% Gurit-Heberlein AG (Switzerland) Chemical Producer 32,734 $ 14,190,720 TOTAL COMMON STOCKS (COST: $432,335,590) 342,007,770 SHORT TERM INVESTMENTS--3.6% REPURCHASE AGREEMENTS--3.6% IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $10,500,510 collateralized by a U.S. Government Agency Security $10,500,000 $ 10,500,000 IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $2,163,944 collateralized by a U.S. Government Agency Security 2,163,878 2,163,878 ------------ TOTAL REPURCHASE AGREEMENT (COST: $12,663,878) 12,663,878 TOTAL SHORT TERM INVESTMENTS (COST: $12,663,878) 12,663,878 Total Investments (Cost $444,999,468)--99.1% $354,671,648 Foreign Currencies (Cost $756,494)--0.2% $ 762,021 Other Assets In Excess Of Other Liabilities--0.7% 2,572,499 ------------ TOTAL NET ASSETS--100% $358,006,168 ============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. (c) Represents an American Depository Receipt. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-29 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF ASSETS AND LIABILITIES--SEPTEMBER 30, 2002
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value (a) $3,304,673,916 $3,457,996,525 $339,917,770 Investments in affiliated securities, at value (b) 0 308,119,623 17,519,140 Cash 0 12,552 374 Foreign currency, at value (c) 0 0 0 Receivable for: Securities sold 2,091,437 19,387,520 291,727 Fund shares sold 6,671,135 3,459,905 564,785 Dividends and interest 5,210,296 3,927,925 201,295 Tax reclaim 0 0 0 -------------- -------------- ------------ Total receivables 13,972,868 26,775,350 1,057,807 Other Assets 5,663 1,986 494 -------------- -------------- ------------ Total assets $3,318,652,447 $3,792,906,036 $358,495,585 LIABILITIES AND NET ASSETS Options written, at value (d) $ 0 $ 0 $ 0 Foreign currency, at value (c) 0 0 0 Payable for: Securities purchased 117,600 689,030 0 Fund shares redeemed 8,337,246 8,651,604 750,211 Due to transfer agent 221,381 142,745 40,356 Trustees fees 467,207 323,179 155,954 Other 827,180 1,047,147 154,975 -------------- -------------- ------------ Total liabilities 9,970,614 10,853,705 1,101,496 -------------- -------------- ------------ Net assets applicable to fund shares outstanding $3,308,681,833 $3,782,052,331 $357,394,089 ============== ============== ============ ANALYSIS OF NET ASSETS Paid in capital $3,831,067,422 $3,739,480,524 $416,525,955 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (195,307,126) (76,625,527) (497,018) Net unrealized appreciation (depreciation) of investments (340,513,232) 115,600,882 (58,484,339) Net unrealized appreciation (depreciation)--other 0 0 0 Accumulated undistributed net investment income (loss) 13,434,769 3,596,452 (150,509) -------------- -------------- ------------ Net assets applicable to Fund shares outstanding $3,308,681,833 $3,782,052,331 $357,394,089 ============== ============== ============ PRICE OF SHARES Net asset value per share: Class I $ 28.08 $ 21.67 $ 14.10 ============== ============== ============ Class I--Net assets 3,300,948,792 3,717,632,174 356,858,991 Class I--Shares outstanding (Unlimited shares authorized) 117,549,041 171,568,297 25,302,542 Net asset value per share: Class II $ 28.04 $ 21.56 $ 14.09 ============== ============== ============ Class II--Net assets 7,733,041 64,420,157 535,098 Class II--Shares outstanding (Unlimited shares authorized) 275,825 2,987,328 37,974 (a) Identified cost of investments in unaffiliated securities $3,645,187,148 $3,348,274,428 $383,383,526 (b) Identified cost of investments in affiliated securities 0 302,240,838 32,537,723 (c) Identified cost of foreign currency 0 0 0 (d) Premiums received on options written 0 0 0
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-30
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 (a) $2,339,820,165 $174,741,461 $1,321,096,003 $332,617,478 Investments in affiliated securities, at value (b) 0 0 135,799,047 22,054,170 Cash 4,800 1,078 2,005 832 Foreign currency, at value (c) 0 0 2,275,134 762,021 Receivable for: Securities sold 19,784,672 2,031,764 8,204,243 4,046,830 Fund shares sold 14,669,900 433,791 9,298,317 314,503 Dividends and interest 12,571,292 254,357 4,823,089 39,002 Tax reclaim 13,125 0 1,086,895 295,964 -------------- ------------ -------------- ------------ Total receivables 47,038,989 2,719,912 23,412,544 4,696,299 Other Assets 205 10,691 732 88 -------------- ------------ -------------- ------------ Total assets $2,386,864,159 $177,473,142 $1,482,585,465 $360,130,888 LIABILITIES AND NET ASSETS Options written, at value (d) $ 50,950 $ 0 $ 0 $ 0 Foreign currency, at value (c) 0 447,726 0 0 Payable for: Securities purchased 18,798,772 0 36,536,159 609,257 Fund shares redeemed 6,485,636 546,829 2,779,240 1,082,406 Due to transfer agent 80,824 22,865 73,718 20,905 Trustees fees 133,381 107,802 198,794 124,396 Other 727,593 134,119 733,860 287,756 -------------- ------------ -------------- ------------ Total liabilities 26,277,156 1,259,341 40,321,771 2,124,720 -------------- ------------ -------------- ------------ Net assets applicable to fund shares outstanding $2,360,587,003 $176,213,801 $1,442,263,694 $358,006,168 ============== ============ ============== ============ ANALYSIS OF NET ASSETS Paid in capital $2,521,771,393 $210,400,457 $1,805,715,911 $436,575,200 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (81,534,657) (1,261,095) (16,938,571) 8,805,460 Net unrealized appreciation (depreciation) of investments (105,613,365) (32,812,022) (361,765,517) (90,334,969) Net unrealized appreciation (depreciation)--other (601) 18,294 (166,407) 23,896 Accumulated undistributed net investment income (loss) 25,964,233 (131,833) 15,418,278 2,936,581 -------------- ------------ -------------- ------------ Net assets applicable to Fund shares outstanding $2,360,587,003 $176,213,801 $1,442,263,694 $358,006,168 ============== ============ ============== ============ PRICE OF SHARES Net asset value per share: Class I $ 17.18 $ 11.30 $ 12.17 $ 10.17 ============== ============ ============== ============ Class I--Net assets 2,241,862,902 175,601,074 1,393,787,394 357,719,432 Class I--Shares outstanding (Unlimited shares authorized) 130,507,859 15,544,703 114,538,219 35,173,301 Net asset value per share: Class II $ 17.15 $ 11.24 $ 12.13 $ 10.14 ============== ============ ============== ============ Class II--Net assets 118,724,101 612,727 48,476,300 286,736 Class II--Shares outstanding (Unlimited shares authorized) 6,924,284 54,492 3,995,110 28,276 (a) Identified cost of investments in unaffiliated securities $2,446,020,680 $207,539,388 $1,539,684,625 $389,851,090 (b) Identified cost of investments in affiliated securities 0 0 279,249,575 55,148,378 (c) Identified cost of foreign currency 0 (444,039) 2,256,583 756,494 (d) Premiums received on options written 638,100 0 0 0
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-31 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF OPERATIONS--SEPTEMBER 30, 2002
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 50,671,538 $ 46,220,759 $ 1,845,226 Dividends from affiliated securities 0 0 0 Interest Income 6,099,174 7,268,233 727,044 Other Income 520,924 0 95,842 Foreign taxes withheld 0 0 0 ------------- ------------- ------------ Total investment income 57,291,636 53,488,992 2,668,112 EXPENSES: Investment advisory fee 34,848,853 40,838,462 4,121,533 Transfer and dividend disbursing agent fees 2,598,857 1,837,559 400,097 Other shareholder servicing fees 2,939,882 4,219,660 332,079 Service Fee--Class II 6,000 170,778 263 Reports to shareholders 1,746,488 1,238,788 270,048 Custody and accounting fees 433,423 527,332 74,622 Registration and blue sky expenses 57,237 139,966 66,288 Trustee fees 173,043 153,218 64,484 Legal fees 73,921 87,233 27,682 Audit fees 23,843 22,590 18,593 Other 325,365 242,519 42,475 ------------- ------------- ------------ Total expenses 43,226,912 49,478,105 5,418,164 Expense offset arrangements (11,599) (7,529) (1,102) ------------- ------------- ------------ Net expenses 43,215,313 49,470,576 5,417,062 NET INVESTMENT INCOME (LOSS): 14,076,323 4,018,416 (2,748,950) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities (42,175,347) (30,963,843) 99,039 Net realized gain (loss) on affiliated securities 0 (4,535,664) (1,065,702) Net realized gain on options 9,979,097 6,335,456 1,292,518 Net realized loss on short sales (197,816) (510,036) 0 Net realized loss on foreign currency transactions 0 0 0 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (498,006,779) (635,685,201) (51,515,515) Net change in unrealized appreciation (depreciation)--other 0 0 0 Net realized and unrealized (loss) on investments and foreign currency transactions: (530,400,845) (665,359,288) (51,189,660) ------------- ------------- ------------ Net decrease in net assets resulting from operations $(516,324,522) $(661,340,872) $(53,938,610) ============= ============= ============
B-32
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 $ 15,494,152 $ 2,020,348 $ 26,661,445 $ 9,093,523 Dividends from affiliated securities 0 0 7,733,163 760,375 Interest Income 29,202,243 174,049 1,080,852 342,349 Other Income 963 2,897 31,522 32,574 Foreign taxes withheld (62,100) (90,947) (3,066,633) (1,079,330) ------------- ------------ ------------- ------------ Total investment income 44,635,258 2,106,347 32,440,349 9,149,491 EXPENSES: Investment advisory fee 12,099,581 1,333,497 12,048,977 3,860,436 Transfer and dividend disbursing agent fees 704,717 188,437 753,702 178,248 Other shareholder servicing fees 1,945,936 128,955 1,027,483 339,434 Service Fee--Class II 136,109 1,348 64,867 525 Reports to shareholders 561,536 137,992 533,719 133,178 Custody and accounting fees 232,947 136,665 1,274,568 422,731 Registration and blue sky expenses 309,540 85,882 144,392 73,317 Trustee fees 75,585 54,012 77,128 53,714 Legal fees 42,499 22,774 37,180 25,599 Audit fees 18,593 23,843 22,844 25,992 Other 72,407 11,986 76,172 19,967 ------------- ------------ ------------- ------------ Total expenses 16,199,450 2,125,391 16,061,032 5,133,141 Expense offset arrangements (3,761) (497) (1,248) (216) ------------- ------------ ------------- ------------ Net expenses 16,195,689 2,124,894 16,059,784 5,132,925 NET INVESTMENT INCOME (LOSS): 28,439,569 (18,547) 16,380,565 4,016,566 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities (85,663,134) (2,849,841) 6,020,949 11,352,308 Net realized gain (loss) on affiliated securities 0 0 (8,131,968) 731,075 Net realized gain on options 3,680,523 1,588,746 0 0 Net realized loss on short sales 0 0 0 0 Net realized loss on foreign currency transactions (2,938) (37,184) (744,096) (31,834) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (107,419,745) (30,244,164) (199,327,235) (70,664,400) Net change in unrealized appreciation (depreciation)--other (601) 18,109 (155,750) 21,128 Net realized and unrealized (loss) on investments and foreign currency transactions: (189,405,895) (31,524,334) (202,338,100) (58,591,723) ------------- ------------ ------------- ------------ Net decrease in net assets resulting from operations $(160,966,326) $(31,542,881) $(185,957,535) $(54,575,157) ============= ============ ============= ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-33 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF CHANGES IN NET ASSETS--SEPTEMBER 30, 2002
THE OAKMARK FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 14,076,323 $ 19,416,042 Net realized gain (loss) on investments (32,394,066) 195,984,944 Net change in unrealized appreciation (depreciation) of investments (498,006,779) 126,130,060 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (516,324,522) 341,531,046 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (19,630,178) (28,565,025) Net investment income--Class II (447) 0 -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (19,630,625) (28,565,025) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,648,934,264 1,499,450,622 Proceeds from shares sold--Class II 10,646,454 122,635 Reinvestment of distributions--Class I 19,105,784 27,842,716 Reinvestment of distributions--Class II 347 0 Payments for shares redeemed, net of fees--Class I (942,439,538) (769,874,783) Payments for shares redeemed, net of fees--Class II (838,834) (7,515) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 735,408,477 757,533,675 -------------- -------------- TOTAL INCREASE IN NET ASSETS 199,453,330 1,070,499,696 NET ASSETS: Beginning of period 3,109,228,503 2,038,728,807 -------------- -------------- End of period $3,308,681,833 $3,109,228,503 ============== ============== Undistributed net investment income $ 13,434,769 $ 18,989,069 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 48,113,112 44,681,731 Shares issued in reinvestment of dividends 562,595 994,363 Less shares redeemed (28,259,864) (24,202,141) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 20,415,843 21,473,953 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 298,334 3,601 Shares issued in reinvestment of dividends 10 0 Less shares redeemed (25,887) (233) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 272,457 3,368 ============== ==============
B-34
THE OAKMARK SELECT FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 4,018,416 $ 8,224,650 Net realized loss on investments (29,674,087) (46,951,440) Net change in unrealized appreciation (depreciation) of investments (635,685,201) 564,071,103 -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (661,340,872) 525,344,313 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (8,379,997) (7,393,194) Net investment income--Class II 0 (21,608) Net realized gain--Class I 0 (117,459,365) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (8,379,997) (124,874,167) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,260,687,129 2,438,122,791 Proceeds from shares sold--Class II 74,250,948 33,209,296 Reinvestment of distributions--Class I 7,956,922 121,465,993 Payments for shares redeemed, net of fees--Class I (1,056,777,332) (569,095,434) Payments for shares redeemed, net of fees--Class II (31,085,298) (6,168,435) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 255,032,369 2,017,534,211 -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (414,688,500) 2,418,004,357 NET ASSETS: Beginning of period 4,196,740,831 1,778,736,474 -------------- -------------- End of period $3,782,052,331 $4,196,740,831 ============== ============== Undistributed net investment income $ 3,596,452 $ 7,958,033 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 47,211,312 99,937,364 Shares issued in reinvestment of dividends 299,856 5,902,071 Less shares redeemed (41,080,996) (23,316,445) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 6,430,172 82,522,990 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 2,801,878 1,337,637 Shares issued in reinvestment of dividends 0 5,804 Less shares redeemed (1,223,864) (250,564) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 1,578,014 1,092,877 ============== ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-35
THE OAKMARK SMALL CAP FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment loss $ (2,748,950) $ (710,637) Net realized gain on investments 325,855 1,334,090 Net change in unrealized appreciation (depreciation) of investments (51,515,515) (10,475,705) -------------- -------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (53,938,610) (9,852,252) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain--Class I 0 (8,165,109) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 (8,165,109) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 326,865,529 133,704,823 Proceeds from shares sold--Class II 777,070 0 Reinvestment of distributions--Class I 0 8,045,937 Payments for shares redeemed, net of fees--Class I (180,818,640) (107,824,806) Payments for shares redeemed, net of fees--Class II (103,465) 0 -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 146,720,494 33,925,954 -------------- -------------- TOTAL INCREASE IN NET ASSETS 92,781,884 15,908,593 NET ASSETS: Beginning of period 264,612,205 248,703,612 -------------- -------------- End of period $ 357,394,089 $ 264,612,205 ============== ============== Undistributed net investment income (loss) $ (150,509) $ 0 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 17,912,470 8,459,269 Shares issued in reinvestment of dividends 0 585,160 Less shares redeemed (10,773,500) (7,348,265) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 7,138,970 1,696,164 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 44,265 0 Shares issued in reinvestment of dividends 0 0 Less shares redeemed (6,291) 0 -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 37,974 0 ============== ==============
B-36
THE OAKMARK EQUITY AND INCOME FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 28,439,569 $ 5,055,874 Net realized gain (loss) on investments (81,982,611) 1,909,621 Net realized loss on foreign currency transactions (2,938) (518) Net change in unrealized appreciation (depreciation) of investments (107,419,745) (5,101,055) Net change in unrealized appreciation (depreciation)--other (601) 0 -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (160,966,326) 1,863,922 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (6,931,173) (897,529) Net investment income--Class II (90,128) (7,433) Net realized gain--Class I (1,870,660) (3,733,470) Net realized gain--Class II (33,869) 0 -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (8,925,830) (4,638,432) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 2,457,322,254 682,515,057 Proceeds from shares sold--Class II 146,887,453 2,887,484 Reinvestment of distributions--Class I 8,525,720 4,457,698 Reinvestment of distributions--Class II 85,801 0 Payments for shares redeemed, net of fees--Class I (683,906,125) (118,553,466) Payments for shares redeemed, net of fees--Class II (21,792,340) (111,704) -------------- ------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,907,122,763 571,195,069 -------------- ------------- TOTAL INCREASE IN NET ASSETS 1,737,230,607 568,420,559 NET ASSETS: Beginning of period 623,356,396 54,935,837 -------------- ------------- End of period $2,360,587,003 $ 623,356,396 ============== ============= Undistributed net investment income $ 25,964,233 $ 5,004,490 ============== ============= FUND SHARE TRANSACTIONS--CLASS I: Shares sold 132,277,123 38,856,265 Shares issued in reinvestment of dividends 477,891 290,529 Less shares redeemed (37,783,411) (6,913,372) -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 94,971,603 32,233,422 ============== ============= FUND SHARE TRANSACTIONS--CLASS II: Shares sold 7,935,953 167,044 Shares issued in reinvestment of dividends 4,809 2,544 Less shares redeemed (1,205,519) (7,320) -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 6,735,243 162,268 ============== =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-37
THE OAKMARK GLOBAL FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment loss $ (18,547) $ (55) Net realized gain (loss) on investments (1,261,095) 1,479,943 Net realized gain (loss) on foreign currency transactions (37,184) 71,444 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (30,244,164) (4,901,265) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (76,462) Net change in unrealized appreciation (depreciation)--other 18,109 1,700 -------------- ------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (31,542,881) (3,424,695) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (11,774) (435,138) Net investment income--Class II (61) 0 Net realized gain--Class I (1,361,493) (129,934) Net realized gain--Class II (7,099) 0 -------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,380,427) (565,072) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 228,014,650 42,948,303 Proceeds from shares sold--Class II 754,996 0 Reinvestment of distributions--Class I 1,321,517 560,498 Payments for shares redeemed, net of fees--Class I (69,082,440) (18,542,262) Payments for shares redeemed, net of fees--Class II (75,625) 0 -------------- ------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 160,933,098 24,966,539 -------------- ------------- TOTAL INCREASE IN NET ASSETS 128,009,790 20,976,772 NET ASSETS: Beginning of period 48,204,011 27,227,239 -------------- ------------- End of period $ 176,213,801 $ 48,204,011 ============== ============= Undistributed net investment loss $ (131,833) $ (159,043) ============== ============= FUND SHARE TRANSACTIONS--CLASS I: Shares sold 16,329,528 3,516,235 Shares issued in reinvestment of dividends 108,677 52,629 Less shares redeemed (5,343,294) (1,614,181) -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 11,094,911 1,954,683 ============== ============= FUND SHARE TRANSACTIONS--CLASS II: Shares sold 61,020 0 Less shares redeemed (6,528) 0 -------------- ------------- NET INCREASE IN SHARES OUTSTANDING 54,492 0 ============== =============
B-38
THE OAKMARK INTERNATIONAL FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 16,380,565 $ 11,508,911 Net realized loss on investments (2,111,019) (13,334,222) Net realized gain (loss) on foreign currency transactions (744,096) 2,323,657 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (199,327,235) (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 (155,750) 169,583 -------------- -------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (185,957,535) (119,417,699) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (10,170,790) (24,851,611) Net investment income--Class II (76,332) (3,245) Net realized gain--Class I 0 (24,703,666) -------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (10,247,122) (49,558,522) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,172,930,611 282,295,504 Proceeds from shares sold--Class II 71,056,423 2,588,328 Reinvestment of distributions--Class I 9,816,822 47,893,421 Reinvestment of distributions--Class II 1,669 0 Payments for shares redeemed, net of fees--Class I (339,595,271) (205,510,100) Payments for shares redeemed, net of fees--Class II (16,218,827) (327,974) -------------- -------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 897,991,427 126,939,179 -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 701,786,770 (42,037,042) NET ASSETS: Beginning of period 740,476,924 782,513,966 -------------- -------------- End of period $1,442,263,694 $ 740,476,924 ============== ============== Undistributed net investment income $ 15,418,278 $ 9,923,928 ============== ============== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 78,310,031 18,753,874 Shares issued in reinvestment of dividends 726,633 3,302,548 Less shares redeemed (23,511,785) (13,850,522) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 55,524,879 8,205,900 ============== ============== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 4,928,274 172,064 Shares issued in reinvestment of dividends 124 446 Less shares redeemed (1,088,826) (23,339) -------------- -------------- NET INCREASE IN SHARES OUTSTANDING 3,839,572 149,171 ============== ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-39
THE OAKMARK INTERNATIONAL SMALL CAP FUND - ---------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 - ---------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 4,016,566 $ 1,844,218 Net realized gain on investments 12,083,383 1,136,757 Net realized gain (loss) on foreign currency transactions (31,834) 591,541 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (70,664,400) (12,360,111) Net change in unrealized appreciation (depreciation) of forward currency exchange contracts 0 (289,441) Net change in unrealized appreciation (depreciation)--other 21,128 28,453 ------------ ------------ NET DECREASE IN NET ASSETS FROM OPERATIONS (54,575,157) (9,048,583) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (2,120,585) (2,566,080) Net investment income--Class II (921) 0 Net realized gain--Class I (1,891,258) (3,663,064) Net realized gain--Class II (1,136) 0 ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,013,900) (6,229,144) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 428,499,905 72,931,617 Proceeds from shares sold--Class II 333,324 39,964 Reinvestment of distributions--Class I 3,875,545 6,071,794 Payments for shares redeemed, net of fees--Class I (134,986,731) (35,203,678) Payments for shares redeemed, net of fees--Class II (34,570) 0 ------------ ------------ NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 297,687,473 43,839,697 ------------ ------------ TOTAL INCREASE IN NET ASSETS 239,098,416 28,561,970 NET ASSETS: Beginning of period 118,907,752 90,345,782 ------------ ------------ End of period $358,006,168 $118,907,752 ============ ============ Undistributed net investment income $ 2,936,581 $ 1,922,975 ============ ============ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 34,412,757 6,676,464 Shares issued in reinvestment of dividends 375,172 588,352 Less shares redeemed (11,505,764) (3,225,816) ------------ ------------ NET INCREASE IN SHARES OUTSTANDING 23,282,165 4,039,000 ============ ============ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 27,354 3,688 Less shares redeemed (2,766) 0 ------------ ------------ NET INCREASE IN SHARES OUTSTANDING 24,588 3,688 ============ ============
B-40 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 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 Funds. 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. SECURITY VALUATION -- Investments are stated at 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 there are no 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 there are no reported sales that day, at the mean of the most recent bid and ask quotations. Securities for which quotations are not readily available, or securities which may have been affected by a significant event after the price was determined, 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 for securities sold are included with the net realized gain or loss from securities. 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 and the U.S. dollar equivalent of the amounts actually received or paid, and the realized gains or losses resulting from the portfolio and transaction hedges. At September 30, 2002, the Equity and Income, Global, International and Int'l Small Cap Funds had foreign currency transactions. Net unrealized appreciation (depreciation) - other includes the following components:
EQUITY AND INT'L INCOME GLOBAL INTERNATIONAL SMALL CAP - -------------------------------------------------------------------------------- Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $(601) $ 4,181 $ 110,055 $18,659 Unrealized appreciation (depreciation) on open securities purchases and sales 0 14,113 (276,462) 5,237 ----- ------- --------- ------- Net Unrealized appreciation (depreciation) - Other $(601) $18,294 $(166,407) $23,896 ===== ======= ========= =======
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 an accrual basis. Bond discount is accreted and premium is amortized over the expected life of each applicable security. B-41 FORWARD FOREIGN CURRENCY CONTRACTS -- 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. At September 30, 2002, the Funds had no forward foreign currency contracts outstanding. DISTRIBUTIONS TO SHAREHOLDERS -- 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 accumulated undistributed net realized gain (loss). 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 tax basis 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. For the year ended September 30, 2002, there were no outstanding borrowings. ACCOUNTING FOR OPTIONS -- When a 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 that expire are recorded by the Fund on the expiration date as realized gains from option transactions. The difference between the premium and the amount paid on effecting a closing purchase transaction including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or a loss. If a put option is exercised, the premium reduces the cost basis of the security or currency purchased by the Fund. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Fund could result in the Fund selling or buying a security or currency at a price different from the current market value. During the year ended September 30, 2002, Oakmark, Select, Small Cap, Equity and Income, and Global wrote option contracts. At September 30, 2002, Equity and Income had outstanding option contracts. Portfolio securities valued at $2,567,880 were being held in escrow by the custodian as cover for options written by Equity and Income. 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. Each fee is calculated on the total net assets as determined at the end of each preceding calendar month. Annual fee rates are as follows:
FUND ADVISORY FEES FUND ADVISORY FEES - ---------------------------------------------------------------------------------------------------------------- Oakmark Fund 1.00% up to $2 billion; Equity and Income Fund 0.75% 0.90% on the next $1 billion; 0.80% on the next $2 billion; and 0.75% over $5 billion Select Fund 1.00% up to $1 billion; Global Fund 1.00% 0.95% on the next $500 million; 0.90% on the next $500 million; International Fund 1.00% up to $2 billion; 0.85% on the next $500 million; 0.95% on the next 0.80% on the next $2.5 billion; and $1 billion; and 0.75% over $5 billion 0.85% over $3 billion Small Cap Fund 1.00% International Small 1.25% up to $500 Cap Fund million; and 1.10% over $500 million
B-42 The Adviser has voluntarily agreed to reimburse the Funds to the extent that annual expenses are greater than 1.0% for Class I shares of the Equity and Income Fund, and greater than 1.5% for Class I shares of all other domestic funds; are greater than 1.75% for Class I shares of the Global Fund, and greater than 2.0% for Class I shares of all other international funds; are greater than 1.25% for Class II shares of the Equity and Income Fund, and greater than 1.75% for Class II shares of all other domestic funds; are greater than 2.0% for Class II shares of the Global Fund, and greater than 2.25% for Class II shares of all other international funds. During the year ended September 30, 2002, the Funds incurred brokerage commissions, including commissions paid to affiliates of the Adviser, as follows:
FUND TOTAL COMMISSIONS COMMISSIONS PAID TO AFFILIATES --------------------------------------------------------------------------- Oakmark $6,780,742 $1,944,252 Select 7,103,318 1,010,280 Small Cap 653,247 68,113 Equity and Income 4,727,959 787,956 Global 896,230 194,583 International 3,824,992 0 Int'l Small Cap 1,711,855 0
CDC IXIS Asset Management Services Co., an affiliate of the adviser, provides transfer agent services to the Funds. During the year ended September 30, 2002, the Funds incurred the following transfer agent expenses:
FUND TRANSFER AGENT FEES --------------------------------------------------------------------------- Oakmark $2,598,857 Select 1,837,559 Small Cap 400,097 Equity and Income 704,717 Global 188,437 International 753,702 Int'l Small Cap 178,248
The Funds' independent 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. 3. FEDERAL INCOME TAXES It is the policy of each Fund to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net taxable income, including any net realized gains on investments, to its shareholders. Therefore, no federal income tax provision is required.
COST OF INVESTMENTS NET UNREALIZED FOR FEDERAL INCOME GROSS UNREALIZED GROSS UNREALIZED APPRECIATION FUND TAX PURPOSES APPRECIATION (DEPRECIATION) (DEPRECIATION) ----------------------------------------------------------------------------------------------------- Oakmark $3,652,370,429 $247,594,858 $(595,291,371) $(347,696,513) Select 3,653,927,245 692,943,112 (580,754,209) 112,188,903 Small Cap 415,921,249 50,149,302 (108,633,643) (58,484,339) Equity and Income 2,446,194,767 92,373,384 (198,160,836) (105,787,452) Global 207,674,350 8,586,205 (41,519,093) (32,932,888) International 1,820,971,241 107,877,031 (471,953,223) (364,076,192) Int'l Small Cap 445,238,103 12,236,363 (102,802,819) (90,566,456)
B-43 As of September 30, 2002, the net capital loss carryovers noted below are available to offset future realized capital gains and thereby reduce future taxable gains distributions.
NET CAPITAL LOSS YEARS OF FUND CARRYOVER EXPIRATION --------------------------------------------------------------------------- Oakmark $165,547,384 2008-2010 Select 49,038,583 2009-2010 Equity and Income 3,347,886 2010 Global 463,447 2010 International 14,901,531 2010
For the year ended September 30, 2002, the Funds have elected to defer to October 1, 2002 Post October capital losses of:
FUND AMOUNT --------------------------------------------------------------------------- Oakmark $22,576,461 Select 24,174,966 Small Cap 497,018 Equity and Income 78,012,684 Global 662,686
For the year ended September 30, 2002, Global has elected to defer to October 1, 2002 Post October currency losses of $28,715. At September 30, 2002, the components of distributable earnings (excluding unrealized (depreciation) disclosed below) on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG- TOTAL DISTRIBUTABLE FUND ORDINARY INCOME TERM GAIN EARNINGS ---------------------------------------------------------------------------------------- Oakmark $13,888,257 $ 0 $13,888,257 Select 3,909,462 0 3,909,462 Equity and Income 25,952,231 0 25,952,231 International 15,610,363 0 15,610,363 Int'l Small Cap 3,056,360 9,044,095 12,100,455
Pursuant to Section 852 of the Internal Revenue Code, Int'l Small Cap designates $11,433,302 as capital gain dividends for the year ended September 30, 2002. For corporate shareholders, a portion of the ordinary dividends paid during the Funds' year ended September 30, 2002 qualified for the dividends received deduction, as follows:
FUND --------------------------------------------------------------------------- Oakmark 100.00% Select 100.00% Equity and Income 48.23% Global 49.97%
International and Int'l Small Cap paid qualifying foreign taxes of $2,971,519 and $1,023,528 and earned $34,394,608 and $9,853,898 foreign source income during the year ended September 30, 2002, respectively. Pursuant to Section 853 of the Internal revenue Code, International and Int'l Small Cap designated $0.02507 and $0.02908 per share as foreign taxes paid and $0.29017 and $0.27993 per share as income earned from foreign sources for the year ended September 30, 2002, respectively. During the year ended September 30, 2002, the tax character of distributions paid was as follows:
DISTRIBUTIONS PAID DISTRIBUTIONS PAID FROM ORDINARY FROM LONG-TERM FUND INCOME CAPITAL GAIN --------------------------------------------------------------------------- Oakmark $19,630,625 $ 0 Select 8,379,997 0 Equity and Income 7,028,935 1,896,895 Global 11,596 1,361,554 International 10,247,122 0 Int'l Small Cap 4,821,309 2,389,207
B-44 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 at cost $2,294,297 $1,691,592 $231,562 $2,583,815 $269,893 $1,156,420 $413,133 Proceeds from sales 1,471,091 1,364,181 81,723 1,007,679 110,669 278,168 123,782
Purchases at cost and proceeds from sales of long-term U.S. Government securities during the year ended September 30, 2002 were $386,583 and $107,684, respectively for Equity and Income. Transactions in options written during the year ended September 30, 2002 were as follows:
OAKMARK SELECT SMALL CAP ------------------------------------------------------------------------------- NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED CONTRACTS RECEIVED -------------------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 0 $ 0 0 $ 0 Options written 172,645 16,125,038 104,615 10,534,128 9,325 1,683,351 Options terminated in closing purchase transactions (97,910) (9,243,078) (67,380) (6,668,372) (5,800) (1,167,798) Options expired (50,745) (5,804,083) (25,389) (3,500,703) (3,325) (413,956) Options exercised (23,990) (1,077,877) (11,846) (365,053) (200) (101,597) ------- ---------- ------- ----------- ------ ---------- Options outstanding at September 30, 2002 0 $ 0 0 $ 0 0 $ 0 EQUITY & INCOME GLOBAL --------------------------------------------------- NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED -------------------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2001 0 $ 0 450 $ 141,020 Options written 49,964 5,314,503 26,135 3,011,740 Options terminated in closing purchase transactions (30,549) (3,674,211) (24,925) (2,852,310) Options expired (9,194) (999,677) (1,610) (291,350) Options exercised (31) (2,515) (50) (9,100) ------- ----------- ------- ---------- Options outstanding at September 30, 2002 10,190 $ 638,100 0 $ 0
5. TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS Affiliated issuers, as defined under the Investment Company Act of 1940, are those in which the Fund's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund's transactions in the securities of these issuers during the year ended September 30, 2002, is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SELECT FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 -------------------------------------------------------------------------------------------- Dun & Bradstreet Corporation $109,946,411 $ 3,432,695 $0 $178,848,893 Toys 'R' Us, Inc. 210,755,208 10,492,421 0 129,270,730 ------------ ----------- -- ------------ TOTALS $320,701,619 $13,925,116 $0 $308,119,623
B-45 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK SMALL CAP FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 ------------------------------------------------------------------------------------------------------------------------------- Department 56, Inc. $10,772,852 $510,789 $0 $ 7,942,000 Optimal Robotics Corp., Class A 6,384,338 200,906 0 5,833,140 R.G. Barry Corporation 10,857,418 31,219 0 3,744,000 ----------- -------- -- ----------- TOTALS $28,014,608 $742,914 $0 $17,519,140 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INTERNATIONAL FUND MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 ------------------------------------------------------------------------------------------------------------------------------- Chargeurs SA $ 19,034,755 $ 0 $1,216,916 $ 24,632,990 Cordiant Communications Group plc 50,280,582 8,718,722 0 14,630,031 Enodis plc 53,457,790 8,846,818 5,650,112 26,095,013 Fila Holding S.p.A 83,867,401 205,149 0 3,006,328 Michael Page International plc 17,905,974 0 866,135 40,276,985 Orbotech, Ltd. 17,949,095 0 0 27,157,700 ------------ ----------- ---------- ------------ TOTALS $242,495,597 $17,770,689 $7,733,163 $135,799,047 SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK INT'L SMALL CAP FUND MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2002 ------------------------------------------------------------------------------------------------------------------------------- Alaska Milk Corporation $ 3,024,829 $ 0 $216,616 $ 1,997,430 Banco Latinoamericano 10,642,049 86,525 0 2,375,386 Mainfreight Limited 6,734,113 0 141,073 4,013,599 Matichon Public Company Limited, Foreign Shares 3,448,354 0 163,123 2,733,15 Pfeiffer Vacuum Technology AG 10,695,295 0 239,563 9,178,710 Royal Daulton plc 8,302,272 0 0 1,755,889 ----------- ------- -------- ----------- TOTALS $42,846,912 $86,525 $760,375 $22,054,170
B-46 THE OAKMARK FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 32.01 $ 26.95 $ 34.37 $ 33.54 $ 41.21 Income From Investment Operations: Net Investment Income 0.12 0.07 0.49 0.36 0.47 Net Gains or Losses on Securities (both realized and unrealized) (3.85) 5.38 (2.91) 2.51 (1.73) --------- -------- --------- --------- --------- Total From Investment Operations: (3.73) 5.45 (2.42) 2.87 (1.26) Less Distributions: Dividends (from net investment income) (0.20) (0.39) (0.26) (0.44) (0.40) Distributions (from capital gains) 0.00 0.00 (4.74) (1.60) (6.01) --------- -------- --------- --------- --------- Total Distributions (0.20) (0.39) (5.00) (2.04) (6.41) --------- -------- --------- --------- --------- Net Asset Value, End of Period $ 28.08 $ 32.01 $ 26.95 $ 34.37 $ 33.54 ========= ======== ========= ========= ========= Total Return (11.77)% 20.42% (7.55)% 7.98% (4.06)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $3,300.9 $3,109.1 $2,038.7 $4,772.8 $6,924.0 Ratio of Expenses to Average Net Assets 1.17% 1.15% 1.21% 1.11% 1.08% Ratio of Net Investment Income to Average Net Assets 0.38% 0.73% 1.42% 1.02% 1.22% Portfolio Turnover Rate 44% 57% 50% 13% 43%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
APRIL 5, 2001 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2002 2001 (a) - --------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 31.97 $32.09 Net Investment Income 0.16 0.05 Net Gains or Losses on Securities (both realized and unrealized) (3.92) (0.17) ------- ------ Total From Investment Operations: (3.76) (0.12) Less Distributions: Dividends (from net investment income) (0.17) 0.00 Distributions (from capital gains) 0.00 0.00 ------- ------ Total Distributions (0.17) 0.00 ------- ------ Net Asset Value, End of Period $ 28.04 $31.97 ======= ====== Total Return (11.85)% (0.37)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 7.7 $ 0.1 Ratio of Expenses to Average Net Assets 1.44% 1.32%* Ratio of Net Investment Income to Average Net Assets 0.35% 0.46%* Portfolio Turnover Rate 44% 57%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was April 5, 2001. B-47 THE OAKMARK SELECT FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 25.20 $ 21.45 $ 20.92 $ 16.76 $ 16.34 Income From Investment Operations: Net Investment Income 0.02 0.03 0.13 0.19 0.03 Net Gains or Losses on Securities (both realized and unrealized) (3.50) 5.17 4.32 4.73 0.56 --------- --------- --------- --------- --------- Total From Investment Operations: (3.48) 5.20 4.45 4.92 0.59 Less Distributions: Dividends (from net investment income) (0.05) (0.09) (0.20) (0.05) 0.00 Distributions (from capital gains) 0.00 (1.36) (3.72) (0.71) (0.17) --------- --------- --------- --------- --------- Total Distributions (0.05) (1.45) (3.92) (0.76) (0.17) --------- --------- --------- --------- --------- Net Asset Value, End of Period $ 21.67 $ 25.20 $ 21.45 $ 20.92 $ 16.76 ========= ========= ========= ========= ========= Total Return (13.85)% 25.75% 24.53% 30.07% 3.64% Ratios/Supplemental Data: Net Assets, End of Period ($million) $3,717.6 $4,161.4 $1,772.0 $1,638.9 $1,227.9 Ratio of Expenses to Average Net Assets 1.07% 1.08% 1.17% 1.16% 1.22% Ratio of Net Investment Income to Average Net Assets 0.09% 0.26% 0.76% 0.98% 0.17% Portfolio Turnover Rate 32% 21% 69% 67% 56%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
DECEMBER 31, 1999 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 (a) - -------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 25.10 $21.40 $18.42 Net Investment Income (Loss) (0.04) 0.00 0.10 Net Gains or Losses on Securities (both realized and unrealized) (3.50) 5.10 2.88 ------- ------ ------ Total From Investment Operations: (3.54) 5.10 2.98 Less Distributions: Dividends (from net investment income) 0.00 (0.06) 0.00 Distributions (from capital gains) 0.00 (1.34) 0.00 ------- ------ ------ Total Distributions 0.00 (1.40) 0.00 ------- ------ ------ Net Asset Value, End of Period $ 21.56 $25.10 $21.40 ======= ====== ====== Total Return (14.10)% 25.28% 16.18% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 64.4 $35.4 $ 6.8 Ratio of Expenses to Average Net Assets 1.36% 1.40% 1.41%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.19)% (0.08)% 0.59%* Portfolio Turnover Rate 32% 21% 69%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was December 31, 1999. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-48 THE OAKMARK SMALL CAP FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 14.57 $ 15.10 $ 13.88 $ 12.63 $ 20.34 Income From Investment Operations: Net Investment Income (Loss) (0.11) 0.00 0.00 0.14 (0.12) Net Gains or Losses on Securities (both realized and unrealized) (0.36) (0.02) 1.22 1.20 (4.73) ------- ------- ------- ------- ------- Total From Investment Operations: (0.47) (0.02) 1.22 1.34 (4.85) Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 0.00 0.00 Distributions (from capital gains) 0.00 (0.51) 0.00 (0.09) (2.86) ------- ------- ------- ------- ------- Total Distributions 0.00 (0.51) 0.00 (0.09) (2.86) ------- ------- ------- ------- ------- Net Asset Value, End of Period $ 14.10 $ 14.57 $ 15.10 $ 13.88 $ 12.63 ======= ======= ======= ======= ======= Total Return (3.23)% 0.07% 8.79% 10.56% (26.37)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $356.9 $264.6 $248.7 $437.1 $618.0 Ratio of Expenses to Average Net Assets 1.33% 1.27% 1.50%(a) 1.48% 1.45% Ratio of Net Investment Income (Loss) to Average Net Assets (0.67)% (0.28)% (0.41)%(a) (0.44)% (0.40)% Portfolio Turnover Rate 22% 47% 28% 68% 34%
(a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Advisers, 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)%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
APRIL 10, 2002 THROUGH SEPTEMBER 30, 2002 (b) - ----------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 19.71 Net Investment Income (Loss) (0.20)(c) Net Gains or Losses on Securities (both realized and unrealized) (5.42) ------- Total From Investment Operations: (5.62) ------- Net Asset Value, End of Period $ 14.09 ======= Total Return (28.51)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.5 Ratio of Expenses to Average Net Assets 1.48%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.85)%* Portfolio Turnover Rate 22%
* Data has been annualized. (b) The date which Class II shares were first sold to the public was April 10, 2002. (c) Computed using average shares outstanding throughout the period. B-49 THE OAKMARK EQUITY AND INCOME FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 17.45 $ 16.50 $ 15.68 $ 13.99 $ 14.49 Income From Investment Operations: Net Investment Income 0.33(a) 0.08 0.35 0.39 0.29 Net Gains or Losses on Securities (both realized and unrealized) (0.40) 2.11 2.28 1.72 0.04 --------- ------- ------- ------- ------- Total From Investment Operations: (0.07) 2.19 2.63 2.11 0.33 Less Distributions: Dividends (from net investment income) (0.16) (0.24) (0.45) (0.21) (0.24) Distributions (from capital gains) (0.04) (1.00) (1.36) (0.21) (0.59) --------- ------- ------- ------- ------- Total Distributions (0.20) (1.24) (1.81) (0.42) (0.83) --------- ------- ------- ------- ------- Net Asset Value, End of Period $ 17.18 $ 17.45 $ 16.50 $ 15.68 $ 13.99 ========= ======= ======= ======= ======= Total Return (0.47)% 14.40% 18.51% 15.32% 2.57% Ratios/Supplemental Data: Net Assets, End of Period ($million) $2,241.9 $620.1 $ 54.5 $ 60.3 $ 57.7 Ratio of Expenses to Average Net Assets 0.96% 0.98% 1.24% 1.18% 1.31% Ratio of Net Investment Income to Average Net Assets 1.71% 2.07% 3.04% 2.65% 2.39% Portfolio Turnover Rate 73% 124% 87% 81% 46%
(a) Computed using average shares outstanding throughout the period. FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
JULY 13, 2000 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 (b) - --------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 17.40 $16.49 $15.51 Net Investment Income 0.30(c) 0.07 0.30 Net Gains or Losses on Securities (both realized and unrealized) (0.40) 2.08 0.68 ------- ------ ------ Total From Investment Operations: (0.10) 2.15 0.98 Less Distributions: Dividends (from net investment income) (0.11) (0.24) 0.00 Distributions (from capital gains) (0.04) (1.00) 0.00 ------- ------ ------ Total Distributions (0.15) (1.24) 0.00 ------- ------ ------ Net Asset Value, End of Period $ 17.15 $17.40 $16.49 ======= ====== ====== Total Return (0.60)% 14.07% 6.32% Ratios/Supplemental Data: Net Assets, End of Period ($million) $118.7 $ 3.3 $ 0.4 Ratio of Expenses to Average Net Assets 1.20% 1.23% 1.32%* Ratio of Net Investment Income to Average Net Assets 1.50% 1.95% 2.59%* Portfolio Turnover Rate 73% 124% 87%
* Data has been annualized. (b) The date which Class II shares were first sold to the public was July 13, 2000. (c) Computed using average shares outstanding throughout the period. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-50 THE OAKMARK GLOBAL FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
AUGUST 4, 1999 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 (a) - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.83 $ 10.91 $ 9.18 $ 10.00 Income From Investment Operations: Net Investment Income (Loss) 0.00(b)(c) 0.03 0.11 0.01 Net Gains or Losses on Securities (both realized and unrealized) 0.76(d) 0.12 1.63 (0.83) ------- ------- ------- ------- Total From Investment Operations: 0.76 0.15 1.74 (0.82) Less Distributions: Dividends (from net investment income) (0.00) (0.17) (0.01) 0.00 Distributions (from capital gains) (0.29) (0.06) 0.00 0.00 ------- ------- ------- ------- Total Distributions (0.29) (0.23) (0.01) 0.00 ------- ------- ------- ------- Net Asset Value, End of Period $ 11.30 $ 10.83 $ 10.91 $ 9.18 ======= ======= ======= ======= Total Return 6.84% 1.37% 18.97% (8.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $175.6 $ 48.2 $ 27.2 $ 24.0 Ratio of Expenses to Average Net Assets 1.55% 1.75%(e) 1.75%(e) 1.75%*(e) Ratio of Net Investment Income (Loss) to Average Net Assets (0.01)% 0.00(e) 0.54%(e) 0.98%*(e) Portfolio Turnover Rate 86% 114% 147% 7%
* Data has been annualized. (a) The date which Fund shares were first offered for sale to the public was August 4, 1999. (b) Amount rounds to less than $(0.01) per share. (c) Computed using average shares outstanding throughout the period. (d) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. (e) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Advisers, ratios would have been as follows:
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - --------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.80% 1.96% 2.22%* Ratio of Net Income (Loss) to Average Net Assets (0.05)% 0.34% 0.51%*
B-51 THE OAKMARK GLOBAL FUND FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
OCTOBER 10, 2001 THROUGH SEPTEMBER 30, 2002 (a) - -------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.25 Net Investment Income (Loss) (0.03) Net Gains or Losses on Securities (both realized and unrealized) 0.31(b) ------ Total From Investment Operations: 0.28 Less Distributions: Dividends (from net investment income) (0.00) Distributions (from capital gains) (0.29) ------ Total Distributions (0.29) ------ Net Asset Value, End of Period $11.24 ====== Total Return 2.31% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.6 Ratio of Expenses to Average Net Assets 1.86%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.26)%* Portfolio Turnover Rate 86%
* Data has been annualized. (a) The date which Class II shares were first offered for sale to the public was October 10, 2001. (b) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-52 THE OAKMARK INTERNATIONAL FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 12.51 $ 15.40 $ 13.95 $ 10.42 $ 18.77 Income From Investment Operations: Net Investment Income (Loss) 0.14 0.20 1.02 (0.34) 0.41 Net Gains or Losses on Securities (both realized and unrealized) (0.31) (2.07) 0.92 4.89 (5.32) --------- -------- -------- -------- -------- Total From Investment Operations: (0.17) (1.87) 1.94 4.55 (4.91) Less Distributions: Dividends (from net investment income) (0.17) (0.51) (0.49) (0.24) (0.58) Distributions (from capital gains) 0.00 (0.51) 0.00 (0.78) (2.86) --------- -------- -------- -------- -------- Total Distributions (0.17) (1.02) (0.49) (1.02) (3.44) --------- -------- -------- -------- -------- Net Asset Value, End of Period $ 12.17 $ 12.51 $ 15.40 $ 13.95 $ 10.42 ========= ======== ======== ======== ======== Total Return (1.53)% (13.10)% 14.27% 46.41% (29.90)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $1,393.8 $ 738.5 $ 782.4 $ 811.1 $ 756.1 Ratio of Expenses to Average Net Assets 1.31% 1.30% 1.30% 1.29% 1.32% Ratio of Net Investment Income (Loss) to Average Net Assets 1.34% 1.40% 1.87% 1.94% 1.95% Portfolio Turnover Rate 24% 58% 64% 54% 43%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NOVEMBER 4, 1999 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 (a) - ----------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.47 $ 15.37 $ 14.36 Net Investment Income 0.15 0.17 0.96 Net Gains or Losses on Securities (both realized and unrealized) (0.37) (2.10) 0.54 ------- ------- ------- Total From Investment Operations: (0.22) (1.93) 1.50 Less Distributions: Dividends (from net investment income) (0.12) (0.49) (0.49) Distributions (from capital gains) 0.00 (0.48) 0.00 ------- ------- ------- Total Distributions (0.12) (0.97) (0.49) ------- ------- ------- Net Asset Value, End of Period $ 12.13 $ 12.47 $ 15.37 ======= ======= ======= Total Return (1.76)% (13.44)% 10.79% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 48.5 $ 1.9 $ 0.1 Ratio of Expenses to Average Net Assets 1.58% 1.64% 1.50%* Ratio of Net Investment Income to Average Net Assets 1.33% 0.62% 1.98%* Portfolio Turnover Rate 24% 58% 64%
* Data has been annualized. (a) The date which Class II shares were first sold to the public was November 4, 1999. B-53 THE OAKMARK INTERNATIONAL SMALL CAP FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 10.00 $ 11.51 $ 12.64 $ 6.89 $ 12.20 Income From Investment Operations: Net Investment Income 0.11 0.13 0.23 0.24 0.18 Net Gains or Losses on Securities (both realized and unrealized) 0.36(a) (0.81) (0.66) 5.71 (4.09) ------- ------- ------- ------- ------- Total From Investment Operations: 0.47 (0.68) (0.43) 5.95 (3.91) Less Distributions: Dividends (from net investment income) (0.16) (0.34) (0.11) (0.20) (0.06) Distributions (from capital gains) (0.14) (0.49) (0.59) 0.00 (1.34) ------- ------- ------- ------- ------- Total Distributions (0.30) (0.83) (0.70) (0.20) (1.40) ------- ------- ------- ------- ------- Net Asset Value, End of Period $ 10.17 $ 10.00 $ 11.51 $ 12.64 $ 6.89 ======= ======= ======= ======= ======= Total Return 4.68% (6.18)% (3.44)% 88.02% (35.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $357.7 $118.9 $ 90.3 $155.4 $ 51.8 Ratio of Expenses to Average Net Assets 1.64% 1.74% 1.77% 1.79% 1.96% Ratio of Net Investment Income to Average Net Assets 1.28% 1.83% 1.99% 2.31% 2.17% Portfolio Turnover Rate 42% 49% 40% 126% 69%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
JANUARY 8, 2001 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2002 2001 (b) - ---------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 9.97 $10.73 Net Investment Income 0.13(c) 0.15 Net Gains or Losses on Securities (both realized and unrealized) 0.30(c)(d) (0.91) ------ ------ Total From Investment Operations: 0.43 (0.76) Less Distributions: Dividends (from net investment income) (0.12) 0.00 Distributions (from capital gains) (0.14) 0.00 ------ ------ Total Distributions (0.26) 0.00 ------ ------ Net Asset Value, End of Period $10.14 $ 9.97 ====== ====== Total Return 4.25% (7.08)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.3 $ 0.0 Ratio of Expenses to Average Net Assets 1.87% 1.97%* Ratio of Net Investment Income to Average Net Assets 1.06% 1.76%* Portfolio Turnover Rate 42% 49%
* Data has been annualized. (a) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. (b) The date which Class II shares were first sold to the public was January 8, 2001. (c) Computed using average shares outstanding throughout the period. (d) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain/loss for the period due to the timing of purchases and redemption of Fund shares in relation to the fluctuating market values of the Fund. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-54 THE OAKMARK FAMILY OF FUNDS INDEPENDENT AUDITORS' REPORT TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF HARRIS ASSOCIATES INVESTMENT TRUST: WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES, INCLUDING THE SCHEDULES OF INVESTMENTS, OF HARRIS ASSOCIATES INVESTMENT TRUST COMPRISING THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (COLLECTIVELY, THE "FUNDS") AS OF SEPTEMBER 30, 2002, AND THE RELATED STATEMENTS OF OPERATIONS, CHANGES IN NET ASSETS AND FINANCIAL HIGHLIGHTS FOR THE YEAR THEN ENDED. THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE THE RESPONSIBILITY OF THE FUNDS' MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS. THE FUNDS' FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FOR THE PERIODS ENDED PRIOR TO SEPTEMBER 30, 2002, WERE AUDITED BY OTHER AUDITORS WHO HAVE CEASED OPERATIONS. THOSE AUDITORS EXPRESSED AN UNQUALIFIED OPINION ON THOSE STATEMENTS AND FINANCIAL HIGHLIGHTS IN THEIR REPORT DATED OCTOBER 26, 2001. WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES INCLUDED CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 2002, BY CORRESPONDENCE WITH THE FUNDS' CUSTODIAN AND BROKERS. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION. IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF EACH OF THE FUNDS AS OF SEPTEMBER 30, 2002, THE RESULTS OF THEIR OPERATIONS, THE CHANGES IN THEIR NET ASSETS, AND THEIR FINANCIAL HIGHLIGHTS FOR THE YEAR THEN ENDED, IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. DELOITTE & TOUCHE LLP Chicago, Illinois October 25, 2002 B-55 -----END PRIVACY-ENHANCED MESSAGE-----