497 1 a2128636z497.txt 497 STATEMENT OF ADDITIONAL INFORMATION January 31, 2004 As Supplemented February 11, 2004 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 PROXY VOTING POLICIES AND PROCEDURES 22 TRUSTEES AND OFFICERS 23 PRINCIPAL SHAREHOLDERS 29 PURCHASING AND REDEEMING SHARES 31 ADDITIONAL TAX INFORMATION 33 DISTRIBUTOR 35 PORTFOLIO TRANSACTIONS 35 DECLARATION OF TRUST 38 CUSTODIAN AND TRANSFER AGENT 38 INDEPENDENT AUDITORS 39 APPENDIX A -- BOND RATINGS A-1 Appendix B -- Financial Statements B-1
570172/D/3 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; [GLOBAL FUND, 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 or 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 ($4.865 billion as of December 31, 2003). The mean market capitalization of companies included in the S&P Small Cap 600 Index was $738 million as of December 31, 2003. 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. GOVERNMENT-SPONSORED ENTITY SECURITIES Each Fund may invest in government-sponsored entity securities, which are securities issued by entities such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Federal Home Loan Banks, among others. Although such an issuer may be chartered or sponsored by an Act of Congress, its securities are neither issued nor guaranteed by the United States Treasury. 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, 9 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. 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 10 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. 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)(TO THE 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(SUB)D = P(1+T)(TO THE 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(SUB)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(SUB)DR = P(1+T)(TO THE 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(SUB)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, 2003 are shown in the tables below. 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 25.30% 4.89% 10.91% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR 10 YEAR ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 25.20% 3.90% 9.21% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR 10 YEAR ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 16.51% 3.67% 8.72% -------------------------------------------------------------------------------------------------------------------
OAKMARK FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 24.79% 4.62% 10.64% -------------------------------------------------------------------------------------------------------------------
* 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 29.00% 15.43% 22.23% -------------------------------------------------------------------------------------------------------------------
AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 28.92% 14.13% 21.06% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 18.92% 12.85% 19.45% -------------------------------------------------------------------------------------------------------------------
* 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 28.66% 15.10% 21.90% -------------------------------------------------------------------------------------------------------------------
* 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 26.81% 6.00% 11.07% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 26.81% 5.85% 10.44% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 17.43% 5.12% 9.54% -------------------------------------------------------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). SMALL CAP FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND** ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 26.18% 5.70% 10.77% -------------------------------------------------------------------------------------------------------------------
* The Fund commenced operations on November 1, 1995, but until April 10, 2002, offered only Class I Shares. The historical performance of Class II Shares for the periods prior to April 10, 2002 is based on the performance of Class I Shares. The Class II Shares returns for the periods prior to April 10, 2002 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). EQUITY AND INCOME FUND - CLASS I SHARES
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 23.21% 12.97% 14.81% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 23.04% 11.70% 13.50% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 15.19% 10.62% 12.42% -------------------------------------------------------------------------------------------------------------------
* 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 22.87% 12.80% 14.60% -------------------------------------------------------------------------------------------------------------------
* 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 48.98% 17.34% -------------------------------------------------------------------------------------------------------------------
15
AFTER TAXES ON DISTRIBUTIONS 1 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 48.96% 17.00% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 31.96% 15.05% -------------------------------------------------------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (August 4, 1999). GLOBAL FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR LIFE OF FUND** ------------------------------------------------------------------------------------------------------------------ Average Annual Total Return 48.42% 16.95% ------------------------------------------------------------------------------------------------------------------
* 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 38.04% 13.46% 8.58% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR 10 YEAR ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 38.09% 12.61% 6.65% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR 10 YEAR ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 25.07% 11.30% 6.30% -------------------------------------------------------------------------------------------------------------------
INTERNATIONAL FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR 10 YEAR ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 37.37% 13.11% 8.28% -------------------------------------------------------------------------------------------------------------------
* 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 52.41% 18.01% 11.37% ------------------------------------------------------------------------------------------------------------------- AFTER TAXES ON DISTRIBUTIONS 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 52.54% 16.92% 9.92% -------------------------------------------------------------------------------------------------------------------
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AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1 YEAR 5 YEAR LIFE OF FUND* ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 34.58% 15.32% 9.15% -------------------------------------------------------------------------------------------------------------------
* From the date Class I Shares were first offered for sale (November 1, 1995). INTERNATIONAL SMALL CAP FUND - CLASS II SHARES*
BEFORE TAXES 1 YEAR 5 YEAR LIFE OF FUND** ------------------------------------------------------------------------------------------------------------------- Average Annual Total Return 52.24% 17.83% 11.15% -------------------------------------------------------------------------------------------------------------------
* 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)(TO THE 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, no Fund except Equity and Income Fund typically calculates or advertises 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 17 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. 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 ---------- * With dividends reinvested. 18 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. 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
19
FUND FEE ------------------------ --------------------------------------------------------------------- Small Cap 1.00% Equity and Income 0.75% up to $5 billion; 0.70% on the next $2.5 billion; 0.675% on the next $2.5 billion; and 0.65% on net assets in excess of $10 billion Global 1.00% up to $2 billion; 0.95% on the next $2 billion; and 0.90% on net assets in excess of $4 billion 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 Cap 1.25% up to $500 million; and 1.10% on net 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, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 --------------------------------------------------------------------------------------------------- Oakmark Advisory fee $ 37,074,474 $ 34,848,853 $ 25,662,135 Select Advisory fee 38,938,068 40,838,462 27,774,016 Small Cap Advisory fee 3,492,495 4,121,533 2,490,470 Reimbursement 654 -- -- Equity and Income Advisory fee 23,468,519 12,099,581 1,591,905 Global Advisory fee 2,982,092 1,333,497 387,377 Reimbursement -- -- 20,815 International Advisory fee 19,015,386 12,048,977 8,269,717 International Small Cap Advisory fee 4,626,713 3,860,436 1,238,024
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 21, 2003, called in part for the purpose of voting on the renewal of the Agreements, the Agreements were renewed through October 31, 2004 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; 20 - 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; - 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 David G. Herro, Robert M. Levy, 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, 2005. 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. CODES OF ETHICS The Trust, the Adviser and the Funds' distributor, Harris Associates Securities L.P. ("HASLP"), have adopted codes of ethics pursuant to requirements under the 1940 Act. Those codes 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. 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, they regulate such investing by those employees. 21 PROXY VOTING POLICIES AND PROCEDURES The Adviser has authority to exercise all voting rights with respect to portfolio securities of the Funds in accordance with the Adviser's proxy voting policies and procedures. The Adviser exercises voting rights solely with the goal of serving the best interests of its clients (including the Funds) as shareholders of a company. In determining how to vote on any proposal, the Adviser's Proxy Committee considers the proposal's expected impact on shareholder value and does not consider any benefit to the Adviser or its employees or affiliates. The Adviser considers the reputation, experience and competence of a company's management when it evaluates the merits of investing in a particular company, and it invests in companies in which it believes management goals and shareholder goals are aligned. Therefore, on most issues, the Adviser casts votes in accordance with management's recommendations. However, when the Adviser believes that management's position on a particular issue is not in the best interests of the Funds and their shareholders, the Adviser will vote contrary to management's recommendation. PROXY VOTING GUIDELINES The Adviser's Proxy Committee has established a number of proxy voting guidelines on various issues of concern to investors. The Proxy Committee normally votes proxies in accordance with those guidelines unless it determines that it is in the best economic interests of a Fund and its shareholders to vote contrary to the guidelines. The voting guidelines generally address issues related to boards of directors, auditors, equity based compensation plans, and shareholder rights. - With respect to a company's board of directors, the Adviser believes that there should be a majority of independent directors and that audit, compensation and nominating committees should consist solely of independent directors, and it will normally vote in favor of proposals that insure such independence. - With respect to auditors, the Adviser believes that the relationship between a public company and its auditors should be limited primarily to the audit engagement, and it will normally vote in favor of proposals to prohibit or limit fees paid to auditors for any services other than auditing and closely-related activities that do not raise any appearance of impaired independence. - With respect to equity based compensation plans, the Adviser believes that appropriately designed plans approved by a company's shareholders can be an effective way to align the interests of long-term shareholders and the interests of management, employees and directors. However, the Adviser will normally vote against plans that substantially dilute its clients' ownership interest in the company or provide participants with excessive awards. The Adviser will also normally vote in favor of proposals to require the expensing of options. - With respect to shareholder rights, the Adviser believes that all shareholders of a company should have an equal voice and that barriers that limit the ability of shareholders to effect corporate change and to realize the full value of their investment are not desirable. Therefore, the Adviser will normally vote against proposals for supermajority voting rights, against the issuance of poison pill preferred shares, and against proposals for different classes of stock with different voting rights. - With respect to "social responsibility" issues, the Adviser believes that matters related to a company's day-to-day business operations are primarily the responsibility of management. The Adviser is focused on maximizing long-term shareholder value and will normally vote against shareholder proposals requesting that a 22 company disclose or change certain business practices unless it believes the proposal would have a substantial positive economic impact on the company. CONFLICTS OF INTEREST The Proxy Committee, in consultation with the Adviser's legal and compliance departments, will monitor and resolve any potential conflicts of interest with respect to proxy voting. A conflict of interest might exist, for example, when an issuer who is soliciting proxy votes also has a client relationship with the Adviser, when a client of the Adviser is involved in a proxy contest (such as a corporate director), or when one of the Adviser's employees has a personal interest in a proxy matter. When a conflict of interest arises, in order to insure that proxies are voted solely in the best interest of the Funds and their shareholders, the Adviser will vote in accordance with either its written guidelines or the recommendation of an independent third-party voting service. If the Adviser believes that voting in accordance with the guidelines or the recommendation of the proxy voting service would not be in the collective best interests of the Funds and their shareholders, the Executive Committee of the Board of Trustees of the Funds will determine how shares should be voted. HOW TO OBTAIN THE OAKMARK FUNDS' PROXY VOTING RECORD No later than August 31, 2004, information regarding how the Adviser, on behalf of the Funds, voted proxies relating to the Funds' portfolio securities for the twelve months ended June 30, 2004, will be available through a link on the Funds' website at www.oakmark.com and on the SEC's website at http://www.sec.gov. 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, 2003 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE ----------------- ----- -------------- ---------------- ---------- ------- VICTOR A. MORGENSTERN, 61 Trustee and Chairman 1991 President, Resolute 7 Trustee, Illinois of the Board of Advisors, Inc. Institute of Trustees (private investment Technology management firm) (educational since 2002; Chairman institution); Valor Equity Director, Partners, LLC Bio-Sante (private equity fund) Pharmaceuticals since 2002; Managing Inc. (developer Partner, Drill of hormone Hall Partners therapy products) LLC, Chairman of the Board, HAI, 1996 - 2000; President and Chief Executive Officer prior thereto; Chairman, Harris Partners, L.L.C., 1995 - 2000
23
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, 2003 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE ----------------- ----- -------------- ---------------- ---------- ------- MICHAEL J. FRIDUSS, 61 Trustee 1995 Principal, MJ Friduss 7 None & Associates, Inc. (telecommunications consultants) THOMAS H. HAYDEN, 52 Trustee 1995 President, Greenhouse 7 None Communications (advertising agency) since 2004; Executive Vice President, Campbell Mithun, prior thereto (advertising and marketing communication agency) CHRISTINE M. MAKI, 43 Trustee 1996 Vice President--Tax, 7 Director, Hyatt Corporation Illinois (hotel management) CPA Society ALLAN J. REICH, 55 Trustee 1993 Partner, Seyfarth 7 None Shaw LLP (law firm) since 2003; Vice Chairman of the law firm D'Ancona & Pflaum LLC, prior thereto MARV R. ROTTER, 57 Trustee 1996 Senior Advisor to 7 None Chief Executive Officer, AXA Advisors, LLC (formerly named Rotter & Associates) BURTON W. RUDER, 60 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., 63 Trustee 1993 Senior Attending 7 Director, North Physician, Evanston American Hospital; Medical Scientific, Director - Inc. (developer Cardio-Pulmonary of radioisotopic Wellness Program, products for Evanston Hospital the treatment Corporation and diagnosis of disease)
24 TRUSTEES WHO ARE 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, 2003 TRUST CURRENT OFFICE PAST FIVE YEARS# BY TRUSTEE TRUSTEE ----------------- ----- -------------- ---------------- ---------- ------- PETER S. VOSS*, 57 Trustee 1995 President and Chief 7 Chairman, AEW Executive Officer, Real Estate CDC IXIS Asset Income Fund Management North (closed-end America, L.P., investment formerly known as company); Nvest Companies, L.P. Chairman and and its predecessor Chief Executive firms (investment Officer, CDC management); Nvest Funds Director, HAI (open-end investment company - 14 portfolios) JOHN R. RAITT*, 49 Trustee and 2003++ President and Chief 7 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
OTHER 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, 2003 TRUST CURRENT OFFICE PAST FIVE YEARS# ----------------- ----- -------------- ---------------- ROBERT M. LEVY, 53 President 2001 Chairman, HAI; Chief Investment Officer, HALP, since 2001; President and Chief Executive Officer, HAI, HALP and HASLP, 1997 - 2002; Portfolio Manager, HALP JAMES P. BENSON, 46 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Small Cap Fund) HENRY R. BERGHOEF, 54 Vice President and 2000 Director of Domestic Portfolio Manager Research, HALP, since (The Oakmark Select 2003; Associate Fund), Director of Research, 2001 - 2002; Portfolio Manager and Analyst, HALP
25
DATE FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2003 TRUST CURRENT OFFICE PAST FIVE YEARS# ----------------- ----- -------------- ---------------- KEVIN G. GRANT, 39 Vice President and 2000 Portfolio Manager Portfolio Manager and Analyst, HALP (The Oakmark Fund) DAVID G. HERRO, 43 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) JOHN J. KANE, 32 Assistant Treasurer 1999 Manager - Fund Accounting, HALP CLYDE S. MCGREGOR, 51 Vice President and 1995 Portfolio Manager, Portfolio Manager HALP (The Oakmark Equity and Income Fund and The Oakmark Global Fund) WILLIAM C. NYGREN, 45 Vice President and 1996 Portfolio Manager Portfolio Manager and Analyst, HALP; (The Oakmark Fund former Director of and The Oakmark Research, HALP Select Fund) VINEETA D. RAKETICH, 32 Vice President 2003 Manager, International Operations and Client Relations, HALP; Supervisor, Mutual Fund and Institutional Services, HALP, prior thereto JANET L. REALI, 52 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, 55 Vice President- 1996 Director of Mutual Shareholder Fund Operations, HALP Operations and Assistant Secretary KRISTI L. ROWSELL, 37 Treasurer 1997 Director, Chief Financial Officer and Treasurer, HAI; Chief Financial Officer, HALP and HASLP since 1999 EDWARD A. STUDZINSKI, 54 Vice President and 2000 Portfolio Manager and Portfolio Manager Analyst, HALP (The Oakmark Equity and Income Fund and The Oakmark Small Cap Fund)
26
DATE FIRST PRINCIPAL ELECTED OR OCCUPATION(S) NAME, ADDRESS+ AND AGE AT POSITION(S) WITH APPOINTED TO HELD DURING DECEMBER 31, 2003 TRUST CURRENT OFFICE PAST FIVE YEARS# ----------------- ----- -------------- ---------------- MICHAEL J. WELSH, 40 Vice President and 1997 Director of Portfolio Manager International (The Oakmark Global Equities; Portfolio Fund, The Oakmark Manager and Analyst, International Fund HALP 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. # 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. Raitt succeeded Mr. Levy as President of the Trust on January 1, 2004. * Mr. Voss and Mr. Raitt are trustees who are "interested persons" of the Trust as defined in the 1940 Act because Mr. Voss is an officer of the Adviser's parent company, and Mr. Raitt is an officer of the Adviser. The 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 those committees, the function of each committee, and the number of meetings of each committee held during the fiscal year ended September 30, 2003.
NUMBER OF MEETINGS MEMBERS OF DURING FISCAL YEAR ENDED COMMITTEE COMMITTEE SEPTEMBER 30, 2003 PRINCIPAL FUNCTIONS OF COMMITTEE --------- --------- ------------------ -------------------------------- EXECUTIVE Victor A. Morgenstern* 10** The executive committee generally has the authority to COMMITTEE Peter S. Voss exercise the powers of the board during intervals between Christine M. Maki meetings. AUDIT Thomas H. Hayden 6 The principal responsibilities of the audit committee include COMMITTEE Christine M. Maki the following: Allan J. Reich* - to oversee the accounting and financial reporting policies Gary N. Wilner, M.D. and practices of the Trust, its internal controls and, as Marvin R. Rotter 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 approve the selection of the Independent Auditors of the Funds; - 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 Michael J. Friduss 4 The governance committee makes recommendations to the board COMMITTEE Christine M. Maki regarding board committees and committee assignments, the Victor A. Morgenstern composition of the board, candidates for election as Allan J. Reich non-interested trustees and compensation of non-interested Burton W. Ruder trustees, and oversees the process for evaluating the Gary N. Wilner, M.D. * functioning of the board. MANAGEMENT Michael J. Friduss 4 The committee on management contracts is responsible for CONTRACTS Thomas H. Hayden* reviewing in the first instance,
27
NUMBER OF MEETINGS MEMBERS OF DURING FISCAL YEAR ENDED COMMITTEE COMMITTEE SEPTEMBER 30, 2003 PRINCIPAL FUNCTIONS OF COMMITTEE --------- --------- ------------------ -------------------------------- COMMITTEE Victor A. Morgenstern and making recommendations to the board regarding, investment Marv R. Rotter advisory agreements and any other agreements relating to the Burton W. Ruder management or administration of any Fund.
----------------------------------- * Chairperson of the committee. ** The executive committee held four meetings and took action by unanimous written consent of the committee members six times. The following table shows the compensation paid by the Trust* for the fiscal year ended September 30, 2003 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 $ 137,600 $ 19,657 Michael J. Friduss 87,800 12,543 Thomas H. Hayden 88,300 12,614 Christine M. Maki 88,800 12,686 Allan J. Reich 88,300 12,614 Marv R. Rotter 78,000 11,143 Burton W. Ruder 85,600 12,229 Gary N. Wilner, M.D. 82,700 11,814
---------- * The Trust is not part of a fund complex. ** Includes compensation that was deferred pursuant to the deferred compensation plan as described below. As of September 30, 2003, the total amounts accrued under the plan were $395,655 for Mr. Friduss, $320,098 for Mr. Hayden, $327,974 for Ms. Maki, $337,082 for Mr. Rotter, $323,115 for Mr. Ruder and $398,183 for Dr. Wilner. 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. 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 following table illustrates the value of each Fund "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the Securities Exchange Act of 1934) by each trustee 28 (within dollar ranges) as of December 31, 2003.
EQUITY AND INTERNATIONAL OAKMARK SELECT SMALL INCOME GLOBAL INTERNATIONAL SMALL CAP TRUSTEE FUND FUND CAP FUND FUND FUND FUND FUND ------- ---- ---- -------- ---- ---- ---- ---- VICTOR A over over over $10,001 - over over over MORGENSTERN $ 100,000 $ 100,000 $ 100,000 50,000 $ 100,000 $ 100,000 $ 100,000 MICHAEL J. FRIDUSS over over $50,001 - over over $50,001 - Over $ 100,000 $ 100,000 100,000 $ 100,000 $ 100,000 100,000 $ 100,000 THOMAS H. HAYDEN $10,001 - over 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 JOHN R. RAITT over over over over over over over $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 ALLAN J. REICH over 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 None None None None None None BURTON W. RUDER None $10,001 - $10,001 - $1 - over over over 50,000 50,000 10,000 $ 100,000 $ 100,000 $ 100,000 PETER S. VOSS over over None None None over over $ 100,000 $ 100,000 $ 100,000 $ 100,000 GARY N. WILNER, $50,001 - $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, 2003 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, Equity and Income Fund, and International Fund and the following percentages of the outstanding shares of each of the other Funds: Select, 1.13%, Small Cap, 1.54%, Global, 1.55% and International Small Cap, 2.02%. 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, 2003 were:
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ----------- Charles Schwab & Co. Inc. (1) Oakmark, Class I 26.85% 101 Montgomery Street Select, Class I 25.39 San Francisco, CA 94104-4122 Small Cap, Class I 26.30 Equity and Income, Class I 38.87 International, Class I 46.00 International Small Cap, Class I 44.57 Global, Class I 40.34
29
PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND AND CLASS SHARES HELD ---------------- -------------- ----------- Connecticut General Life Insurance Co.(1) Select, Class II 14.85% 280 Trumbull Street Hartford, CT 06103-3509 Great West Life Annuity Insurance Co. (1) International, Class II 33.79% 8515 East orchard Road Greenwood Village, CO 80111-5037 JP Morgan Retirement Plan Services (1) Equity and Income, Class II 9.35% 9300 Ward Parkway Kansas City, MO 64114-3317 Merrill Lynch Pierce Fenner & Smith Inc. (1) Oakmark, Class II 74.98% 4800 Deer Lake Drive E., 3rd Floor Select, Class II 51.25 Jacksonville, FL 32246-6484 Small Cap, Class II 87.12 Equity and Income, Class II 64.97 International, Class II 50.43 International Small Cap, Class II 45.60 Global, Class II 77.75 National Financial Services Corp. (1) Oakmark, Class I 20.88% P.O. Box 3908 Select, Class I 26.47 Church Street Station Small Cap, Class I 13.99 New York, NY 10008-3908 Equity and Income, Class I 24.70 International, Class I 10.87 International Small Cap, Class I 15.60 National Financial Services Corp. (1) Select, Class II 7.78% 200 Liberty Street International Small Cap, Class II 46.99 One World Financial Center New York, NY 10281-1003 National Financial Services LLC (1) Global, Class 1 16.44% 200 Liberty Street One World Financial Center New York, NY 10281-1003 Nationwide Trust Company, FSB (1) Oakmark, Class II 7.50% PO Box 182029 Global, Class II 77.75 Columbus, OH 43218-2029 Equity and Income, Class II 8.93 Small Cap, Class II 12.88 Northern Trust C/F (1) Global, Class I 7.73% Muriel M. Kauffman Foundation 26-13343 PO Box 92956 Chicago, IL 60675-2956 Reliance Trust Co. (1) Oakmark, Class II 8.85% FBO MetLife Defined Contribution Group Select, Class II 19.13 2 Montgomery Street, 3rd Floor Equity and Income, Class II 5.62 Jersey City, NJ 07302-3803 Trustlynx & Co. (1) International Small Cap, Class II 7.41% P.O. Box 173736 Denver, CO 80217-3736
30 ---------- (1) Shares are held for accounts of customers. 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 31 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. SHARES PURCHASED THROUGH INTERMEDIARIES Class I Shares of any of the Funds may be purchased through certain financial service companies, such as broker-dealers, banks, retirement plan service providers and retirement plan sponsors, who are agents of the Funds for the limited purpose of receiving and transmitting instructions for the purchase or sale of fund shares ("Intermediaries"). Class II Shares of each Fund are offered only for purchase through certain retirement plans, such as 401(k), and profit sharing plans. To purchase Class II Shares, you must do so through an Intermediary. An Intermediary accepts purchase and sale orders as an authorized agent of the Funds pursuant to a written agreement. Any purchase or sale is made at the net asset value next determined after receipt and acceptance of the order by the Intermediary. Federal securities laws require Intermediaries 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. The Funds have no ability to verify compliance by the Intermediaries with that requirement. For services provided by an Intermediary with respect to Fund shares held through that Intermediary for its customers, the Intermediary may charge the Fund and the Adviser a fee of up to 0.40% of the average annual 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. Class II Shares of a Fund pay to Intermediaries an additional service fee of .25% of the average annual value of Class II Shares of the Fund purchased or held through the Intermediaries for services associated with the administration of retirement plans. The Trust reserves the right to waive minimum investment 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 shares in any account, including any account held in the name of an Intermediary, and send the proceeds to the registered owner of the account if the account value has been reduced below $1,000 as a result of redemptions. A Fund or its agent will make a reasonable effort to notify the registered owner if the account falls below the minimum in order to give the owner 30 days to increase the account value to $1,000 or more. 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 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. 32 MONEY MARKET EXCHANGE FUND The Adviser acts as a Service Organization for the Institutional Liquid Assets Service Units ("Oakmark Units") of the Government Portfolio of Goldman Sachs Trust, which Oakmark 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. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act") reduced the maximum tax rate on long-term capital gains of noncorporate investors from 20% to 15%. The Act also reduced to 15% the maximum tax rate on "qualified dividend income" received by noncorporate shareholders who satisfy certain holding period requirements. The amount of dividends that may be eligible for the reduced rate may not exceed the amount of aggregate qualifying dividends received by that Fund. To the extent a Fund distributes amounts of dividends, including capital gain dividends, that the Fund determines are eligible for the reduced rates, it will identify the relevant amounts in its annual tax information reports to its shareholders. Without further legislative change, the rate reductions enacted by the Act will lapse, and the previous rates will be reinstated, for taxable years beginning on or after January 1, 2009. You will be advised annually as to the source of distributions for tax purposes. If you are not subject to tax on your income, you will not be required to pay tax on these amounts. 33 If you realize a loss on sale of Fund shares held for six months or less, your short-term loss is recharacterized as long-term to the extent of any long-term capital gain distributions you have received with respect to those shares. A Fund may be required to withhold federal income tax ("backup withholding") from certain payments to you, generally redemption proceeds and payments of dividends and distributions. Backup withholding may be required if: - You fail to furnish your properly certified social security or other tax identification number; - You fail to certify that your tax identification number is correct or that you are not subject to backup withholding due to the underreporting of certain income; - You fail to certify that you are a U.S. Person (including a U.S. resident alien); or - The IRS informs the Fund that your tax identification number is incorrect. As modified by the Act, the backup withholding percentage is 28% for amounts paid through 2010, when the percentage will increase to 31% unless amended by Congress. Those certifications are contained in the application that you complete when you open your Fund account. Each Fund must promptly pay the IRS all amounts withheld. Therefore, it usually is not possible for the Funds to reimburse you for amounts withheld. You may, however, claim the amount withheld as a credit on your federal income tax return. A Fund's transactions in foreign currencies may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. Foreign currency gains and losses are taxable as ordinary income. If the net effect of these transactions is a gain, the income dividend paid by the Fund will be increased; if the result is a loss, the income dividend paid by the Fund will be decreased. 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 34 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. The discussion of taxation above is not intended to be a full discussion of income tax laws and their effect on shareholders. You are encouraged to consult your own tax advisor. The foregoing information applies to U.S. shareholders. U.S. citizens residing in a foreign country should consult their tax advisors as to the tax consequences of ownership of Fund shares. 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. 35 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 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 and secondary 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, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 ------------------ ------------------ ------------------ Oakmark Fund Aggregate commissions $ 4,534,892 $ 6,781,317 $ 6,311,185 Commissions paid to affiliate 951,978 1,944,752 2,113,214 Percentage of aggregate commissions paid to affiliate* 20.9% 28.7% 33.5% Select Fund Aggregate commissions 3,748,486 7,103,618 4,322,185 Commissions paid to affiliate 544,621 1,010,255 1,343,463 Percentage of aggregate commissions paid to affiliate* 14.5% 14.2% 31.0% Small Cap Fund Aggregate commissions 540,517 653,272 461,236 Commissions paid to affiliate 105,525 72,603 133,319 Percentage of aggregate commissions paid to affiliate* 19.5% 11.1% 28.9% Equity and Income Fund Aggregate commission 3,773,931 4,727,984 988,715 Commissions paid to affiliate 845,629 789,756 447,443 Percentage of aggregate commissions paid to affiliate* 22.4% 16.7% 45.3%
36 Global Fund Aggregate commissions 1,652,256 896,555 228,526 Commissions paid to affiliate 171,703 197,233 51,708 Percentage of aggregate commissions paid to affiliate* 10.4% 22.0% 22.6% International Fund Aggregate commissions 5,497,451 3,824,992 2,608,018 Commissions paid to affiliate -- -- -- Percentage of aggregate commissions paid to affiliate* -- -- -- International Small Cap Fund Aggregate commissions 758,356 1,687,897 408,886 Commissions paid to affiliate -- -- -- Percentage of aggregate commissions paid to affiliate* -- -- --
---------- * 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, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 ---- ------------------ ------------------ ------------------ Oakmark 21.0% 31.4% 40.6% Select 20.5 18.2 33.6 Small Cap 18.8 4.6 24.3 Equity and Income 11.0 9.8 26.7 Global 10.6 20.3 24.2 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. For the fiscal year ended September 30, 2003, those commission amounts were: Oakmark Fund, $401,964; Select Fund, $541,313; Small Cap Fund, $13,550; Equity and Income Fund, $96,236; Global Fund, $42,446; and the aggregate dollar amounts involved in those transactions for those respective Funds were: $20,189,634, $83,570,652, $581,639, $6,043,954, $3,487,797. 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. Of the aggregate brokerage transactions during the year ended September 30, 2003, the Funds paid the following commissions on transactions directed to brokers because of research services they provided: Oakmark Fund, $777,373; Select Fund, $523,424; Small Cap Fund, $72,720; Equity and Income Fund, $559,725; International Fund, $1,569,002; International Small Cap Fund, $202,053; Global Fund, $361,641; and the aggregate dollar amounts involved in those transactions for those respective Funds were: $334,887,535, $252,941,306, $22,561,288, $250,844,907, $593,908,067, $60,478,635, $97,177,567. There were substantial decreases in the aggregate commissions paid by Oakmark Fund, Select Fund and International Small Cap Fund. In the case of each of these Funds, these decreases in aggregate commissions resulted primarily from decreases in the portfolio turnover rates. There were substantial increases in the aggregate commissions paid by the Global Fund and International Fund. In the case of each of these Funds, these increases in aggregate commissions resulted primarily from substantial increases in net assets from Fund share transactions. 37 For Global Fund, the percentage of aggregate commissions paid to the affiliate decreased substantially for the fiscal year ended September 30, 2003 as compared to the fiscal year ended September 30, 2002. This decrease resulted primarily from increased transactions in the securities of non-U.S. issuers versus U.S. issuers. The affiliate does not act as broker in connection with the purchase or sale of non-U.S. securities. For Small Cap Fund and Equity and Income Fund, the percentage of aggregate commissions paid to the affiliate increased substantially for the fiscal year ended September 30, 2003 as compared to the fiscal year ended September 30, 2002. These increases resulted primarily from the Adviser's determination that use of the affiliate would likely result in the most favorable net price and the best execution in 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. 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. 38 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. 39 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 APPENDIX B -- FINANCIAL STATEMENTS B-1 570172/D/3 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--91.7% FOOD & BEVERAGE--8.3% General Mills, Inc. 1,805,000 $ 84,961,350 Kraft Foods Inc. 2,845,000 83,927,500 Diageo plc (b) 1,821,000 80,397,150 H.J. Heinz Company 2,310,000 79,186,800 Anheuser-Busch Companies, Inc. 1,400,000 69,076,000 ---------------- 397,548,800 HOUSEHOLD PRODUCTS--1.3% The Clorox Company 1,390,200 $ 63,768,474 OTHER CONSUMER GOODS & SERVICES--6.3% H&R Block, Inc. (c) 3,029,300 $ 130,714,295 Fortune Brands, Inc. 1,745,600 99,062,800 Mattel, Inc. 3,839,800 72,802,608 ---------------- 302,579,703 BROADCASTING & PROGRAMMING--2.2% Liberty Media Corporation, Class A (a) 7,399,400 $ 73,772,018 The Walt Disney Company 1,500,000 30,255,000 ---------------- 104,027,018 BUILDING MATERIALS & CONSTRUCTION--1.8% Masco Corporation 3,533,000 $ 86,487,840 CABLE SYSTEMS & SATELLITE TV--6.1% General Motors Corporation, Class H (Hughes Electronics Corporation) (a) 6,100,000 $ 87,291,000 AOL Time Warner Inc. (a)(d) 5,727,700 86,545,547 EchoStar Communications Corporation (a) 2,075,000 79,410,250 Comcast Corporation, Special Class A (a) 1,300,000 38,402,000 ---------------- 291,648,797 HARDWARE--1.6% The Black & Decker Corporation 1,922,200 $ 77,945,210 MOTORCYCLES--1.6% Harley-Davidson, Inc. 1,575,000 $ 75,915,000 PUBLISHING--2.7% Gannett Co., Inc. 884,500 $ 68,601,820 Knight-Ridder, Inc. 916,000 61,097,200 ---------------- 129,699,020 RECREATION & ENTERTAINMENT--1.2% Carnival Corporation (e) 1,678,300 $ 55,199,287
B-1
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--91.7% (CONT.) RESTAURANTS--4.7% McDonald's Corporation 4,900,000 $ 115,346,000 Yum! Brands, Inc (a) 3,674,000 108,823,880 ---------------- 224,169,880 RETAIL--10.0% The Home Depot, Inc. 3,281,500 $ 104,515,775 The Kroger Co. (a) 5,790,000 103,467,300 The Gap, Inc. 4,776,700 81,777,104 Safeway Inc. (a) 3,327,000 76,321,380 J.C. Penney Company, Inc. 3,502,900 74,856,973 Toys 'R' Us, Inc. (a)(c) 3,125,000 37,593,750 ---------------- 478,532,282 BANK & THRIFTS--7.0% Washington Mutual, Inc. 4,587,300 $ 180,602,001 U.S. Bancorp 3,700,000 88,763,000 The Bank of New York Company, Inc. 2,300,000 66,953,000 ---------------- 336,318,001 INSURANCE--3.2% MGIC Investment Corporation 1,640,600 $ 85,426,042 AFLAC Incorporated 2,067,000 66,764,100 ---------------- 152,190,142 OTHER FINANCIAL--2.4% Fannie Mae 1,670,000 $ 117,234,000 HEALTH CARE SERVICES--1.1% AmerisourceBergen Corp 1,000,000 $ 54,050,000 MEDICAL PRODUCTS--2.5% Baxter International Inc. 2,500,000 $ 72,650,000 Guidant Corporation 956,700 44,821,395 ---------------- 117,471,395 PHARMACEUTICALS--8.5% Bristol-Myers Squibb Company 3,750,000 $ 96,225,000 Merck & Co., Inc. 1,850,000 93,647,000 Abbott Laboratories 2,050,000 87,227,500 Schering-Plough Corporation 5,100,000 77,724,000 Chiron Corporation (a) 999,000 51,638,310 ---------------- 406,461,810 TELECOMMUNICATIONS--1.8% Sprint Corporation 5,741,800 $ 86,701,180
B-2
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--91.7% (CONT.) COMPUTER SERVICES--4.8% First Data Corporation 2,513,800 $ 100,451,448 SunGard Data Systems, Inc. (a) 3,203,700 84,289,347 Automatic Data Processing, Inc. 1,200,000 43,020,000 ---------------- 227,760,795 COMPUTER SYSTEMS--1.2% Sun Microsystems, Inc. (a) 17,450,000 $ 57,759,500 OFFICE EQUIPMENT--1.4% Xerox Corporation (a) 6,472,400 $ 66,406,824 AEROSPACE & DEFENSE--2.6% Honeywell International, Inc. 3,250,000 $ 85,637,500 The Boeing Company 1,152,800 39,575,624 ---------------- 125,213,124 OTHER INDUSTRIAL GOODS & SERVICES--0.8% Illinois Tool Works Inc. 604,200 $ 40,034,292 WASTE DISPOSAL--1.9% Waste Management, Inc. 3,474,300 $ 90,922,431 OIL & NATURAL GAS--3.2% ConocoPhillips 1,435,335 $ 78,584,591 Burlington Resources, Inc. 1,571,100 75,727,020 ---------------- 154,311,611 ELECTRIC UTILITIES--1.5% Duke Energy Corporation 3,997,700 $ 71,199,037 TOTAL COMMON STOCKS (COST: $3,864,754,742) 4,391,555,453
B-3
NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--8.4% U.S. GOVERNMENT BILLS--5.0% United States Treasury Bills, 0.845% - 0.93% due 10/2/2003 - 11/28/2003 $ 240,000,000 $ 239,824,096 TOTAL U.S. GOVERNMENT BILLS (COST: $239,816,491) 239,824,096 REPURCHASE AGREEMENTS--3.4% IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price $160,004,222 collateralized by U.S. Government Agency Securities $ 160,000,000 $ 160,000,000 IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price $1,752,013 collateralized by a U.S. Government Agency Security 1,751,976 1,751,976 TOTAL REPURCHASE AGREEMENTS (COST: $161,751,976) 161,751,976 TOTAL SHORT TERM INVESTMENTS (COST: $401,568,467) 401,576,072 Total Investments (Cost $4,266,323,209)--100.1% $ 4,793,131,525 Other Liabilities In Excess Of Other Assets--(0.1%) (2,616,390) ---------------- TOTAL NET ASSETS--100% $ 4,790,515,135 ================
(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 securities of affiliated issuers. (d) Effective October 16, 2003, AOL Time Warner Inc. changed its name to Time Warner Inc. (e) Represents a foreign domiciled corporation. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-4 THE OAKMARK SELECT FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--92.8% OTHER CONSUMER GOODS & SERVICES--11.6% H&R Block, Inc. (b) 8,859,800 $ 382,300,370 Mattel, Inc. 10,955,400 207,714,384 ---------------- 590,014,754 CABLE SYSTEMS & SATELLITE TV--3.8% AOL Time Warner Inc. (a)(c) 12,710,000 $ 192,048,100 HOTELS & MOTELS--2.7% Starwood Hotels & Resorts Worldwide, Inc. 3,880,000 $ 135,024,000 INFORMATION SERVICES--7.1% The Dun & Bradstreet Corporation (a)(b) 4,534,900 $ 188,379,746 Moody's Corporation 3,123,600 171,704,292 ---------------- 360,084,038 PUBLISHING--3.4% Knight-Ridder, Inc. 2,606,500 $ 173,853,550 RESTAURANTS--5.4% Yum! Brands, Inc (a) 9,307,000 $ 275,673,340 RETAIL--10.8% The Kroger Co. (a) 12,675,700 $ 226,514,759 Toys 'R' Us, Inc. (a)(b) 13,698,500 164,792,955 Office Depot, Inc. (a) 11,384,900 159,957,845 ---------------- 551,265,559 BANK & THRIFTS--18.1% Washington Mutual, Inc. 23,351,400 $ 919,344,618 INVESTMENT MANAGEMENT--2.5% Janus Capital Group, Inc. 9,169,600 $ 128,099,312 HEALTH CARE SERVICES--4.1% IMS Health Incorporated 9,903,441 $ 208,962,605 PHARMACEUTICALS--6.8% Bristol-Myers Squibb Company 6,840,200 $ 175,519,532 Chiron Corporation (a) 3,292,000 170,163,480 ---------------- 345,683,012 TELECOMMUNICATIONS--4.1% Sprint Corporation 13,834,600 $ 208,902,460
B-5
SHARES HELD/ NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--92.8% (CONT.) COMPUTER SERVICES--4.4% First Data Corporation 5,630,400 $ 224,990,784 OFFICE EQUIPMENT--3.9% Xerox Corporation (a) 19,354,700 $ 198,579,222 OIL & NATURAL GAS--4.1% Burlington Resources, Inc. 4,326,800 $ 208,551,760 TOTAL COMMON STOCKS (COST: $3,484,167,653) 4,721,077,114 SHORT TERM INVESTMENTS--7.4% U.S. GOVERNMENT BILLS--4.7% United States Treasury Bills, 0.77% - 1.015% due 10/9/2003 - 12/18/2003 $ 240,000,000 $ 239,731,710 TOTAL U.S. GOVERNMENT BILLS (COST: $239,719,675) 239,731,710 REPURCHASE AGREEMENTS--2.7% IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price $134,503,549 collateralized by U.S. Government Agency Securities $ 134,500,000 $ 134,500,000 IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price $741,235 collateralized by a U.S. Government Agency Security 741,220 741,220 TOTAL REPURCHASE AGREEMENTS (COST: $135,241,220) 135,241,220 TOTAL SHORT TERM INVESTMENTS (COST: $374,960,895) 374,972,930 Total Investments (Cost $3,859,128,548)--100.2% $ 5,096,050,044 Other Liabilities In Excess Of Other Assets--(0.2%) (9,962,774) ---------------- TOTAL NET ASSETS--100% $ 5,086,087,270 ================
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. (c) Effective October 16, 2003, AOL Time Warner Inc. changed its name to Time Warner Inc. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-6 THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.4% FOOD & BEVERAGE--7.7% Ralcorp Holdings, Inc. (a) 575,000 $ 15,927,500 Del Monte Foods Company (a) 1,260,000 10,974,600 -------------- 26,902,100 HOUSEHOLD PRODUCTS--4.0% Tupperware Corporation 1,060,000 $ 14,182,800 OTHER CONSUMER GOODS & SERVICES--4.9% Department 56, Inc. (a) 688,000 $ 8,737,600 Callaway Golf Company 475,000 6,778,250 Central Parking Corporation 137,200 1,680,700 -------------- 17,196,550 SECURITY SYSTEMS--4.4% Checkpoint Systems, Inc. (a) 968,300 $ 15,299,140 APPAREL--3.2% Oakley, Inc. (a) 671,200 $ 6,712,000 R.G. Barry Corporation (a)(b) 900,000 4,680,000 -------------- 11,392,000 AUTOMOBILE RENTALS--2.4% Dollar Thrifty Automotive Group, Inc. (a) 375,000 $ 8,520,000 BUILDING MATERIALS & CONSTRUCTION--5.2% Insituform Technologies, Inc., Class A (a) 738,500 $ 13,115,760 Integrated Electrical Services, Inc. (a) 750,000 5,175,000 -------------- 18,290,760 HOTELS & MOTELS--0.8% Prime Hospitality Corp. (a) 327,800 $ 2,848,582 HUMAN RESOURCES--1.0% Hudson Highland Group, Inc. (a) 175,000 $ 3,367,000 INFORMATION SERVICES--4.7% eFunds Corporation (a)(b) 1,327,600 $ 16,395,860 MARKETING SERVICES--0.3% Grey Global Group, Inc. 1,500 $ 1,141,650
B-7
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.4% (CONT.) RESTAURANTS--3.8% Triarc Companies, Inc., Class B 500,000 $ 5,200,000 Jack in the Box Inc. (a) 210,000 3,738,000 Triarc Companies, Inc. 250,000 2,517,500 Landry's Restaurants, Inc. 87,800 1,808,680 -------------- 13,264,180 RETAIL--2.2% ShopKo Stores, Inc. (a)(c) 517,600 $ 7,764,000 BANK & THRIFTS--8.4% BankAtlantic Bancorp, Inc., Class A 1,000,000 $ 14,250,000 People's Bank of Bridgeport, Connecticut 360,000 10,778,400 PennFed Financial Services, Inc. 150,000 4,365,000 -------------- 29,393,400 INSURANCE--3.2% The PMI Group, Inc. 330,000 $ 11,137,500 OTHER FINANCIAL--3.5% NCO Group, Inc. (a) 530,000 $ 12,439,100 REAL ESTATE--1.8% Trammell Crow Company (a) 495,000 $ 6,162,750 MEDICAL PRODUCTS--7.3% Hanger Orthopedic Group, Inc. (a) 950,000 $ 14,582,500 CONMED Corporation (a) 400,000 8,256,000 Advanced Medical Optics, Inc. (a) 150,000 2,694,000 -------------- 25,532,500 COMPUTER SERVICES--4.0% CIBER, Inc. (a) 1,625,000 $ 12,350,000 Interland, Inc. (a) 210,000 1,614,900 -------------- 13,964,900 COMPUTER SOFTWARE--8.7% Mentor Graphics Corporation (a) 650,000 $ 11,394,500 MSC.Software Corp. (a) 1,350,000 9,720,000 Sybase, Inc. (a) 550,000 9,355,500 -------------- 30,470,000 COMPUTER SYSTEMS--1.7% Optimal Robotics Corp., Class A (a)(d) 723,500 $ 6,120,810 DATA STORAGE--2.0% Imation Corp. 215,000 $ 7,019,750
B-8
SHARES HELD/ NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- COMMON STOCKS--93.4% (CONT.) MACHINERY & INDUSTRIAL PROCESSING--1.7% SureBeam Corporation, Class A (a)(b) 4,250,000 $ 6,077,500 FORESTRY PRODUCTS--0.9% Schweitzer-Mauduit International, Inc. 130,500 $ 3,295,125 OIL & NATURAL GAS--5.6% St. Mary Land & Exploration Company 350,000 $ 8,862,000 Cabot Oil & Gas Corporation 250,000 6,500,000 Berry Petroleum Company 232,800 4,255,584 -------------- 19,617,584 TOTAL COMMON STOCKS (COST: $306,039,431) 327,795,541 SHORT TERM INVESTMENTS--7.3% U.S. GOVERNMENT BILLS--4.3% United States Treasury Bills, 0.845% - 0.91% due 10/2/2003 - 10/9/2003 $ 15,000,000 $ 14,998,813 TOTAL U.S. GOVERNMENT BILLS (COST: $14,998,813) 14,998,813 REPURCHASE AGREEMENTS--3.0% IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price $9,000,238 collateralized by U.S. Government Agency Securities $ 9,000,000 $ 9,000,000 IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price $1,558,003 collateralized by a U.S. Government Agency Security 1,587,970 1,587,970 TOTAL REPURCHASE AGREEMENTS (COST: $10,587,970) 10,587,970 TOTAL SHORT TERM INVESTMENTS (COST: $25,586,783) 25,586,783 Total Investments (Cost $331,626,214)--100.7% $ 353,382,324
B-9
NAME SHARES SUBJECT TO CALL MARKET VALUE ----------------------------------------------------------------------------------------------------- CALL OPTIONS WRITTEN--(0.1%) RETAIL--(0.1%) ShopKo Stores, Inc., March 17.50 Calls (45,000) $ (38,250) ShopKo Stores, Inc., December 15 Calls (50,000) (60,000) -------------- (98,250) TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED: $(116,769))--(0.1%) $ (98,250) Other Liabilities In Excess Of Other Assets--(0.6%) (2,270,441) -------------- TOTAL NET ASSETS--100% $ 351,013,633 ==============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. (c) A portion of this security has been segregated to cover written option contracts. (d) Represents a foreign domiciled corporation. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-10 THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--56.2% COMMON STOCKS--55.8% FOOD & BEVERAGE--4.6% Diageo plc (b) 2,300,000 $ 101,545,000 Nestle SA (b) 1,200,000 69,170,400 Kraft Foods Inc. 1,000,000 29,500,000 ---------------- 200,215,400 CABLE SYSTEMS & SATELLITE TV--2.1% General Motors Corporation, Class H (Hughes Electronics Corporation) (a) 6,356,200 $ 90,957,222 HARDWARE--0.7% The Stanley Works 962,100 $ 28,401,192 INFORMATION SERVICES--2.0% Ceridian Corporation (a) 4,800,000 $ 89,376,000 MARKETING SERVICES--1.9% The Interpublic Group of Companies, Inc. 5,750,000 $ 81,190,000 RESTAURANTS--0.4% Darden Restaurants, Inc. 1,000,000 $ 19,000,000 RETAIL--3.7% Costco Wholesale Corporation (a) 2,200,000 $ 68,376,000 J.C. Penney Company, Inc. 3,000,000 64,110,000 Office Depot, Inc. (a) 2,230,000 31,331,500 ---------------- 163,817,500 INSURANCE--2.4% SAFECO Corporation 2,900,000 $ 102,254,000 RenaissanceRe Holdings Ltd. (c) 100,000 4,563,000 ---------------- 106,817,000 REAL ESTATE--0.4% Hospitality Properties Trust 488,500 $ 17,136,580 HEALTH CARE SERVICES--4.3% Caremark Rx, Inc. (a) 4,250,000 $ 96,050,000 Cardinal Health, Inc. 1,600,000 93,424,000 ---------------- 189,474,000 MANAGED CARE SERVICES--2.4% First Health Group Corp. (a)(d) 3,950,000 $ 103,292,500
B-11
NAME SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--56.2% (CONT.) MEDICAL CENTERS--2.3% Laboratory Corporation of America Holdings (a) 3,500,000 $ 100,450,000 MEDICAL PRODUCTS--1.7% Apogent Technologies, Inc. (a) 2,264,400 $ 47,235,384 Techne Corporation (a) 750,000 23,842,500 Edwards Lifesciences Corporation (a) 100,000 2,708,000 ---------------- 73,785,884 PHARMACEUTICALS--3.0% Watson Pharmaceuticals, Inc. (a) 2,550,000 $ 106,309,500 Abbott Laboratories 565,400 24,057,770 ---------------- 130,367,270 COMPUTER SERVICES--1.4% Concord EFS, Inc. (a) 4,500,000 $ 61,515,000 COMPUTER SOFTWARE--3.9% Synopsys, Inc. (a) 3,690,000 $ 113,541,300 Novell, Inc. (a) 8,000,000 42,640,000 Mentor Graphics Corporation (a) 800,000 14,024,000 ---------------- 170,205,300 COMPUTER SYSTEMS--0.7% The Reynolds and Reynolds Company, Class A 1,164,000 $ 32,068,200 AEROSPACE & DEFENSE--4.2% Rockwell Collins, Inc. 3,107,900 $ 78,474,475 General Dynamics Corporation 730,800 57,046,248 Honeywell International, Inc. 1,889,500 49,788,325 ---------------- 185,309,048 AGRICULTURAL EQUIPMENT--0.0% Alamo Group, Inc. 141,900 $ 2,023,494 DIVERSIFIED CONGLOMERATES--1.3% Textron, Inc. 1,400,100 $ 55,233,945 INSTRUMENTS--1.2% Varian, Inc. (a) 1,649,400 $ 51,659,208 MACHINERY & INDUSTRIAL PROCESSING--2.0% Rockwell Automation, Inc. 2,075,000 $ 54,468,750 Cooper Industries, Ltd. 727,500 34,941,825 ---------------- 89,410,575 AGRICULTURAL OPERATIONS--1.9% Monsanto Company 3,500,000 $ 83,790,000
B-12
SHARES HELD/ NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--56.2% (CONT.) FORESTRY PRODUCTS--1.5% Plum Creek Timber Company, Inc. 2,657,044 $ 67,595,199 OIL & NATURAL GAS--5.8% Burlington Resources, Inc. 2,100,000 $ 101,220,000 XTO Energy, Inc. 4,499,933 94,453,594 St. Mary Land & Exploration Company 1,200,000 30,384,000 Cabot Oil & Gas Corporation 1,075,000 27,950,000 Cross Timbers Royalty Trust 33,295 699,195 ---------------- 254,706,789 TOTAL COMMON STOCKS (COST: $2,080,904,989) 2,447,797,306 CONVERTIBLE BONDS--0.4% CABLE SYSTEMS & SATELLITE TV--0.4% EchoStar Communications Corporation, 4.875% due 1/1/2007 $ 15,000,000 $ 15,281,250 TOTAL CONVERTIBLE BONDS (COST: $12,744,913) 15,281,250 TOTAL EQUITY AND EQUIVALENTS (COST: $2,093,649,902) 2,463,078,556 FIXED INCOME--33.4% PREFERRED STOCKS--0.0% BANK & THRIFTS--0.0% Fidelity Capital Trust I, Preferred, 8.375% 43,500 $ 446,310 TELECOMMUNICATIONS--0.0% MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 502,600 TOTAL PREFERRED STOCKS (COST: $935,000) 948,910 CORPORATE BONDS--2.1% BROADCASTING & PROGRAMMING--0.3% Liberty Media Corporation, 8.25% due 2/1/2030, Debenture 12,900,000 $ 14,934,137 BUILDING MATERIALS & CONSTRUCTION--0.0% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note 750,000 $ 821,250
B-13
NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- FIXED INCOME--33.4% (CONT.) CABLE SYSTEMS & SATELLITE TV--0.1% CSC Holdings Inc., 7.875% due 12/15/2007 3,000,000 $ 3,067,500 HOTELS & MOTELS--0.1% HMH Properties, 7.875% due 8/1/2005, Senior Note Series A 2,960,000 $ 3,034,000 Park Place Entertainment, 7.00% due 7/15/2004, Senior Notes 2,750,000 2,822,187 ---------------- 5,856,187 RETAIL--0.5% The Gap, Inc., 6.90% due 9/15/2007 9,187,000 $ 9,876,025 Toys 'R' Us, Inc., 7.875% due 4/15/2013 5,000,000 5,467,800 Rite Aid Corporation, 7.625% due 4/15/2005, Senior Notes 4,900,000 5,022,500 Ugly Duckling Corporation, 12.00% due 10/23/2003, Subordinated Debenture 650,000 642,687 ---------------- 21,009,012 HEALTH CARE SERVICES--0.5% Omnicare, Inc., 6.125% due 6/1/2013 20,000,000 $ 19,600,000 MEDICAL PRODUCTS--0.0% Apogent Technologies Inc., 144A, 6.50% due 5/15/2013 1,000,000 $ 1,025,000 OFFICE EQUIPMENT--0.3% Xerox Corporation, 7.125% due 6/15/2010 15,000,000 $ 14,887,500 MACHINERY & INDUSTRIAL PROCESSING--0.1% Columbus McKinnon Corporation New York, 8.50% due 4/1/2008 3,000,000 $ 2,640,000 OTHER INDUSTRIAL GOODS & SERVICES--0.2% Sealed Air Corporation, 144A, 5.625% due 7/15/2013 8,300,000 $ 8,407,975 ELECTRIC UTILITIES--0.0% Midland Funding Corporation, 11.75% due 7/23/2005 458,221 $ 498,315 TOTAL CORPORATE BONDS (COST: $87,298,047) 92,746,876 GOVERNMENT AND AGENCY SECURITIES--31.3% CANADIAN GOVERNMENT BONDS--3.4% Canada Government, 3.50% due 6/1/2004 100,000,000 $ 74,487,227 Canada Government, 3.00% due 12/1/2005 100,000,000 74,091,077 ---------------- 148,578,304
B-14
NAME PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------- FIXED INCOME--33.4% (CONT.) U.S. GOVERNMENT NOTES--27.2% United States Treasury Notes, 3.375% due 1/15/2007, Inflation Indexed 247,224,840 $ 271,947,324 United States Treasury Notes, 5.75% due 11/15/2005 200,000,000 217,593,800 United States Treasury Notes, 1.625% due 1/31/2005 200,000,000 201,265,600 United States Treasury Notes, 1.50% due 7/31/2005 200,000,000 200,461,000 United States Treasury Notes, 1.50% due 2/28/2005 125,000,000 125,576,125 United States Treasury Notes, 1.875% due 9/30/2004 75,000,000 75,600,600 United States Treasury Notes, 1.625% due 4/30/2005 50,000,000 50,292,950 United States Treasury Notes, 1.25% due 5/31/2005 50,000,000 49,970,700 ---------------- 1,192,708,099 U.S. GOVERNMENT AGENCIES--0.7% Federal Home Loan Mortgage Corporation, 3.75% due 11/26/2007 10,000,000 $ 10,041,380 Federal Home Loan Mortgage Corporation, 2.35% due 5/5/2008 7,100,000 7,147,187 Fannie Mae, 2.25% due 12/30/2008 6,975,000 6,901,281 Federal Home Loan Bank, 3.125% due 7/10/2009 4,000,000 3,897,568 Federal Home Loan Bank, 5.10% due 12/26/2006 2,035,000 2,053,584 Federal Home Loan Bank, 3.875% due 12/15/2004 1,000,000 1,029,836 ---------------- 31,070,836 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $1,335,285,283) 1,372,357,239 TOTAL FIXED INCOME (COST: $1,423,518,330) 1,466,053,025 SHORT TERM INVESTMENTS--9.7% U.S. GOVERNMENT BILLS--7.5% United States Treasury Bills, 0.765% - 0.925% due 10/2/2003 - 12/26/2003 $ 330,000,000 $ 329,705,731 TOTAL U.S. GOVERNMENT BILLS (COST: $329,700,153) 329,705,731 REPURCHASE AGREEMENTS--2.2% IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price $92,002,428 collateralized by U.S. Government Agency Securities $ 92,000,000 $ 92,000,000 IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price $1,457,275 collateralized by a U.S. Government Agency Security 1,457,245 1,457,245 TOTAL REPURCHASE AGREEMENTS (COST: $93,457,245) 93,457,245 TOTAL SHORT TERM INVESTMENTS (COST: $423,157,398) 423,162,976 Total Investments (Cost $3,940,325,630)--99.3% $ 4,352,294,557
B-15
NAME CONTRACTS HELD MARKET VALUE ----------------------------------------------------------------------------------------------------- CALL OPTIONS PURCHASED--0.0% BANK & THRIFTS--0.0% First Health Group Corp., January 30 Calls 420 $ 22,050 First Health Group Corp., October 30 Calls 170 2,550 ---------------- 24,600 AEROSPACE & DEFENSE--0.0% General Dynamics Corporation, November 80 Calls 2,548 $ 522,340 TOTAL CALL OPTIONS PURCHASED (COST: $431,250)--0.0% $ 546,940 Other Assets In Excess Of Other Liabilities--0.7% 31,807,514 ---------------- TOTAL NET ASSETS--100% $ 4,384,649,011 ================
(a) Non-income producing security. (b) Represents an American Depository Receipt. (c) Represents a foreign domiciled corporation. (d) See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-16 THE OAKMARK GLOBAL FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% FOOD & BEVERAGE--11.3% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 3,885,000 $ 42,041,811 Nestle SA (Switzerland) Food & Beverage Manufacturer 139,100 32,072,048 Lotte Chilsung Beverage Co., Ltd. (Korea) (b) Soft Drinks, Juices & Sports Drinks Manufacturer 13,430 6,375,499 -------------- 80,489,358 HOUSEHOLD PRODUCTS--3.0% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 328,700 $ 21,065,972 BROADCASTING & PROGRAMMING--3.8% Grupo Televisa S.A. (Mexico) (c) Television Production & Broadcasting 566,500 $ 20,728,235 Liberty Media Corporation, Class A (United States) (a) Broadcast Services & Programming 650,000 6,480,500 -------------- 27,208,735 CABLE SYSTEMS & SATELLITE TV--1.4% AOL Time Warner Inc. (United States) (a)(d) Multimedia 675,000 $ 10,199,250 HUMAN RESOURCES--1.7% Michael Page International plc (Great Britain) (b) Recruitment Consultancy Services 4,815,400 $ 11,966,936 INFORMATION SERVICES--7.0% eFunds Corporation (United States) (a)(b)(e) Electronic Debit Payment Services 1,845,000 $ 22,785,750 Ceridian Corporation (United States) (a) Data Management Services 1,025,000 19,085,500 Equifax Inc. (United States) Credit Reporting & Collection 350,000 7,794,500 -------------- 49,665,750 MARKETING SERVICES--3.5% The Interpublic Group of Companies, Inc. (United States) Advertising & Marketing Services 1,750,000 $ 24,710,000
B-17
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% (CONT.) MOTORCYCLES--0.4% Ducati Motor Holding S.p.A. (Italy) (a) Motorcycle Manufacturer 1,933,500 $ 3,174,492 RETAIL--5.8% Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 2,890,100 $ 23,270,731 The TJX Companies, Inc. (United States) Discount Apparel & Home Fashion Retailer 900,000 17,478,000 -------------- 40,748,731 BANK & THRIFTS--1.8% Banco Popolare di Verona e Novara Scrl (Italy) Commercial Bank 498,600 $ 7,028,280 Washington Mutual, Inc. (United States) Thrift 150,000 5,905,500 -------------- 12,933,780 FINANCIAL SERVICES--2.5% Julius Baer Holding Ltd., Zurich (Switzerland) Asset Management 39,800 $ 11,451,937 Credit Suisse Group (Switzerland) Investment Services & Insurance 190,700 6,100,841 -------------- 17,552,778 OTHER FINANCIAL--9.2% Fannie Mae (United States) (e) Mortgage Provider 400,000 $ 28,080,000 Euronext (Netherlands) Stock Exchange 968,200 23,590,559 Daiwa Securities Group Inc. (Japan) Stock Broker 2,062,000 13,967,432 -------------- 65,637,991 MANAGED CARE SERVICES--3.9% First Health Group Corp. (United States) (a)(b) Health Benefits Company 1,064,000 $ 27,823,600 MEDICAL CENTERS--2.6% Laboratory Corporation of America Holdings (United States) (a) Medical Laboratory & Testing Services 650,000 $ 18,655,000
B-18
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% (CONT.) MEDICAL PRODUCTS--2.9% Ansell Limited (Australia) Protective Rubber & Plastics Products 4,468,100 $ 20,424,936 PHARMACEUTICALS--9.8% Aventis S.A. (France) Pharmaceuticals 520,900 $ 27,040,902 Takeda Chemical Industries, Ltd. (Japan) Pharmaceuticals & Food Supplements 656,900 23,986,928 GlaxoSmithKline plc (Great Britain) Pharmaceuticals 875,300 18,231,290 -------------- 69,259,120 TELECOMMUNICATIONS--1.7% SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 73,700 $ 11,790,462 TELECOMMUNICATIONS EQUIPMENT--0.7% Telefonaktiebolaget LM Ericsson, Class B (Sweden) (a) Mobile & Wired Telecommunications Products 3,470,000 $ 5,060,790 COMPUTER SERVICES--5.6% Concord EFS, Inc. (United States) (a) Electronic Processing Services 1,450,000 $ 19,821,500 Meitec Corporation (Japan) (b) Software Engineering Services 381,200 14,022,250 First Data Corporation (United States) Data Processing & Management 150,000 5,994,000 -------------- 39,837,750 COMPUTER SOFTWARE--3.9% Novell, Inc. (United States) (a) Network & Internet Integration Software 3,000,000 $ 15,990,000 Synopsys, Inc. (United States) (a)(e) Electronic Design Automation 390,000 12,000,300 -------------- 27,990,300 OFFICE EQUIPMENT--2.4% Neopost SA (France) Mailroom Equipment Supplier 362,050 $ 16,790,775
B-19
SHARES HELD/ NAME DESCRIPTION PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.2% (CONT.) AIRPORT MAINTENANCE--0.9% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b)(c) Airport Operator 463,000 $ 6,806,100 DIVERSIFIED CONGLOMERATES--3.6% Vivendi Universal SA (France) (a) Multimedia 1,430,500 $ 25,336,730 INSTRUMENTS--0.6% Orbotech, Ltd. (Israel) (a)(b) Optical Inspection Systems 228,700 $ 4,674,628 CHEMICALS--2.2% Akzo Nobel N.V. (Netherlands) Chemical Producer 497,800 $ 15,528,245 TOTAL COMMON STOCKS (COST: $573,667,677) 655,332,209 SHORT TERM INVESTMENTS--9.2% U.S. GOVERNMENT BILLS--7.0% United States Treasury Bills, 0.845%-0.93% due 10/2/2003 - 10/23/2003 $ 50,000,000 $ 49,988,023 TOTAL U.S. GOVERNMENT BILLS (COST: $49,988,023) 49,988,023 REPURCHASE AGREEMENTS--2.2% IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price of $13,500,356, collateralized by U.S. Government Agency Securities $ 13,500,000 $ 13,500,000 IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price of $1,835,844, collateralized by a U.S. Government Agency Security 1,835,806 1,835,806 TOTAL REPURCHASE AGREEMENTS (COST: $15,335,806) 15,335,806 TOTAL SHORT TERM INVESTMENTS (COST: $65,323,829) 65,323,829 Total Investments (Cost $638,991,506)--101.4% $ 720,656,038
B-20
NAME DESCRIPTION SHARES SUBJECT TO CALL MARKET VALUE ----------------------------------------------------------------------------------------------------------- CALL OPTIONS WRITTEN--0.0% INFORMATION SERVICES--0.0% eFunds Corporation, December 15 Calls (United States) Electronic Debit Payment Services (100,000) $ (22,500) COMPUTER SOFTWARE--0.0% Synopsys, Inc., December 35 Calls (United States) Electronic Design Automation (100,000) $ (80,000) TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED: $(175,242))--0.0% (102,500) NAME DESCRIPTION SHARES SUBJECT TO PUT MARKET VALUE ----------------------------------------------------------------------------------------------------------- PUT OPTIONS WRITTEN--0.0% COMPUTER SOFTWARE--0.0% Synopsys, Inc., December 27.50 Puts (United States) Electronic Design Automation (100,000) $ (105,000) TOTAL PUT OPTIONS WRITTEN (PREMIUMS RECEIVED: $(80,746))--0.0% (105,000) Other Liabilities In Excess Of Other Assets--(1.4%) (9,851,103) -------------- TOTAL NET ASSETS--100% $ 710,597,435 ==============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. (c) Represents an American Depository Receipt. (d) Effective October 16, 2003, AOL Time Warner Inc. changed its name to Time Warner Inc. (e) A portion of this security has been segregated to cover written option contracts. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-21 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% FOOD & BEVERAGE--14.2% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 9,655,900 $ 104,492,027 Nestle SA (Switzerland) Food & Beverage Manufacturer 392,300 90,451,937 Cadbury Schweppes plc (Great Britain) Beverage & Confectionary Manufacturer 11,515,500 70,874,053 Pernod-Ricard SA (France) Manufactures Wines, Spirits, & Fruit Juices 615,425 58,302,180 Lotte Chilsung Beverage Co., Ltd. (Korea) (c) Soft Drinks, Juices & Sports Drinks Manufacturer 83,400 39,591,705 Fomento Economico Mexicano S.A. de C.V. (Mexico) (b) Soft Drink & Beer Manufacturer 979,700 37,375,555 ---------------- 401,087,457 HOUSEHOLD PRODUCTS--3.1% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 1,355,350 $ 86,862,687 OTHER CONSUMER GOODS & SERVICES--1.6% Swatch Group AG, Bearer Shares (Switzerland) Watch Manufacturer 457,900 $ 43,513,762 Swatch Group AG, Registered Shares (Switzerland) Watch Manufacturer 24,700 474,119 ---------------- 43,987,881 AUTOMOBILES--2.2% Bayerische Motoren Werke (BMW) AG (Germany) Luxury Automobile Manufacturer 1,620,100 $ 61,259,808 AUTOMOTIVE--1.9% Compagnie Generale des Etablissements Michelin (France) Tire Manufacturer 1,454,500 $ 54,116,756 BROADCASTING & PROGRAMMING--2.4% Grupo Televisa S.A. (Mexico) (b) Television Production & Broadcasting 1,841,200 $ 67,369,508
B-22
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) HUMAN RESOURCES--2.1% Michael Page International plc (Great Britain) (c) Recruitment Consultancy Services 23,736,600 $ 58,988,739 MARKETING SERVICES--3.8% Publicis Groupe (France) Advertising & Media Services 2,286,100 $ 62,814,244 Aegis Group plc (Great Britain) Media Services 30,524,200 44,524,681 ---------------- 107,338,925 PUBLISHING--4.3% John Fairfax Holdings Limited (Australia) Newspaper Publisher 32,814,100 $ 71,652,951 Reed Elsevier plc (Great Britain) Publisher 5,943,100 46,506,405 ---------------- 118,159,356 RECREATION & ENTERTAINMENT--0.9% Nintendo Company, Ltd. (Japan) Video Game Manufacturer 284,800 $ 23,916,454 RETAIL--3.1% Signet Group plc (Great Britain) Jewelry Retailer 28,446,100 $ 49,768,465 Giordano International Limited (Hong Kong) (c) Pacific Rim Clothing Retailer & Manufacturer 82,924,300 37,744,455 ---------------- 87,512,920 BANK & THRIFTS--11.0% Sanpaolo IMI S.p.A. (Italy) Banking Services 6,565,300 $ 65,294,592 Bank of Ireland (Ireland) Commercial Banking 5,347,000 63,925,871 BNP Paribas SA (France) Commercial Banking 1,156,000 56,709,921 United Overseas Bank Limited, Foreign Shares (Singapore) Commercial Banking 6,178,368 47,876,323 Banco Popolare di Verona e Novara Scrl (Italy) Commercial Banking 2,938,400 41,419,772 Svenska Handelsbanken AB (Sweden) Commercial Banking 1,498,800 25,437,816 Kookmin Bank (Korea) Commercial Banking 231,168 7,577,302 ---------------- 308,241,597 FINANCIAL SERVICES--1.8% Credit Suisse Group (Switzerland) Investment Services & Insurance 1,552,900 $ 49,680,101
B-23
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) OTHER FINANCIAL--7.6% Daiwa Securities Group Inc. (Japan) Stock Broker 11,688,000 $ 79,171,362 Euronext (Netherlands) Stock Exchange 3,221,600 78,495,500 Deutsche Boerse AG (Germany) Electronic Trading Systems 1,105,200 56,407,142 ---------------- 214,074,004 PHARMACEUTICALS--11.4% GlaxoSmithKline plc (Great Britain) Pharmaceuticals 4,799,700 $ 99,971,123 Aventis S.A. (France) Pharmaceuticals 1,738,800 90,264,390 Takeda Chemical Industries, Ltd. (Japan) Pharmaceuticals & Food Supplements 2,314,000 84,496,501 Novartis AG (Switzerland) Pharmaceuticals 1,170,700 45,297,975 ---------------- 320,029,989 TELECOMMUNICATIONS--2.7% SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 473,600 $ 75,766,117 TELECOMMUNICATIONS EQUIPMENT--1.4% Telefonaktiebolaget LM Ericsson, Class B (Sweden) (a) Mobile & Wired Telecommunications Products 26,012,000 $ 37,936,964 COMPUTER SERVICES--2.1% Meitec Corporation (Japan) (c) Software Engineering Services 1,613,200 $ 59,340,750 AIRPORT MAINTENANCE--0.1% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b)(c) Airport Operator 242,000 $ 3,557,400 DIVERSIFIED CONGLOMERATES--3.4% Vivendi Universal SA (France) (a) Multimedia 4,702,700 $ 83,293,282 LVMH Moet Hennessy Louis Vuitton SA (France) Diversified Luxury Goods 159,600 9,921,708 Haw Par Corporation Limited (Singapore) Healthcare & Leisure Products 58,338 144,390 ---------------- 93,359,380
B-24
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------- COMMON STOCKS--95.1% (CONT.) INSTRUMENTS--1.5% Orbotech, Ltd. (Israel) (a)(c) Optical Inspection Systems 2,041,200 $ 41,722,128 MACHINERY & INDUSTRIAL PROCESSING--1.4% Metso Corporation (Finland) Paper & Pulp Machinery 3,863,000 $ 38,576,662 OTHER INDUSTRIAL GOODS & SERVICES--2.5% Enodis plc (Great Britain) (a)(c) Food Processing Equipment 33,585,320 $ 39,080,214 Chargeurs SA (France) (c) Wool, Textile Production & Trading 1,050,201 30,593,668 ---------------- 69,673,882 TRANSPORTATION SERVICES--2.1% Associated British Ports Holdings plc (Great Britain) Port Operator 8,497,299 $ 58,371,811 CHEMICALS--6.5% Akzo Nobel N.V. (Netherlands) Chemical Producer 2,576,500 $ 80,370,678 Givaudan (Switzerland) Fragrance & Flavor Compound Manufacturer 182,700 77,332,601 Lonza Group AG, Registered Shares (Switzerland) Industrial Organic Chemicals 492,900 23,102,646 ---------------- 180,805,925 TOTAL COMMON STOCKS (COST: $2,310,623,395) 2,661,737,201
B-25
NAME DESCRIPTION PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--4.7% U.S. GOVERNMENT BILLS--1.4% United States Treasury Bills, 0.845%-0.875% due 10/2/2003 - 10/9/2003 $ 40,000,000 $ 39,995,759 TOTAL U.S. GOVERNMENT BILLS (COST: $39,995,759) 39,995,759 REPURCHASE AGREEMENTS--3.3% IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price $90,502,388 collateralized by U.S. Government Agency Securities $ 90,500,000 $ 90,500,000 IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price $2,247,122 collateralized by a U.S. Government Agency Security 2,247,075 2,247,075 TOTAL REPURCHASE AGREEMENTS (COST: $92,747,075) 92,747,075 TOTAL SHORT TERM INVESTMENTS (COST: $132,742,834) 132,742,834 Total Investments (Cost $2,443,366,229)--99.8% $ 2,794,480,035 Other Assets In Excess Of Other Liabilities--0.2% 5,365,101 ---------------- TOTAL NET ASSETS--100% $ 2,799,845,136 ================
(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 securities of affiliated issuers. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-26 THE OAKMARK INTERNATIONAL SMALL CAP FUND SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.8% FOOD & BEVERAGE--5.9% Campari Group (Italy) Soft Drinks, Wines, & Spirits Producer 245,200 $ 9,925,888 Baron de Ley, S.A. (Spain) (a) Wines & Spirits Manufacturer 150,985 6,069,767 Hite Brewery Co., Ltd. (Korea) Brewer 68,000 4,138,591 Alaska Milk Corporation (Philippines) (b) Milk Producer 49,394,000 2,745,362 Grupo Continental, S.A. (Mexico) Soft Drink Manufacturer 1,654,100 2,451,633 Kook Soon Dang Brewery Co., Ltd. (Korea) Wine & Spirits Manufacturer 122,676 2,191,881 -------------- 27,523,122 HOUSEHOLD PRODUCTS--0.6% Societe BIC SA (France) Consumer & Office Supplies 64,800 $ 2,763,600 OTHER CONSUMER GOODS & SERVICES--0.2% Royal Doulton plc (Great Britain) (a)(b) Tableware & Giftware 22,373,000 $ 1,069,231 BROADCASTING & PUBLISHING--2.3% Tamedia AG (Switzerland) TV Broadcasting & Publishing 184,151 $ 11,155,174 BUILDING MATERIALS & CONSTRUCTION--0.8% Fletcher Building Limited (New Zealand) Building Materials Manufacturer 1,489,800 $ 3,788,877 HUMAN RESOURCES--2.1% DIS Deutscher Industrie Service AG (Germany) Recruitment Consultancy Services 552,142 $ 10,242,665 INFORMATION SERVICES--4.6% Baycorp Advantage Limited (Australia) (b) Credit Reference Services 14,303,477 $ 22,184,264 MARKETING SERVICES--2.1% Asatsu-DK, Inc. (Japan) Advertising Services Provider 426,700 $ 9,934,384 MOTORCYCLES--1.1% Ducati Motor Holding S.p.A. (Italy) (a) Motorcycle Manufacturer 3,238,300 $ 5,316,762
B-27
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.8% (CONT.) PUBLISHING--2.2% Recoletos Grupo de Comunicacion, S.A. (Spain) Publisher 880,000 $ 6,121,757 Matichon Public Company Limited, Foreign Shares (Thailand) (b) Newspaper Publisher 2,039,500 4,381,639 -------------- 10,503,396 RECREATION & ENTERTAINMENT--2.0% Square Enix Co., Ltd. (Japan) Entertainment Software 324,600 $ 8,096,070 Konami Sports Corporation (Japan) Fitness Centers 96,500 1,506,460 -------------- 9,602,530 RETAIL--9.3% Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 2,170,800 $ 17,479,016 Carpetright plc (Great Britain) Carpet Retailer 1,174,500 15,326,115 D.F.S. Furniture Company plc (Great Britain) Furniture Retailer & Manufacturer 1,743,600 11,897,876 -------------- 44,703,007 BANK & THRIFTS--3.7% Jyske Bank A/S (Denmark) (a) Commercial Banking 222,400 $ 9,562,739 Vontobel Holding AG (Switzerland) Commercial Banking 469,000 7,972,627 -------------- 17,535,366 FINANCIAL SERVICES--4.6% Julius Baer Holding Ltd., Zurich (Switzerland) Asset Management 49,090 $ 14,125,014 Van der Moolen Holding N.V. (Netherlands) International Trading Firm 761,200 7,920,806 -------------- 22,045,820 OTHER FINANCIAL--2.5% Ichiyoshi Securities Co., Ltd. (Japan) Stock Broker 2,480,000 $ 9,545,308 TSX Group Inc. (Canada) Stock Exchanges 101,500 2,442,614 -------------- 11,987,922 MEDICAL PRODUCTS--4.2% Ansell Limited (Australia) Protective Rubber & Plastics Products 3,587,350 $ 16,398,781 Coloplast A/S, Class B Healthcare Products & (Denmark) Services Provider 46,100 3,863,128 -------------- 20,261,909
B-28
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.8% (CONT.) PHARMACEUTICALS--0.6% Santen Pharmaceutical Co., Ltd. (Japan) Pharmaceuticals 265,500 $ 2,977,526 TELECOMMUNICATIONS--0.5% Asia Satellite Telecommunications Holdings Limited (Hong Kong) Satellite Operator 1,491,000 $ 2,281,436 COMPUTER SERVICES--4.2% Morse plc (Great Britain) Business & Technology Solutions 5,734,300 $ 12,153,462 Sopra Group (France) Computer Engineering 128,430 5,207,926 Alten (France) (a) Systems Consulting & Engineering 298,141 3,081,516 -------------- 20,442,904 COMPUTER SYSTEMS--2.4% Lectra (France) (a) Manufacturing Process Systems 1,718,500 $ 11,714,520 OFFICE EQUIPMENT--3.6% Neopost SA (France) Mailroom Equipment Supplier 374,800 $ 17,382,081 AIRPORT MAINTENANCE--6.5% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b)(c) Airport Operator 1,064,000 $ 15,640,800 Kobenhavns Lufthavne A/S (Copenhagen Airports A/S - CPH) (Denmark) Airport Management & Operations 162,700 15,191,529 -------------- 30,832,329 DIVERSIFIED CONGLOMERATES--6.3% Pargesa Holding AG (Switzerland) Diversified Operations 5,374 $ 12,390,739 Financiere Marc de Lacharriere SA (Fimalac) (France) Diversified Operations 346,764 9,071,299 Tae Young Corp. (Korea) Heavy Construction 213,000 8,518,889 Financiere Marc de Lacharriere SA (Fimalac), Warrants (France) Diversified Operations 31,866 83,918 -------------- 30,064,845
B-29
NAME DESCRIPTION SHARES HELD MARKET VALUE ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--94.8% (CONT.) ENVIRONMENTAL PRODUCTS & SERVICES--0.1% Munters AB (Sweden) Cooling & Moisture Control Systems 23,500 $ 509,551 INSTRUMENTS--1.7% Vaisala Oyj, Class A (Finland) Atmospheric Observation Equipment 329,700 $ 8,052,474 MACHINERY & INDUSTRIAL PROCESSING--8.1% Pfeiffer Vacuum Technology AG (Germany) (b) Vacuum Pump Manufacturer 471,140 $ 14,262,913 Alfa Laval (Sweden) Filtration & Separation Equipment 1,133,100 13,308,221 Carbone Lorraine SA (France) Electrical Systems Manufacturer 300,382 9,678,056 Andritz AG (Austria) General Industrial Machinery 41,700 1,348,398 -------------- 38,597,588 OTHER INDUSTRIAL GOODS & SERVICES--5.3% Schindler Holding AG (Switzerland) (a) Elevator & Escalator Manufacturer 71,900 $ 16,768,409 LISI (France) Industrial Fastener Manufacturer 241,813 7,044,315 Kone Oyj, Class B (Finland) Elevators 24,500 1,224,451 -------------- 25,037,175 PRODUCTION EQUIPMENT--2.4% Interpump Group S.p.A. (Italy) Pump & Piston Manufacturer 2,816,400 $ 10,656,037 NSC Groupe (France) Textile Equipment Manufacturer 12,316 1,062,708 -------------- 11,718,745 TRANSPORTATION SERVICES--1.3% Mainfreight Limited (New Zealand) (b) Logistics Services 7,765,726 $ 6,151,604 CHEMICALS--3.6% Gurit-Heberlein AG (Switzerland) Chemical Producer 27,664 $ 17,176,754 TOTAL COMMON STOCKS (COST: $383,420,899) 453,557,561
B-30
NAME DESCRIPTION PAR VALUE MARKET VALUE ----------------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--4.4% U.S. GOVERNMENT BILLS--1.1% United States Treasury Bills, 0.845% due 10/9/2003 $ 5,000,000 $ 4,999,061 TOTAL U.S. GOVERNMENT BILLS (COST: $4,999,061) 4,999,061 REPURCHASE AGREEMENTS--3.3% IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price of $14,000,369 collateralized by U.S. Government Agency Securities $ 14,000,000 $ 14,000,000 IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price of $1,838,097 collateralized by a U.S. Government Agency Security 1,838,059 1,838,059 TOTAL REPURCHASE AGREEMENTS (COST: $15,838,059) 15,838,059 TOTAL SHORT TERM INVESTMENTS (COST: $20,837,120) 20,837,120 Total Investments (Cost $404,258,019)--99.2% $ 474,394,681 Foreign Currencies (Cost $93,014)--0.0% $ 93,140 Other Assets In Excess Of Other Liabilities--0.8% 3,756,608 -------------- TOTAL NET ASSETS--100% $ 478,244,429 ==============
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. (c) Represents an American Depository Receipt. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-31 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF ASSETS AND LIABILITIES--SEPTEMBER 30, 2003
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value (a) $ 4,624,823,480 $ 4,360,576,973 $ 326,228,964 Investments in affiliated securities, at value (b) 168,308,045 735,473,071 27,153,360 Foreign currency, at value (c) 0 0 0 Receivable for: Securities sold 0 0 2,042,304 Fund shares sold 10,156,339 7,738,785 460,427 Dividends and interest 6,479,553 4,186,428 247,903 Tax reclaim 0 0 0 ---------------- ---------------- ---------------- Total receivables 16,635,892 11,925,213 2,750,634 Other assets 2,049 2,076 1,783 ---------------- ---------------- ---------------- Total assets $ 4,809,769,466 $ 5,107,977,333 $ 356,134,741 LIABILITIES AND NET ASSETS Options written, at value (d) $ 0 $ 0 $ 98,250 Payable for: Securities purchased 13,833,926 16,639,652 4,315,627 Fund shares redeemed 2,475,482 2,887,634 186,605 Due to Adviser 120,488 124,770 10,303 Due to transfer agent 531,261 316,261 80,462 Trustees fees 16,796 17,890 6,591 Deferred trustee compensation 633,260 504,425 221,776 Other 1,643,118 1,399,431 201,494 ---------------- ---------------- ---------------- Total liabilities 19,254,331 21,890,063 5,121,108 ---------------- ---------------- ---------------- Net assets applicable to fund shares outstanding $ 4,790,515,135 $ 5,086,087,270 $ 351,013,633 ================ ================ ================ ANALYSIS OF NET ASSETS Paid in capital $ 4,577,792,523 $ 4,017,762,883 $ 341,279,922 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (332,994,872) (178,322,687) (11,819,142) Net unrealized appreciation (depreciation) of investments 526,808,316 1,236,921,496 21,774,629 Net unrealized appreciation (depreciation)--other 0 0 0 Accumulated undistributed net investment income (loss) 18,909,168 9,725,578 (221,776) ---------------- ---------------- ---------------- Net assets applicable to Fund shares outstanding $ 4,790,515,135 $ 5,086,087,270 $ 351,013,633 ================ ================ ================ PRICE OF SHARES Net asset value per share: Class I $ 33.85 $ 27.55 $ 17.18 ================ ================ ================ Class I--Net assets $ 4,769,381,577 $ 4,993,029,715 $ 350,261,221 Class I--Shares outstanding (Unlimited shares authorized) 140,880,178 181,227,232 20,384,382 Net asset value per share: Class II $ 33.68 $ 27.37 $ 17.10 ================ ================ ================ Class II--Net assets $ 21,133,558 $ 93,057,555 $ 752,412 Class II--Shares outstanding (Unlimited shares authorized) 627,434 3,399,741 44,013 (a) Identified cost of investments in unaffiliated securities $ 4,145,259,797 $ 3,399,502,648 $ 287,196,683 (b) Identified cost of investments in affiliated securities 121,063,412 459,625,900 44,429,531 (c) Identified cost of foreign currency 0 0 0 (d) Premiums received on options written 0 0 116,769
B-32
THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INCOME FUND FUND ----------------------------------------------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value (a) $ 4,249,548,997 $ 626,201,275 Investments in affiliated securities, at value (b) 103,292,500 94,454,763 Foreign currency, at value (c) 0 0 Receivable for: Securities sold 11,963,539 0 Fund shares sold 22,586,257 5,217,976 Dividends and interest 15,014,757 1,395,507 Tax reclaim 0 113,158 ---------------- ---------------- Total receivables 49,564,553 6,726,641 Other assets 1,967 12,453 ---------------- ---------------- Total assets $ 4,402,408,017 $ 727,395,132 LIABILITIES AND NET ASSETS Options written, at value (d) $ 0 $ 207,500 Payable for: Securities purchased 12,316,799 14,557,379 Fund shares redeemed 3,407,236 1,560,608 Due to Adviser 88,925 16,315 Due to transfer agent 228,292 53,826 Trustees fees 14,783 6,796 Deferred trustee compensation 280,303 174,344 Other 1,422,668 220,929 ---------------- ---------------- Total liabilities 17,759,006 16,797,697 ---------------- ---------------- Net assets applicable to fund shares outstanding $ 4,384,649,011 $ 710,597,435 ================ ================ ANALYSIS OF NET ASSETS Paid in capital $ 4,019,126,985 $ 626,594,459 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (70,194,686) 2,553,786 Net unrealized appreciation (depreciation) of investments 412,084,617 81,764,860 Net unrealized appreciation (depreciation)--other 86,868 (25,111) Accumulated undistributed net investment income (loss) 23,545,227 (290,559) ---------------- ---------------- Net assets applicable to Fund shares outstanding $ 4,384,649,011 $ 710,597,435 ================ ================ PRICE OF SHARES Net asset value per share: Class I $ 20.30 $ 16.98 ================ ================ Class I--Net assets $ 4,138,019,989 $ 704,789,043 Class I--Shares outstanding (Unlimited shares authorized) 203,828,648 41,511,169 Net asset value per share: Class II $ 20.24 $ 16.84 ================ ================ Class II--Net assets $ 246,629,022 $ 5,808,392 Class II--Shares outstanding (Unlimited shares authorized) 12,185,691 344,894 (a) Identified cost of investments in unaffiliated securities $ 3,845,345,286 $ 555,621,304 (b) Identified cost of investments in affiliated securities 95,411,594 83,370,202 (c) Identified cost of foreign currency 0 0 (d) Premiums received on options written 0 255,988 THE OAKMARK THE OAKMARK INTERNATIONAL INTERNATIONAL FUND SMALL CAP FUND ----------------------------------------------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value (a) $ 2,483,860,976 $ 407,958,868 Investments in affiliated securities, at value (b) 310,619,059 66,435,813 Foreign currency, at value (c) 0 93,140 Receivable for: Securities sold 0 2,276,361 Fund shares sold 15,637,549 1,429,207 Dividends and interest 6,473,864 247,648 Tax reclaim 1,233,241 787,921 ---------------- ---------------- Total receivables 23,344,654 4,741,137 Other assets 1,888 1,783 ---------------- ---------------- Total assets $ 2,817,826,577 $ 479,230,741 LIABILITIES AND NET ASSETS Options written, at value (d) $ 0 $ 0 Payable for: Securities purchased 14,328,817 148,185 Fund shares redeemed 2,004,232 395,649 Due to Adviser 72,155 15,629 Due to transfer agent 183,349 41,845 Trustees fees 11,225 6,745 Deferred trustee compensation 311,238 192,332 Other 1,070,425 185,927 ---------------- ---------------- Total liabilities 17,981,441 986,312 ---------------- ---------------- Net assets applicable to fund shares outstanding $ 2,799,845,136 $ 478,244,429 ================ ================ ANALYSIS OF NET ASSETS Paid in capital $ 2,640,297,749 $ 438,410,162 Accumulated undistributed net realized gain (loss) of investments, forward contracts and foreign currency exchange transactions (211,075,834) (33,870,230) Net unrealized appreciation (depreciation) of investments 351,213,309 70,126,173 Net unrealized appreciation (depreciation)--other 127,745 60,059 Accumulated undistributed net investment income (loss) 19,282,167 3,518,265 ---------------- ---------------- Net assets applicable to Fund shares outstanding $ 2,799,845,136 $ 478,244,429 ================ ================ PRICE OF SHARES Net asset value per share: Class I $ 15.67 $ 13.74 ================ ================ Class I--Net assets $ 2,676,610,268 $ 477,804,840 Class I--Shares outstanding (Unlimited shares authorized) 170,773,739 34,774,368 Net asset value per share: Class II $ 15.58 $ 13.69 ================ ================ Class II--Net assets $ 123,234,868 $ 439,589 Class II--Shares outstanding (Unlimited shares authorized) 7,908,472 32,113 (a) Identified cost of investments in unaffiliated securities $ 2,175,433,085 $ 336,790,323 (b) Identified cost of investments in affiliated securities 267,933,144 67,467,696 (c) Identified cost of foreign currency 0 93,014 (d) Premiums received on options written 0 0
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-33 STATEMENTS OF OPERATIONS--YEAR ENDED SEPTEMBER 30, 2003
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 59,602,137 $ 44,753,904 $ 2,129,441 Dividends from affiliated securities 2,241,682 6,736,252 0 Interest Income 4,037,177 4,522,097 182,668 Securities lending income 0 0 0 Other income 89,785 35,751 0 Foreign taxes withheld (255,528) 0 0 ---------------- ---------------- ---------------- Total investment income 65,715,253 56,048,004 2,312,109 EXPENSES: Investment advisory fee 37,074,474 38,938,068 3,492,495 Transfer and dividend disbursing agent fees 2,825,387 1,661,800 418,413 Other shareholder servicing fees 3,073,278 2,731,432 239,250 Service fee--Class II 31,136 193,129 1,674 Reports to shareholders 2,142,621 1,259,823 297,125 Custody and accounting fees 434,075 469,750 50,691 Registration and blue sky expenses 147,168 77,419 37,320 Trustee fees 69,818 79,240 27,628 Deferred trustee compensation 179,772 191,415 71,267 Legal fees 53,468 56,404 21,291 Audit fees 55,910 64,005 12,996 Other 243,537 262,021 57,493 ---------------- ---------------- ---------------- Total expenses 46,330,644 45,984,506 4,727,643 Expense reimbursement 0 0 (654) Expense offset arrangements (170) (51) (9) ---------------- ---------------- ---------------- Net expenses 46,330,474 45,984,455 4,726,980 NET INVESTMENT INCOME (LOSS): 19,384,779 10,063,549 (2,414,871) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities (150,513,441) (103,743,922) (10,678,339) Net realized loss on affiliated securities 0 (5,847,345) (970,575) Net realized gain (loss) on options 12,672,486 7,892,086 326,790 Net realized gain on short sales 153,209 2,021 0 Net realized gain (loss) on foreign currency transactions 0 0 0 Net change in unrealized appreciation of investments and foreign currencies 867,321,548 1,121,320,614 80,258,968 Net change in appreciation (depreciation)--other 0 0 0 Net realized and unrealized gain on investments and foreign currency transactions: 729,633,802 1,019,623,454 68,936,844 ---------------- ---------------- ---------------- Net increase in net assets resulting from operations $ 749,018,581 $ 1,029,687,003 $ 66,521,973 ================ ================ ================
B-34
THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INCOME FUND FUND ----------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 23,518,559 $ 3,650,525 Dividends from affiliated securities 0 661,483 Interest Income 41,360,992 236,693 Securities lending income 0 38,886 Other income 6,277 0 Foreign taxes withheld (228,206) (460,738) ---------------- ---------------- Total investment income 64,657,622 4,126,849 EXPENSES: Investment advisory fee 23,468,519 2,982,092 Transfer and dividend disbursing agent fees 1,161,063 267,441 Other shareholder servicing fees 3,446,666 149,118 Service fee--Class II 423,874 5,196 Reports to shareholders 915,859 183,647 Custody and accounting fees 356,560 225,992 Registration and blue sky expenses 209,265 121,133 Trustee fees 64,182 27,876 Deferred trustee compensation 154,035 71,226 Legal fees 46,562 20,340 Audit fees 47,139 11,562 Other 189,829 51,789 ---------------- ---------------- Total expenses 30,483,553 4,117,412 Expense reimbursement 0 0 Expense offset arrangements (1) (9) ---------------- ---------------- Net expenses 30,483,552 4,117,403 NET INVESTMENT INCOME (LOSS): 34,174,070 9,446 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities 7,108,734 4,193,675 Net realized loss on affiliated securities 0 (151,560) Net realized gain (loss) on options 2,453,329 (227,233) Net realized gain on short sales 0 0 Net realized gain (loss) on foreign currency transactions 370,636 (168,173) Net change in unrealized appreciation of investments and foreign currencies 517,697,982 114,576,882 Net change in appreciation (depreciation)--other 87,469 (43,405) Net realized and unrealized gain on investments and foreign currency transactions: 527,718,150 118,180,186 ---------------- ---------------- Net increase in net assets resulting from operations $ 561,892,220 $ 118,189,632 ================ ================ THE OAKMARK THE OAKMARK INTERNATIONAL INTERNATIONAL FUND SMALL CAP FUND ----------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 43,137,392 $ 9,195,319 Dividends from affiliated securities 5,858,702 1,576,048 Interest Income 872,451 142,837 Securities lending income 1,118,106 0 Other income 0 0 Foreign taxes withheld (5,707,195) (1,242,916) ---------------- ---------------- Total investment income 45,279,456 9,671,288 EXPENSES: Investment advisory fee 19,015,386 4,626,713 Transfer and dividend disbursing agent fees 941,105 212,442 Other shareholder servicing fees 1,903,171 331,936 Service fee--Class II 209,143 803 Reports to shareholders 722,282 143,097 Custody and accounting fees 1,835,731 389,671 Registration and blue sky expenses 129,664 37,788 Trustee fees 48,026 28,893 Deferred trustee compensation 119,153 72,553 Legal fees 35,759 21,472 Audit fees 32,729 8,905 Other 129,236 57,848 ---------------- ---------------- Total expenses 25,121,385 5,932,121 Expense reimbursement 0 0 Expense offset arrangements (68) (9) ---------------- ---------------- Net expenses 25,121,317 5,932,112 NET INVESTMENT INCOME (LOSS): 20,158,139 3,739,176 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities (194,022,549) (30,903,635) Net realized loss on affiliated securities (114,714) (2,571,782) Net realized gain (loss) on options 0 0 Net realized gain on short sales 0 0 Net realized gain (loss) on foreign currency transactions (659,981) (58,650) Net change in unrealized appreciation of investments and foreign currencies 712,978,826 160,461,142 Net change in appreciation (depreciation)--other 294,152 36,163 Net realized and unrealized gain on investments and foreign currency transactions: 518,475,734 126,963,238 ---------------- ---------------- Net increase in net assets resulting from operations $ 538,633,873 $ 130,702,414 ================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-35 STATEMENTS OF CHANGES IN NET ASSETS
THE OAKMARK FUND -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 19,384,779 $ 14,076,323 Net realized loss on investments (137,687,746) (32,394,066) Net change in unrealized appreciation (depreciation) of investments 867,321,548 (498,006,779) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 749,018,581 (516,324,522) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (13,880,781) (19,630,178) Net investment income--Class II (29,599) (447) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (13,910,380) (19,630,625) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,533,121,113 1,648,934,264 Proceeds from shares sold--Class II 17,938,866 10,646,454 Reinvestment of distributions--Class I 13,078,556 19,105,784 Reinvestment of distributions--Class II 700 347 Payments for shares redeemed, net of fees--Class I (810,690,610) (942,439,538) Payments for shares redeemed, net of fees--Class II (6,723,524) (838,834) ---------------- ---------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 746,725,101 735,408,477 ---------------- ---------------- TOTAL INCREASE IN NET ASSETS 1,481,833,302 199,453,330 NET ASSETS: Beginning of period 3,308,681,833 3,109,228,503 ---------------- ---------------- End of period $ 4,790,515,135 $ 3,308,681,833 ================ ================ Undistributed net investment income $ 18,909,168 $ 13,434,769 ================ ================ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 49,341,298 48,113,112 Shares issued in reinvestment of dividends 425,457 562,595 Less shares redeemed (26,435,618) (28,259,864) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 23,331,137 20,415,843 ================ ================ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 576,827 298,334 Shares issued in reinvestment of dividends 23 10 Less shares redeemed (225,241) (25,887) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 351,609 272,457 ================ ================
B-36
THE OAKMARK SELECT FUND -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 10,063,549 $ 4,018,416 Net realized loss on investments (101,697,160) (29,674,087) Net change in unrealized appreciation (depreciation) of investments 1,121,320,614 (635,685,201) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 1,029,687,003 (661,340,872) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (3,934,423) (8,379,997) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (3,934,423) (8,379,997) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 917,786,177 1,260,687,129 Proceeds from shares sold--Class II 37,698,020 74,250,948 Reinvestment of distributions--Class I 3,705,408 7,956,922 Payments for shares redeemed, net of fees--Class I (654,181,633) (1,056,777,332) Payments for shares redeemed, net of fees--Class II (26,725,613) (31,085,298) ---------------- ---------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 278,282,359 255,032,369 ---------------- ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,304,034,939 (414,688,500) NET ASSETS: Beginning of period 3,782,052,331 4,196,740,831 ---------------- ---------------- End of period $ 5,086,087,270 $ 3,782,052,331 ================ ================ Undistributed net investment income $ 9,725,578 $ 3,596,452 ================ ================ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 36,086,657 47,211,312 Shares issued in reinvestment of dividends 150,625 299,856 Less shares redeemed (26,578,347) (41,080,996) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 9,658,935 6,430,172 ================ ================ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 1,482,025 2,801,878 Less shares redeemed (1,069,612) (1,223,864) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 412,413 1,578,014 ================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-37
THE OAKMARK SMALL CAP FUND -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment loss $ (2,414,871) $ (2,748,950) Net realized gain (loss) on investments (11,322,124) 325,855 Net change in unrealized appreciation (depreciation) of investments 80,258,968 (51,515,515) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 66,521,973 (53,938,610) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 50,502,211 326,865,529 Proceeds from shares sold--Class II 216,335 777,070 Payments for shares redeemed, net of fees--Class I (123,497,018) (180,818,640) Payments for shares redeemed, net of fees--Class II (123,957) (103,465) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (72,902,429) 146,720,494 ---------------- ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (6,380,456) 92,781,884 NET ASSETS: Beginning of period 357,394,089 264,612,205 ---------------- ---------------- End of period $ 351,013,633 $ 357,394,089 ================ ================ Undistributed net investment loss $ (221,776) $ (150,509) ================ ================ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 3,238,264 17,912,470 Less shares redeemed (8,156,424) (10,773,500) ---------------- ---------------- NET INCREASE (DECREASE) IN SHARES OUTSTANDING (4,918,160) 7,138,970 ================ ================ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 13,910 44,265 Less shares redeemed (7,871) (6,291) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 6,039 37,974 ================ ================
B-38
THE OAKMARK EQUITY AND INCOME FUND -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 34,174,070 $ 28,439,569 Net realized gain (loss) on investments 9,562,063 (81,982,611) Net realized gain (loss) on foreign currency transactions 370,636 (2,938) Net change in unrealized appreciation (depreciation) of investments 517,697,982 (107,419,745) Net change in unrealized appreciation (depreciation)--other 87,469 (601) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 561,892,220 (160,966,326) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (33,616,359) (6,931,173) Net investment income--Class II (1,569,445) (90,128) Net realized gain--Class I 0 (1,870,660) Net realized gain--Class II 0 (33,869) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (35,185,804) (8,925,830) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 2,076,491,027 2,457,322,254 Proceeds from shares sold--Class II 144,338,218 146,887,453 Reinvestment of distributions--Class I 32,429,243 8,525,720 Reinvestment of distributions--Class II 321,834 85,801 Payments for shares redeemed, net of fees--Class I (709,955,319) (683,906,125) Payments for shares redeemed, net of fees--Class II (46,269,411) (21,792,340) ---------------- ---------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,497,355,592 1,907,122,763 ---------------- ---------------- TOTAL INCREASE IN NET ASSETS 2,024,062,008 1,737,230,607 NET ASSETS: Beginning of period 2,360,587,003 623,356,396 ---------------- ---------------- End of period $ 4,384,649,011 $ 2,360,587,003 ================ ================ Undistributed net investment income $ 23,545,227 $ 25,964,233 ================ ================ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 109,874,694 132,277,123 Shares issued in reinvestment of dividends 1,796,634 477,891 Less shares redeemed (38,350,539) (37,783,411) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 73,320,789 94,971,603 ================ ================ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 7,706,490 7,935,953 Shares issued in reinvestment of dividends 17,840 4,809 Less shares redeemed (2,462,923) (1,205,519) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 5,261,407 6,735,243 ================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-39
THE OAKMARK GLOBAL FUND -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income (loss) $ 9,446 $ (18,547) Net realized gain (loss) on investments 3,814,882 (1,261,095) Net realized gain (loss) on foreign currency transactions (168,173) (37,184) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 114,576,882 (30,244,164) Net change in unrealized appreciation (depreciation)--other (43,405) 18,109 ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 118,189,632 (31,542,881) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I 0 (11,774) Net investment income--Class II 0 (61) Net realized gain--Class I 0 (1,361,493) Net realized gain--Class II 0 (7,099) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 (1,380,427) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 524,732,272 228,014,650 Proceeds from shares sold--Class II 6,645,694 754,996 Reinvestment of distributions--Class I 0 1,321,517 Payments for shares redeemed, net of fees--Class I (112,770,994) (69,082,440) Payments for shares redeemed, net of fees--Class II (2,412,970) (75,625) ---------------- ---------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 416,194,002 160,933,098 ---------------- ---------------- TOTAL INCREASE IN NET ASSETS 534,383,634 128,009,790 NET ASSETS: Beginning of period 176,213,801 48,204,011 ---------------- ---------------- End of period $ 710,597,435 $ 176,213,801 ================ ================ Undistributed net investment loss $ (290,559) $ (131,833) ================ ================ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 34,670,227 16,329,528 Shares issued in reinvestment of dividends 0 108,677 Less shares redeemed (8,703,761) (5,343,294) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 25,966,466 11,094,911 ================ ================ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 462,296 61,020 Less shares redeemed (171,894) (6,528) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 290,402 54,492 ================ ================
B-40
THE OAKMARK INTERNATIONAL FUND -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 20,158,139 $ 16,380,565 Net realized loss on investments (194,137,263) (2,111,019) Net realized loss on foreign currency transactions (659,981) (744,096) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 712,978,826 (199,327,235) Net change in unrealized appreciation (depreciation)--other 294,152 (155,750) ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 538,633,873 (185,957,535) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (15,119,015) (10,170,790) Net investment income--Class II (515,254) (76,332) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (15,634,269) (10,247,122) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,342,461,828 1,172,930,611 Proceeds from shares sold--Class II 210,555,153 71,056,423 Reinvestment of distributions--Class I 13,994,235 9,816,822 Reinvestment of distributions--Class II 172,223 1,669 Payments for shares redeemed, net of fees--Class I (573,914,822) (339,595,271) Payments for shares redeemed, net of fees--Class II (158,686,779) (16,218,827) ---------------- ---------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 834,581,838 897,991,427 ---------------- ---------------- TOTAL INCREASE IN NET ASSETS 1,357,581,442 701,786,770 NET ASSETS: Beginning of period 1,442,263,694 740,476,924 ---------------- ---------------- End of period $ 2,799,845,136 $ 1,442,263,694 ================ ================ Undistributed net investment income $ 19,282,167 $ 15,418,278 ================ ================ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 98,256,816 78,310,031 Shares issued in reinvestment of dividends 1,050,618 726,633 Less shares redeemed (43,071,914) (23,511,785) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 56,235,520 55,524,879 ================ ================ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 15,141,504 4,928,274 Shares issued in reinvestment of dividends 12,959 124 Less shares redeemed (11,241,101) (1,088,826) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 3,913,362 3,839,572 ================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-41
THE OAKMARK INTERNATIONAL SMALL CAP FUND -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 -------------------------------------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $ 3,739,176 $ 4,016,566 Net realized gain (loss) on investments (33,475,417) 12,083,383 Net realized loss on foreign currency transactions (58,650) (31,834) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 160,461,142 (70,664,400) Net change in unrealized appreciation--other 36,163 21,128 ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 130,702,414 (54,575,157) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (3,076,432) (2,120,585) Net investment income--Class II (1,637) (921) Net realized gain--Class I (9,181,861) (1,891,258) Net realized gain--Class II (6,548) (1,136) ---------------- ---------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (12,266,478) (4,013,900) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 122,746,015 428,499,905 Proceeds from shares sold--Class II 978,707 333,324 Reinvestment of distributions--Class I 11,533,652 3,875,545 Reinvestment of distributions--Class II 4,554 0 Payments for shares redeemed, net of fees--Class I (132,515,271) (134,986,731) Payments for shares redeemed, net of fees--Class II (945,332) (34,570) ---------------- ---------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,802,325 297,687,473 ---------------- ---------------- TOTAL INCREASE IN NET ASSETS 120,238,261 239,098,416 NET ASSETS: Beginning of period 358,006,168 118,907,752 ---------------- ---------------- End of period $ 478,244,429 $ 358,006,168 ================ ================ Undistributed net investment income $ 3,518,265 $ 2,936,581 ================ ================ FUND SHARE TRANSACTIONS--CLASS I: Shares sold 11,051,169 34,412,757 Shares issued in reinvestment of dividends 1,095,314 375,172 Less shares redeemed (12,545,416) (11,505,764) ---------------- ---------------- NET INCREASE (DECREASE) IN SHARES OUTSTANDING (398,933) 23,282,165 ================ ================ FUND SHARE TRANSACTIONS--CLASS II: Shares sold 88,462 27,354 Shares issued in reinvestment of dividends 432 0 Less shares redeemed (85,057) (2,766) ---------------- ---------------- NET INCREASE IN SHARES OUTSTANDING 3,837 24,588 ================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-42 THE OAKMARK FAMILY OF FUNDS NOTES TO FINANCIAL STATEMENTS--SEPTEMBER 30, 2003 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), which is registered as an investment company under the Investment Company Act of 1940. These policies are in conformity with accounting principles generally accepted in the United States of America ("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-- Securities traded on securities exchanges and over-the-counter securities are valued at the last sales price on the day of valuation, or lacking any reported sales that day, at the most recent bid quotation. Securities traded on the NASDAQ National Market are valued at the NASDAQ Official Closing Price ("NOCP"), or lacking an NOCP, at the most recent bid quotation on the NASDAQ National Market. 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 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 lacking any reported sales that day, at the mean of the most recent bid and ask quotations. Securities for which quotations are not readily available, or securities which may have been affected by a significant event after the price was determined, and other assets are valued at a fair value as determined by or under the direction of the Board of Trustees. At September 30, 2003, the Funds held no securities for which quotations were not readily available, nor any securities that may have been affected by a significant event after the price was determined. FOREIGN CURRENCY TRANSLATIONS-- Values of investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the mean of the bid and offer prices of such currencies at the time of valuation. Purchases and sales of investments and dividend and interest income are converted at the prevailing rate of exchange on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized gain or loss from securities. Net realized gains or losses 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. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities, other than investments in securities at fiscal year end, resulting from changes in exchange rates. At September 30, 2003, net unrealized appreciation (depreciation) - other includes the following components:
EQUITY AND INT'L INCOME GLOBAL INTERNATIONAL SMALL CAP ------------------------------------------------------------------------------------ Unrealized appreciation on dividends and dividend reclaims receivable $ 86,868 $ 41,624 $ 235,195 $ 48,934 Unrealized appreciation (depreciation) on open securities purchases and sales 0 (66,735) (107,450) 11,125 ---------- ---------- ---------- ---------- Net Unrealized appreciation (depreciation) - Other $ 86,868 $ (25,111) $ 127,745 $ 60,059 ========== ========== ========== ==========
B-43 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. Withholding taxes on foreign dividends have been provided for in accordance with the Funds' understanding of the applicable country's tax rules and rates. Net realized gains and losses on investments are determined by the specific identification method. 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, 2003, 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 the 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). Those differences are primarily related to foreign currency transactions, deferral of losses on wash sales, and character of capital loss carryforwards. The Funds also utilize, when appropriate, earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. COMMITTED LINE OF CREDIT-- The Funds have an unsecured committed line of credit with Investors Bank & Trust Company in the amount of $350 million. Borrowings under that arrangement bear interest at .45% above the Federal Funds Effective Rate. There were no borrowings during the year ended September 30, 2003. 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. Options written by the Funds do not give rise to counterparty credit risk, as they obligate the Funds, not its counterparties, to perform. When a Fund purchases an option, the premium paid by the Fund is recorded as a deferred credit and is subsequently adjusted to the current market value of the option purchased. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. Premiums paid for purchasing options which expire are treated as realized losses. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying security to determine the realized gain or loss. The risk associated with purchasing put and call options is potential loss of the premium paid. For the year ended September 30, 2003, Oakmark, Select, Small Cap, Equity & Income, and Global wrote option contracts. At September 30, 2003, Small Cap and Global had outstanding option contracts for which portfolio securities valued at $1,425,000 and $10,208,800 respectively, were held in escrow by the custodian as cover for the options written. SECURITY LENDING-- Each Fund except Oakmark Fund may lend its portfolio securities to broker-dealers and banks. 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 value of the securities loaned by the Fund. Collateral is marked to market and monitored daily. 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 B-44 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 that period. At September 30, 2003, there were no outstanding securities lending transactions. SHORT SALES-- The Funds may sell a security they do not own in anticipation of a decline in the fair value of that security. When a Fund sells a security short, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale. A gain, limited to the price at which the Fund sold the security short, or loss, unlimited in size, will be recognized upon the termination of a short sale. At September 30, 2003, there were no such securities sold short. 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 1.00% up to $2 billion; Equity and Income 0.75% 0.90% on the next $1 billion; 0.80% on the next $2 billion; and 0.75% over $5 billion Select 1.00% up to $1 billion; Global 1.00% 0.95% on the next $500 million; 0.90% on the next $500 million; International 1.00% up to $2 billion; 0.85% on the next $500 million; 0.95% on the next $1 billion; and 0.80% on the next $2.5 billion; and 0.85% over $3 billion 0.75% over $5 billion Small Cap 1.00% Int'l Small Cap 1.25% up to $500 million; and 1.10% over $500 million
The Adviser is contractually obligated to reimburse the Funds, through January 31, 2004, to the extent that annual expenses are greater than 1.0% for Class I shares of the Equity and Income Fund; greater than 1.5% for Class I shares of all other domestic funds; 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; or are greater than 1.25% for Class II shares of the Equity and Income Fund; greater than 1.75% for Class II shares of all other domestic funds; 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. For the year ended September 30, 2003, the Funds incurred brokerage commissions, including commissions paid to an affiliate of the Adviser, Harris Associates Securities L.P., as follows:
FUND TOTAL COMMISSIONS COMMISSIONS PAID TO AFFILIATES ---------------------------------------------------------------------------- Oakmark $ 4,712,567 $ 951,853 Select 3,944,611 544,596 Small Cap 540,418 104,000 Equity & Income 4,171,306 845,629 Global 1,652,181 170,503 International 5,497,451 0 Int'l Small Cap 758,299 0
B-45 CDC IXIS Asset Management Services Co., an affiliate of the Adviser, provides transfer agent services to the Funds. The fees are based on the number of open accounts and the reimbursement of out-of-pocket expenses. For the year ended September 30, 2003, the Funds incurred the following transfer agent expenses:
FUND TRANSFER AGENT FEES --------------------------------------------------------- Oakmark $ 2,825,387 Select 1,661,800 Small Cap 418,413 Equity & Income 1,161,063 Global 267,441 International 941,105 Int'l Small Cap 212,442
The Adviser has entered into agreements with service providers to provide recordkeeping, processing, shareholder communications and other services to the Funds. These services would be provided by the Funds if the shares were held in accounts registered directly with the Funds' transfer agent. Accordingly, the Funds pay a portion of these fees pursuant to a separate agreement with the Adviser. These fees are reflected as other shareholder servicing fees in the Statement of Operations. The non-interested Trustees of the Trust may participate in the Trust's Deferred Compensation Plan for Independent Trustees. Participants in the plan may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Trust and represent an unfunded obligation of the Trust. The value of amounts deferred for a participant is determined by reference to the change in value of Class I shares of one or more of the Funds or a money market fund as specified by the participant. Benefits under the plan are payable upon retirement. The interested trustees are not compensated by 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 $ 4,283,226,954 $ 671,652,479 $ (161,747,908) $ 509,904,571 Select 3,871,796,681 1,320,294,049 (96,040,686) 1,224,253,363 Small Cap 331,509,517 67,217,652 (45,443,095) 21,774,557 Equity & Income 3,940,402,357 420,402,230 (7,963,090) 412,439,140 Global 639,010,996 83,774,167 (2,336,625) 81,437,542 International 2,449,270,639 385,356,290 (40,146,894) 345,209,396 Int'l Small Cap 404,668,469 89,454,335 (19,728,123) 69,726,212
As of September 30, 2003, 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 CARRYOVER
FUND 2008 2009 2010 2011 ----------------------------------------------------------------------------------- Oakmark $ 23,897,178 $ 139,015,880 $ 2,634,326 $ 27,893,934 Select 0 5,156,972 43,881,611 14,649,666 Small Cap 0 0 0 8,844,719 Equity & Income 0 0 3,347,886 66,672,712 Global 0 0 0 0 International 0 0 14,901,531 29,140,687 Int'l Small Cap 0 0 0 19,830,527
B-46 For the year ended September 30, 2003, the Funds have elected to defer to October 1, 2003 post October 2002 capital losses of:
FUND AMOUNT ---------------------------------------------------------------------------- Oakmark $ 122,649,808 Select 101,966,303 Small Cap 2,974,352 International 161,129,206 Int'l Small Cap 13,629,253
For the year ended September 30, 2003, Global has elected to defer to October 1, 2003 post October 2002 currency losses of $167,123. At September 30, 2003, the components of distributable earnings (excluding unrealized appreciation (depreciation) disclosed below) on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED LONG- TOTAL DISTRIBUTABLE FUND ORDINARY INCOME TERM GAIN EARNINGS ----------------------------------------------------------------------------------------- Oakmark $ 19,542,428 $ 0 $ 19,542,428 Select 10,230,003 0 10,230,003 Equity & Income 23,296,919 0 23,296,919 Global 50,908 2,829,266 2,880,174 International 19,593,405 0 19,593,405 Int'l Small Cap 3,710,597 0 3,710,597
For corporate shareholders, a portion of the ordinary dividends paid during the Funds' year ended September 30, 2003 qualified for the dividends received deduction, as follows:
FUND ---------------------------------------------------------------------------- Oakmark 100.00% Select 100.00% Equity & Income 48.19%
During the year ended September 30, 2003, the tax character of distributions paid was as follows:
DISTRIBUTIONS PAID DISTRIBUTIONS PAID FROM ORDINARY FROM LONG-TERM FUND INCOME CAPITAL GAIN ----------------------------------------------------------------- Oakmark $ 13,910,380 $ 0 Select 3,934,423 0 Equity & Income 35,185,804 0 International 15,634,269 0 Int'l Small Cap 3,098,842 9,167,636
4. INVESTMENT TRANSACTIONS Transactions in investment securities (excluding short term and U.S. Government securities) were as follows (in thousands):
EQUITY & INT'L OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL CAP ------------------------------------------------------------------------------------------------------------------------------ Purchases $ 1,348,517 $ 1,043,382 $ 41,605 $ 1,516,171 $ 495,692 $ 1,414,439 $ 109,644 Proceeds from sales 766,678 822,236 127,941 633,717 128,418 649,070 125,084
Purchases at cost and proceeds from sales of long-term U.S. Government securities for the year ended September 30, 2003 were $1,107,455 and $789,794, respectively for Equity and Income. B-47 Transactions in options written during the year ended September 30, 2003 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, 2002 0 $ 0 0 $ 0 0 $ 0 Options written 190,700 19,342,841 222,795 71,921,178 4,850 615,017 Options terminated in closing purchase transactions (18,300) (2,213,302) (17,355) (1,384,340) (500) (70,998) Options expired (112,379) (10,933,445) (79,228) (6,751,845) (2,400) (276,091) Options exercised (60,021) (6,196,094) (126,212) (63,784,993) (1,000) (151,159) ------------ ------------- ------------ ------------- ------ ------------ Options outstanding at September 30, 2003 0 $ 0 0 $ 0 950 $ 116,769 EQUITY & INCOME GLOBAL ------------------------------------------------------------ NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED ------------------------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2002 10,190 $ 638,100 0 $ 0 Options written 26,510 3,633,617 12,723 1,970,518 Options terminated in closing purchase transactions (7,455) (936,662) (5,550) (855,705) Options expired (21,195) (2,314,185) (2,673) (468,115) Options exercised (8,050) (1,020,870) (1,500) (390,710) ---------- ------------ ---------- ------------ Options outstanding at September 30, 2003 0 $ 0 3,000 $ 255,988
5. INVESTMENTS IN AFFILIATED ISSUERS An affiliated issuer, as defined under the Investment Company Act of 1940, is one in which the Trust's holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of each Fund's investments in securities of these issuers for the year ended September 30, 2003, is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES THE OAKMARK FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2003 -------------------------------------------------------------------------------------- H&R Block, Inc. $ 19,101,014 $ 0 $ 2,241,682 $ 130,714,295 Toys 'R' Us, Inc. 0 0 0 37,593,750 ------------ ------------ ------------ ------------- TOTALS $ 19,101,014 $ 0 $ 2,241,682 $ 168,308,045
THE OAKMARK SELECT FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2003 --------------------------------------------------------------------------------------------- H&R Block, Inc. $ 56,001,137 $ 20,779,349 $ 6,736,252 $ 382,300,370 The Dun & Bradstreet Corporation 0 28,311,774 0 188,379,746 Toys 'R' Us, Inc. 20,391,707 11,947,271 0 164,792,955 ------------ ------------ ------------ ------------- TOTALS $ 76,392,844 $ 61,038,394 $ 6,736,252 $ 735,473,071
B-48 THE OAKMARK SMALL CAP FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2003 ------------------------------------------------------------------------------------------------------------- eFunds Corporation $ 1,082,784 $ 1,565,160 $ 0 $ 16,395,860 R.G. Barry Corporation 0 0 0 4,680,000 SureBeam Corporation, Class A 2,111,950 0 0 6,077,500 ------------- ------------- ------------- ------------- TOTALS $ 3,194,734 $ 1,565,160 $ 0 $ 27,153,360
THE OAKMARK EQUITY AND INCOME FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2003 ------------------------------------------------------------------------------------------------------------- First Health Group Corp. $ 47,563,042 $ 0 $ 0 $ 103,292,500 ------------- ------------- ------------- ------------- TOTALS $ 47,563,042 $ 0 $ 0 $ 103,292,500
THE OAKMARK GLOBAL FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2003 ------------------------------------------------------------------------------------------------------------- eFunds Corporation $ 6,637,994 $ 633,584 $ 0 $ 22,785,750 First Health Group Corp. 29,159,430 8,419,315 0 27,823,600 Grupo Aeroportuario del Sureste S.A. de C.V. 1,178,375 0 221,314 6,806,100 Lotte Chilsung Beverage Co., Ltd. 4,406,429 0 8,015 6,375,499 Meitec Corporation 5,370,188 0 141,697 14,022,250 Michael Page International plc 2,087,755 0 290,457 11,966,936 Orbotech, Ltd. 55,741 0 0 4,674,628 ------------- ------------- ------------- ------------- TOTALS $ 48,895,912 $ 9,052,899 $ 661,483 $ 94,454,763
THE OAKMARK INTERNATIONAL FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2003 ------------------------------------------------------------------------------------------------------------- Chargeurs SA $ 0 $ 0 $ 1,454,922 $ 30,593,668 Enodis plc 0 0 0 39,080,214 Giordano International Limited 7,084,872 0 2,020,125 37,744,455 Grupo Aeroportuario del Sureste S.A. de C.V. 0 0 115,676 3,557,400 Lotte Chilsung Beverage Co., Ltd. 16,577,455 0 82,989 39,591,705 Meitec Corporation 8,756,459 5,000,446 712,529 59,340,750 Michael Page International plc 5,519,118 2,628,656 1,472,461 58,988,739 Orbotech, Ltd. 2,161,360 0 0 41,722,128 ------------- ------------- ------------- ------------- TOTALS $ 40,099,264 $ 7,629,102 $ 5,858,702 $ 310,619,059
B-49 THE OAKMARK INTERNATIONAL SMALL CAP FUND
MARKET VALUE PURCHASES SALES DIVIDEND SEPTEMBER 30, AFFILIATES (COST) PROCEEDS INCOME 2003 ------------------------------------------------------------------------------------------------------------- Alaska Milk Corporation $ 0 $ 0 $ 276,386 $ 2,745,362 Baycorp Advantage Limited 11,759,166 1,794,255 0 22,184,264 Grupo Aeroportuario del Sureste S.A. de C.V. 0 713,436 508,592 15,640,800 Mainfreight Limited 0 0 322,114 6,151,604 Matichon Public Company Limited, Foreign Shares 0 0 142,407 4,381,639 Pfeiffer Vacuum Technology AG 1,090,531 3,059,827 326,549 14,262,913 Royal Doulton plc 0 0 0 1,069,231 ------------- ------------- ------------- ------------- TOTALS $ 12,849,697 $ 5,567,518 $ 1,576,048 $ 66,435,813
B-50 [OAKMARK FAMILY OF FUNDS LOGO] (This page has been intentionally left blank.) B-51 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, 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 28.08 $ 32.01 $ 26.95 $ 34.37 $ 33.54 Income (Loss) From Investment Operations: Net Investment Income 0.13 0.12 0.07 0.49 0.36 Net Gains (Losses) on Securities (both realized and unrealized) 5.75 (3.85) 5.38 (2.91) 2.51 ------------ ------------ ------------ ------------ ------------ Total From Investment Operations: 5.88 (3.73) 5.45 (2.42) 2.87 Less Distributions: Dividends (from net investment income) (0.11) (0.20) (0.39) (0.26) (0.44) Distributions (from capital gains) 0.00 0.00 0.00 (4.74) (1.60) ------------ ------------ ------------ ------------ ------------ Total Distributions (0.11) (0.20) (0.39) (5.00) (2.04) ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 33.85 $ 28.08 $ 32.01 $ 26.95 $ 34.37 ============ ============ ============ ============ ============ Total Return 20.99% (11.77)% 20.42% (7.55)% 7.98% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 4,769.4 $ 3,300.9 $ 3,109.1 $ 2,038.7 $ 4,772.8 Ratio of Expenses to Average Net Assets 1.14% 1.17% 1.15% 1.21% 1.11% Ratio of Net Investment Income to Average Net Assets 0.48% 0.38% 0.73% 1.42% 1.02% Portfolio Turnover Rate 21% 44% 57% 50% 13%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
APRIL 5, 2001 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2001 (a) ----------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 28.04 $ 31.97 $ 32.09 Income (Loss) From Investment Operations: Net Investment Income 0.05 0.16 0.05 Net Gains (Losses) on Securities (both realized and unrealized) 5.69 (3.92) (0.17) ------------ ------------ ------------ Total From Investment Operations: 5.74 (3.76) (0.12) Less Distributions: Dividends (from net investment income) (0.10) (0.17) 0.00 Distributions (from capital gains) 0.00 0.00 0.00 ------------ ------------ ------------ Total Distributions (0.10) (0.17) 0.00 ------------ ------------ ------------ Net Asset Value, End of Period $ 33.68 $ 28.04 $ 31.97 ============ ============ ============ Total Return 20.52% (11.85)% (0.37)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 21.1 $ 7.7 $ 0.1 Ratio of Expenses to Average Net Assets 1.53% 1.44% 1.32%* Ratio of Net Investment Income to Average Net Assets 0.06% 0.35% 0.46%* Portfolio Turnover Rate 21% 44% 57%
* Data has been annualized (a) The date on which Class II shares were first sold to the public was April 5, 2001. B-52 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, 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 21.67 $ 25.20 $ 21.45 $ 20.92 $ 16.76 Income (Loss) From Investment Operations: Net Investment Income 0.05 0.02 0.03 0.13 0.19 Net Gains (Losses) on Securities (both realized and unrealized) 5.85 (3.50) 5.17 4.32 4.73 ------------ ------------ ------------ ------------ ------------ Total From Investment Operations: 5.90 (3.48) 5.20 4.45 4.92 Less Distributions: Dividends (from net investment income) (0.02) (0.05) (0.09) (0.20) (0.05) Distributions (from capital gains) 0.00 0.00 (1.36) (3.72) (0.71) ------------ ------------ ------------ ------------ ------------ Total Distributions (0.02) (0.05) (1.45) (3.92) (0.76) ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 27.55 $ 21.67 $ 25.20 $ 21.45 $ 20.92 ============ ============ ============ ============ ============ Total Return 27.25% (13.85)% 25.75% 24.53% 30.07% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 4,993.0 $ 3,717.6 $ 4,161.4 $ 1,772.0 $ 1,638.9 Ratio of Expenses to Average Net Assets 1.02% 1.07% 1.08% 1.17% 1.16% Ratio of Net Investment Income to Average Net Assets 0.23% 0.09% 0.26% 0.76% 0.98% Portfolio Turnover Rate 20% 32% 21% 69% 67%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
DECEMBER 31, 1999 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2001 2000 (a) --------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 21.56 $ 25.10 $ 21.40 $ 18.42 Income (Loss) From Investment Operations: Net Investment Income (Loss) 0.00(b) (0.04) 0.00(b) 0.10 Net Gains (Losses) on Securities (both realized and unrealized) 5.81 (3.50) 5.10 2.88 ------------ ------------ ------------ ------------ Total From Investment Operations: 5.81 (3.54) 5.10 2.98 Less Distributions: Dividends (from net investment income) 0.00 0.00 (0.06) 0.00 Distributions (from capital gains) 0.00 0.00 (1.34) 0.00 ------------ ------------ ------------ ------------ Total Distributions 0.00 0.00 (1.40) 0.00 ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 27.37 $ 21.56 $ 25.10 $ 21.40 ============ ============ ============ ============ Total Return 26.95% (14.10)% 25.28% 16.18% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 93.1 $ 64.4 $ 35.4 $ 6.8 Ratio of Expenses to Average Net Assets 1.29% 1.36% 1.40% 1.41%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.04)% (0.19)% (0.08)% 0.59%* Portfolio Turnover Rate 20% 32% 21% 69%
* Data has been annualized. (a) The date on which Class II shares were first sold to the public was December 31, 1999. (b) Amount rounds to less than $(0.01) per share. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-53 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, 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 14.10 $ 14.57 $ 15.10 $ 13.88 $ 12.63 Income (Loss) From Investment Operations: Net Investment Income (Loss) (0.12) (0.11) 0.00 0.00 0.14 Net Gains (Losses) on Securities (both realized and unrealized) 3.20 (0.36) (0.02) 1.22 1.20 ------------ ------------ ------------ ------------ ------------ Total From Investment Operations: 3.08 (0.47) (0.02) 1.22 1.34 Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 0.00 0.00 Distributions (from capital gains) 0.00 0.00 (0.51) 0.00 (0.09) ------------ ------------ ------------ ------------ ------------ Total Distributions 0.00 0.00 (0.51) 0.00 (0.09) ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 17.18 $ 14.10 $ 14.57 $ 15.10 $ 13.88 ============ ============ ============ ============ ============ Total Return 21.84% (3.23)% 0.07% 8.79% 10.56% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 350.3 $ 356.9 $ 264.6 $ 248.7 $ 437.1 Ratio of Expenses to Average Net Assets 1.36% 1.33% 1.27% 1.50%(a) 1.48% Ratio of Net Investment Loss to Average Net Assets (0.69)% (0.67)% (0.28)% (0.41)%(a) (0.44)% Portfolio Turnover Rate 13% 22% 47% 28% 68%
(a) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser ratios would have been as follows:
SEPTEMBER 30, 2000 ------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.59% Ratio of Net Investment Loss to Average Net Assets (0.50)%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
APRIL 10, 2002 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2003 2002 (a) --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 14.09 $ 19.71 Income (Loss) From Investment Operations: Net Investment Loss (0.16) (0.20)(b) Net Gains (Losses) on Securities (both realized and unrealized) 3.17 (5.42) ------------ ------------ Total From Investment Operations: 3.01 (5.62) ------------ ------------ Net Asset Value, End of Period $ 17.10 $ 14.09 ============ ============ Total Return 21.36% (28.51)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.8 $ 0.5 Ratio of Expenses to Average Net Assets 1.75%(c) 1.48%* Ratio of Net Investment Loss to Average Net Assets (1.08)%(c) (0.85)%* Portfolio Turnover Rate 13% 22%
* Data has been annualized. (a) The date on which Class II shares were first sold to the public was April 10, 2002. (b) Computed using average shares outstanding throughout the period. (c) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser, ratios would have been as follows:
SEPTEMBER 30, 2003 ------------------------------------------------------------------------------------------------------------------ Ratio of Expenses to Average Net Assets 1.85% Ratio of Net Investment Loss to Average Net Assets (1.18)%
B-54 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, 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 17.18 $ 17.45 $ 16.50 $ 15.68 $ 13.99 Income (Loss) From Investment Operations: Net Investment Income 0.17 0.33(a) 0.08 0.35 0.39 Net Gains (Losses) on Securities (both realized and unrealized) 3.19 (0.40) 2.11 2.28 1.72 ------------ ------------ ------------ ------------ ------------ Total From Investment Operations: 3.36 (0.07) 2.19 2.63 2.11 Less Distributions: Dividends (from net investment income) (0.24) (0.16) (0.24) (0.45) (0.21) Distributions (from capital gains) 0.00 (0.04) (1.00) (1.36) (0.21) ------------ ------------ ------------ ------------ ------------ Total Distributions (0.24) (0.20) (1.24) (1.81) (0.42) ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 20.30 $ 17.18 $ 17.45 $ 16.50 $ 15.68 ============ ============ ============ ============ ============ Total Return 19.75% (0.47)% 14.40% 18.51% 15.32% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 4,138.0 $ 2,241.9 $ 620.1 $ 54.5 $ 60.3 Ratio of Expenses to Average Net Assets 0.93% 0.96% 0.98% 1.24% 1.18% Ratio of Net Investment Income to Average Net Assets 1.07% 1.71% 2.07% 3.04% 2.65% Portfolio Turnover Rate 48% 73% 124% 87% 81%
(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 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2001 2000 (a) -------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 17.15 $ 17.40 $ 16.49 $ 15.51 Income (Loss) From Investment Operations: Net Investment Income 0.16 0.30(b) 0.07 0.30 Net Gains (Losses) on Securities (both realized and unrealized) 3.15 (0.40) 2.08 0.68 ------------ ------------ ------------ ------------ Total From Investment Operations: 3.31 (0.10) 2.15 0.98 Less Distributions: Dividends (from net investment income) (0.22) (0.11) (0.24) 0.00 Distributions (from capital gains) 0.00 (0.04) (1.00) 0.00 ------------ ------------ ------------ ------------ Total Distributions (0.22) (0.15) (1.24) 0.00 ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 20.24 $ 17.15 $ 17.40 $ 16.49 ============ ============ ============ ============ Total Return 19.46% (0.60)% 14.07% 6.32% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 246.6 $ 118.7 $ 3.3 $ 0.4 Ratio of Expenses to Average Net Assets 1.17% 1.20% 1.23% 1.32%* Ratio of Net Investment Income to Average Net Assets 0.84% 1.50% 1.95% 2.59%* Portfolio Turnover Rate 48% 73% 124% 87%
* Data has been annualized. (a) The date on which Class II shares were first sold to the public was July 13, 2000. (b) Computed using average shares outstanding throughout the period. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-55 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 THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2001 2000 1999 (a) --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 11.30 $ 10.83 $ 10.91 $ 9.18 $ 10.00 Income (Loss) From Investment Operations: Net Investment Income 0.01 0.00(b)(c) 0.03 0.11 0.01 Net Gains (Losses) on Securities (both realized and unrealized) 5.67 0.76(d) 0.12 1.63 (0.83) ---------- ---------- ---------- ---------- ---------- Total From Investment Operations: 5.68 0.76 0.15 1.74 (0.82) Less Distributions: Dividends (from net investment income) 0.00 0.00 (0.17) (0.01) 0.00 Distributions (from capital gains) 0.00 (0.29) (0.06) 0.00 0.00 ---------- ---------- ---------- ---------- ---------- Total Distributions 0.00 (0.29) (0.23) (0.01) 0.00 ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period $ 16.98 $ 11.30 $ 10.83 $ 10.91 $ 9.18 ========== ========== ========== ========== ========== Total Return 50.27% 6.84% 1.37% 18.97% (8.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 704.8 $ 175.6 $ 48.2 $ 27.2 $ 24.0 Ratio of Expenses to Average Net Assets 1.28% 1.55% 1.75%(f) 1.75%(f) 1.75%*(f) Ratio of Net Investment Income (Loss) to Average Net Assets 0.00%(e) (0.01)% 0.00(f) 0.54%(f) 0.98%*(f) Portfolio Turnover Rate 42% 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 redemptions of Fund shares in relation to the fluctuating market values of the Fund. (e) Rounds to less than 0.01%. (f) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Adviser ratios would have been as follows:
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.80% 1.96% 2.22%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.05)% 0.34% 0.51%*
B-56 FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
OCTOBER 10, 2001 YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, 2003 2002 (a) -------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 11.24 $ 11.25 Income (Loss) From Investment Operations: Net Investment Income (Loss) 0.02 (0.03) Net Gains on Securities (both realized and unrealized) 5.58 0.31(b) ------------ ------------ Total From Investment Operations: 5.60 0.28 Less Distributions: Dividends (from net investment income) 0.00 0.00 Distributions (from capital gains) 0.00 (0.29) ------------ ------------ Total Distributions 0.00 (0.29) ------------ ------------ Net Asset Value, End of Period $ 16.84 $ 11.24 ============ ============ Total Return 49.82% 2.31% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 5.8 $ 0.6 Ratio of Expenses to Average Net Assets 1.46% 1.86%* Ratio of Net Investment Loss to Average Net Assets (0.01)% (0.26)%* Portfolio Turnover Rate 42% 86%
* Data has been annualized. (a) The date on 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 redemptions of Fund shares in relation to the fluctuating market values of the Fund. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. B-57 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, 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.17 $ 12.51 $ 15.40 $ 13.95 $ 10.42 Income (Loss) From Investment Operations: Net Investment Income (Loss) 0.11 0.14 0.20 1.02 (0.34) Net Gains (Losses) on Securities (both realized and unrealized) 3.52 (0.31) (2.07) 0.92 4.89 ---------- ---------- ----------- ---------- ---------- Total From Investment Operations: 3.63 (0.17) (1.87) 1.94 4.55 Less Distributions: Dividends (from net investment income) (0.13) (0.17) (0.51) (0.49) (0.24) Distributions (from capital gains) 0.00 0.00 (0.51) 0.00 (0.78) ---------- ---------- ----------- ---------- ---------- Total Distributions (0.13) (0.17) (1.02) (0.49) (1.02) ---------- ---------- ----------- ---------- ---------- Net Asset Value, End of Period $ 15.67 $ 12.17 $ 12.51 $ 15.40 $ 13.95 ========== ========== =========== ========== ========== Total Return 29.97% (1.53)% (13.10)% 14.27% 46.41% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 2,676.6 $ 1,393.8 $ 738.5 $ 782.4 $ 811.1 Ratio of Expenses to Average Net Assets 1.25% 1.31% 1.30% 1.30% 1.29% Ratio of Net Investment Income to Average Net Assets 1.03% 1.34% 1.40% 1.87% 1.94% Portfolio Turnover Rate 34% 24% 58% 64% 54%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NOVEMBER 4, 1999 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2001 2000 (a) --------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 12.13 $ 12.47 $ 15.37 $ 14.36 Income (Loss) From Investment Operations: Net Investment Income 0.08 0.15 0.17 0.96 Net Gains (Losses) on Securities (both realized and unrealized) 3.48 (0.37) (2.10) 0.54 ------------ ------------ ------------ ------------ Total From Investment Operations: 3.56 (0.22) (1.93) 1.50 Less Distributions: Dividends (from net investment income) (0.11) (0.12) (0.49) (0.49) Distributions (from capital gains) 0.00 0.00 (0.48) 0.00 ------------ ------------ ------------ ------------ Total Distributions (0.11) (0.12) (0.97) (0.49) ------------ ------------ ------------ ------------ Net Asset Value, End of Period $ 15.58 $ 12.13 $ 12.47 $ 15.37 ============ ============ ============ ============ Total Return 29.52% (1.76)% (13.44)% 10.79% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 123.2 $ 48.5 $ 1.9 $ 0.1 Ratio of Expenses to Average Net Assets 1.67% 1.58% 1.64% 1.50%* Ratio of Net Investment Income to Average Net Assets 0.69% 1.33% 0.62% 1.98%* Portfolio Turnover Rate 34% 24% 58% 64%
* Data has been annualized. (a) The date on which Class II shares were first sold to the public was November 4, 1999. B-58 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, 2003 2002 2001 2000 1999 -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.17 $ 10.00 $ 11.51 $ 12.64 $ 6.89 Income (Loss) From Investment Operations: Net Investment Income 0.11 0.11 0.13 0.23 0.24 Net Gains (Losses) on Securities (both realized and unrealized) 3.82 0.36(a) (0.81) (0.66) 5.71 -------- -------- -------- -------- -------- Total From Investment Operations: 3.93 0.47 (0.68) (0.43) 5.95 Less Distributions: Dividends (from net investment income) (0.09) (0.16) (0.34) (0.11) (0.20) Distributions (from capital gains) (0.27) (0.14) (0.49) (0.59) 0.00 --------- -------- -------- -------- -------- Total Distributions (0.36) (0.30) (0.83) (0.70) (0.20) -------- --------- -------- -------- -------- Net Asset Value, End of Period $ 13.74 $ 10.17 $ 10.00 $ 11.51 $ 12.64 ======== ======== ======== ======== ======== Total Return 39.78% 4.68% (6.18)% (3.44)% 88.02% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 477.8 $ 357.7 $ 118.9 $ 90.3 $ 155.4 Ratio of Expenses to Average Net Assets 1.57% 1.64% 1.74% 1.77% 1.79% Ratio of Net Investment Income to Average Net Assets 0.99% 1.28% 1.83% 1.99% 2.31% Portfolio Turnover Rate 30% 42% 49% 40% 126%
(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. FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
JANUARY 8, 2001 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2001 (a) ------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.14 $ 9.97 $ 10.73 Income (Loss) From Investment Operations: Net Investment Income 0.08 0.13(b) 0.15 Net Gains (Losses) on Securities (both realized and unrealized) 3.81 0.30(b)(c) (0.91) ------- ------- ------- Total From Investment Operations: 3.89 0.43 (0.76) Less Distributions: Dividends (from net investment income) (0.07) (0.12) 0.00 Distributions (from capital gains) (0.27) (0.14) 0.00 ------- ------- ------- Total Distributions (0.34) (0.26) 0.00 ------- ------- ------- Net Asset Value, End of Period $ 13.69 $ 10.14 $ 9.97 ======= ======= ======= Total Return 39.39% 4.25% (7.08)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.4 $ 0.3 $ 0.0 Ratio of Expenses to Average Net Assets 1.81% 1.87% 1.97%* Ratio of Net Investment Income to Average Net Assets 0.72% 1.06% 1.76%* Portfolio Turnover Rate 30% 42% 49%
* Data has been annualized. (a) The date on which Class II shares were first sold to the public was January 8, 2001. (b) Computed using average shares outstanding throughout the period. (c) 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-59 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, 2003, THE RELATED STATEMENTS OF OPERATIONS FOR THE YEAR THEN ENDED, AND THE STATEMENTS OF CHANGES IN NET ASSETS AND FINANCIAL HIGHLIGHTS FOR EACH OF THE TWO YEARS IN THE PERIOD 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 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 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, 2003, BY CORRESPONDENCE WITH THE FUNDS' CUSTODIAN AND BROKERS; WHERE REPLIES WERE NOT RECEIVED FROM BROKERS, WE PERFORMED OTHER AUDITING PROCEDURES. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION. IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF EACH OF THE FUNDS AS OF SEPTEMBER 30, 2003, THE RESULTS OF THEIR OPERATIONS FOR THE YEAR THEN ENDED, AND THE CHANGES IN THEIR NET ASSETS AND THEIR FINANCIAL HIGHLIGHTS FOR EACH OF THE TWO YEARS IN THE PERIOD THEN ENDED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois October 27, 2003 B-60