-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GYdC9XW3hT+rR929rdIxGcAxB3Cc1eB6glktQJjhr5KLaR3H+91lsypg+rJpLsZq PFoUk4F3x0tBHm8mT1VhTg== 0001047469-04-017428.txt : 20040514 0001047469-04-017428.hdr.sgml : 20040514 20040514171657 ACCESSION NUMBER: 0001047469-04-017428 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 EFFECTIVENESS DATE: 20040514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS ASSOCIATES INVESTMENT TRUST CENTRAL INDEX KEY: 0000872323 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06279 FILM NUMBER: 04808871 BUSINESS ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO N LASALLE ST STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 BUSINESS PHONE: 8004769625 MAIL ADDRESS: STREET 1: HARRIS ASSOCIATES LP STREET 2: TWO NORTH LASALLE STREET STE 500 CITY: CHICAGO STATE: IL ZIP: 60602-3790 N-CSRS 1 a2131368zn-csrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-06279 Harris Associates Investment Trust (Exact name of registrant as specified in charter) Two North La Salle Street, Suite 500 Chicago, Illinois 60602-3790 (Address of principal executive offices) (Zip Code) John R. Raitt Cameron S. Avery Harris Associates L.P. Bell, Boyd & Lloyd LLC Two North La Salle Street, #500 Three First National Plaza, #3300 Chicago, Illinois 60602 Chicago, Illinois 60602 (Name and address of agents for service) Registrant's telephone number, including area code: (312) 621-0600 Date of fiscal year end: 09/30/04 Date of reporting period: 3/31/04 ITEM 1. REPORTS TO SHAREHOLDERS. [GRAPHIC] THE OAKMARK FUND THE OAKMARK SELECT FUND THE OAKMARK SMALL CAP FUND THE OAKMARK EQUITY AND INCOME FUND THE OAKMARK GLOBAL FUND THE OAKMARK INTERNATIONAL FUND THE OAKMARK INTERNATIONAL SMALL CAP FUND SEMI-ANNUAL REPORT MARCH 31, 2004 ADVISED BY HARRIS ASSOCIATES L.P. [OAKMARK LOGO] FAMILY OF FUNDS THE OAKMARK FAMILY OF FUNDS 2004 Semi-Annual Report PRESIDENT'S LETTER 1 SUMMARY INFORMATION 2 COMMENTARY ON THE OAKMARK AND OAKMARK SELECT FUNDS 4 THE OAKMARK FUND Letter from the Portfolio Managers 6 Schedule of Investments 7 THE OAKMARK SELECT FUND Letter from the Portfolio Managers 11 Schedule of Investments 12 THE OAKMARK SMALL CAP FUND Letter from the Portfolio Managers 14 Schedule of Investments 17 THE OAKMARK EQUITY AND INCOME FUND Letter from the Portfolio Managers 20 Schedule of Investments 22 THE OAKMARK GLOBAL FUND Letter from the Portfolio Managers 28 Global Diversification Chart 30 Schedule of Investments 31 COMMENTARY ON THE INTERNATIONAL AND INTERNATIONAL SMALL CAP FUNDS 36 THE OAKMARK INTERNATIONAL FUND Letter from the Portfolio Managers 37 International Diversification Chart 38 Schedule of Investments 39 THE OAKMARK INTERNATIONAL SMALL CAP FUND Letter from the Portfolio Managers 44 International Diversification Chart 45 Schedule of Investments 46 FINANCIAL STATEMENTS Statements of Assets and Liabilities 52 Statements of Operations 54 Statements of Changes in Net Assets 56 Notes to Financial Statements 63 OAKMARK PHILOSOPHY AND PROCESS 82 THE OAKMARK GLOSSARY 83 TRUSTEES AND OFFICERS 85
FORWARD-LOOKING STATEMENT DISCLOSURE One of our most important responsibilities as mutual fund managers is to communicate with shareholders in an open and direct manner. Some of our comments in our letters to shareholders are based on current management expectations and are considered "forward-looking statements". Actual future results, however, may prove to be different from our expectations. You can identify forward-looking statements by words such as "estimate", "may", "will", "expect", "believe", "plan" and other similar terms. We cannot promise future returns. Our opinions are a reflection of our best judgment at the time this report is compiled, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise. PRESIDENT'S LETTER [PHOTO OF JOHN R. RAITT] DEAR FELLOW SHAREHOLDERS, Both domestic and international stock markets produced moderate gains in the first quarter, extending the worldwide recovery in stock prices that began roughly a year ago. All of our funds had positive returns and achieved new highs in net asset value during the quarter. We are pleased that our disciplined value investment style continues to reward our shareholders. THE ECONOMY AND THE MARKET The U.S. economy continues to grow at a healthy rate. Low interest rates and low inflation are fueling this growth. In addition, employment growth accelerated significantly in the past quarter, and corporate earnings also showed significant improvement, aided by high productivity growth. Many of these same factors are also driving strong economic growth internationally. Despite the mostly positive economic headlines, our outlook for stock returns remains tempered by valuation. Most broad market indices are up 35% or more in the past 12 months. We believe U.S. market valuations now broadly reflect assumptions of sustained, robust economic recovery. While our analysis indicates that our holdings are priced at discounts to growing business values, finding new stock ideas that sell at deep discounts has become more difficult. We are finding more stock values internationally, but discounts to value have narrowed there, too. We still believe that stocks' prospective returns are attractive compared to other asset classes. However, we also believe that higher share valuations make this a stock pickers' market. Values exist, but they are tougher to find. The rigors of our disciplined, bottom-up investment process, which focuses on finding undervalued stocks, help us to take advantage of market volatility and to unearth value in today's market. Our patient, long-term approach, which helps us avoid over reacting to short term events, gives us an extra edge. INDUSTRY GOVERNANCE AND REGULATION Over the past quarter, the SEC and Congress have proposed several new rules and regulations for the mutual fund industry in response to abusive practices by fund companies. We believe in setting high standards for the treatment of our shareholders, but we also believe that abuses by other fund companies harm investors and their confidence in our industry. In this spirit, we support and encourage sensible new rules and regulations to protect fund investors and enhance fund governance. If you would like to learn more about our position on these issues, please visit our web site at www.oakmark.com. Thank you for your continued investment and confidence in the Oakmark Family of Funds. We welcome your comments and questions. You can reach us via e-mail at ContactOakmark@oakmark.com. /s/ John R. Raitt JOHN R. RAITT PRESIDENT OF THE OAKMARK FUNDS PRESIDENT AND CEO OF HARRIS ASSOCIATES L.P. 1 THE OAKMARK FAMILY OF FUNDS SUMMARY INFORMATION
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP PERFORMANCE FOR PERIOD(1) FUND-CLASS I FUND-CLASS I FUND-CLASS I ENDED MARCH 31, 2004 (OAKMX) (OAKLX) (OAKSX) - ------------------------------------------------------------------------------------------------------------------- 3 MONTHS* 1.44% 2.45% 7.03% 6 MONTHS* 12.95% 14.26% 18.74% 1 YEAR 32.53% 32.83% 46.87% AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 6.22% 9.59% 12.30% 5 YEAR 5.29% 13.66% 9.44% 10 YEAR 11.54% N/A N/A SINCE INCEPTION 16.91% 21.81% 11.62% (8/5/91) (11/1/96) (11/1/95) VALUE OF $10,000 FROM INCEPTION DATE $ 72,327 $ 43,214 $ 25,239 TOP FIVE EQUITY Washington Washington Checkpoint HOLDINGS AS OF Mutual, Inc. 3.4% Mutual, Inc. 17.0% Systems, Inc. 4.6% MARCH 31, 2004(2) First Data H&R Block, Inc. 7.3% Ciber, Inc. 4.5% Corporation 2.6% Yum! Brands, Inc. 6.0% Hanger Orthopedic COMPANY AND % OF TOTAL H&R Block, Inc. 2.5% First Data Group, Inc. 4.3% NET ASSETS McDonald's Corporation 5.7% Mentor Graphics Corporation 2.4% Burlington Corporation 4.3% Yum! Brands, Inc. 2.4% Resources, Inc. 4.7% Ralcorp Holdings, Inc. 3.9% TOP FIVE INDUSTRIES Retail 9.6% Banks & Thrifts 17.0% Food & Beverage 10.3% AS OF MARCH 31, 2004 Food & Beverage 8.3% Retail 14.0% Computer Software 9.9% Pharmaceuticals 7.8% Other Consumer Medical Products 8.3% INDUSTRIES AND % OF TOTAL Banks & Thrifts 6.4% Goods & Services 11.2% Computer Services 4.9% NET ASSETS Cable Systems & Information & Banks & Thrifts 4.8% Satellite TV 6.2% Services 7.4% Pharmaceuticals 6.4%
The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data call 1-800-OAKMARK. * Not annualized 2
THE OAKMARK THE OAKMARK EQUITY AND GLOBAL PERFORMANCE FOR PERIOD(1) INCOME FUND-CLASS I FUND-CLASS I ENDED MARCH 31, 2004 (OAKBX) (OAKGX) - ------------------------------------------------------------------------------------- 3 MONTHS* 4.18% 3.89% 6 MONTHS* 13.75% 18.31% 1 YEAR 31.35% 73.04% AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 12.48% 22.33% 5 YEAR 13.89% N/A 10 YEAR N/A N/A SINCE INCEPTION 14.90% 17.29%(3) (11/1/95) (8/4/99) VALUE OF $10,000 FROM INCEPTION DATE $ 32,200 $ 21,029 TOP FIVE EQUITY Burlington Diageo plc 4.7% HOLDINGS AS OF Resources, Inc. 3.4% First Data MARCH 31, 2004(2) Caremark Rx, Inc. 3.4% Corporation 4.7% First Data Nestle SA 4.1% COMPANY AND % OF TOTAL Corporation 3.2% Euronext NV 4.0% NET ASSETS Cardinal Takeda Chemical Health, Inc. 2.8% Industries, Ltd. 3.8% General Dynamics Corporation 2.6% TOP FIVE INDUSTRIES U.S. Government Food & Beverage 11.9% AS OF MARCH 31, 2004 Notes 25.0% Pharmaceuticals 10.5% Oil & Natural Gas 6.6% Banks & Thrifts 7.3% INDUSTRIES AND % OF TOTAL Health Care Services 6.6% Other Financial 6.6% NET ASSETS Retail 6.0% Computer Services 6.3% Aerospace & Defense 5.4% THE OAKMARK THE OAKMARK INTERNATIONAL INTERNATIONAL PERFORMANCE FOR PERIOD(1) FUND-CLASS I SMALL CAP FUND-CLASS I ENDED MARCH 31, 2004 (OAKIX) (OAKEX) - ------------------------------------------------------------------------------------- 3 MONTHS* 3.61% 6.54% 6 MONTHS* 19.93% 25.51% 1 YEAR 62.00% 85.03% AVERAGE ANNUAL TOTAL RETURN FOR: 3 YEAR 10.80% 19.01% 5 YEAR 11.36% 14.37% 10 YEAR 9.08% N/A SINCE INCEPTION 11.89% 11.85% (9/30/92) (11/1/95) VALUE OF $10,000 FROM INCEPTION DATE $ 36,419 $ 25,685 TOP FIVE EQUITY Diageo plc 3.5% Neopost SA 4.3% HOLDINGS AS OF Aventis SA 3.5% D.F.S. Furniture MARCH 31, 2004(2) Euronext NV 3.4% Company plc 3.8% GlaxoSmithKline plc 3.3% Schlinder COMPANY AND % OF TOTAL Takeda Chemical Holding AG 3.7% NET ASSETS Industries, Ltd. 3.0% Kobenhavns Lufthavne A/S (Copenhagen Airports A/S CPH) 3.6% Ansell Limited 3.6% TOP FIVE INDUSTRIES Food & Beverage 14.4% Retail 9.4% AS OF MARCH 31, 2004 Pharmaceuticals 12.1% Airport Maintenance 7.0% Banks & Thrifts 11.7% Machinery & Industrial INDUSTRIES AND % OF TOTAL Chemicals 8.1% Processing 6.2% NET ASSETS Other Financial 7.4% Diversified Conglomerates 6.1% Medical Products 6.0%
3 THE OAKMARK AND OAKMARK SELECT FUNDS AT OAKMARK, WE LOOK FOR STOCKS WITH PRICES LESS THAN 60% OF INTRINSIC VALUE, WITH INTRINSIC VALUE THAT IS LIKELY TO GROW AND WITH MANAGEMENT THAT ACTS IN THE INTEREST OF OUTSIDE SHAREHOLDERS. THE COMBINATION OF THESE FACTORS CREATES OUR BIGGEST COMPETITIVE ADVANTAGE--THE ABILITY TO BE MORE PATIENT THAN MOST INVESTORS. [PHOTO OF WILLIAM C. NYGREN] "He that is greedy of gain troubleth his own house." Book of Proverbs It was a big quarter for the word "greed." It was frequently used in courtrooms explaining the behavior of former CEOs who were standing trial. It was used in articles about fund companies that courted market timers. It was used in Warren Buffett's annual letter referencing excessive CEO compensation. And it was used to explain investors' behavior who are now more interested in buying stocks than they were a year ago when stocks were much cheaper. In his book ORIGINS OF THE CRASH,(4) one of my favorite business writers, Roger Lowenstein, also makes frequent use of the word greed. His cataloging of events leading up to the 2000 stock market collapse assigns blame to greedy CEOs, greedy accountants, greedy Wall Street analysts, and greedy investors. Even though the peak occurred just four years ago, Lowenstein's book serves as a great reminder of just how extreme the excesses were: during "the first quarter of 2000, a technology company was going public and doubling every other day--a speculative orgy without precedent in public markets." The book should be required reading before anyone is allowed to say that the bubble is now back! During the real bubble, CEOs overly incentivized by stock options became exclusively focused on the short term; audits were marketed not just on price but on leniency; analysts hyped stocks to create banking business; and investors bought stocks not because of investment merits, but because prices had risen and they wanted in on the gravy train. Lowenstein says, "The distinction between self-interest and greed ... in the '90s was utterly lost." In the investment criteria we list at the top of this report each quarter, we say we seek to invest with a "management that acts in the interest of outside shareholders." We have further said that we want them incentivized with stock ownership, stock options, and bonuses that pay them for increasing business value. Effectively, we want them to maximize their personal profits by doing what is most profitable for us, the outside shareholders. One could argue that by using the dictionary definition of greed--the desire for wealth beyond one's needs--we are asking management to be greedy. But many times greed and value maximization do overlap. That's why Gordon Gekko's "Greed is good!" speech to the shareholders of Teldar Paper didn't sound entirely self-serving. For tough decisions like downsizing or selling off divisions, as well as for high return investments that result in a growing business, greed may result in the same course of action as value maximization. Greed and value maximization, however, part ways when short-term goals are pursued that cause long-term damage. As Lowenstein said, in the 90s, "the credo of shareholder value ... became a maxim not for enhancing business values, a process that occurs only over years, but for enhancing day-by-day quotations of shares." We have always been troubled by managements that are more concerned about their stock prices than they are about building business value. Managements often ask our advice on what they can do to get a higher stock price. Our answer has remained the same for years, and it's not necessarily the one they want to hear. "Run the business to maximize long-term value and invest excess cash in your highest return opportunities--among the opportunities being evaluated, always include share repurchase. If you do, the stock price will take care of itself." Anything short of that is not behaving like an owner. A business owner would never sacrifice long-term value in exchange for simply having people believe the business is more valuable today--unless it is being sold! A management focused only on next year's stock price won't make the necessary investments for long-term success. That's why we look at management's overall incentives. We want managements to make high return investments, even when the payoffs won't be evident for several years. Warren Buffett commented on the short-term focus that can result from an options-only incentive plan, saying "Who ever washes a rental car?" Options can help align a manager's interests with the shareholders, but true ownership creates a better long-term alignment. By focusing on a five-year time frame, we hopefully avoid most of the managers who aren't washing our cars! HIGHLIGHTS - At Oakmark, we add value through stock selection rather than macro forecasts. - If management maximizes business value growth, their stock price should follow. - We don't believe current market valuations indicate a "Bubble Redux." With so much greed in the air, some of our value peers have sold stocks and increased their cash position anticipating better opportunities (lower prices) ahead. We share some of their concerns because by definition, the higher the market goes, the tougher it is to find stocks that 4 will continue achieving high returns. But, we have never shown an ability to add value through timing the market, or for that matter, through use of any macro level forecasts. A NEW YORK TIMES headline last month read "Time for Optimism? Pessimism? Pick Your Gauge." The article contained bull and bear arguments that each sounded compelling. An investor who read only one side could have been easily convinced. Last quarter BARRONS ran a story about the likelihood of a strong rebound in inflation. It was well written and had strong statistical backing. However, later in the same issue, an interview with a highly successful fund manager gave an equally sound argument that deflation was right around the corner! Usually, a compelling argument can be made for higher or lower stock prices, higher or lower inflation, economic boom or recession. Not only do we lack the ability to select the prophetic ones, but over our five-year time frame, their conclusions generally tend to be less significant than projecting how a specific business is likely to change. That's why we spend our time at the company level--trying to identify companies whose futures are being underpriced. We agree with Lowenstein's comment that "a true analyst is better equipped to appraise the medium-term future in rough terms than he is to forecast the here and now with precision." So we don't try to forecast the market--we simply buy out-of-favor stocks that appear to be selling below growing business values and hold them until the gap has closed. While it has been hard this year to find new stocks selling below 60% of value, we believe our existing holdings continue to sell at a discount and continue to see growth in their value. When my children were younger, they enjoyed a story called "The Magic Fish" by Freya Littledale. In this story, a fisherman catches a talking fish that claims to be a prince and begs for freedom. Upon returning home and telling his wife that he set the fish free, the fisherman is berated for not getting anything in return. The wife demands he ask the fish for a new house. The fish delivers, but the greedy wife keeps asking for more and more until finally the fish takes back everything. Those who want us to believe that the current stock market is the "Bubble Redux" would say today's investor is behaving like the greedy wife. We're not so sure. Seeing two sides to most every story, we would ask if perhaps those who are waiting for double-digit expected returns while bonds yield only 4% aren't being just as greedy! /s/ William C. Nygren WILLIAM C. NYGREN, CFA PORTFOLIO MANAGER bnygren@oakmark.com 5 THE OAKMARK FUND REPORT FROM BILL NYGREN AND KEVIN GRANT, PORTFOLIO MANAGERS [PHOTO] [PHOTO] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (3/31/04) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(5)
THE OAKMARK FUND (CLASS I) S & P 500 8/5/91 $ 10,000 $ 10,000 12/31/91 $ 13,020 $ 10,909 3/31/92 $ 14,690 $ 10,634 6/30/92 $ 15,230 $ 10,836 9/30/92 $ 16,800 $ 11,178 12/31/92 $ 19,386 $ 11,741 3/31/93 $ 20,927 $ 12,253 6/30/93 $ 21,494 $ 12,313 9/30/93 $ 23,095 $ 12,631 12/31/93 $ 25,300 $ 12,924 3/31/94 $ 24,242 $ 12,434 6/30/94 $ 24,951 $ 12,486 9/30/94 $ 26,663 $ 13,097 12/31/94 $ 26,138 $ 13,095 3/31/95 $ 28,539 $ 14,370 6/30/95 $ 30,303 $ 15,741 9/30/95 $ 32,841 $ 16,992 12/31/95 $ 35,134 $ 18,015 3/31/96 $ 36,386 $ 18,982 6/30/96 $ 37,661 $ 19,834 9/30/96 $ 37,945 $ 20,447 12/31/96 $ 40,828 $ 22,152 3/31/97 $ 42,456 $ 22,746 6/30/97 $ 48,917 $ 26,716 9/30/97 $ 52,009 $ 28,717 12/31/97 $ 54,132 $ 29,542 3/31/98 $ 59,517 $ 33,663 6/30/98 $ 57,909 $ 34,775 9/30/98 $ 49,899 $ 31,316 12/31/98 $ 56,155 $ 37,985 3/31/99 $ 55,888 $ 39,877 6/30/99 $ 62,332 $ 42,688 9/30/99 $ 53,882 $ 40,023 12/31/99 $ 50,277 $ 45,977 3/31/2000 $ 45,767 $ 47,032 6/30/2000 $ 46,950 $ 45,783 9/30/2000 $ 49,815 $ 45,339 12/31/2000 $ 56,201 $ 41,791 3/31/2001 $ 60,342 $ 36,837 6/30/2001 $ 65,927 $ 38,993 9/30/2001 $ 59,986 $ 33,269 12/31/2001 $ 66,479 $ 36,824 3/31/2002 $ 69,250 $ 36,926 6/30/2002 $ 63,463 $ 31,979 9/30/2002 $ 52,927 $ 26,454 12/31/2002 $ 56,902 $ 28,686 3/31/2003 $ 54,576 $ 27,783 6/30/2003 $ 63,826 $ 32,059 9/30/2003 $ 64,034 $ 32,907 12/31/2003 $ 71,301 $ 36,914 3/31/2004 $ 72,327 $ 37,539
AVERAGE ANNUAL TOTAL RETURNS (as of 03/31/04)
SINCE TOTAL RETURN INCEPTION LAST 3 MONTHS* 1-YEAR 5-YEAR 10-YEAR (8/5/91) - --------------------------------------------------------------------------------- OAKMARK FUND (CLASS I) 1.44% 32.53% 5.29% 11.54% 16.91% S&P 500 1.69% 35.12% -1.20% 11.67% 11.01% Dow Jones Average(6) -0.31% 32.66% 3.07% 13.31% 12.69% Lipper Large Cap 2.42% 37.82% 1.21% 10.69% 10.68% Value Index(7)
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. * Not annualized The Oakmark Fund increased in value by 1% in the quarter, slightly trailing the S&P 500. Over the last twelve months, the Fund increased by 33% compared to 35% for the S&P 500. Though we always strive to do better than the market, we rely on an investment approach that focuses on risk. That approach generally keeps us away from the most popular stocks, which means that we tend to add more value when markets are not unusually strong. We sold three positions this past quarter. We decided our outlook on Safeway had been too optimistic given the high percentage of their sales that come from markets that don't yet have Wal-Mart or other superstore competitors. Though Safeway still looks undervalued, we believe other companies have less uncertainty and are equally undervalued. Further, sale of Safeway allowed us to increase our capital loss carryforward. On the positive side, shares of JC Penney and Guidant achieved our price targets and were sold. Two new positions were added: Limited Brands, described below, and Raytheon, which is described on our website. LIMITED BRANDS (LTD--$20) LTD is a specialty retailer with well-known brands including Victoria's Secret, Bath & Body Works, Express, and its namesake, Limited. LTD stock is down from a high of $28 which was reached four years ago. While Victoria's Secret and Bath & Body Works have become highly profitable category dominant chains, the other brands have struggled. Victoria's Secret and Bath & Body Works now account for two-thirds of LTD's sales and 90% of operating income. Despite this, investors seem focused on the struggling turnaround efforts in the lesser chains. Management has intelligently used the cash generated by these businesses, including a recently completed $1 billion share repurchase (10% of the outstanding shares). We believe Victoria's Secret and Bath & Body Works are above-average franchises, are well insulated from Wal-Mart competition, and should continue growing at above-average rates. Success in the turnarounds of Limited and Express is possible and would be nice, but isn't assumed in our outlook. Selling at fifteen times estimated earnings, LTD is being priced as a below-average business. Best wishes, /s/ William C. Nygren /s/ Kevin G. Grant WILLIAM C. NYGREN, CFA KEVIN G. GRANT, CFA Portfolio Manager Portfolio Manager bnygren@oakmark.com kgrant@oakmark.com 6 THE OAKMARK FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2004 (UNAUDITED)
NAME SHARES HELD MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.4% FOOD & BEVERAGE--8.3% Anheuser-Busch Companies, Inc. 2,450,000 $ 124,950,000 Diageo plc (b) 1,821,000 96,294,480 Kraft Foods Inc. 2,845,000 91,068,450 H.J. Heinz Company 2,310,000 86,139,900 General Mills, Inc. 1,805,000 84,257,400 ----------------- 482,710,230 HOUSEHOLD PRODUCTS--1.2% The Clorox Company 1,390,200 $ 67,994,682 OTHER CONSUMER GOODS & SERVICES--6.0% H&R Block, Inc. (c) 2,829,300 $ 144,379,179 Fortune Brands, Inc. 1,745,600 133,765,328 Mattel, Inc. 3,874,300 71,442,092 ----------------- 349,586,599 BROADCASTING & PROGRAMMING--2.4% Liberty Media Corporation, Class A (a) 9,199,400 $ 100,733,430 The Walt Disney Company 1,500,000 37,485,000 ----------------- 138,218,430 BUILDING MATERIALS & CONSTRUCTION--2.2% Masco Corporation 4,133,600 $ 125,826,784 CABLE SYSTEMS & SATELLITE TV--6.2% Time Warner Inc. (a) 7,297,700 $ 123,039,222 Comcast Corporation, Special Class A (a) 3,300,000 92,004,000 The DIRECTV Group, Inc. (a) 5,021,618 77,232,485 EchoStar Communications Corporation (a) 2,075,000 67,956,250 ----------------- 360,231,957 HARDWARE--1.9% The Black & Decker Corporation 1,922,200 $ 109,450,068 MOTORCYCLES--1.8% Harley-Davidson, Inc. 1,962,500 $ 104,679,750 PUBLISHING--2.5% Gannett Co., Inc. 884,500 $ 77,959,830 Knight-Ridder, Inc. 916,000 67,097,000 ----------------- 145,056,830 RECREATION & ENTERTAINMENT--1.3% Carnival Corporation (d) 1,678,300 $ 75,372,453
7
NAME SHARES HELD MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.4% (CONT.) RESTAURANTS--4.8% McDonald's Corporation 4,900,000 $ 139,993,000 Yum! Brands, Inc (a) 3,674,000 139,575,260 ----------------- 279,568,260 RETAIL--9.6% The Gap, Inc. 6,326,700 $ 138,681,264 The Home Depot, Inc. 3,281,500 122,596,840 The Kroger Co. (a) 5,150,000 85,696,000 Kohl's Corporation (a) 1,700,500 82,185,165 Limited Brands 4,090,000 81,800,000 Toys 'R' Us, Inc. (a)(c) 3,125,000 52,500,000 ----------------- 563,459,269 BANK & THRIFTS--6.4% Washington Mutual, Inc. 4,687,300 $ 200,194,583 U.S. Bancorp 3,700,000 102,305,000 The Bank of New York Company, Inc. 2,300,000 72,450,000 ----------------- 374,949,583 INSURANCE--3.5% MGIC Investment Corporation 1,740,600 $ 111,798,738 AFLAC Incorporated 2,367,000 95,011,380 ----------------- 206,810,118 OTHER FINANCIAL--2.1% Fannie Mae 1,670,000 $ 124,164,500 HEALTH CARE SERVICES--1.1% AmerisourceBergen Corp 1,200,000 $ 65,616,000 MEDICAL PRODUCTS--1.5% Baxter International Inc. 2,800,000 $ 86,492,000 PHARMACEUTICALS--7.8% Merck & Co., Inc. 2,350,000 $ 103,846,500 Bristol-Myers Squibb Company 3,950,000 95,708,500 Abbott Laboratories 2,300,000 94,530,000 Schering-Plough Corporation 5,625,000 91,237,500 Chiron Corporation (a) 1,659,900 73,052,199 ----------------- 458,374,699 TELECOMMUNICATIONS--1.7% Sprint Corporation 5,426,800 $ 100,015,924
8
SHARES HELD/ NAME PAR VALUE MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--90.4% (CONT.) COMPUTER SERVICES--5.4% First Data Corporation 3,615,000 $ 152,408,400 SunGard Data Systems, Inc. (a) 3,203,700 87,781,380 Automatic Data Processing, Inc. 1,800,000 75,600,000 ----------------- 315,789,780 COMPUTER SYSTEMS--1.4% Sun Microsystems, Inc. (a) 19,870,000 $ 82,659,200 OFFICE EQUIPMENT--1.4% Xerox Corporation (a) 5,472,400 $ 79,732,868 AEROSPACE & DEFENSE--3.9% Honeywell International, Inc. 3,050,000 $ 103,242,500 Raytheon Company 2,500,000 78,350,000 The Boeing Company 1,152,800 47,345,496 ----------------- 228,937,996 OTHER INDUSTRIAL GOODS & SERVICES--0.8% Illinois Tool Works Inc. 604,200 $ 47,870,766 WASTE DISPOSAL--1.8% Waste Management, Inc. 3,474,300 $ 104,854,374 OIL & NATURAL GAS--3.4% ConocoPhillips 1,435,335 $ 100,200,736 Burlington Resources, Inc. (c) 1,571,100 99,969,093 ----------------- 200,169,829 TOTAL COMMON STOCKS (COST: $4,161,379,404) 5,278,592,949 SHORT TERM INVESTMENTS--10.4% U.S. GOVERNMENT BILLS--7.0% United States Treasury Bills, 0.88% - 0.94% due 4/1/2004 - 7/1/2004 $ 410,000,000 $ 409,525,587 TOTAL U.S. GOVERNMENT BILLS (COST: $409,534,826) 409,525,587 REPURCHASE AGREEMENTS--3.4% IBT Repurchase Agreement, 0.91% dated 3/31/2004 due 4/1/2004, repurchase price $195,504,942 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $205,275,000 $ 195,500,000 $ 195,500,000
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NAME PAR VALUE MARKET VALUE - --------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--10.4% (CONT.) REPURCHASE AGREEMENTS--3.4% (CONT.) IBT Repurchase Agreement, 0.76% dated 3/31/2004 due 4/1/2004, repurchase price $4,051,277 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $4,253,750 $ 4,051,191 $ 4,051,191 ----------------- TOTAL REPURCHASE AGREEMENTS (COST: $199,551,191) 199,551,191 TOTAL SHORT TERM INVESTMENTS (COST: $609,086,017) 609,076,778 Total Investments (Cost $4,770,465,421)--100.8% $ 5,887,669,727 Other Liabilities In Excess Of Other Assets--(0.8%) (46,682,679) ----------------- TOTAL NET ASSETS--100% $ 5,840,987,048 =================
(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) Represents a foreign domiciled corporation. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 10 THE OAKMARK SELECT FUND REPORT FROM BILL NYGREN AND HENRY BERGHOEF, PORTFOLIO MANAGERS [PHOTO] [PHOTO] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (3/31/04) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(5)
THE OAKMARK SELECT FUND (CLASS I) S & P 500 11/1/96 $ 10,000 $ 10,000 12/31/96 $ 11,420 $ 10,543 3/31/97 $ 12,140 $ 10,826 6/30/97 $ 14,180 $ 12,715 9/30/97 $ 16,340 $ 13,668 12/31/97 $ 17,704 $ 14,060 3/31/98 $ 20,078 $ 16,021 6/30/98 $ 20,462 $ 16,551 9/30/98 $ 16,936 $ 14,904 12/31/98 $ 20,575 $ 18,078 3/31/99 $ 22,766 $ 18,979 6/30/99 $ 24,482 $ 20,317 9/30/99 $ 22,028 $ 19,048 12/31/99 $ 23,557 $ 21,882 3/31/2000 $ 25,667 $ 22,384 6/30/2000 $ 24,324 $ 21,790 9/30/2000 $ 27,432 $ 21,578 12/31/2000 $ 29,637 $ 19,890 3/31/2001 $ 32,826 $ 17,532 6/30/2001 $ 35,865 $ 18,558 9/30/2001 $ 34,496 $ 15,834 12/31/2001 $ 37,359 $ 17,526 3/31/2002 $ 38,306 $ 17,574 6/30/2002 $ 35,206 $ 15,220 9/30/2002 $ 29,720 $ 12,590 12/31/2002 $ 32,699 $ 13,653 3/31/2003 $ 32,535 $ 13,223 6/30/2003 $ 37,806 $ 15,258 9/3/2003 $ 37,820 $ 15,662 12/31/2003 $ 42,181 $ 17,569 3/31/2004 $ 43,214 $ 17,866
AVERAGE ANNUAL TOTAL RETURNS (as of 03/31/04)
SINCE TOTAL RETURN INCEPTION LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/96) - --------------------------------------------------------------------------------- OAKMARK SELECT FUND (CLASS I) 2.45% 32.83% 13.66% 21.81% S&P 500 1.69% 35.12% -1.20% 8.14% S&P MidCap 400(8) 5.06% 49.10% 11.74% 14.43% Lipper Mid Cap Value Index(9) 5.60% 53.35% 11.50% 10.63%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. * Not annualized The Oakmark Select Fund increased in value by 2% in the quarter, slightly exceeding the S&P 500. The Fund's performance was positively affected by Washington Mutual's 7% return. As the fund's largest holding, Washington Mutual's performance frequently is the largest contributor to NAV(10) changes. Our holding that increased the most in the quarter was Toys 'R' Us. We first bought Toys 'R' Us in early 2000 believing that new management would succeed at improving the profitability of their toy stores. Although the shopping experience today is much better, the profits aren't. Fortunately, continued growth at Babies 'R' Us and growing real estate value underneath the toy stores has allowed the stock to increase despite disappointing progress on our primary thesis. This outcome highlights the value of our investment approach. By investing only when we believe stocks are selling at large discounts to value, we have benefited from a cushion that Benjamin Graham, the "father of value investing," referred to as a "margin of safety." While the company's earnings have fallen far short of our projections, the stock has increased in price, and we still believe it is selling at a discount to business value. We are pleased with the steps management is now considering which include a downsizing of the toy division. During the quarter we sold our position in Starwood Hotels. We purchased Starwood a year ago when the Iraq war caused a cutback in travel plans. The stock, which then troughed at $22, exceeded $40 last quarter. We still like the business but believe the current quote approximates full business value. Starwood was replaced in the portfolio with The Gap. We believe Gap is one of the strongest global apparel names, and we are very pleased with the new management, led by CEO Paul Pressler. We think that the stores look better, which is confirmed by higher same-store-sales. Our confidence is growing that Gap's turnaround will be successful, so despite the higher price, we believe the stock is very attractive. Thank you for your continued support, /s/ William C. Nygren /s/ Henry R. Berghoef WILLIAM C. NYGREN, CFA HENRY R. BERGHOEF, CFA Portfolio Manager Portfolio Manager bnygren@oakmark.com berghoef@oakmark.com 11 THE OAKMARK SELECT FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2004 (UNAUDITED)
NAME SHARES HELD MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--93.9% OTHER CONSUMER GOODS & SERVICES--11.2% H&R Block, Inc. (b) 8,259,800 $ 421,497,594 Mattel, Inc. 12,270,900 226,275,396 ----------------- 647,772,990 CABLE SYSTEMS & SATELLITE TV--4.4% Time Warner Inc. (a) 15,240,000 $ 256,946,400 INFORMATION SERVICES--7.4% Moody's Corporation 3,123,600 $ 221,150,880 The Dun & Bradstreet Corporation (a)(b) 3,934,900 210,517,150 ----------------- 431,668,030 PUBLISHING--3.3% Knight-Ridder, Inc. 2,606,500 $ 190,926,125 RESTAURANTS--6.0% Yum! Brands, Inc (a) 9,207,000 $ 349,773,930 RETAIL--14.0% Toys 'R' Us, Inc. (a)(b) 12,622,700 $ 212,061,360 Office Depot, Inc. (a) 11,084,900 208,617,818 The Gap, Inc. 9,400,000 206,048,000 The Kroger Co. (a) 11,035,700 183,634,048 ----------------- 810,361,226 BANK & THRIFTS--17.0% Washington Mutual, Inc. 23,151,400 $ 988,796,294 INVESTMENT MANAGEMENT--2.6% Janus Capital Group, Inc. 9,169,600 $ 150,198,048 HEALTH CARE SERVICES--3.3% IMS Health Incorporated 8,303,441 $ 193,138,038 PHARMACEUTICALS--6.4% Chiron Corporation (a) 4,641,100 $ 204,254,811 Bristol-Myers Squibb Company 6,990,200 169,372,546 ----------------- 373,627,357 TELECOMMUNICATIONS--3.8% Sprint Corporation 11,999,600 $ 221,152,628 COMPUTER SERVICES--5.7% First Data Corporation 7,815,400 $ 329,497,264 OFFICE EQUIPMENT--4.0% Xerox Corporation (a) 15,854,700 $ 231,002,979
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SHARES HELD/ NAME PAR VALUE MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--93.9% (CONT.) OIL & NATURAL GAS--4.8% Burlington Resources, Inc. (b) 4,326,800 $ 275,314,284 TOTAL COMMON STOCKS (COST: $3,584,332,713) 5,450,175,593 SHORT TERM INVESTMENTS--5.9% U.S. GOVERNMENT BILLS--3.8% United States Treasury Bills, 0.865% - 0.895% due 4/1/2004 - 5/20/2004 $ 220,000,000 $ 219,854,010 TOTAL U.S. GOVERNMENT BILLS (COST: $219,861,555) 219,854,010 REPURCHASE AGREEMENTS--2.1% IBT Repurchase Agreement, 0.91% dated 3/31/2004 due 4/1/2004, repurchase price $119,003,008 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $124,950,000 $ 119,000,000 $ 119,000,000 IBT Repurchase Agreement, 0.76% dated 3/31/2004 due 4/1/2004, repurchase price $3,687,463 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $3,871,754 3,687,385 3,687,385 ----------------- TOTAL REPURCHASE AGREEMENTS (COST: $122,687,385) 122,687,385 TOTAL SHORT TERM INVESTMENTS (COST: $342,548,940) 342,541,395 Total Investments (Cost $3,926,881,653)--99.8% $ 5,792,716,988 Other Assets In Excess Of Other Liabilities--0.2% 12,113,583 ----------------- TOTAL NET ASSETS--100% $ 5,804,830,571 =================
(a) Non-income producing security. (b) See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 13 THE OAKMARK SMALL CAP FUND REPORT FROM JAMES P. BENSON AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS [PHOTO] [PHOTO] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/04) AS COMPARED TO THE RUSSELL 2000 INDEX(11)
THE OAKMARK SMALL CAP FUND (CLASS I) RUSSELL 2000 11/1/95 $ 10,000 $ 10,000 12/31/95 $ 10,330 $ 10,695 3/31/96 $ 11,460 $ 11,241 6/30/96 $ 12,470 $ 11,803 9/30/96 $ 13,250 $ 11,843 12/31/96 $ 14,440 $ 12,459 3/31/97 $ 15,220 $ 11,815 6/30/97 $ 17,660 $ 13,730 9/30/97 $ 20,340 $ 15,774 12/31/97 $ 20,290 $ 15,245 3/31/98 $ 21,732 $ 16,779 6/30/98 $ 20,467 $ 15,997 9/30/98 $ 14,976 $ 12,774 12/31/98 $ 17,620 $ 14,857 3/31/99 $ 16,069 $ 14,051 6/30/99 $ 18,205 $ 16,237 9/30/99 $ 16,558 $ 15,210 12/31/99 $ 16,224 $ 18,015 3/31/2000 $ 15,974 $ 19,292 6/30/2000 $ 15,926 $ 18,562 9/30/2000 $ 18,014 $ 18,768 12/31/2000 $ 16,937 $ 17,471 3/31/2001 $ 17,816 $ 16,335 6/30/2001 $ 21,218 $ 18,688 9/30/2001 $ 18,026 $ 14,788 12/31/2001 $ 21,391 $ 17,906 3/31/2002 $ 24,014 $ 18,619 6/30/2002 $ 22,369 $ 17,064 9/30/2002 $ 17,445 $ 13,412 12/31/2002 $ 18,595 $ 14,238 3/31/2003 $ 17,185 $ 13,598 6/30/2003 $ 20,092 $ 16,784 9/30/2003 $ 21,255 $ 18,307 12/31/2003 $ 23,581 $ 20,966 3/31/2004 $ 25,239 $ 22,278
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE TOTAL RETURN INCEPTION LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/95) - -------------------------------------------------------------------------------- OAKMARK SMALL CAP FUND (CLASS I) 7.03% 46.87% 9.44% 11.62% Russell 2000 6.26% 63.83% 9.65% 9.98% S&P Small Cap 600(12) 6.22% 56.49% 13.10% 12.40% Lipper Small Cap Value Index(13) 5.96% 65.89% 16.54% 13.48%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. * Not annualized "When it is a question of money, everybody is of the same religion." Voltaire OUR RESULTS The Oakmark Small Cap Fund increased 7% for the quarter ended March 31, which also reflects the calendar year gain. During 2004, the Fund has outperformed the market averages while also outperforming our primary benchmark, the Russell 2000 Index, which has gained 6% year-to-date. We are pleased with this result because we believe that absolute positive returns preserve and grow your capital. We are even more pleased that over the past three-year and five-year periods we have grown and compounded the capital of our long-term investors at a 12% and 9% annualized rate, respectively. Please do not think for one moment however, that those returns are going to lead us to complacency. We began 2004 with a renewed focus on our goal of continuing to provide consistent returns. While Oscar Wilde may have said, "Consistency is the last refuge of the unimaginative," we feel that in the investment business consistently above-average returns requires both imagination and discipline. We also firmly believe that you, our investors, sought this consistency and discipline when you elected to partner with us by committing capital to the fund. TIDAL CHARTS Particularly strong performers during the quarter were Central Parking Corporation, CIBER Inc., Jack in the Box Inc., Levitt Corporation, and Peoples Bank of Bridgeport. Over time, we have noted that many value stocks have a tendency to sit for long periods with a huge gap between our assessment of intrinsic value and the current market price until a catalyst or some other piece of information triggers a greater appreciation of the opportunity presented by the gap. Then, the gap narrows and often closes within a very short period. We mention this sequence of events because it speaks to the importance of a long-term focus, rather than allowing one's self to be blown about by the vagaries of changing short-term perceptions that have little to do with a company's long-term business value. It also speaks to the foolishness of trying to time the market, especially in today's world of accelerated information flows. The worst performer during the quarter was R.G. Barry, which saw its share price sell-off when it reported a slowdown in sales of its slipper products, along with the attendant back-up in inventories. We continue to monitor this situation closely, weighing the statistical cheapness of the investment against a management that for a continued period has been unable to avoid tripping over its own feet in executing a turnaround. 14 HIGHLIGHTS - Gaps between price and value can remain for long periods, but close quickly when a catalyst occurs. - Small caps are significantly under-followed by Wall Street, presenting us with real opportunity. - Our focus remains the same: to search for businesses trading at a margin-of-safety discount to intrinsic value. Five positions--Central Parking Corporation, Jack in the Box, Optimal Robotics Corporation, Penn Fed Financial Corporation, and PMI--were sold out during the quarter. Four of those issues reached our assessment of fair valuation. We sold one position, Optimal Robotics, after its management changed its strategy to focus more on management, rather than shareholder, returns. After we exited the position, management sold the one business that had represented the major unpinning of our investment thesis. Seven new positions were initiated during the quarter in American Italian Pasta, Coolbrands International, FTI Consulting, Levitt Corporation, NeighborCare Inc., PRIMEDIA, Inc., and Watson Wyatt & Company Holdings. While the buoyant market of 2003 and the beginning of 2004 has eliminated many compelling values that existed at the beginning of 2003, our analytical team has diligently examined the "New Low" list as well as other sources to uncover some very interesting and undervalued situations. We have NOT undertaken a strategy of turning the portfolio over merely for the sake of turning the portfolio over. Rather, we have removed issues from the portfolio because they had reached their valuation targets or our assessments had proven faulty, and we have been able to replace them with what we believe are more attractive issues. We also note that our holdings have not appreciated to the point where a wholesale liquidation is appropriate based on valuation. We would point out that there IS a reason why we construct portfolios rather than focus on individual stocks. To use a baseball analogy, ours is a business of hitting singles and doubles. If there is an occasional home run, that's nice, but the singles and doubles provide consistent returns over time while allowing control of the risk we are undertaking. And, we believe that the market and its participants will present us with other opportunities to buy a lot of very high quality securities at very reasonable prices. In the interim, we are looking for one or two really good ideas a year (and are thankful whenever we are able to find a few more than that). MAKING SAUSAGE Is there anything unique about the process of investing in small cap value stocks? Aside from liquidity issues, perhaps the biggest difference from the large cap area is a much diminished information flow. This is not because of the companies themselves, which are oftentimes quite happy to talk to institutional or even individual investors. Rather, Wall Street research often provides little information. A company like Microsoft might have twenty different analysts from the Street following it. For the top two hundred largest capitalization stocks, it is not unusual to have at least ten analysts from different companies poking and prodding the news releases and financials, talking to management, and producing earnings estimates. The information flow on these companies tends to be huge. And, given that even a blind pig can find an acorn on occasion, sometimes one or more of the Street analysts will be outliers in their research and offer an insight that makes it possible to exploit an inefficiency in price, however briefly. The opposite is true in the small cap arena. Probably some ten years ago, the Street started pulling back on the number of companies it covered. Companies like Merrill Lynch, which used to proudly announce that their analysts followed more companies than any other firm on Wall Street, have increasingly trimmed back their coverage to following fewer than a thousand companies. Given that our benchmark is the Russell 2000, that means a lot of companies are either not being covered or are covered by at best one or two institutional analysts, often at small regional or second-tier firms. Many of the companies in The Oakmark Small Cap Fund are followed by one or two analysts. That presents us with an opportunity. Of course, another opportunity comes from the nature of the information flow about these companies. Most large cap companies, followed by an abundance of Street analysts as well as buy side analysts for institutional investors, tightly control access to management, including what have become rigidly scripted investor presentations and guidelines even for the types of questions investors can ask. Earnings guidance information is now the high point of a quarter's information, and woe unto the analyst who deviates greatly from that guidance. What used to pass for analysis has now become information distribution by what are very close to being "embedded" reporters, with all that that may subsume. Contrarily, in the small cap world, analysts get to meet managements, attend analyst days where there is the opportunity for interchange with many levels of management, and still tour plants and other operating facilities. Often these companies do not have a true head of investor relations (the guardian of relative truth), so one's idea of the intellectual and moral makeup of managements comes from direct exchange. One also gets the opportunity to learn about industries and competitors in considerably more depth than one usually gets from visiting a large cap company. At Harris Associates, we are blessed with a very high quality group of analysts who present us with a continuing flow of well-researched, interesting ideas. While we won't go so far as saying that the portfolio manager could easily be replaced by a coin-flipping primate, the fundamental work of our analysts makes our daily jobs considerably easier. THE FUTURE One of the nice aspects of our job and the focus of our firm is that as fundamental value investors, we don't spend a lot of time trying to guess the future, especially what we have no control over and no ability to assess. We leave it 15 to others who make their living predicting economic growth or interest rates. This is probably for the best because we don't think we have any especial talent in that area, and they may actually be ones where the coin-flipping primate can truly excel (or perhaps already has, depending on one's opinion of various commentators). Instead, we plod along, looking to unearth the occasional diamond in the rough of an investment opportunity. In our favor, the continued and even intensified focus on short-term events drives many investment analysis and portfolio management decisions today. Sometimes (actually more than sometimes), doing nothing is the correct decision if you have confidence in your original assessment. Regardless, we are not going to do anything different this coming year from what we have done in the past: searching for business values at that margin of safety discount to intrinsic value that we like. We remain grateful to you, our shareholders and partners, for your patience and confidence in entrusting us with your capital to manage. /s/ James P. Benson /s/ Edward A. Studzinski JAMES P. BENSON, CFA EDWARD A. STUDZINSKI, CFA Portfolio Manager Portfolio Manager jbenson@oakmark.com estudzinski@oakmark.com 16 THE OAKMARK SMALL CAP FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2004 (UNAUDITED)
NAME SHARES HELD MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--93.4% FOOD & BEVERAGE--10.3% Ralcorp Holdings, Inc. (a) 500,000 $ 15,215,000 Del Monte Foods Company (a) 1,100,000 12,375,000 American Italian Pasta Company, Class A 200,000 7,986,000 CoolBrands International, Inc. (a)(b) 290,000 5,047,895 ----------------- 40,623,895 HOUSEHOLD PRODUCTS--3.7% Tupperware Corporation 825,000 $ 14,693,250 OTHER CONSUMER GOODS & SERVICES--2.3% Callaway Golf Company 475,000 $ 9,015,500 SECURITY SYSTEMS--4.6% Checkpoint Systems, Inc. (a) 968,300 $ 18,300,870 APPAREL--2.7% Oakley, Inc. 671,200 $ 9,960,608 R.G. Barry Corporation (a) 269,150 783,226 ----------------- 10,743,834 AUTOMOBILE RENTALS--2.4% Dollar Thrifty Automotive Group, Inc. (a) 375,000 $ 9,476,250 BUILDING MATERIALS & CONSTRUCTION--3.3% Integrated Electrical Services, Inc. (a) 956,600 $ 10,752,184 Insituform Technologies, Inc., Class A (a) 150,000 2,344,500 ----------------- 13,096,684 CONSULTING SERVICES--2.5% FTI Consulting, Inc. (a) 360,000 $ 5,997,600 Watson Wyatt & Company Holdings 158,500 4,000,540 ----------------- 9,998,140 HOME BUILDERS--2.7% Levitt Corporation, Class A (a) 427,300 $ 10,468,850 HUMAN RESOURCES--2.1% Hudson Highland Group, Inc. (a) 300,000 $ 8,364,000 INFORMATION SERVICES--2.9% eFunds Corporation (a)(c) 706,700 $ 11,589,880 MARKETING SERVICES--2.1% Grey Global Group, Inc. 11,750 $ 8,107,500 PUBLISHING--0.2% PRIMEDIA Inc. (a) 314,500 $ 849,150
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NAME SHARES HELD MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--93.4% (CONT.) RESTAURANTS--2.7% Triarc Companies, Inc., Class B 500,000 $ 5,480,000 Triarc Companies, Inc. 250,000 2,735,000 Landry's Restaurants, Inc. 88,700 2,645,921 ----------------- 10,860,921 RETAIL--2.2% ShopKo Stores, Inc. (a) 600,000 $ 8,772,000 BANK & THRIFTS--4.8% People's Bank of Bridgeport, Connecticut 300,000 $ 13,947,000 BankAtlantic Bancorp, Inc., Class A 295,700 5,015,072 ----------------- 18,962,072 INSURANCE--1.1% U.S.I. Holdings Corporation (a) 283,000 $ 4,185,570 OTHER FINANCIAL--3.1% NCO Group, Inc. (a) 530,000 $ 12,386,100 REAL ESTATE--1.8% Trammell Crow Company (a) 495,000 $ 6,944,850 HEALTH CARE SERVICES--2.5% NeighborCare, Inc. (a) 400,000 $ 9,700,000 MEDICAL PRODUCTS--8.3% Hanger Orthopedic Group, Inc. (a) 950,000 $ 17,147,500 CONMED Corporation (a) 400,000 11,816,000 Advanced Medical Optics, Inc. (a) 150,000 3,660,000 ----------------- 32,623,500 COMPUTER SERVICES--4.9% CIBER, Inc. (a) 1,625,000 $ 17,875,000 Interland, Inc. (a) 400,000 1,652,000 ----------------- 19,527,000 COMPUTER SOFTWARE--9.9% Mentor Graphics Corporation (a) 950,000 $ 16,929,000 MSC.Software Corp. (a) 1,350,000 11,893,500 Sybase, Inc. (a) 495,000 10,390,050 ----------------- 39,212,550 DATA STORAGE--2.0% Imation Corp. 215,000 $ 8,088,300
18
SHARES HELD/ NAME PAR VALUE MARKET VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS--93.4% (CONT.) AEROSPACE & DEFENSE--1.7% Herley Industries, Inc. (a) 211,500 $ 3,993,120 Teledyne Technologies Incorporated (a) 140,000 2,618,000 ----------------- 6,611,120 FORESTRY PRODUCTS--2.1% Schweitzer-Mauduit International, Inc. 250,700 $ 8,097,610 OIL & NATURAL GAS--4.5% St. Mary Land & Exploration Company 300,000 $ 10,029,000 Cabot Oil & Gas Corporation 250,000 7,640,000 ----------------- 17,669,000 TOTAL COMMON STOCKS (COST: $275,438,474) 368,968,396 SHORT TERM INVESTMENTS--6.5% U.S. GOVERNMENT BILLS--5.1% United States Treasury Bills, 0.935% - 0.955% due 4/1/2004 - 4/22/2004 $ 20,000,000 $ 19,993,623 TOTAL U.S. GOVERNMENT BILLS (COST: $19,993,623) 19,993,623 REPURCHASE AGREEMENTS--1.4% IBT Repurchase Agreement, 0.91% dated 3/31/2004 due 4/1/2004, repurchase price $3,500,088 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $3,675,000 $ 3,500,000 $ 3,500,000 IBT Repurchase Agreement, 0.76% dated 3/31/2004 due 4/1/2004, repurchase price $2,157,368 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $2,265,188 2,157,322 2,157,322 ----------------- TOTAL REPURCHASE AGREEMENTS (COST: $5,657,322) 5,657,322 TOTAL SHORT TERM INVESTMENTS (COST: $25,650,945) 25,650,945 Total Investments (Cost $301,089,419)--99.9% $ 394,619,341 Other Assets In Excess Of Other Liabilities--0.1% 559,625 ----------------- TOTAL NET ASSETS--100% $ 395,178,966 =================
(a) Non-income producing security. (b) Represents a foreign domiciled corporation. (c) See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 19 THE OAKMARK EQUITY AND INCOME FUND REPORT FROM CLYDE S. McGREGOR AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS [PHOTO] [PHOTO] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/04) AS COMPARED TO THE LIPPER BALANCED FUND INDEX(14)
THE OAKMARK EQUITY AND INCOME FUND (CLASS I) LIPPER BALANCED FUND INDEX 11/1/95 $ 10,000 $ 10,000 12/31/95 $ 10,240 $ 10,473 3/31/96 $ 10,500 $ 10,707 6/30/96 $ 11,040 $ 10,925 9/30/96 $ 11,110 $ 11,213 12/31/96 $ 11,805 $ 11,840 3/31/97 $ 12,153 $ 11,895 6/30/97 $ 13,430 $ 13,178 9/30/97 $ 14,810 $ 14,024 12/31/97 $ 14,941 $ 14,243 3/31/98 $ 16,233 $ 15,370 6/30/98 $ 16,320 $ 15,599 9/30/98 $ 15,191 $ 14,701 12/31/98 $ 16,792 $ 16,392 3/31/99 $ 16,792 $ 16,655 6/30/99 $ 18,457 $ 17,402 9/30/99 $ 17,518 $ 16,682 12/31/99 $ 18,119 $ 17,863 3/31/2000 $ 18,924 $ 18,396 6/30/2000 $ 18,886 $ 18,174 9/30/2000 $ 20,761 $ 18,535 12/31/2000 $ 21,723 $ 18,290 3/31/2001 $ 22,621 $ 17,374 6/30/2001 $ 24,445 $ 17,984 9/30/2001 $ 23,751 $ 16,621 12/31/2001 $ 25,635 $ 17,698 3/31/2002 $ 26,708 $ 17,805 6/30/2002 $ 25,855 $ 16,628 9/30/2002 $ 23,640 $ 14,986 12/31/2002 $ 25,087 $ 15,807 3/31/2003 $ 24,515 $ 15,516 6/30/2003 $ 27,750 $ 17,209 9/30/2003 $ 28,308 $ 17,562 12/31/2003 $ 30,908 $ 18,958 3/31/2004 $ 32,200 $ 19,410
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE TOTAL RETURN INCEPTION LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/95) - ------------------------------------------------------------------------------ OAKMARK EQUITY & INCOME FUND (CLASS I) 4.18% 31.35% 13.89% 14.90% Lipper Balanced Fund Index 2.39% 25.10% 3.11% 8.19% S&P 500(5) 1.69% 35.12% -1.20% 9.92% Lehman Govt./Corp. Bond(15) 3.08% 6.15% 7.56% 7.33%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. * Not annualized QUARTER REVIEW The Equity and Income Fund produced a return of 4% for the quarter ended March 31. This result modestly exceeded the 2% that the Lipper Balanced Fund Index reported. The fund's return has now bested the Balanced Fund Index in 15 of the past 17 quarters. While we are competitive individuals who enjoy achieving relative success, our goal in managing the fund is not to beat a benchmark. Rather, we seek to earn positive rates of return in all material time periods while always maintaining an unhedged commitment to common stocks of at least 50%. The world is exceptionally confusing these days. Issues like the plague of terrorism, an unusually polarized U.S. election cycle, a synchronized global economic recovery, historically low interest rates, and troubling corporate governance issues have combined to make investing based on macro factors hazardous. Many investors who desire consistent positive returns have attempted to cope with uncertainty by moving money to hedge funds and investment partnerships that employ various esoteric strategies. These entities often pay little attention to the underlying fundamentals of their investments, instead treating securities more like mathematical abstractions. Hedge funds do, however, account for an ever-increasing share of trading volume. We, of course, have our own opinions on macro issues, but we do not make these opinions central to how we invest your money based on those opinions. Instead, careful analysis of corporate business values drives our investment decisions. We have built the fund's record on thousands of decisions concerning individual securities, and we will continue to expend our energies in that manner. Since the fund's inception at the end of 1995, it has generated positive results in all but one calendar year and 25 out of 33 quarters. We hope to improve upon that record. HIT AND MISS In our first 34 reports to shareholders we have written extensively (AD NAUSEAM?) about our investing philosophy and process. Many reports also waxed eloquent about our fixed income approach. At the moment we find that we do not have anything new to say on these topics. Therefore, the remainder of this report will discuss individual equity holdings. Please recognize, however, that this does not imply any shift in our investing emphasis but rather a failing of our creative muse. To format the discussion, we are shamelessly imitating a relatively new column of the 20 HIGHLIGHTS - Careful analysis of long-term business values drives our investment decisions, not opinions about macro issues. - This quarter, we talk about our investing hits and misses, specifically, Caremark and First Health. - As always, we continue to focus on companies priced below business value with shareholder-oriented management. WALL STREET JOURNAL titled "Tracking the Numbers/Hit and Miss." This column asks portfolio managers to describe experiences with one stock position that worked and one that failed. To make this more topical for our fund report, we will focus on two stocks that materially affected the fund's recent results. HIT Caremark, a pharmacy benefit manager (PBM) based in Birmingham, Alabama. AVERAGE PRICE WE PAID: $20.37. The stock closed the quarter at $33.25. WHY WE BOUGHT IT: We began purchasing shares in August 2002. Earlier that summer the financial press had questioned the accounting treatment of prescription co-payments by several PBMs, including Caremark. This industry seemed interesting to us because of the rapid growth rate in pharmaceutical expenditures, the even faster growth rate of the mail order pharmacy segment, and the attendant focus on drug cost containment. Caremark itself attracted us for many reasons, including its strong management team and its large specialty pharmaceutical business (distribution of expensive biotechnology drugs). 2002 stock market weakness and accounting paranoia (Caremark was an Arthur Anderson client) gave us the opportunity to invest at a great price. HOW IT DID: To the date of this letter, Caremark has proven to be an ideal experience for the fund. The stock remained in a tight trading range for our first six months of ownership before rallying vigorously in mid-2003. The company then announced an agreement to acquire another major factor in its industry, Advance PCS. The market received this news negatively, offering us another opportunity to increase our holding at favorable prices. At the time of this writing Caremark has assumed the position of largest stock holding in the fund. THE LATEST: Caremark closed on its purchase of Advance PCS on March 24. After some initial discomfort with this deal, investors warmed to the idea that the additional scale would produce significant cost advantages. The stock gained 31% in the March quarter and was the largest single contributor to the fund's quarterly return. MISS First Health, a nationwide outsourcer of healthcare solutions based in Downers Grove, Illinois. AVERAGE PRICE WE PAID: $24.15. We sold the stock for an average price of $20.22. WHY WE BOUGHT IT: We began purchasing shares in January 2002 believing that the company was unique in offering corporate clients a nationwide healthcare solution. We thought that investors misunderstood the company, classifying it as a managed care provider (I.E., an HMO that underwrites health care insurance for its clients) rather than a company that simply provides health care solutions without the insurance liability. We also admired management's use of capital. HOW IT DID: The share price of First Health meandered within a tight range until November 2003 when the company announced a significant earnings shortfall. The stock dropped 24% on the news. Subsequently, our research analysts' work on this industry suggested that the competitive environment for First Health had deteriorated and that the company's proprietary advantages had dissipated. Since this change in perception materially affected our reasons for owning the stock, we sold it. THE LATEST: First Health shares appear to have stabilized in the low $20s as investors await more data that would provide clarity concerning the competitive landscape. So what do we take from this? Both of our subject companies are in the business of helping corporate America deal with rising health costs, both have shareholder-oriented, entrepreneurial management teams, and both have particular service offerings with a claim to a proprietary position. What changed was that the competitive position of Caremark actually strengthened while First Health's weakened. In today's hyper-competitive world economy, it may be that business values themselves are less stable than in the past. In closing, we would once again like to thank our investors for entrusting us with their assets. /s/ Clyde S. McGregor /s/ Edward A. Studzinski CLYDE S. MCGREGOR, CFA EDWARD A. STUDZINSKI, CFA Portfolio Manager Portfolio Manager mcgregor@oakmark.com estudzinski@oakmark.com 21 THE OAKMARK EQUITY AND INCOME FUND SCHEDULE OF INVESTMENTS MARCH 31, 2004 (UNAUDITED)
NAME SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.0% COMMON STOCKS--59.0% FOOD & BEVERAGE--4.5% Diageo plc (b) 2,300,000 $ 121,624,000 Nestle SA (a)(b) 1,600,000 102,036,800 Kraft Foods Inc. 1,700,000 54,417,000 Dean Foods Company (a) 800,000 26,720,000 ----------------- 304,797,800 CABLE SYSTEMS & SATELLITE TV--1.2% The DIRECTV Group, Inc. (a) 5,026,722 $ 77,310,984 HARDWARE--0.6% The Stanley Works 962,100 $ 41,062,428 INFORMATION SERVICES--2.3% Ceridian Corporation (a) 4,800,000 $ 94,608,000 ChoicePoint Inc. (a) 1,500,000 57,045,000 ----------------- 151,653,000 MARKETING SERVICES--1.2% The Interpublic Group of Companies, Inc. (a) 5,250,000 $ 80,745,000 PRINTING--1.7% R.R. Donnelley & Sons Company 3,779,500 $ 114,329,875 RESTAURANTS--0.9% Darden Restaurants, Inc. 2,413,400 $ 59,828,186 RETAIL--5.7% The TJX Companies, Inc. 6,500,000 $ 159,640,000 Costco Wholesale Corporation (a) 3,200,000 120,192,000 J.C. Penney Company, Inc. 1,700,000 59,126,000 Office Depot, Inc. (a) 2,230,000 41,968,600 ----------------- 380,926,600 INSURANCE--2.9% SAFECO Corporation 3,850,000 $ 166,204,500 RenaissanceRe Holdings Ltd. (c) 600,000 31,200,000 ----------------- 197,404,500 REAL ESTATE--0.2% Hospitality Properties Trust 313,500 $ 14,546,400 HEALTH CARE SERVICES--6.2% Caremark Rx, Inc. (a) 6,800,000 $ 226,100,000 Cardinal Health, Inc. 2,709,700 186,698,330 ----------------- 412,798,330
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NAME SHARES HELD MARKET VALUE - ------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.0% (CONT.) MEDICAL CENTERS--2.0% Laboratory Corporation of America Holdings (a) 3,500,000 $ 137,375,000 MEDICAL PRODUCTS--1.3% Apogent Technologies, Inc. (a) 1,700,000 $ 52,156,000 Techne Corporation (a) 750,000 30,607,500 Edwards Lifesciences Corporation (a) 100,000 3,195,000 ----------------- 85,958,500 PHARMACEUTICALS--4.2% Abbott Laboratories 4,000,000 $ 164,400,000 Watson Pharmaceuticals, Inc. (a) 2,708,700 115,905,273 ----------------- 280,305,273 COMPUTER SERVICES--3.2% First Data Corporation 5,017,500 $ 211,537,800 COMPUTER SOFTWARE--2.3% Synopsys, Inc. (a) 4,250,000 $ 123,080,000 Mentor Graphics Corporation (a) 1,750,000 31,185,000 ----------------- 154,265,000 COMPUTER SYSTEMS--0.7% The Reynolds and Reynolds Company, Class A 1,715,100 $ 48,725,991 DATA STORAGE--0.6% Imation Corp. 1,000,000 $ 37,620,000 AEROSPACE & DEFENSE--5.4% General Dynamics Corporation 1,972,400 $ 176,194,492 Rockwell Collins, Inc. 3,107,900 98,240,719 Honeywell International, Inc. 1,889,500 63,959,575 Raytheon Company 778,800 24,407,592 ----------------- 362,802,378 AGRICULTURAL EQUIPMENT--0.0% Alamo Group, Inc. 114,500 $ 1,991,155 DIVERSIFIED CONGLOMERATES--0.2% Textron, Inc. 296,800 $ 15,774,920 INSTRUMENTS--1.0% Varian, Inc. (a) 1,649,400 $ 66,256,398 MACHINERY & INDUSTRIAL PROCESSING--0.9% Rockwell Automation, Inc. 1,700,000 $ 58,939,000 AGRICULTURAL OPERATIONS--1.9% Monsanto Company 3,500,000 $ 128,345,000
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SHARES HELD/ NAME PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------- EQUITY AND EQUIVALENTS--59.0% (CONT.) FORESTRY PRODUCTS--1.3% Plum Creek Timber Company, Inc. 2,657,044 $ 86,300,789 OIL & NATURAL GAS--6.6% Burlington Resources, Inc. (d) 3,575,000 $ 227,477,250 XTO Energy, Inc. 5,624,916 141,972,880 St. Mary Land & Exploration Company 1,200,000 40,116,000 Cabot Oil & Gas Corporation 1,125,000 34,380,000 ----------------- 443,946,130 TOTAL COMMON STOCKS (COST: $3,017,913,310) 3,955,546,437 TOTAL EQUITY AND EQUIVALENTS (COST: $3,017,913,310) 3,955,546,437 FIXED INCOME--31.2% PREFERRED STOCKS--0.0% BANK & THRIFTS--0.0% Fidelity Capital Trust I, Preferred, 8.375% 43,500 $ 447,615 TOTAL PREFERRED STOCKS (COST: $435,000) 447,615 CORPORATE BONDS--2.2% BROADCASTING & PROGRAMMING--0.2% Liberty Media Corporation, 8.25% due 2/1/2030, Debenture $ 12,900,000 $ 15,880,674 BUILDING MATERIALS & CONSTRUCTION--0.0% Juno Lighting, Inc., 11.875% due 7/1/2009, Senior Subordinated Note $ 750,000 $ 804,375 CABLE SYSTEMS & SATELLITE TV--1.0% Time Warner Inc., 5.625% due 5/1/2005 $ 50,000,000 $ 52,053,900 Cablevision Systems New York Group, 144A, 8.00% due 4/15/2012 (e)(f) 10,000,000 10,000,000 CSC Holdings Inc., 7.875% due 12/15/2007 3,000,000 3,225,000 ----------------- 65,278,900 HOTELS & MOTELS--0.0% Park Place Entertainment, 7.00% due 7/15/2004, Senior Notes $ 2,750,000 $ 2,777,500 RETAIL--0.3% The Gap, Inc., 6.90% due 9/15/2007 $ 9,187,000 $ 10,197,570 Toys 'R' Us, Inc., 7.875% due 4/15/2013 5,000,000 5,250,000 Rite Aid Corporation, 7.625% due 4/15/2005, Senior Notes 4,900,000 4,973,500 ----------------- 20,421,070
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NAME PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------- FIXED INCOME--31.2% (CONT.) HEALTH CARE SERVICES--0.4% Omnicare, Inc., 6.125% due 6/1/2013 $ 20,000,000 $ 20,850,000 NeighborCare Inc., 144A, 6.875% due 11/15/2013 (e) 4,000,000 4,170,000 ----------------- 25,020,000 MEDICAL PRODUCTS--0.0% Apogent Technologies Inc., 6.50% due 5/15/2013 $ 1,000,000 $ 1,065,000 OFFICE EQUIPMENT--0.2% Xerox Corporation, 7.125% due 6/15/2010 $ 15,000,000 $ 15,900,000 MACHINERY & INDUSTRIAL PROCESSING--0.0% Columbus McKinnon Corporation New York, 8.50% due 4/1/2008 $ 3,000,000 $ 2,820,000 OTHER INDUSTRIAL GOODS & SERVICES--0.1% Sealed Air Corporation, 144A, 5.625% due 7/15/2013 (e) $ 8,300,000 $ 8,699,479 ELECTRIC UTILITIES--0.0% Midland Funding Corporation, 11.75% due 7/23/2005 $ 458,220 $ 484,568 TOTAL CORPORATE BONDS (COST: $150,261,804) 159,151,566 GOVERNMENT AND AGENCY SECURITIES--29.0% CANADIAN GOVERNMENT BONDS--2.3% Canada Government, 3.00% due 12/1/2005 $ 100,000,000 $ 77,031,904 Canada Government, 3.50% due 6/1/2004 100,000,000 76,316,150 ----------------- 153,348,054 DANISH GOVERNMENT BONDS--0.3% Kingdom of Denmark, 4.00% due 11/15/2004 $ 100,000,000 $ 16,722,066 NEW ZEALAND GOVERNMENT BONDS--0.1% New Zealand Government, 6.50% due 2/15/2005 $ 10,000,000 $ 6,738,050 UNITED KINGDOM GOVERNMENT BONDS--0.6% United Kingdom of Great Britain and Northern Ireland, 5.00% due 6/7/2004 $ 20,000,000 $ 36,930,631
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NAME PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------- FIXED INCOME--31.2% (CONT.) U.S. GOVERNMENT NOTES--25.0% United States Treasury Notes, 3.375% due 1/15/2007, Inflation Indexed $ 248,943,750 $ 274,353,439 United States Treasury Notes, 1.50% due 7/31/2005 250,000,000 250,820,250 United States Treasury Notes, 1.25% due 5/31/2005 250,000,000 250,156,250 United States Treasury Notes, 5.75% due 11/15/2005 200,000,000 213,929,600 United States Treasury Notes, 1.625% due 1/31/2005 200,000,000 200,867,200 United States Treasury Notes, 1.50% due 2/28/2005 150,000,000 150,515,700 United States Treasury Notes, Inflation Indexed, 4.25% due 1/15/2010 110,060,000 131,943,010 United States Treasury Notes, 1.625% due 4/30/2005 125,000,000 125,600,625 United States Treasury Notes, 1.875% due 9/30/2004 50,000,000 50,212,900 United States Treasury Notes, 1.625% due 2/28/2006 25,000,000 25,039,050 ----------------- 1,673,438,024 U.S. GOVERNMENT AGENCIES--0.7% Federal Home Loan Mortgage Corporation, 3.00% due 11/17/2006 $ 10,000,000 $ 10,104,420 Federal Home Loan Mortgage Corporation, 2.35% due 5/5/2008 7,100,000 7,109,202 Fannie Mae, 2.25% due 12/30/2008 6,975,000 6,983,293 Federal Home Loan Bank, 3.00% due 12/30/2009 5,000,000 5,114,800 Federal Home Loan Mortgage Corporation, 3.00% due 1/7/2011 4,900,000 4,940,033 Fannie Mae, 5.125% due 5/4/2012 4,013,000 4,090,025 Federal Home Loan Bank, 3.125% due 7/10/2009 4,000,000 3,955,040 Federal Home Loan Bank, 3.875% due 12/15/2004 1,000,000 1,019,507 ----------------- 43,316,320 TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $1,880,929,833) 1,930,493,145 TOTAL FIXED INCOME (COST: $2,031,626,637) 2,090,092,326 SHORT TERM INVESTMENTS--10.6% U.S. GOVERNMENT BILLS--7.0% United States Treasury Bills, 0.885%-0.955% $ 470,000,000 $ 469,453,440 due 4/1/2004 - 7/1/2004 TOTAL U.S. GOVERNMENT BILLS (COST: $469,458,763) 469,453,440
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NAME PAR VALUE MARKET VALUE - ------------------------------------------------------------------------------------------------------ SHORT TERM INVESTMENTS--10.6% (CONT.) REPURCHASE AGREEMENTS--3.6% IBT Repurchase Agreement, 0.91% dated 3/31/2004 due 4/1/2004, repurchase price $234,005,915 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $245,700,000 $ 234,000,000 $ 234,000,000 IBT Repurchase Agreement, 0.76% dated 3/31/2004 due 4/1/2004, repurchase price $4,719,443 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $4,955,310 4,719,343 4,719,343 --------------- TOTAL REPURCHASE AGREEMENTS (COST: $238,719,343) 238,719,343 TOTAL SHORT TERM INVESTMENTS (COST: $708,178,106) 708,172,783 Total Investments (Cost $5,757,718,053)--100.8% $ 6,753,811,546 Other Liabilities In Excess Of Other Assets--(0.8%) (52,696,175) --------------- TOTAL NET ASSETS--100% $ 6,701,115,371 ===============
(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. (e) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. (f) Security valued at a fair value determined by pricing committees established by the Board of Trustees. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 THE OAKMARK GLOBAL FUND REPORT FROM CLYDE S. McGREGOR AND MICHAEL J. WELSH, PORTFOLIO MANAGERS [PHOTO] [PHOTO] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION (8/4/99) TO PRESENT (3/31/04) AS COMPARED TO THE MSCI WORLD INDEX(16)
THE OAKMARK GLOBAL FUND (CLASS I) MSCI WORLD INDEX 8/4/99 $ 10,000 $ 10,000 9/30/99 $ 9,180 $ 9,883 12/31/99 $ 9,981 $ 11,550 3/31/2000 $ 10,061 $ 11,668 6/30/2000 $ 10,381 $ 11,255 9/30/2000 $ 10,922 $ 10,689 12/31/2000 $ 11,562 $ 10,028 3/31/2001 $ 11,480 $ 8,739 6/30/2001 $ 13,289 $ 8,959 9/30/2001 $ 11,071 $ 7,676 12/31/2001 $ 13,880 $ 8,335 3/31/2002 $ 15,387 $ 8,364 6/30/2002 $ 14,372 $ 7,601 9/30/2002 $ 11,828 $ 6,204 12/31/2002 $ 13,587 $ 6,678 3/31/2003 $ 12,153 $ 6,340 6/30/2003 $ 16,225 $ 7,420 9/30/2003 $ 17,774 $ 7,779 12/31/2003 $ 20,242 $ 8,889 3/31/2004 $ 21,029 $ 9,121
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE TOTAL RETURN INCEPTION LAST 3 MONTHS* 1-YEAR 3-YEAR (8/4/99) - ----------------------------------------------------------------------------------------------------- OAKMARK GLOBAL FUND (CLASS I) 3.89% 73.04% 22.33% 17.29%(3) MSCI World 2.62% 43.87% 1.46% -1.95% Lipper Global Fund Index(17) 3.83% 46.75% 2.31% 1.01%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The fund's high performance may not be repeated. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. * Not annualized FELLOW SHAREHOLDERS, The Oakmark Global Fund gained 4% for the three-month period ending March 31, 2004, compared with the 3% increase for the MSCI World Index and the 4% increase for the Lipper Global Fund Index. Over the past twelve months, The Oakmark Global Fund has returned 73%, compared to the smaller gains of 44% and 47% for the MSCI World Index and the Lipper Global Fund Index, respectively. Most importantly, since inception the Fund has returned 17% annualized compared to a 2% decline in the MSCI World Index and 1% return in the Lipper Global Fund Index. PORTFOLIO COMPOSITION We made few changes during the quarter. We sold two companies, L.M. Ericsson (Sweden) and First Health Group (US). Ericsson, the mobile network equipment powerhouse, significantly contributed to performance over the past twelve months as the share price more than tripled before hitting our sell price during the quarter. We became less comfortable in our assessment of First Health's business franchise after a very poor earnings announcement, and we sold our entire position. We also exchanged our shares in Concord EFS for shares in First Data Corp, who completed their acquisition this quarter. First Data, along with Diageo, are now your Fund's largest holdings at just under 5% each of fund assets. We added one new position during the quarter, Switzerland-based Lonza Group. Lonza is one of the world's leading suppliers of active ingredients, chemical intermediates, and biotechnology solutions to the pharmaceutical and agrochemical industries. Their main businesses are: Exclusive Synthesis, Biotechnology, Organic Fine Chemicals, and Performance Chemicals. Currently, Exclusive Synthesis is Lonza's biggest profit generator. The business is based on the outsourcing trend in the life science industry, which entrusts specialized companies with the manufacturing of advanced intermediates and active ingredients. Lonza has state-of-the-art, multipurpose plants that can be adapted to each customer's individual needs. This advanced customization capability makes them the world's leader in exclusive custom manufacturing for global life sciences companies. 28 HIGHLIGHTS - The portfolio is more heavily weighted to international stocks, as we're finding more attractive valuations overseas. - High-quality businesses in Europe represent a better risk-reward trade-off than in emerging markets. - Despite strong performance, we remain excited about the value and quality of the Fund's portfolio. We purchased the stock during the quarter after the release of disappointing 2003 results caused the share price to weaken. We believe the market is underestimating the growth potential in both Lonza's Exclusive Synthesis and Biotechnology segments. On a normalized basis we think Lonza is valued at just over 10x earnings. Management is also sound with strong shareholder orientation. We've respected Chairman Sergio Marchionne's ability for a number of years and applauded his quick decision to replace the operationally-deficient former CEO. GLOBAL OUTLOOK Currently, your portfolio is composed of roughly 35% US-listed companies, 47% in the UK and Europe, 3% in Latin America, and 15% in the Asia Pacific region. As you've probably surmised from our dwindling US market weighting, we continue to have difficulty finding new US stocks that are more attractive than current holdings or new overseas opportunities. However, we continued to increase our holdings in several US companies during the quarter, namely Burlington Resources and Waste Management. Internationally, we continue to find companies that meet our value criteria in a number of areas, including blue-chip European consumer non-durables (Nestle, Henkel, and Diageo), pharmaceuticals (Takeda Chemical, Aventis, and GlaxoSmithKline), and financial services (Australia and New Zealand Bank, Bank of Ireland, Banca Popolare di Verona, and Julius Baer Holding). Over the past twelve months, we have seen strong price appreciation around the globe in equities, fixed income, and natural resources. Many asset classes formerly (and usually) thought risky, such as junk bonds, emerging markets, and technology/story stocks, have been the strongest performers. The risk premium we demand for investing in emerging markets, for example, has all but evaporated in most cases. In sum, we think high-quality businesses, especially in the UK and Europe, represent a much more interesting risk-reward relationship. As an example, let's use Diageo plc, the world's largest spirits company. Diageo generates tremendous amounts of free cash flow from their high return on capital business, much of which is returned to shareholders in the form of rising dividends and share repurchases. In addition the company is well-positioned to take advantage of the growth of those same emerging markets of which investors are so currently enamored. At 14x this year's earnings and a 4% dividend yield, we find Diageo's valuation too cheap in a relatively dear world. And unlike investing in many emerging markets, there are also no corporate governance concerns--management is solely focused on increasing shareholders' wealth. LOOKING FORWARD Despite the Fund's strong performance we remain excited about the value and quality of the names, such as First Data, Diageo and Lonza, in the portfolio. We thank you for your support. /s/ Clyde S. McGregor /s/ Michael J. Welsh CLYDE S. McGREGOR, CFA MICHAEL J. WELSH, CFA, CPA Portfolio Manager Portfolio Manager mcgregor@oakmark.com mwelsh@oakmark.com 29 GLOBAL DIVERSIFICATION--MARCH 31, 2004 (UNAUDITED) [CHART]
% OF FUND EQUITY MARKET VALUE - --------------------------------- - - EUROPE 47.0% Great Britain 12.5% Switzerland 9.2% * France 8.9% * Netherlands 7.0% * Italy 3.8% * Germany 2.8% * Ireland 2.8% - - UNITED STATES 35.0% - - PACIFIC RIM 14.7% Japan 7.2% Australia 4.7% Korea 2.8% - - LATIN AMERICA 2.9% Mexico 2.9% - - OTHER 0.4% Israel 0.4%
* Euro currency countries comprise 25.3% of the Fund. 30 THE OAKMARK GLOBAL FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2004 (UNAUDITED)
NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.8% FOOD & BEVERAGE--11.9% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 4,842,100 $ 63,437,634 Nestle SA (Switzerland) Food & Beverage Manufacturer 217,800 55,559,469 Cadbury Schweppes plc (Great Britain) Beverage & Confectionary Manufacturer 4,383,000 34,692,126 Lotte Chilsung Beverage Co., Ltd. (Korea) (b) Soft Drinks, Juices & Sports Drinks Manufacturer 13,430 7,625,608 --------------- 161,314,837 HOUSEHOLD PRODUCTS--2.6% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 456,800 $ 34,851,145 BROADCASTING & PROGRAMMING--2.5% Grupo Televisa S.A (Mexico) (c) Television Production & Broadcasting 566,500 $ 26,818,110 Liberty Media Corporation, Class A (United States) (a) Broadcast Services & Programming 650,000 7,117,500 --------------- 33,935,610 CABLE SYSTEMS & SATELLITE TV--0.8% Time Warner Inc. (United States) (a) Motion Picture Production, Distribution, & Other Services 675,000 $ 11,380,500 HUMAN RESOURCES--1.2% Michael Page International plc (Great Britain)(b) Recruitment Consultancy Services 4,815,400 $ 16,382,413 INFORMATION SERVICES--6.1% eFunds Corporation (United States) (a)(b) Electronic Debit Payment Services 1,745,000 $ 28,618,000 Equifax Inc. (United States) Credit Reporting & Collection 1,038,300 26,808,906 Ceridian Corporation (United States) (a) Data Management Services 1,348,000 26,569,080 --------------- 81,995,986
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NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.8% (CONT.) MARKETING SERVICES--1.7% The Interpublic Group of Companies, Inc. (United States) (a) Advertising & Marketing Service 1,545,000 $ 23,762,100 MOTORCYCLES--0.3% Ducati Motor Holding S.p.A. (Italy) (a)(b) Motorcycle Manufacturer 2,650,000 $ 4,278,376 RETAIL--4.9% The TJX Companies, Inc. (United States) Discount Apparel & Home Fashion Retailer 1,501,000 $ 36,864,560 Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 3,236,100 29,432,314 --------------- 66,296,874 BANK & THRIFTS--7.3% Bank of Ireland (Ireland) Commercial Bank 2,812,000 $ 35,122,112 Australia and New Zealand Banking Group Limited (Australia) Commercial Bank 2,260,000 32,790,656 Washington Mutual, Inc. (United States) Thrift 415,000 17,724,650 Banco Popolare di Verona e Novara Scrl (Italy) Commercial Bank 863,600 14,070,188 --------------- 99,707,606 FINANCIAL SERVICES--2.0% Julius Baer Holding Ltd., Zurich (Switzerland) Asset Management 69,100 $ 19,973,622 Credit Suisse Group (Switzerland) Investment Services & Insurance 190,700 6,611,697 --------------- 26,585,319 OTHER FINANCIAL--6.6% Euronext (Netherlands) (b) Stock Exchange 1,814,000 $ 54,131,279 Fannie Mae (United States) Mortgage Finance 250,000 18,587,500 Daiwa Securities Group Inc. (Japan) Stock Broker 2,062,000 16,806,828 --------------- 89,525,607 HEALTH CARE SERVICES--2.1% Cardinal Health, Inc. (United States) Wholesale Drug Distributor 410,000 $ 28,249,000
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NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.8% (CONT.) MEDICAL CENTERS--2.6% Laboratory Corporation of America Holdings (United States) (a) Medical Laboratory & Testing Services 892,000 $ 35,011,000 MEDICAL PRODUCTS--1.9% Ansell Limited (Australia) Protective Rubber & Plastics Products 4,708,100 $ 25,832,603 PHARMACEUTICALS--10.5% Takeda Chemical Industries, Ltd. (Japan) Pharmaceuticals & Food Supplements 1,159,700 $ 51,599,060 Aventis S.A. (France) Pharmaceuticals 614,800 47,321,711 GlaxoSmithKline plc (Great Britain) Pharmaceuticals 2,187,200 43,033,043 --------------- 141,953,814 TELECOMMUNICATIONS--2.0% SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 147,000 $ 27,586,614 COMPUTER SERVICES--6.3% First Data Corporation (United States) Data Processing & Management 1,495,750 $ 63,060,820 Meitec Corporation (Japan) (b) Software Engineering Services 603,500 22,743,012 --------------- 85,803,832 COMPUTER SOFTWARE--3.1% Synopsys, Inc. (United States) (a) Electronic Design Automation 1,118,000 $ 32,377,280 Novell, Inc. (United States) (a) Network & Internet Integration Software 831,000 9,456,780 --------------- 41,834,060 OFFICE EQUIPMENT--2.0% Neopost SA (France) Mailroom Equipment Supplier 494,750 $ 26,678,256 AIRPORT MAINTENANCE--0.7% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b)(c) Airport Operator 463,000 $ 9,653,550
33
SHARES HELD/ NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--92.8% (CONT.) DIVERSIFIED CONGLOMERATES--2.8% Vivendi Universal SA (France) (a) Multimedia 1,430,500 $ 37,969,709 INSTRUMENTS--0.4% Orbotech, Ltd. (Israel) (a) Optical Inspection Systems 228,700 $ 5,500,235 WASTE DISPOSAL--2.6% Waste Management, Inc. (United States) Waste Management Services 1,175,000 $ 35,461,500 CHEMICALS--5.0% Akzo Nobel N.V (Netherlands) Chemical Producer 915,500 $ 33,650,602 Lonza Group AG, Registered Shares (Switzerland) (b) Industrial Organic Chemicals 655,400 33,463,600 --------------- 67,114,202 OIL & NATURAL GAS--2.9% Burlington Resources, Inc. (United States) (b) Oil & Natural Gas Exploration & Production 630,000 $ 40,086,900 TOTAL COMMON STOCKS (COST: $1,021,856,662) 1,258,751,648 SHORT TERM INVESTMENTS--7.4% U.S. GOVERNMENT BILLS--5.2% United States Treasury Bills, 0.94% - 0.955% due 4/1/2004 - 4/29/2004 $ 70,000,000 $ 69,981,644 TOTAL U.S. GOVERNMENT BILLS (COST: $69,981,644) 69,981,644 REPURCHASE AGREEMENTS--2.2% IBT Repurchase Agreement, 0.91% dated3/31/2004 due 4/1/2004, repurchase price $27,500,695 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $28,875,000 $ 27,500,000 $ 27,500,000
34
NAME PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS--7.4% (CONT.) REPURCHASE AGREEMENTS--2.2% (CONT.) IBT Repurchase Agreement, 0.76% dated 3/31/2004 due 4/1/2004, repurchase price $2,607,411 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $2,737,724 $ 2,607,356 $ 2,607,356 --------------- TOTAL REPURCHASE AGREEMENTS (COST: $30,107,356) 30,107,356 TOTAL SHORT TERM INVESTMENTS (COST: $100,089,000) 100,089,000 Total Investments (Cost $1,121,945,662)--100.2% $ 1,358,840,648 Other Liabilities In Excess Of Other Assets--(0.2%) (2,462,877) --------------- TOTAL NET ASSETS--100% $ 1,356,377,771 ===============
(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. 35 THE OAKMARK INTERNATIONAL AND OAKMARK INTERNATIONAL SMALL CAP FUNDS FELLOW SHAREHOLDERS, Your Funds ended the quarter with a return of 4% and 7%, respectively, for The Oakmark International and International Small Cap Funds. This compares to a return of 4% for the MSCI World ex U.S. Index.(18) The returns were mixed versus the relevant index primarily due to an underweighted position in the strong Japanese market. More importantly, over the past year, your Funds performed 62% and 85%, respectively, while the MSCI World ex U.S. Index returned 57%. FAVORABLE CONDITIONS V. SCREAMING BUYS As equity markets have recovered very strongly over the past year, we no longer believe the markets are significantly over-sold. However, we do believe a much more favorable investment climate exists. Notwithstanding the upcoming election in the U.S. as well as continued fears surrounding terrorism, the world, in our view, is in pretty good shape. Growth is very strong in places like North America, Australasia, East Asia, and India. The UK and "New Europe" are also performing well. Hopefully, "Old Europe" and Japan (which is showing some signs of life) will also catch the growth wave. However, we do not believe that either of these two areas are capable of sustainable economic growth unless bona fide structural reform occurs. Given the level of per capita income and overall economic improvement in the developing markets and large population centers like China and India, we believe we have reached the inflection point where these markets have a significant impact on the world economy. This provides a nice tail wind for many of the companies in which your fund is invested. COMPANY VALUATIONS: THE EARTH IN BALANCE With a much tamer macroeconomic environment, we are witnessing far less extremes in global company valuations. In the late 90s we witnessed huge valuation differentials between tech related and non-tech related stocks. Also, small cap companies traded at a significant discount to large caps, and emerging markets were coming off a harsh bear market. Today, though tech stocks are pricey, they are not as outrageously priced as they were in '99 and '00. The differential in valuations between foreign large and small cap stocks has evaporated, and emerging market stocks are back in vogue. In fact, we would argue that in certain places, such as China, India, and Hong Kong, stocks are now expensive, which is not all that surprising given the focus these regions have attracted. HIGHLIGHTS - World equity markets are no longer over-sold, but the investment climate is much more favorable. - Economic improvement in developing markets and population centers are starting to have a large impact on the global economy. - We're finding value in developed-market blue chips that are high-quality businesses. We have been able to find value in the most obvious types of companies: developed market blue chips. After years of underperforming, stocks in the consumer non-durable, pharmaceuticals, and financial service sectors have lagged, whereas their prospects and valuations have improved. We are very happy to invest in these quality businesses that fulfill our value definition of being both high quality as well as inexpensively priced. /s/ David G. Herro /s/ Michael J. Welsh DAVID G. HERRO, CFA MICHAEL J. WELSH, CFA, CPA Portfolio Manager Portfolio Manager dherro@oakmark.com mwelsh@oakmark.com 36 THE OAKMARK INTERNATIONAL FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS [PHOTO] [PHOTO] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (3/31/04) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX(18)
THE OAKMARK INTERNATIONAL FUND (CLASS I) MSCI WORLD EX U.S. INDEX 9/30/92 $ 10,000 $ 10,000 12/31/92 $ 10,043 $ 9,628 3/31/93 $ 11,890 $ 10,766 6/30/93 $ 12,300 $ 11,834 9/30/93 $ 13,387 $ 12,562 12/31/93 $ 15,424 $ 12,729 3/31/94 $ 15,257 $ 13,133 6/30/94 $ 14,350 $ 13,748 9/30/94 $ 15,278 $ 13,830 12/31/94 $ 14,026 $ 13,664 3/31/95 $ 13,563 $ 13,924 6/30/95 $ 14,749 $ 14,060 9/30/95 $ 15,507 $ 14,631 12/31/95 $ 15,193 $ 15,222 3/31/96 $ 17,021 $ 15,681 6/30/96 $ 18,383 $ 15,937 9/30/96 $ 18,347 $ 15,950 12/31/96 $ 19,450 $ 16,268 3/31/97 $ 20,963 $ 16,016 6/30/97 $ 22,700 $ 18,094 9/30/97 $ 23,283 $ 18,027 12/31/97 $ 20,097 $ 16,637 3/31/98 $ 22,994 $ 19,083 6/30/98 $ 20,253 $ 19,233 9/30/98 $ 16,322 $ 16,404 12/31/98 $ 18,688 $ 19,759 3/31/99 $ 21,258 $ 20,070 6/30/99 $ 25,728 $ 20,650 9/30/99 $ 23,896 $ 21,535 12/31/99 $ 26,065 $ 25,277 3/31/2000 $ 26,012 $ 25,416 6/30/2000 $ 27,856 $ 24,530 9/30/2000 $ 27,306 $ 22,663 12/31/2000 $ 29,324 $ 21,897 3/31/2001 $ 26,763 $ 18,825 6/30/2001 $ 29,437 $ 18,629 9/30/2001 $ 23,728 $ 16,062 12/31/2001 $ 27,819 $ 17,212 3/31/2002 $ 31,006 $ 17,310 6/30/2002 $ 30,315 $ 16,923 9/30/2002 $ 23,365 $ 13,603 12/31/2002 $ 25,465 $ 14,492 3/31/2003 $ 22,481 $ 13,402 6/30/2003 $ 28,198 $ 15,978 9/30/2003 $ 30,368 $ 17,269 12/31/2003 $ 35,152 $ 20,206 3/31/2004 $ 36,419 $ 21,063
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE TOTAL RETURN INCEPTION LAST 3 MONTHS* 1-YEAR 5-YEAR 10-YEAR (9/30/92) - -------------------------------------------------------------------------------------------------------------- OAKMARK INTERNATIONAL FUND (CLASS I) 3.61% 62.00% 11.36% 9.08% 11.89% MSCI World ex. U.S. 4.24% 57.16% 0.98% 4.83% 6.69% MSCI EAFE(19) 4.34% 57.54% 0.53% 4.55% 6.48% Lipper International Fund Index(20) 4.99% 56.57% 2.87% 5.94% 7.99%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The fund's high performance may not be repeated. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. * Not annualized The Oakmark International Fund gained 4% for the quarter, slightly less than the benchmark indices. The returns were lower than the relevant indices primarily due to an underweighted position in the strong Japanese market. For the past twelve months, your Fund is up 62%. Individual securities that contributed to performance most significantly during the quarter were French pharmaceutical Aventis; European securities exchange Euronext; and two Mexican companies, multimedia and broadcasting powerhouse Grupo Televisa and beverage company Fomento Economico Mexicano ("FEMSA"). The share price of Aventis was driven up during the quarter by an acquisition bid by Sanofi-Synthelabo, as well as from overtures from Novartis. Management has responded to the situation in a very shareholder-oriented fashion, and is working hard to maximize the value of the company. Euronext is the pan-European exchange comprising Amsterdam, Paris, Brussels, and Lisbon, as well as the derivatives exchange LIFFE. In 2003, Euronext's operating profit improved significantly, and the share price has also benefited recently from the market's delayed recognition of their strong position in clearing and an increasingly liquid balance sheet. Positive changes to Televisa's shareholder structure, as well as its continued positive underlying results, have bolstered the share price. Finally, FEMSA continues to show strong results from their brewing business (with brands like Dos Equis and Tecate) as well as from their pan-American soft-drink bottling operations. The most significant detractor from quarterly performance was UK pharmaceutical GlaxoSmithKline. Several of our pharmaceutical holdings underperformed during the quarter. These companies continue to suffer from intense debate regarding pricing, disappointing pipelines, and the short-term profit outlook. We continue to believe these concerns are somewhat overblown and already fully reflected in share prices. Our long-term expectations for this industry remain positive. Other underperformers in the portfolio included Lonza (Switzerland) and BMW (Germany). We continue to like the quality and price attractiveness of the portfolio. Thank you for your continued confidence. /s/ David G. Herro /s/ Michael J. Welsh DAVID G. HERRO, CFA MICHAEL J. WELSH, CFA, CPA Portfolio Manager Portfolio Manager dherro@oakmark.com mwelsh@oakmark.com 37 INTERNATIONAL DIVERSIFICATION--MARCH 31, 2004 (UNAUDITED) [CHART]
% OF FUND EQUITY MARKET VALUE - --------------------------------------- - - EUROPE 75.1% Great Britain 23.8% * France 14.9% Switzerland 13.8% * Germany 7.7% * Netherlands 7.1% * Italy 2.8% * Ireland 2.7% * Finland 1.6% Sweden 0.7% - - PACIFIC RIM 20.1% Japan 8.6% Australia 4.8% Korea 4.1% Hong Kong 1.3% Singapore 1.3% - - LATIN AMERICA 3.9% Mexico 3.9% - - OTHER 0.8% Israel 0.8% - - NORTH AMERICA 0.1% Canada 0.1%
* Euro currency countries comprise 36.8% of the Fund. 38 THE OAKMARK INTERNATIONAL FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2004 (UNAUDITED)
NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.0% FOOD & BEVERAGE--14.4% Diageo plc (Great Britain) Beverages, Wines, & Spirits Manufacturer 10,943,000 $ 143,367,140 Cadbury Schweppes plc (Great Britain) Beverage & Confectionary Manufacturer 15,103,800 119,548,924 Nestle SA (Switzerland) Food & Beverage Manufacturer 454,800 116,016,743 Pernod-Ricard SA (France) Manufactures Wines, Spirits, & Fruit Juices 642,425 78,263,072 Fomento Economico Mexicano S.A. de C.V (Mexico) (b) Soft Drink & Beer Manufacturer 1,005,900 49,560,693 Lotte Chilsung Beverage Co., Ltd. (Korea) (c) Soft Drinks, Juices & Sports Drinks Manufacturer 83,400 47,354,856 Heineken Holding NV, Class A (Netherlands) Brewer 486,000 17,433,079 Heineken NV (Netherlands) Brewer 398,000 15,966,140 Molson Inc., Class A (Canada) Brewer 211,500 5,206,575 --------------- 592,717,222 HOUSEHOLD PRODUCTS--2.6% Henkel KGaA (Germany) Consumer Chemical Products Manufacturer 1,386,950 $ 105,816,102 OTHER CONSUMER GOODS & SERVICES--1.5% Swatch Group AG, Bearer Shares (Switzerland) Watch Manufacturer 473,900 $ 61,567,327 Swatch Group AG, Registered Shares (Switzerland) Watch Manufacturer 24,700 646,663 --------------- 62,213,990 AUTOMOBILES--2.8% Bayerische Motoren Werke (BMW) AG (Germany) Luxury Automobile Manufacturer 2,807,600 $ 114,322,382 AUTOMOTIVE--1.8% Compagnie Generale des Etablissements Michelin (France) Tire Manufacturer 1,582,500 $ 71,779,151
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NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.0% (CONT.) BROADCASTING & PROGRAMMING--2.4% Grupo Televisa S.A (Mexico) (b) Television Production & Broadcasting 2,056,000 $ 97,331,040 HUMAN RESOURCES--1.9% Michael Page International plc (Great Britain) (c) Recruitment Consultancy Services 22,748,600 $ 77,392,733 MARKETING SERVICES--3.1% Publicis Groupe (France) Advertising & Media Services 2,355,100 $ 71,495,345 Aegis Group plc (Great Britain) Media Services 30,524,200 54,033,695 --------------- 125,529,040 PUBLISHING--4.8% Reed Elsevier plc (Great Britain) Publisher 12,954,300 $ 115,195,451 John Fairfax Holdings Limited (Australia) Newspaper Publisher 32,814,100 83,619,597 --------------- 198,815,048 RECREATION & ENTERTAINMENT--0.7% Nintendo Company, Ltd. (Japan) Video Game Manufacturer 284,800 $ 28,702,575 RETAIL--4.8% Signet Group plc (Great Britain) Jewelry Retailer 44,427,200 $ 90,318,493 J Sainsbury plc (Great Britain) Food Stores 11,499,000 55,129,311 Giordano International Limited (Hong Kong) (c) Pacific Rim Clothing Retailer & Manufacturer 81,018,300 50,682,897 --------------- 196,130,701 BANK & THRIFTS--11.7% Bank of Ireland (Ireland) Commercial Bank 8,554,200 $ 106,842,664 Australia and New Zealand Banking Group Limited (Australia) Commercial Bank 7,348,800 106,624,768 BNP Paribas SA (France) Commercial Banking 1,156,000 70,741,711
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NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.0% (CONT.) BANK & THRIFTS--11.7% (CONT.) United Overseas Bank Limited, Foreign Shares (Singapore) Commercial Banking 6,178,368 $ 49,450,562 Banco Popolare di Verona e Novara Scrl (Italy) Commercial Bank 2,938,400 47,873,829 Sanpaolo IMI S.p.A. (Italy) Banking Services 3,933,600 44,876,197 Svenska Handelsbanken AB (Sweden) Commercial Banking 1,498,800 28,320,869 UniCredito Italiano S.p.A. (Italy) Banking Services 3,547,700 16,977,905 Kookmin Bank (Korea) (a) Commercial Banking 231,168 9,404,472 --------------- 481,112,977 FINANCIAL SERVICES--1.2% Credit Suisse Group (Switzerland) Investment Services & Insurance 1,413,600 $ 49,010,456 OTHER FINANCIAL--7.4% Euronext (Netherlands) (c) Stock Exchange 4,603,200 $ 137,363,343 Daiwa Securities Group Inc. (Japan) Stock Broker 10,255,000 83,585,846 Deutsche Boerse AG (Germany) Electronic Trading Systems 1,415,400 80,415,234 --------------- 301,364,423 PHARMACEUTICALS--12.1% Aventis S.A. (France) Pharmaceuticals 1,858,400 $ 143,042,725 GlaxoSmithKline plc (Great Britain) Pharmaceuticals 6,945,600 136,654,308 Takeda Chemical Industries, Ltd. (Japan) Pharmaceuticals & Food Supplements 2,787,100 124,007,710 Novartis AG (Switzerland) Pharmaceuticals 2,201,600 93,544,527 --------------- 497,249,270 TELECOMMUNICATIONS--2.6% SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 560,000 $ 105,091,864 COMPUTER SERVICES--1.8% Meitec Corporation (Japan) (c) Software Engineering Services 1,899,100 $ 71,567,944
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NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.0% (CONT.) OPTICAL EQUIPMENT--0.8% Olympus Corporation (Japan) Optical Equipment Manufacturer 1,447,000 $ 31,080,980 AIRPORT MAINTENANCE--0.1% Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b)(c) Airport Operator 242,000 $ 5,045,700 DIVERSIFIED CONGLOMERATES--2.3% Vivendi Universal SA (France) (a) Multimedia 3,550,500 $ 94,240,792 Haw Par Corporation Limited (Singapore) Healthcare & Leisure Products 58,338 170,742 --------------- 94,411,534 INSTRUMENTS--0.7% Orbotech, Ltd. (Israel) (a) Optical Inspection Systems 1,237,700 $ 29,766,685 MACHINERY & INDUSTRIAL PROCESSING--1.5% Metso Corporation (Finland) Paper & Pulp Machinery 4,523,200 $ 60,947,960 OTHER INDUSTRIAL GOODS & SERVICES--2.3% Enodis plc (Great Britain) (a)(c) Food Processing Equipment 33,585,320 $ 58,059,048 Chargeurs SA (France) (c) Wool, Textile Production & Trading 1,050,201 35,280,468 --------------- 93,339,516 TRANSPORTATION SERVICES--2.1% Associated British Ports Holdings plc (Great Britain) Port Operator 9,564,299 $ 85,094,130 CHEMICALS--8.1% Akzo Nobel N.V. (Netherlands) Chemical Producer 2,931,300 $ 107,744,412 Givaudan (Switzerland) Fragrance & Flavor Compound Manufacturer 202,300 103,370,794 Lonza Group AG, Registered Shares (Switzerland) (c) Industrial Organic Chemicals 1,958,600 100,002,756 Syngenta AG (Switzerland) Crop Protection Products 252,800 18,447,891 --------------- 329,565,853
42
SHARES HELD/ NAME DESCRIPTION PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.0% (CONT.) OIL & NATURAL GAS--0.5% Total SA (France) Oil & Natural Gas Exploration & Production 100,000 $ 18,384,417 TOTAL COMMON STOCKS (COST: $3,045,072,845) 3,923,783,693 SHORT TERM INVESTMENTS--3.9% U.S. GOVERNMENT BILLS--1.5% United States Treasury Bills, 0.915% - 0.955% due 4/1/2004 - 4/15/2004 $ 60,000,000 $ 59,989,092 TOTAL U.S. GOVERNMENT BILLS (COST: $59,989,092) 59,989,092 REPURCHASE AGREEMENTS--2.4% IBT Repurchase Agreement, 0.91% dated 3/31/2004 due 4/1/2004, repurchase price $95,002,401 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $99,750,000 $ 95,000,000 $ 95,000,000 IBT Repurchase Agreement, 0.76% dated 3/31/2004 due 4/1/2004, repurchase price $2,411,391 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $2,531,907 2,411,340 2,411,340 --------------- TOTAL REPURCHASE AGREEMENTS (COST: $97,411,340) 97,411,340 TOTAL SHORT TERM INVESTMENTS (COST: $157,400,432) 157,400,432 Total Investments (Cost $3,202,473,277)--99.9% $ 4,081,184,125 Other Assets In Excess Of Other Liabilities--0.1% 4,950,349 --------------- TOTAL NET ASSETS--100% $ 4,086,134,474 ===============
(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. 43 THE OAKMARK INTERNATIONAL SMALL CAP FUND REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS [PHOTO] [PHOTO] [CHART] THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/04) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX(19)
THE OAKMARK INTERNATIONAL SMALL CAP FUND (CLASS I) MSCI WORLD EX U.S. INDEX 11/1/95 $ 10,000 $ 10,000 12/31/95 $ 9,630 $ 10,684 3/31/96 $ 10,970 $ 11,006 6/30/96 $ 11,570 $ 11,186 9/30/96 $ 11,590 $ 11,195 12/31/96 $ 12,038 $ 11,418 3/31/97 $ 12,080 $ 11,241 6/30/97 $ 13,181 $ 12,699 9/30/97 $ 12,672 $ 12,652 12/31/97 $ 9,642 $ 11,677 3/31/98 $ 11,429 $ 13,394 6/30/98 $ 9,892 $ 13,499 9/30/98 $ 8,211 $ 11,513 12/31/98 $ 10,529 $ 13,868 3/31/99 $ 13,118 $ 14,086 6/30/99 $ 15,317 $ 14,493 9/30/99 $ 15,439 $ 15,114 12/31/99 $ 16,190 $ 17,741 3/31/2000 $ 15,387 $ 17,839 6/30/2000 $ 15,529 $ 17,217 9/30/2000 $ 14,908 $ 15,906 12/31/2000 $ 14,756 $ 15,369 3/31/2001 $ 15,232 $ 13,213 6/30/2001 $ 15,777 $ 13,075 9/30/2001 $ 13,987 $ 11,273 12/31/2001 $ 16,671 $ 12,080 3/31/2002 $ 18,370 $ 12,149 6/30/2002 $ 18,831 $ 11,877 9/30/2002 $ 14,641 $ 9,547 12/31/2002 $ 15,818 $ 10,172 3/31/2003 $ 13,882 $ 9,406 6/30/2003 $ 17,933 $ 11,215 9/30/2003 $ 20,465 $ 12,121 12/31/2003 $ 24,109 $ 14,182 3/31/2004 $ 25,685 $ 14,783
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE TOTAL RETURN INCEPTION LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/95) - -------------------------------------------------------------------------------- OAKMARK INTERNATIONAL SMALL CAP FUND (CLASS I) 6.54% 85.03% 14.37% 11.85% MSCI World ex. U.S. 4.24% 57.16% 0.98% 4.75% Lipper International Small Cap Average(21) 8.90% 76.32% 10.10% 11.72%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The fund's high performance may not be repeated. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. * Not annualized The Oakmark International Small Cap Fund gained 7% for the quarter, slightly more than the relevant index. For the past twelve months, your Fund is up 85%. The strongest performers for the quarter included most of our Japanese holdings, especially brokerage firm Ichiyoshi Securities, ophthalmic (eye) specialist Santen Pharmaceutical, and the entertainment software firm Square Enix. Ichiyoshi's share price was buoyed by strong equity markets, and the company announced they would significantly increase dividend payouts. Santen recently announced a North American distribution alliance with Johnson & Johnson. Because Santen's superior anti-infective product has strong growth potential in the U.S., the alliance should provide the necessary distribution scale and know-how to penetrate the market. Stock selection in France also positively affected the Fund's returns for the quarter. LISI and Carbone Lorraine showed particularly strong share price performance. Another strong performer was UK-based retailer Carpetright plc., which continues to demonstrate the strength of its business model. The company generated strong cash flows despite a difficult operating environment in 2003. The most significant detractors from quarterly performance were capital equipment manufacturer Alfa Laval (Sweden), financial services provider Julius Baer Holding (Switzerland), and Baycorp Advantage (Australia). The declines in these stock prices were minor on an absolute basis. We continue to like the quality and price attractiveness of the portfolio. Thank you for your continued confidence. /s/ David G. Herro /s/ Michael J. Welsh DAVID G. HERRO, CFA MICHAEL J. WELSH, CFA, CPA Portfolio Manager Portfolio Manager dherro@oakmark.com mwelsh@oakmark.com 44 INTERNATIONAL DIVERSIFICATION--MARCH 31, 2004 (UNAUDITED) [CHART]
% OF FUND EQUITY MARKET VALUE -------------------------------------- - - EUROPE 68.8% * France 14.9% Switzerland 14.1% Great Britain 12.1% * Italy 9.6% Denmark 7.1% * Germany 4.3% Sweden 2.5% * Spain 2.1% * Finland 1.7% * Austria 0.4% - - PACIFIC RIM 27.3% Japan 10.8% Australia 7.3% Korea 3.5% New Zealand 3.1% Thailand 0.9% Hong Kong 0.8% China 0.5% Philippines 0.4% - - LATIN AMERICA 3.9% Mexico 3.9%
* Euro currency countries comprise 33% of the Fund. 45 THE OAKMARK INTERNATIONAL SMALL CAP FUND SCHEDULE OF INVESTMENTS--MARCH 31, 2004 (UNAUDITED)
NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.1% FOOD & BEVERAGE--5.9% Campari Group (Italy) Soft Drinks, Wines, & Spirits Producer 290,500 $ 13,097,876 Baron de Ley, S.A. (Spain) (a) Wines & Spirits Manufacturer 162,285 7,109,313 Geest plc (Great Britain) Fresh Produce Distributor 717,600 6,453,998 Hite Brewery Co., Ltd. (Korea) Brewer 68,000 4,943,832 Alaska Milk Corporation (Philippines)(b) Milk Producer 49,394,000 2,593,899 Kook Soon Dang Brewery Co., Ltd. (Korea) Wine & Spirits Manufacturer 122,676 2,371,951 Grupo Continental, S.A. (Mexico) Soft Drink Manufacturer 1,152,600 2,226,496 --------------- 38,797,365 HOUSEHOLD PRODUCTS--0.7% Societe BIC SA (France) Consumer & Office Supplies 101,800 $ 4,321,815 OTHER CONSUMER GOODS & SERVICES--1.8% Vitec Group plc (Great Britain) Photo Equipment & Supplies 1,365,684 $ 8,876,842 Royal Doulton plc (Great Britain) (a)(b) Tableware & Giftware 22,373,000 3,403,512 --------------- 12,280,354 BROADCASTING & PUBLISHING--2.0% Tamedia AG (Switzerland) TV Broadcasting & Publishing 161,983 $ 13,432,487 BUILDING MATERIALS & CONSTRUCTION--1.3% Fletcher Building Limited (New Zealand) Building Materials Manufacturer 2,952,800 $ 8,730,195 HUMAN RESOURCES--1.8% DIS Deutscher Industrie Service AG (Germany) Recruitment Consultancy Services 510,249 $ 11,710,091 INFORMATION SERVICES--3.4% Baycorp Advantage Limited (Australia) (a)(b) Credit Reference Services 11,540,500 $ 22,519,987
46
NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.1% (CONT.) MARKETING SERVICES--3.0% Asatsu-DK, Inc. (Japan) Advertising Services Provider 459,700 $ 14,326,365 LG Ad Inc. (Korea) Advertising & Marketing Services 312,880 5,214,667 --------------- 19,541,032 MOTORCYCLES--1.5% Ducati Motor Holding S.p.A. (Italy) (a)(b) Motorcycle Manufacturer 6,083,600 $ 9,821,860 PUBLISHING--1.8% Recoletos Grupo de Comunicacion, S.A. (Spain) Publisher 761,000 $ 5,965,177 Matichon Public Company Limited, Foreign Shares (Thailand) (b) Newspaper Publisher 2,039,500 5,716,524 --------------- 11,681,701 RECREATION & ENTERTAINMENT--2.7% Square Enix Co., Ltd. (Japan) Entertainment Software 436,800 $ 13,026,303 Konami Sports Corporation (Japan) Fitness Centers 245,000 4,358,009 --------------- 17,384,312 RETAIL--9.4% D.F.S. Furniture Company plc (Great Britain) Furniture Retailer & Manufacturer 3,122,000 $ 24,811,859 Carpetright plc (Great Britain) Carpet Retailer 1,067,400 19,810,257 Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 1,889,300 17,183,174 --------------- 61,805,290 BANK & THRIFTS--1.8% Jyske Bank A/S (Denmark) (a) Commercial Banking 222,400 $ 11,836,826 FINANCIAL SERVICES--2.2% Julius Baer Holding Ltd., Zurich (Switzerland) Asset Management 49,090 $ 14,189,654 OTHER FINANCIAL--2.1% Ichiyoshi Securities Co., Ltd. (Japan) Stock Broker 1,959,000 $ 13,713,094
47
NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.1% (CONT.) MEDICAL PRODUCTS--6.0% Ansell Limited (Australia) Protective Rubber & Plastics Products 4,265,150 $ 23,402,206 Coloplast A/S, Class B (Denmark) Healthcare Products & Services Provider 101,500 9,428,595 Hogy Medical Co., Ltd. (Japan) Medical Supplies Manufacturer 79,800 3,627,099 Golden Meditech Company Limited (China) Medical Instruments & Supplies 7,751,000 3,381,741 --------------- 39,839,641 PHARMACEUTICALS--2.9% Santen Pharmaceutical Co., Ltd. (Japan) Pharmaceuticals 1,147,000 $ 19,137,748 TELECOMMUNICATIONS--0.8% Asia Satellite Telecommunications Holdings Limited (Hong Kong) Satellite Operator 2,818,500 $ 5,045,404 COMPUTER SERVICES--3.4% Morse plc (Great Britain) Business & Technology Solutions 5,187,300 $ 13,152,043 Alten (France) (a) Systems Consulting & Engineering 298,141 4,828,107 Sopra Group (France) Computer Engineering 111,930 4,738,100 --------------- 22,718,250 COMPUTER SYSTEMS--2.2% Lectra (France) (a) Manufacturing Process Systems 1,663,000 $ 14,427,153 OFFICE EQUIPMENT--4.3% Neopost SA (France) Mailroom Equipment Supplier 526,300 $ 28,379,518 AIRPORT MAINTENANCE--7.0% Kobenhavns Lufthavne A/S (Copenhagen Airports A/S - CPH) (Denmark) Airport Management & Operations 184,100 $ 23,461,339 Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b)(c) Airport Operator 1,076,600 22,447,110 --------------- 45,908,449
48
NAME DESCRIPTION SHARES HELD MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.1% (CONT.) DIVERSIFIED CONGLOMERATES--6.1% Financiere Marc de Lacharriere SA (Fimalac) (France) Diversified Operations 386,364 $ 15,480,334 Pargesa Holding AG (Switzerland) Diversified Operations 5,374 14,939,567 Tae Young Corp. (Korea) Heavy Construction 283,560 9,675,276 Financiere Marc de Lacharriere SA (Fimalac), Warrants (France) (a) Diversified Operations 31,866 133,323 --------------- 40,228,500 ENVIRONMENTAL PRODUCTS & SERVICES--0.3% Munters AB (Sweden) Cooling & Moisture Control Systems 77,400 $ 1,908,982 INSTRUMENTS--1.2% Vaisala Oyj, Class A (Finland) Atmospheric Observation Equipment 312,900 $ 7,816,294 MACHINERY & INDUSTRIAL PROCESSING--6.2% Pfeiffer Vacuum Technology AG (Germany) Vacuum Pump Manufacturer 423,840 $ 15,338,971 Alfa Laval (Sweden) Filtration & Separation Equipment 1,061,100 13,999,980 Carbone Lorraine SA (France) Electrical Systems Manufacturer 210,000 9,147,909 Andritz AG (Austria) General Industrial Machinery 48,000 2,222,669 --------------- 40,709,529 OTHER INDUSTRIAL GOODS & SERVICES--6.0% Schindler Holding AG (Switzerland) Elevator & Escalator Manufacturer 76,150 $ 24,266,723 LISI (France) Industrial Fastener Manufacturer 241,813 11,902,520 Kone Oyj, Class B (Finland) Elevators 54,300 3,242,051 --------------- 39,411,294 PRODUCTION EQUIPMENT--3.3% Interpump Group S.p.A. (Italy) (b) Pump & Piston Manufacturer 4,604,900 $ 20,223,952 NSC Groupe (France) Textile Equipment Manufacturer 12,316 1,060,882 --------------- 21,284,834 TRANSPORTATION SERVICES--1.6% Mainfreight Limited (New Zealand) (b) Logistics Services 8,935,381 $ 10,614,982
49
SHARES HELD/ NAME DESCRIPTION PAR VALUE MARKET VALUE - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS--96.1% (CONT.) CHEMICALS--3.4% Gurit-Heberlein AG (Switzerland) Chemical Producer 29,850 $ 22,395,751 TOTAL COMMON STOCKS (COST: $440,341,671) 631,592,392 SHORT TERM INVESTMENTS--3.4% U.S. GOVERNMENT BILLS--1.5% United States Treasury Bills, 0.935% - 0.95% due 4/8/2004 - 4/22/2004 $ 10,000,000 $ 9,996,350 TOTAL U.S. GOVERNMENT BILLS (COST: $9,996,350) 9,996,350 REPURCHASE AGREEMENTS--1.9% IBT Repurchase Agreement, 0.91% dated 3/31/2004 due 4/1/2004, repurchase price $10,000,253 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $10,500,000 $ 10,000,000 $ 10,000,000 IBT Repurchase Agreement, 0.76% dated 3/31/2004 due 4/1/2004, repurchase price $2,744,770 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $2,881,948 2,744,712 2,744,712 --------------- TOTAL REPURCHASE AGREEMENTS (COST: $12,744,712) 12,744,712 TOTAL SHORT TERM INVESTMENTS (COST: $22,741,062) 22,741,062 Total Investments (Cost $463,082,733)--99.5% $ 654,333,454 Foreign Currencies (Cost $328,629)--0.1% 331,818 Other Assets In Excess Of Other Liabilities--0.4% 2,679,842 --------------- TOTAL NET ASSETS--100% $ 657,345,114 ===============
(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. 50 [OAKMARK LOGO] FAMILY OF FUNDS (This page has been intentionally left blank.) 51 THE OAKMARK FAMILY OF FUNDS STATEMENTS OF ASSETS AND LIABILITIES--MARCH 31, 2004 (UNAUDITED)
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND --------------------------------------------------- ASSETS Investments in unaffiliated securities, at value (a) $ 5,590,821,455 $ 4,673,326,600 $ 383,029,461 Investments in affiliated securities, at value (b) 296,848,272 1,119,390,388 11,589,880 Foreign currency, at value (c) 0 0 0 Receivable for: Securities sold 12,571,340 0 7,879,797 Fund shares sold 14,868,864 12,677,646 425,007 Dividends and interest 7,490,836 5,917,580 305,425 Tax reclaim 0 0 0 --------------- --------------- --------------- Total receivables 34,931,040 18,595,226 8,610,229 Other assets 79,702 82,115 32,724 --------------- --------------- --------------- Total assets $ 5,922,680,469 $ 5,811,394,329 $ 403,262,294 LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 74,605,649 $ 660,026 $ 7,309,965 Fund shares redeemed 4,071,925 3,515,433 265,675 Due to Adviser 137,970 134,463 10,580 Due to transfer agent 483,758 277,040 68,616 Trustees fees 24,592 25,110 10,119 Deferred trustee compensation 736,759 610,245 264,455 Foreign tax expense 0 0 0 Other 1,632,768 1,341,441 153,918 --------------- --------------- --------------- Total liabilities 81,693,421 6,563,758 8,083,328 --------------- --------------- --------------- Net assets applicable to fund shares outstanding $ 5,840,987,048 $ 5,804,830,571 $ 395,178,966 =============== =============== =============== ANALYSIS OF NET ASSETS Paid in capital $ 5,016,655,611 $ 4,023,893,029 $ 320,935,027 Accumulated undistributed net realized gain (loss) of investments, forward contracts, options, short sales and foreign currency exchange transactions (305,576,249) (92,291,372) (18,080,467) Net unrealized appreciation (depreciation) of investments 1,117,204,306 1,865,835,335 93,516,913 Net unrealized appreciation (depreciation)--other 0 0 8,786 Accumulated undistributed net investment income (loss) 12,703,380 7,393,579 (1,201,293) --------------- --------------- --------------- Net assets applicable to Fund shares outstanding $ 5,840,987,048 $ 5,804,830,571 $ 395,178,966 =============== =============== =============== PRICE OF SHARES Net asset value per share: Class I (without par value) $ 38.08 $ 31.37 $ 20.40 =============== =============== =============== Class I--Net assets $ 5,801,806,019 $ 5,696,434,688 $ 394,084,504 Class I--Shares outstanding (Unlimited shares authorized) 152,358,405 181,579,852 19,315,219 Net asset value per share: Class II (without par value) $ 37.92 $ 31.20 $ 20.26 =============== =============== =============== Class II--Net assets $ 39,181,029 $ 108,395,883 $ 1,094,462 Class II--Shares outstanding (Unlimited shares authorized) 1,033,298 3,474,180 54,015 (a) Identified cost of investments in unaffiliated securities $ 4,591,213,779 $ 3,349,471,558 $ 292,686,256 (b) Identified cost of investments in affiliated securities 179,251,642 577,410,095 8,403,163 (c) Identified cost of foreign currency 0 0 0
52
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND -------------------------------------------------------------------- ASSETS Investments in unaffiliated securities, at value (a) $ 6,526,334,296 $ 1,141,857,910 $ 3,498,434,380 $ 556,991,628 Investments in affiliated securities, at value (b) 227,477,250 216,982,738 582,749,745 97,341,826 Foreign currency, at value (c) 0 0 0 331,818 Receivable for: Securities sold 7,887,650 0 4,942,960 1,103,127 Fund shares sold 40,559,998 12,954,836 16,301,161 2,914,347 Dividends and interest 19,386,595 2,961,456 10,791,753 1,638,467 Tax reclaim 0 188,176 2,048,367 615,995 --------------- --------------- --------------- --------------- Total receivables 67,834,243 16,104,468 34,084,241 6,271,936 Other assets 78,162 49,813 61,517 34,476 --------------- --------------- --------------- --------------- Total assets $ 6,821,723,951 $ 1,374,994,929 $ 4,115,329,883 $ 660,971,684 LIABILITIES AND NET ASSETS Payable for: Securities purchased $ 114,934,387 $ 17,308,294 $ 22,266,939 $ 1,881,467 Fund shares redeemed 3,191,906 564,247 4,766,800 771,324 Due to Adviser 126,240 36,300 103,744 21,795 Due to transfer agent 237,653 62,597 181,481 33,690 Trustees fees 24,453 12,310 19,226 10,691 Deferred trustee compensation 383,819 225,752 392,252 237,477 Foreign tax expense 0 0 0 444,083 Other 1,710,122 407,658 1,464,967 226,043 --------------- --------------- --------------- --------------- Total liabilities 120,608,580 18,617,158 29,195,409 3,626,570 --------------- --------------- --------------- --------------- Net assets applicable to fund shares outstanding $ 6,701,115,371 $ 1,356,377,771 $ 4,086,134,474 $ 657,345,114 =============== =============== =============== =============== ANALYSIS OF NET ASSETS Paid in capital $ 5,688,356,870 $ 1,106,578,682 $ 3,343,237,578 $ 494,779,901 Accumulated undistributed net realized gain (loss) of investments, forward contracts, options, short sales and foreign currency exchange transactions 10,527,568 14,874,509 (132,211,328) (28,376,830) Net unrealized appreciation (depreciation) of investments 996,093,493 236,929,137 878,837,852 190,826,114 Net unrealized appreciation (depreciation)--other 188,995 13,159 88,004 36,633 Accumulated undistributed net investment income (loss) 5,948,445 (2,017,716) (3,817,632) 79,296 --------------- --------------- --------------- --------------- Net assets applicable to Fund shares outstanding $ 6,701,115,371 $ 1,356,377,771 $ 4,086,134,474 $ 657,345,114 =============== =============== =============== =============== PRICE OF SHARES Net asset value per share: Class I (without par value) $ 22.94 $ 20.03 $ 18.67 $ 17.11 =============== =============== =============== =============== Class I--Net assets $ 6,313,264,653 $ 1,338,264,734 $ 3,855,255,039 $ 656,901,588 Class I--Shares outstanding (Unlimited shares authorized) 275,262,210 66,818,977 206,489,876 38,403,220 Net asset value per share: Class II (without par value) $ 22.87 $ 19.84 $ 18.58 $ 17.08 =============== =============== =============== =============== Class II--Net assets $ 387,850,718 $ 18,113,037 $ 230,879,435 $ 443,526 Class II--Shares outstanding (Unlimited shares authorized) 16,958,324 912,789 12,424,140 25,974 (a) Identified cost of investments in unaffiliated securities $ 5,604,109,929 $ 947,376,241 $ 2,781,654,398 $ 385,947,591 (b) Identified cost of investments in affiliated securities 153,608,124 174,569,421 420,818,879 77,135,142 (c) Identified cost of foreign currency 0 0 0 328,629
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 53 STATEMENTS OF OPERATIONS--PERIOD ENDED MARCH 31, 2004 (UNAUDITED)
THE OAKMARK THE OAKMARK THE OAKMARK SELECT SMALL CAP FUND FUND FUND --------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 39,569,075 $ 38,140,538 $ 1,298,271 Dividends from affiliated securities 1,636,670 4,706,340 0 Interest Income 2,272,261 1,978,868 136,221 Other income 39,662 52,731 5,898 Foreign taxes withheld 34,435 0 0 --------------- --------------- --------------- Total investment income 43,552,103 44,878,477 1,440,390 EXPENSES: Investment advisory fee 23,864,630 23,958,554 1,888,230 Transfer and dividend disbursing agent fees 1,434,105 762,368 180,928 Other shareholder servicing fees 2,273,010 2,153,849 130,047 Service Fee--Class II 36,308 115,254 1,098 Reports to shareholders 774,959 632,528 41,900 Custody and accounting fees 295,476 305,789 29,183 Registration and blue sky expenses 141,525 46,998 13,632 Trustee fees 55,284 56,108 22,926 Deferred trustee compensation 103,499 105,821 42,679 Legal fees 42,083 43,334 17,335 Audit fees 22,415 23,516 6,506 Other 171,627 176,844 45,443 --------------- --------------- --------------- Total expenses 29,214,921 28,380,963 2,419,907 NET INVESTMENT INCOME (LOSS): 14,337,182 16,497,514 (979,517) NETREALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities 23,432,761 72,545,020 (6,996,152) Net realized gain on affiliated securities 2,222,577 11,318,223 688,409 Net realized gain on options 1,764,022 2,170,031 45,568 Net realized gain (loss) on short sales (737) (1,959) 0 Net realized gain (loss) on foreign currency transactions 0 0 850 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 590,395,990 628,913,839 71,742,284 Net change in appreciation (depreciation) --other 0 0 8,786 Deferred foreign taxes 0 0 0 Net realized and unrealized gain on investments and foreign currency transactions: 617,814,613 714,945,154 65,489,745 --------------- --------------- --------------- Net increase in net assets resulting from operations $ 632,151,795 $ 731,442,668 $ 64,510,228 =============== =============== ===============
54
THE OAKMARK THE OAKMARK THE OAKMARK THE OAKMARK EQUITY AND GLOBAL INTERNATIONAL INTERNATIONAL INCOME FUND FUND FUND SMALL CAP FUND -------------------------------------------------------------------- INVESTMENT INCOME: Dividends from unaffiliated securities $ 13,387,345 $ 4,779,536 $ 19,971,303 $ 5,443,481 Dividends from affiliated securities 997,500 443,883 933,992 380,696 Interest Income 25,735,493 498,563 774,327 123,927 Other income 4,005 56 0 0 Foreign taxes withheld 43,493 (376,041) (2,083,614) (688,763) --------------- --------------- --------------- --------------- Total investment income 40,167,836 5,345,997 19,596,008 5,259,341 EXPENSES: Investment advisory fee 19,881,975 5,393,852 16,818,167 3,558,522 Transfer and dividend disbursing agent fees 736,872 178,066 541,948 81,545 Other shareholder servicing fees 2,997,627 511,455 1,635,553 268,281 Service Fee--Class II 393,112 13,434 217,877 141 Reports to shareholders 767,949 128,564 519,099 69,697 Custody and accounting fees 353,560 496,925 1,866,174 336,394 Registration and blue sky expenses 300,091 125,301 142,098 25,745 Trustee fees 55,959 28,397 44,369 24,379 Deferred trustee compensation 103,516 51,407 81,014 45,145 Legal fees 42,204 20,882 32,742 18,288 Audit fees 20,863 8,071 15,702 7,546 Other 170,965 64,318 125,466 50,450 --------------- --------------- --------------- --------------- Total expenses 25,824,693 7,020,672 22,040,209 4,486,133 NET INVESTMENT INCOME (LOSS): 14,343,143 (1,674,675) (2,444,201) 773,208 NETREALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) on unaffiliated securities 80,541,618 14,837,990 78,374,034 5,187,780 Net realized gain on affiliated securities 0 50,009 411,833 252,457 Net realized gain on options 0 363,653 0 0 Net realized gain (loss) on short sales 0 0 0 0 Net realized gain (loss) on foreign currency transactions 180,636 (51,663) 78,639 53,163 Net change in unrealized appreciation (depreciation) of investments and foreign currencies 584,008,876 155,164,277 527,624,543 121,144,024 Net change in appreciation (depreciation) --other 102,127 38,270 (39,741) (23,426) Deferred foreign taxes 0 0 0 (444,083) Net realized and unrealized gain on investments and foreign currency transactions: 664,833,257 170,402,536 606,449,308 126,169,915 --------------- --------------- --------------- --------------- Net increase in net assets resulting from operations $ 679,176,400 $ 168,727,861 $ 604,005,107 $ 126,943,123 =============== =============== =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 55 STATEMENTS OF CHANGES IN NET ASSETS
THE OAKMARK FUND ----------------------------------------- PERIOD ENDED MARCH 31, 2004 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2003 ----------------------------------------- FROM OPERATIONS: Net investment income $ 14,337,182 $ 19,384,779 Net realized gain (loss) on investments 27,418,623 (137,687,746) Net change in unrealized appreciation (depreciation) of investments 590,395,990 867,321,548 ------------------- ------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 632,151,795 749,018,581 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (20,505,870) (13,880,781) Net investment income--Class II (37,100) (29,599) ------------------- ------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (20,542,970) (13,910,380) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 952,516,311 1,533,121,113 Proceeds from shares sold--Class II 20,632,501 17,938,866 Reinvestment of distributions--Class I 18,843,543 13,078,556 Reinvestment of distributions--Class II 8,676 700 Payments for shares redeemed--Class I (547,624,193) (810,690,610) Redemption fees Class I 46,208 0 Payments for shares redeemed--Class II (5,559,958) (6,723,524) ------------------- ------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 438,863,088 746,725,101 ------------------- ------------------- TOTAL INCREASE IN NET ASSETS 1,050,471,913 1,481,833,302 NET ASSETS: Beginning of period 4,790,515,135 3,308,681,833 ------------------- ------------------- End of period $ 5,840,987,048 $ 4,790,515,135 =================== =================== Undistributed net investment income $ 12,703,380 $ 18,909,168 =================== =================== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 25,701,195 49,341,298 Shares issued in reinvestment of dividends 534,720 425,457 Less shares redeemed (14,757,688) (26,435,618) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 11,478,227 23,331,137 =================== =================== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 560,084 576,827 Shares issued in reinvestment of dividends 247 23 Less shares redeemed (154,467) (225,241) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 405,864 351,609 =================== ===================
56
THE OAKMARK SELECT FUND ----------------------------------------- PERIOD ENDED MARCH 31, 2004 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2003 ----------------------------------------- FROM OPERATIONS: Net investment income $ 16,497,514 $ 10,063,549 Net realized gain (loss) on investments 86,031,315 (101,697,160) Net change in unrealized appreciation (depreciation) of investments 628,913,839 1,121,320,614 ------------------- ------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 731,442,668 1,029,687,003 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (18,710,631) (3,934,423) Net investment income--Class II (118,882) 0 ------------------- ------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (18,829,513) (3,934,423) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 525,833,145 917,786,177 Proceeds from shares sold--Class II 21,250,751 37,698,020 Reinvestment of distributions--Class I 17,456,336 3,705,408 Reinvestment of distributions--Class II 58,212 0 Payments for shares redeemed--Class I (539,500,117) (654,181,633) Redemption fees Class I 60,514 0 Payments for shares redeemed--Class II (19,028,695) (26,725,613) ------------------- ------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 6,130,146 278,282,359 ------------------- ------------------- TOTAL INCREASE IN NET ASSETS 718,743,301 1,304,034,939 NET ASSETS: Beginning of period 5,086,087,270 3,782,052,331 ------------------- ------------------- End of period $ 5,804,830,571 $ 5,086,087,270 =================== =================== Undistributed net investment income $ 7,393,579 $ 9,725,578 =================== =================== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 17,279,097 36,086,657 Shares issued in reinvestment of dividends 595,510 150,625 Less shares redeemed (17,521,987) (26,578,347) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 352,620 9,658,935 =================== =================== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 700,673 1,482,025 Shares issued in reinvestment of dividends 1,944 0 Less shares redeemed (628,178) (1,069,612) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 74,439 412,413 =================== ===================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 57
THE OAKMARK SMALL CAP FUND ----------------------------------------- PERIOD ENDED MARCH 31, 2004 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2003 ----------------------------------------- FROM OPERATIONS: Net investment loss $ (979,517) $ (2,414,871) Net realized loss on investments (6,262,175) (11,322,124) Net realized gain on foreign currency transactions 850 0 Net change in unrealized appreciation (depreciation) of investments 71,742,284 80,258,968 Net change in unrealized appreciation (depreciation) --other 8,786 0 ------------------- ------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 64,510,228 66,521,973 FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 37,370,497 50,502,211 Proceeds from shares sold--Class II 288,093 216,335 Payments for shares redeemed--Class I (57,944,082) (123,497,018) Redemption fees Class I 29,583 0 Payments for shares redeemed--Class II (88,986) (123,957) ------------------- ------------------- NET DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (20,344,895) (72,902,429) ------------------- ------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 44,165,333 (6,380,456) NET ASSETS: Beginning of period 351,013,633 357,394,089 ------------------- ------------------- End of period $ 395,178,966 $ 351,013,633 =================== =================== Undistributed net investment loss $ (1,201,293) $ (221,776) =================== =================== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 1,915,238 3,238,264 Less shares redeemed (2,984,401) (8,156,424) ------------------- ------------------- NET DECREASE IN SHARES OUTSTANDING (1,069,163) (4,918,160) =================== =================== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 14,759 13,910 Less shares redeemed (4,757) (7,871) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 10,002 6,039 =================== ===================
58
THE OAKMARK EQUITY AND INCOME FUND ----------------------------------------- PERIOD ENDED MARCH 31, 2004 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2003 ----------------------------------------- FROM OPERATIONS: Net investment income $ 14,343,143 $ 34,174,070 Net realized gain on investments 80,541,618 9,562,063 Net realized gain on foreign currency transactions 180,636 370,636 Net change in unrealized appreciation (depreciation) of investments 584,008,876 517,697,982 Net change in unrealized appreciation (depreciation) --other 102,127 87,469 ------------------- ------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 679,176,400 561,892,220 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (30,409,110) (33,616,359) Net investment income--Class II (1,530,815) (1,569,445) ------------------- ------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (31,939,925) (35,185,804) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,935,149,079 2,076,491,027 Proceeds from shares sold--Class II 147,419,713 144,338,218 Reinvestment of distributions--Class I 29,355,523 32,429,243 Reinvestment of distributions--Class II 514,106 321,834 Payments for shares redeemed--Class I (398,443,405) (709,955,319) Redemption fees Class I 84,144 0 Payments for shares redeemed--Class II (44,849,275) (46,269,411) ------------------- ------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 1,669,229,885 1,497,355,592 ------------------- ------------------- TOTAL INCREASE IN NET ASSETS 2,316,466,360 2,024,062,008 NET ASSETS: Beginning of period 4,384,649,011 2,360,587,003 ------------------- ------------------- End of period $ 6,701,115,371 $ 4,384,649,011 =================== =================== Undistributed net investment income $ 5,948,445 $ 23,545,227 =================== =================== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 88,279,231 109,874,694 Shares issued in reinvestment of dividends 1,399,884 1,796,634 Less shares redeemed (18,245,553) (38,350,539) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 71,433,562 73,320,789 =================== =================== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 6,798,152 7,706,490 Shares issued in reinvestment of dividends 24,563 17,840 Less shares redeemed (2,050,082) (2,462,923) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 4,772,633 5,261,407 =================== ===================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 59
THE OAKMARK GLOBAL FUND ----------------------------------------- PERIOD ENDED MARCH 31, 2004 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2003 ----------------------------------------- FROM OPERATIONS: Net investment income (loss) $ (1,674,675) $ 9,446 Net realized gain on investments 15,251,652 3,814,882 Net realized loss on foreign currency transactions (51,663) (168,173) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 155,164,277 114,576,882 Net change in unrealized appreciation (depreciation) --other 38,270 (43,405) ------------------- ------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 168,727,861 118,189,632 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (52,482) 0 Net realized gain--Class I (2,853,676) 0 Net realized gain--Class II (25,590) 0 ------------------- ------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (2,931,748) 0 FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 584,100,705 524,732,272 Proceeds from shares sold--Class II 12,569,273 6,645,694 Reinvestment of distributions--Class I 2,804,200 0 Reinvestment of distributions--Class II 20,731 0 Payments for shares redeemed--Class I (117,878,917) (112,770,994) Redemption fees Class I 218,441 0 Payments for shares redeemed--Class II (1,850,210) (2,412,970) ------------------- ------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 479,984,223 416,194,002 ------------------- ------------------- TOTAL INCREASE IN NET ASSETS 645,780,336 534,383,634 NET ASSETS: Beginning of period 710,597,435 176,213,801 ------------------- ------------------- End of period $ 1,356,377,771 $ 710,597,435 =================== =================== Undistributed net investment loss $ (2,017,716) $ (290,559) =================== =================== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 31,239,104 34,670,227 Shares issued in reinvestment of dividends 155,616 0 Less shares redeemed (6,086,912) (8,703,761) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 25,307,808 25,966,466 =================== =================== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 663,902 462,296 Shares issued in reinvestment of dividends 1,160 0 Less shares redeemed (97,167) (171,894) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 567,895 290,402 =================== ===================
60
THE OAKMARK INTERNATIONAL FUND ----------------------------------------- PERIOD ENDED MARCH 31, 2004 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2003 ----------------------------------------- FROM OPERATIONS: Net investment income (loss) $ (2,444,201) $ 20,158,139 Net realized gain (loss) on investments 78,785,867 (194,137,263) Net realized gain (loss) on foreign currency transactions 78,639 (659,981) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 527,624,543 712,978,826 Net change in unrealized appreciation (depreciation) --other (39,741) 294,152 ------------------- ------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 604,005,107 538,633,873 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (20,084,750) (15,119,015) Net investment income--Class II (570,848) (515,254) ------------------- ------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (20,655,598) (15,634,269) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 1,023,957,732 1,342,461,828 Proceeds from shares sold--Class II 117,528,761 210,555,153 Reinvestment of distributions--Class I 18,162,578 13,994,235 Reinvestment of distributions--Class II 279,537 172,223 Payments for shares redeemed--Class I (419,389,764) (573,914,822) Redemption fees Class I 280,208 0 Payments for shares redeemed--Class II (37,879,223) (158,686,779) ------------------- ------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 702,939,829 834,581,838 ------------------- ------------------- TOTAL INCREASE IN NET ASSETS 1,286,289,338 1,357,581,442 NET ASSETS: Beginning of period 2,799,845,136 1,442,263,694 ------------------- ------------------- End of period $ 4,086,134,474 $ 2,799,845,136 =================== =================== Undistributed net investment income (loss) $ (3,817,632) $ 19,282,167 =================== =================== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 58,012,314 98,256,816 Shares issued in reinvestment of dividends 1,091,501 1,050,618 Less shares redeemed (23,387,678) (43,071,914) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 35,716,137 56,235,520 =================== =================== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 6,606,015 15,141,504 Shares issued in reinvestment of dividends 16,860 12,959 Less shares redeemed (2,107,207) (11,241,101) ------------------- ------------------- NET INCREASE IN SHARES OUTSTANDING 4,515,668 3,913,362 =================== ===================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 61
THE OAKMARK INTERNATIONAL SMALL CAP FUND ----------------------------------------- PERIOD ENDED MARCH 31, 2004 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2003 ----------------------------------------- FROM OPERATIONS: Net investment income $ 773,208 $ 3,739,176 Net realized gain (loss) on investments 5,440,237 (33,475,417) Net realized gain (loss) on foreign currency transactions 53,163 (58,650) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 121,144,024 160,461,142 Net change in unrealized appreciation (depreciation) --other (23,426) 36,163 Deferred foreign taxes (444,083) 0 ------------------- ------------------- NET INCREASE IN NET ASSETS FROM OPERATIONS 126,943,123 130,702,414 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income--Class I (4,209,195) (3,076,432) Net investment income--Class II (2,982) (1,637) Net realized gain--Class I 0 (9,181,861) Net realized gain--Class II 0 (6,548) ------------------- ------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (4,212,177) (12,266,478) FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold--Class I 109,541,987 122,746,015 Proceeds from shares sold--Class II 39,982 978,707 Reinvestment of distributions--Class I 3,863,970 11,533,652 Reinvestment of distributions--Class II 1,508 4,554 Payments for shares redeemed--Class I (57,181,044) (132,515,271) Redemption fees Class I 249,166 0 Payments for shares redeemed--Class II (145,830) (945,332) ------------------- ------------------- NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 56,369,739 1,802,325 ------------------- ------------------- TOTAL INCREASE IN NET ASSETS 179,100,685 120,238,261 NET ASSETS: Beginning of period 478,244,429 358,006,168 ------------------- ------------------- End of period $ 657,345,114 $ 478,244,429 =================== =================== Undistributed net investment income $ 79,296 $ 3,518,265 =================== =================== FUND SHARE TRANSACTIONS--CLASS I: Shares sold 6,901,509 11,051,169 Shares issued in reinvestment of dividends 260,200 1,095,314 Less shares redeemed (3,532,857) (12,545,416) ------------------- ------------------- NET INCREASE (DECREASE) IN SHARES OUTSTANDING 3,628,852 (398,933) =================== =================== FUND SHARE TRANSACTIONS--CLASS II: Shares sold 2,534 88,462 Shares issued in reinvestment of dividends 102 432 Less shares redeemed (8,775) (85,057) ------------------- ------------------- NET INCREASE (DECREASE) IN SHARES OUTSTANDING (6,139) 3,837 =================== ===================
62 THE OAKMARK FAMILY OF FUNDS NOTES TO FINANCIAL STATEMENTS--(UNAUDITED) 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 (the "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. Income, realized and unrealized capital gains and losses and 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. REDEMPTION FEES-- 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 and retained by the Fund. The "first-in, first-out" (FIFO) method is used to determine the holding period. 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 pricing committees established by the Board of Trustees. Securities traded in foreign markets are valued using prices reported by local foreign markets. The Funds' net asset values are determined at the time of the close of the New York Stock Exchange. The pricing committees will evaluate movements in the U.S. markets after the close of foreign markets and may adjust security prices to reflect changes in reaction to U.S. markets as determined by a third party model. At March 31, 2004, the Funds held one security for which a quotation was not readily available, and no securities which 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. 63 For the period ended March 31, 2004, net unrealized appreciation (depreciation) - - other included the following components:
SMALL EQUITY & INTER- INT'L CAP INCOME GLOBAL NATIONAL SMALL CAP - ------------------------------------------------------------------------------------------------------ Unrealized appreciation (depreciation) on dividends and dividend reclaims receivable $ -- $ 188,995 $ 47,357 $ 225,588 $ 55,143 Unrealized appreciation (depreciation) on open securities purchases and sales 8,786 -- (34,198) (137,584) (18,510) ------------ ------------ ------------ ------------ ------------ Net Unrealized appreciation (depreciation) - Other $ 8,786 $ 188,995 $ 13,159 $ 88,004 $ 36,633 ============ ============ ============ ============ ============
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. Corporate gains taxes on the appreciation of certain foreign securities have been accrued for in accordance with the Funds' understanding of the applicable country's tax rules and rates, and are recorded as Deferred Foreign Taxes on the Statements of Operations. Net realized gains and losses on investments are determined by the specific identification method. 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 March 31, 2004, 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. SHORT SALES-- The Fund may sell a security it does not own in anticipation of a decline in the fair value of that security. When the 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 March 31, 2004, the Funds had no securities sold short. 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 their counterparties, to perform. At March 31, 2004, the Funds had no written options outstanding. When a Fund purchases an option, the premium paid by the Fund is recorded as an asset 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 64 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. At March 31, 2004, the Funds held no options. COMMITTED LINE OF CREDIT-- The Funds have an unsecured committed line of credit with Investors Bank & Trust Company ("IBT") in the amount of $450 million. Borrowings under that arrangement bear interest at .45% above the Federal Funds Effective Rate. There were no borrowings during the period ended March 31, 2004. REPURCHASE AGREEMENTS-- Each Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is each Fund's policy that the market value of the collateral be at least equal to 105% of the repurchase price, including interest. Each Fund's adviser is responsible for determining that the value of the collateral is at all times at least equal to 105% of the repurchase price, including interest. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty including possible delays or restrictions upon a Fund's ability to dispose of the underlying securities. EXPENSE OFFSET ARRANGEMENT-- IBT serves as custodian of the Funds. IBT's fee may be reduced by credits which are an earnings allowance calculated on the average daily cash balances each Fund maintains with IBT. Credit balances used to reduce the Funds' custodian fees, if any, would be reported as a reduction of total expenses in the Statements of Operations. SECURITY LENDING-- Each Fund except Oakmark 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 fair 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, and the bank shall return the securities within five business days or less. 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 fair 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. RECLASSIFICATIONS-- Certain amounts have been reclassified to conform with the current presentation. 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% up to $5 billion 0.90% on the next $1 billion; 0.70% on the next $2.5 billion 0.80% on the next $2 billion; and 0.675% on the next $2.5 billion; and 0.75% over $5 billion 0.65% over $10 billion Select 1.00% up to $1 billion; Global 1.00% up to $2 billion 0.95% on the next $500 million; 0.95% on the next $2 billion; and 0.90% on the next $500 million; 0.90% over $4 billion 0.85% on the next $500 million; 0.80% on the next $2.5 billion; and International 1.00% up to $2 billion; 0.75% over $5 billion 0.95% on the next $1 billion; and 0.85% over $3 billion Small Cap 1.00% Int'l Small Cap 1.25% up to $500 million; and 1.10% over $500 million
65 The Adviser undertakes to reimburse each Fund Class to the extent that its annualized expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, and extraordinary charges such as litigation costs, but excluding fees paid to the Adviser) exceed the percent set forth opposite the Fund Class of average net assets of the Fund Class through January 31, 2005.
FUND CLASS I CLASS II --------------------------------------------------------------------------------------- Oakmark 1.50% 1.75% Select 1.50 1.75 Small Cap 1.50 1.75 Equity & Income 1.00 1.25 Global 1.75 2.00 International 2.00 2.25 Int'l Small Cap 2.00 2.25
For the period ended March 31, 2004, 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 $ 1,919,484 $ 117,690 Select 1,719,833 35,862 Small Cap 513,730 68,364 Equity & Income 2,488,851 189,384 Global 1,297,471 28,505 International 2,787,160 0 Intl Small Cap 399,896 0
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 period ended March 31, 2004, the Funds incurred the following transfer agent expenses:
FUND TRANSFER AGENT FEES ---------------------------------------------------------------------------------------------------- Oakmark $ 1,434,105 Select 762,368 Small Cap 180,928 Equity & Income 736,872 Global 178,066 International 541,948 Intl Small Cap 81,545
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 Statements 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. 66 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 $ 4,770,465,421 $ 1,199,436,580 $ (82,232,274) $ 1,117,204,306 Select 3,926,881,653 1,920,257,119 (54,421,784) 1,865,835,335 Small Cap 301,089,419 100,267,962 (6,738,040) 93,529,922 Equity & Income 5,757,718,053 1,004,753,565 (8,660,072) 996,093,493 Global 1,121,945,662 240,297,925 (3,402,939) 236,894,986 Internationa l3,202,473,277 894,476,695 (15,765,847) 878,710,848 Intl Small Cap 463,082,733 197,130,040 (5,879,319) 191,250,721
4. INVESTMENT TRANSACTIONS For the period ended March 31, 2004, 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 $ 675,068 $ 432,191 $ 74,334 $ 1,331,369 $ 505,727 $ 863,589 $ 105,821 Proceeds from sales 404,099 415,890 98,627 368,644 72,426 207,925 54,340
Purchases at cost and proceeds from sales of long-term U.S. Government securities for the period ended March 31, 2004 were $536,365 and $46,003 respectively for Equity and Income. Transactions in options written during the period ended March 31, 2004 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, 2003 0 $ 0 0 $ 0 950 $ 116,769 Options written 26,250 2,173,021 29,750 2,349,762 0 0 Options terminated in closing purchase transactions (6,993) (683,121) (8,397) (811,727) (500) (57,872) Options expired (17,107) (1,180,339) (20,978) (1,503,162) (450) (58,897) Options exercised (2,150) (309,560) (375) (34,873) 0 0 ------- ----------- ------- ----------- ---- ----------- Options outstanding at March 31, 2004 0 $ 0 0 $ 0 0 $ 0
GLOBAL ---------------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------------------------------------------------------------------------------------------------- Options outstanding at September 30, 2003 3,000 $ 255,988 Options written 1,000 155,663 Options expired (3,000) (363,653) Options exercised (1,000) (47,998) ------ ------------ Options outstanding at March 31, 2004 0 $ 0
67 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 period ended March 31, 2004, is set forth below: SUMMARY OF TRANSACTIONS WITH AFFILIATED ISSUERS THE OAKMARK FUND
MARKET VALUE PURCHASES SALES DIVIDEND MARCH 31, AFFILIATES SHARES HELD (COST) PROCEEDS INCOME 2004 ----------------------------------------------------------------------------------------------------------------------------- Burlington Resources,Inc 1,571,100 $ 0 $ 0 $ 471,330 $ 99,969,093 H&R Block, Inc. 2,829,300 0 10,836,226 1,165,340 144,379,179 Toys 'R' Us, Inc. 3,125,000 $ 0 0 0 52,500,000 ---------------- ---------------- ---------------- ---------------- TOTALS $ 0 $ 10,836,226 $ 1,636,670 $ 296,848,272
THE OAKMARK SELECT FUND
MARKET VALUE PURCHASES SALES DIVIDEND MARCH 31, AFFILIATES SHARES HELD (COST) PROCEEDS INCOME 2004 ----------------------------------------------------------------------------------------------------------------------------- Burlington Resources, Inc. 4,326,800 $ 0 $ 0 $ 1,298,040 $ 275,314,284 H&R Block, Inc. 8,259,800 0 33,137,226 3,408,300 421,497,594 The Dun & Bradstreet Corporation 3,934,900 0 29,537,786 0 210,517,150 Toys 'R' Us, Inc. 12,622,700 1,567,695 16,425,605 0 212,061,360 ---------------- ---------------- ---------------- ---------------- TOTALS $ 1,567,695 $ 79,100,617 $ 4,706,340 $ 1,119,390,388
THE OAKMARK SMALL CAP FUND
MARKET VALUE PURCHASES SALES DIVIDEND MARCH 31, AFFILIATES SHARES HELD (COST) PROCEEDS INCOME 2004 ----------------------------------------------------------------------------------------------------------------------------- eFunds Corporation 706,700 $ 0 $ 10,636,615 $ 0 $ 11,589,880 ---------------- ---------------- ---------------- ---------------- TOTALS $ 0 $ 10,636,615 $ 0 $ 11,589,880
THE OAKMARK EQUITY & INCOME FUND
MARKET VALUE PURCHASES SALES DIVIDEND MARCH 31, AFFILIATES SHARES HELD (COST) PROCEEDS INCOME 2004 ----------------------------------------------------------------------------------------------------------------------------- Burlington Resources, Inc. 3,575,000 $ 74,735,466 $ 0 $ 997,500 $ 227,477,250 ---------------- ---------------- ---------------- ---------------- TOTALS $ 74,735,466 $ 0 $ 997,500 $ 227,477,250
68 THE OAKMARK GLOBAL FUND
MARKET VALUE PURCHASES SALES DIVIDEND MARCH 31, AFFILIATES SHARES HELD (COST) PROCEEDS INCOME 2004 ----------------------------------------------------------------------------------------------------------------------------- Burlington Resources, Inc. 630,000 $ 33,267,449 $ 0 $ 140,100 $ 40,086,900 Ducati Motor Holding S.p.A 2,650,000 1,209,621 0 0 4,278,376 eFunds Corporation 1,745,000 0 1,547,877 0 28,618,000 Euronext 1,814,000 20,811,931 0 0 54,131,279 Grupo Aeroportuario del Sureste S.A. de C.V. 463,000 0 0 0 9,653,550 Lonza group AG, Registered Shares 655,400 34,039,200 0 0 33,463,600 Lotte Chilsung Beverage Co., Ltd. 13,430 0 0 16,496 7,625,608 Meitec Corporation 603,500 8,029,610 0 287,287 22,743,012 Michael Page International plc 4,815,400 0 0 0 16,382,413 ---------------- ---------------- ---------------- ---------------- TOTALS $ 97,357,811 $ 1,547,877 $ 443,883 $ 216,982,738
THE OAKMARK INTERNATIONAL FUND
MARKET VALUE PURCHASES SALES DIVIDEND MARCH 31, AFFILIATES SHARES HELD (COST) PROCEEDS INCOME 2004 ----------------------------------------------------------------------------------------------------------------------------- Chargeurs SA 1,050,201 $ 0 $ 0 $ 0 $ 35,280,468 Enodis plc 33,585,320 0 0 0 58,059,048 Euronext 4,603,200 34,528,624 0 0 137,363,343 Giordano International Limited 81,018,300 0 1,218,671 0 50,682,897 Grupo Aeroportuario del Sureste S.A. de C.V 242,000 0 0 0 5,045,700 Lonza group AG, Registered Shares 1,958,600 75,603,636 0 0 100,002,756 Lotte Chilsung Beverage Co., Ltd. 83,400 0 0 0 47,354,856 Meitec Corporation 1,899,100 10,528,968 0 933,992 71,567,944 Michael Page International plc 22,748,600 0 3,009,020 0 77,392,733 ---------------- ---------------- ---------------- ---------------- TOTALS $ 120,661,228 $ 4,227,691 $ 933,992 $ 582,749,745
THE OAKMARK INT'L SMALL CAP FUND
MARKET VALUE PURCHASES SALES DIVIDEND MARCH 31, AFFILIATES SHARES HELD (COST) PROCEEDS INCOME 2004 ----------------------------------------------------------------------------------------------------------------------------- Alaska Milk Corporation 49,394,000 $ 0 $ 0 $ 45,492 $ 2,593,899 Baycorp Advantage Limited 11,540,500 0 5,450,387 0 22,519,987 Ducati Motor Holding S.p.A 6,083,600 4,756,853 0 0 9,821,860 Grupo Aeroportuario del Sureste S.A. de C.V 1,076,600 250,806 0 0 22,447,110 Interpump Group S.p.A 4,604,900 7,612,730 0 0 20,223,952 Mainfreight Limited 8,935,381 960,574 0 124,248 10,614,982 Matichon Public Company Limited, Foreign Shares 2,039,500 0 0 210,956 5,716,524 Royal Doulton plc 22,373,000 0 0 0 3,403,512 ---------------- ---------------- ---------------- ------------------- TOTALS $ 13,580,963 $ 5,450,387 $ 380,696 $ 97,341,826
69 [OAKMARK LOGO] FAMILY OF FUNDS (This page has been intentionally left blank.) 70 THE OAKMARK FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED MARCH 31, YEAR ENDED YEAR ENDED 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 33.85 $ 28.08 $ 32.01 Income (Loss) From Investment Operations: Net Investment Income 0.09 0.13 0.12 Net Gains (Losses) on Securities (both realized and unrealized) 4.28 5.75 (3.85) ------------ ------------- ------------- Total From Investment Operations: 4.37 5.88 (3.73) Less Distributions: Dividends (from net investment income) (0.14) (0.11) (0.20) Distributions (from capital gains) 0.00 0.00 0.00 ------------ ------------- ------------- Total Distributions (0.14) (0.11) (0.20) ------------ ------------- ------------- Redemption Fee Per Share 0.00(a) -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 38.08 $ 33.85 $ 28.08 ============ ============= ============= Total Return 12.95% 20.99% (11.77)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 5,801.8 $ 4,769.4 $ 3,300.9 Ratio of Expenses to Average Net Assets 1.07%* 1.14% 1.17% Ratio of Net Investment Income to Average Net Assets 0.53%* 0.48% 0.38% Portfolio Turnover Rate 8% 21% 44% YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 26.95 $ 34.37 $ 33.54 Income (Loss) From Investment Operations: Net Investment Income 0.07 0.49 0.36 Net Gains (Losses) on Securities (both realized and unrealized) 5.38 (2.91) 2.51 ------------ ------------- ------------- Total From Investment Operations: 5.45 (2.42) 2.87 Less Distributions: Dividends (from net investment income) (0.39) (0.26) (0.44) Distributions (from capital gains) 0.00 (4.74) (1.60) ------------ ------------- ------------- Total Distributions (0.39) (5.00) (2.04) ------------ ------------- ------------- Redemption Fee Per Share -- -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 32.01 $ 26.95 $ 34.37 ============ ============= ============= Total Return 20.42% (7.55)% 7.98% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 3,109.1 $ 2,038.7 $ 4,772.8 Ratio of Expenses to Average Net Assets 1.15% 1.21% 1.11% Ratio of Net Investment Income to Average Net Assets 0.73% 1.42% 1.02% Portfolio Turnover Rate 57% 50% 13%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED APRIL 5, 2001 MARCH 31, YEAR ENDED YEAR ENDED THROUGH 2004 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 2001 (b) - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 33.68 $ 28.04 $ 31.97 $ 32.09 Income (Loss) From Investment Operations: Net Investment Income 0.04 0.05 0.16 0.05 Net Gains (Losses) on Securities (both realized and unrealized) 4.25 5.69 (3.92) (0.17) ------------ ------------- ------------- ------------- Total From Investment Operations: 4.29 5.74 (3.76) (0.12) Less Distributions: Dividends (from net investment income) (0.05) (0.10) (0.17) 0.00 Distributions (from capital gains) 0.00 0.00 0.00 0.00 ------------ ------------- ------------- ------------- Total Distributions (0.05) (0.10) (0.17) 0.00 ------------ ------------- ------------- ------------- Net Asset Value, End of Period $ 37.92 $ 33.68 $ 28.04 $ 31.97 ============ ============= ============= ============= Total Return 12.75% 20.52% (11.85)% (0.37)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 39.2 $ 21.1 $ 7.7 $ 0.1 Ratio of Expenses to Average Net Assets 1.42%* 1.53% 1.44% 1.32%* Ratio of Net Investment Income to Average Net Assets 0.16%* 0.06% 0.35% 0.46%* Portfolio Turnover Rate 8% 21% 44% 57%
* Data has been annualized. (a) Rounds to less than $0.01 per share. (b) The date on which Class II shares were first sold to the public was April 5, 2001. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 71 THE OAKMARK SELECT FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED MARCH 31, YEAR ENDED YEAR ENDED 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 27.55 $ 21.67 $ 25.20 Income (Loss) From Investment Operations: Net Investment Income 0.09 0.05 0.02 Net Gains (Losses) on Securities (both realized and unrealized) 3.83 5.85 (3.50) ------------ ------------- ------------- Total From Investment Operations: 3.92 5.90 (3.48) Less Distributions: Dividends (from net investment income) (0.10) (0.02) (0.05) Distributions (from capital gains) 0.00 0.00 0.00 ------------ ------------- ------------- Total Distributions (0.10) (0.02) (0.05) ------------ ------------- ------------- Redemption Fee Per Share 0.00(a) -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 31.37 $ 27.55 $ 21.67 ============ ============= ============= Total Return 14.26% 27.25% (13.85)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 5,696.4 $ 4,993.0 $ 3,717.6 Ratio of Expenses to Average Net Assets 1.00%* 1.02% 1.07% Ratio of Net Investment Income to Average Net Assets 0.59%* 0.23% 0.09% Portfolio Turnover Rate 8% 20% 32% YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 21.45 $ 20.92 $ 16.76 Income (Loss) From Investment Operations: Net Investment Income 0.03 0.13 0.19 Net Gains (Losses) on Securities (both realized and unrealized) 5.17 4.32 4.73 ------------- ------------- ------------- Total From Investment Operations: 5.20 4.45 4.92 Less Distributions: Dividends (from net investment income) (0.09) (0.20) (0.05) Distributions (from capital gains) (1.36) (3.72) (0.71) ------------- ------------- ------------- Total Distributions (1.45) (3.92) (0.76) ------------- ------------- ------------- Redemption Fee Per Share -- -- -- ------------- ------------- ------------- Net Asset Value, End of Period $ 25.20 $ 21.45 $ 20.92 ============= ============= ============= Total Return 25.75% 24.53% 30.07% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 4,161.4 $ 1,772.0 $ 1,638.9 Ratio of Expenses to Average Net Assets 1.08% 1.17% 1.16% Ratio of Net Investment Income to Average Net Assets 0.26% 0.76% 0.98% Portfolio Turnover Rate 21% 69% 67%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED DECEMBER 31, 1999 MARCH 31, YEAR ENDED YEAR ENDED YEAR ENDED THROUGH 2004 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 2001 2000 (b) - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 27.37 $ 21.56 $ 25.10 $ 21.40 $ 18.42 Income From Investment Operations: Net Investment Income (Loss) 0.06 0.00(c) (0.04) 0.00 0.10 Net Gains or Losses on Securities (both realized and unrealized) 3.81 5.81 (3.50) 5.10 2.88 ------------ ------------- ------------- ------------- ----------------- Total From Investment Operations: 3.87 5.81 (3.54) 5.10 2.98 Less Distributions: Dividends (from net investment income) (0.04) 0.00 0.00 (0.06) 0.00 Distributions (from capital gains) 0.00 0.00 0.00 (1.34) 0.00 ------------ ------------- ------------- ------------- ----------------- Total Distributions (0.04) 0.00 0.00 (1.40) 0.00 ------------ ------------- ------------- ------------- ----------------- Net Asset Value, End of Period $ 31.20 $ 27.37 $ 21.56 $ 25.10 $ 21.40 ============ ============= ============= ============= ================= Total Return 14.13% 26.95% (14.10)% 25.28% 16.18% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 108.4 $ 93.1 $ 64.4 $ 35.4 $ 6.8 Ratio of Expenses to Average Net Assets 1.25%* 1.29% 1.36% 1.40% 1.41%* Ratio of Net Investment Income (Loss) to Average Net Assets 0.34%* (0.04)% (0.19)% (0.08)% 0.59%* Portfolio Turnover Rate 8% 20% 32% 21% 69%
* Data has been annualized. (a) Rounds to less than $0.01 per share. (b) The date on which Class II shares were first sold to the public was December 31, 1999. (c) Amount rounds to less than $(0.01) per share. 72 THE OAKMARK SMALL CAP FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED MARCH 31, YEAR ENDED YEAR ENDED 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 17.18 $ 14.10 $ 14.57 Income (Loss) From Investment Operations: Net Investment Income (Loss) (0.05) (0.12) (0.11) Net Gains (Losses) on Securities (both realized and unrealized) 3.27 3.20 (0.36) ------------ ------------- ------------- Total From Investment Operations: 3.22 3.08 (0.47) Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 Distributions (from capital gains) 0.00 0.00 0.00 ------------ ------------- ------------- Total Distributions 0.00 0.00 0.00 ------------ ------------- ------------- Redemption Fee Per Share 0.00(a) -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 20.40 $ 17.18 $ 14.10 ============ ============= ============= Total Return 18.74% 21.84% (3.23)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 394.1 $ 350.3 $ 356.9 Ratio of Expenses to Average Net Assets 1.26%* 1.36% 1.33% Ratio of Net Investment Loss to Average Net Assets (0.51)%* (0.69)% (0.67)% Portfolio Turnover Rate 21% 13% 22% YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 15.10 $ 13.88 $ 12.63 Income (Loss) From Investment Operations: Net Investment Income (Loss) 0.00 0.00 0.14 Net Gains (Losses) on Securities (both realized and unrealized) (0.02) 1.22 1.20 ------------- ------------- ------------- Total From Investment Operations: (0.02) 1.22 1.34 Less Distributions: Dividends (from net investment income) 0.00 0.00 0.00 Distributions (from capital gains) (0.51) 0.00 (0.09) ------------- ------------- ------------- Total Distributions (0.51) 0.00 (0.09) ------------- ------------- ------------- Redemption Fee Per Share -- -- -- ------------- ------------- ------------- Net Asset Value, End of Period $ 14.57 $ 15.10 $ 13.88 ============= ============= ============= Total Return 0.07% 8.79% 10.56% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 264.6 $ 248.7 $ 437.1 Ratio of Expenses to Average Net Assets 1.27% 1.50%(b) 1.48% Ratio of Net Investment Loss to Average Net Assets (0.28)% (0.41)%(b) (0.44)% Portfolio Turnover Rate 47% 28% 68%
* Data has been annualized. (a) Rounds to less than $0.01 per share. (b) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Advisers, ratios would have been as follows:
SEPTEMBER 30, 2000 - --------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.59% Ratio of Net Income (Loss) to Average Net Assets (0.50)%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 73 FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED APRIL 10, 2002 MARCH 31, YEAR ENDED THROUGH 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 (a) - ------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 17.10 $ 14.09 $ 19.71 Income (Loss) From Investment Operations: Net Investment Loss (0.06) (0.16) (0.20)(b) Net Gains (Losses) on Securities (both realized and unrealized) 3.22 3.17 (5.42) ------------ ------------- -------------- Total From Investment Operations: 3.16 3.01 (5.62) ------------ ------------- -------------- Net Asset Value, End of Period $ 20.26 $ 17.10 $ 14.09 ============ ============= ============== Total Return 18.48% 21.36% (28.51)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 1.1 $ 0.8 $ 0.5 Ratio of Expenses to Average Net Assets 1.60%* 1.75%(c) 1.48%* Ratio of Net Investment Loss to Average Net Assets (0.84)%* (1.08)%(c) (0.85)%* Portfolio Turnover Rate 21% 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 Income (Loss) to Average Net Assets (1.18)%
74 THE OAKMARK EQUITY AND INCOME FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED MARCH 31, YEAR ENDED YEAR ENDED 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 20.30 $ 17.18 $ 17.45 Income (Loss) From Investment Operations: Net Investment Income 0.05 0.17 0.33(b) Net Gains (Losses) on Securities (both realized and unrealized) 2.73 3.19 (0.40) ------------ ------------- ------------- Total From Investment Operations: 2.78 3.36 (0.07) Less Distributions: Dividends (from net investment income) (0.14) (0.24) (0.16) Distributions (from capital gains) 0.00 0.00 (0.04) ------------ ------------- ------------- Total Distributions (0.14) (0.24) (0.20) ------------ ------------- ------------- Redemption Fee Per Share 0.00(a) -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 22.94 $ 20.30 $ 17.18 ============ ============= ============= Total Return 13.75% 19.75% (0.47)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 6,313.3 $ 4,138.0 $ 2,241.9 Ratio of Expenses to Average Net Assets 0.92%* 0.93% 0.96% Ratio of Net Investment Income to Average Net Assets 0.53%* 1.07% 1.71% Portfolio Turnover Rate 8% 48% 73% YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.50 $ 15.68 $ 13.99 Income (Loss) From Investment Operations: Net Investment Income 0.08 0.35 0.39 Net Gains (Losses) on Securities (both realized and unrealized) 2.11 2.28 1.72 ------------- ------------- ------------- Total From Investment Operations: 2.19 2.63 2.11 Less Distributions: Dividends (from net investment income) (0.24) (0.45) (0.21) Distributions (from capital gains) (1.00) (1.36) (0.21) ------------- ------------- ------------- Total Distributions (1.24) (1.81) (0.42) ------------- ------------- ------------- Redemption Fee Per Share -- -- -- ------------- ------------- ------------- Net Asset Value, End of Period $ 17.45 $ 16.50 $ 15.68 ============= ============= ============= Total Return 14.40% 18.51% 15.32% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 620.1 $ 54.5 $ 60.3 Ratio of Expenses to Average Net Assets 0.98% 1.24% 1.18% Ratio of Net Investment Income to Average Net Assets 2.07% 3.04% 2.65% Portfolio Turnover Rate 124% 87% 81%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED JULY 13, 2000 MARCH 31, YEAR ENDED YEAR ENDED YEAR ENDED THROUGH 2004 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 2001 2000 (c) - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 20.24 $ 17.15 $ 17.40 $ 16.49 $ 15.51 Income (Loss) From Investment Operations: Net Investment Income 0.03 0.16 0.30(b) 0.07 0.30 Net Gains (Losses) on Securities (both realized and unrealized) 2.71 3.15 (0.40) 2.08 0.68 ------------ ------------- ------------- ------------- ------------- Total From Investment Operations: 2.74 3.31 (0.10) 2.15 0.98 Less Distributions: Dividends (from net investment income) (0.11) (0.22) (0.11) (0.24) 0.00 Distributions (from capital gains) 0.00 0.00 (0.04) (1.00) 0.00 ------------ ------------- ------------- ------------- ------------- Total Distributions (0.11) (0.22) (0.15) (1.24) 0.00 ------------ ------------- ------------- ------------- ------------- Net Asset Value, End of Period $ 22.87 $ 20.24 $ 17.15 $ 17.40 $ 16.49 ============ ============= ============= ============= ============= Total Return 13.56% 19.46% (0.60)% 14.07% 6.32% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 387.9 $ 246.6 $ 118.7 $ 3.3 $ 0.4 Ratio of Expenses to Average Net Assets 1.17%* 1.17% 1.20% 1.23% 1.32%* Ratio of Net Investment Income to Average Net Assets 0.28%* 0.84% 1.50% 1.95% 2.59%* Portfolio Turnover Rate 8% 48% 73% 124% 87%
* Data has been annualized. (a) Rounds to less than $0.01 per share. (b) Computed using average shares outstanding throughout the period. (c) The date on which Class II shares were first sold to the public was July 13, 2000. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 75 THE OAKMARK GLOBAL FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED MARCH 31, YEAR ENDED YEAR ENDED 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 - ------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.98 $ 11.30 $ 10.83 Income (Loss) From Investment Operations: Net Investment Income (Loss) (0.02) 0.01 0.00(b)(e) Net Gains (Losses) on Securities (both realized and unrealized) 3.12 5.67 0.76(f) ------------ ------------- ------------- Total From Investment Operations: 3.10 5.68 0.76 Less Distributions: Dividends (from net investment income) 0.00(b) 0.00 0.00 Distributions (from capital gains) (0.05) 0.00 (0.29) ------------ ------------- ------------- Total Distributions (0.05) 0.00 (0.29) ------------ ------------- ------------- Redemption Fee Per Share 0.00(c) -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 20.03 $ 16.98 $ 11.30 ============ ============= ============= Total Return 18.31% 50.27% 6.84% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 1,338.3 $ 704.8 $ 175.6 Ratio of Expenses to Average Net Assets 1.23%* 1.28% 1.55% Ratio of Net Investment Income (Loss) to Average Net Assets (0.29)%* 0.00%(d) (0.01)% Portfolio Turnover Rate 7% 42% 86% AUGUST 4, 1999 YEAR ENDED YEAR ENDED THROUGH SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 (a) - ----------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.91 $ 9.18 $ 10.00 Income (Loss) From Investment Operations: Net Investment Income (Loss) 0.03 0.11 0.01 Net Gains (Losses) on Securities (both realized and unrealized) 0.12 1.63 (0.83) ------------- ------------- -------------- Total From Investment Operations: 0.15 1.74 (0.82) Less Distributions: Dividends (from net investment income) (0.17) (0.01) 0.00 Distributions (from capital gains) (0.06) 0.00 0.00 ------------- ------------- -------------- Total Distributions (0.23) (0.01) 0.00 ------------- ------------- -------------- Redemption Fee Per Share -- -- -- ------------- ------------- -------------- Net Asset Value, End of Period $ 10.83 $ 10.91 $ 9.18 ============= ============= ============== Total Return 1.37% 18.97% (8.20)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 48.2 $ 27.2 $ 24.0 Ratio of Expenses to Average Net Assets 1.75%(g) 1.75%(g) 1.75%*(g) Ratio of Net Investment Income (Loss) to Average Net Assets 0.00%(g) 0.54%(g) 0.98%*(g) Portfolio Turnover Rate 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) Rounds to less than $0.01 per share. (d) Rounds to less than 0.01%. (e) Computed using average shares outstanding throughout the period. (f) 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. (g) If the Fund had paid all of its expenses and there had been no expense reimbursement by the Advisers, ratios would have been as follows:
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.80% 1.96% 2.22%* Ratio of Net Income (Loss) to Average Net Assets (0.05)% 0.34% 0.51%*
76 FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED OCTOBER 10, 2001 MARCH 31, YEAR ENDED THROUGH 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 (a) - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 16.84 $ 11.24 $ 11.25 Income (Loss) From Investment Operations: Net Investment Income (Loss) (0.02) 0.02 (0.03) Net Gains (Losses) on Securities (both realized and unrealized) 3.07 5.58 0.31(c) ------------ ------------- ---------------- Total From Investment Operations: 3.05 5.60 0.28 Less Distributions: Dividends (from net investment income) 0.00(b) 0.00 0.00 Distributions (from capital gains) (0.05) 0.00 (0.29) ------------ ------------- ---------------- Total Distributions (0.05) 0.00 (0.29) ------------ ------------- ---------------- Net Asset Value, End of Period $ 19.84 $ 16.84 $ 11.24 ============ ============= ================ Total Return 18.16% 49.82% 2.31% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 18.1 $ 5.8 $ 0.6 Ratio of Expenses to Average Net Assets 1.44%* 1.46% 1.86%* Ratio of Net Investment Loss to Average Net Assets (0.45)%* (0.01)% (0.26)%* Portfolio Turnover Rate 7% 42% 86%
* Data has been annualized. (a) The date on which Class II shares were first sold to the public was October 10, 2001. (b) Rounds to less than $(0.01) per share. (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 redemptions of Fund shares in relation to the fluctuating market values of the Fund. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 77 THE OAKMARK INTERNATIONAL FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED MARCH 31, YEAR ENDED YEAR ENDED 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 15.67 $ 12.17 $ 12.51 Income (Loss) From Investment Operations: Net Investment Income (Loss) (0.02) 0.11 0.14 Net Gains (Losses) on Securities (both realized and unrealized) 3.13 3.52 (0.31) ------------ ------------- ------------- Total From Investment Operations: 3.11 3.63 (0.17) Less Distributions: Dividends (from net investment income) (0.11) (0.13) (0.17) Distributions (from capital gains) 0.00 0.00 0.00 ------------ ------------- ------------- Total Distributions (0.11) (0.13) (0.17) ------------ ------------- ------------- Redemption Fee Per Share 0.00(a) -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 18.67 $ 15.67 $ 12.17 ============ ============= ============= Total Return 19.93% 29.97% (1.53)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 3,855.3 $ 2,676.6 $ 1,393.8 Ratio of Expenses to Average Net Assets 1.21%* 1.25% 1.31% Ratio of Net Investment Income (Loss) to Average Net Assets (0.12)%* 1.03% 1.34% Portfolio Turnover Rate 6% 34% 24% YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 15.40 $ 13.95 $ 10.42 Income (Loss) From Investment Operations: Net Investment Income (Loss) 0.20 1.02 (0.34) Net Gains (Losses) on Securities (both realized and unrealized) (2.07) 0.92 4.89 ------------- ------------- ------------- Total From Investment Operations: (1.87) 1.94 4.55 Less Distributions: Dividends (from net investment income) (0.51) (0.49) (0.24) Distributions (from capital gains) (0.51) 0.00 (0.78) ------------- ------------- ------------- Total Distributions (1.02) (0.49) (1.02) ------------- ------------- ------------- Redemption Fee Per Share -- -- -- ------------- ------------- ------------- Net Asset Value, End of Period $ 12.51 $ 15.40 $ 13.95 ============= ============= ============= Total Return (13.10)% 14.27% 46.41% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 738.5 $ 782.4 $ 811.1 Ratio of Expenses to Average Net Assets 1.30% 1.30% 1.29% Ratio of Net Investment Income (Loss) to Average Net Assets 1.40% 1.87% 1.94% Portfolio Turnover Rate 58% 64% 54%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED NOVEMBER 4, 1999 MARCH 31, YEAR ENDED YEAR ENDED YEAR ENDED THROUGH 2004 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 2001 2000 (b) - ---------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 15.58 $ 12.13 $ 12.47 $ 15.37 $ 14.36 Income (Loss) From Investment Operations: Net Investment Income (Loss) (0.03) 0.08 0.15 0.17 0.96 Net Gains (Losses) on Securities (both realized and unrealized) 3.09 3.48 (0.37) (2.10) 0.54 ------------ ------------- ------------- ------------- ---------------- Total From Investment Operations: 3.06 3.56 (0.22) (1.93) 1.50 Less Distributions: Dividends (from net investment income) (0.06) (0.11) (0.12) (0.49) (0.49) Distributions (from capital gains) 0.00 0.00 0.00 (0.48) 0.00 ------------ ------------- ------------- ------------- ---------------- Total Distributions (0.06) (0.11) (0.12) (0.97) (0.49) ------------ ------------- ------------- ------------- ---------------- Net Asset Value, End of Period $ 18.58 $ 15.58 $ 12.13 $ 12.47 $ 15.37 ============ ============= ============= ============= ================ Total Return 19.71% 29.52% (1.76)% (13.44)% 10.79% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 230.9 $ 123.2 $ 48.5 $ 1.9 $ 0.1 Ratio of Expenses to Average Net Assets 1.50%* 1.67% 1.58% 1.64% 1.50%* Ratio of Net Investment Income (Loss) to Average Net Assets (0.39)%* 0.69% 1.33% 0.62% 1.98%* Portfolio Turnover Rate 6% 34% 24% 58% 64%
* Data has been annualized. (a) Rounds to less than $0.01 per share. (b) The date on which Class II shares were first sold to the public was November 4, 1999. 78 THE OAKMARK INTERNATIONAL SMALL CAP FUND FINANCIAL HIGHLIGHTS-CLASS I FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED MARCH 31, YEAR ENDED YEAR ENDED 2004 SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 - ---------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.74 $ 10.17 $ 10.00 Income (Loss) From Investment Operations: Net Investment Income 0.02 0.11 0.11 Net Gains (Losses) on Securities (both realized and unrealized) 3.46 3.82 0.36(c) ------------ ------------- ------------- Total From Investment Operations: 3.48 3.93 0.47 Less Distributions: Dividends (from net investment income) (0.12) (0.09) (0.16) Distributions (from capital gains) 0.00 (0.27) (0.14) ------------ ------------- ------------- Total Distributions (0.12) (0.36) (0.30) ------------ ------------- ------------- Redemption Fee Per Share 0.01 -- -- ------------ ------------- ------------- Net Asset Value, End of Period $ 17.11 $ 13.74 $ 10.17 ============ ============= ============= Total Return 25.51% 39.78% 4.68% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 656.9 $ 477.8 $ 357.7 Ratio of Expenses to Average Net Assets 1.50%* 1.57% 1.64% Ratio of Net Investment Income to Average Net Assets 0.26%* 0.99% 1.28% Portfolio Turnover Rate 10% 30% 42% YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 11.51 $ 12.64 $ 6.89 Income (Loss) From Investment Operations: Net Investment Income 0.13 0.23 0.24 Net Gains (Losses) on Securities (both realized and unrealized) (0.81) (0.66) 5.71 ------------- ------------- -------------- Total From Investment Operations: (0.68) (0.43) 5.95 Less Distributions: Dividends (from net investment income) (0.34) (0.11) (0.20) Distributions (from capital gains) (0.49) (0.59) 0.00 ------------- ------------- -------------- Total Distributions (0.83) (0.70) (0.20) ------------- ------------- -------------- Redemption Fee Per Share -- -- -- ------------- ------------- -------------- Net Asset Value, End of Period $ 10.00 $ 11.51 $ 12.64 ============= ============= ============== Total Return (6.18)% (3.44)% 88.02% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 118.9 $ 90.3 $ 155.4 Ratio of Expenses to Average Net Assets 1.74% 1.77% 1.79% Ratio of Net Investment Income to Average Net Assets 1.83% 1.99% 2.31% Portfolio Turnover Rate 49% 40% 126%
FINANCIAL HIGHLIGHTS-CLASS II FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED JANUARY 8, 2001 MARCH 31, YEAR ENDED YEAR ENDED THROUGH 2004 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) 2003 2002 2001 (a) - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 13.69 $ 10.14 $ 9.97 $ 10.73 Income From Investment Operations: Net Investment Income 0.02 0.08 0.13(b) 0.15 Net Gains (Losses) on Securities (both realized and unrealized) 3.46 3.81 0.30(b)(c) (0.91) ------------ ------------- ------------- --------------- Total From Investment Operations: 3.48 3.89 0.43 (0.76) Less Distributions: Dividends (from net investment income) (0.09) (0.07) (0.12) 0.00 Distributions (from capital gains) 0.00 (0.27) (0.14) 0.00 ------------ ------------- ------------- --------------- Total Distributions (0.09) (0.34) (0.26) 0.00 ------------ ------------- ------------- --------------- Net Asset Value, End of Period $ 17.08 $ 13.69 $ 10.14 $ 9.97 ============ ============= ============= =============== Total Return 25.52% 39.39% 4.25% (7.08)% Ratios/Supplemental Data: Net Assets, End of Period ($million) $ 0.4 $ 0.4 $ 0.3 $ 0.0 Ratio of Expenses to Average Net Assets 1.49%* 1.81% 1.87% 1.97%* Ratio of Net Investment Income to Average Net Assets 0.20%* 0.72% 1.06% 1.76%* Portfolio Turnover Rate 10% 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. 79 This material must be preceded or accompanied by a prospectus. To order a prospectus, which explains management fees and expenses and the special risks of investing in the funds, visit www.oakmark.com or call 1-800-OAKMARK. Please read the prospectus carefully before investing. The discussion of investments and investment strategy of the funds represents the investments of the funds and the views of fund managers and Harris Associates L.P., the funds' investment adviser, at the time of this article, and are subject to change without notice. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data call 1-800-OAKMARK. INVESTING IN VALUE STOCKS PRESENTS THE RISK THAT VALUE STOCKS MAY FALL OUT OF FAVOR WITH INVESTORS AND UNDERPERFORM GROWTH STOCKS DURING GIVEN PERIODS. THE OAKMARK SELECT FUND CLOSED TO NEW INVESTORS AS OF 5/4/01. BECAUSE THE OAKMARK SELECT FUND IS NON-DIVERSIFIED, THE PERFORMANCE OF EACH HOLDING WILL HAVE A GREATER IMPACT ON THE FUND'S TOTAL RETURN, AND MAY MAKE THE FUND'S RETURN MORE VOLATILE THAN A MORE DIVERSIFIED FUND. THE OAKMARK EQUITY & INCOME FUND WILL CLOSE TO CERTAIN NEW INVESTORS AS OF 5/7/04. EQUITY AND INCOME INVESTS IN MEDIUM- AND LOWER-QUALITY DEBT SECURITIES THAT HAVE HIGHER YIELD POTENTIAL BUT PRESENT GREATER INVESTMENT AND CREDIT RISK THAN HIGHER-QUALITY SECURITIES, WHICH MAY RESULT IN GREATER SHARE PRICE VOLATILITY. AN ECONOMIC DOWNTURN COULD SEVERELY DISRUPT THE MARKET IN MEDIUM OR LOWER GRADE DEBT SECURITIES AND ADVERSELY AFFECT THE VALUE OF OUTSTANDING BONDS AND THE ABILITY OF THE ISSUERS TO REPAY PRINCIPAL AND INTEREST. THE OAKMARK GLOBAL FUND AND THE OAKMARK INTERNATIONAL FUND CLOSED TO CERTAIN NEW INVESTORS AS OF 12/15/03. THE OAKMARK INTERNATIONAL SMALL CAP FUND CLOSED TO NEW INVESTORS AS OF 5/10/02. INVESTING IN FOREIGN SECURITIES REPRESENTS RISKS WHICH IN SOME WAY MAY BE GREATER THAN IN U.S. INVESTMENTS. THOSE RISKS INCLUDE: CURRENCY FLUCTUATION; DIFFERENT REGULATION, ACCOUNTING STANDARDS, TRADING PRACTICES AND LEVELS OF AVAILABLE INFORMATION; GENERALLY HIGHER TRANSACTION COSTS; AND POLITICAL RISKS. THE STOCKS OF SMALLER COMPANIES OFTEN INVOLVE MORE RISK THAN THE STOCKS OF LARGER COMPANIES. STOCKS OF SMALL COMPANIES TEND TO BE MORE VOLATILE AND HAVE A SMALLER PUBLIC MARKET THAN STOCKS OF LARGER COMPANIES. SMALL COMPANIES MAY HAVE A SHORTER HISTORY OF OPERATIONS THAN LARGER COMPANIES, MAY NOT HAVE AS GREAT AN ABILITY TO RAISE ADDITIONAL CAPITAL AND MAY HAVE A LESS DIVERSIFIED PRODUCT LINE, MAKING THEM MORE SUSCEPTIBLE TO MARKET PRESSURE. 1. Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. The performance information for Class I shares of The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The Oakmark Equity & Income Fund, The Oakmark Global Fund, The Oakmark International Fund and The Oakmark International Small Cap Fund does not reflect the imposition of a 2% redemption fee on shares held by an investor for 90 days or less. The purpose of this redemption fee is to deter market timers. 2. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks. 3. During the period since inception (8/4/99 - 3/31/04), IPO's contributed an annualized 1.83% to the performance of the Oakmark Global Fund. As the IPO environment changes and the total net assets of the Fund grow, the impact of IPOs on performance is expected to diminish. "IPO" stands for Initial Public Offering, which is the first sale of stock by a company to the public. 4. The quoted passages are taken from "Origins of the Crash" written by Roger Lowenstein and published in 2004 by The Penguin Press, New York. 80 5. The S&P 500 Index is a broad market-weighted average of U.S. blue-chip companies. This index is unmanaged and investors cannot actually make investments in this index. 6. The Dow Jones Industrial Average is an unmanaged index that includes only 30 big companies. This index is unmanaged and investors cannot actually make investments in this index. 7. The Lipper Large Cap Value Fund Index measures the performance of the 30 largest U.S. large-cap value funds tracked by Lipper. This index is unmanaged and investors cannot actually make investments in this index. 8. The S&P MidCap 400 is an unmanaged broad market-weighted index of 400 stocks that are in the next tier down from the S&P 500 and that are chosen for market size, liquidity, and industry group representation. This index is unmanaged and investors cannot actually make investments in this index. 9. The Lipper Mid Cap Value Fund Index measures the performance of the 30 largest U.S. mid-cap value funds tracked by Lipper. This index is unmanaged and investors cannot actually make investments in this index. 10. NAV stands for Net Asset Value. NAV is the dollar value of a single mutual fund share, based on the value of the underlying assets of the fund minus its liabilities divided by the number of shares outstanding. 11. The Russell 2000 Index is an unmanaged, market-weighted index, with dividends reinvested, of 2,000 small companies, formed by taking the largest 3,000 small companies and eliminating the largest 1,000 of those companies. This index is unmanaged and investors cannot actually make investments in this index. 12. The S&P Small Cap 600 Index measures the performance of selected U.S. stocks with small market capitalizations. This index is unmanaged and investors cannot actually make investments in this index. 13. The Lipper Small Cap Value Fund Index measures the performance of the 30 largest U.S. small-cap value funds tracked by Lipper. This index is unmanaged and investors cannot actually make investments in this index. 14. The Lipper Balanced Fund Index measures the performance of the 30 largest U.S. balanced funds tracked by Lipper. This index is unmanaged and investors cannot actually make investments in this index. 15. The Lehman Govt./Corp. Bond Index is an unmanaged index that includes the Lehman Government and Lehman Corporate indices. This index is unmanaged and investors cannot actually make investments in this index. 16. The MSCI World Index is made up of 20 country sub-indexes, including the stock exchanges of the U.S., Europe, Canada, Australia and New Zealand, and the Far East. This index is unmanaged and investors cannot actually make investments in this index. 17. The Lipper Global Fund Index measures the performance of the 30 largest mutual funds that invest in securities throughout the world. This index is unmanaged and investors cannot actually make investments in this index. 18. The Morgan Stanley World Ex U.S. Index is made up of 19 country sub-indexes, excluding the U.S. This index is unmanaged and investors cannot actually make investments in this index. 19. Morgan Stanley Capital International Europe, Australasia and Far East Index ("EAFE") is an unmanaged index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. This index is unmanaged and investors cannot actually make investments in this index. 20. The Lipper International Fund Index reflects the net asset value weighted total return of the 30 largest international equity funds. This index is unmanaged and investors cannot actually make investments in this index. 21. The Lipper International Small Cap Average includes 100 mutual funds that invest in securities whose primary markets are outside of the U.S. This index is unmanaged and investors cannot actually make investments in this index. 81 THE OAKMARK FAMILY OF FUNDS INVESTMENT PHILOSOPHY All Oakmark managers follow a consistent investment philosophy--to invest in companies they believe are trading at a substantial discount to underlying business value. Critical to this philosophy is to invest with management teams who are committed to maximizing the company's business value. THREE KEY TENETS OF OUR INVESTMENT PHILOSOPHY: 1 Buy businesses trading at a significant discount to our estimate of true business value. 2 Invest in companies expected to grow shareholder value over time. 3 Invest with management teams who think and act as owners. INVESTMENT PROCESS We seek to identify undervalued companies through an intensive, in-house research process. This process is not based on macro-economic factors, such as the performance of the economy or the direction of interest rates. Nor is it based on technical factors, such as the performance of the stock market itself. And, while some value managers might use only one summary statistic--such as price-earnings ratio--our investment professionals take a more in-depth approach using a range of valuation measures appropriate for a specific company or industry. From the universe of thousands of equity securities, our team generates investment ideas through a variety of methods. If a security appears attractive, detailed quantitative and qualitative research follows. This careful process of identifying undervalued stocks results in an "approved list." THE RESULT: a unified effort aimed at identifying the best values in the marketplace. From the list of approved stocks, each fund manager constructs a relatively focused portfolio, built on a stock-by-stock basis from the bottom up. WHO SHOULD INVEST Any investor who is seeking a disciplined value manager for the purposes of growing and diversifying a portfolio should consider one of The Oakmark Funds, keeping in mind that all equity investments should be considered long-term investments. As value investors, we recognize that patience is a virtue and believe that, over the long term, investors are rewarded for their patience. We generally hold the companies in which we invest for three to five years, a time horizon that we encourage our shareholders to consider as well. HOW TO USE VALUE FUNDS IN AN OVERALL PORTFOLIO Investment styles tend to move in cycles. One style may be in favor for a few years while the other is out of favor, and vice versa. Diversifying the stock portion of your portfolio may help reduce overall volatility--and potentially provide more consistent returns over time. INVEST Managers select stocks from the approved list for their specific funds APPROVED LIST Securities available for investment QUANTITATIVE AND QUALITATIVE RESEARCH Rigorous analysis is performed to ensure that the stock meets our strict value standards CRITERIA SCREENS Managers and research team screen for stocks that are worth further consideration UNIVERSE OF THOUSANDS OF EQUITY SECURITIES All stocks available for investment BOTTOM-UP INVESTMENT PROCESS 82 THE OAKMARK GLOSSARY BOOK VALUE - A company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. A company's book value often differs substantially from economic value, especially in industries such as media. BUSINESS VALUE/INTRINSIC VALUE - The perceived or estimated actual value of a security, as opposed to its current market price or book value. Business value can be evaluated based on what a knowledgeable buyer would pay for a business if the company were sold in its entirety. GROWTH INVESTING - Investors who look for companies based on whether the stock of a company is growing earnings and/or revenue faster than the industry as a whole or the overall market. Growth investors generally expect high rates of growth to persist, and the stock, in turn, to deliver returns exceeding the market's. A growth mutual fund is generally one that emphasizes stocks believed to offer above-average growth prospects, with little to no emphasis on the stock's current price. M & A (MERGERS & ACQUISITIONS) - Merger: the combining of two or more entities into one, through a purchase acquisition or a pooling of interests. Acquisition: can also be called a takeover, and is defined as acquiring control of a corporation, called a target, by stock purchase or exchange, either hostile or friendly. MARKET CAPITALIZATION (MARKET CAP OR CAP) - The market price of an entire company on any given day, calculated by multiplying the number of shares outstanding by the price per share. MOMENTUM INVESTING - Approach to investing based on the belief that stock price trends are likely to continue. Momentum investors tend to buy stocks that have been outperforming the market and to sell those stocks when their relative performance deteriorates. Momentum investors do not consider a company's underlying value or fundamentals in their investment decisions. MULTIPLE - A ratio used to measure a stock's valuation, usually greater than 1. Sometimes used to mean price/earnings ratio. P/B OR PRICE-TO-BOOK RATIO - A stock's capitalization divided by its book value. The value is the same whether the calculation is done for the whole company or on a per-share basis. P/E OR PRICE-TO-EARNINGS RATIO - The most common measure of a stock's valuation. It is equal to a stock's capitalization divided by its after-tax earnings over a 12-month period. The value is the same whether the calculation is done for the whole company or on a per-share basis. Equivalently, the cost an investor in a given stock must pay per dollar of current annual earnings. Also called earnings multiple. SHARE REPURCHASE - Program through which a corporation buys back its own shares in the open market, typically an indication that the corporation's management believes the stock price is undervalued. VALUE INVESTING - Investors who utilize valuation measures such as business value (including growth rate), price/earnings ratio, price/book ratio, and yield to gauge the attractiveness of a company. Managers who employ a value investment style believe that the true, underlying value of a company is not reflected in its current share price, and, over time, the price has potential to increase as the market recognizes the overall value of the business. Value stocks sell at relatively low prices in relation to their underlying business value, earnings, or book value. Stocks become undervalued for a variety of reasons, including an overall market decline, or when a specific industry falls into disfavor and investors view all companies in that industry in the same light. Consequently, an individual company's stock price may fall, even though it may be only temporarily affected by the industry's problems and its underlying value has remained unchanged. "X TIMES EARNINGS" ("12 TIMES EARNINGS") - Another way to express a stock's price-to-earnings (P/E) ratio. A stock with a P/E ratio of 12 sells at 12 times earnings. 83 [OAKMARK LOGO] FAMILY OF FUNDS (This page has been intentionally left blank.) 84 THE OAKMARK FAMILY OF FUNDS TRUSTEES AND OFFICERS TRUSTEES Victor A. Morgenstern--CHAIRMAN Michael J. Friduss Thomas H. Hayden Christine M. Maki John R. Raitt Allan J. Reich Marv R. Rotter Burton W. Ruder Peter S. Voss Gary N. Wilner, M.D. OFFICERS John R. Raitt--PRESIDENT Robert M. Levy--EXECUTIVE VICE PRESIDENT James P. Benson--VICE PRESIDENT Henry R. Berghoef--VICE PRESIDENT Kevin G. Grant--VICE PRESIDENT David G. Herro--VICE PRESIDENT Clyde S. McGregor--VICE PRESIDENT William C. Nygren--VICE PRESIDENT Vineeta Raketich--VICE PRESIDENT Janet L. Reali--VICE PRESIDENT AND SECRETARY Ann W. Regan--VICE PRESIDENT-- SHAREHOLDER OPERATIONS AND ASSISTANT SECRETARY Edward A. Studzinski--VICE PRESIDENT Michael J. Welsh--VICE PRESIDENT Kristi L. Rowsell--TREASURER John J. Kane--ASSISTANT TREASURER OTHER INFORMATION INVESTMENT ADVISER Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602-3790 TRANSFER AGENT CDC IXIS Asset Management Services, Inc. Boston, Massachusetts LEGAL COUNSEL Bell, Boyd & Lloyd LLC Chicago, Illinois INDEPENDENT AUDITORS Deloitte & Touche LLP Chicago, Illinois FOR MORE INFORMATION: Please call 1-800-OAKMARK (1-800-625-6275) or 617-449-6274 WEBSITE www.oakmark.com TO OBTAIN A PROSPECTUS, AN APPLICATION OR PERIODIC REPORTS, ACCESS OUR WEB SITE AT www.oakmark.com, OR CALL 1-800-OAKMARK (1-800-625-6275) OR (617) 449-6274. A description of the policies and procedures the Funds use to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling toll-free 1-800-625-6275; on the Funds website at www.oakmark.com; and on the Securities and Exchange Commissions website at www.sec.gov. This report is submitted for the general information of the shareholders of the Funds.The report is not authorized for distribution to prospective investors in the Funds unless it is accompanied or preceded by a currently effective prospectus of the Funds. No sales charge to the shareholder or to the new investor is made in offering the shares of the Funds, however, a shareholder may incur a 2% redemption fee on an exchange or redemption of Class I shares held for 90 days or less from any Fund. P.O. Box 219558 Kansas City, MO 64121-9558 [OAKMARK LOGO] FAMILY OF FUNDS 1-800-OAKMARK The Oakmark Funds are distributed by Harris Associates www.oakmark.com Securities L.P., member NASD. Date of first use: May 2004. THE OAKMARK FUND CLASS II THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (4/5/01) TO PRESENT (3/31/04) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX [CHART]
THE OAKMARK FUND CLASS II S & P 500 4/5/2001 $ 10,000 $ 10,000 6/30/2001 $ 10,954 $ 10,585 9/30/2001 $ 9,963 $ 9,032 12/31/2001 $ 11,040 $ 9,997 3/31/2002 $ 11,497 $ 10,024 6/30/2002 $ 10,533 $ 8,681 9/30/2002 $ 8,782 $ 7,181 12/31/2002 $ 9,434 $ 7,787 3/31/2003 $ 9,041 $ 7,542 6/30/2003 $ 10,562 $ 8,703 9/30/2003 $ 10,584 $ 8,933 12/31/2003 $ 11,773 $ 10,021 3/31/2004 $ 11,933 $ 10,191
AVERAGE ANNUAL TOTAL RETURNS (as of 03/31/04)
SINCE INCEPTION 1-YEAR (4/5/01) ------------------------------------------------------------------------ OAKMARK FUND CLASS II 31.99% 6.09% S&P 500 35.12% 0.89%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. Harris Associates Securities L.P., member NASD, May 2004 THE OAKMARK SELECT FUND CLASS II THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (12/31/99) TO PRESENT (3/31/04) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX [CHART]
THE OAKMARK SELECT FUND CLASS II S & P 500 12/31/1999 $ 10,000 $ 10,000 3/31/2000 $ 10,885 $ 9,867 6/30/2000 $ 10,309 $ 10,290 9/30/2000 $ 11,618 $ 11,024 12/31/2000 $ 12,542 $ 9,578 3/31/2001 $ 13,876 $ 9,058 6/30/2001 $ 15,146 $ 9,204 9/30/2001 $ 14,554 $ 7,662 12/31/2001 $ 15,755 $ 8,481 3/31/2002 $ 16,137 $ 8,504 6/30/2002 $ 14,821 $ 7,365 9/30/2002 $ 12,502 $ 6,835 12/31/2002 $ 13,748 $ 7,019 3/31/2003 $ 13,673 $ 6,337 6/30/2003 $ 15,871 $ 7,290 9/3/2003 $ 15,871 $ 7,660 12/31/2003 $ 17,689 $ 8,078 3/31/2004 $ 18,113 $ 8,778
AVERAGE ANNUAL TOTAL RETURNS (as of 03/31/04)
SINCE INCEPTION 1-YEAR (12/31/99) ------------------------------------------------------------------------- Oakmark Select Fund Class II 32.47% 14.99% S&P 500 35.12% -4.66%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. Harris Associates Securities L.P., member NASD, May 2004 THE OAKMARK SMALL CAP FUND CLASS II THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (4/10/02) TO PRESENT (3/31/04) AS COMPARED TO THE RUSSELL 2000 INDEX [CHART]
THE OAKMARK SMALL CAP FUND CLASS II RUSSELL 2000 4/10/2002 $ 10,000 $ 10,000 6/30/2002 $ 9,163 $ 9,165 9/30/2002 $ 7,149 $ 7,203 12/31/2002 $ 7,615 $ 7,647 3/31/2003 $ 7,027 $ 7,304 6/30/2003 $ 8,209 $ 9,014 9/30/2003 $ 8,676 $ 9,833 12/31/2003 $ 9,609 $ 11,261 3/30/2004 $ 10,279 $ 11,966
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE INCEPTION 1-YEAR (4/10/02) ------------------------------------------------------------------------ OAKMARK SMALL CAP FUND CLASS II 46.28% 1.40% Russell 2000 63.83% 8.97%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. Harris Associates Securities L.P., member NASD, May 2004 THE OAKMARK EQUITY AND INCOME FUND CLASS II THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS INCEPTION (7/13/00) TO PRESENT (3/31/04) AS COMPARED TO THE LIPPER BALANCED FUND INDEX [CHART]
THE OAKMARK EQUITY AND INCOME FUND CLASS II LIPPER BALANCED FUND INDEX 7/13/2000 $ 10,000 $ 10,000 9/30/2000 $ 10,632 $ 10,199 12/31/2000 $ 11,117 $ 10,064 3/31/2001 $ 11,563 $ 9,559 6/30/2001 $ 12,497 $ 9,895 9/30/2001 $ 12,128 $ 9,145 12/31/2001 $ 13,089 $ 9,738 3/31/2002 $ 13,637 $ 9,797 6/30/2002 $ 13,187 $ 9,149 9/30/2002 $ 12,056 $ 8,246 12/31/2002 $ 12,786 $ 8,697 3/31/2003 $ 12,487 $ 8,537 6/30/2003 $ 14,123 $ 9,469 9/30/2003 $ 14,401 $ 9,663 12/31/2003 $ 15,710 $ 10,431 3/31/2004 $ 16,354 $ 10,680
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE INCEPTION 1-YEAR (7/13/00) ------------------------------------------------------------------------ OAKMARK EQUITY & INCOME FUND CLASS II 30.97% 14.15% Lipper Balanced Fund Index 25.10% 1.19%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. Harris Associates Securities L.P., member NASD, May 2004 THE OAKMARK GLOBAL FUND CLASS II THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION (10/10/01) TO PRESENT (3/31/04) AS COMPARED TO THE MSCI WORLD INDEX [CHART]
THE OAKMARK GLOBAL FUND CLASS II MSCI WORLD INDEX 10/10/2001 $ 10,000 $ 10,000 12/31/2001 $ 12,060 $ 10,859 3/31/2002 $ 13,362 $ 10,896 6/30/2002 $ 12,451 $ 9,902 9/30/2002 $ 10,231 $ 8,082 12/31/2002 $ 11,760 $ 8,700 3/31/2003 $ 10,494 $ 8,260 6/30/2003 $ 14,008 $ 9,667 9/30/2003 $ 15,328 $ 10,134 12/31/2003 $ 17,454 $ 11,580 3/31/2004 $ 18,111 $ 11,883
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE INCEPTION 1-YEAR (10/10/01) ------------------------------------------------------------------------- OAKMARK GLOBAL FUND CLASS II 72.58% 27.14% MSCI World 43.87% 5.78%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The fund's high performance may not be repeated. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. Harris Associates Securities L.P., member NASD, May 2004 THE OAKMARK INTERNATIONAL FUND CLASS II THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (11/4/99) TO PRESENT (3/31/04) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX [CHART]
THE OAKMARK INTERNATIONAL MSCI WORLD FUND CLASS II EX U.S. INDEX 11/4/99 $ 10,000 $ 10,000 12/31/99 $ 10,596 $ 11,291 3/31/2000 $ 10,567 $ 11,353 6/30/2000 $ 11,303 $ 10,977 9/30/2000 $ 11,079 $ 10,139 12/31/2000 $ 11,890 $ 9,781 3/31/2001 $ 10,836 $ 8,412 6/30/2001 $ 11,905 $ 8,346 9/30/2001 $ 9,590 $ 7,175 12/31/2001 $ 11,245 $ 7,688 3/31/2002 $ 12,525 $ 7,732 6/30/2002 $ 12,230 $ 7,559 9/30/2002 $ 9,413 $ 6,076 12/31/2002 $ 10,259 $ 6,474 3/31/2003 $ 9,046 $ 5,987 6/30/2003 $ 11,331 $ 7,137 9/30/2003 $ 12,192 $ 7,714 12/31/2003 $ 14,093 $ 9,026 3/31/2004 $ 14,595 $ 9,409
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE INCEPTION 1-YEAR (11/4/99) ------------------------------------------------------------------------ OAKMARK INTERNATIONAL FUND CLASS II 61.34% 8.96% MSCI World ex. U.S. 57.16% -1.60%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The fund's high performance may not be repeated. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. Harris Associates Securities L.P., member NASD, May 2004 THE OAKMARK INTERNATIONAL SMALL CAP FUND CLASS II THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (1/8/01) TO PRESENT (3/31/04) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX [CHART]
THE OAKMARK INTERNATIONAL MSCI WORLD SMALL CAP FUND CLASS II EX U.S. INDEX 1/8/2001 $ 10,000 $ 10,000 3/31/2001 $ 10,140 $ 8,599 6/30/2001 $ 10,494 $ 8,532 9/30/2001 $ 9,292 $ 7,335 12/31/2001 $ 11,062 $ 7,860 3/31/2002 $ 12,180 $ 7,905 6/30/2002 $ 12,466 $ 7,728 9/30/2002 $ 9,686 $ 6,212 12/31/2002 $ 10,454 $ 6,618 3/31/2003 $ 9,172 $ 6,120 6/30/2003 $ 11,845 $ 7,297 9/30/2003 $ 13,501 $ 7,886 12/31/2003 $ 15,915 $ 9,227 3/31/2004 $ 16,946 $ 9,619
ANNUAL AVERAGE TOTAL RETURNS (as of 03/31/04)
SINCE INCEPTION 1-YEAR (1/8/01) ------------------------------------------------------------------------ OAKMARK INTERNATIONAL SMALL CAP FUND CLASS II 84.77% 17.76% MSCI World ex. U.S. 57.16% -1.06%
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data quoted represents past performance. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The fund's high performance may not be repeated. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. Harris Associates Securities L.P., member NASD, May 2004 ITEM 2. CODE OF ETHICS. Not required in this filing. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not required in this filing. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not required in this filing. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not required in this filing. ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 10. CONTROLS AND PROCEDURES. (a) Based on an evaluation of the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, the "Disclosure Controls"), the Disclosure Controls are effectively designed to ensure that information required to be disclosed by the Registrant in this report is recorded, processed, summarized and reported within 90 days prior to the filing of this report, including ensuring that information required to be disclosed in this report is accumulated and communicated to the Registrant's management, including the Registrant's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the Registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a) (1) Certifications of John R. Raitt, Principal Executive Officer, and Kristi L. Rowsell, Principal Financial Officer, pursuant to Rule 30a-2 under the Investment Company Act of 1940 (17 CFR 270.30a-2), attached hereto as Exhibits (a)(1)(i) and (a)(1)(ii) (2) Certification of John R. Raitt, Principal Executive Officer and Kristi L. Rowsell, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, attached hereto as Exhibit (a)(2) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Harris Associates Investment Trust By: /s/ John R. Raitt --------------------------------- John R. Raitt Principal Executive Officer Date: May 14, 2004 --------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ John R. Raitt --------------------------------- John R. Raitt Principal Executive Officer Date: May 14, 2004 --------------------------------- By: /s/ Kristi L. Rowsell --------------------------------- Kristi L. Rowsell Principal Financial Officer Date: May 14, 2004 --------------------------------- EX-99.CERT 2 a2131368zex-99_cert.txt EXHIBIT 99.CERT Exh. (a)(1)(i) I, John R. Raitt, certify that: 1. I have reviewed this report on Form N-CSR of Harris Associates Investment Trust (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the Registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, which has no consolidated subsidiaries, is made known to us by others within the Registrant, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c. disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls. Date: May 14, 2004 ------------------------- /s/ John R. Raitt - ------------------------------- John R. Raitt Principal Executive Officer Exh. (a)(1)(ii) I, Kristi L. Rowsell, certify that: 1. I have reviewed this report on Form N-CSR of Harris Associates Investment Trust (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the Registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, which has no consolidated subsidiaries, is made known to us by others within the Registrant, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c. disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls. Date: May 14, 2004 --------------------- /s/ Kristi L. Rowsell - ------------------------------- Kristi L. Rowsell Principal Financial Officer EX-99.906CERT 3 a2131368zex-99_906cert.txt EXHIBIT 99.906CERT Exh. (a)(2) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) In connection with the attached Report of Harris Associates Investment Trust (the "Registrant") on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the Registrant does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant as of, and for, the periods presented in the Report. Dated: May 14, 2004 --------------------- /s/ John R. Raitt - --------------------------- John R. Raitt Principal Executive Officer Dated: May 14, 2004 --------------------- /s/ Kristi L. Rowsell - --------------------------- Kristi L. Rowsell Principal Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----