Kristi Rowsell - September 30, 2014
Dear Fellow Shareholders,
World equity markets had mostly negative performance in the recent quarter. Concerns over global economic growth and geopolitical tensions dominated the headlines and weighed on investor confidence. The Oakmark portfolios were not immune to these concerns, and performance ranged from modestly positive to negative. Specific detail on Fund performance is included in the manager commentaries.
Oakmark Global Fund and Oakmark International Small Cap Fund Closures
The Oakmark Global and International Small Cap Funds are closing to most new investors that purchase shares through investment intermediaries on October 10. The closures will only impact new investors; existing shareholders of the Funds may continue to purchase additional shares. The Funds will remain open to all retirement plans, certain advisory platforms and investors who purchase shares directly from Oakmark. Please see our prospectus supplement at oakmark.com for more details.
Long-time shareholders will remember that we have occasionally closed Funds when we have felt that doing so was in the best interests of our shareholders. Our goal is to retain investment flexibility for our portfolio management teams so they can effectively execute each Fund's investment objective. In determining whether a Fund should close, we carefully consider the specific objective of the Fund, the level of cash inflows and the current investment opportunities in the marketplace. Today, we feel it is in our shareholders' best interest to slow the level of inflows for these two Funds in order to preserve investment capacity and maximize investment flexibility.
Shareholder Servicing News
Our Mutual Fund Services team has been working diligently with our transfer agent to redesign our shareholder Account Access website accessed via Oakmark.com. We are improving the entire look and feel so that shareholders will see a consolidated display of their accounts in a number of selected preferences. The transaction capabilities will be streamlined and more intuitive - more like a dashboard with enhanced, one-click navigation. New account setup will be more straightforward. And, the maintenance tasks shareholders require over time, such as tracking cost basis and managing bank account information, will be available online. We expect to release these changes in stages over the coming quarters. Look for more news on this initiative in future communications.
Year End Distributions
Each year at this time we give shareholders an indication of the level of income and capital gains that we believe will be distributed at the end of the year. As you'll recall, mutual funds are required to pay income and gains realized throughout the fiscal year to shareholders each December. All funds realized net gains throughout the year, as individual securities were sold as they approached our estimate of intrinsic value. As of the date of this letter, we expect each of the Oakmark funds will pay distributions that range from mid-to-high single digits when expressed as a percentage of the September 30, 2014 net asset value per share, except for Oakmark Select, which has an estimated distribution in the low double digits.
It's important to remember that the time period for determining distributions runs through the end of the year, so these estimates could change as the rest of the year unfolds. However, we like to share this early preview so we can be responsive to the tax planning needs of our shareholders. Updated estimates will be available on oakmark.com in mid-November.
Thank you for your continued investment in the Oakmark Funds. As always, you can reach us via email at ContactOakmark@oakmark.com.
President of The Oakmark Funds
President of Harris Associates L.P.
Past performance is no guarantee of future results. The performance data quoted represents past performance. Current performance may be lower or higher than the performance data quoted. The investment return and principal value vary so that an investor’s shares when redeemed may be worth more or less than the original cost. The performance of the Oakmark International Small Cap Fund does not reflect the 2% redemption fee imposed on shares redeemed within 90 days of purchase. To obtain the most recent month-end performance data, view it here.
Oakmark Global and Oakmark International Small Cap Fund: Investing in foreign securities presents risks which in some ways may be greater than U.S. investments. Those risks include: currency fluctuation, different regulation, accounting standards, trading practices, levels of available information, generally higher transaction costs and political risks.
Oakmark International Small Cap Fund: 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.
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 returns more volatile than a more diversified fund.
Oakmark Select Fund: The stocks of medium-sized companies tend to be more volatile than those of large companies and have underperformed the stocks of small and large companies during some periods.
The above information should not be considered tax advice. Please consult your tax advisor for detailed information applicable to your unique situation.
The discussion of the Funds’ investments and investment strategy (including current investment themes, the portfolio managers' research and investment process, and portfolio characteristics) represents the Funds’ investments and the views of the portfolio managers and Harris Associates L.P., the Funds' investment adviser, at the time of this letter, and are subject to change without notice.