The strong rebound from the March lows boosted the Fund’s return for the fiscal year ended September 30 to 3%, bringing it into positive territory. The Lipper Global Fund Index was flat for the fiscal year and the MSCI World Index returned -2%. The most significant contributors to the Fund’s twelve-month return were Discovery Communications (U.S.), Assa Abloy (Sweden), Canon (Japan), Julius Baer and Credit Suisse. The largest detractors were Live Nation (U.S.), MDS (Canada), Daiwa Securities, Snap-on (U.S.) and Medtronic (U.S.—sold during the quarter). Switzerland, Germany and Japan were among the Fund’s best performing countries for the year, while Canada, the U.S. and Ireland were at the bottom. Since the Fund’s inception in August 1999, it has earned an annualized rate of return of 11%, while the Lipper Global Fund Index has earned 3%, and the MSCI World Index has earned 1%.

10-Year Anniversary
You may have noted that this inception date means that the Oakmark Global Fund enjoyed its 10-year anniversary during the quarter. We have many people to thank for making this journey possible, including Greg Jackson and Michael Welsh, the portfolio managers of the Fund at its inception. Although the path has been bumpier than we would have preferred or than we might have predicted, the Fund has met our expectation for double-digit compound rates of return. The Fund’s portfolio managers have played their role, but this outcome would have been impossible without our investment research analysts and our administrative support group. Oakmark Global is an all-cap go-anywhere fund, meaning that there are few limits on which equities we can purchase. In addition, the Fund is fairly concentrated. Thankfully, we are blessed with a 20-person investment research department whose job is to find the best values, wherever they may be. The efforts of these dedicated men and women end up populating the Global Fund portfolio. We thank them for their work, and we thank you, our shareholders, for your support and encouragement over these many years.

Quarter Activity
Our trading activity in the quarter was balanced, with three new names replacing three eliminations. Because we sold two U.S. companies and purchased only one new one, the portfolio continued its recent trend towards a higher weighting in international securities. For the past two quarters the international “overweight” has boosted returns because foreign markets have bested the U.S., particularly when currency effects are included. Over the past year we have persistently identified superior value opportunities in international markets, which has led to the current 69% international allocation. We can allocate in this manner because we are not slaves to a benchmark. We understand that the U.S. comprises approximately 47% of the MSCI World Index, but this fact has little to no bearing on our portfolio construction. In the same vein, the Fund’s 21% weighting in Swiss securities far exceeds the Index’s.

On that note, we find it slightly amusing that the Fund’s newest U.S.-domiciled holding is International Flavors & Fragrances (IFF), the second largest factor in the flavors and fragrances industry. In the June quarter we initiated a position in Givaudan, the largest flavors and fragrances producer. Though we believe that this industry has many strong attributes, we based the Givaudan purchase on its exceptionally attractive valuation at the time. On the other hand, the catalyst for our IFF purchase was the recent significant management change there. The Chief Executive Officer of Ansell--a long-time holding in the Oakmark International Small Cap Fund and previous holding in the Oakmark Global Fund--will become the new CEO at IFF. His track record at Ansell suggests that the profit margin differential between IFF and its competitors should narrow.

We also added two non-U.S. names during the quarter, Richemont and Square Enix. Richemont is the largest hard luxury goods company in the world, led by its flagship Cartier brand and its impressive portfolio of high-end watch makers, including Montblanc, Piaget and Jaeger-LeCoultre. Richemont is a truly global company with nearly 40% of revenue coming from fast-growing developing countries in Asia, the Middle East and South America. The Rupert Family, which founded Richemont, has voting control of the company’s stock as well as leadership positions in management. From both an operational and capital allocation standpoint, we believe the Ruperts have been impressive, spearheading 900 basis points of margin improvement during the past decade. Management recently spun-off its ownership stake in British American Tobacco to shareholders, providing more direct exposure to luxury goods assets. Although the recession has hurt the business, management has responded by reducing costs in the hardest hit regions (U.S. and Western Europe), while also investing in new store openings and advertising in Asia and the Middle East. We believe these investments will pay off in the long term because the luxury goods presence in those regions is well below that of developed market countries, leaving significant room for growth.

This is the second time the Oakmark Global Fund has owned Square Enix, a game software company that sells the popular titles Final Fantasy and Dragon Quest. Our colleagues managing the Oakmark International Small Cap Fund have also invested in the company’s shares on five separate occasions. The game software business, while lumpy because of title launches, produces great returns and cash flows, and it is one of the fastest growing segments of the toy industry. Square Enix’s recent acquisition of Eidos, which makes Tomb Raider, has expanded the company’s library of hits, as well as its talent pool of skillful programmers. With net cash equal to over 30% of the market cap, Square Enix should be able to weather short-term slack in consumer spending and the swings of the game hardware cycle.

To help fund these new holdings we sold our positions in Medtronic, Washington Post and Luxottica, which were all relatively less attractive alternatives.

One to Have Missed
Toronto-based MDS is probably one of the most unfamiliar names in the Global Fund portfolio, and in hindsight, it would have been best had it stayed unfamiliar to us. The company comprises three business units: a contract research organization (CRO) that performs testing and trials for pharmaceutical companies; a mass spectrometer manufacturer (Sciex); and a medical isotope business (Nordion). During our 30-month ownership of the stock, much went wrong. The CRO market deteriorated significantly, and MDS management was unable to improve that unit’s substandard profit margins. Sciex has performed better, although its margins still lag behind its competitors’, and the economic downturn has limited the division’s growth. The other component, Nordion, has suffered because the Canadian government nuclear reactors that produce much of the unit’s products have been shut down because of a heavy water leak. Thus, because of MDS’s own difficulties and because of broader market troubles, the stock has performed poorly during our holding period. In September, management announced the sale of the Sciex unit. Sale proceeds will be used to eliminate most outstanding debt and to repurchase shares. The company announced that the CRO unit is also for sale and that the company’s CEO would step down. Finally, the company has sued Atomic Energy of Canada Ltd. for breach of contract.

In hindsight, MDS has been a “value trap,” a stock that is always cheaply valued but also suffers from fundamental deterioration that continuously undermines the value case. How do we normally avoid value traps? We focus on companies that are persistently growing their per share value, and we seek to invest with owner-oriented management teams that treat their shareholders as their partners. With MDS, the company required more turnaround than we understood, management was not up to the task, and the company was also unlucky.

As always, we welcome your questions and comments as we look forward to the Oakmark Global Fund’s next ten years.

Clyde S. McGregor, CFA
Portfolio Manager
oakgx@oakmark.com

Robert A. Taylor, CFA
Portfolio Manager
oakgx@oakmark.com



As of 9/30/09, Societe Television Francaise 1 represented 4.9% of The Oakmark Global Fund’s total net assets, UBS AG 3.4%, Julius Baer Holding Ltd. 4.4%, Bulgari SpA 3.6%, Bank of Ireland 1.4%, Daiwa Securities Group Inc. 3.2%, Alliant Techsystems, Inc. 1.2%, Laboratory Corp. of America Holdings 4.0%, Rohm Company Ltd. 2.8%, Oracle Corp. 3.7%, Discovery Communications Inc. Class A 0.8%, Discovery Communications Inc. Class C 2.3%, Assa Abloy AB 2.1%, Canon, Inc. 2.6%, Credit Suisse Group 3.0%, Live Nation Inc. 1.6%, MDS Inc. 2.4%, Snap-on Inc. 4.1%, Medtronic, Inc. 0%, International Flavors & Fragrances 0.3%, Givaudan SA 1.0%, Ansell, Ltd. 0%, Compagnie Financiere Richemont SA 3.3%, Square Enix Holdings Co., Ltd. 2.5%, The Washington Post Co., Class B 0%, Luxottica Group SpA 0%, and Atomic Energy of Canada Ltd. 0%. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual stocks.

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. This index is unmanaged and investors cannot invest directly in this index.

The Lipper Global Fund Index is an unmanaged index of the 30 largest funds, based on total year-end net asset value, in the Global fund category, which consists of funds that invest at least 25% in securities traded outside of the United States. It assumes the reinvestment of dividends and capital gains and does not include any management fees or expenses. This index is unmanaged and investors cannot actually make investments in this index.

Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods.

Investing in foreign securities represents risks that 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 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.