THE OAKMARK INTERNATIONAL FUND
Report from David G. Herro and
Michael J. Welsh, Portfolio Managers
THE OAKMARK INTERNATIONAL FUNDReport from David G. Herro and
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| THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS INCEPTION (9/30/92) TO PRESENT (9/30/01) COMPARED TO THE MSCI WORLD EX U.S. INDEX16 | ||||
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| Average Annual Total Returns1 | ||||
| Year to Date Total Return* |
1-year | 5-year | Since Inception (9/30/92) |
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| Oakmark International Fund | -19.08% | -13.10% | 5.28% | 10.07% |
| MSCI World ex U.S. | -26.65% | -29.23% | 0.14% | 5.40% |
| MSCI EAFE17 | -26.56% | -28.65% | -0.14% | 5.23% |
| Lipper International Index18 | -25.61% | -28.60% | 2.14% | 6.84% |
| Past performance is no guarantee of future results. Investment return and principal value vary, and you may have a gain or loss when you sell shares. Average annual total return measures annualized change, while total return measures aggregate change. | ||||
| * Not annualized. | ||||
Fellow Shareholders,
The Third Quarter of 2001 was rough for both the markets and your Fund. The Oakmark International Fund was down 19% compared to declines in the MSCI World ex U.S. Index and Lipper International Fund Index of 14% and 15%. It is interesting to note that our under-performance of these benchmarks occurred after the events of September 11th. From then until the end of the quarter, Japanese stocks, where we are underweighted, did well, while smaller and mid-cap stocks, where we are overweighted, did not.
Year-to-date and from inception, your Fund continues to significantly outperform both of those indices. Though there has been enormous price erosion in the world stock markets, we do not see a corresponding diminution in underlying business values. This to us means opportunity. We are extremely enthusiastic about investment opportunities going forward and are very bullish on future prospects based on the availability of so much value.
But everyone is doing it. . .
A few years ago, there was a trend in the global telecom equipment industry to grow the underlying business by acquiring other, smaller niche players within the industry at largely inflated prices. The argument was that these smaller companies had some desired technological innovation. Price did not matter because acquisitions were financed with high-priced freshly issued stock. ALL of the global "blue-chip" companies were sucked into this frenzy: Marconi of the UK, Alcatel of France, Northern Telecom and JDS Uniphase of Canada. They all jumped off similar, but slightly different cliffs.
As everyone can recognize today the results were catastrophic! The four mentioned entities have lost, at the time of this writing, over $550 billion in market capitalization. That is equal to the combined total stock market capitalization of Sweden, Hong Kong, New Zealand and Singapore.
Four different companies in the same industry all pursuing the same failed strategy. It truly illustrates the danger of groupthink. This amount of wealth destruction in no way can be minimized. JDS Uniphase alone wrote off over US$50 billion in goodwill this year, a tacit admission that they may have over-paid a tad for their acquisitions. With that same amount of money they could have owned the entire Portuguese stock market. It is impossible to envision how much US$50 billion buys you in Research & Development!
This episode illustrates two keys to successful investing: the power of independent thinking and the importance of price.
Market volatility equals investment opportunity!
A frequent question asked over these past troubling weeks is how have we reacted to the recent wild swings in the global markets. As value investors we constantly search for high quality businesses at low prices. Volatile markets tend to, in the short run, be non-discriminating. All stocks get hit. In these instances, we try to increase quality levels within the portfolio by adding to our highest quality names or by adding new names that, because of price volatility, suddenly fall within our buy range. We aim to constantly upgrade the quality of the portfolio at no expense to expected return. These times are unique, and represent uncommon market conditions which history has proven to be good times to increase equity market exposure.
Today, we are extremely excited about the make-up of our portfolio. Values today compare to the post 1987 crash and medium and long-term prospects look excellent for our businesses. Whether it is a company like Givaudan, a Swiss based global leader in flavors and fragrances or media companies like Aegis (UK based global buyer of media) and Tokyo Broadcasting, we feel we are as well positioned as ever to profit over time.
Highlights |
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Finally, we thank our shareholders for their patience during these unique and unstable times. We are very confident that as in the past there will be a reward for this patience.
David G. Herro, CFA
Portfolio Manager
DGH100@earthlink.net
Michael J. Welsh, CFA, CPA
Portfolio Manager
102521.2142@compuserve.com
October 5, 2001
| THE OAKMARK INTERNATIONAL FUND |
International Diversification—September 30, 2001
| THE OAKMARK INTERNATIONAL FUND |
Schedule of Investments—September 30, 2001
| Name | Description | Shares Held | Market Value |
| Common Stocks—94.6% | |||
| Food & Beverage—9.5% | |||
| Diageo plc (Great Britain) | Beverages, Wines, & Spirits Manufacturer | 2,656,000 | $27,938,248 |
| Lotte Chilsung Beverage Co., Ltd. (Korea), (d) | Soft Drinks, Juices, & Sport Drinks Manufacturer | 93,000 | 18,400,307 |
| Fomento Economico Mexicano, S.A. de C.V. (Mexico), (b) | Soft Drink & Beer Manufacturer | 549,400 | 15,641,418 |
| Quilmes Industrial S.A. (Argentina), (b) | Brewer | 455,500 | 5,238,250 |
| Lotte Confectionery Co., Ltd. (Korea) | Confection Manufacturer | 20,670 | 3,249,501 |
| 70,467,724 | |||
| Apparel—3.2% | |||
| Fila Holding S.p.A. (Italy), (a)(b)(d) | Athletic Footwear & Apparel | 5,976,960 | $23,967,610 |
| Retail—5.7% | |||
| Somerfield plc (Great Britain) | Food Retailer | 20,257,000 | $26,579,378 |
| Giordano International Limited (Hong Kong) | Pacific Rim Clothing Retailer & Manufacturer | 32,491,000 | 14,788,518 |
| Swatch Group AG (Switzerland) | Watch Manufacturer & Retailer | 15,400 | 1,113,322 |
| 42,481,218 | |||
| Home Furnishings—3.8% | |||
| Hunter Douglas N.V. (Netherlands) | Window Coverings Manufacturer | 1,277,484 | $27,901,777 |
| Other Consumer Goods & Services—0.2% | |||
| Shimano Inc. (Japan) | Bicycle Components Manufacturer | 140,100 | $1,764,031 |
| Bank & Thrifts—11.2% | |||
| Banca Popolare di Verona (Italy) | Commercial Banking | 2,781,000 | $24,194,911 |
| Banco Latinoamericano de Exportaciones, S.A., Class E (Panama), (b) | Latin American Trade Bank | 515,400 | 14,972,370 |
| Uniao de Bancos Brasileiros S.A. (Brazil), (c) | Commercial Banking | 863,500 | 12,520,750 |
| BNP Paribas SA (France) | Commercial Banking | 153,000 | 12,503,538 |
| Kookmin Bank (Korea) | Commercial Banking | 430,000 | 5,309,049 |
| United Overseas Bank Limited, Foreign Shares (Singapore) | Commercial Banking | 888,968 | 4,829,571 |
| Svenska Handelsbanken AB (Sweden) | Commercial Banking | 362,700 | 4,704,566 |
| Bank of Ireland (Ireland) | Commercial Banking | 461,035 | 3,650,214 |
| 82,684,969 | |||
| Other Financial—2.7% | |||
| Daiwa Securities Group Inc. (Japan) | Stock Broker | 2,870,000 | $19,886,082 |
| Hotels & Motels—1.7% | |||
| Mandarin Oriental International Limited (Singapore) | Hotel Management | 33,050,400 | $12,724,404 |
| Human Resources—2.2% | |||
| Michael Page International plc (Great Britain) | Recruitment Consultancy Services | 10,271,000 | $16,383,396 |
| Marketing Services—2.8% | |||
| Aegis Group plc (Great Britain) | Media Services | 9,686,000 | $10,929,098 |
| Cordiant Communications Group plc (Great Britain) | Advertising and Media Services | 10,740,070 | 9,473,704 |
| 20,402,802 | |||
| Computer Services—2.8% | |||
| Meitec Corporation (Japan) | Software Engineering Services | 805,000 | $20,933,645 |
| Telecommunications—2.1% | |||
| SK Telecom Co., Ltd. (Korea) | Mobile Telecommunications | 39,620 | $6,319,755 |
| Telemig Celular Participacoes S.A. (Brazil) | Mobile Telecommunications | 2,293,200,000 | 3,689,024 |
| Panafon Hellenic Telecom S.A. (Greece) | Mobile Telecommunications | 795,000 | 3,154,414 |
| NTT DoCoMo, Inc. (Japan) | Mobile Telecommunications | 158 | 2,133,881 |
| 15,297,074 | |||
| Broadcasting & Cable TV—2.4% | |||
| Tokyo Broadcasting System, Inc. (Japan) | Television & Radio Broadcasting | 559,000 | $9,823,882 |
| Grupo Televisa S.A. (Mexico), (a)(b) | Television Production & Broadcasting | 283,500 | 8,136,450 |
| 17,960,332 | |||
| Publishing—7.5% | |||
| Wolters Kluwer NV (Netherlands) | Reference Material Publisher | 1,024,000 | $22,682,226 |
| Independent News & Media PLC (Ireland) | Newspaper Publisher | 11,559,273 | 17,252,002 |
| John Fairfax Holdings Limited (Australia) | Newspaper Publisher | 9,874,500 | 15,385,931 |
| N.V. Holdingmaatschappij De Telegraaf (Netherlands) | Newspaper Publisher | 14,562 | 211,372 |
| 55,531,531 | |||
| Pharmaceuticals—1.1% | |||
| GlaxoSmithKline plc (Great Britain) | Pharmaceuticals | 292,000 | $8,216,488 |
| Medical Products—2.7% | |||
| Gambro AB, Class A (Sweden) | Manufacturer of Dialysis Procucts | 3,478,000 | $20,032,123 |
| Automotive—4.2% | |||
| Compagnie Generale des Establissements Michelin (France) | Tire Manufacturer | 632,000 | $16,650,635 |
| Autoliv, Inc (Sweden) | Automotive Safety Systems Manufacturer | 955,000 | 14,578,514 |
| 31,229,149 | |||
| Aerospace—2.2% | |||
| Rolls-Royce plc (Great Britain) | Aviation & Marine Power | 8,402,702 | $16,151,844 |
| Airport Maintenance—0.3% | |||
| Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico), (a)(b) | Airport Operator | 242,000 | $2,274,800 |
| Instruments—1.7% | |||
| Orbotech, Ltd. (Israel), (a) | Optical Inspection Systems | 685,700 | $12,925,445 |
| Machinery & Industrial Processing—3.8% | |||
| Metso Corporation (Finland) | Paper & Pulp Machinery | 3,458,100 | $27,882,802 |
| Building Materials & Construction—2.8% | |||
| Kumkang Korea Chemical Co., Ltd. (Korea) | Building Materials | 377,840 | $20,601,552 |
| Chemicals—7.0% | |||
| Givaudan (Switzerland), (a) | Fragrance & Flavor Compound Manufacturer | 98,050 | $29,504,665 |
| Akzo Nobel N.V. (Netherlands) | Chemical Producer | 305,000 | 12,432,144 |
| Nufarm Limited (Australia), (d) | Agricultural & Industrial Chemical Producer | 7,934,143 | 9,811,562 |
| 51,748,371 | |||
| Other Industrial Goods & Services—9.9% | |||
| Enodis plc (Great Britain), (d) | Food Processing Equipment | 23,244,700 | $26,655,081 |
| Kone Corporation, Class B (Finland) | Elevators | 350,980 | 23,316,876 |
| Chargeurs SA (France), (d) | Wool, Textile Production & Trading | 350,067 | 20,866,885 |
| FKI plc (Great Britain) | Industrial Manufacturing | 1,236,315 | 2,585,490 |
| 73,424,332 | |||
| Steel—0.9% | |||
| SSAB Svenskt Stal AB, Series A (Sweden) | Steel Producer | 934,520 | $6,695,335 |
| Diversified Conglomerates—0.2% | |||
| First Pacific Company Ltd. (Hong Kong) | Diversified Operations | 10,436,000 | $1,257,752 |
| Total Common Stocks (Cost: $863,251,267) | 700,826,588 |
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| Name | Description | Par Value | Market Value |
| Short Term Investments—4.9% | |||
| Commercial Paper—2.7% | |||
| General Electric Capital Corporation, 3.25% due 10/1/2001 | $20,000,000 | $20,000,000 | |
| Total Commercial Paper (Cost: $20,000,000) | 20,000,000 | ||
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| Repurchase Agreements—2.2% | |||
| State Street Repurchase Agreement, 3.05% due 10/1/2001, repurchase price $15,935,049, collateralized by U.S. Treasury Bonds | $15,931,000 | $15,931,000 | |
| Total Repurchase Agreements (Cost: $15,931,000) | 15,931,000 | ||
| Total Short Term Investments (Cost: $35,931,000) | 35,931,000 | ||
| Total Investments (Cost $899,182,267) - 99.5% (e) | $736,757,588 | ||
| Foreign Currencies (Proceeds $3,051,361) - 0.4% | 3,037,758 | ||
| Other Assets In Excess Of Other Liabilities - 0.1% (f) | 681,578 | ||
| Total Net Assets - 100% | $740,476,924 | ||
| (a) | Non-income producing security. |
| (b) | Represents an American Depository Receipt. |
| (c) | Represents a Global Depository Receipt. |
| (d) | See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. |
| (e) | At September 30, 2001, net unrealized depreciation of $162,438,282, for federal income tax purposes, consisted of gross unrealized appreciation of $69,531,993and gross unrealized depreciation of $231,970,275. |
| (f) | Includes transaction hedges. |
See accompanying notes to financial statements.
