The Oakmark Global Fund declined 7% for the quarter ending June 30 2002, roughly in line with the 9% decline of the MSCI World Index and the 8% decline of the Lipper Global Fund Index. For the first six months of 2002, and for the past twelve months, your Fund gained 4% and 8%, respectively, compared to the 9% and 15% declines in the MSCI World Index and the 7% and 13% declines in the Lipper Global Fund index over the same periods.

The past three months were a continuation of the price volatility and market skittishness we have seen since the tech bubble burst in early 2000. In times like these, it is critical to keep focused on what is important: Times of extraordinary share price volatility may often provide excellent long-term opportunity, as greater volatility creates larger gaps between share prices and intrinsic business value. We continue to strive to upgrade the quality of the portfolio while maintaining the same degree of discount or greater to intrinsic value.

New Opportunities

Two of your Fund's newest positions, Gemstar-TV Guide and LM Ericsson, were poor performers over the quarter. While news flow and sentiment remains uniformly negative regarding these companies, we think the recent share price declines have created significant appreciation potential. We have made each of these companies very significant positions in the Fund.

Gemstar-TV Guide invented the VCR Plus+ instant programming system that is now the defacto standard in 40 countries for VCR programming. It has become the primary provider of television guides across many platforms including print (TV Guide, Cable Guide), cable/satellite/telco (Interactive Programming Guide, TV Guide Channel), consumer electronics devices, and the Internet. The company's share price has declined over 90% from its early 2000 high, to a current price of around $5 per share.

Gemstar makes money several ways: 1) by licensing their technology, 2) through sales of TV Guides (both the print guide and the channel), and 3) through their interactive services (advertising and interactive commerce). Throughout its history, Gemstar has been very aggressive at defending their patents. A recent negative ruling from the International Trade Commission (ITC) Judge validated several Gemstar patents but also ruled that several companies may continue to import their cable TV set-top boxes into the U.S. While on balance, this was a negative ruling, we believe the resultant share price decline was an overreaction.

We calculate that on a sum of the parts basis, Gemstar's non-Interactive Program Guide businesses are worth about $7 per share and additional cash of another $.50 per share (net of debt), thus creating a downside valuation of $7.50 per share. We also calculate the Interactive Program Guide business currently at $5 per share, creating a combined value of roughly $12.50 per share. Therefore, with the stock price trading near $5 per share, we believe we are paying less than our estimated value for the non-Interactive Program Guide businesses and getting the Interactive Program Guide business and cash for free. In addition, the company is trading for a mere 5.5 times our estimate of free cashflow versus peer companies that trade for 12 to 18 times free cashflow.

Ericsson, the Swedish-based mobile phone giant, had been an awful performer and declined 80% from its high before we became interested. Unfortunately, as with Gemstar, we did not pick the bottom, and the share price has continued to decline. At current levels, we think the market is significantly undervaluing the long-term prospects of the company.

Ericsson has been the largest supplier of mobile infrastructure in the world, with a worldwide market share of 40% in GSM (mobile standard), double its closest competitors—Nokia (22%) and Siemens/NEC (18%). The infrastructure business has historically been very good, with huge barriers to entry, double-digit growth and solid profitability (20% margins). However, the group's success in the infrastructure business has been over-shadowed by its poorly performing handset operations. In handsets, Ericsson finally bit the bullet last year, outsourcing all production to Flextronics and forming a 50/50 joint venture with Sony. Recently, the mobile infrastructure business has been hit by weakness from its the customer base. Mobile operators have sharply curtailed their capital expenditure plans due to worries of a demand slow down as well as weakened balance sheets.

Long term, Ericsson's position in the various mobile standards (GSM, 2.5G, and 3G) remains the best in the industry worldwide. Further, unlike the handsets business where competition is becoming more fierce due to strong new market entrants (especially the Koreans and Japanese), a number of competitors in the mobile infrastructure market have been significantly weakened by the recent market downturn. Nortel Networks, Alcatel, and Lucent all are facing major financial and technological issues, while the barriers to new entrants remain intact.

We believe the long-term growth prospects for mobile telephony (especially new data applications) remain bright, albeit significantly diminished from the pie-in-the-sky dreams of three years ago. Reality is somewhere in between. At current prices, Ericsson is valued at less than one times depressed revenue and about 7 times normal operating profit. We do not very often get the opportunity to buy such a high quality business with good long-term secular growth prospects at this level of valuation.

Philosophy and Discipline

Recent price declines in Gemstar and Ericsson remind us of two examples of companies that we owned in The Oakmark Global Fund that had very similar panic selling periods: Nova Corporation in 2000 and ITT Educational in 1999. Both situations worked out extremely well for the portfolio. In panic times like these, we feel it is very important to be sure we have done a thorough analysis of what we estimate the true value of the company to be and not let the stock price influence that analysis.

We will continue to search for companies that are priced at a substantial discount to their true business value and are run by managers who think and act as owners. We remain excited about the values in the portfolio and have each added to our personal holdings in the Fund. Thank you for your support.

Gregory L. Jackson Portfolio Manager gjackson@oakmark.com	Michael J. Welsh, CFA, CPA Portfolio Manager 102521.2142.compuserve.com

July 8, 2002

Global Diversification—June 30, 2002

Schedule of Investments—June 30, 2002 (Unaudited)