THE OAKMARK INTERNATIONAL SMALL CAP FUND
Report from David G. Herro and
Michael J. Welsh, Portfolio Managers
THE OAKMARK INTERNATIONAL SMALL CAP FUNDReport from David G. Herro and
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| THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (9/30/02) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX26 | ||||
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| Average Annual Total Returns4 | ||||
| (as of 9/30/02) | ||||
| Total Return Last 3 Months* |
1-year | 5-year | Since Inception (11/1/95) |
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| Oakmark International Small Cap Fund |
-22.25% | 4.68% | 2.93% | 5.66% |
| MSCI World ex. U.S. | -19.62% | -15.31% | -5.47% | -0.67% |
| Lipper International Small Cap Average24 |
-18.67% | -6.06% | 0.69% | 6.09% |
| 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. | ||||
| 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 | ||||
The Oakmark International Small Cap Fund was down 22% for the quarter, under-performing the MSCI World ex-US Index and the Lipper International Small Cap Average, which declined 20%, and 19%, respectively.
Over the past twelve months your Fund has returned a positive 5%, relative to declines of 15% in the MSCI World ex-US index and 6% in the Lipper International Small Cap Average.
Until this quarter, overseas small caps had held up extremely well throughout big price declines in the major markets. This quarter proved that no equity market area in the world would remain unscathed by this bear market.
Portfolio Update
Throughout the quarter we eliminated a number of positions to better concentrate the Fund in our best ideas. We sold a number of winners that achieved their sell targets, especially in Asia, including Dairy Farm (Hong Kong), Jusco Stores (HK), Jardine Strategic Holdings (Singapore) and Haw Par Brothers (Singapore). Most of the investments we made during the dark days of Asia in 1997-98 have continued to pay off handsomely. We also sold some losers where the underlying fundamentals were poorer than we had expected, including United Services Group and House of Fraser.
The proceeds from these sales were re-deployed primarily into existing positions trading at more significant discounts to intrinsic value. We also initiated a new position in Australia-based credit services company Baycorp Advantage.
Looking Forward
We are optimistic regarding long-term equity market performance, and believe investing during this current period of extreme pessimism will be rewarding. We want to thank you for your continued confidence.
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| David G. Herro, CFA Portfolio Manager dherro@oakmark.com |
Michael J. Welsh, CFA, CPA Portfolio Manager 102521.2142@compuserve.com |
| THE OAKMARK INTERNATIONAL SMALL CAP FUND |
International Diversification—September 30, 2002
| THE OAKMARK INTERNATIONAL SMALL CAP FUND |
Schedule of Investments—September 30, 2002
| Name | Description | Shares Held | Market Value |
| Common Stocks—95.5% | |||
| Food & Beverage—6.4% | |||
| Campari Group (Italy) (a) | Soft Drinks, Wines, & Spirits Producer | 235,200 | $7,642,128 |
| Grupo Continental, S.A. (Mexico) | Soft Drink Manufacturer | 2,760,000 | 4,596,845 |
| Baron De Ley, S.A. (Spain) (a) | Wines & Spirits Manufacturer | 150,985 | 3,917,193 |
| Hite Brewery Co., Ltd. (Korea) | Brewer | 57,700 | 2,784,248 |
| Alaska Milk Corporation (Philippines) (b) | Milk Producer | 49,394,000 | 1,997,430 |
| Mikuni Coca-Cola Bottling Co., Ltd. (Japan) | Soft Drink Manufacturer | 310,000 | 1,822,107 |
| 22,759,951 | |||
| Other Consumer Goods & Services—0.5% | |||
| Royal Doulton plc (Great Britain) (a)(b) | Tableware & Giftware | 22,373,000 | $1,755,889 |
| Apparel—0.3% | |||
| Kingmaker Footwear Holdings Limited (Hong Kong) | Athletic Footwear Manufacturer | 4,395,000 | $1,127,010 |
| Automobiles—2.3% | |||
| Ducati Motor Holding S.p.A. (Italy) (a) | Motorcycle Manufacturer | 5,177,200 | $8,180,804 |
| Broadcasting & Programming—1.4% | |||
| ABS-CBN Broadcasting Corporation (Philippines) (a) | Television & Broadcasting Operator | 11,920,000 | $5,002,194 |
| Broadcasting & Publishing—1.8% | |||
| Tamedia AG (Switzerland) (a) | TV Broadcasting & Publishing | 146,880 | $6,466,978 |
| Building Materials & Construction—3.2% | |||
| Fletcher Building Limited (New Zealand) | Building Materials Manufacturer | 8,129,200 | $11,420,319 |
| Home Furnishings—3.3% | |||
| Natuzzi S.p.A. (Italy) (c) | Home Furnishings | 1,078,300 | $11,775,036 |
| Hotels & Motels—1.8% | |||
| Jarvis Hotels plc (Great Britain) | Hotel Operator | 3,845,700 | $6,338,223 |
| Human Resources—1.2% | |||
| Solvus S.A. (Belgium) | Temporary Staffing Services | 623,254 | $4,308,680 |
| Information Services—2.0% | |||
| Baycorp Advantage Limited (Australia) | Credit Reference Services | 4,213,500 | $7,275,619 |
| Marketing Services—2.3% | |||
| Asatsu-DK, Inc. (Japan) | Advertising Services Provider | 445,100 | $8,349,165 |
| Publishing—3.6% | |||
| Edipresse S.A. (Switzerland) | Newspaper & Magazine Publisher | 18,274 | $5,019,377 |
| Recoletos Grupo de Comunicacion, S.A. (Spain) | Publisher | 880,000 | 3,563,261 |
| Matichon Public Company Limited, Foreign Shares (Thailand) (b) | Newspaper Publisher | 2,039,500 | 2,733,156 |
| VLT AB, Class B (Sweden) | Newspaper Publisher | 178,450 | 1,480,737 |
| 12,796,531 | |||
| Retail—10.4% | |||
| Carpetright plc (Great Britain) | Carpet Retailer | 1,589,200 | $15,715,273 |
| D.F.S. Furniture Company plc (Great Britain) | Furniture Retailer & Manufacturer | 1,972,100 | 11,933,179 |
| Bulgari S.p.A. (Italy) | Jewelry Manufacturer & Retailer | 2,904,600 | 9,638,439 |
| 37,286,891 | |||
| Bank & Thrifts—5.9% | |||
| Jyske Bank A/S (Denmark) (a) | Commercial Banking | 441,900 | $10,898,925 |
| Vontobel Holding AG (Switzerland) | Commercial Banking | 662,536 | 8,078,065 |
| Banco Latinoamericano de Exportaciones, S.A., Class E (Panama) (b)(c) | Multinational Bank | 1,153,100 | 2,375,386 |
| 21,352,376 | |||
| Financial Services—4.6% | |||
| Van der Moolen Holding N.V. (Netherlands) | International Trading Firm | 528,400 | $8,740,951 |
| Julius Baer Holding Ltd., Zurich (Switzerland) | Asset Management | 41,100 | $7,934,363 |
| 16,675,314 | |||
| Other Financial—3.5% | |||
| Ichiyoshi Securities Co., Ltd. (Japan) | Stock Broker | 2,480,000 | $6,738,743 |
| JCG Holdings Limited (Hong Kong) | Consumer Finance | 12,851,000 | 5,684,533 |
| 12,423,276 | |||
| Medical Products—3.1% | |||
| Ansell Limited (Australia) (a) | Protective Rubber & Plastics Products | 2,949,425 | $11,050,611 |
| Computer Services—2.5% | |||
| Morse Plc (Great Britain) | Business & Technology Solutions | 4,369,800 | $9,088,250 |
| Computer Systems—1.5% | |||
| Lectra (France) (a) | Manufacturing Process Systems | 1,668,500 | $5,536,644 |
| Office Equipment—3.8% | |||
| Neopost SA (France) (a) | Mailroom Equipment Supplier | 401,200 | $13,511,277 |
| Airport Maintenance—8.1% | |||
| Kobenhavns Lufthavne | |||
| A/S (Copenhagen Airports | |||
| A/S) (Denmark) | Airport Management & Operations | 274,895 | $16,447,319 |
| Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (c) | Airport Operator | 1,129,000 | 12,419,000 |
| 28,866,319 | |||
| Diversified Conglomerates—2.0% | |||
| Pargesa Holding AG (Switzerland) | Diversified Operations | 4,784 | $7,129,174 |
| Instruments—1.2% | |||
| Vaisala Oyj, Class A (Finland) | Atmospheric Observation Equipment | 206,800 | $4,268,526 |
| Machinery & Industrial Processing—5.4% | |||
| Pfeiffer Vacuum Technology AG (Germany) (b) | Vacuum Pump Manufacturer | 545,100 | $9,178,710 |
| Alfa Laval (Sweden) (a) | Filtration & Separation Equipment | 959,700 | 7,963,371 |
| Carbone Lorraine SA (France) | Electrical Systems Manufacturer | 92,964 | 2,065,753 |
| 19,207,834 | |||
| Other Industrial Goods & Services—4.3% | |||
| Schindler Holding AG (Switzerland) | Elevator & Escalator Manufacturer | 67,800 | $11,940,662 |
| GFI Industries SA (France) | Industrial Fastener Manufacturer | 241,813 | 3,510,573 |
| 15,451,235 | |||
| Production Equipment—3.1% | |||
| Interpump Group S.p.A. (Italy) | Pump & Piston Manufacturer | 2,588,800 | $10,150,095 |
| NSC Groupe (France) | Textile Equipment Manufacturer | 12,316 | 1,155,512 |
| 11,305,607 | |||
| Transportation Services—2.0% | |||
| Mainfreight Limited (New Zealand) (b) | Logistics Services | 7,765,726 | $4,013,599 |
| DelGro Corporation Limited (Singapore) | Bus, Taxi, & Car Leasing | 3,502,700 | 3,093,718 |
| 7,107,317 | |||
| Chemicals—4.0% | |||
| Gurit-Heberlein AG (Switzerland) | Chemical Producer | 32,734 | $14,190,720 |
| Total Common Stocks (Cost: $432,335,590) | 342,007,770 | ||
| Par Value | |||
| Short Term Investments—3.6% | |||
| Repurchase Agreements—3.6% | |||
| IBT Repurchase Agreement, 1.75% due 10/1/2002, repurchase price $10,500,510 collateralized by a U.S. Government Agency Security | $10,500,000 | $10,500,000 | |
| IBT Repurchase Agreement, 1.11% due 10/1/2002, repurchase price $2,163,944 collateralized by a U.S. Government Agency Security | 2,163,878 | 2,163,878 | |
| Total Repurchase Agreement (Cost: $12,663,878) | 12,663,878 | ||
| Total Short Term Investments (Cost: $12,663,878) | 12,663,878 | ||
| Total Investments (Cost $444,999,468)—99.1% | $354,671,648 | ||
| Foreign Currencies (Cost $756,494)—0.2% | $762,021 | ||
| Other Assets In Excess Of Other Liabilities—0.7% | 2,572,499 | ||
| Total Net Assets—100% | $358,006,168 | ||
| (a) | Non-income producing security. |
| (b) | See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. |
| (c) | Represents an American Depository Receipt. |
See accompanying notes to financial statements.