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 (6/30/03) COMPARED TO THE MSCI WORLD EX U.S. INDEX19 | |||||
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| Average Annual Total Returns1 | |||||
| (as of 6/30/03) | |||||
| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (9/30/92) |
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| Oakmark International Fund | 25.43% | -6.98% | 6.84% | 8.65% | 10.12% |
| MSCI World ex. U.S. | 19.22% | -5.58% | -3.64% | 3.05% | 4.45% |
| MSCI EAFE20 | 19.27% | -6.46% | -4.00% | 2.78% | 4.21% |
| Lipper International Fund Index21 | 19.72% | -6.40% | -2.79% | 5.05% | 5.90% |
| 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 Fund gained 25% for the quarter, comparing favorably to the Morgan Stanley World ex-US Index which gained 19%. Markets around the globe rebounded after a very rough first quarter of 2003.
The Fund's strong performance was driven by a widespread share recovery. Investments with the most substantial positive impact on NAV included Swedish telecom equipment manufacturer LM Ericsson, French advertising giant Publicis Groupe, and UK media buyer Aegis Group PLC. Each of these companies operate in sectors which have been extremely out of favor during the bear market.
Ericsson's continued cost-cutting, the installation of a new CEO, and better than expected cash generation have bolstered the market's confidence in the company's goal to return to profitability (pre-restructuring charges) in 2003. The share price of Publicis, which had been hurt by worries about a global advertising recession, rebounded strongly after the market started to recognize the substantial under-valuation. Aegis' stock performance was supported by the overall pick up in the US advertising market and strong pricing in up-front television advertising during the quarter. In addition, Aegis management demonstrated capital discipline by walking away from a bidding war for Interpublic's market research assets. Following the relatively good first quarter results for each of these companies, we are beginning to see this overriding pessimism give way to recognition of significant undervaluation.
Other stocks that were substantial positive contributors in the quarter include Euronext N.V., Akzo Nobel N.V., and Vivendi Universal.
The only substantial addition we made to the portfolio in the quarter was Swiss food giant Nestle S.A. This is the third time in the history of the Fund that we have owned this fine company. As in the past we are always happy to be buyers when short-term worries overwhelm the share price and provide us an opportunity. Please see the quarterly letter for The Oakmark Global Fund for more detail about Nestle.
Looking Forward
Given the quality of the holdings and the attractive valuation of the portfolio, we remain optimistic about potential price appreciation. 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 mwelsh@oakmark.com |
| THE OAKMARK INTERNATIONAL FUND |
International Diversification—June 30, 2003 (Unaudited)
| THE OAKMARK INTERNATIONAL FUND |
Schedule of Investments—June 30, 2003 (Unaudited)
| Name | Description | Shares Held | Market Value |
| Common Stocks—95.8% | |||
| Food & Beverage—14.1% | |||
| Diageo plc (Great Britain) | Beverages, Wines, & Spirits Manufacturer | 6,673,800 | $71,382,167 |
| Nestle SA (Switzerland) | Food & Beverage Manufacturer | 338,600 | 70,001,627 |
| Cadbury Schweppes plc (Great Britain) | Beverage & Confectionary Manufacturer | 9,266,200 | 54,763,346 |
| Lotte Chilsung Beverage Co., Ltd. (Korea) | Soft Drinks, Juices & Sports Drinks Manufacturer | 83,400 | 46,360,486 |
| Pernod-Ricard SA (France) | Manufactures Wines, Spirits, & Fruit Juices | 447,425 | 39,993,567 |
| Fomento Economico Mexicano S.A. de C.V. (Mexico), (b) | Soft Drink & Beer Manufacturer | 925,200 | 38,118,240 |
| 320,619,433 | |||
| Household Products—3.0% | |||
| Henkel KGaA (Germany) | Consumer Chemical Products Manufacturer | 1,201,950 | $68,168,258 |
| Other Consumer Goods & Services—2.1% | |||
| Swatch Group AG, Bearer Shares (Switzerland) | Watch Manufacturer | 526,100 | $47,767,133 |
| Swatch Group AG, Registered Shares (Switzerland) | Watch Manufacturer | 24,700 | 450,353 |
| 48,217,486 | |||
| Apparel—0.1% | |||
| Fila Holding S.p.A (Italy), (a)(b) | Athletic Footwear & Apparel | 2,833,480 | $3,116,828 |
| Automobiles—2.7% | |||
| Bayerische Motoren Werke (BMW) AG (Germany) | Luxury Automobile Manufacturer | 1,620,100 | $62,436,062 |
| Automotive—2.2% | |||
| Compagnie Generale des Etablissements Michelin (France) | Tire Manufacturer | 1,261,500 | $49,341,806 |
| Broadcasting & Programming—3.0% | |||
| Grupo Televisa S.A. (Mexico), (b) | Television Production & Broadcasting | 1,977,200 | $68,213,400 |
| Human Resources—2.0% | |||
| Michael Page International plc (Great Britain) | Recruitment Consultancy Services | 24,736,600 | $45,187,108 |
| Marketing Services—5.3% | |||
| Publicis Groupe (France) | Advertising & Media Services | 2,534,000 | $68,126,205 |
| Aegis Group plc (Great Britain) | Media Services | 40,940,200 | 53,636,631 |
| 121,762,836 | |||
| Publishing—2.3% | |||
| John Fairfax Holdings Limited (Australia) | Newspaper Publisher | 27,580,400 | $53,334,316 |
| Recreation & Entertainment—0.9% | |||
| Nintendo Company, Ltd. (Japan) | Video Game Manufacturer | 284,800 | $20,738,210 |
| Retail—3.0% | |||
| Signet Group plc (Great Britain) | Jewelry Retailer | 28,446,100 | $42,440,668 |
| Giordano International Limited (Hong Kong) | Pacific Rim Clothing Retailer & Manufacturer | 82,924,300 | 25,787,068 |
| 68,227,736 | |||
| Bank & Thrifts—10.4% | |||
| Sanpaolo IMI S.p.A. (Italy) | Banking Services | 6,565,300 | $61,101,514 |
| BNP Paribas SA (France) | Commercial Banking | 1,156,000 | 58,846,411 |
| United Overseas Bank Limited, Foreign Shares (Singapore) | Commercial Banking | 6,178,368 | 43,515,812 |
| Banco Popolare di Verona e Novara Scrl (Italy) | Commercial Banking | 2,938,400 | 40,225,991 |
| Svenska Handelsbanken AB (Sweden) | Commercial Banking | 1,498,800 | 24,564,037 |
| Kookmin Bank (Korea) | Commercial Banking | 231,168 | 6,966,972 |
| 235,220,737 | |||
| Financial Services—2.2% | |||
| Credit Suisse Group (Switzerland) | Investment Services & Insurance | 1,890,300 | $49,845,923 |
| Other Financial—7.4% | |||
| Daiwa Securities Group Inc. (Japan) | Stock Broker | 15,426,000 | $88,780,883 |
| Euronext (Netherlands) | Stock Exchange | 2,774,300 | 68,905,666 |
| Deutsche Boerse AG (Germany) | Electronic Trading Systems | 208,500 | 11,064,668 |
| 168,751,217 | |||
| Pharmaceuticals—9.8% | |||
| Aventis S.A. (France) | Pharmaceuticals | 1,338,600 | $73,777,828 |
| GlaxoSmithKline plc (Great Britain) | Pharmaceuticals | 3,450,300 | 69,301,941 |
| Takeda Chemical Industries, Ltd. (Japan) | Pharmaceuticals & Food Supplements | 1,610,500 | 59,508,841 |
| Novartis AG (Switzerland) | Pharmaceuticals | 590,300 | 23,403,292 |
| 225,991,902 | |||
| Telecommunications—2.5% | |||
| SK Telecom Co., Ltd. (Korea) | Mobile Telecommunications | 315,660 | $53,909,284 |
| Telemig Celular Participacoes S.A. (Brazil) | Mobile Telecommunications | 1,806,000,000 | 2,840,621 |
| 56,749,905 | |||
| Telecommunications Equipment—2.9% | |||
| Telefonaktiebolaget LM Ericsson, Class B (Sweden), (a) | Mobile & Wired Telecommunications Products | 61,556,000 | $66,229,823 |
| Computer Services—2.1% | |||
| Meitec Corporation (Japan) | Software Engineering Services | 1,613,200 | $49,113,187 |
| Airport Maintenance—0.2% | |||
| Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico), (b) | Airport Operator | 242,000 | $3,540,460 |
| Diversified Conglomerates—4.9% | |||
| Vivendi Universal SA (France), (a) | Multimedia | 4,216,400 | $76,881,163 |
| LVMH Moet Hennessy Louis Vuitton SA (France) | Diversified Luxury Goods | 685,500 | 34,059,599 |
| Haw Par Corporation Limited (Singapore) | Healthcare & Leisure Products | 58,338 | 143,811 |
| 111,084,573 | |||
| Instruments—1.5% | |||
| Orbotech, Ltd. (Israel), (a) | Optical Inspection Systems | 2,041,200 | $33,945,155 |
| Machinery & Industrial Processing—1.5% | |||
| Metso Corporation (Finland) | Paper & Pulp Machinery | 3,863,000 | $34,440,963 |
| Other Industrial Goods & Services—2.1% | |||
| Chargeurs SA (France) | Wool, Textile Production & Trading | 1,050,201 | $27,304,218 |
| Enodis plc (Great Britain), (a) | Food Processing Equipment | 33,585,320 | 21,653,413 |
| 48,957,631 | |||
| Transportation Services—2.0% | |||
| Associated British Ports Holdings Plc (Great Britain) | Port Operator | 6,916,199 | $45,305,301 |
| Chemicals—5.6% | |||
| Akzo Nobel N.V. (Netherlands) | Chemical Producer | 2,824,000 | $74,980,679 |
| Givaudan (Switzerland) | Fragrance & Flavor Compound Manufacturer | 126,900 | 53,502,718 |
| 128,483,397 | |||
| Total Common Stocks (Cost: $2,064,368,590) | 2,187,023,653 | ||
| Par Value | |||
| Short Term Investments—4.2% | |||
| Repurchase Agreements—4.2% | |||
| IBT Repurchase Agreement, 1.00% due 7/1/2003, repurchase price $95,002,639 collateralized by U.S. Government Agency Securities | $95,000,000 | $95,000,000 | |
| IBT Repurchase Agreement, 0.75% due 7/1/2003, repurchase price $463,033 collateralized by a U.S. Government Agency Security | $463,023 | 463,023 | |
| Total Repurchase Agreement (Cost: $95,463,023) | 95,463,023 | ||
| Total Short Term Investments (Cost: $95,463,023) | 95,463,023 | ||
| Total Investments (Cost $2,159,831,613)—100.0% | $2,282,486,676 | ||
| Foreign Currencies (Cost $2,271,113)—0.1% | $2,269,856 | ||
| Other Liabilities In Excess Of Other Assets—(0.1%) | (3,382,515) | ||
| Total Net Assets—100% | $2,281,374,017 | ||
| (a) | Non-income producing security. |
| (b) | Represents an American Depository Receipt. |