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 (9/30/03) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX21 | ||||
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| Annual Average Total Returns1 | ||||
| (as of 9/30/03) | ||||
| Total Return Last 3 Months* |
1-year | 5-year | Since Inception (11/1/95) |
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| Oakmark International Small Cap Fund | 14.12% | 39.78% | 20.03% | 9.46% |
| MSCI World ex. U.S.21 | 8.08% | 26.95% | 1.03% | 2.46% |
| Lipper International Small Cap Average25 | 15.07% | 38.43% | 8.26% | 9.36% |
| 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 up 14% for the quarter ending September 30, 2003. This performance was in line with relevant indices for the quarter. The strong price recovery in global stocks that began in March continued through the 3rd quarter, with small cap stocks outperforming large caps over the period. Reflective of this recovery your Fund is up 47% over the past six months.
A number of companies contributed to performance in the quarter. Baycorp Advantage Ltd, the Australasian (Australia & New Zealand) credit reference provider, had the strongest price appreciation and was the single biggest contributor to the Fund's NAV24. You may recall Baycorp from our discussion in the March 31, 2003, shareholder's letter. It was one of the worst performers for that three month period, and we remarked the market's overreaction to a slow down in growth had created a significant gap between price and business value, and that we continued to add to our holding. Baycorp is now the single largest position in the Fund.
Bulgari S.p.A, the Italian luxury goods company, was another very strong performer. Other contributors included two Swiss companies, Schindler Holding AG and Gurit-Heberlein AG, as well as UK-based Carpetright.
In Japan the Fund benefited from very strong stock selection, due to the performance of Asatsu-DK, Square-Enix, and Ichiyoshi Securities Co. Ltd.
Looking Forward
Even with the strong recent performance of the portfolio, we remain optimistic about potential price appreciation. We continue to own generally good quality businesses trading a significant discount to our estimate of intrinsic value. 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 SMALL CAP FUND |
International Diversification—September 30, 2003
| THE OAKMARK INTERNATIONAL SMALL CAP FUND |
Schedule of Investments—September 30, 2003
| Name | Description | Shares Held | Market Value |
| Common Stocks—94.8% | |||
| Food & Beverage—5.9% | |||
| Campari Group (Italy) | Soft Drinks, Wines, & Spirits Producer | 245,200 | $9,925,888 |
| Baron de Ley, S.A. (Spain) (a) | Wines & Spirits Manufacturer | 150,985 | 6,069,767 |
| Hite Brewery Co., Ltd. (Korea) | Brewer | 68,000 | 4,138,591 |
| Alaska Milk Corporation (Philippines) (b) | Milk Producer | 49,394,000 | 2,745,362 |
| Grupo Continental, S.A. (Mexico) | Soft Drink Manufacturer | 1,654,100 | 2,451,633 |
| Kook Soon Dang Brewery Co., Ltd. (Korea) | Wine & Spirits Manufacturer | 122,676 | 2,191,881 |
| 27,523,122 | |||
| Household Products—0.6% | |||
| Societe BIC SA (France) | Consumer & Office Supplies | 64,800 | $2,763,600 |
| Other Consumer Goods & Services—0.2% | |||
| Royal Doulton plc (Great Britain) (a)(b) | Tableware & Giftware | 22,373,000 | $1,069,231 |
| Broadcasting & Publishing—2.3% | |||
| Tamedia AG (Switzerland) | TV Broadcasting & Publishing | 184,151 | $11,155,174 |
| Building Materials & Construction—0.8% | |||
| Fletcher Building Limited (New Zealand) | Building Materials Manufacturer | 1,489,800 | $3,788,877 |
| Human Resources—2.1% | |||
| DIS Deutscher Industrie Service AG (Germany) | Recruitment Consultancy Services | 552,142 | $10,242,665 |
| Information Services—4.6% | |||
| Baycorp Advantage Limited (Australia) (b) | Credit Reference Services | 14,303,477 | $22,184,264 |
| Marketing Services—2.1% | |||
| Asatsu-DK, Inc. (Japan) | Advertising Services Provider | 426,700 | $9,934,384 |
| Motorcycles—1.1% | |||
| Ducati Motor Holding S.p.A. (Italy) (a) | Motorcycle Manufacturer | 3,238,300 | $5,316,762 |
| Publishing—2.2% | |||
| Recoletos Grupo de Comunicacion, S.A. (Spain) | Publisher | 880,000 | $6,121,757 |
| Matichon Public Company Limited, Foreign Shares (Thailand) (b) | Newspaper Publisher | 2,039,500 | 4,381,639 |
| 10,503,396 | |||
| Recreation & Entertainment—2.0% | |||
| Square Enix Co., Ltd. (Japan) | Entertainment Software | 324,600 | $8,096,070 |
| Konami Sports Corporation (Japan) | Fitness Centers | 96,500 | 1,506,460 |
| 9,602,530 | |||
| Retail—9.3% | |||
| Bulgari S.p.A. (Italy) | Jewelry Manufacturer & Retailer | 2,170,800 | $17,479,016 |
| Carpetright plc (Great Britain) | Carpet Retailer | 1,174,500 | 15,326,115 |
| D.F.S. Furniture Company plc (Great Britain) | Furniture Retailer & Manufacturer | 1,743,600 | 11,897,876 |
| 44,703,007 | |||
| Bank & Thrifts—3.7% | |||
| Jyske Bank A/S (Denmark) (a) | Commercial Banking | 222,400 | $9,562,739 |
| Vontobel Holding AG (Switzerland) | Commercial Banking | 469,000 | 7,972,627 |
| 17,535,366 | |||
| Financial Services—4.6% | |||
| Julius Baer Holding Ltd., Zurich (Switzerland) | Asset Management | 49,090 | $14,125,014 |
| Van der Moolen Holding N.V. (Netherlands) | International Trading Firm | 761,200 | 7,920,806 |
| 22,045,820 | |||
| Other Financial—2.5% | |||
| Ichiyoshi Securities Co., Ltd. (Japan) | Stock Broker | 2,480,000 | $9,545,308 |
| TSX Group Inc. (Canada) | Stock Exchanges | 101,500 | 2,442,614 |
| 11,987,922 | |||
| Medical Products—4.2% | |||
| Ansell Limited (Australia) | Protective Rubber & Plastics Products | 3,587,350 | $16,398,781 |
| Coloplast A/S, Class B (Denmark) | Healthcare Products & Services Provider | 46,100 | 3,863,128 |
| 20,261,909 | |||
| Pharmaceuticals—0.6% | |||
| Santen Pharmaceutical Co., Ltd. (Japan) | Pharmaceuticals | 265,500 | $2,977,526 |
| Telecommunications—0.5% | |||
| Asia Satellite Telecommunications Holdings Limited (Hong Kong) | Satellite Operator | 1,491,000 | $2,281,436 |
| Computer Services—4.2% | |||
| Morse plc (Great Britain) | Business & Technology Solutions | 5,734,300 | $12,153,462 |
| Sopra Group (France) | Computer Engineering | 128,430 | 5,207,926 |
| Alten (France) (a) | Systems Consulting & Engineering | 298,141 | 3,081,516 |
| 20,442,904 | |||
| Computer Systems—2.4% | |||
| Lectra (France) (a) | Manufacturing Process Systems | 1,718,500 | $11,714,520 |
| Office Equipment—3.6% | |||
| Neopost SA (France) | Mailroom Equipment Supplier | 374,800 | $17,382,081 |
| Airport Maintenance—6.5% | |||
| Grupo Aeroportuario del Sureste S.A. de C.V. (Mexico) (b)(c) | Airport Operator | 1,064,000 | $15,640,800 |
| Kobenhavns Lufthavne A/S (Copenhagen Airports A/S - CPH) (Denmark) | Airport Management & Operations | 162,700 | 15,191,529 |
| 30,832,329 | |||
| Diversified Conglomerates—6.3% | |||
| Pargesa Holding AG (Switzerland) | Diversified Operations | 5,374 | $12,390,739 |
| Financiere Marc de Lacharriere SA (Fimalac) (France) | Diversified Operations | 346,764 | 9,071,299 |
| Tae Young Corp. (Korea) | Heavy Construction | 213,000 | 8,518,889 |
| Financiere Marc de Lacharriere SA (Fimalac), Warrants (France) | Diversified Operations | 31,866 | 83,918 |
| 30,064,845 | |||
| Environmental Products & Services—0.1% | |||
| Munters AB (Sweden) | Cooling & Moisture Control Systems | 23,500 | $509,551 |
| Instruments—1.7% | |||
| Vaisala Oyj, Class A (Finland) | Atmospheric Observation Equipment | 329,700 | $8,052,474 |
| Machinery & Industrial Processing—8.1% | |||
| Pfeiffer Vacuum Technology AG (Germany) (b) | Vacuum Pump Manufacturer | 471,140 | $14,262,913 |
| Alfa Laval (Sweden) | Filtration & Separation Equipment | 1,133,100 | 13,308,221 |
| Carbone Lorraine SA (France) | Electrical Systems Manufacturer | 300,382 | 9,678,056 |
| Andritz AG (Austria) | General Industrial Machinery | 41,700 | 1,348,398 |
| 38,597,588 | |||
| Other Industrial Goods & Services—5.3% | |||
| Schindler Holding AG (Switzerland) (a) | Elevator & Escalator Manufacturer | 71,900 | $16,768,409 |
| LISI (France) | Industrial Fastener Manufacturer | 241,813 | 7,044,315 |
| Kone Oyj, Class B (Finland) | Elevators | 24,500 | 1,224,451 |
| 25,037,175 | |||
| Production Equipment—2.4% | |||
| Interpump Group S.p.A. (Italy) | Pump & Piston Manufacturer | 2,816,400 | $10,656,037 |
| NSC Groupe (France) | Textile Equipment Manufacturer | 12,316 | 1,062,708 |
| 11,718,745 | |||
| Transportation Services—1.3% | |||
| Mainfreight Limited (New Zealand) (b) | Logistics Services | 7,765,726 | $6,151,604 |
| Chemicals—3.6% | |||
| Gurit-Heberlein AG (Switzerland) | Chemical Producer | 27,664 | $17,176,754 |
| Total Common Stocks (Cost: $383,420,899) | 453,557,561 | ||
| Par Value | |||
| Short Term Investments—4.4% | |||
| U.S. Government Bills—1.1% | |||
| United States Treasury Bills, 0.845% due 10/9/2003 | $5,000,000 | $4,999,061 | |
| Total U.S. Government Bills (Cost: $4,999,061) | 4,999,061 | ||
| Repurchase Agreements—3.3% | |||
| IBT Repurchase Agreement, 0.95% due 10/1/2003, repurchase price of $14,000,369 collateralized by U.S. Government Agency Securities | $14,000,000 | $14,000,000 | |
| IBT Repurchase Agreement, 0.75% due 10/1/2003, repurchase price of $1,838,097 collateralized by a U.S. Government Agency Security | 1,838,059 | 1,838,059 | |
| Total Repurchase Agreements (Cost: $15,838,059) | 15,838,059 | ||
| Total Short Term Investments (Cost: $20,837,120) | 20,837,120 | ||
| Total Investments (Cost $404,258,019)—99.2% | $474,394,681 | ||
| Foreign Currencies (Cost $93,014)—0.0% | $93,140 | ||
| Other Assets In Excess Of Other Liabilities—0.8% | 3,756,608 | ||
| Total Net Assets—100% | $478,244,429 | ||
| (a) | Non-income producing security. |
| (b) | See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. |
| (c) | Represents an American Depository Receipt. |
See accompanying notes to financial statements.