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 (12/31/03) AS COMPARED TO THE MSCI WORLD EX U.S. INDEX20 | ||||
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| Average Annual Total Returns1 | ||||
| (as of 12/31/03) | ||||
| Total Return Last 3 Months* |
1-year | 5-year | Since Inception (11/1/95) |
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| Oakmark International Small Cap Fund | 17.81% | 52.41% | 18.01% | 11.37% |
| MSCI World ex. U.S. | 17.00% | 39.42% | 0.46% | 4.37% |
| Lipper International Small Cap Average23 | 15.05% | 55.14% | 9.52% | 10.99% |
| 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 gained 18% for the quarter, in-line with the relevant benchmark indices. For calendar year 2003 the Fund returned 52%. It was a terrific year for share prices of smaller companies overseas.
Big Contributors 2003
As we do at the end of every year we like to mention those stocks which had the most significant impact on your Fund's NAV8. We had a number of outsized winners and very few that had a negative impact on the Fund's NAV.
Down under, credit services provider Baycorp Advantage Ltd. (Australia) had the single most significant impact this year. In our view the shares were unfairly beaten up over short-term worries regarding integration of their large New Zealand acquisition, ignoring a very strong underlying franchise.
Another very strong performer was Bulgari S.p.A., the Italian luxury goods company. Various market fears—terrorism, SARS, et.al. —drove the share price to extremely attractive levels, and allowed us to build a meaningful position for The Oakmark International Small Cap Fund. The shares have more than doubled over the past twelve months.
One of the Fund's worst performers in 2002 came back strongly this year: Pfeiffer Vacuum Technology (Germany). Despite sluggish markets for their products, especially in the semiconductor industry, the superb management team at Pfeiffer continued to generate enviable profitability and initiated a significant share buyback program.
Other companies with significant positive contributions in calendar 2003 included: industrials Alfa Laval (Sweden) and Gurit-Heberlein (Switzerland); French mailing equipment and services company Neopost; a couple of financials, Danish commercial bank Jyske Bank A/S, and Swiss private bank Julius Baer Holding; and, Grupo Aeroportuario del Sureste ("ASUR"), the Mexican airport operator which holds the concessions for, among others, the Cancun and Cozumel airports. Companies with negative contributions included Van der Moolen Holding N.V., Natuzzi S.p.A, and Ducati Motor Holding S.p.A., however their performance had less impact.
Looking Forward
Despite the strong performance of the Fund this year, we still feel fairly optimistic about potential price appreciation for our holdings over the medium and long-term. 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—December 31, 2003 (Unaudited)
| THE OAKMARK INTERNATIONAL SMALL CAP FUND |
Schedule of Investments—December 31, 2003 (Unaudited)
| Name | Description | Shares Held | Market Value |
| Common Stocks—95.1% | |||
| Food & Beverage—5.6% | |||
| Campari Group (Italy) | Soft Drinks, Wines, & Spirits | ||
| Producer | 263,900 | $12,784,429 | |
| Baron de Ley, S.A. | |||
| (Spain) (a) | Wines & Spirits Manufacturer | 150,985 | 7,226,867 |
| Hite Brewery Co., | |||
| Ltd. (Korea) | Brewer | 68,000 | 4,987,998 |
| Grupo Continental, | |||
| S.A. (Mexico) | Soft Drink Manufacturer | 1,654,100 | 2,796,823 |
| Alaska Milk | |||
| Corporation | |||
| (Philippines) | Milk Producer | 49,394,000 | 2,757,950 |
| Kook Soon Dang | |||
| Brewery Co., Ltd. | |||
| (Korea) | Wine & Spirits Manufacturer | 122,676 | 2,738,717 |
| $33,292,784 | |||
| Household Products—0.8% | |||
| Societe BIC SA (France) | Consumer & Office Supplies | 101,800 | $4,698,248 |
| Other Consumer Goods & Services—1.3% | |||
| Vitec Group plc | |||
| (Great Britain) | Photo Equipment & Supplies | 678,400 | $4,189,162 |
| Royal Doulton plc | |||
| (Great Britain) (a) | Tableware & Giftware | 22,373,000 | 3,294,150 |
| 7,483,312 | |||
| Broadcasting & Publishing—2.7% | |||
| Tamedia AG (Switzerland) | TV Broadcasting & Publishing | 184,151 | $16,365,011 |
| Building Materials & Construction—0.7% | |||
| Fletcher Building | |||
| Limited | |||
| (New Zealand) | Building Materials Manufacturer | 1,489,800 | $4,143,158 |
| Human Resources—2.2% | |||
| DIS Deutscher Industrie | |||
| Service AG (Germany) | Recruitment Consultancy Services | 552,142 | $12,873,299 |
| Information Services—4.7% | |||
| Baycorp Advantage | |||
| Limited (Australia) (a) | Credit Reference Services | 13,342,500 | $28,133,195 |
| Marketing Services—2.1% | |||
| Asatsu-DK, Inc. (Japan) | Advertising Services Provider | 459,700 | $11,844,399 |
| LG Ad Inc. (Korea) | Advertising & Marketing Services | 43,000 | 754,259 |
| 12,598,658 | |||
| Motorcycles—1.5% | |||
| Ducati Motor Holding | |||
| S.p.A. (Italy) (a) | Motorcycle Manufacturer | 5,190,000 | $8,982,283 |
| Publishing—1.9% | |||
| Recoletos Grupo de | |||
| Comunicacion, | |||
| S.A. (Spain) | Publisher | 820,000 | $6,083,616 |
| Matichon Public | |||
| Company Limited, | |||
| Foreign Shares | |||
| (Thailand) | Newspaper Publisher | 2,039,500 | 5,198,801 |
| 11,282,417 | |||
| Recreation & Entertainment—2.0% | |||
| Square Enix Co., | |||
| Ltd. (Japan) | Entertainment Software | 382,100 | $9,006,745 |
| Konami Sports | |||
| Corporation (Japan) | Fitness Centers | 183,000 | 2,972,554 |
| 11,979,299 | |||
| Retail—8.7% | |||
| D.F.S. Furniture | |||
| Company plc | |||
| (Great Britain) | Furniture Retailer & Manufacturer | 2,680,000 | $18,247,130 |
| Carpetright plc | |||
| (Great Britain) | Carpet Retailer | 1,174,500 | 17,439,803 |
| Bulgari S.p.A. (Italy) | Jewelry Manufacturer & Retailer | 1,833,000 | 16,967,715 |
| 52,654,648 | |||
| Bank & Thrifts—2.8% | |||
| Jyske Bank A/S | |||
| (Denmark) (a) | Commercial Banking | 222,400 | $11,736,644 |
| Vontobel Holding | |||
| AG (Switzerland) | Commercial Banking | 203,700 | 4,648,994 |
| 16,385,638 | |||
| Financial Services—2.8% | |||
| Julius Baer Holding Ltd., | |||
| Zurich (Switzerland) | Asset Management | 49,090 | $16,537,833 |
| Other Financial—1.9% | |||
| Ichiyoshi Securities | |||
| Co., Ltd. (Japan) | Stock Broker | 2,443,000 | $11,243,456 |
| Medical Products—4.1% | |||
| Ansell Limited | |||
| (Australia) | Protective Rubber & | ||
| Plastics Products | 3,704,750 | $17,994,610 | |
| Coloplast A/S, | |||
| Class B (Denmark) | Healthcare Products & | ||
| Services Provider | 73,800 | 6,303,798 | |
| 24,298,408 | |||
| Pharmaceuticals—1.9% | |||
| Santen Pharmaceutical | |||
| Co., Ltd. (Japan) | Pharmaceuticals | 863,200 | $11,499,126 |
| Telecommunications—0.8% | |||
| Asia Satellite | |||
| Telecommunications | |||
| Holdings Limited | |||
| (Hong Kong) | Satellite Operator | 2,531,000 | $4,808,533 |
| Computer Services—4.2% | |||
| Morse plc (Great Britain) | Business & Technology Solutions | 6,318,300 | $16,068,685 |
| Sopra Group (France) | Computer Engineering | 111,930 | 4,755,492 |
| Alten (France) (a) | Systems Consulting & Engineering | 298,141 | 4,273,627 |
| 25,097,804 | |||
| Computer Systems—2.3% | |||
| Lectra (France) (a) | Manufacturing Process Systems | 1,718,500 | $13,528,891 |
| Office Equipment—4.2% | |||
| Neopost SA (France) | Mailroom Equipment Supplier | 501,900 | $25,287,730 |
| Airport Maintenance—6.7% | |||
| Kobenhavns | |||
| Lufthavne A/S | |||
| (Copenhagen Airports | |||
| A/S - CPH) (Denmark) | Airport Management & Operations | 184,100 | $21,548,371 |
| Grupo Aeroportuario del | |||
| Sureste S.A. de C.V. | |||
| (Mexico) (b) | Airport Operator | 1,064,000 | 18,726,400 |
| 40,274,771 | |||
| Diversified Conglomerates—6.2% | |||
| Pargesa Holding AG | |||
| (Switzerland) | Diversified Operations | 5,374 | $14,327,193 |
| Financiere Marc de | |||
| Lacharriere SA | |||
| (Fimalac) (France) | Diversified Operations | 386,364 | 14,152,192 |
| Tae Young Corp. (Korea) | Heavy Construction | 245,610 | 8,451,540 |
| Financiere Marc de | |||
| Lacharriere SA | |||
| (Fimalac), Warrants | |||
| (France) (a) | Diversified Operations | 31,866 | 105,965 |
| 37,036,890 | |||
| Environmental Products & Services—0.3% | |||
| Munters AB (Sweden) | Cooling & Moisture Control Systems | 77,400 | $1,871,644 |
| Instruments—1.6% | |||
| Vaisala Oyj, Class A | |||
| (Finland) | Atmospheric Observation | ||
| Equipment | 321,900 | $9,491,941 | |
| Machinery & Industrial Processing—7.8% | |||
| Pfeiffer Vacuum | |||
| Technology AG | |||
| (Germany) | Vacuum Pump Manufacturer | 471,140 | $16,616,542 |
| Alfa Laval (Sweden) | Filtration & Separation Equipment | 1,061,100 | 16,147,430 |
| Carbone Lorraine | |||
| SA (France) | Electrical Systems Manufacturer | 300,382 | 11,029,228 |
| Andritz AG (Austria) | General Industrial Machinery | 68,000 | 3,250,524 |
| 47,043,724 | |||
| Other Industrial Goods & Services—5.3% | |||
| Schindler Holding | |||
| AG (Switzerland) (a) | Elevator & Escalator Manufacturer | 76,150 | $21,101,511 |
| LISI (France) | Industrial Fastener Manufacturer | 241,813 | 9,366,070 |
| Kone Oyj, Class B | |||
| (Finland) | Elevators | 24,500 | $1,399,510 |
| 31,867,091 | |||
| Production Equipment—3.1% | |||
| Interpump Group | |||
| S.p.A. (Italy) | Pump & Piston Manufacturer | 3,933,500 | $17,549,323 |
| NSC Groupe (France) | Textile Equipment Manufacturer | 12,316 | 1,165,044 |
| 18,714,367 | |||
| Transportation Services—1.5% | |||
| Mainfreight Limited | |||
| (New Zealand) | Logistics Services | 8,935,381 | $9,142,718 |
| Chemicals—3.4% | |||
| Gurit-Heberlein AG | |||
| (Switzerland) | Chemical Producer | 29,134 | $20,218,215 |
| Total Common Stocks (Cost: $408,726,274) | 568,835,092 | ||
| Par Value | |||
| Short Term Investments—4.7% | |||
| U.S. Government Bills—1.6% | |||
| United States Treasury Bills, 0.83% - 0.925% due 1/2/2004 - 1/8/2004 | $10,000,000 | $9,999,065 | |
| Total U.S. Government Bills (Cost: $9,999,065) | 9,999,065 | ||
| Repurchase Agreements—3.1% | |||
| IBT Repurchase Agreement, 0.85% due 1/2/2004, repurchase price $16,000,756 collateralized by U.S. Government Agency Securities | $16,000,000 | $16,000,000 | |
| IBT Repurchase Agreement, 0.75% due 1/2/2004, repurchase price $2,405,970 collateralized by a U.S. Government Agency Security | 2,405,870 | 2,405,870 | |
| Total Repurchase Agreements (Cost: $18,405,870) | 18,405,870 | ||
| Total Short Term Investments (Cost: $28,404,935) | 28,404,935 | ||
| Total Investments (Cost $437,131,209)—99.8% | $597,240,027 | ||
| Foreign Currencies (Cost $669,347)—0.1% | 674,234 | ||
| Other Assets In Excess Of Other Liabilities—0.1% | 403,279 | ||
| Total Net Assets—100% | $598,317,540 | ||
| (a) Non-income producing security. |
| (b) Represents an American Depository Receipt. |