UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06279
Harris Associates Investment Trust
(Exact name of registrant as specified in charter)
Two North La Salle Street, Suite 500
Chicago, Illinois 60602-3790
(Address of principal executive offices) (Zip Code)
Robert M. Levy Cameron S. Avery
Harris Associates L.P. Bell, Boyd & Lloyd LLC
Two North La Salle Street, #500 Three First National Plaza, #3300
Chicago, Illinois 60602 Chicago, Illinois 60602
(Name and address of agents for service)
Registrant's telephone number, including area code: (312) 621-0600
Date of fiscal year end: 09/30/03
Date of reporting period: 09/30/03
Item 1. Reports to Shareholders.
<Page>
[GRAPHIC]
THE OAKMARK FUND
THE OAKMARK SELECT FUND
THE OAKMARK SMALL CAP FUND
THE OAKMARK EQUITY AND INCOME FUND
THE OAKMARK GLOBAL FUND
THE OAKMARK INTERNATIONAL FUND
THE OAKMARK INTERNATIONAL SMALL CAP FUND
ANNUAL REPORT
SEPTEMBER 30, 2003
ADVISED BY HARRIS ASSOCIATES L.P.
[OAKMARK FAMILY OF FUNDS LOGO]
<Page>
THE OAKMARK FAMILY OF FUNDS
2003 ANNUAL REPORT
<Table>
PRESIDENTS' LETTER 1
SUMMARY INFORMATION 2
COMMENTARY ON THE OAKMARK AND OAKMARK SELECT FUNDS 4
THE OAKMARK FUND
Letter from the Portfolio Managers 6
Schedule of Investments 7
THE OAKMARK SELECT FUND
Letter from the Portfolio Managers 11
Schedule of Investments 12
THE OAKMARK SMALL CAP FUND
Letter from the Portfolio Managers 14
Schedule of Investments 16
THE OAKMARK EQUITY AND INCOME FUND
Letter from the Portfolio Managers 20
Schedule of Investments 22
THE OAKMARK GLOBAL FUND
Letter from the Portfolio Managers 28
Global Diversification Chart 30
Schedule of Investments 31
COMMENTARY ON THE INTERNATIONAL AND INTERNATIONAL SMALL CAP FUNDS 36
THE OAKMARK INTERNATIONAL FUND
Letter from the Portfolio Managers 38
International Diversification Chart 39
Schedule of Investments 40
THE OAKMARK INTERNATIONAL SMALL CAP FUND
Letter from the Portfolio Managers 45
International Diversification Chart 46
Schedule of Investments 47
FINANCIAL STATEMENTS
Statements of Assets and Liabilities 52
Statements of Operations 54
Statements of Changes in Net Assets 56
Notes to Financial Statements 63
TRUSTEES AND OFFICERS 84
OAKMARK PHILOSOPHY AND PROCESS 87
THE OAKMARK GLOSSARY 88
</Table>
FORWARD-LOOKING STATEMENT DISCLOSURE
One of our most important responsibilities as mutual fund managers is to
communicate with shareholders in an open and direct manner. Some of our comments
in our letters to shareholders are based on current management expectations and
are considered "forward-looking statements". Actual future results, however, may
prove to be different from our expectations. You can identify forward-looking
statements by words such as "estimate", "may", "will", "expect", "believe",
"plan" and other similar terms. We cannot promise future returns. Our opinions
are a reflection of our best judgment at the time this report is compiled, and
we disclaim any obligation to update or alter forward-looking statements as a
result of new information, future events, or otherwise.
<Page>
PRESIDENTS' LETTER
DEAR FELLOW SHAREHOLDERS,
The stock market continued its recent gains during the third calendar quarter.
While each of our funds posted a positive return for the quarter, performance
relative to our benchmarks was mixed. More importantly, with most broad indices
posting strong double digit gains for the full fiscal year, most of our funds
outperformed their benchmarks.
MARKET ASSESSMENT
The economy continues its recovery, which started at the end of 2002. While
interest rates have risen, they still remain near record lows. Corporate
earnings appear to be gaining strength and are providing more frequent positive
surprises. Good economic news and strong consumer spending are tempered though,
by concerns over the Iraqi conflict, a large budget deficit, and lack of jobs
growth. While the market has posted sizable gains since the first quarter,
returns have varied widely across the market--often rewarding promises of growth
more than delivered results. As we look at the relative performance of our
holdings we believe that much of the recent quarter's performance is more
reflective of emotion than business fundamentals.
While the attractive valuation discounts we saw in early spring are not as
prevalent today, we believe this has become more of a "stock pickers"
market--where values exist, but are tougher to find. We believe that short-term
emotional valuation swings, while sometimes painful, will in the long-term play
to our strengths as disciplined, bottom-up investors.
CAPITAL GAIN DISTRIBUTIONS
We are pleased that with the exception of a small estimated capital gains
distribution in The Oakmark Global Fund, we do not anticipate paying a capital
gains distribution for any other funds this year. While this is not unusual for
many mutual funds this year because of longer-term realized losses, it is
unusual for a fund family like ours, where many of the funds fared well in the
bear market and continue to reach new highs.
FUND TRADING
Most of you have no doubt heard about New York Attorney General Eliot Spitzer's
investigation into market timing and trading practices at certain investment
firms.
[PHOTO ROBERT M. LEVY AND JOHN R. RAITT]
We are very troubled by those allegations involving other fund companies, as
they erode investor confidence in the mutual fund industry. Trust is essential
to our business and once lost, it is hard to earn back. Our position on the kind
of activities alleged by Mr. Spitzer is clear. We believe that market timers
hurt the returns of long-term investors in our funds. Market timers are
unwelcome in our funds and are not provided any special breaks. We have
redemption fees in place for most of our funds to discourage market timers and
we police subscription and redemption activity to catch other timers. In regard
to "after-hours" trading, our position is also straightforward: we don't permit
it, period. We believe we have taken proper steps to prevent this from happening
in our funds. We hope for a clear and rapid solution to these issues in order to
regain investor confidence in the industry. If you want to know more about our
position on this subject, please visit our web site at www.oakmark.com.
Thank you for entrusting your long-term assets to The Oakmark Family of Funds.
We welcome your comments and questions; you can reach us via email at
ContactOakmark@oakmark.com.
/s/ Robert M. Levy /s/ John R. Raitt
ROBERT M. LEVY JOHN R. RAITT
PRESIDENT PRESIDENT AND CEO
OF THE OAKMARK FUNDS OF HARRIS ASSOCIATES L.P.
CHAIRMAN AND CIO
OF HARRIS ASSOCIATES L.P.
1
<Page>
THE OAKMARK FAMILY OF FUNDS
SUMMARY INFORMATION
<Table>
<Caption>
THE OAKMARK THE OAKMARK
PERFORMANCE FOR THE OAKMARK SELECT SMALL CAP
PERIOD ENDED FUND FUND FUND
SEPTEMBER 30, 2003(1) (OAKMX) (OAKLX) (OAKSX)
- -----------------------------------------------------------------------------------------------------------------------------
3 MONTHS* 0.33% 0.04% 5.79%
- -----------------------------------------------------------------------------------------------------------------------------
6 MONTHS* 17.33% 16.24% 23.69%
- -----------------------------------------------------------------------------------------------------------------------------
1 YEAR 20.99% 27.25% 21.84%
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL
RETURN FOR:
3 YEAR 8.73% 11.30% 5.67%
- -----------------------------------------------------------------------------------------------------------------------------
5 YEAR 5.11% 17.42% 7.25%
- -----------------------------------------------------------------------------------------------------------------------------
10 YEAR 10.73% N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION 16.50% 21.20% 9.99%
(8/5/91) (11/1/96) (11/1/95)
- -----------------------------------------------------------------------------------------------------------------------------
VALUE OF $10,000
FROM INCEPTION DATE $ 64,034 $ 37,820 $ 21,255
- -----------------------------------------------------------------------------------------------------------------------------
TOP FIVE EQUITY HOLDINGS Washington Washington eFunds
AS OF SEPTEMBER 30, Mutual, Inc. 3.8% Mutual, Inc. 18.1% Corporation 4.7%
2003(2) H&R Block, Inc. 2.7% H&R Block, Inc. 7.5% Ralcorp Holdings, Inc. 4.5%
Fannie Mae 2.5% Yum! Brands, Inc. 5.4% Checkpoint
COMPANY AND % OF TOTAL McDonald's The Kroger Co. 4.5% Systems, Inc. 4.4%
NET ASSETS Corporation 2.4% First Data Hanger Orthopedic
Yum! Brands, Inc. 2.3% Corporation 4.4% Group, Inc. 4.2%
BankAtlantic
Bancorp, Inc.,
Class A 4.1%
- -----------------------------------------------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Retail 10.0% Banks & Thrifts 18.1% Computer Software 8.7%
AS OF SEPTEMBER 30, 2003 Pharmaceuticals 8.5% Other Consumer Banks & Thrifts 8.4%
Food & Beverage 8.3% Goods & Services 11.6% Food & Beverage 7.7%
Banks & Thrifts 7.0% Retail 10.8% Medical Products 7.3%
INDUSTRIES AND % OF TOTAL Other Consumer Information Services 7.1% Oil & Natural Gas 5.6%
NET ASSETS Goods & Services 6.3% Pharmaceuticals 6.8%
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
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
2
<Page>
<Table>
<Caption>
THE OAKMARK THE OAKMARK
PERFORMANCE FOR EQUITY AND GLOBAL
PERIOD ENDED INCOME FUND FUND
SEPTEMBER 30, 2003(1) (OAKBX) (OAKGX)
- ------------------------------------------------------------------------------------------
3 MONTHS* 2.01% 9.55%
- ------------------------------------------------------------------------------------------
6 MONTHS* 15.47% 46.25%
- ------------------------------------------------------------------------------------------
1 YEAR 19.75% 50.27%
- ------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL
RETURN FOR:
3 YEAR 10.89% 17.63%
- ------------------------------------------------------------------------------------------
5 YEAR 13.25% N/A
- ------------------------------------------------------------------------------------------
10 YEAR N/A N/A
- ------------------------------------------------------------------------------------------
SINCE INCEPTION 14.04% 14.83%(3)
(11/1/95) (8/4/99)
- ------------------------------------------------------------------------------------------
VALUE OF $10,000
FROM INCEPTION DATE $ 28,308 $ 17,774
- ------------------------------------------------------------------------------------------
TOP FIVE EQUITY HOLDINGS Synopsys, Inc. 2.6% Diageo plc 5.9%
AS OF SEPTEMBER 30, Watson Pharmaceuticals Nestle SA 4.5%
2003(2) Inc. 2.4% Fannie Mae 4.0%
First Health Group First Health Group
COMPANY AND % OF TOTAL Corp. 2.4% Corp. 3.9%
NET ASSETS SAFECO Corporation 2.3% Aventis S.A. 3.8%
Diageo plc 2.3%
- ------------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES U.S. Government Food & Beverage 11.3%
AS OF SEPTEMBER 30, 2003 Notes 27.2% Pharmaceuticals 9.8%
Oil & Natural Gas 5.8% Other Financial 9.2%
Health Care Services 4.8% Information Services 7.0%
INDUSTRIES AND % OF TOTAL Food & Beverage 4.6% Retail 5.8%
NET ASSETS Aerospace & Defense 4.2%
- ------------------------------------------------------------------------------------------
<Caption>
THE OAKMARK THE OAKMARK
PERFORMANCE FOR INTERNATIONAL INTERNATIONAL
PERIOD ENDED FUND SMALL CAP FUND
SEPTEMBER 30, 2003(1) (OAKIX) (OAKEX)
- ------------------------------------------------------------------------------------------
3 MONTHS* 7.70% 14.12%
- ------------------------------------------------------------------------------------------
6 MONTHS* 35.09% 47.42%
- ------------------------------------------------------------------------------------------
1 YEAR 29.97% 39.78%
- ------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL
RETURN FOR:
3 YEAR 3.61% 11.14%
- ------------------------------------------------------------------------------------------
5 YEAR 13.21% 20.03%
- ------------------------------------------------------------------------------------------
10 YEAR 8.53% N/A
- ------------------------------------------------------------------------------------------
SINCE INCEPTION 10.62% 9.46%
(9/30/92) (11/1/95)
- ------------------------------------------------------------------------------------------
VALUE OF $10,000
FROM INCEPTION DATE $ 30,368 $ 20,465
- ------------------------------------------------------------------------------------------
TOP FIVE EQUITY HOLDINGS Diageo plc 3.7% Baycorp Advantage
AS OF SEPTEMBER 30, GlaxoSmithKline plc 3.6% Limited 4.6%
2003(2) Nestle SA 3.2% Bulgari S.p.A. 3.7%
Aventis S.A. 3.2% Neopost SA 3.6%
COMPANY AND % OF TOTAL Henkel KGaA 3.1% Gurit-Heberlein AG 3.6%
NET ASSETS Schindler Holding AG 3.5%
- ------------------------------------------------------------------------------------------
TOP FIVE INDUSTRIES Food & Beverage 14.2% Retail 9.3%
AS OF SEPTEMBER 30, 2003 Pharmaceuticals 11.4% Machinery & Industrial
Banks & Thrifts 11.0% Processing 8.1%
INDUSTRIES AND % OF TOTAL Other Financial 7.6% Airport Maintenance 6.5%
NET ASSETS Chemicals 6.5% Diversified
Conglomerates 6.3%
Food & Beverage 5.9%
- ------------------------------------------------------------------------------------------
</Table>
3
<Page>
THE OAKMARK AND OAKMARK SELECT FUNDS
AT OAKMARK, WE LOOK FOR STOCKS WITH PRICES LESS THAN 60% OF INTRINSIC VALUE,
WITH INTRINSIC VALUE THAT IS LIKELY TO GROW AND WITH MANAGEMENT THAT ACTS IN THE
INTEREST OF OUTSIDE SHAREHOLDERS. THE COMBINATION OF THESE FACTORS CREATES OUR
BIGGEST COMPETITIVE ADVANTAGE--THE ABILITY TO BE MORE PATIENT THAN MOST
INVESTORS.
[PHOTO OF WILLIAM C. NYGREN]
Next quarter when you notice that we no longer own AOL, don't assume that we
sold our position. In a press release last month, AOL announced they would
change their name back to Time Warner Inc. This was an acknowledgement that the
company's future belongs more to their outstanding portfolio of traditional
media assets than to their Internet access company. Jerry Levin and Steve Case,
the CEOs who four years ago united these companies in what they referred to as
the "merger of the century", have both since resigned. AOL stock, which traded
at nearly $100 in the Internet bubble, today is priced at just $15. Though we
believe it is significantly undervalued, it will almost certainly fail to
produce a profit for those who bought into the merger hype.
The success of corporate strategies, business leaders, and, yes, portfolio
managers can only be determined after long periods of time. Perhaps that's what
makes reading old business books so entertaining. Bookstores are filled with
newly published texts promoting recently successful business strategies. On the
bargain counter, one of our portfolio managers found one such book, LESSONS FROM
THE TOP(4) by Neff and Citrin. (As we've said before, our value approach is
deeply ingrained!) It was written in 1999 during the peak of the "Marquee CEO"
approach to investing as a study of "the 50 most successful business leaders in
America." Since one of our three key stock selection criteria is investing with
good management, I decided to give the book a quick read.
To their credit, the authors concluded that successful business leaders share
common traits such as a passion for their work, strong competitive drives,
clarity of thought, and the ability to clearly communicate those thoughts. (Not
coincidentally, we believe these traits are also shared by successful
investors.) But what makes the book more entertaining today is how events of the
past four years have changed the way we read the quotes. Tyco CEO Dennis
Kozlowski's claim that "there is a lot one person can do" was read differently
in 1999 than it is today after Tyco's turmoil. When Bernie Ebbers from WorldCom
said, "I look at my stewardship of this company as an opportunity that the Lord
has given me," or when Ken Lay attributed the strength of Enron's culture to,
"my basic value system" it didn't produce the sighs or smirks it does today.
Yes, all three of them were considered Top 50 business leaders (as was AOL's
Steve Case) just four short years ago! In fairness, among the Top 50 were also
many CEOs still considered exceptional such as Michael Dell of Dell Computer,
Herb Kelleher of Southwest Airlines, and Bob Tillman of Lowe's. Their companies
have each enjoyed four great years since the book was written. So, how would an
investor who bought stock in all the profiled companies have faired over the
past four years? Unfortunately, not too well. An investor who equal-weighted
positions would have underperformed the equal-weighted S&P 500 by about three
percentage points. Likewise, an investor who weighted positions based on market
capitalization would have underperformed the cap-weighted S&P 500 by a similar
amount.
Why does this sort of investment strategy almost always fail? After all, the
authors went to great lengths to make sure their selections were based on solid
quantitative measures of excellence that were free of industry bias. Though
their approach was very logical, stock market prices generally incorporate the
obvious. Investors were aware of these excellent leaders' track records and had
bid up prices of these stocks. Simply put, betting on a single-factor model
rarely outperforms the market. If you buy the highest growth or best-managed
companies, the stocks' valuations are generally too high to make the strategy
work. Likewise, if you buy only the cheapest stocks, you end up with too many
businesses that have either stopped growing or are poorly managed.
That's why at The Oakmark Family we utilize a three-pronged approach to stock
selection. We aren't necessarily
[SIDENOTE]
HIGHLIGHTS
- - We seek to avoid overvalued, low-growth, or poorly managed companies.
- - Our investment approach has been consistent over time.
- - Only shareholders with long time horizons should buy our funds.
4
<Page>
looking for the statistically cheapest stocks, but we are looking for stocks
priced at a bigger discount to business value than most. We don't require our
businesses to be the fastest growers, but we do want the combination of dividend
yield and projected per-share value growth to be at least average. And we don't
require the managements to be recognized as among America's most successful
business leaders, but we do require them to be smart, honest, and working to
further the shareholders' interests. Although we make our share of mistakes,
when we find a business that is growing, being managed to benefit shareholders,
and is priced at a discount to business value, we can purchase the stock with
the knowledge that, given time, the price and the value will usually converge.
We write these reports with the goal of helping shareholders and potential
shareholders better understand how we approach investing their money. On our
website we include all the quarterly reports we have written since 1997 and our
annual reports from two years before that. Our hope is that by reading a history
of these reports, one would know what to expect from us. The danger of allowing
access to our old reports is that our mistakes, much like those in the Top CEOs
book, may look even more glaring in hindsight. The benefit to those studying our
funds is that history can be revisited and one can see what we were saying back
then. You can see what we got wrong on stocks like USG Corp or Electronic Data
Systems. You can also see what we got right on stocks we still own, like
Washington Mutual, and on those we fortunately never owned, like the Internet
stocks. But most importantly, you can see that our investment approach has been
consistent throughout The Oakmark Family's history.
Our reports also explain our thinking on the importance of protecting
shareholders. Over the past quarter, mutual fund industry news was dominated by
allegations about special privileges being accorded to hyper-active traders.
Following the negative publicity, market timers now seem to be universally
hated. Interestingly, just two years ago US Congressman Thomas Tancredo wrote a
letter to the SEC Chairman expressing concern about the industry's "increasingly
discriminatory practices towards market timers."(5) He further stated, "I have
an issue with these nefarious attempts by mutual fund families to limit this key
benefit (the flexibility to buy and sell at will) that they have been
promising." Amazing how fast the winds change! You don't have to wonder what
Oakmark's attitude was back then towards timers. You can read our quarterly
letter from June 1999 when we put redemption fees on those funds that appealed
to market timers. From day one, we have told potential investors that our funds
were only suited to investors who have the same long-term time horizon that we
use when selecting stocks. When, despite our efforts to thwart frequent traders,
we found them using our funds, we instituted redemption fees that eliminated the
profit potential from their trades. All of The Oakmark Family portfolio managers
have made substantial personal investments in our mutual funds--it gives us the
same economic alignment with our shareholders that we look for in the companies
in which we invest.
Best wishes,
/s/ William C. Nygren
WILLIAM C. NYGREN, CFA
PORTFOLIO MANAGER
bnygren@oakmark.com
PS: Last quarter this report discussed the Michael Lewis book MONEYBALL and the
successful use in baseball of a value investing strategy by Billy Beane, General
Manager of the Oakland Athletics. Congratulations to Mr. Beane on another in a
string of successful seasons for his penny-pinching American League Western
Division champs! And congratulations to our hometown favorites, the Chicago
Cubs, on their first of what is hopefully a long string of division
championships!
5
<Page>
THE OAKMARK FUND
REPORT FROM BILL NYGREN AND KEVIN GRANT, PORTFOLIO MANAGERS
[PHOTO OF WILLIAM C. NYGREN AND KEVIN GRANT]
[CHART]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION
(8/5/91) TO PRESENT (9/30/03) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(6)
<Table>
<Caption>
THE OAKMARK FUND S&P 500
8/1/1991 $ 10,000 $ 10,000
12/31/1991 $ 13,020 $ 10,909
3/31/1992 $ 14,690 $ 10,634
6/30/1992 $ 15,230 $ 10,836
9/30/1992 $ 16,800 $ 11,178
12/31/1992 $ 19,386 $ 11,741
3/31/1993 $ 20,927 $ 12,253
6/30/1993 $ 21,494 $ 12,313
9/30/1993 $ 23,095 $ 12,631
12/31/1993 $ 25,300 $ 12,924
3/31/1994 $ 24,242 $ 12,434
6/30/1994 $ 24,951 $ 12,486
9/30/1994 $ 26,663 $ 13,097
12/31/1994 $ 26,138 $ 13,095
3/31/1995 $ 28,539 $ 14,370
6/30/1995 $ 30,303 $ 15,741
9/30/1995 $ 32,841 $ 16,992
12/31/1995 $ 35,134 $ 18,015
3/31/1996 $ 36,386 $ 18,982
6/30/1996 $ 37,661 $ 19,834
9/30/1996 $ 37,945 $ 20,447
12/31/1996 $ 40,828 $ 22,152
3/31/1997 $ 42,456 $ 22,746
6/30/1997 $ 48,917 $ 26,716
9/30/1997 $ 52,009 $ 28,717
12/31/1997 $ 54,132 $ 29,542
3/31/1998 $ 59,517 $ 33,663
6/30/1998 $ 57,909 $ 34,775
9/30/1998 $ 49,899 $ 31,316
12/31/1998 $ 56,155 $ 37,985
3/31/1999 $ 55,888 $ 39,877
6/30/1999 $ 62,332 $ 42,688
9/30/1999 $ 53,882 $ 40,023
12/31/1999 $ 50,277 $ 45,977
3/31/2000 $ 45,767 $ 47,032
6/30/2000 $ 46,950 $ 45,783
9/30/2000 $ 49,815 $ 45,339
12/31/2000 $ 56,201 $ 41,791
3/31/2001 $ 60,342 $ 36,837
6/30/2001 $ 65,927 $ 38,993
9/30/2001 $ 59,986 $ 33,269
12/31/2001 $ 66,479 $ 36,824
3/31/2002 $ 69,250 $ 36,926
6/30/2002 $ 63,463 $ 31,979
9/30/2002 $ 52,927 $ 26,454
12/31/2002 $ 56,902 $ 28,686
3/31/2003 $ 54,576 $ 27,783
6/30/2003 $ 63,826 $ 32,059
9/30/2003 $ 64,034 $ 32,907
</Table>
ANNUAL AVERAGE TOTAL RETURNS(1)
(AS OF 9/30/03)
<Table>
<Caption>
SINCE
TOTAL RETURN INCEPTION
LAST 3 MONTHS* 1-YEAR 5-YEAR 10-YEAR (8/5/91)
- ---------------------------------------------------------------------------------------------------------------------
OAKMARK FUND 0.33% 20.99% 5.11% 10.73% 16.50%
S&P 500 2.65% 24.40% 1.00% 10.04% 10.29%
Dow Jones Average(9) 3.91% 25.13% 5.32% 12.35% 12.12%
Lipper Large Cap
Value Index(10) 1.95% 22.65% 2.00% 8.92% 9.78%
</Table>
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 Fund increased in value by less than 1% last quarter bringing the
fiscal year to a 21% increase. The quarter was disappointing relative to gains
achieved in the market averages--the S&P 500 gained 3% and the NASDAQ(7) added
to its great year by rising another 10%. The technology stocks were very strong,
and we own almost none of them. We maintain that their premium
prices--particularly versus high quality non-technology stocks--are a result of
overly positive investor sentiment rather than fundamental value. Even our one
traditional technology holding, Sun Microsystems, was among our worst performers
in the quarter. The reason Sun appeals to us--high book value, large cash
balance, large sales base, high R&D spending--is of no interest to today's tech
stock buyers that seem to focus only on earnings growth. Our pharmaceutical
stocks also lost money in the quarter. We continue to believe that these
companies have above-average futures and therefore deserve to sell at
above-average multiples. Looking across our portfolio, we are generally very
pleased with how the businesses are performing. That gives us confidence about
the stocks as we look ahead to next year. During the quarter, we sold the Medco
shares we received from the Merck spinoff and we added one new holding, AFLAC.
AFLAC INC. (AFL--$31)
We have been a fan of AFLAC since the duck made his television debut several
years ago! Those funny commercials have not only brought many smiles, but have
quickly made the AFLAC name one of the insurance industry's most recognized.
AFLAC's strong track record during the 1990's, (20% compounded annual earnings
growth), caused the stock to reach a high of $37 in 2000, which was over thirty
times earnings. Despite achieving rapid growth in the US market, the majority of
AFLAC's sales and income still comes from Japan where it is the leading provider
of supplemental medical insurance. While growth has slowed in the US, profit
growth in Japan remains robust. With projected growth "just" in the low teens,
the stock fell below $30. Selling at less than half its peak P/E(8) multiple,
just over fourteen times our earnings estimate for next year, we believe AFLAC
is another on our growing list of excellent businesses priced below the market
multiple.
Best wishes,
/s/ William C. Nygren /s/ Kevin Grant
WILLIAM C. NYGREN, CFA KEVIN GRANT, CFA
Portfolio Manager Portfolio Manager
bnygren@oakmark.com kgrant@oakmark.com
6
<Page>
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--91.7%
FOOD & BEVERAGE--8.3%
General Mills, Inc. 1,805,000 $ 84,961,350
Kraft Foods Inc. 2,845,000 83,927,500
Diageo plc (b) 1,821,000 80,397,150
H.J. Heinz Company 2,310,000 79,186,800
Anheuser-Busch Companies, Inc. 1,400,000 69,076,000
----------------
397,548,800
HOUSEHOLD PRODUCTS--1.3%
The Clorox Company 1,390,200 $ 63,768,474
OTHER CONSUMER GOODS & SERVICES--6.3%
H&R Block, Inc. (c) 3,029,300 $ 130,714,295
Fortune Brands, Inc. 1,745,600 99,062,800
Mattel, Inc. 3,839,800 72,802,608
----------------
302,579,703
BROADCASTING & PROGRAMMING--2.2%
Liberty Media Corporation, Class A (a) 7,399,400 $ 73,772,018
The Walt Disney Company 1,500,000 30,255,000
----------------
104,027,018
BUILDING MATERIALS & CONSTRUCTION--1.8%
Masco Corporation 3,533,000 $ 86,487,840
CABLE SYSTEMS & SATELLITE TV--6.1%
General Motors Corporation,
Class H (Hughes Electronics Corporation) (a) 6,100,000 $ 87,291,000
AOL Time Warner Inc. (a)(d) 5,727,700 86,545,547
EchoStar Communications Corporation (a) 2,075,000 79,410,250
Comcast Corporation, Special Class A (a) 1,300,000 38,402,000
----------------
291,648,797
HARDWARE--1.6%
The Black & Decker Corporation 1,922,200 $ 77,945,210
MOTORCYCLES--1.6%
Harley-Davidson, Inc. 1,575,000 $ 75,915,000
PUBLISHING--2.7%
Gannett Co., Inc. 884,500 $ 68,601,820
Knight-Ridder, Inc. 916,000 61,097,200
----------------
129,699,020
RECREATION & ENTERTAINMENT--1.2%
Carnival Corporation (e) 1,678,300 $ 55,199,287
</Table>
7
<Page>
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--91.7% (CONT.)
RESTAURANTS--4.7%
McDonald's Corporation 4,900,000 $ 115,346,000
Yum! Brands, Inc (a) 3,674,000 108,823,880
----------------
224,169,880
RETAIL--10.0%
The Home Depot, Inc. 3,281,500 $ 104,515,775
The Kroger Co. (a) 5,790,000 103,467,300
The Gap, Inc. 4,776,700 81,777,104
Safeway Inc. (a) 3,327,000 76,321,380
J.C. Penney Company, Inc. 3,502,900 74,856,973
Toys 'R' Us, Inc. (a)(c) 3,125,000 37,593,750
----------------
478,532,282
BANK & THRIFTS--7.0%
Washington Mutual, Inc. 4,587,300 $ 180,602,001
U.S. Bancorp 3,700,000 88,763,000
The Bank of New York Company, Inc. 2,300,000 66,953,000
----------------
336,318,001
INSURANCE--3.2%
MGIC Investment Corporation 1,640,600 $ 85,426,042
AFLAC Incorporated 2,067,000 66,764,100
----------------
152,190,142
OTHER FINANCIAL--2.4%
Fannie Mae 1,670,000 $ 117,234,000
HEALTH CARE SERVICES--1.1%
AmerisourceBergen Corp 1,000,000 $ 54,050,000
MEDICAL PRODUCTS--2.5%
Baxter International Inc. 2,500,000 $ 72,650,000
Guidant Corporation 956,700 44,821,395
----------------
117,471,395
PHARMACEUTICALS--8.5%
Bristol-Myers Squibb Company 3,750,000 $ 96,225,000
Merck & Co., Inc. 1,850,000 93,647,000
Abbott Laboratories 2,050,000 87,227,500
Schering-Plough Corporation 5,100,000 77,724,000
Chiron Corporation (a) 999,000 51,638,310
----------------
406,461,810
TELECOMMUNICATIONS--1.8%
Sprint Corporation 5,741,800 $ 86,701,180
</Table>
8
<Page>
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--91.7% (CONT.)
COMPUTER SERVICES--4.8%
First Data Corporation 2,513,800 $ 100,451,448
SunGard Data Systems, Inc. (a) 3,203,700 84,289,347
Automatic Data Processing, Inc. 1,200,000 43,020,000
----------------
227,760,795
COMPUTER SYSTEMS--1.2%
Sun Microsystems, Inc. (a) 17,450,000 $ 57,759,500
OFFICE EQUIPMENT--1.4%
Xerox Corporation (a) 6,472,400 $ 66,406,824
AEROSPACE & DEFENSE--2.6%
Honeywell International, Inc. 3,250,000 $ 85,637,500
The Boeing Company 1,152,800 39,575,624
----------------
125,213,124
OTHER INDUSTRIAL GOODS & SERVICES--0.8%
Illinois Tool Works Inc. 604,200 $ 40,034,292
WASTE DISPOSAL--1.9%
Waste Management, Inc. 3,474,300 $ 90,922,431
OIL & NATURAL GAS--3.2%
ConocoPhillips 1,435,335 $ 78,584,591
Burlington Resources, Inc. 1,571,100 75,727,020
----------------
154,311,611
ELECTRIC UTILITIES--1.5%
Duke Energy Corporation 3,997,700 $ 71,199,037
TOTAL COMMON STOCKS (COST: $3,864,754,742) 4,391,555,453
</Table>
9
<Page>
<Table>
<Caption>
NAME PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--8.4%
U.S. GOVERNMENT BILLS--5.0%
United States Treasury Bills, 0.845% - 0.93%
due 10/2/2003 - 11/28/2003 $ 240,000,000 $ 239,824,096
TOTAL U.S. GOVERNMENT BILLS (COST: $239,816,491) 239,824,096
REPURCHASE AGREEMENTS--3.4%
IBT Repurchase Agreement, 0.95%
due 10/1/2003, repurchase price $160,004,222
collateralized by U.S. Government Agency Securities $ 160,000,000 $ 160,000,000
IBT Repurchase Agreement, 0.75%
due 10/1/2003, repurchase price $1,752,013
collateralized by a U.S. Government Agency Security 1,751,976 1,751,976
TOTAL REPURCHASE AGREEMENTS (COST: $161,751,976) 161,751,976
TOTAL SHORT TERM INVESTMENTS (COST: $401,568,467) 401,576,072
Total Investments (Cost $4,266,323,209)--100.1% $ 4,793,131,525
Other Liabilities In Excess Of Other Assets--(0.1%) (2,616,390)
----------------
TOTAL NET ASSETS--100% $ 4,790,515,135
================
</Table>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) See footnote number five in the Notes to Financial Statements regarding
transactions in securities of affiliated issuers.
(d) Effective October 16, 2003, AOL Time Warner Inc. changed its name to Time
Warner Inc.
(e) Represents a foreign domiciled corporation.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<Page>
THE OAKMARK SELECT FUND
REPORT FROM BILL NYGREN AND HENRY BERGHOEF, PORTFOLIO MANAGERS
[PHOTO OF WILLIAM C. NYGREN AND HENRY R. BERGHOEF]
[CHART]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION
(11/1/96) TO PRESENT (9/30/03) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX(6)
<Table>
<Caption>
THE OAKMARK SELECT FUND S&P 500
10/31/1996 $ 10,000 $ 10,000
12/31/1996 $ 11,420 $ 10,543
3/31/1997 $ 12,140 $ 10,826
6/30/1997 $ 14,180 $ 12,715
9/30/1997 $ 16,340 $ 13,668
12/31/1997 $ 17,704 $ 14,060
3/31/1998 $ 20,078 $ 16,021
6/30/1998 $ 20,462 $ 16,551
9/30/1998 $ 16,936 $ 14,904
12/31/1998 $ 20,575 $ 18,078
3/31/1999 $ 22,766 $ 18,979
6/30/1999 $ 24,482 $ 20,317
9/30/1999 $ 22,028 $ 19,048
12/31/1999 $ 23,557 $ 21,882
3/31/2000 $ 25,667 $ 22,384
6/30/2000 $ 24,324 $ 21,790
9/30/2000 $ 27,432 $ 21,578
12/31/2000 $ 29,637 $ 19,890
3/31/2001 $ 32,826 $ 17,532
6/30/2001 $ 35,865 $ 18,558
9/30/2001 $ 34,496 $ 15,834
12/31/2001 $ 37,359 $ 17,526
3/31/2002 $ 38,306 $ 17,574
6/30/2002 $ 35,206 $ 15,220
9/30/2002 $ 29,720 $ 12,590
12/31/2002 $ 32,699 $ 13,653
3/31/2003 $ 32,535 $ 13,223
6/30/2003 $ 37,806 $ 15,258
9/3/2003 $ 37,820 $ 15,662
</Table>
ANNUAL AVERAGE TOTAL RETURNS(1)
(AS OF 9/30/03)
<Table>
<Caption>
SINCE
TOTAL RETURN INCEPTION
LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/96)
- ----------------------------------------------------------------------------------------------
OAKMARK SELECT FUND 0.04% 27.25% 17.42% 21.20%
S&P 500 2.65% 24.40% 1.00% 6.70%
S&P MidCap 400(11) 6.59% 26.81% 11.96% 12.70%
Lipper Mid Cap Value Index(12) 6.17% 29.17% 9.30% 8.39%
</Table>
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 Select Fund increased last quarter by 1 cent, so let's just call it
a flat quarter. For the fiscal year so far, the increase has been 27%. Although
the quarter was disappointing relative to a 3% gain in the S&P 500, the
nine-month increase is still a bit more than the S&P 500. The stock market has
been strong this year, far outpacing returns from other asset classes. The
strongest part of the market has been tech stocks. We don't own any because we
only buy stocks that we believe are selling at less than 60% of business value,
and most technology names fail that test miserably. We are very pleased that
gains in stocks such as Washington Mutual, IMS Health, and Xerox have allowed us
to keep pace with the market despite having zero exposure to its hottest sector.
In the quarter just ended, our two worst performers were Washington Mutual and
Janus. Washington Mutual gave back some of its first half increase as the
mortgage refinancing boom was halted by higher interest rates. We believe that
Washington Mutual's earnings will continue to grow despite declining
refinancings and that its biggest, though underpublicized, positive is its
increasing share of primary checking accounts, which should allow its continued
rapid growth in retail banking. Priced at less than half the market P/E(8)
multiple, with twice the dividend yield, Washington Mutual's future is being
seriously underestimated in our opinion. Janus, though still up on the year,
lost 15% in the quarter following allegations of allowing rapid traders into
their mutual funds. Unfortunately, the strength of Janus' brand has been
confirmed by the publicity these matters received. We are continuing to hold our
Janus stock because it is priced at a large discount to other money management
firms. Unless new information causes us to believe that discount is deserved, we
are likely to continue holding this position.
Thank you for your continued support,
/s/ William C. Nygren /s/ Henry R. Berghoef
WILLIAM C. NYGREN, CFA HENRY R. BERGHOEF, CFA
Portfolio Manager Portfolio Manager
bnygren@oakmark.com berghoef@oakmark.com
11
<Page>
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--92.8%
OTHER CONSUMER GOODS & SERVICES--11.6%
H&R Block, Inc. (b) 8,859,800 $ 382,300,370
Mattel, Inc. 10,955,400 207,714,384
----------------
590,014,754
CABLE SYSTEMS & SATELLITE TV--3.8%
AOL Time Warner Inc. (a)(c) 12,710,000 $ 192,048,100
HOTELS & MOTELS--2.7%
Starwood Hotels & Resorts Worldwide, Inc. 3,880,000 $ 135,024,000
INFORMATION SERVICES--7.1%
The Dun & Bradstreet Corporation (a)(b) 4,534,900 $ 188,379,746
Moody's Corporation 3,123,600 171,704,292
----------------
360,084,038
PUBLISHING--3.4%
Knight-Ridder, Inc. 2,606,500 $ 173,853,550
RESTAURANTS--5.4%
Yum! Brands, Inc (a) 9,307,000 $ 275,673,340
RETAIL--10.8%
The Kroger Co. (a) 12,675,700 $ 226,514,759
Toys 'R' Us, Inc. (a)(b) 13,698,500 164,792,955
Office Depot, Inc. (a) 11,384,900 159,957,845
----------------
551,265,559
BANK & THRIFTS--18.1%
Washington Mutual, Inc. 23,351,400 $ 919,344,618
INVESTMENT MANAGEMENT--2.5%
Janus Capital Group, Inc. 9,169,600 $ 128,099,312
HEALTH CARE SERVICES--4.1%
IMS Health Incorporated 9,903,441 $ 208,962,605
PHARMACEUTICALS--6.8%
Bristol-Myers Squibb Company 6,840,200 $ 175,519,532
Chiron Corporation (a) 3,292,000 170,163,480
----------------
345,683,012
TELECOMMUNICATIONS--4.1%
Sprint Corporation 13,834,600 $ 208,902,460
</Table>
12
<Page>
<Table>
<Caption>
SHARES HELD/
NAME PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--92.8% (CONT.)
COMPUTER SERVICES--4.4%
First Data Corporation 5,630,400 $ 224,990,784
OFFICE EQUIPMENT--3.9%
Xerox Corporation (a) 19,354,700 $ 198,579,222
OIL & NATURAL GAS--4.1%
Burlington Resources, Inc. 4,326,800 $ 208,551,760
TOTAL COMMON STOCKS (COST: $3,484,167,653) 4,721,077,114
SHORT TERM INVESTMENTS--7.4%
U.S. GOVERNMENT BILLS--4.7%
United States Treasury Bills, 0.77% - 1.015%
due 10/9/2003 - 12/18/2003 $ 240,000,000 $ 239,731,710
TOTAL U.S. GOVERNMENT BILLS (COST: $239,719,675) 239,731,710
REPURCHASE AGREEMENTS--2.7%
IBT Repurchase Agreement, 0.95%
due 10/1/2003, repurchase price $134,503,549
collateralized by U.S. Government Agency Securities $ 134,500,000 $ 134,500,000
IBT Repurchase Agreement, 0.75%
due 10/1/2003, repurchase price $741,235
collateralized by a U.S. Government Agency Security 741,220 741,220
TOTAL REPURCHASE AGREEMENTS (COST: $135,241,220) 135,241,220
TOTAL SHORT TERM INVESTMENTS (COST: $374,960,895) 374,972,930
Total Investments (Cost $3,859,128,548)--100.2% $ 5,096,050,044
Other Liabilities In Excess Of Other Assets--(0.2%) (9,962,774)
----------------
TOTAL NET ASSETS--100% $ 5,086,087,270
================
</Table>
(a) Non-income producing security.
(b) See footnote number five in the Notes to Financial Statements regarding
transactions in securities of affiliated issuers.
(c) Effective October 16, 2003, AOL Time Warner Inc. changed its name to Time
Warner Inc.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<Page>
THE OAKMARK SMALL CAP FUND
REPORT FROM JAMES P. BENSON AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS
[PHOTO OF JAMES P. BENSON AND EDWARD A. STUDZINSKI]
[CHART]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (9/30/03) AS COMPARED TO THE RUSSELL 2000
INDEX(13)
<Table>
<Caption>
THE OAKMARK SMALL CAP FUND RUSSELL 2000
10/31/1995 $ 10,000 $ 10,000
12/31/1995 $ 10,330 $ 10,695
3/31/1996 $ 11,460 $ 11,241
6/30/1996 $ 12,470 $ 11,803
9/30/1996 $ 13,250 $ 11,843
12/31/1996 $ 14,440 $ 12,459
3/31/1997 $ 15,220 $ 11,815
6/30/1997 $ 17,660 $ 13,730
9/30/1997 $ 20,340 $ 15,774
12/31/1997 $ 20,290 $ 15,245
3/31/1998 $ 21,732 $ 16,779
6/30/1998 $ 20,467 $ 15,997
9/30/1998 $ 14,976 $ 12,774
12/31/1998 $ 17,620 $ 14,857
3/31/1999 $ 16,069 $ 14,051
6/30/1999 $ 18,205 $ 16,237
9/30/1999 $ 16,558 $ 15,210
12/31/1999 $ 16,224 $ 18,015
3/31/2000 $ 15,974 $ 19,292
6/30/2000 $ 15,926 $ 18,562
9/30/2000 $ 18,014 $ 18,768
12/31/2000 $ 16,937 $ 17,471
3/31/2001 $ 17,816 $ 16,335
6/30/2001 $ 21,218 $ 18,688
9/30/2001 $ 18,026 $ 14,788
12/31/2001 $ 21,391 $ 17,906
3/31/2002 $ 24,014 $ 18,619
6/30/2002 $ 22,369 $ 17,064
9/30/2002 $ 17,445 $ 13,412
12/31/2002 $ 18,595 $ 14,238
3/31/2003 $ 17,185 $ 13,598
6/30/2003 $ 20,092 $ 16,784
9/30/2003 $ 21,255 $ 18,307
</Table>
ANNUAL AVERAGE TOTAL RETURNS(1)
(AS OF 9/30/03)
<Table>
<Caption>
SINCE
TOTAL RETURN INCEPTION
LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/95)
- ----------------------------------------------------------------------------------------------
OAKMARK SMALL CAP FUND 5.79% 21.84% 7.25% 9.99%
Russell 2000 9.08% 36.50% 7.46% 7.93%
S&P Small Cap 600(14) 7.08% 26.86% 10.20% 10.44%
Lipper Small Cap Value Index(15) 9.46% 33.80% 11.67% 11.40%
</Table>
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 positive returns we achieved during the third calendar quarter of 2003 built
upon the strong returns of the second quarter, but the sharp stock market
sell-off in the final week of the quarter trimmed our gains. Investors seem to
be nervous with respect to the sustainability of the economic expansion. While
we understand these concerns, we believe the fiscal and monetary stimulus in the
economy is likely to create a sustained economic recovery. Our goal is to invest
in companies positioned to do well in an economic recovery, but these companies
must also possess the staying power to do reasonably well if the economy
unexpectedly fades. In summary, during the just concluded quarter the S&P 500
Index rose by 3% and the Russell 2000 Index climbed by 9%. Your Fund experienced
a gain of 6% during the past three months, which places its performance above
the S&P 500 Index(6), but below the Russell 2000 Index.
RECENT SUCCESSES AND SHORTCOMINGS
One of the key reasons for having a portfolio diversified among 40-50 stocks is
to decrease the volatility of the portfolio's returns over time. Despite your
Fund's 14% gain on a year-to-date basis, we are trailing our benchmark index,
the Russell 2000, for the first time since 1999. There are two principal reasons
for this relative underperformance. First, several stock groups within the
Russell 2000 that have done particularly well thus far in 2003 are
underrepresented in our portfolio. The strongest small cap stocks have been
those with negative earnings over the trailing twelve months and this is a group
of stocks where we have only a limited number of investments. We have tended to
avoid some industries within this strong group of stocks such as airlines,
biotechs, telecommunications and technology capital equipment companies since
our analysis indicates that most of these companies fail to earn a reasonable
return on capital over time. We prefer to invest in companies where we believe
our invested capital can earn above average rates of return and achieve above
average growth on value. During those periods when stocks of unprofitable
companies perform better than the market averages, we are likely to
underperform. However, while we are not surprised by our relative
underperformance thus far in 2003, we continue
14
<Page>
to invest with a long-term bias towards reasonably priced stocks of profitable
companies.
The second topic we would highlight is stock selection. While the majority of
our stock holdings are up on a year-to-date basis with two of our stocks more
than doubling (Mentor Graphics and Measurement Specialties which was sold
earlier in 2003), two stocks have been notable drags on our performance. The two
offenders are MCSi Inc., which we sold for a loss earlier in 2003 following an
accounting scandal, and Surebeam which is encountering slower than expected
consumer adoption of its food safety technology. While we continue to believe
Surebeam's technology for killing food borne pathogens via irradiating food
would make our food safer, the outlook for this company's products and services
remains dependent on consumer acceptance. We will continue to monitor Surebeam's
progress closely.
WHAT'S NEW (AND NOT SO NEW)
During the past few months there has been extensive media coverage of "market
timers" and their trading in mutual funds. We believe trading by market timers
in your Fund would be detrimental to our long-term investors since large scale,
rapid-fire additions and subtractions of funds would drive up our trading costs.
Therefore, back in 1999 we took a proactive stance against people that wanted to
rapidly trade your Fund by imposing a 2% redemption fee on shares sold that were
held 90 days or less. This redemption cost has, we believe, largely eliminated
any interest market timers would have in your Fund. While this is largely old
news, we just wanted to remind everyone how we conduct the stewardship of your
funds.
Our new news is a change in your portfolio management team. We bid a fond
farewell to Clyde McGregor and thank him for his valuable contributions over the
past three years. The demands on Clyde's time have been increasing over the past
year or so as the other fund he manages, The Oakmark Equity and Income Fund,
experienced tremendous growth. Ed Studzinski joins the management team of your
Fund. Ed has been an active participant in supplying investment ideas for your
Fund for many years and we believe his investment insights should prove valuable
to your Fund.
PORTFOLIO CHANGES
During the third quarter we sold three stocks from your Fund's portfolio and we
added four new stocks. The companies we sold were Columbus McKinnon, InFocus
Corp. and Measurement Specialties. We sold all three companies based upon our
belief that intensifying international competition would continue to pressure
their profit margins. We initiated positions in Hudson Highland Group (a
specialty staffing company), Jack In The Box (a quick serve restaurant company),
Landry's Restaurants (a firm that operates mainly casual dining seafood
restaurants) and Schweitzer-Mauduit (a manufacturer of premium specialty
papers). We believe all four of our new positions are healthy companies that are
well positioned to benefit from an economic recovery.
SUMMATION
We would like to thank our shareholders for your continuing interest in and your
support of The Oakmark Small Cap Fund. We look forward to communicating with you
again next quarter.
/s/ James P. Benson /s/ Edward A. Studzinski
JAMES P. BENSON, CFA EDWARD A. STUDZINSKI, CFA
Portfolio Manager Portfolio Manager
jbenson@oakmark.com estudzinski@oakmark.com
[SIDENOTE]
HIGHLIGHTS
- - Small-cap stocks with negative earnings--those we tend to avoid--were
strongest this quarter.
- - We prefer companies where we believe invested capital can earn above-average
rates of return.
- - We continue to invest with a long-term bias toward reasonably priced stocks
of profitable companies.
15
<Page>
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--93.4%
FOOD & BEVERAGE--7.7%
Ralcorp Holdings, Inc. (a) 575,000 $ 15,927,500
Del Monte Foods Company (a) 1,260,000 10,974,600
--------------
26,902,100
HOUSEHOLD PRODUCTS--4.0%
Tupperware Corporation 1,060,000 $ 14,182,800
OTHER CONSUMER GOODS & SERVICES--4.9%
Department 56, Inc. (a) 688,000 $ 8,737,600
Callaway Golf Company 475,000 6,778,250
Central Parking Corporation 137,200 1,680,700
--------------
17,196,550
SECURITY SYSTEMS--4.4%
Checkpoint Systems, Inc. (a) 968,300 $ 15,299,140
APPAREL--3.2%
Oakley, Inc. (a) 671,200 $ 6,712,000
R.G. Barry Corporation (a)(b) 900,000 4,680,000
--------------
11,392,000
AUTOMOBILE RENTALS--2.4%
Dollar Thrifty Automotive Group, Inc. (a) 375,000 $ 8,520,000
BUILDING MATERIALS & CONSTRUCTION--5.2%
Insituform Technologies, Inc., Class A (a) 738,500 $ 13,115,760
Integrated Electrical Services, Inc. (a) 750,000 5,175,000
--------------
18,290,760
HOTELS & MOTELS--0.8%
Prime Hospitality Corp. (a) 327,800 $ 2,848,582
HUMAN RESOURCES--1.0%
Hudson Highland Group, Inc. (a) 175,000 $ 3,367,000
INFORMATION SERVICES--4.7%
eFunds Corporation (a)(b) 1,327,600 $ 16,395,860
MARKETING SERVICES--0.3%
Grey Global Group, Inc. 1,500 $ 1,141,650
</Table>
16
<Page>
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--93.4% (CONT.)
RESTAURANTS--3.8%
Triarc Companies, Inc., Class B 500,000 $ 5,200,000
Jack in the Box Inc. (a) 210,000 3,738,000
Triarc Companies, Inc. 250,000 2,517,500
Landry's Restaurants, Inc. 87,800 1,808,680
--------------
13,264,180
RETAIL--2.2%
ShopKo Stores, Inc. (a)(c) 517,600 $ 7,764,000
BANK & THRIFTS--8.4%
BankAtlantic Bancorp, Inc., Class A 1,000,000 $ 14,250,000
People's Bank of Bridgeport, Connecticut 360,000 10,778,400
PennFed Financial Services, Inc. 150,000 4,365,000
--------------
29,393,400
INSURANCE--3.2%
The PMI Group, Inc. 330,000 $ 11,137,500
OTHER FINANCIAL--3.5%
NCO Group, Inc. (a) 530,000 $ 12,439,100
REAL ESTATE--1.8%
Trammell Crow Company (a) 495,000 $ 6,162,750
MEDICAL PRODUCTS--7.3%
Hanger Orthopedic Group, Inc. (a) 950,000 $ 14,582,500
CONMED Corporation (a) 400,000 8,256,000
Advanced Medical Optics, Inc. (a) 150,000 2,694,000
--------------
25,532,500
COMPUTER SERVICES--4.0%
CIBER, Inc. (a) 1,625,000 $ 12,350,000
Interland, Inc. (a) 210,000 1,614,900
--------------
13,964,900
COMPUTER SOFTWARE--8.7%
Mentor Graphics Corporation (a) 650,000 $ 11,394,500
MSC.Software Corp. (a) 1,350,000 9,720,000
Sybase, Inc. (a) 550,000 9,355,500
--------------
30,470,000
COMPUTER SYSTEMS--1.7%
Optimal Robotics Corp., Class A (a)(d) 723,500 $ 6,120,810
DATA STORAGE--2.0%
Imation Corp. 215,000 $ 7,019,750
</Table>
17
<Page>
<Table>
<Caption>
SHARES HELD/
NAME PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS--93.4% (CONT.)
MACHINERY & INDUSTRIAL PROCESSING--1.7%
SureBeam Corporation, Class A (a)(b) 4,250,000 $ 6,077,500
FORESTRY PRODUCTS--0.9%
Schweitzer-Mauduit International, Inc. 130,500 $ 3,295,125
OIL & NATURAL GAS--5.6%
St. Mary Land & Exploration Company 350,000 $ 8,862,000
Cabot Oil & Gas Corporation 250,000 6,500,000
Berry Petroleum Company 232,800 4,255,584
--------------
19,617,584
TOTAL COMMON STOCKS (COST: $306,039,431) 327,795,541
SHORT TERM INVESTMENTS--7.3%
U.S. GOVERNMENT BILLS--4.3%
United States Treasury Bills, 0.845% - 0.91%
due 10/2/2003 - 10/9/2003 $ 15,000,000 $ 14,998,813
TOTAL U.S. GOVERNMENT BILLS (COST: $14,998,813) 14,998,813
REPURCHASE AGREEMENTS--3.0%
IBT Repurchase Agreement, 0.95% due 10/1/2003,
repurchase price $9,000,238 collateralized by
U.S. Government Agency Securities $ 9,000,000 $ 9,000,000
IBT Repurchase Agreement, 0.75% due 10/1/2003,
repurchase price $1,558,003 collateralized by a
U.S. Government Agency Security 1,587,970 1,587,970
TOTAL REPURCHASE AGREEMENTS (COST: $10,587,970) 10,587,970
TOTAL SHORT TERM INVESTMENTS (COST: $25,586,783) 25,586,783
Total Investments (Cost $331,626,214)--100.7% $ 353,382,324
</Table>
18
<Page>
<Table>
<Caption>
NAME SHARES SUBJECT TO CALL MARKET VALUE
- -----------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN--(0.1%)
RETAIL--(0.1%)
ShopKo Stores, Inc., March 17.50 Calls (45,000) $ (38,250)
ShopKo Stores, Inc., December 15 Calls (50,000) (60,000)
--------------
(98,250)
TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED:
$(116,769))--(0.1%) $ (98,250)
Other Liabilities In Excess Of Other Assets--(0.6%) (2,270,441)
--------------
TOTAL NET ASSETS--100% $ 351,013,633
==============
</Table>
(a) Non-income producing security.
(b) See footnote number five in the Notes to Financial Statements regarding
transactions in securities of affiliated issuers.
(c) A portion of this security has been segregated to cover written option
contracts.
(d) Represents a foreign domiciled corporation.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<Page>
THE OAKMARK EQUITY AND INCOME FUND
REPORT FROM CLYDE S. McGREGOR AND EDWARD A. STUDZINSKI, PORTFOLIO MANAGERS
[PHOTO OF CLYDE S. McGREGOR AND EDWARD A. STUDZINSKI]
[CHART]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK EQUITY AND INCOME FUND FROM ITS
INCEPTION (11/1/95) TO PRESENT (9/30/03) AS COMPARED TO THE LIPPER BALANCED FUND
INDEX(16)
<Table>
<Caption>
THE OAKMARK EQUITY AND INCOME FUND LIPPER BALANCED FUND INDEX
10/31/1995 $ 10,000 $ 10,000
12/31/1995 $ 10,240 $ 10,473
3/31/1996 $ 10,500 $ 10,707
6/30/1996 $ 11,040 $ 10,925
9/30/1996 $ 11,110 $ 11,213
12/31/1996 $ 11,805 $ 11,840
3/31/1997 $ 12,153 $ 11,895
6/30/1997 $ 13,430 $ 13,178
9/30/1997 $ 14,810 $ 14,024
12/31/1997 $ 14,941 $ 14,243
3/31/1998 $ 16,233 $ 15,370
6/30/1998 $ 16,320 $ 15,599
9/30/1998 $ 15,191 $ 14,701
12/31/1998 $ 16,792 $ 16,392
3/31/1999 $ 16,792 $ 16,655
6/30/1999 $ 18,457 $ 17,402
9/30/1999 $ 17,518 $ 16,682
12/31/1999 $ 18,119 $ 17,863
3/31/2000 $ 18,924 $ 18,396
6/30/2000 $ 18,886 $ 18,174
9/30/2000 $ 20,761 $ 18,535
12/31/2000 $ 21,723 $ 18,290
3/31/2001 $ 22,621 $ 17,374
6/30/2001 $ 24,445 $ 17,984
9/30/2001 $ 23,751 $ 16,621
12/31/2001 $ 25,635 $ 17,698
3/31/2002 $ 26,708 $ 17,805
6/30/2002 $ 25,855 $ 16,628
9/30/2002 $ 23,640 $ 14,986
12/31/2002 $ 25,087 $ 15,807
3/31/2003 $ 24,515 $ 15,516
6/30/2003 $ 27,750 $ 17,209
9/30/2003 $ 28,308 $ 17,562
</Table>
ANNUAL AVERAGE TOTAL RETURNS(1)
(AS OF 9/30/03)
<Table>
<Caption>
SINCE
TOTAL RETURN INCEPTION
LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/95)
- ----------------------------------------------------------------------------------------------
OAKMARK EQUITY & INCOME FUND 2.01% 19.75% 13.25% 14.04%
S&P 500(6) 2.65% 24.40% 1.00% 8.75%
Lehman Govt./Corp. Bond(17) -0.51% 6.51% 6.69% 7.40%
Lipper Balanced Fund Index 2.05% 17.19% 3.62% 7.37%
</Table>
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
QUARTER AND ANNUAL REVIEW
The rebound in the equity markets enabled The Oakmark Equity and Income Fund to
deliver solid absolute returns in fiscal 2003. The result for the 12 months came
in just shy of 20% despite earning a relatively quiet 2% in the recently ended
September quarter. The outcome for the fiscal year compared favorably with the
17% that the Lipper Balanced Fund Index, our primary standard of comparison,
registered. The quarter's result came in essentially equal with the Lipper
Balanced Index.
The 20% return represents the second highest fiscal year return in the fund's
history. While pleasing, it must be placed in context. The fiscal year began at
the tail end of a major stock market decline. This decline had compressed
valuations of equities, thereby creating numerous opportunities for our talented
team of security analysts to exploit. In contrast, the bond market began the
fiscal year in the late innings of a powerful upward thrust. Bonds lost momentum
as the year progressed, and the summer witnessed what appears to be a change in
direction to higher interest rates. The net result for the Fund was that the
equities contributed a robust 35% return for the fiscal year while bonds came in
at only 5%. Remember, however, that in the previous fiscal year it was bonds
that dominated returns. It is this variability and unpredictability of markets
that makes a balanced fund such as Oakmark Equity and Income a sensible
investing plan for many investors.
THE RETURN OF THE BUBBLE?
As noted above, stocks have enjoyed a strong resurgence over the last 12 months.
Given the perilous state of world affairs, it is hardly surprising that many
pundits believe that the stock market has outrun its fundamental support and
have described the rally as a return to the overheated conditions that
eventually ended the previous bull market. We share some of this skepticism
concerning current levels of valuation and fret about the miserable insider
selling statistics. We also observe that it is more difficult to identify
compelling opportunities. Nevertheless, we recall that several of our investing
progenitors taught us "the hardest time to invest is ALWAYS right now." We might
not like current valuations, but the market today has favorable attributes that
were not present in the bubble and that make it a much better time to be an
investor.
20
<Page>
The most definitive evidence of the health and vigor of the 2003 stock market
rally is the market's breadth. "Breadth" simply measures the proportion of
stocks that are rising, without taking size or other factors into account.
Strong market breadth statistics characterize long-lived market rallies, and
this characteristic is definitely present currently: in the first nine months of
2003 more than 83% of the issues in the Russell 3000 Stock Index enjoyed price
increases. The positive returns have not skipped specific sectors but have been
spread across the entire market. While this outcome is not rare, it has been
absent since 1997. In contrast, the 1998-'99 stock market saw a dwindling list
of very large companies keep that bull market going. In 1999, for example, the
popular stock market averages rose more than 20% even though the majority of
stocks declined in price that year. This deterioration in market breadth
presaged the 2000-'02 bear market.
Aside from the market's own internal characteristics, economic fundamentals also
appear to be very supportive of the stock market. Fiscal and monetary stimulus
is approaching record levels, productivity is achieving remarkable advances, and
corporate profits are both growing rapidly and improving qualitatively. Interest
rates, though off of their lows, remain moderate. To sum up, the market is high
but probably deserves to be. And, while it feels to us that undervalued
opportunities are scarce, the experience of the last decade teaches that the
market will reward our patient search for value.
DIVIDENDS
Oakmark Equity and Income is a balanced fund seeking to provide its shareholders
high current income as well as preservation and growth of capital. Given the
fund's income objective, we were quite pleased earlier this year when the tax
cut bill included a roughly 60% reduction in the rate of taxation on corporate
dividends. For the next five years the maximum marginal tax rate for both
dividends and capital gains will be 15%. This change in the law has already
altered corporate behavior as companies that never before paid dividends (E.G.
Microsoft) have initiated payouts while others that paid token dividends (E.G.
Waste Management) have drastically increased their payout.
Given the fund's mandate to produce income for its shareholders, we have always
studied the available universe to discover opportunities to enhance the fund's
income generation. With the change in dividend taxes, we believed that our
search for income would become more difficult as investors bid up the prices of
dividend paying companies. To our surprise, this has not yet happened. In fact,
throughout 2003, stocks of companies that do not pay dividends have trounced
dividend payers in total return, and those companies that have instituted
dividends have generally not seen much favorable impact on their share price.
Experience has taught us that restrictive investing guidelines reduce total
returns to portfolios. Accordingly, we have not limited Oakmark Equity and
Income to income-producing securities. Nevertheless, our search for value is
well suited to identify companies with the potential for meaningful dividend
increases. In particular, we seek out companies with substantial free cash
flow--that is, cash flow after corporate activities such as capital spending,
working capital, debt repayment, and acquisitions. While the stock market's
short term reaction to the tax law change remains abstruse, we expect the
combination of our investing approach and lower dividend taxes to enhance
returns to our shareholders over time.
The last time that we wrote about dividends in a quarterly report was in January
of 2000. We noted then that dividends generally correlate positively with total
returns. In both 1999 and 2003 that correlation turned negative. Rather than
merely whine about it, our best course of action is to take advantage of this
sort of anomalous market behavior.
In closing, we thank our shareholders for their interest and support. As always,
we welcome e-mailed questions or comments.
/s/ Clyde S. McGregor /s/ Edward A. Studzinski
CLYDE S. McGREGOR, CFA EDWARD A. STUDZINSKI, CFA
Portfolio Manager Portfolio Manager
mcgregor@oakmark.com estudzinski@oakmark.com
[SIDENOTE]
HIGHLIGHTS
- - Market variability and unpredictability makes balanced funds a sensible
investing plan for most.
- - Despite less-attractive valuations, the market has favorable attributes not
present in the late 90s.
- - In spite of dividend-tax changes, investors have not yet bid up prices of
dividend-paying companies.
21
<Page>
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
EQUITY AND EQUIVALENTS--56.2%
COMMON STOCKS--55.8%
FOOD & BEVERAGE--4.6%
Diageo plc (b) 2,300,000 $ 101,545,000
Nestle SA (b) 1,200,000 69,170,400
Kraft Foods Inc. 1,000,000 29,500,000
----------------
200,215,400
CABLE SYSTEMS & SATELLITE TV--2.1%
General Motors Corporation, Class H
(Hughes Electronics Corporation) (a) 6,356,200 $ 90,957,222
HARDWARE--0.7%
The Stanley Works 962,100 $ 28,401,192
INFORMATION SERVICES--2.0%
Ceridian Corporation (a) 4,800,000 $ 89,376,000
MARKETING SERVICES--1.9%
The Interpublic Group of Companies, Inc. 5,750,000 $ 81,190,000
RESTAURANTS--0.4%
Darden Restaurants, Inc. 1,000,000 $ 19,000,000
RETAIL--3.7%
Costco Wholesale Corporation (a) 2,200,000 $ 68,376,000
J.C. Penney Company, Inc. 3,000,000 64,110,000
Office Depot, Inc. (a) 2,230,000 31,331,500
----------------
163,817,500
INSURANCE--2.4%
SAFECO Corporation 2,900,000 $ 102,254,000
RenaissanceRe Holdings Ltd. (c) 100,000 4,563,000
----------------
106,817,000
REAL ESTATE--0.4%
Hospitality Properties Trust 488,500 $ 17,136,580
HEALTH CARE SERVICES--4.3%
Caremark Rx, Inc. (a) 4,250,000 $ 96,050,000
Cardinal Health, Inc. 1,600,000 93,424,000
----------------
189,474,000
MANAGED CARE SERVICES--2.4%
First Health Group Corp. (a)(d) 3,950,000 $ 103,292,500
</Table>
22
<Page>
<Table>
<Caption>
NAME SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
EQUITY AND EQUIVALENTS--56.2% (CONT.)
MEDICAL CENTERS--2.3%
Laboratory Corporation of America Holdings (a) 3,500,000 $ 100,450,000
MEDICAL PRODUCTS--1.7%
Apogent Technologies, Inc. (a) 2,264,400 $ 47,235,384
Techne Corporation (a) 750,000 23,842,500
Edwards Lifesciences Corporation (a) 100,000 2,708,000
----------------
73,785,884
PHARMACEUTICALS--3.0%
Watson Pharmaceuticals, Inc. (a) 2,550,000 $ 106,309,500
Abbott Laboratories 565,400 24,057,770
----------------
130,367,270
COMPUTER SERVICES--1.4%
Concord EFS, Inc. (a) 4,500,000 $ 61,515,000
COMPUTER SOFTWARE--3.9%
Synopsys, Inc. (a) 3,690,000 $ 113,541,300
Novell, Inc. (a) 8,000,000 42,640,000
Mentor Graphics Corporation (a) 800,000 14,024,000
----------------
170,205,300
COMPUTER SYSTEMS--0.7%
The Reynolds and Reynolds Company, Class A 1,164,000 $ 32,068,200
AEROSPACE & DEFENSE--4.2%
Rockwell Collins, Inc. 3,107,900 $ 78,474,475
General Dynamics Corporation 730,800 57,046,248
Honeywell International, Inc. 1,889,500 49,788,325
----------------
185,309,048
AGRICULTURAL EQUIPMENT--0.0%
Alamo Group, Inc. 141,900 $ 2,023,494
DIVERSIFIED CONGLOMERATES--1.3%
Textron, Inc. 1,400,100 $ 55,233,945
INSTRUMENTS--1.2%
Varian, Inc. (a) 1,649,400 $ 51,659,208
MACHINERY & INDUSTRIAL PROCESSING--2.0%
Rockwell Automation, Inc. 2,075,000 $ 54,468,750
Cooper Industries, Ltd. 727,500 34,941,825
----------------
89,410,575
AGRICULTURAL OPERATIONS--1.9%
Monsanto Company 3,500,000 $ 83,790,000
</Table>
23
<Page>
<Table>
<Caption>
SHARES HELD/
NAME PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------
EQUITY AND EQUIVALENTS--56.2% (CONT.)
FORESTRY PRODUCTS--1.5%
Plum Creek Timber Company, Inc. 2,657,044 $ 67,595,199
OIL & NATURAL GAS--5.8%
Burlington Resources, Inc. 2,100,000 $ 101,220,000
XTO Energy, Inc. 4,499,933 94,453,594
St. Mary Land & Exploration Company 1,200,000 30,384,000
Cabot Oil & Gas Corporation 1,075,000 27,950,000
Cross Timbers Royalty Trust 33,295 699,195
----------------
254,706,789
TOTAL COMMON STOCKS (COST: $2,080,904,989) 2,447,797,306
CONVERTIBLE BONDS--0.4%
CABLE SYSTEMS & SATELLITE TV--0.4%
EchoStar Communications Corporation,
4.875% due 1/1/2007 $ 15,000,000 $ 15,281,250
TOTAL CONVERTIBLE BONDS (COST: $12,744,913) 15,281,250
TOTAL EQUITY AND EQUIVALENTS (COST: $2,093,649,902) 2,463,078,556
FIXED INCOME--33.4%
PREFERRED STOCKS--0.0%
BANK & THRIFTS--0.0%
Fidelity Capital Trust I, Preferred, 8.375% 43,500 $ 446,310
TELECOMMUNICATIONS--0.0%
MediaOne Finance Trust III, Preferred, 9.04% 20,000 $ 502,600
TOTAL PREFERRED STOCKS (COST: $935,000) 948,910
CORPORATE BONDS--2.1%
BROADCASTING & PROGRAMMING--0.3%
Liberty Media Corporation, 8.25% due 2/1/2030, Debenture 12,900,000 $ 14,934,137
BUILDING MATERIALS & CONSTRUCTION--0.0%
Juno Lighting, Inc., 11.875% due 7/1/2009,
Senior Subordinated Note 750,000 $ 821,250
</Table>
24
<Page>
<Table>
<Caption>
NAME PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------
FIXED INCOME--33.4% (CONT.)
CABLE SYSTEMS & SATELLITE TV--0.1%
CSC Holdings Inc., 7.875% due 12/15/2007 3,000,000 $ 3,067,500
HOTELS & MOTELS--0.1%
HMH Properties, 7.875% due 8/1/2005, Senior Note Series A 2,960,000 $ 3,034,000
Park Place Entertainment, 7.00% due 7/15/2004, Senior Notes 2,750,000 2,822,187
----------------
5,856,187
RETAIL--0.5%
The Gap, Inc., 6.90% due 9/15/2007 9,187,000 $ 9,876,025
Toys 'R' Us, Inc., 7.875% due 4/15/2013 5,000,000 5,467,800
Rite Aid Corporation, 7.625% due 4/15/2005, Senior Notes 4,900,000 5,022,500
Ugly Duckling Corporation, 12.00% due 10/23/2003,
Subordinated Debenture 650,000 642,687
----------------
21,009,012
HEALTH CARE SERVICES--0.5%
Omnicare, Inc., 6.125% due 6/1/2013 20,000,000 $ 19,600,000
MEDICAL PRODUCTS--0.0%
Apogent Technologies Inc., 144A, 6.50% due 5/15/2013 1,000,000 $ 1,025,000
OFFICE EQUIPMENT--0.3%
Xerox Corporation, 7.125% due 6/15/2010 15,000,000 $ 14,887,500
MACHINERY & INDUSTRIAL PROCESSING--0.1%
Columbus McKinnon Corporation New York,
8.50% due 4/1/2008 3,000,000 $ 2,640,000
OTHER INDUSTRIAL GOODS & SERVICES--0.2%
Sealed Air Corporation, 144A, 5.625% due 7/15/2013 8,300,000 $ 8,407,975
ELECTRIC UTILITIES--0.0%
Midland Funding Corporation, 11.75% due 7/23/2005 458,221 $ 498,315
TOTAL CORPORATE BONDS (COST: $87,298,047) 92,746,876
GOVERNMENT AND AGENCY SECURITIES--31.3%
CANADIAN GOVERNMENT BONDS--3.4%
Canada Government, 3.50% due 6/1/2004 100,000,000 $ 74,487,227
Canada Government, 3.00% due 12/1/2005 100,000,000 74,091,077
----------------
148,578,304
</Table>
25
<Page>
<Table>
<Caption>
NAME PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------
FIXED INCOME--33.4% (CONT.)
U.S. GOVERNMENT NOTES--27.2%
United States Treasury Notes, 3.375% due 1/15/2007,
Inflation Indexed 247,224,840 $ 271,947,324
United States Treasury Notes, 5.75% due 11/15/2005 200,000,000 217,593,800
United States Treasury Notes, 1.625% due 1/31/2005 200,000,000 201,265,600
United States Treasury Notes, 1.50% due 7/31/2005 200,000,000 200,461,000
United States Treasury Notes, 1.50% due 2/28/2005 125,000,000 125,576,125
United States Treasury Notes, 1.875% due 9/30/2004 75,000,000 75,600,600
United States Treasury Notes, 1.625% due 4/30/2005 50,000,000 50,292,950
United States Treasury Notes, 1.25% due 5/31/2005 50,000,000 49,970,700
----------------
1,192,708,099
U.S. GOVERNMENT AGENCIES--0.7%
Federal Home Loan Mortgage Corporation,
3.75% due 11/26/2007 10,000,000 $ 10,041,380
Federal Home Loan Mortgage Corporation,
2.35% due 5/5/2008 7,100,000 7,147,187
Fannie Mae, 2.25% due 12/30/2008 6,975,000 6,901,281
Federal Home Loan Bank, 3.125% due 7/10/2009 4,000,000 3,897,568
Federal Home Loan Bank, 5.10% due 12/26/2006 2,035,000 2,053,584
Federal Home Loan Bank, 3.875% due 12/15/2004 1,000,000 1,029,836
----------------
31,070,836
TOTAL GOVERNMENT AND AGENCY SECURITIES (COST: $1,335,285,283) 1,372,357,239
TOTAL FIXED INCOME (COST: $1,423,518,330) 1,466,053,025
SHORT TERM INVESTMENTS--9.7%
U.S. GOVERNMENT BILLS--7.5%
United States Treasury Bills, 0.765% - 0.925%
due 10/2/2003 - 12/26/2003 $ 330,000,000 $ 329,705,731
TOTAL U.S. GOVERNMENT BILLS (COST: $329,700,153) 329,705,731
REPURCHASE AGREEMENTS--2.2%
IBT Repurchase Agreement, 0.95% due 10/1/2003,
repurchase price $92,002,428 collateralized by
U.S. Government Agency Securities $ 92,000,000 $ 92,000,000
IBT Repurchase Agreement, 0.75% due 10/1/2003,
repurchase price $1,457,275 collateralized by a
U.S. Government Agency Security 1,457,245 1,457,245
TOTAL REPURCHASE AGREEMENTS (COST: $93,457,245) 93,457,245
TOTAL SHORT TERM INVESTMENTS (COST: $423,157,398) 423,162,976
Total Investments (Cost $3,940,325,630)--99.3% $ 4,352,294,557
</Table>
26
<Page>
<Table>
<Caption>
NAME CONTRACTS HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED--0.0%
BANK & THRIFTS--0.0%
First Health Group Corp., January 30 Calls 420 $ 22,050
First Health Group Corp., October 30 Calls 170 2,550
----------------
24,600
AEROSPACE & DEFENSE--0.0%
General Dynamics Corporation, November 80 Calls 2,548 $ 522,340
TOTAL CALL OPTIONS PURCHASED (COST: $431,250)--0.0% $ 546,940
Other Assets In Excess Of Other Liabilities--0.7% 31,807,514
----------------
TOTAL NET ASSETS--100% $ 4,384,649,011
================
</Table>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) Represents a foreign domiciled corporation.
(d) See footnote number five in the Notes to Financial Statements regarding
transactions in securities of affiliated issuers.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<Page>
THE OAKMARK GLOBAL FUND
REPORT FROM GREGORY L. JACKSON AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
[PHOTO OF GREGORY L. JACKSON AND MICHAEL J. WELSH]
[CHART]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK GLOBAL FUND FROM ITS INCEPTION
(8/4/99) TO PRESENT (9/30/03) AS COMPARED TO THE MSCI WORLD INDEX(18)
<Table>
<Caption>
THE OAKMARK GLOBAL FUND MSCI WORLD INDEX
8/1/1999 $ 10,000 $ 10,000
9/30/1999 $ 9,180 $ 9,883
12/31/1999 $ 9,981 $ 11,550
3/31/2000 $ 10,061 $ 11,668
6/30/2000 $ 10,381 $ 11,255
9/30/2000 $ 10,922 $ 10,689
12/31/2000 $ 11,562 $ 10,028
3/31/2001 $ 11,480 $ 8,739
6/30/2001 $ 13,289 $ 8,959
9/30/2001 $ 11,071 $ 7,676
12/31/2001 $ 13,880 $ 8,335
3/31/2002 $ 15,387 $ 8,364
6/30/2002 $ 14,372 $ 7,601
9/30/2002 $ 11,828 $ 6,204
12/31/2002 $ 13,587 $ 6,678
3/31/2003 $ 12,153 $ 6,340
6/30/2003 $ 16,225 $ 7,420
9/30/2003 $ 17,774 $ 7,779
</Table>
ANNUAL AVERAGE TOTAL RETURNS(1)
(AS OF 9/30/03)
<Table>
<Caption>
SINCE
TOTAL RETURN INCEPTION
LAST 3 MONTHS* 1-YEAR 3-YEAR (8/4/99)
- ----------------------------------------------------------------------------------------------
OAKMARK GLOBAL FUND 9.55% 50.27% 17.63% 14.83%(3)
MSCI World 4.84% 25.40% -10.05% -5.85%
Lipper Global Fund Index(19) 5.39% 22.61% -9.18% -2.91%
</Table>
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
FELLOW SHAREHOLDERS,
The Oakmark Global Fund had a strong quarter, gaining 10% for the three-month
period ending September 30, 2003. This quarter's results compare favorably with
the 5% increase for the MSCI World Index and the 5% increase for the Lipper
Global Fund Index.
For the first nine months of calendar year 2003, The Oakmark Global Fund has
returned 31%, compared to the smaller gains of 16% for both MSCI World Index and
the Lipper Global Fund Index. Most importantly, since inception the Fund has
returned 15% annualized compared to declines in the above indices.
HAPPY 4TH ANNIVERSARY
On August 4th, the Oakmark Global Fund had its 4-year anniversary. We are proud
of the record we have achieved over these past four years, with performance that
is in the top 2% out of 187 global funds over that period according to
Lipper.(20) We feel this anniversary is a good opportunity to reiterate the
philosophy of the Fund and revisit how we manage the portfolio.
PHILOSOPHY AND PROCESS
As with the other Oakmark Funds we believe superior long-term results are
achieved by investing in quality companies purchased at significant discounts to
the underlying business value. We base our investment decisions on our own
intensive, independent, fundamental research, focusing on the long-term worth of
a business. Equally important as the price we pay, we must have confidence that
the priority of management is to make money for the owners, namely, us.
Inherent in our philosophy is the belief that, over time, a company's share
price will reflect underlying business value. It may take time for this gap to
close, perhaps, if the short-term uncertainty that created the opportunity
persists. It is our job as analysts to determine whether the current share price
is properly compensating us for this uncertainty.
PORTFOLIO CONSTRUCTION
The Global Fund is built from the bottom-up on a stock-by-stock basis. We will
never allocate money, as many global investors do, based solely on macroeconomic
predictions of the various
28
<Page>
regions of the world. Too often this sort of top-down investing ignores
valuation and, more important, the quality of the underlying companies in a
particular economy. We certainly consider macroeconomic factors in our
appraisals of companies, but never as a primary reason for making an investment.
We like to characterize the construction process as "ideas battling their way
into the portfolio on a stock-by-stock basis". Each idea is judged strictly on
its merits, not whether it is a large or small cap, or where the company's
headquarters is located. Strict discipline is maintained by adhering to
individual stock buy and sell targets.
Position sizes within the Fund are determined primarily by the size of the
perceived gap between price and value. Concentration--bigger weightings in fewer
companies--is another important component of portfolio construction.
This is important, as we want our best ideas to have significant impact on the
Fund's net asset value.
Probably the most unique aspect of the Oakmark Global Fund is its
flexibility--we are able to invest in companies of any size capitalization, in
any industry, in any location. This flexibility allows us to go wherever value
takes us.
CURRENT PORTFOLIO
Where value takes us today is primarily Europe, and in larger cap, blue-chip
stocks. At today's prices, we continue to find better value outside of the
United States. Looking at the composition of the Fund, the geographic breakdown
is Europe & the United Kingdom 44%, United States 37%, Pacific Rim 14%, and
Latin America 4%. Apart from the US the largest country weightings include the
UK (11%), France (11%), Japan (8%), and Switzerland (8%). Among the largest
industry concentrations include banking & financials, food & beverages,
pharmaceuticals, information services and computer software.
We have very much enjoyed the past four years as managers of Oakmark Global. We
appreciate your continued confidence and support.
/s/ Gregory L. Jackson /s/ Michael J. Welsh
GREGORY L. JACKSON MICHAEL J. WELSH, CFA, CPA
Portfolio Manager Portfolio Manager
gjackson@oakmark.com mwelsh@oakmark.com
[SIDENOTE]
HIGHLIGHTS
- - Investment decisions are based on our own intensive, independent,
fundamental research.
- - As bottom up investors, we never allocate money based solely on top-down
macro issues.
- - We continue to find better value outside the U.S., and in bigger cap
blue-chip stocks.
29
<Page>
GLOBAL DIVERSIFICATION--SEPTEMBER 30, 2003
[CHART]
<Table>
<Caption>
% OF FUND
EQUITY MARKET VALUE
- ------------------------------------------------------------
- - EUROPE 44.3%
Great Britain 11.0%
* France 10.6%
Switzerland 7.6%
* Netherlands 6.0%
* Italy 5.1%
* Germany 3.2%
Sweden 0.8%
- - UNITED STATES 37.0%
- - PACIFIC RIM 13.8%
Japan 7.9%
Australia 3.1%
Korea 2.8%
- - LATIN AMERICA 4.2%
Mexico 4.2%
- - OTHER 0.7%
Israel 0.7%
</Table>
* Euro currency countries comprise 24.9% of the Fund.
30
<Page>
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--92.2%
FOOD & BEVERAGE--11.3%
Diageo plc (Great Britain) Beverages, Wines, & Spirits
Manufacturer 3,885,000 $ 42,041,811
Nestle SA (Switzerland) Food & Beverage Manufacturer 139,100 32,072,048
Lotte Chilsung Beverage
Co., Ltd. (Korea) (b) Soft Drinks, Juices & Sports Drinks
Manufacturer 13,430 6,375,499
--------------
80,489,358
HOUSEHOLD PRODUCTS--3.0%
Henkel KGaA (Germany) Consumer Chemical Products
Manufacturer 328,700 $ 21,065,972
BROADCASTING & PROGRAMMING--3.8%
Grupo Televisa
S.A. (Mexico) (c) Television Production
& Broadcasting 566,500 $ 20,728,235
Liberty Media
Corporation, Class A
(United States) (a) Broadcast Services & Programming 650,000 6,480,500
--------------
27,208,735
CABLE SYSTEMS & SATELLITE TV--1.4%
AOL Time Warner Inc.
(United States) (a)(d) Multimedia 675,000 $ 10,199,250
HUMAN RESOURCES--1.7%
Michael Page
International plc
(Great Britain) (b) Recruitment Consultancy Services 4,815,400 $ 11,966,936
INFORMATION SERVICES--7.0%
eFunds Corporation
(United States) (a)(b)(e) Electronic Debit Payment Services 1,845,000 $ 22,785,750
Ceridian Corporation
(United States) (a) Data Management Services 1,025,000 19,085,500
Equifax Inc.
(United States) Credit Reporting & Collection 350,000 7,794,500
--------------
49,665,750
MARKETING SERVICES--3.5%
The Interpublic Group
of Companies, Inc.
(United States) Advertising & Marketing Services 1,750,000 $ 24,710,000
</Table>
31
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--92.2% (CONT.)
MOTORCYCLES--0.4%
Ducati Motor Holding
S.p.A. (Italy) (a) Motorcycle Manufacturer 1,933,500 $ 3,174,492
RETAIL--5.8%
Bulgari S.p.A. (Italy) Jewelry Manufacturer & Retailer 2,890,100 $ 23,270,731
The TJX Companies, Inc.
(United States) Discount Apparel
& Home Fashion Retailer 900,000 17,478,000
--------------
40,748,731
BANK & THRIFTS--1.8%
Banco Popolare di Verona
e Novara Scrl (Italy) Commercial Bank 498,600 $ 7,028,280
Washington Mutual, Inc.
(United States) Thrift 150,000 5,905,500
--------------
12,933,780
FINANCIAL SERVICES--2.5%
Julius Baer Holding Ltd.,
Zurich (Switzerland) Asset Management 39,800 $ 11,451,937
Credit Suisse Group
(Switzerland) Investment Services & Insurance 190,700 6,100,841
--------------
17,552,778
OTHER FINANCIAL--9.2%
Fannie Mae
(United States) (e) Mortgage Provider 400,000 $ 28,080,000
Euronext (Netherlands) Stock Exchange 968,200 23,590,559
Daiwa Securities Group
Inc. (Japan) Stock Broker 2,062,000 13,967,432
--------------
65,637,991
MANAGED CARE SERVICES--3.9%
First Health Group Corp.
(United States) (a)(b) Health Benefits Company 1,064,000 $ 27,823,600
MEDICAL CENTERS--2.6%
Laboratory Corporation
of America Holdings
(United States) (a) Medical Laboratory
& Testing Services 650,000 $ 18,655,000
</Table>
32
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--92.2% (CONT.)
MEDICAL PRODUCTS--2.9%
Ansell Limited
(Australia) Protective Rubber
& Plastics Products 4,468,100 $ 20,424,936
PHARMACEUTICALS--9.8%
Aventis S.A. (France) Pharmaceuticals 520,900 $ 27,040,902
Takeda Chemical
Industries, Ltd. (Japan) Pharmaceuticals
& Food Supplements 656,900 23,986,928
GlaxoSmithKline plc
(Great Britain) Pharmaceuticals 875,300 18,231,290
--------------
69,259,120
TELECOMMUNICATIONS--1.7%
SK Telecom Co.,
Ltd. (Korea) Mobile Telecommunications 73,700 $ 11,790,462
TELECOMMUNICATIONS EQUIPMENT--0.7%
Telefonaktiebolaget
LM Ericsson,
Class B (Sweden) (a) Mobile & Wired
Telecommunications Products 3,470,000 $ 5,060,790
COMPUTER SERVICES--5.6%
Concord EFS, Inc.
(United States) (a) Electronic Processing Services 1,450,000 $ 19,821,500
Meitec Corporation
(Japan) (b) Software Engineering Services 381,200 14,022,250
First Data Corporation
(United States) Data Processing & Management 150,000 5,994,000
--------------
39,837,750
COMPUTER SOFTWARE--3.9%
Novell, Inc.
(United States) (a) Network & Internet
Integration Software 3,000,000 $ 15,990,000
Synopsys, Inc.
(United States) (a)(e) Electronic Design Automation 390,000 12,000,300
--------------
27,990,300
OFFICE EQUIPMENT--2.4%
Neopost SA (France) Mailroom Equipment Supplier 362,050 $ 16,790,775
</Table>
33
<Page>
<Table>
<Caption>
SHARES HELD/
NAME DESCRIPTION PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--92.2% (CONT.)
AIRPORT MAINTENANCE--0.9%
Grupo Aeroportuario
del Sureste S.A. de C.V.
(Mexico) (b)(c) Airport Operator 463,000 $ 6,806,100
DIVERSIFIED CONGLOMERATES--3.6%
Vivendi Universal
SA (France) (a) Multimedia 1,430,500 $ 25,336,730
INSTRUMENTS--0.6%
Orbotech, Ltd.
(Israel) (a)(b) Optical Inspection Systems 228,700 $ 4,674,628
CHEMICALS--2.2%
Akzo Nobel N.V.
(Netherlands) Chemical Producer 497,800 $ 15,528,245
TOTAL COMMON STOCKS (COST: $573,667,677) 655,332,209
SHORT TERM INVESTMENTS--9.2%
U.S. GOVERNMENT BILLS--7.0%
United States Treasury Bills, 0.845%-0.93%
due 10/2/2003 - 10/23/2003 $ 50,000,000 $ 49,988,023
TOTAL U.S. GOVERNMENT BILLS (COST: $49,988,023) 49,988,023
REPURCHASE AGREEMENTS--2.2%
IBT Repurchase Agreement, 0.95% due 10/1/2003,
repurchase price of $13,500,356, collateralized by
U.S. Government Agency Securities $ 13,500,000 $ 13,500,000
IBT Repurchase Agreement, 0.75% due 10/1/2003,
repurchase price of $1,835,844, collateralized by
a U.S. Government Agency Security 1,835,806 1,835,806
TOTAL REPURCHASE AGREEMENTS (COST: $15,335,806) 15,335,806
TOTAL SHORT TERM INVESTMENTS (COST: $65,323,829) 65,323,829
Total Investments (Cost $638,991,506)--101.4% $ 720,656,038
</Table>
34
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES SUBJECT TO CALL MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
CALL OPTIONS WRITTEN--0.0%
INFORMATION SERVICES--0.0%
eFunds Corporation,
December 15 Calls
(United States) Electronic Debit Payment Services (100,000) $ (22,500)
COMPUTER SOFTWARE--0.0%
Synopsys, Inc.,
December 35 Calls
(United States) Electronic Design Automation (100,000) $ (80,000)
TOTAL CALL OPTIONS WRITTEN
(PREMIUMS RECEIVED:
$(175,242))--0.0% (102,500)
<Caption>
NAME DESCRIPTION SHARES SUBJECT TO PUT MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
PUT OPTIONS WRITTEN--0.0%
COMPUTER SOFTWARE--0.0%
Synopsys, Inc.,
December 27.50 Puts
(United States) Electronic Design Automation (100,000) $ (105,000)
TOTAL PUT OPTIONS WRITTEN
(PREMIUMS RECEIVED:
$(80,746))--0.0% (105,000)
Other Liabilities In Excess Of Other Assets--(1.4%) (9,851,103)
--------------
TOTAL NET ASSETS--100% $ 710,597,435
==============
</Table>
(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.
(d) Effective October 16, 2003, AOL Time Warner Inc. changed its name to Time
Warner Inc.
(e) A portion of this security has been segregated to cover written option
contracts.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35
<Page>
THE OAKMARK INTERNATIONAL AND
OAKMARK INTERNATIONAL SMALL CAP FUNDS
FELLOW SHAREHOLDERS:
Both The Oakmark International and International Small Cap Funds had positive
performance, up 8%, and 14% for the quarter ending September 30th; versus the
MSCI World ex-US Index(21) which returned 8% for the same period. Both Funds are
up significantly from recent market lows in March. Given the availability of
value in overseas markets, we continue to remain enthusiastic about prospects in
global equity markets.
"I WANT IT NOW, DADDY!"
Those telltale words from young Veruca Salt's mouth in "Willy Wonka and the
Chocolate Factory" are instructive on how not to behave in the investment world.
We think impatience is almost always a bad thing and it is particularly so in
investing. Financial markets have been extremely volatile in the last 5 years: a
stock market bubble build-up, a stock market bubble implosion, a bond market
bubble build up, an implosion, etc. Certainly, in the short term, the price of
any particular stock will react or, in many cases, overreact to "macro" factors,
i.e., events in the company's environment that exist but do not have a long-term
impact on the economic value of the firm.
Now more than ever, given the threat of terrorist attacks, war in the Mid-East
and Africa, a nuclear threat in North Korea, we try to harness the volatility
these events precipitate for the good of our shareholders. We are keenly aware
that all of these threats/risks exist but believe they often times have little
long-term bearing on the worth of most businesses. Therefore, with discipline
and our long-term orientation, we attempt to take advantage of the impatience of
others.
In sum, we believe our patience and discipline is a source of investment
advantage and we will continue to use it. As an example, today, beside the macro
threats listed above, there is a great deal of worry surrounding pharmaceutical
companies. The news is filled with talk of regulatory issues, patent expiries,
generic competition, meager pipelines, and other threats. The stock prices of
these companies have collapsed, while in many cases business value per share has
increased. We think this has materially increased the value proposition for many
of these businesses and have therefore made significant investments. While we
think there is validity to a few of the market concerns, pharmaceutical
companies remain terrific economic enterprises, with high returns on capital,
high barriers to entry, tremendous free cash flow, and above average long-term
secular growth.
Our three largest pharmaceutical holdings are GlaxoSmithKline (UK), Aventis
(France), and Takeda (Japan). Glaxo trades for 15.0x earnings and 11.0x
operating income. It throws off 7% of its market capitalization every year in
free cash flow and uses this cash to buyback inexpensive stock and payout a
healthy dividend equating to a current yield of 3.1%. Aventis' valuation is even
more compelling, although the underlying business is not as high quality as
Glaxo's. Aventis trades for 11.0x earnings and 8.0x operating income. It throws
off 7% of its market capitalization every year in free cash flow as well. It is
using this cash to pay a 1.7% dividend plus fund unique in-licensing
arrangements. Takeda trades at 15x earnings, a very reasonable price given that
it is run by one of the best management teams in Japan and cash represents over
one-third of the market capitalization.
LONG-TERM INVESTING
We would be remiss in not mentioning the recent news regarding the issue of
market timers in mutual funds. Harris Associates L.P. and The Oakmark Funds have
remained focused on building wealth from a long-term perspective. The very idea
of short-term opportunists picking off incremental pieces of our core
shareholders' return has always made our blood boil.
These timers primarily prey upon funds investing in non-US markets. They attempt
to take advantage of time lags in market closes and the perceived short-term
correlation in global equity prices.
For most of the 1990's our fund operations group spent a portion of every day
tracking new subscriptions into the Oakmark International and International
Small Cap Funds and vetting the ones that looked suspicious. We were searching
for potential traders (or, as they are not so affectionately known around here,
"flippers"). This was a tedious and time-consuming process.
[SIDENOTE]
HIGHLIGHTS
- - Given the availability of value overseas, we remain enthusiastic about the
global equity markets.
- - We seek to take advantage of others' impatience through a long-term,
disciplined investment process.
- - Pharmaceutical companies, in which we have large weightings, remain terrific
economic enterprises.
36
<Page>
In 1999 we were very relieved to put in place a 90-day 2% redemption fee on
Oakmark International and Oakmark International Small Cap. This fee, which
short-term traders pay directly into the Fund that they are selling, for all
intents and purposes destroys the flipper's ability to profit from our Funds at
the expense of our long-term shareholders. We believe that if a potential
shareholder cannot commit to a minimum of a 90-day investment horizon, we're
probably not the right fit for him or her.
We take our responsibilities to our shareholders very seriously. This includes
frequent and open correspondence (like this quarterly), clear disclosure,
closing Funds to new investors (when appropriate), and a disciplined adherence
to our investment philosophy and process. Both of us have always had and
continue to maintain a substantial personal investment in The Oakmark Funds. We
mean it when we start each letter with "Fellow Shareholders".
Thank you for your continued confidence and support.
/s/ David G. Herro /s/ Michael J. Welsh
DAVID G. HERRO, CFA MICHAEL J. WELSH, CFA, CPA
Portfolio Manager Portfolio Manager
dherro@oakmark.com mwelsh@oakmark.com
37
<Page>
THE OAKMARK INTERNATIONAL FUND
REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
[PHOTO OF DAVID G. HERRO AND MICHAEL J. WELSH]
[CHART]
THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK INTERNATIONAL FUND FROM ITS
INCEPTION (9/30/92) TO PRESENT (9/30/03) COMPARED TO THE MSCI WORLD EX U.S.
INDEX(21)
<Table>
<Caption>
THE OAKMARK INTERNATIONAL FUND MSCI WORLD EX U.S. INDEX
9/30/1992 $ 10,000 $ 10,000
12/31/1992 $ 10,043 $ 9,628
3/31/1993 $ 11,890 $ 10,766
6/30/1993 $ 12,300 $ 11,834
9/30/1993 $ 13,387 $ 12,562
12/31/1993 $ 15,424 $ 12,729
3/31/1994 $ 15,257 $ 13,133
6/30/1994 $ 14,350 $ 13,748
9/30/1994 $ 15,278 $ 13,830
12/31/1994 $ 14,026 $ 13,664
3/31/1995 $ 13,563 $ 13,924
6/30/1995 $ 14,749 $ 14,060
9/30/1995 $ 15,507 $ 14,631
12/31/1995 $ 15,193 $ 15,222
3/31/1996 $ 17,021 $ 15,681
6/30/1996 $ 18,383 $ 15,937
9/30/1996 $ 18,347 $ 15,950
12/31/1996 $ 19,450 $ 16,268
3/31/1997 $ 20,963 $ 16,016
6/30/1997 $ 22,700 $ 18,094
9/30/1997 $ 23,283 $ 18,027
12/31/1997 $ 20,097 $ 16,637
3/31/1998 $ 22,994 $ 19,083
6/30/1998 $ 20,253 $ 19,233
9/30/1998 $ 16,322 $ 16,404
12/31/1998 $ 18,688 $ 19,759
3/31/1999 $ 21,258 $ 20,070
6/30/1999 $ 25,728 $ 20,650
9/30/1999 $ 23,896 $ 21,535
12/31/1999 $ 26,065 $ 25,277
3/31/2000 $ 26,012 $ 25,416
6/30/2000 $ 27,856 $ 24,530
9/30/2000 $ 27,306 $ 22,663
12/31/2000 $ 29,324 $ 21,897
3/31/2001 $ 26,763 $ 18,825
6/30/2001 $ 29,437 $ 18,629
9/30/2001 $ 23,728 $ 16,062
12/31/2001 $ 27,819 $ 17,212
3/31/2002 $ 31,006 $ 17,310
6/30/2002 $ 30,315 $ 16,923
9/30/2002 $ 23,365 $ 13,603
12/31/2002 $ 25,465 $ 14,492
3/31/2003 $ 22,481 $ 13,402
6/30/2003 $ 28,198 $ 15,978
9/30/2003 $ 30,368 $ 17,269
</Table>
ANNUAL AVERAGE TOTAL RETURNS(1)
(AS OF 9/30/03)
<Table>
<Caption>
SINCE
TOTAL RETURN INCEPTION
LAST 3 MONTHS* 1-YEAR 5-YEAR 10-YEAR (9/30/92)
- ---------------------------------------------------------------------------------------------------------------
OAKMARK INTERNATIONAL FUND 7.70% 29.97% 13.21% 8.53% 10.62%
MSCI World ex. U.S. 8.08% 26.95% 1.03% 3.23% 5.09%
MSCI EAFE(22) 8.13% 26.01% 0.55% 2.92% 4.86%
Lipper International
Fund Index(23) 7.89% 25.63% 2.14% 4.89% 6.49%
</Table>
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 was up 8% for the quarter ending September 30,
2003. This performance was in line with relevant indices for both the quarter
and for the calendar year to date. Most importantly, your Fund is up 11%
annualized since inception in September, 1992, comparing very favorably to the
indices and our peer group. It's hard to believe we've had yet another
anniversary--our 11th. It seems like we just celebrated Oakmark International's
10th birthday a few months ago!
The strong price recovery in global stocks that began in March continued through
the 3rd quarter. The rise in share prices has been broad-based, with most
regions of the world participating.
The Fund benefited this quarter from strong stock selection relative to
underlying market performance, especially in the United Kingdom and in Sweden.
In the UK, the share price of Enodis plc, the food and refrigeration equipment
manufacturer, rebounded very strongly as the market reacted to a strengthening
in demand for their products. Michael Page International plc, the recruitment
consultant, also saw a very strong increase in its share price, as did LM
Ericsson, the Swedish telecommunications equipment giant. Ericsson was the
single biggest contributor to the Fund's NAV(24) for the quarter as its share
price continued its strong recent performance from the lows of March.
Overall, the performance of the Fund for the quarter was in line with the
various indices despite being significantly underweight in Japan. This is worth
noting, as Japan was the single strongest performer of all developed markets.
Because it has a significant weighting in all non-US indices it's performance
has a big impact.
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.
David G. Herro Michael J. Welsh
DAVID G. HERRO, CFA MICHAEL J. WELSH, CFA, CPA
Portfolio Manager Portfolio Manager
dherro@oakmark.com mwelsh@oakmark.com
38
<Page>
INTERNATIONAL DIVERSIFICATION--SEPTEMBER 30, 2003
[CHART]
<Table>
<Caption>
% OF FUND
EQUITY MARKET VALUE
- -------------------------------------------------------------------------
- - EUROPE 74.5%
Great Britain 21.5%
* France 16.7%
Switzerland 12.4%
* Germany 7.7%
* Netherlands 6.0%
* Italy 4.0%
* Ireland 2.4%
Sweden 2.4%
* Finland 1.4%
- - PACIFIC RIM 19.8%
Japan 9.3%
Korea 4.6%
Australia 2.7%
Singapore 1.8%
Hong Kong 1.4%
- - LATIN AMERICA 4.1%
Mexico 4.1%
- - OTHER 1.6%
Israel 1.6%
</Table>
* Euro currency countries comprise 38.2% of the Fund.
39
<Page>
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--95.1%
FOOD & BEVERAGE--14.2%
Diageo plc (Great Britain) Beverages, Wines, & Spirits
Manufacturer 9,655,900 $ 104,492,027
Nestle SA (Switzerland) Food & Beverage Manufacturer 392,300 90,451,937
Cadbury Schweppes
plc (Great Britain) Beverage & Confectionary
Manufacturer 11,515,500 70,874,053
Pernod-Ricard SA (France) Manufactures Wines, Spirits,
& Fruit Juices 615,425 58,302,180
Lotte Chilsung Beverage
Co., Ltd. (Korea) (c) Soft Drinks, Juices & Sports Drinks
Manufacturer 83,400 39,591,705
Fomento Economico
Mexicano S.A. de C.V.
(Mexico) (b) Soft Drink & Beer Manufacturer 979,700 37,375,555
----------------
401,087,457
HOUSEHOLD PRODUCTS--3.1%
Henkel KGaA (Germany) Consumer Chemical Products
Manufacturer 1,355,350 $ 86,862,687
OTHER CONSUMER GOODS &
SERVICES--1.6%
Swatch Group AG,
Bearer Shares
(Switzerland) Watch Manufacturer 457,900 $ 43,513,762
Swatch Group AG,
Registered Shares
(Switzerland) Watch Manufacturer 24,700 474,119
----------------
43,987,881
AUTOMOBILES--2.2%
Bayerische Motoren
Werke (BMW) AG
(Germany) Luxury Automobile Manufacturer 1,620,100 $ 61,259,808
AUTOMOTIVE--1.9%
Compagnie Generale
des Etablissements
Michelin (France) Tire Manufacturer 1,454,500 $ 54,116,756
BROADCASTING & PROGRAMMING--2.4%
Grupo Televisa
S.A. (Mexico) (b) Television Production
& Broadcasting 1,841,200 $ 67,369,508
</Table>
40
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--95.1% (CONT.)
HUMAN RESOURCES--2.1%
Michael Page International
plc (Great Britain) (c) Recruitment Consultancy Services 23,736,600 $ 58,988,739
MARKETING SERVICES--3.8%
Publicis Groupe (France) Advertising & Media Services 2,286,100 $ 62,814,244
Aegis Group
plc (Great Britain) Media Services 30,524,200 44,524,681
----------------
107,338,925
PUBLISHING--4.3%
John Fairfax Holdings
Limited (Australia) Newspaper Publisher 32,814,100 $ 71,652,951
Reed Elsevier
plc (Great Britain) Publisher 5,943,100 46,506,405
----------------
118,159,356
RECREATION & ENTERTAINMENT--0.9%
Nintendo Company,
Ltd. (Japan) Video Game Manufacturer 284,800 $ 23,916,454
RETAIL--3.1%
Signet Group
plc (Great Britain) Jewelry Retailer 28,446,100 $ 49,768,465
Giordano International
Limited (Hong Kong) (c) Pacific Rim Clothing Retailer
& Manufacturer 82,924,300 37,744,455
----------------
87,512,920
BANK & THRIFTS--11.0%
Sanpaolo IMI S.p.A. (Italy) Banking Services 6,565,300 $ 65,294,592
Bank of Ireland (Ireland) Commercial Banking 5,347,000 63,925,871
BNP Paribas SA (France) Commercial Banking 1,156,000 56,709,921
United Overseas Bank
Limited, Foreign Shares
(Singapore) Commercial Banking 6,178,368 47,876,323
Banco Popolare di Verona
e Novara Scrl (Italy) Commercial Banking 2,938,400 41,419,772
Svenska Handelsbanken
AB (Sweden) Commercial Banking 1,498,800 25,437,816
Kookmin Bank (Korea) Commercial Banking 231,168 7,577,302
----------------
308,241,597
FINANCIAL SERVICES--1.8%
Credit Suisse Group
(Switzerland) Investment Services & Insurance 1,552,900 $ 49,680,101
</Table>
41
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--95.1% (CONT.)
OTHER FINANCIAL--7.6%
Daiwa Securities Group
Inc. (Japan) Stock Broker 11,688,000 $ 79,171,362
Euronext (Netherlands) Stock Exchange 3,221,600 78,495,500
Deutsche Boerse
AG (Germany) Electronic Trading Systems 1,105,200 56,407,142
----------------
214,074,004
PHARMACEUTICALS--11.4%
GlaxoSmithKline
plc (Great Britain) Pharmaceuticals 4,799,700 $ 99,971,123
Aventis S.A. (France) Pharmaceuticals 1,738,800 90,264,390
Takeda Chemical Industries,
Ltd. (Japan) Pharmaceuticals
& Food Supplements 2,314,000 84,496,501
Novartis AG (Switzerland) Pharmaceuticals 1,170,700 45,297,975
----------------
320,029,989
TELECOMMUNICATIONS--2.7%
SK Telecom Co., Ltd. (Korea) Mobile Telecommunications 473,600 $ 75,766,117
TELECOMMUNICATIONS EQUIPMENT--1.4%
Telefonaktiebolaget
LM Ericsson,
Class B (Sweden) (a) Mobile & Wired
Telecommunications Products 26,012,000 $ 37,936,964
COMPUTER SERVICES--2.1%
Meitec Corporation
(Japan) (c) Software Engineering Services 1,613,200 $ 59,340,750
AIRPORT MAINTENANCE--0.1%
Grupo Aeroportuario del
Sureste S.A. de C.V.
(Mexico) (b)(c) Airport Operator 242,000 $ 3,557,400
DIVERSIFIED CONGLOMERATES--3.4%
Vivendi Universal
SA (France) (a) Multimedia 4,702,700 $ 83,293,282
LVMH Moet Hennessy
Louis Vuitton
SA (France) Diversified Luxury Goods 159,600 9,921,708
Haw Par Corporation
Limited (Singapore) Healthcare & Leisure Products 58,338 144,390
----------------
93,359,380
</Table>
42
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS--95.1% (CONT.)
INSTRUMENTS--1.5%
Orbotech, Ltd.
(Israel) (a)(c) Optical Inspection Systems 2,041,200 $ 41,722,128
MACHINERY & INDUSTRIAL
PROCESSING--1.4%
Metso Corporation
(Finland) Paper & Pulp Machinery 3,863,000 $ 38,576,662
OTHER INDUSTRIAL GOODS &
SERVICES--2.5%
Enodis plc
(Great Britain) (a)(c) Food Processing Equipment 33,585,320 $ 39,080,214
Chargeurs SA (France) (c) Wool, Textile Production
& Trading 1,050,201 30,593,668
----------------
69,673,882
TRANSPORTATION SERVICES--2.1%
Associated British
Ports Holdings
plc (Great Britain) Port Operator 8,497,299 $ 58,371,811
CHEMICALS--6.5%
Akzo Nobel N.V.
(Netherlands) Chemical Producer 2,576,500 $ 80,370,678
Givaudan (Switzerland) Fragrance & Flavor Compound
Manufacturer 182,700 77,332,601
Lonza Group AG,
Registered Shares
(Switzerland) Industrial Organic Chemicals 492,900 23,102,646
----------------
180,805,925
TOTAL COMMON STOCKS
(COST: $2,310,623,395) 2,661,737,201
</Table>
43
<Page>
<Table>
<Caption>
NAME DESCRIPTION PAR VALUE MARKET VALUE
- -----------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--4.7%
U.S. GOVERNMENT BILLS--1.4%
United States Treasury Bills, 0.845%-0.875%
due 10/2/2003 - 10/9/2003 $ 40,000,000 $ 39,995,759
TOTAL U.S. GOVERNMENT BILLS (COST: $39,995,759) 39,995,759
REPURCHASE AGREEMENTS--3.3%
IBT Repurchase Agreement, 0.95% due 10/1/2003,
repurchase price $90,502,388 collateralized by
U.S. Government Agency Securities $ 90,500,000 $ 90,500,000
IBT Repurchase Agreement, 0.75% due 10/1/2003,
repurchase price $2,247,122 collateralized by
a U.S. Government Agency Security 2,247,075 2,247,075
TOTAL REPURCHASE AGREEMENTS (COST: $92,747,075) 92,747,075
TOTAL SHORT TERM INVESTMENTS (COST: $132,742,834) 132,742,834
Total Investments (Cost $2,443,366,229)--99.8% $ 2,794,480,035
Other Assets In Excess Of Other Liabilities--0.2% 5,365,101
----------------
TOTAL NET ASSETS--100% $ 2,799,845,136
================
</Table>
(a) Non-income producing security.
(b) Represents an American Depository Receipt.
(c) See footnote number five in the Notes to Financial Statements regarding
transactions in securities of affiliated issuers.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
44
<Page>
THE OAKMARK INTERNATIONAL
SMALL CAP FUND
REPORT FROM DAVID G. HERRO AND MICHAEL J. WELSH, PORTFOLIO MANAGERS
[PHOTO OF DAVID G. HERRO AND MICHAEL J. WELSH]
[CHART]
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. INDEX(21)
<Table>
<Caption>
THE OAKMARK INTERNATIONAL SMALL CAP FUND MSCI WORLD EX U.S. INDEX
10/31/1995 $ 10,000 $ 10,000
12/31/1995 $ 9,630 $ 10,684
3/31/1996 $ 10,970 $ 11,006
6/30/1996 $ 11,570 $ 11,186
9/30/1996 $ 11,590 $ 11,195
12/31/1996 $ 12,038 $ 11,418
3/31/1997 $ 12,080 $ 11,241
6/30/1997 $ 13,181 $ 12,699
9/30/1997 $ 12,672 $ 12,652
12/31/1997 $ 9,642 $ 11,677
3/31/1998 $ 11,429 $ 13,394
6/30/1998 $ 9,892 $ 13,499
9/30/1998 $ 8,211 $ 11,513
12/31/1998 $ 10,529 $ 13,868
3/31/1999 $ 13,118 $ 14,086
6/30/1999 $ 15,317 $ 14,493
9/30/1999 $ 15,439 $ 15,114
12/31/1999 $ 16,190 $ 17,741
3/31/2000 $ 15,387 $ 17,839
6/30/2000 $ 15,529 $ 17,217
9/30/2000 $ 14,908 $ 15,906
12/31/2000 $ 14,756 $ 15,369
3/31/2001 $ 15,232 $ 13,213
6/30/2001 $ 15,777 $ 13,075
9/30/2001 $ 13,987 $ 11,273
12/31/2001 $ 16,671 $ 12,080
3/31/2002 $ 18,370 $ 12,149
6/30/2002 $ 18,831 $ 11,877
9/30/2002 $ 14,641 $ 9,547
12/31/2002 $ 15,818 $ 10,172
3/31/2003 $ 13,882 $ 9,406
6/30/2003 $ 17,933 $ 11,215
9/30/2003 $ 20,465 $ 12,121
</Table>
ANNUAL AVERAGE TOTAL RETURNS(1)
(AS OF 9/30/03)
<Table>
<Caption>
SINCE
TOTAL RETURN INCEPTION
LAST 3 MONTHS* 1-YEAR 5-YEAR (11/1/95)
- ---------------------------------------------------------------------------------------
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 Average(25) 15.07% 38.43% 8.26% 9.36%
</Table>
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 NAV(24). 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.
/s/ David G. Herro /s/ Michael J. Welsh
DAVID G. HERRO, CFA MICHAEL J. WELSH, CFA, CPA
Portfolio Manager Portfolio Manager
dherro@oakmark.com mwelsh@oakmark.com
45
<Page>
INTERNATIONAL DIVERSIFICATION--SEPTEMBER 30, 2003
[CHART]
<Table>
<Caption>
% OF FUND
EQUITY MARKET VALUE
- ---------------------------------------------------
- - EUROPE 72.3%
Switzerland 17.6%
* France 14.8%
* Italy 9.6%
Great Britain 8.9%
Denmark 6.3%
* Germany 5.4%
Sweden 3.0%
* Spain 2.7%
* Finland 2.0%
* Netherlands 1.7%
* Austria 0.3%
- - PACIFIC RIM 23.2%
Australia 8.5%
Japan 7.1%
Korea 3.3%
New Zealand 2.2%
Thailand 1.0%
Philippines 0.6%
Hong Kong 0.5%
- - LATIN AMERICA 4.0%
Mexico 4.0%
- - NORTH AMERICA 0.5%
Canada 0.5%
</Table>
* Euro currency countries comprise 36.5% of the Fund.
46
<Page>
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2003
<Table>
<Caption>
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
</Table>
47
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--94.8% (CONT.)
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 Healthcare Products &
(Denmark) Services Provider 46,100 3,863,128
--------------
20,261,909
</Table>
48
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--94.8% (CONT.)
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
</Table>
49
<Page>
<Table>
<Caption>
NAME DESCRIPTION SHARES HELD MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--94.8% (CONT.)
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
</Table>
50
<Page>
<Table>
<Caption>
NAME DESCRIPTION PAR VALUE MARKET 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
==============
</Table>
(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.
51
<Page>
THE OAKMARK FAMILY OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES--SEPTEMBER 30, 2003
<Table>
<Caption>
THE OAKMARK THE OAKMARK
THE OAKMARK SELECT SMALL CAP
FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in unaffiliated securities, at value (a) $ 4,624,823,480 $ 4,360,576,973 $ 326,228,964
Investments in affiliated securities, at value (b) 168,308,045 735,473,071 27,153,360
Foreign currency, at value (c) 0 0 0
Receivable for:
Securities sold 0 0 2,042,304
Fund shares sold 10,156,339 7,738,785 460,427
Dividends and interest 6,479,553 4,186,428 247,903
Tax reclaim 0 0 0
---------------- ---------------- ----------------
Total receivables 16,635,892 11,925,213 2,750,634
Other assets 2,049 2,076 1,783
---------------- ---------------- ----------------
Total assets $ 4,809,769,466 $ 5,107,977,333 $ 356,134,741
LIABILITIES AND NET ASSETS
Options written, at value (d) $ 0 $ 0 $ 98,250
Payable for:
Securities purchased 13,833,926 16,639,652 4,315,627
Fund shares redeemed 2,475,482 2,887,634 186,605
Due to Adviser 120,488 124,770 10,303
Due to transfer agent 531,261 316,261 80,462
Trustees fees 16,796 17,890 6,591
Deferred trustee compensation 633,260 504,425 221,776
Other 1,643,118 1,399,431 201,494
---------------- ---------------- ----------------
Total liabilities 19,254,331 21,890,063 5,121,108
---------------- ---------------- ----------------
Net assets applicable to fund shares outstanding $ 4,790,515,135 $ 5,086,087,270 $ 351,013,633
================ ================ ================
ANALYSIS OF NET ASSETS
Paid in capital $ 4,577,792,523 $ 4,017,762,883 $ 341,279,922
Accumulated undistributed net realized gain (loss)
of investments, forward contracts and foreign currency
exchange transactions (332,994,872) (178,322,687) (11,819,142)
Net unrealized appreciation (depreciation) of investments 526,808,316 1,236,921,496 21,774,629
Net unrealized appreciation (depreciation)--other 0 0 0
Accumulated undistributed net investment income (loss) 18,909,168 9,725,578 (221,776)
---------------- ---------------- ----------------
Net assets applicable to Fund shares outstanding $ 4,790,515,135 $ 5,086,087,270 $ 351,013,633
================ ================ ================
PRICE OF SHARES
Net asset value per share: Class I $ 33.85 $ 27.55 $ 17.18
================ ================ ================
Class I--Net assets $ 4,769,381,577 $ 4,993,029,715 $ 350,261,221
Class I--Shares outstanding (Unlimited shares authorized) 140,880,178 181,227,232 20,384,382
Net asset value per share: Class II $ 33.68 $ 27.37 $ 17.10
================ ================ ================
Class II--Net assets $ 21,133,558 $ 93,057,555 $ 752,412
Class II--Shares outstanding (Unlimited shares authorized) 627,434 3,399,741 44,013
(a) Identified cost of investments in unaffiliated securities $ 4,145,259,797 $ 3,399,502,648 $ 287,196,683
(b) Identified cost of investments in affiliated securities 121,063,412 459,625,900 44,429,531
(c) Identified cost of foreign currency 0 0 0
(d) Premiums received on options written 0 0 116,769
</Table>
52
<Page>
<Table>
<Caption>
THE OAKMARK THE OAKMARK
EQUITY AND GLOBAL
INCOME FUND FUND
- -----------------------------------------------------------------------------------------------------------
ASSETS
Investments in unaffiliated securities, at value (a) $ 4,249,548,997 $ 626,201,275
Investments in affiliated securities, at value (b) 103,292,500 94,454,763
Foreign currency, at value (c) 0 0
Receivable for:
Securities sold 11,963,539 0
Fund shares sold 22,586,257 5,217,976
Dividends and interest 15,014,757 1,395,507
Tax reclaim 0 113,158
---------------- ----------------
Total receivables 49,564,553 6,726,641
Other assets 1,967 12,453
---------------- ----------------
Total assets $ 4,402,408,017 $ 727,395,132
LIABILITIES AND NET ASSETS
Options written, at value (d) $ 0 $ 207,500
Payable for:
Securities purchased 12,316,799 14,557,379
Fund shares redeemed 3,407,236 1,560,608
Due to Adviser 88,925 16,315
Due to transfer agent 228,292 53,826
Trustees fees 14,783 6,796
Deferred trustee compensation 280,303 174,344
Other 1,422,668 220,929
---------------- ----------------
Total liabilities 17,759,006 16,797,697
---------------- ----------------
Net assets applicable to fund shares outstanding $ 4,384,649,011 $ 710,597,435
================ ================
ANALYSIS OF NET ASSETS
Paid in capital $ 4,019,126,985 $ 626,594,459
Accumulated undistributed net realized gain (loss)
of investments, forward contracts and foreign currency
exchange transactions (70,194,686) 2,553,786
Net unrealized appreciation (depreciation) of investments 412,084,617 81,764,860
Net unrealized appreciation (depreciation)--other 86,868 (25,111)
Accumulated undistributed net investment income (loss) 23,545,227 (290,559)
---------------- ----------------
Net assets applicable to Fund shares outstanding $ 4,384,649,011 $ 710,597,435
================ ================
PRICE OF SHARES
Net asset value per share: Class I $ 20.30 $ 16.98
================ ================
Class I--Net assets $ 4,138,019,989 $ 704,789,043
Class I--Shares outstanding (Unlimited shares authorized) 203,828,648 41,511,169
Net asset value per share: Class II $ 20.24 $ 16.84
================ ================
Class II--Net assets $ 246,629,022 $ 5,808,392
Class II--Shares outstanding (Unlimited shares authorized) 12,185,691 344,894
(a) Identified cost of investments in unaffiliated securities $ 3,845,345,286 $ 555,621,304
(b) Identified cost of investments in affiliated securities 95,411,594 83,370,202
(c) Identified cost of foreign currency 0 0
(d) Premiums received on options written 0 255,988
<Caption>
THE OAKMARK THE OAKMARK
INTERNATIONAL INTERNATIONAL
FUND SMALL CAP FUND
- -----------------------------------------------------------------------------------------------------------
ASSETS
Investments in unaffiliated securities, at value (a) $ 2,483,860,976 $ 407,958,868
Investments in affiliated securities, at value (b) 310,619,059 66,435,813
Foreign currency, at value (c) 0 93,140
Receivable for:
Securities sold 0 2,276,361
Fund shares sold 15,637,549 1,429,207
Dividends and interest 6,473,864 247,648
Tax reclaim 1,233,241 787,921
---------------- ----------------
Total receivables 23,344,654 4,741,137
Other assets 1,888 1,783
---------------- ----------------
Total assets $ 2,817,826,577 $ 479,230,741
LIABILITIES AND NET ASSETS
Options written, at value (d) $ 0 $ 0
Payable for:
Securities purchased 14,328,817 148,185
Fund shares redeemed 2,004,232 395,649
Due to Adviser 72,155 15,629
Due to transfer agent 183,349 41,845
Trustees fees 11,225 6,745
Deferred trustee compensation 311,238 192,332
Other 1,070,425 185,927
---------------- ----------------
Total liabilities 17,981,441 986,312
---------------- ----------------
Net assets applicable to fund shares outstanding $ 2,799,845,136 $ 478,244,429
================ ================
ANALYSIS OF NET ASSETS
Paid in capital $ 2,640,297,749 $ 438,410,162
Accumulated undistributed net realized gain (loss)
of investments, forward contracts and foreign currency
exchange transactions (211,075,834) (33,870,230)
Net unrealized appreciation (depreciation) of investments 351,213,309 70,126,173
Net unrealized appreciation (depreciation)--other 127,745 60,059
Accumulated undistributed net investment income (loss) 19,282,167 3,518,265
---------------- ----------------
Net assets applicable to Fund shares outstanding $ 2,799,845,136 $ 478,244,429
================ ================
PRICE OF SHARES
Net asset value per share: Class I $ 15.67 $ 13.74
================ ================
Class I--Net assets $ 2,676,610,268 $ 477,804,840
Class I--Shares outstanding (Unlimited shares authorized) 170,773,739 34,774,368
Net asset value per share: Class II $ 15.58 $ 13.69
================ ================
Class II--Net assets $ 123,234,868 $ 439,589
Class II--Shares outstanding (Unlimited shares authorized) 7,908,472 32,113
(a) Identified cost of investments in unaffiliated securities $ 2,175,433,085 $ 336,790,323
(b) Identified cost of investments in affiliated securities 267,933,144 67,467,696
(c) Identified cost of foreign currency 0 93,014
(d) Premiums received on options written 0 0
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
53
<Page>
STATEMENTS OF OPERATIONS--YEAR ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
THE OAKMARK THE OAKMARK
THE OAKMARK SELECT SMALL CAP
FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends from unaffiliated securities $ 59,602,137 $ 44,753,904 $ 2,129,441
Dividends from affiliated securities 2,241,682 6,736,252 0
Interest Income 4,037,177 4,522,097 182,668
Securities lending income 0 0 0
Other income 89,785 35,751 0
Foreign taxes withheld (255,528) 0 0
---------------- ---------------- ----------------
Total investment income 65,715,253 56,048,004 2,312,109
EXPENSES:
Investment advisory fee 37,074,474 38,938,068 3,492,495
Transfer and dividend disbursing agent fees 2,825,387 1,661,800 418,413
Other shareholder servicing fees 3,073,278 2,731,432 239,250
Service fee--Class II 31,136 193,129 1,674
Reports to shareholders 2,142,621 1,259,823 297,125
Custody and accounting fees 434,075 469,750 50,691
Registration and blue sky expenses 147,168 77,419 37,320
Trustee fees 69,818 79,240 27,628
Deferred trustee compensation 179,772 191,415 71,267
Legal fees 53,468 56,404 21,291
Audit fees 55,910 64,005 12,996
Other 243,537 262,021 57,493
---------------- ---------------- ----------------
Total expenses 46,330,644 45,984,506 4,727,643
Expense reimbursement 0 0 (654)
Expense offset arrangements (170) (51) (9)
---------------- ---------------- ----------------
Net expenses 46,330,474 45,984,455 4,726,980
NET INVESTMENT INCOME (LOSS): 19,384,779 10,063,549 (2,414,871)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on unaffiliated securities (150,513,441) (103,743,922) (10,678,339)
Net realized loss on affiliated securities 0 (5,847,345) (970,575)
Net realized gain (loss) on options 12,672,486 7,892,086 326,790
Net realized gain on short sales 153,209 2,021 0
Net realized gain (loss) on foreign currency transactions 0 0 0
Net change in unrealized appreciation of
investments and foreign currencies 867,321,548 1,121,320,614 80,258,968
Net change in appreciation (depreciation)--other 0 0 0
Net realized and unrealized gain on
investments and foreign currency transactions: 729,633,802 1,019,623,454 68,936,844
---------------- ---------------- ----------------
Net increase in net assets resulting from operations $ 749,018,581 $ 1,029,687,003 $ 66,521,973
================ ================ ================
</Table>
54
<Page>
<Table>
<Caption>
THE OAKMARK THE OAKMARK
EQUITY AND GLOBAL
INCOME FUND FUND
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends from unaffiliated securities $ 23,518,559 $ 3,650,525
Dividends from affiliated securities 0 661,483
Interest Income 41,360,992 236,693
Securities lending income 0 38,886
Other income 6,277 0
Foreign taxes withheld (228,206) (460,738)
---------------- ----------------
Total investment income 64,657,622 4,126,849
EXPENSES:
Investment advisory fee 23,468,519 2,982,092
Transfer and dividend disbursing agent fees 1,161,063 267,441
Other shareholder servicing fees 3,446,666 149,118
Service fee--Class II 423,874 5,196
Reports to shareholders 915,859 183,647
Custody and accounting fees 356,560 225,992
Registration and blue sky expenses 209,265 121,133
Trustee fees 64,182 27,876
Deferred trustee compensation 154,035 71,226
Legal fees 46,562 20,340
Audit fees 47,139 11,562
Other 189,829 51,789
---------------- ----------------
Total expenses 30,483,553 4,117,412
Expense reimbursement 0 0
Expense offset arrangements (1) (9)
---------------- ----------------
Net expenses 30,483,552 4,117,403
NET INVESTMENT INCOME (LOSS): 34,174,070 9,446
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on unaffiliated securities 7,108,734 4,193,675
Net realized loss on affiliated securities 0 (151,560)
Net realized gain (loss) on options 2,453,329 (227,233)
Net realized gain on short sales 0 0
Net realized gain (loss) on foreign currency transactions 370,636 (168,173)
Net change in unrealized appreciation of
investments and foreign currencies 517,697,982 114,576,882
Net change in appreciation (depreciation)--other 87,469 (43,405)
Net realized and unrealized gain on
investments and foreign currency transactions: 527,718,150 118,180,186
---------------- ----------------
Net increase in net assets resulting from operations $ 561,892,220 $ 118,189,632
================ ================
<Caption>
THE OAKMARK THE OAKMARK
INTERNATIONAL INTERNATIONAL
FUND SMALL CAP FUND
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends from unaffiliated securities $ 43,137,392 $ 9,195,319
Dividends from affiliated securities 5,858,702 1,576,048
Interest Income 872,451 142,837
Securities lending income 1,118,106 0
Other income 0 0
Foreign taxes withheld (5,707,195) (1,242,916)
---------------- ----------------
Total investment income 45,279,456 9,671,288
EXPENSES:
Investment advisory fee 19,015,386 4,626,713
Transfer and dividend disbursing agent fees 941,105 212,442
Other shareholder servicing fees 1,903,171 331,936
Service fee--Class II 209,143 803
Reports to shareholders 722,282 143,097
Custody and accounting fees 1,835,731 389,671
Registration and blue sky expenses 129,664 37,788
Trustee fees 48,026 28,893
Deferred trustee compensation 119,153 72,553
Legal fees 35,759 21,472
Audit fees 32,729 8,905
Other 129,236 57,848
---------------- ----------------
Total expenses 25,121,385 5,932,121
Expense reimbursement 0 0
Expense offset arrangements (68) (9)
---------------- ----------------
Net expenses 25,121,317 5,932,112
NET INVESTMENT INCOME (LOSS): 20,158,139 3,739,176
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on unaffiliated securities (194,022,549) (30,903,635)
Net realized loss on affiliated securities (114,714) (2,571,782)
Net realized gain (loss) on options 0 0
Net realized gain on short sales 0 0
Net realized gain (loss) on foreign currency transactions (659,981) (58,650)
Net change in unrealized appreciation of
investments and foreign currencies 712,978,826 160,461,142
Net change in appreciation (depreciation)--other 294,152 36,163
Net realized and unrealized gain on
investments and foreign currency transactions: 518,475,734 126,963,238
---------------- ----------------
Net increase in net assets resulting from operations $ 538,633,873 $ 130,702,414
================ ================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
55
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE OAKMARK FUND
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 19,384,779 $ 14,076,323
Net realized loss on investments (137,687,746) (32,394,066)
Net change in unrealized appreciation (depreciation) of
investments 867,321,548 (498,006,779)
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 749,018,581 (516,324,522)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class I (13,880,781) (19,630,178)
Net investment income--Class II (29,599) (447)
---------------- ----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (13,910,380) (19,630,625)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold--Class I 1,533,121,113 1,648,934,264
Proceeds from shares sold--Class II 17,938,866 10,646,454
Reinvestment of distributions--Class I 13,078,556 19,105,784
Reinvestment of distributions--Class II 700 347
Payments for shares redeemed, net of fees--Class I (810,690,610) (942,439,538)
Payments for shares redeemed, net of fees--Class II (6,723,524) (838,834)
---------------- ----------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 746,725,101 735,408,477
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 1,481,833,302 199,453,330
NET ASSETS:
Beginning of period 3,308,681,833 3,109,228,503
---------------- ----------------
End of period $ 4,790,515,135 $ 3,308,681,833
================ ================
Undistributed net investment income $ 18,909,168 $ 13,434,769
================ ================
FUND SHARE TRANSACTIONS--CLASS I:
Shares sold 49,341,298 48,113,112
Shares issued in reinvestment of dividends 425,457 562,595
Less shares redeemed (26,435,618) (28,259,864)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 23,331,137 20,415,843
================ ================
FUND SHARE TRANSACTIONS--CLASS II:
Shares sold 576,827 298,334
Shares issued in reinvestment of dividends 23 10
Less shares redeemed (225,241) (25,887)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 351,609 272,457
================ ================
</Table>
56
<Page>
<Table>
<Caption>
THE OAKMARK
SELECT FUND
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 10,063,549 $ 4,018,416
Net realized loss on investments (101,697,160) (29,674,087)
Net change in unrealized appreciation (depreciation) of
investments 1,121,320,614 (635,685,201)
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 1,029,687,003 (661,340,872)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class I (3,934,423) (8,379,997)
---------------- ----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (3,934,423) (8,379,997)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold--Class I 917,786,177 1,260,687,129
Proceeds from shares sold--Class II 37,698,020 74,250,948
Reinvestment of distributions--Class I 3,705,408 7,956,922
Payments for shares redeemed, net of fees--Class I (654,181,633) (1,056,777,332)
Payments for shares redeemed, net of fees--Class II (26,725,613) (31,085,298)
---------------- ----------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 278,282,359 255,032,369
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,304,034,939 (414,688,500)
NET ASSETS:
Beginning of period 3,782,052,331 4,196,740,831
---------------- ----------------
End of period $ 5,086,087,270 $ 3,782,052,331
================ ================
Undistributed net investment income $ 9,725,578 $ 3,596,452
================ ================
FUND SHARE TRANSACTIONS--CLASS I:
Shares sold 36,086,657 47,211,312
Shares issued in reinvestment of dividends 150,625 299,856
Less shares redeemed (26,578,347) (41,080,996)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 9,658,935 6,430,172
================ ================
FUND SHARE TRANSACTIONS--CLASS II:
Shares sold 1,482,025 2,801,878
Less shares redeemed (1,069,612) (1,223,864)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 412,413 1,578,014
================ ================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
57
<Page>
<Table>
<Caption>
THE OAKMARK
SMALL CAP FUND
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment loss $ (2,414,871) $ (2,748,950)
Net realized gain (loss) on investments (11,322,124) 325,855
Net change in unrealized appreciation (depreciation) of
investments 80,258,968 (51,515,515)
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 66,521,973 (53,938,610)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold--Class I 50,502,211 326,865,529
Proceeds from shares sold--Class II 216,335 777,070
Payments for shares redeemed, net of fees--Class I (123,497,018) (180,818,640)
Payments for shares redeemed, net of fees--Class II (123,957) (103,465)
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS (72,902,429) 146,720,494
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (6,380,456) 92,781,884
NET ASSETS:
Beginning of period 357,394,089 264,612,205
---------------- ----------------
End of period $ 351,013,633 $ 357,394,089
================ ================
Undistributed net investment loss $ (221,776) $ (150,509)
================ ================
FUND SHARE TRANSACTIONS--CLASS I:
Shares sold 3,238,264 17,912,470
Less shares redeemed (8,156,424) (10,773,500)
---------------- ----------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (4,918,160) 7,138,970
================ ================
FUND SHARE TRANSACTIONS--CLASS II:
Shares sold 13,910 44,265
Less shares redeemed (7,871) (6,291)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 6,039 37,974
================ ================
</Table>
58
<Page>
<Table>
<Caption>
THE OAKMARK
EQUITY AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 34,174,070 $ 28,439,569
Net realized gain (loss) on investments 9,562,063 (81,982,611)
Net realized gain (loss) on foreign currency transactions 370,636 (2,938)
Net change in unrealized appreciation (depreciation) of
investments 517,697,982 (107,419,745)
Net change in unrealized appreciation (depreciation)--other 87,469 (601)
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 561,892,220 (160,966,326)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class I (33,616,359) (6,931,173)
Net investment income--Class II (1,569,445) (90,128)
Net realized gain--Class I 0 (1,870,660)
Net realized gain--Class II 0 (33,869)
---------------- ----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (35,185,804) (8,925,830)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold--Class I 2,076,491,027 2,457,322,254
Proceeds from shares sold--Class II 144,338,218 146,887,453
Reinvestment of distributions--Class I 32,429,243 8,525,720
Reinvestment of distributions--Class II 321,834 85,801
Payments for shares redeemed, net of fees--Class I (709,955,319) (683,906,125)
Payments for shares redeemed, net of fees--Class II (46,269,411) (21,792,340)
---------------- ----------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 1,497,355,592 1,907,122,763
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 2,024,062,008 1,737,230,607
NET ASSETS:
Beginning of period 2,360,587,003 623,356,396
---------------- ----------------
End of period $ 4,384,649,011 $ 2,360,587,003
================ ================
Undistributed net investment income $ 23,545,227 $ 25,964,233
================ ================
FUND SHARE TRANSACTIONS--CLASS I:
Shares sold 109,874,694 132,277,123
Shares issued in reinvestment of dividends 1,796,634 477,891
Less shares redeemed (38,350,539) (37,783,411)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 73,320,789 94,971,603
================ ================
FUND SHARE TRANSACTIONS--CLASS II:
Shares sold 7,706,490 7,935,953
Shares issued in reinvestment of dividends 17,840 4,809
Less shares redeemed (2,462,923) (1,205,519)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 5,261,407 6,735,243
================ ================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
59
<Page>
<Table>
<Caption>
THE OAKMARK
GLOBAL FUND
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ 9,446 $ (18,547)
Net realized gain (loss) on investments 3,814,882 (1,261,095)
Net realized gain (loss) on foreign currency transactions (168,173) (37,184)
Net change in unrealized appreciation (depreciation) of
investments and foreign currencies 114,576,882 (30,244,164)
Net change in unrealized appreciation (depreciation)--other (43,405) 18,109
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 118,189,632 (31,542,881)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class I 0 (11,774)
Net investment income--Class II 0 (61)
Net realized gain--Class I 0 (1,361,493)
Net realized gain--Class II 0 (7,099)
---------------- ----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS 0 (1,380,427)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold--Class I 524,732,272 228,014,650
Proceeds from shares sold--Class II 6,645,694 754,996
Reinvestment of distributions--Class I 0 1,321,517
Payments for shares redeemed, net of fees--Class I (112,770,994) (69,082,440)
Payments for shares redeemed, net of fees--Class II (2,412,970) (75,625)
---------------- ----------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 416,194,002 160,933,098
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 534,383,634 128,009,790
NET ASSETS:
Beginning of period 176,213,801 48,204,011
---------------- ----------------
End of period $ 710,597,435 $ 176,213,801
================ ================
Undistributed net investment loss $ (290,559) $ (131,833)
================ ================
FUND SHARE TRANSACTIONS--CLASS I:
Shares sold 34,670,227 16,329,528
Shares issued in reinvestment of dividends 0 108,677
Less shares redeemed (8,703,761) (5,343,294)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 25,966,466 11,094,911
================ ================
FUND SHARE TRANSACTIONS--CLASS II:
Shares sold 462,296 61,020
Less shares redeemed (171,894) (6,528)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 290,402 54,492
================ ================
</Table>
60
<Page>
<Table>
<Caption>
THE OAKMARK
INTERNATIONAL FUND
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 20,158,139 $ 16,380,565
Net realized loss on investments (194,137,263) (2,111,019)
Net realized loss on foreign currency transactions (659,981) (744,096)
Net change in unrealized appreciation (depreciation) of
investments and foreign currencies 712,978,826 (199,327,235)
Net change in unrealized appreciation (depreciation)--other 294,152 (155,750)
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 538,633,873 (185,957,535)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class I (15,119,015) (10,170,790)
Net investment income--Class II (515,254) (76,332)
---------------- ----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (15,634,269) (10,247,122)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold--Class I 1,342,461,828 1,172,930,611
Proceeds from shares sold--Class II 210,555,153 71,056,423
Reinvestment of distributions--Class I 13,994,235 9,816,822
Reinvestment of distributions--Class II 172,223 1,669
Payments for shares redeemed, net of fees--Class I (573,914,822) (339,595,271)
Payments for shares redeemed, net of fees--Class II (158,686,779) (16,218,827)
---------------- ----------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 834,581,838 897,991,427
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 1,357,581,442 701,786,770
NET ASSETS:
Beginning of period 1,442,263,694 740,476,924
---------------- ----------------
End of period $ 2,799,845,136 $ 1,442,263,694
================ ================
Undistributed net investment income $ 19,282,167 $ 15,418,278
================ ================
FUND SHARE TRANSACTIONS--CLASS I:
Shares sold 98,256,816 78,310,031
Shares issued in reinvestment of dividends 1,050,618 726,633
Less shares redeemed (43,071,914) (23,511,785)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 56,235,520 55,524,879
================ ================
FUND SHARE TRANSACTIONS--CLASS II:
Shares sold 15,141,504 4,928,274
Shares issued in reinvestment of dividends 12,959 124
Less shares redeemed (11,241,101) (1,088,826)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 3,913,362 3,839,572
================ ================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
61
<Page>
<Table>
<Caption>
THE OAKMARK INTERNATIONAL
SMALL CAP FUND
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 3,739,176 $ 4,016,566
Net realized gain (loss) on investments (33,475,417) 12,083,383
Net realized loss on foreign currency transactions (58,650) (31,834)
Net change in unrealized appreciation (depreciation) of
investments and foreign currencies 160,461,142 (70,664,400)
Net change in unrealized appreciation--other 36,163 21,128
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 130,702,414 (54,575,157)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class I (3,076,432) (2,120,585)
Net investment income--Class II (1,637) (921)
Net realized gain--Class I (9,181,861) (1,891,258)
Net realized gain--Class II (6,548) (1,136)
---------------- ----------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (12,266,478) (4,013,900)
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold--Class I 122,746,015 428,499,905
Proceeds from shares sold--Class II 978,707 333,324
Reinvestment of distributions--Class I 11,533,652 3,875,545
Reinvestment of distributions--Class II 4,554 0
Payments for shares redeemed, net of fees--Class I (132,515,271) (134,986,731)
Payments for shares redeemed, net of fees--Class II (945,332) (34,570)
---------------- ----------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 1,802,325 297,687,473
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 120,238,261 239,098,416
NET ASSETS:
Beginning of period 358,006,168 118,907,752
---------------- ----------------
End of period $ 478,244,429 $ 358,006,168
================ ================
Undistributed net investment income $ 3,518,265 $ 2,936,581
================ ================
FUND SHARE TRANSACTIONS--CLASS I:
Shares sold 11,051,169 34,412,757
Shares issued in reinvestment of dividends 1,095,314 375,172
Less shares redeemed (12,545,416) (11,505,764)
---------------- ----------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (398,933) 23,282,165
================ ================
FUND SHARE TRANSACTIONS--CLASS II:
Shares sold 88,462 27,354
Shares issued in reinvestment of dividends 432 0
Less shares redeemed (85,057) (2,766)
---------------- ----------------
NET INCREASE IN SHARES OUTSTANDING 3,837 24,588
================ ================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
62
<Page>
THE OAKMARK FAMILY OF FUNDS
NOTES TO FINANCIAL STATEMENTS--SEPTEMBER 30, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of The Oakmark Fund
("Oakmark"), The Oakmark Select Fund ("Select"), The Oakmark Small Cap Fund
("Small Cap"), The Oakmark Equity and Income Fund ("Equity and Income"), The
Oakmark Global Fund ("Global"), The Oakmark International Fund
("International"), and The Oakmark International Small Cap Fund ("Int'l Small
Cap") collectively referred to as "the Funds", each a series of Harris
Associates Investment Trust (a Massachusetts business trust), which is
registered as an investment company under the Investment Company Act of 1940.
These policies are in conformity with accounting principles generally accepted
in the United States of America ("GAAP"). The presentation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates and assumptions.
CLASS DISCLOSURE--
Each Fund offers two classes of shares: Class I Shares and Class II Shares.
Class I Shares are offered to the general public. Class II Shares are offered to
certain retirement plans such as 401(k) and profit sharing plans. Class II
Shares pay a service fee at the annual rate of .25% of average net assets of
Class II Shares of the Funds. This service fee is paid to an administrator for
performing the services associated with the administration of such retirement
plans.
Expenses of the Funds that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares are recorded to the
specific class.
SECURITY VALUATION--
Securities traded on securities exchanges and over-the-counter
securities are valued at the last sales price on the day of valuation, or
lacking any reported sales that day, at the most recent bid quotation.
Securities traded on the NASDAQ National Market are valued at the NASDAQ
Official Closing Price ("NOCP"), or lacking an NOCP, at the most recent bid
quotation on the NASDAQ National Market. Debt obligations and money market
instruments maturing in more than 60 days from the date of purchase are valued
at the latest bid quotation. Debt obligations and money market instruments
maturing in less than 61 days from the date of purchase are valued on an
amortized cost basis which approximates market value. Options are valued at the
last reported sale price on the day of valuation, or lacking any reported sales
that day, at the mean of the most recent bid and ask quotations. Securities for
which quotations are not readily available, or securities which may have been
affected by a significant event after the price was determined, and other assets
are valued at a fair value as determined by or under the direction of the Board
of Trustees. At September 30, 2003, the Funds held no securities for which
quotations were not readily available, nor any securities that may have been
affected by a significant event after the price was determined.
FOREIGN CURRENCY TRANSLATIONS--
Values of investments and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars using the mean of the bid and offer
prices of such currencies at the time of valuation. Purchases and sales of
investments and dividend and interest income are converted at the prevailing
rate of exchange on the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized gain or loss from securities.
Net realized gains or losses on foreign currency transactions arise from sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded and the U.S.
dollar equivalent of the amounts actually received or paid, and the realized
gains or losses resulting from the portfolio and transaction hedges. Net
unrealized foreign exchange gains and losses arise from changes in the fair
value of assets and liabilities, other than investments in securities at fiscal
year end, resulting from changes in exchange rates.
At September 30, 2003, net unrealized appreciation (depreciation) - other
includes the following components:
<Table>
<Caption>
EQUITY AND INT'L
INCOME GLOBAL INTERNATIONAL SMALL CAP
- ------------------------------------------------------------------------------------
Unrealized appreciation on
dividends and dividend
reclaims receivable $ 86,868 $ 41,624 $ 235,195 $ 48,934
Unrealized appreciation
(depreciation) on open
securities purchases and
sales 0 (66,735) (107,450) 11,125
---------- ---------- ---------- ----------
Net Unrealized
appreciation
(depreciation) - Other $ 86,868 $ (25,111) $ 127,745 $ 60,059
========== ========== ========== ==========
</Table>
63
<Page>
SECURITY TRANSACTIONS AND INVESTMENT INCOME--
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis. Bond discount is
accreted and premium is amortized over the expected life of each applicable
security. Withholding taxes on foreign dividends have been provided for in
accordance with the Funds' understanding of the applicable country's tax rules
and rates. Net realized gains and losses on investments are determined by the
specific identification method.
FORWARD FOREIGN CURRENCY CONTRACTS--
The Funds' currency transactions are limited to transaction hedging and
portfolio hedging involving either specific transactions or portfolio positions.
The contractual amounts of forward foreign exchange contracts do not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered. Risks arise from the possible inability
of counter parties to meet the terms of their contracts and from movements in
currency values. At September 30, 2003, the Funds had no forward foreign
currency contracts outstanding.
DISTRIBUTIONS TO SHAREHOLDERS--
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations, which may differ from GAAP. To the extent
the tax and book differences are permanent in nature, such amounts are
reclassified among paid in capital, undistributed net investment income and
accumulated undistributed net realized gain (loss). Those differences are
primarily related to foreign currency transactions, deferral of losses on wash
sales, and character of capital loss carryforwards. The Funds also utilize, when
appropriate, earnings and profits distributed to shareholders on redemption of
shares as a part of the dividends paid deduction for income tax purposes.
COMMITTED LINE OF CREDIT--
The Funds have an unsecured committed line of credit with Investors Bank & Trust
Company in the amount of $350 million. Borrowings under that arrangement bear
interest at .45% above the Federal Funds Effective Rate. There were no
borrowings during the year ended September 30, 2003.
ACCOUNTING FOR OPTIONS--
When a Fund writes an option, the premium received by the Fund is recorded as a
liability and is subsequently adjusted to the current market value of the option
written. Premiums received from writing options that expire are recorded by the
Fund on the expiration date as realized gains from option transactions. The
difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or if the premium is less than the amount paid for the closing
purchase transaction, as a realized loss. If a call option is exercised, the
premium is added to the proceeds from the sale of the underlying security or
currency in determining whether the Fund has realized a gain or a loss. If a put
option is exercised, the premium reduces the cost basis of the security or
currency purchased by the Fund. In writing an option, the Fund bears the market
risk of an unfavorable change in the price of the security or currency
underlying the written option. Exercise of an option written by the Fund could
result in the Fund selling or buying a security or currency at a price different
from the current market value. Options written by the Funds do not give rise to
counterparty credit risk, as they obligate the Funds, not its counterparties, to
perform.
When a Fund purchases an option, the premium paid by the Fund is recorded as a
deferred credit and is subsequently adjusted to the current market value of the
option purchased. Purchasing call options tends to increase the Fund's exposure
to the underlying instrument. Purchasing put options tends to decrease the
Fund's exposure to the underlying instrument. Premiums paid for purchasing
options which expire are treated as realized losses. Premiums paid for
purchasing options which are exercised or closed are added to the amounts paid
or offset against the proceeds on the underlying security to determine the
realized gain or loss. The risk associated with purchasing put and call options
is potential loss of the premium paid.
For the year ended September 30, 2003, Oakmark, Select, Small Cap, Equity &
Income, and Global wrote option contracts. At September 30, 2003, Small Cap and
Global had outstanding option contracts for which portfolio securities valued at
$1,425,000 and $10,208,800 respectively, were held in escrow by the custodian as
cover for the options written.
SECURITY LENDING--
Each Fund except Oakmark Fund may lend its portfolio securities to
broker-dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the value of the securities loaned by the Fund.
Collateral is marked to market and monitored daily. The Fund would continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned, and would also receive an additional return that may be in
the form of a fixed fee or a percentage of the earnings on the collateral. The
Fund would have the right to call the loan and obtain the securities loaned at
any time on notice of not more than five business days. In the event of
bankruptcy or other default of the borrower, the Fund could experience delays in
liquidating the loan collateral or recovering the loaned securities and incur
expenses related
64
<Page>
to enforcing its rights. In addition, there could be a decline in the value of
the collateral or in the value of the securities loaned while the Fund seeks to
enforce its rights thereto and the Fund could experience subnormal levels of
income and lack of access to income during that period. At September 30, 2003,
there were no outstanding securities lending transactions.
SHORT SALES--
The Funds may sell a security they do not own in anticipation of a decline in
the fair value of that security. When a Fund sells a security short, it must
borrow the security sold short and deliver it to the broker-dealer through which
it made the short sale. A gain, limited to the price at which the Fund sold the
security short, or loss, unlimited in size, will be recognized upon the
termination of a short sale. At September 30, 2003, there were no such
securities sold short.
2. TRANSACTIONS WITH AFFILIATES
Each Fund has an investment advisory agreement with Harris Associates L.P.
("Adviser"). For management services and facilities furnished, the Funds pay the
Adviser monthly fees. Each fee is calculated on the total net assets as
determined at the end of each preceding calendar month. Annual fee rates are as
follows:
<Table>
<Caption>
FUND ADVISORY FEES FUND ADVISORY FEES
-------------------------------------------------------------------------------------------------------
Oakmark 1.00% up to $2 billion; Equity and Income 0.75%
0.90% on the next $1 billion;
0.80% on the next $2 billion; and
0.75% over $5 billion
Select 1.00% up to $1 billion; Global 1.00%
0.95% on the next $500 million;
0.90% on the next $500 million; International 1.00% up to $2 billion;
0.85% on the next $500 million; 0.95% on the next $1 billion; and
0.80% on the next $2.5 billion; and 0.85% over $3 billion
0.75% over $5 billion
Small Cap 1.00% Int'l Small Cap 1.25% up to $500 million; and
1.10% over $500 million
</Table>
The Adviser is contractually obligated to reimburse the Funds, through January
31, 2004, to the extent that annual expenses are greater than 1.0% for Class I
shares of the Equity and Income Fund; greater than 1.5% for Class I shares of
all other domestic funds; greater than 1.75% for Class I shares of the Global
Fund; and greater than 2.0% for Class I shares of all other international funds;
or are greater than 1.25% for Class II shares of the Equity and Income Fund;
greater than 1.75% for Class II shares of all other domestic funds; greater than
2.0% for Class II shares of the Global Fund; and greater than 2.25% for Class II
shares of all other international funds.
For the year ended September 30, 2003, the Funds incurred brokerage commissions,
including commissions paid to an affiliate of the Adviser, Harris Associates
Securities L.P., as follows:
<Table>
<Caption>
FUND TOTAL COMMISSIONS COMMISSIONS PAID TO AFFILIATES
----------------------------------------------------------------------------
Oakmark $ 4,712,567 $ 951,853
Select 3,944,611 544,596
Small Cap 540,418 104,000
Equity & Income 4,171,306 845,629
Global 1,652,181 170,503
International 5,497,451 0
Int'l Small Cap 758,299 0
</Table>
65
<Page>
CDC IXIS Asset Management Services Co., an affiliate of the Adviser, provides
transfer agent services to the Funds. The fees are based on the number of open
accounts and the reimbursement of out-of-pocket expenses. For the year ended
September 30, 2003, the Funds incurred the following transfer agent expenses:
<Table>
<Caption>
FUND TRANSFER AGENT FEES
---------------------------------------------------------
Oakmark $ 2,825,387
Select 1,661,800
Small Cap 418,413
Equity & Income 1,161,063
Global 267,441
International 941,105
Int'l Small Cap 212,442
</Table>
The Adviser has entered into agreements with service providers to provide
recordkeeping, processing, shareholder communications and other services to the
Funds. These services would be provided by the Funds if the shares were held in
accounts registered directly with the Funds' transfer agent. Accordingly, the
Funds pay a portion of these fees pursuant to a separate agreement with the
Adviser. These fees are reflected as other shareholder servicing fees in the
Statement of Operations.
The non-interested Trustees of the Trust may participate in the Trust's Deferred
Compensation Plan for Independent Trustees. Participants in the plan may elect
to defer all or a portion of their compensation. Amounts deferred are retained
by the Trust and represent an unfunded obligation of the Trust. The value of
amounts deferred for a participant is determined by reference to the change in
value of Class I shares of one or more of the Funds or a money market fund as
specified by the participant. Benefits under the plan are payable upon
retirement. The interested trustees are not compensated by the Funds.
3. FEDERAL INCOME TAXES
It is the policy of each Fund to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its net taxable income, including any net realized gains on investments, to
its shareholders. Therefore, no federal income tax provision is required.
<Table>
<Caption>
COST OF INVESTMENTS NET UNREALIZED
FOR FEDERAL INCOME GROSS UNREALIZED GROSS UNREALIZED APPRECIATION
FUND TAX PURPOSES APPRECIATION (DEPRECIATION) (DEPRECIATION)
-----------------------------------------------------------------------------------------------------
Oakmark $ 4,283,226,954 $ 671,652,479 $ (161,747,908) $ 509,904,571
Select 3,871,796,681 1,320,294,049 (96,040,686) 1,224,253,363
Small Cap 331,509,517 67,217,652 (45,443,095) 21,774,557
Equity & Income 3,940,402,357 420,402,230 (7,963,090) 412,439,140
Global 639,010,996 83,774,167 (2,336,625) 81,437,542
International 2,449,270,639 385,356,290 (40,146,894) 345,209,396
Int'l Small Cap 404,668,469 89,454,335 (19,728,123) 69,726,212
</Table>
As of September 30, 2003, the net capital loss carryovers noted below are
available to offset future realized capital gains and thereby reduce future
taxable gains distributions.
NET CAPITAL LOSS CARRYOVER
<Table>
<Caption>
FUND 2008 2009 2010 2011
-----------------------------------------------------------------------------------
Oakmark $ 23,897,178 $ 139,015,880 $ 2,634,326 $ 27,893,934
Select 0 5,156,972 43,881,611 14,649,666
Small Cap 0 0 0 8,844,719
Equity & Income 0 0 3,347,886 66,672,712
Global 0 0 0 0
International 0 0 14,901,531 29,140,687
Int'l Small Cap 0 0 0 19,830,527
</Table>
66
<Page>
For the year ended September 30, 2003, the Funds have elected to defer to
October 1, 2003 post October 2002 capital losses of:
<Table>
<Caption>
FUND AMOUNT
----------------------------------------------------------------------------
Oakmark $ 122,649,808
Select 101,966,303
Small Cap 2,974,352
International 161,129,206
Int'l Small Cap 13,629,253
</Table>
For the year ended September 30, 2003, Global has elected to defer to October 1,
2003 post October 2002 currency losses of $167,123.
At September 30, 2003, the components of distributable earnings (excluding
unrealized appreciation (depreciation) disclosed below) on a tax basis were as
follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED LONG- TOTAL DISTRIBUTABLE
FUND ORDINARY INCOME TERM GAIN EARNINGS
-----------------------------------------------------------------------------------------
Oakmark $ 19,542,428 $ 0 $ 19,542,428
Select 10,230,003 0 10,230,003
Equity & Income 23,296,919 0 23,296,919
Global 50,908 2,829,266 2,880,174
International 19,593,405 0 19,593,405
Int'l Small Cap 3,710,597 0 3,710,597
</Table>
For corporate shareholders, a portion of the ordinary dividends paid during the
Funds' year ended September 30, 2003 qualified for the dividends received
deduction, as follows:
<Table>
<Caption>
FUND
----------------------------------------------------------------------------
Oakmark 100.00%
Select 100.00%
Equity & Income 48.19%
</Table>
During the year ended September 30, 2003, the tax character of distributions
paid was as follows:
<Table>
<Caption>
DISTRIBUTIONS PAID DISTRIBUTIONS PAID
FROM ORDINARY FROM LONG-TERM
FUND INCOME CAPITAL GAIN
-----------------------------------------------------------------
Oakmark $ 13,910,380 $ 0
Select 3,934,423 0
Equity & Income 35,185,804 0
International 15,634,269 0
Int'l Small Cap 3,098,842 9,167,636
</Table>
4. INVESTMENT TRANSACTIONS
Transactions in investment securities (excluding short term and U.S. Government
securities) were as follows (in thousands):
<Table>
<Caption>
EQUITY & INT'L
OAKMARK SELECT SMALL CAP INCOME GLOBAL INTERNATIONAL SMALL CAP
------------------------------------------------------------------------------------------------------------------------------
Purchases $ 1,348,517 $ 1,043,382 $ 41,605 $ 1,516,171 $ 495,692 $ 1,414,439 $ 109,644
Proceeds from sales 766,678 822,236 127,941 633,717 128,418 649,070 125,084
</Table>
Purchases at cost and proceeds from sales of long-term U.S. Government
securities for the year ended September 30, 2003 were $1,107,455 and $789,794,
respectively for Equity and Income.
67
<Page>
Transactions in options written during the year ended September 30, 2003 were as
follows:
<Table>
<Caption>
OAKMARK SELECT SMALL CAP
------------------------------------------------------------------------------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED CONTRACTS RECEIVED
------------------------------------------------------------------------------------------------------------------------------
Options outstanding at
September 30, 2002 0 $ 0 0 $ 0 0 $ 0
Options written 190,700 19,342,841 222,795 71,921,178 4,850 615,017
Options terminated in closing
purchase transactions (18,300) (2,213,302) (17,355) (1,384,340) (500) (70,998)
Options expired (112,379) (10,933,445) (79,228) (6,751,845) (2,400) (276,091)
Options exercised (60,021) (6,196,094) (126,212) (63,784,993) (1,000) (151,159)
------------ ------------- ------------ ------------- ------ ------------
Options outstanding at
September 30, 2003 0 $ 0 0 $ 0 950 $ 116,769
<Caption>
EQUITY & INCOME GLOBAL
------------------------------------------------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED
-------------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 2002 10,190 $ 638,100 0 $ 0
Options written 26,510 3,633,617 12,723 1,970,518
Options terminated in closing purchase transactions (7,455) (936,662) (5,550) (855,705)
Options expired (21,195) (2,314,185) (2,673) (468,115)
Options exercised (8,050) (1,020,870) (1,500) (390,710)
---------- ------------ ---------- ------------
Options outstanding at September 30, 2003 0 $ 0 3,000 $ 255,988
</Table>
5. INVESTMENTS IN AFFILIATED ISSUERS
An affiliated issuer, as defined under the Investment Company Act of 1940, is
one in which the Trust's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of each Fund's
investments in securities of these issuers for the year ended September 30,
2003, is set forth below:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
THE OAKMARK FUND
<Table>
<Caption>
MARKET VALUE
PURCHASES SALES DIVIDEND SEPTEMBER 30,
AFFILIATES (COST) PROCEEDS INCOME 2003
--------------------------------------------------------------------------------------
H&R Block, Inc. $ 19,101,014 $ 0 $ 2,241,682 $ 130,714,295
Toys 'R' Us, Inc. 0 0 0 37,593,750
------------ ------------ ------------ -------------
TOTALS $ 19,101,014 $ 0 $ 2,241,682 $ 168,308,045
</Table>
THE OAKMARK SELECT FUND
<Table>
<Caption>
MARKET VALUE
PURCHASES SALES DIVIDEND SEPTEMBER 30,
AFFILIATES (COST) PROCEEDS INCOME 2003
---------------------------------------------------------------------------------------------
H&R Block, Inc. $ 56,001,137 $ 20,779,349 $ 6,736,252 $ 382,300,370
The Dun & Bradstreet Corporation 0 28,311,774 0 188,379,746
Toys 'R' Us, Inc. 20,391,707 11,947,271 0 164,792,955
------------ ------------ ------------ -------------
TOTALS $ 76,392,844 $ 61,038,394 $ 6,736,252 $ 735,473,071
</Table>
68
<Page>
THE OAKMARK SMALL CAP FUND
<Table>
<Caption>
MARKET VALUE
PURCHASES SALES DIVIDEND SEPTEMBER 30,
AFFILIATES (COST) PROCEEDS INCOME 2003
-------------------------------------------------------------------------------------------------------------
eFunds Corporation $ 1,082,784 $ 1,565,160 $ 0 $ 16,395,860
R.G. Barry Corporation 0 0 0 4,680,000
SureBeam Corporation, Class A 2,111,950 0 0 6,077,500
------------- ------------- ------------- -------------
TOTALS $ 3,194,734 $ 1,565,160 $ 0 $ 27,153,360
</Table>
THE OAKMARK EQUITY AND INCOME FUND
<Table>
<Caption>
MARKET VALUE
PURCHASES SALES DIVIDEND SEPTEMBER 30,
AFFILIATES (COST) PROCEEDS INCOME 2003
-------------------------------------------------------------------------------------------------------------
First Health Group Corp. $ 47,563,042 $ 0 $ 0 $ 103,292,500
------------- ------------- ------------- -------------
TOTALS $ 47,563,042 $ 0 $ 0 $ 103,292,500
</Table>
THE OAKMARK GLOBAL FUND
<Table>
<Caption>
MARKET VALUE
PURCHASES SALES DIVIDEND SEPTEMBER 30,
AFFILIATES (COST) PROCEEDS INCOME 2003
-------------------------------------------------------------------------------------------------------------
eFunds Corporation $ 6,637,994 $ 633,584 $ 0 $ 22,785,750
First Health Group Corp. 29,159,430 8,419,315 0 27,823,600
Grupo Aeroportuario del Sureste S.A. de C.V. 1,178,375 0 221,314 6,806,100
Lotte Chilsung Beverage Co., Ltd. 4,406,429 0 8,015 6,375,499
Meitec Corporation 5,370,188 0 141,697 14,022,250
Michael Page International plc 2,087,755 0 290,457 11,966,936
Orbotech, Ltd. 55,741 0 0 4,674,628
------------- ------------- ------------- -------------
TOTALS $ 48,895,912 $ 9,052,899 $ 661,483 $ 94,454,763
</Table>
THE OAKMARK INTERNATIONAL FUND
<Table>
<Caption>
MARKET VALUE
PURCHASES SALES DIVIDEND SEPTEMBER 30,
AFFILIATES (COST) PROCEEDS INCOME 2003
-------------------------------------------------------------------------------------------------------------
Chargeurs SA $ 0 $ 0 $ 1,454,922 $ 30,593,668
Enodis plc 0 0 0 39,080,214
Giordano International Limited 7,084,872 0 2,020,125 37,744,455
Grupo Aeroportuario del Sureste S.A. de C.V. 0 0 115,676 3,557,400
Lotte Chilsung Beverage Co., Ltd. 16,577,455 0 82,989 39,591,705
Meitec Corporation 8,756,459 5,000,446 712,529 59,340,750
Michael Page International plc 5,519,118 2,628,656 1,472,461 58,988,739
Orbotech, Ltd. 2,161,360 0 0 41,722,128
------------- ------------- ------------- -------------
TOTALS $ 40,099,264 $ 7,629,102 $ 5,858,702 $ 310,619,059
</Table>
69
<Page>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
<Table>
<Caption>
MARKET VALUE
PURCHASES SALES DIVIDEND SEPTEMBER 30,
AFFILIATES (COST) PROCEEDS INCOME 2003
-------------------------------------------------------------------------------------------------------------
Alaska Milk Corporation $ 0 $ 0 $ 276,386 $ 2,745,362
Baycorp Advantage Limited 11,759,166 1,794,255 0 22,184,264
Grupo Aeroportuario del Sureste S.A. de C.V. 0 713,436 508,592 15,640,800
Mainfreight Limited 0 0 322,114 6,151,604
Matichon Public Company Limited,
Foreign Shares 0 0 142,407 4,381,639
Pfeiffer Vacuum Technology AG 1,090,531 3,059,827 326,549 14,262,913
Royal Doulton plc 0 0 0 1,069,231
------------- ------------- ------------- -------------
TOTALS $ 12,849,697 $ 5,567,518 $ 1,576,048 $ 66,435,813
</Table>
70
<Page>
[OAKMARK FAMILY OF FUNDS LOGO]
(This page has been intentionally left blank.)
71
<Page>
THE OAKMARK FUND
FINANCIAL HIGHLIGHTS-CLASS I
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 28.08 $ 32.01 $ 26.95 $ 34.37 $ 33.54
Income (Loss) From Investment Operations:
Net Investment Income 0.13 0.12 0.07 0.49 0.36
Net Gains (Losses) on Securities
(both realized and unrealized) 5.75 (3.85) 5.38 (2.91) 2.51
------------ ------------ ------------ ------------ ------------
Total From Investment Operations: 5.88 (3.73) 5.45 (2.42) 2.87
Less Distributions:
Dividends (from net investment income) (0.11) (0.20) (0.39) (0.26) (0.44)
Distributions (from capital gains) 0.00 0.00 0.00 (4.74) (1.60)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.11) (0.20) (0.39) (5.00) (2.04)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 33.85 $ 28.08 $ 32.01 $ 26.95 $ 34.37
============ ============ ============ ============ ============
Total Return 20.99% (11.77)% 20.42% (7.55)% 7.98%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 4,769.4 $ 3,300.9 $ 3,109.1 $ 2,038.7 $ 4,772.8
Ratio of Expenses to Average Net Assets 1.14% 1.17% 1.15% 1.21% 1.11%
Ratio of Net Investment Income
to Average Net Assets 0.48% 0.38% 0.73% 1.42% 1.02%
Portfolio Turnover Rate 21% 44% 57% 50% 13%
</Table>
FINANCIAL HIGHLIGHTS-CLASS II
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
APRIL 5, 2001
YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 (a)
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 28.04 $ 31.97 $ 32.09
Income (Loss) From Investment Operations:
Net Investment Income 0.05 0.16 0.05
Net Gains (Losses) on Securities (both
realized and unrealized) 5.69 (3.92) (0.17)
------------ ------------ ------------
Total From Investment Operations: 5.74 (3.76) (0.12)
Less Distributions:
Dividends (from net investment income) (0.10) (0.17) 0.00
Distributions (from capital gains) 0.00 0.00 0.00
------------ ------------ ------------
Total Distributions (0.10) (0.17) 0.00
------------ ------------ ------------
Net Asset Value, End of Period $ 33.68 $ 28.04 $ 31.97
============ ============ ============
Total Return 20.52% (11.85)% (0.37)%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 21.1 $ 7.7 $ 0.1
Ratio of Expenses to Average Net Assets 1.53% 1.44% 1.32%*
Ratio of Net Investment Income to
Average Net Assets 0.06% 0.35% 0.46%*
Portfolio Turnover Rate 21% 44% 57%
</Table>
* Data has been annualized
(a) The date on which Class II shares were first sold to the public was April 5,
2001.
72
<Page>
THE OAKMARK SELECT FUND
FINANCIAL HIGHLIGHTS-CLASS I
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 21.67 $ 25.20 $ 21.45 $ 20.92 $ 16.76
Income (Loss) From Investment Operations:
Net Investment Income 0.05 0.02 0.03 0.13 0.19
Net Gains (Losses) on Securities
(both realized and unrealized) 5.85 (3.50) 5.17 4.32 4.73
------------ ------------ ------------ ------------ ------------
Total From Investment Operations: 5.90 (3.48) 5.20 4.45 4.92
Less Distributions:
Dividends (from net investment income) (0.02) (0.05) (0.09) (0.20) (0.05)
Distributions (from capital gains) 0.00 0.00 (1.36) (3.72) (0.71)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.02) (0.05) (1.45) (3.92) (0.76)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 27.55 $ 21.67 $ 25.20 $ 21.45 $ 20.92
============ ============ ============ ============ ============
Total Return 27.25% (13.85)% 25.75% 24.53% 30.07%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 4,993.0 $ 3,717.6 $ 4,161.4 $ 1,772.0 $ 1,638.9
Ratio of Expenses to Average Net Assets 1.02% 1.07% 1.08% 1.17% 1.16%
Ratio of Net Investment Income
to Average Net Assets 0.23% 0.09% 0.26% 0.76% 0.98%
Portfolio Turnover Rate 20% 32% 21% 69% 67%
</Table>
FINANCIAL HIGHLIGHTS-CLASS II
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
DECEMBER 31, 1999
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 (a)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 21.56 $ 25.10 $ 21.40 $ 18.42
Income (Loss) From Investment Operations:
Net Investment Income (Loss) 0.00(b) (0.04) 0.00(b) 0.10
Net Gains (Losses) on Securities (both
realized and unrealized) 5.81 (3.50) 5.10 2.88
------------ ------------ ------------ ------------
Total From Investment Operations: 5.81 (3.54) 5.10 2.98
Less Distributions:
Dividends (from net investment income) 0.00 0.00 (0.06) 0.00
Distributions (from capital gains) 0.00 0.00 (1.34) 0.00
------------ ------------ ------------ ------------
Total Distributions 0.00 0.00 (1.40) 0.00
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 27.37 $ 21.56 $ 25.10 $ 21.40
============ ============ ============ ============
Total Return 26.95% (14.10)% 25.28% 16.18%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 93.1 $ 64.4 $ 35.4 $ 6.8
Ratio of Expenses to Average Net Assets 1.29% 1.36% 1.40% 1.41%*
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.04)% (0.19)% (0.08)% 0.59%*
Portfolio Turnover Rate 20% 32% 21% 69%
</Table>
* Data has been annualized.
(a) The date on which Class II shares were first sold to the public was December
31, 1999.
(b) Amount rounds to less than $(0.01) per share.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
73
<Page>
THE OAKMARK SMALL CAP FUND
FINANCIAL HIGHLIGHTS-CLASS I
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 14.10 $ 14.57 $ 15.10 $ 13.88 $ 12.63
Income (Loss) From Investment Operations:
Net Investment Income (Loss) (0.12) (0.11) 0.00 0.00 0.14
Net Gains (Losses) on Securities
(both realized and unrealized) 3.20 (0.36) (0.02) 1.22 1.20
------------ ------------ ------------ ------------ ------------
Total From Investment Operations: 3.08 (0.47) (0.02) 1.22 1.34
Less Distributions:
Dividends (from net investment income) 0.00 0.00 0.00 0.00 0.00
Distributions (from capital gains) 0.00 0.00 (0.51) 0.00 (0.09)
------------ ------------ ------------ ------------ ------------
Total Distributions 0.00 0.00 (0.51) 0.00 (0.09)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 17.18 $ 14.10 $ 14.57 $ 15.10 $ 13.88
============ ============ ============ ============ ============
Total Return 21.84% (3.23)% 0.07% 8.79% 10.56%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 350.3 $ 356.9 $ 264.6 $ 248.7 $ 437.1
Ratio of Expenses to Average Net Assets 1.36% 1.33% 1.27% 1.50%(a) 1.48%
Ratio of Net Investment Loss
to Average Net Assets (0.69)% (0.67)% (0.28)% (0.41)%(a) (0.44)%
Portfolio Turnover Rate 13% 22% 47% 28% 68%
</Table>
(a) If the Fund had paid all of its expenses and there had been no expense
reimbursement by the Adviser ratios would have been as follows:
<Table>
<Caption>
SEPTEMBER 30,
2000
- -------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.59%
Ratio of Net Investment Loss to Average Net Assets (0.50)%
</Table>
FINANCIAL HIGHLIGHTS-CLASS II
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
APRIL 10, 2002
YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 (a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 14.09 $ 19.71
Income (Loss) From Investment Operations:
Net Investment Loss (0.16) (0.20)(b)
Net Gains (Losses) on Securities (both
realized and unrealized) 3.17 (5.42)
------------ ------------
Total From Investment Operations: 3.01 (5.62)
------------ ------------
Net Asset Value, End of Period $ 17.10 $ 14.09
============ ============
Total Return 21.36% (28.51)%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 0.8 $ 0.5
Ratio of Expenses to Average Net Assets 1.75%(c) 1.48%*
Ratio of Net Investment Loss to Average Net Assets (1.08)%(c) (0.85)%*
Portfolio Turnover Rate 13% 22%
</Table>
* Data has been annualized.
(a) The date on which Class II shares were first sold to the public was April
10, 2002.
(b) Computed using average shares outstanding throughout the period.
(c) If the Fund had paid all of its expenses and there had been no expense
reimbursement by the Adviser, ratios would have been as follows:
<Table>
<Caption>
SEPTEMBER 30,
2003
- ------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.85%
Ratio of Net Investment Loss to Average Net Assets (1.18)%
</Table>
74
<Page>
THE OAKMARK EQUITY AND INCOME FUND
FINANCIAL HIGHLIGHTS-CLASS I
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 17.18 $ 17.45 $ 16.50 $ 15.68 $ 13.99
Income (Loss) From Investment Operations:
Net Investment Income 0.17 0.33(a) 0.08 0.35 0.39
Net Gains (Losses) on Securities
(both realized and unrealized) 3.19 (0.40) 2.11 2.28 1.72
------------ ------------ ------------ ------------ ------------
Total From Investment Operations: 3.36 (0.07) 2.19 2.63 2.11
Less Distributions:
Dividends (from net investment income) (0.24) (0.16) (0.24) (0.45) (0.21)
Distributions (from capital gains) 0.00 (0.04) (1.00) (1.36) (0.21)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.24) (0.20) (1.24) (1.81) (0.42)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 20.30 $ 17.18 $ 17.45 $ 16.50 $ 15.68
============ ============ ============ ============ ============
Total Return 19.75% (0.47)% 14.40% 18.51% 15.32%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 4,138.0 $ 2,241.9 $ 620.1 $ 54.5 $ 60.3
Ratio of Expenses to Average Net Assets 0.93% 0.96% 0.98% 1.24% 1.18%
Ratio of Net Investment Income
to Average Net Assets 1.07% 1.71% 2.07% 3.04% 2.65%
Portfolio Turnover Rate 48% 73% 124% 87% 81%
</Table>
(a) Computed using average shares outstanding throughout the period.
FINANCIAL HIGHLIGHTS-CLASS II
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
JULY 13, 2000
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 (a)
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 17.15 $ 17.40 $ 16.49 $ 15.51
Income (Loss) From Investment Operations:
Net Investment Income 0.16 0.30(b) 0.07 0.30
Net Gains (Losses) on Securities (both
realized and unrealized) 3.15 (0.40) 2.08 0.68
------------ ------------ ------------ ------------
Total From Investment Operations: 3.31 (0.10) 2.15 0.98
Less Distributions:
Dividends (from net investment income) (0.22) (0.11) (0.24) 0.00
Distributions (from capital gains) 0.00 (0.04) (1.00) 0.00
------------ ------------ ------------ ------------
Total Distributions (0.22) (0.15) (1.24) 0.00
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 20.24 $ 17.15 $ 17.40 $ 16.49
============ ============ ============ ============
Total Return 19.46% (0.60)% 14.07% 6.32%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 246.6 $ 118.7 $ 3.3 $ 0.4
Ratio of Expenses to Average Net Assets 1.17% 1.20% 1.23% 1.32%*
Ratio of Net Investment Income to
Average Net Assets 0.84% 1.50% 1.95% 2.59%*
Portfolio Turnover Rate 48% 73% 124% 87%
</Table>
* Data has been annualized.
(a) The date on which Class II shares were first sold to the public was July 13,
2000.
(b) Computed using average shares outstanding throughout the period.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
75
<Page>
THE OAKMARK GLOBAL FUND
FINANCIAL HIGHLIGHTS-CLASS I
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
AUGUST 4, 1999
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 1999 (a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 11.30 $ 10.83 $ 10.91 $ 9.18 $ 10.00
Income (Loss) From Investment Operations:
Net Investment Income 0.01 0.00(b)(c) 0.03 0.11 0.01
Net Gains (Losses) on Securities
(both realized and unrealized) 5.67 0.76(d) 0.12 1.63 (0.83)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations: 5.68 0.76 0.15 1.74 (0.82)
Less Distributions:
Dividends (from net investment income) 0.00 0.00 (0.17) (0.01) 0.00
Distributions (from capital gains) 0.00 (0.29) (0.06) 0.00 0.00
---------- ---------- ---------- ---------- ----------
Total Distributions 0.00 (0.29) (0.23) (0.01) 0.00
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 16.98 $ 11.30 $ 10.83 $ 10.91 $ 9.18
========== ========== ========== ========== ==========
Total Return 50.27% 6.84% 1.37% 18.97% (8.20)%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 704.8 $ 175.6 $ 48.2 $ 27.2 $ 24.0
Ratio of Expenses to Average Net Assets 1.28% 1.55% 1.75%(f) 1.75%(f) 1.75%*(f)
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.00%(e) (0.01)% 0.00(f) 0.54%(f) 0.98%*(f)
Portfolio Turnover Rate 42% 86% 114% 147% 7%
</Table>
* Data has been annualized.
(a) The date which Fund shares were first offered for sale to the public was
August 4, 1999.
(b) Amount rounds to less than $(0.01) per share.
(c) Computed using average shares outstanding throughout the period.
(d) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/loss for the period due to the
timing of purchases and redemptions of Fund shares in relation to the
fluctuating market values of the Fund.
(e) Rounds to less than 0.01%.
(f) If the Fund had paid all of its expenses and there had been no expense
reimbursement by the Adviser ratios would have been as follows:
<Table>
<Caption>
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.80% 1.96% 2.22%*
Ratio of Net Investment Income (Loss) to Average Net Assets (0.05)% 0.34% 0.51%*
</Table>
76
<Page>
FINANCIAL HIGHLIGHTS-CLASS II
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
OCTOBER 10, 2001
YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 (a)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 11.24 $ 11.25
Income (Loss) From Investment Operations:
Net Investment Income (Loss) 0.02 (0.03)
Net Gains on Securities (both realized and unrealized) 5.58 0.31(b)
------------ ------------
Total From Investment Operations: 5.60 0.28
Less Distributions:
Dividends (from net investment income) 0.00 0.00
Distributions (from capital gains) 0.00 (0.29)
------------ ------------
Total Distributions 0.00 (0.29)
------------ ------------
Net Asset Value, End of Period $ 16.84 $ 11.24
============ ============
Total Return 49.82% 2.31%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 5.8 $ 0.6
Ratio of Expenses to Average Net Assets 1.46% 1.86%*
Ratio of Net Investment Loss to Average Net Assets (0.01)% (0.26)%*
Portfolio Turnover Rate 42% 86%
</Table>
* Data has been annualized.
(a) The date on which Class II shares were first offered for sale to the public
was October 10, 2001.
(b) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/loss for the period due to the
timing of purchases and redemptions of Fund shares in relation to the
fluctuating market values of the Fund.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
77
<Page>
THE OAKMARK INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS-CLASS I
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 12.17 $ 12.51 $ 15.40 $ 13.95 $ 10.42
Income (Loss) From Investment Operations:
Net Investment Income (Loss) 0.11 0.14 0.20 1.02 (0.34)
Net Gains (Losses) on Securities
(both realized and unrealized) 3.52 (0.31) (2.07) 0.92 4.89
---------- ---------- ----------- ---------- ----------
Total From Investment Operations: 3.63 (0.17) (1.87) 1.94 4.55
Less Distributions:
Dividends (from net investment income) (0.13) (0.17) (0.51) (0.49) (0.24)
Distributions (from capital gains) 0.00 0.00 (0.51) 0.00 (0.78)
---------- ---------- ----------- ---------- ----------
Total Distributions (0.13) (0.17) (1.02) (0.49) (1.02)
---------- ---------- ----------- ---------- ----------
Net Asset Value, End of Period $ 15.67 $ 12.17 $ 12.51 $ 15.40 $ 13.95
========== ========== =========== ========== ==========
Total Return 29.97% (1.53)% (13.10)% 14.27% 46.41%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 2,676.6 $ 1,393.8 $ 738.5 $ 782.4 $ 811.1
Ratio of Expenses to Average Net Assets 1.25% 1.31% 1.30% 1.30% 1.29%
Ratio of Net Investment Income to
Average Net Assets 1.03% 1.34% 1.40% 1.87% 1.94%
Portfolio Turnover Rate 34% 24% 58% 64% 54%
</Table>
FINANCIAL HIGHLIGHTS-CLASS II
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
NOVEMBER 4, 1999
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 (a)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 12.13 $ 12.47 $ 15.37 $ 14.36
Income (Loss) From Investment Operations:
Net Investment Income 0.08 0.15 0.17 0.96
Net Gains (Losses) on Securities (both
realized and unrealized) 3.48 (0.37) (2.10) 0.54
------------ ------------ ------------ ------------
Total From Investment Operations: 3.56 (0.22) (1.93) 1.50
Less Distributions:
Dividends (from net investment income) (0.11) (0.12) (0.49) (0.49)
Distributions (from capital gains) 0.00 0.00 (0.48) 0.00
------------ ------------ ------------ ------------
Total Distributions (0.11) (0.12) (0.97) (0.49)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 15.58 $ 12.13 $ 12.47 $ 15.37
============ ============ ============ ============
Total Return 29.52% (1.76)% (13.44)% 10.79%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 123.2 $ 48.5 $ 1.9 $ 0.1
Ratio of Expenses to Average Net Assets 1.67% 1.58% 1.64% 1.50%*
Ratio of Net Investment Income to Average
Net Assets 0.69% 1.33% 0.62% 1.98%*
Portfolio Turnover Rate 34% 24% 58% 64%
</Table>
* Data has been annualized.
(a) The date on which Class II shares were first sold to the public was November
4, 1999.
78
<Page>
THE OAKMARK INTERNATIONAL SMALL CAP FUND
FINANCIAL HIGHLIGHTS-CLASS I
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.17 $ 10.00 $ 11.51 $ 12.64 $ 6.89
Income (Loss) From Investment Operations:
Net Investment Income 0.11 0.11 0.13 0.23 0.24
Net Gains (Losses) on Securities
(both realized and unrealized) 3.82 0.36(a) (0.81) (0.66) 5.71
-------- -------- -------- -------- --------
Total From Investment Operations: 3.93 0.47 (0.68) (0.43) 5.95
Less Distributions:
Dividends (from net investment income) (0.09) (0.16) (0.34) (0.11) (0.20)
Distributions (from capital gains) (0.27) (0.14) (0.49) (0.59) 0.00
--------- -------- -------- -------- --------
Total Distributions (0.36) (0.30) (0.83) (0.70) (0.20)
-------- --------- -------- -------- --------
Net Asset Value, End of Period $ 13.74 $ 10.17 $ 10.00 $ 11.51 $ 12.64
======== ======== ======== ======== ========
Total Return 39.78% 4.68% (6.18)% (3.44)% 88.02%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 477.8 $ 357.7 $ 118.9 $ 90.3 $ 155.4
Ratio of Expenses to Average Net Assets 1.57% 1.64% 1.74% 1.77% 1.79%
Ratio of Net Investment Income
to Average Net Assets 0.99% 1.28% 1.83% 1.99% 2.31%
Portfolio Turnover Rate 30% 42% 49% 40% 126%
</Table>
(a) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/loss for the period due to the
timing of purchases and redemption of Fund shares in relation to the
fluctuating market values of the Fund.
FINANCIAL HIGHLIGHTS-CLASS II
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<Table>
<Caption>
JANUARY 8, 2001
YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2001 (a)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.14 $ 9.97 $ 10.73
Income (Loss) From Investment Operations:
Net Investment Income 0.08 0.13(b) 0.15
Net Gains (Losses) on Securities (both realized and unrealized) 3.81 0.30(b)(c) (0.91)
------- ------- -------
Total From Investment Operations: 3.89 0.43 (0.76)
Less Distributions:
Dividends (from net investment income) (0.07) (0.12) 0.00
Distributions (from capital gains) (0.27) (0.14) 0.00
------- ------- -------
Total Distributions (0.34) (0.26) 0.00
------- ------- -------
Net Asset Value, End of Period $ 13.69 $ 10.14 $ 9.97
======= ======= =======
Total Return 39.39% 4.25% (7.08)%
Ratios/Supplemental Data:
Net Assets, End of Period ($million) $ 0.4 $ 0.3 $ 0.0
Ratio of Expenses to Average Net Assets 1.81% 1.87% 1.97%*
Ratio of Net Investment Income to Average Net Assets 0.72% 1.06% 1.76%*
Portfolio Turnover Rate 30% 42% 49%
</Table>
* Data has been annualized.
(a) The date on which Class II shares were first sold to the public was January
8, 2001.
(b) Computed using average shares outstanding throughout the period.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/loss for the period due to the
timing of purchases and redemption of Fund shares in relation to the
fluctuating market values of the Fund.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
79
<Page>
OAKMARK FAMILY OF FUNDS
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
HARRIS ASSOCIATES INVESTMENT TRUST:
WE HAVE AUDITED THE ACCOMPANYING STATEMENTS OF ASSETS AND LIABILITIES,
INCLUDING THE SCHEDULES OF INVESTMENTS, OF HARRIS ASSOCIATES INVESTMENT TRUST
COMPRISING THE OAKMARK FUND, THE OAKMARK SELECT FUND, THE OAKMARK SMALL CAP
FUND, THE OAKMARK EQUITY AND INCOME FUND, THE OAKMARK GLOBAL FUND, THE OAKMARK
INTERNATIONAL FUND, AND THE OAKMARK INTERNATIONAL SMALL CAP FUND (COLLECTIVELY,
THE "FUNDS") AS OF SEPTEMBER 30, 2003, THE RELATED STATEMENTS OF OPERATIONS FOR
THE YEAR THEN ENDED, AND THE STATEMENTS OF CHANGES IN NET ASSETS AND FINANCIAL
HIGHLIGHTS FOR EACH OF THE TWO YEARS IN THE PERIOD THEN ENDED. THESE FINANCIAL
STATEMENTS AND FINANCIAL HIGHLIGHTS ARE THE RESPONSIBILITY OF THE FUNDS'
MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL
STATEMENTS AND FINANCIAL HIGHLIGHTS BASED ON OUR AUDITS. THE FUNDS' FINANCIAL
HIGHLIGHTS FOR THE PERIODS ENDED PRIOR TO SEPTEMBER 30, 2002, WERE AUDITED BY
OTHER AUDITORS WHO HAVE CEASED OPERATIONS. THOSE AUDITORS EXPRESSED AN
UNQUALIFIED OPINION ON THOSE FINANCIAL HIGHLIGHTS IN THEIR REPORT DATED OCTOBER
26, 2001.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH AUDITING STANDARDS GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA. THOSE STANDARDS REQUIRE THAT WE PLAN
AND PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE
FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS ARE FREE OF MATERIAL MISSTATEMENT.
AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS
AND DISCLOSURES IN THE FINANCIAL STATEMENTS. OUR PROCEDURES INCLUDED
CONFIRMATION OF SECURITIES OWNED AS OF SEPTEMBER 30, 2003, BY CORRESPONDENCE
WITH THE FUNDS' CUSTODIAN AND BROKERS; WHERE REPLIES WERE NOT RECEIVED FROM
BROKERS, WE PERFORMED OTHER AUDITING PROCEDURES. AN AUDIT ALSO INCLUDES
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION.
WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION.
IN OUR OPINION, THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS REFERRED
TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF
EACH OF THE FUNDS AS OF SEPTEMBER 30, 2003, THE RESULTS OF THEIR OPERATIONS FOR
THE YEAR THEN ENDED, AND THE CHANGES IN THEIR NET ASSETS AND THEIR FINANCIAL
HIGHLIGHTS FOR EACH OF THE TWO YEARS IN THE PERIOD THEN ENDED IN CONFORMITY WITH
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
October 27, 2003
80
<Page>
FEDERAL TAX INFORMATION (UNAUDITED)
International and Int'l Small Cap paid qualifying foreign taxes of $5,707,195
and $1,334,360 and earned $48,996,094 and $10,763,639 foreign source income
during the year ended September 30, 2003, respectively. Pursuant to Section 853
of the Internal Revenue Code, International and Int'l Small Cap designated
$0.04829 and $0.03839 per share as foreign taxes paid and $0.41455 and $0.30964
per share as income earned from foreign sources for the year ended September 30,
2003, respectively.
The funds intend to designate the maximum amount of qualified dividend income
allowed.
81
<Page>
This material must be preceded or accompanied by a prospectus. To order a
prospectus, which explains management fees and expenses and the special risks of
investing in the funds, visit www.oakmark.com or call 1-800-OAKMARK. Please read
the prospectus carefully before investing.
The discussion of investments and investment strategy of the Funds represents
the investments of the Funds and the views of fund managers and Harris
Associates L.P., the Funds' investment adviser, at the time of this article, and
are subject to change without notice.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than original cost.
INVESTING IN VALUE STOCKS PRESENTS THE RISK THAT VALUE STOCKS MAY FALL OUT OF
FAVOR WITH INVESTORS AND UNDERPERFORM GROWTH STOCKS DURING GIVEN PERIODS.
THE OAKMARK SELECT FUND CLOSED TO NEW INVESTORS AS OF 5/4/01.
BECAUSE THE OAKMARK SELECT FUND IS NON-DIVERSIFIED, THE PERFORMANCE OF EACH
HOLDING WILL HAVE A GREATER IMPACT ON THE FUND'S TOTAL RETURN, AND MAY MAKE THE
FUND'S RETURN MORE VOLATILE THAN A MORE DIVERSIFIED FUND.
THE OAKMARK INTERNATIONAL SMALL CAP FUND CLOSED TO NEW INVESTORS AS OF 5/10/02.
INVESTING IN FOREIGN SECURITIES REPRESENTS RISKS WHICH IN SOME WAY MAY BE
GREATER THAN IN U.S. INVESTMENTS. THOSE RISKS INCLUDE: CURRENCY FLUCTUATION;
DIFFERENT REGULATION, ACCOUNTING STANDARDS, TRADING PRACTICES AND LEVELS OF
AVAILABLE INFORMATION; GENERALLY HIGHER TRANSACTION COSTS; AND POLITICAL RISKS.
THE STOCKS OF SMALLER COMPANIES OFTEN INVOLVE MORE RISK THAN THE STOCKS OF
LARGER COMPANIES. STOCKS OF SMALL COMPANIES TEND TO BE MORE VOLATILE AND HAVE A
SMALLER PUBLIC MARKET THAN STOCKS OF LARGER COMPANIES. SMALL COMPANIES MAY HAVE
A SHORTER HISTORY OF OPERATIONS THAN LARGER COMPANIES, MAY NOT HAVE AS GREAT AN
ABILITY TO RAISE ADDITIONAL CAPITAL AND MAY HAVE A LESS DIVERSIFIED PRODUCT
LINE, MAKING THEM MORE SUSCEPTIBLE TO MARKET PRESSURE.
THE OAKMARK EQUITY AND INCOME FUND INVESTS IN MEDIUM AND LOWER-QUALITY DEBT
SECURITIES WHICH HAVE HIGHER YIELD POTENTIAL BUT PRESENT GREATER INVESTMENT AND
CREDIT RISK THAN HIGHER-QUALITY SECURITIES.
1. Total return includes change in share prices and in each case includes
reinvestment of any dividends and capital gain distributions.
The performance information for The Oakmark Select Fund, The Oakmark Small
Cap Fund, The Oakmark Global Fund, The Oakmark International Fund and The
Oakmark International Small Cap Fund does not reflect the imposition of a
2% redemption fee on shares held by an investor less than 90 days. The
purpose of this redemption fee is to deter market timers.
2. Portfolio holdings are subject to change without notice and are not
intended as recommendations of individual stocks.
3. During the period since inception (8/4/99 - 9/30/03), IPO's contributed an
annualized 2.05% to the performance of the Oakmark Global Fund. As the IPO
environment changes and the total net assets of the Fund grow, the impact
of IPOs on performance is expected to diminish. "IPO" stands for Initial
Public Offering, which is the first sale of stock by a company to the
public.
4. The quoted passages by Dennis Kozlowski, Bernie Ebbers and Ken Lay are
taken from "Lessons from the Top" written by Thomas J. Neff and James
Citrin and published in 1999 by Doubleday, a division of Random House Inc.
5. The excerpted quotes by Congressman Thomas G. Tancredo are taken from a
letter dated September 13, 2001 from United States Congressman
Thomas G. Tancredo of Colorado to Chairman Harvey L. Pitt of the United
States Securities and Exchange Commission.
6. The S&P 500 Index is a broad market-weighted average of U.S. blue-chip
companies. This index is unmanaged and investors cannot actually make
investments in this index.
82
<Page>
7. The NASDAQ Composite Index is a market value weighted index of all common
stocks listed on NASDAQ. This index is unmanaged and investors cannot
actually make investments in this index.
8. The Price-Earnings Ratio ("P/E") is the most common measure of how
expensive a stock is.
9. The Dow Jones Industrial Average is an unmanaged index that includes only
30 big companies. This index is unmanaged and investors cannot actually
make investments in this index.
10. The Lipper Large Cap Value Fund Index measures the performance of the 30
largest U.S. large-cap value funds tracked by Lipper. This index is
unmanaged and investors cannot actually make investments in this index.
11. The S&P MidCap 400 is an unmanaged broad market-weighted index of 400
stocks that are in the next tier down from the S&P 500 and that are chosen
for market size, liquidity, and industry group representation. This index
is unmanaged and investors cannot actually make investments in this index.
12. The Lipper Mid Cap Value Fund Index measures the performance of the 30
largest U.S. mid-cap value funds tracked by Lipper. This index is unmanaged
and investors cannot actually make investments in this index.
13. The Russell 2000 Index is an unmanaged, market-weighted index, with
dividends reinvested, of 2,000 small companies, formed by taking the
largest 3,000 small companies and eliminating the largest 1,000 of those
companies. This index is unmanaged and investors cannot actually make
investments in this index.
14. The S&P Small Cap 600 Index measures the performance of selected U.S.
stocks with small market capitalizations. This index is unmanaged and
investors cannot actually make investments in this index.
15. The Lipper Small Cap Value Fund Index measures the performance of the 30
largest U.S. small-cap value funds tracked by Lipper. This index is
unmanaged and investors cannot actually make investments in this index.
16. The Lipper Balanced Fund Index measures the performance of the 30 largest
U.S. balanced funds tracked by Lipper. This index is unmanaged and
investors cannot actually make investments in this index.
17. The Lehman Govt./Corp. Bond Index is an unmanaged index that includes the
Lehman Government and Lehman Corporate indices. This index is unmanaged and
investors cannot actually make investments in this index.
18. The MSCI World Index is made up of 20 country sub-indexes, including the
stock exchanges of the U.S., Europe, Canada, Australia and New Zealand, and
the Far East. This index is unmanaged and investors cannot actually make
investments in this index.
19. The Lipper Global Fund Index measures the performance of the 30 largest
mutual funds that invest in securities throughout the world. This index is
unmanaged and investors cannot actually make investments in this index.
20. Lipper, Inc. is an independent monitor of mutual fund performance. Based on
total return for the one-year, three-year, and since inception periods
through 9/30/03, Lipper ranked The Oakmark Global Fund 2 of 319 (top 1%), 1
of 227, and 3 of 187 (top 2%) global funds, respectively. Lipper rankings
are based upon changes in net asset value with dividends reinvested.
21. The Morgan Stanley World Ex U.S. Index is made up of 19 country
sub-indexes, excluding the U.S. This index is unmanaged and investors
cannot actually make investments in this index.
22. Morgan Stanley Capital International Europe, Australasia and Far East Index
("EAFE") is an unmanaged index of companies throughout the world in
proportion to world stock market capitalizations, excluding the U.S. and
Canada. This index is unmanaged and investors cannot actually make
investments in this index.
23. The Lipper International Fund Index reflects the net asset value weighted
total return of the 30 largest international equity funds. This index is
unmanaged and investors cannot actually make investments in this index.
24. NAV stands for Net Asset Value. NAV is the dollar value of a single mutual
fund share, based on the value of the underlying assets of the fund minus
its liabilities divided by the number of shares outstanding.
25. The Lipper International Small Cap Average includes 100 mutual funds that
invest in securities whose primary markets are outside of the U.S. This
index is unmanaged and investors cannot actually make investments in this
index.
83
<Page>
THE OAKMARK FAMILY OF FUNDS
TRUSTEES AND OFFICERS
The board of trustees has overall responsibility for the conduct of the affairs
of Harris Associates Investment Trust ("Trust"), and its seven series, The
Oakmark Family of Funds. Each trustee serves until the next annual meeting of
shareholders and until the election and qualification of his or her successor,
or until he or she dies, resigns or is removed. Each trustee must retire at the
end of the calendar year in which the trustee attains the age of 72. The board
of trustees may fill any vacancy on the board provided that after such
appointment, at least two-thirds of the trustees have been elected by the
shareholders. No person shall be appointed or elected to serve as a trustee
after attaining the age of 65. The shareholders may remove a trustee by a vote
of two-thirds of the outstanding shares of the Trust at any meeting of
shareholders called for the purpose of removing such trustee.
The board of trustees elects or appoints the officers of the Trust. The
president, any vice president, treasurer and secretary serves until the election
and qualification of his or her successor, or until he or she dies, resigns, or
is removed or disqualified. Each other officer shall serve at the pleasure of
the board of trustees. The board of trustees may remove any officer at any time,
with or without cause, by the vote of a majority of the trustees then in office.
The names and ages of the trustees and officers, the position each holds with
the Trust, the date each was first elected to office, their principal business
occupations during the last five years and other directorships held are shown
below.
NAME AND AGE AT SEPTEMBER 30, 2003, POSITIONS HELD WITH THE TRUST, DATE FIRST
ELECTED OR APPOINTED TO OFFICE, PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS,
OTHER DIRECTORSHIPS HELD
TRUSTEES WHO ARE "INTERESTED PERSONS"*
Peter S. Voss, 57, Trustee, 1995
President and Chief Executive Officer, CDC IXIS Asset Management North
America, L.P., formerly known as Nvest Companies, L.P. and its predecessor
firms (investment management); Director, Harris Associates, Inc. ("HAI").
Chairman of the Board, AEW Real Estate Income Fund (a closed-end investment
company); Chairman of the Board and Chief Executive Officer, CDC Nvest
Funds (an open-end investment company--14 portfolios).
John R. Raitt, 48, Trustee and Executive Vice President, 2003
President and Chief Executive Officer, HAI, Harris Associates Securities
L.P. ("HASLP") and Harris Associates L.P. ("HALP"), since 2003, Chief
Operating Officer, HALP, since 2001; Director of Research, HALP since 1998;
Associate Director of Research and Analyst, HALP, prior thereto. None.
TRUSTEES WHO ARE NOT "INTERESTED PERSONS"
Victor A. Morgenstern, 61, Trustee and Chairman of the Board of Trustees, 1991
Chairman of the Board and Chief Executive Officer, Resolute Advisors
(private investment management firm); Chairman and Principal, Valor Equity
Partners, LLC (private equity fund); formerly, Chairman of the Board, HAI,
1996-2000 and President and Chief Executive Officer, prior thereto;
Chairman, Harris Partners, L.L.C., 1995-2000, Director, Bio-Sante
Pharmaceuticals, Inc. (early stage pharmaceutical company).
Michael J. Friduss, 61, Trustee, 1995
Principal, MJ Friduss & Associates, Inc. (telecommunications consultants).
None.
84
<Page>
Thomas H. Hayden, 52, Trustee, 1995
Executive Vice President, Campbell Mithun (advertising and marketing
communication agency). None.
Christine M. Maki, 42, Trustee, 1995
Vice President--Tax, Hyatt Corporation (hotels and resorts). Director,
Illinois CPA Society. None.
Allan J. Reich, 55, Trustee, 1993
Partner of the law firm, Seyfarth Shaw LLP (formerly D'Ancona & Pflaum
LLC). None.
Marv R. Rotter, 58, Trustee, 1996
Senior Advisor to President and CEO of AXA Advisors, LLC (formerly named
Rotter & Associates), since 1999, and President, prior thereto (financial
services firm). None.
Burton W. Ruder, 59, Trustee, 1995
President, The Academy Financial Group (venture capital investment and
transaction financing firm); Manager, Cedar Green Associates (real estate
management firm). None.
Gary N. Wilner, M.D., 62, Trustee, 1993
Senior Attending Physician, Evanston Hospital; Medical
Director--CardioPulmonary Wellness Program, Evanston Hospital Corporation.
Director, North America Scientific, Inc.
OFFICERS OF THE TRUST
James P. Benson, 46, Vice President and Portfolio Manager (The Oakmark Small Cap
Fund), 2000
Portfolio Manager and Analyst, HALP, since 1997. None.
Henry R. Berghoef, 54, Vice President and Portfolio Manager (The Oakmark Select
Fund), 2000
Associate Director of Research, Portfolio Manager and Analyst, HALP. None.
Kevin G. Grant, 39, Vice President and Portfolio Manager (The Oakmark Fund),
2000
Portfolio Manager and Analyst, HALP. None.
David G. Herro, 42, Vice President and Portfolio Manager (The Oakmark
International Fund and The Oakmark International Small Cap Fund), 1992
Portfolio Manager and Analyst, HALP. None.
Gregory L. Jackson, 37, Vice President and Portfolio Manager (The Oakmark Global
Fund), 2000
Portfolio Manager and Analyst, HALP, since July 1998; Portfolio
Manager and Analyst, Yacktman Asset Management Inc., prior thereto. None.
John J. Kane, 32, Assistant Treasurer, 1999
Manager--Mutual Fund and Institutional Services, HALP. None.
Robert Levy, 53, President, 2001
Chairman, HAI, Chief Investment Officer, HALP, since 2001; President and
Chief Executive Officer, HAI, HALP and HASLP, 1997-2002; Portfolio Manager,
HALP. None.
Clyde S. McGregor, 50, Vice President and Portfolio Manager (The Oakmark Equity
and Income Fund), 1995
Portfolio Manager and Analyst, HALP. None.
85
<Page>
William C. Nygren, 44, Vice President and Portfolio Manager (The Oakmark Fund
and The Oakmark Select Fund), 1996
Portfolio Manager and Analyst, HALP; formerly, Director of Research, HALP,
1990-1998. None.
Vineeta D. Raketich, 32, Vice President, 2003
Manager, International Operations & Client Relations, HALP since 2003;
Supervisor, Mutual Fund & Institutional Services, HALP, prior thereto.
None.
Janet L. Reali, 52, Vice President and Secretary, 2001
Vice President, General Counsel and Secretary, HALP, since 2001; formerly,
Senior Executive Vice President, General Counsel and Secretary, Everen
Capital Corp. and Everen Securities, Inc. 1995-1999 (broker/dealer). None.
Ann W. Regan, 55, Vice President--Shareholder Operations and Assistant
Secretary, 1996
Director of Mutual Fund Operations, HALP. None.
Kristi L. Rowsell, 37, Treasurer, 2000
Director, Chief Financial Officer and Treasurer, HAI; Chief Financial
Officer, HALP and HASLP, since 1999; Assistant Treasurer, HALP, prior
thereto. None.
Edward A. Studzinski, 54, Vice President and Portfolio Manager (The Oakmark
Small Cap Fund and The Oakmark Equity and Income Fund), 2000
Portfolio Manager and Analyst, HALP. None.
Michael J. Welsh, 40, Vice President and Portfolio Manager (The Oakmark Global
Fund, The Oakmark International Fund and The Oakmark International Small
Cap Fund), 1997
Portfolio Manager and Analyst, HALP. None.
* Mr. Voss is a trustee who is an "interested person" of the Funds as defined
in the Investment Company Act of 1940, because he is a director of HAI, the
general partner and manager of HALP, the investment adviser to the Funds.
Mr. Voss is also the President and Chief Executive Officer of CDC IXIS
Asset Management North America, L.P. the parent company of HALP. Mr. Raitt
is a trustee who is an "interested person" of the Funds because he is the
President and Chief Executive Officer of HAI, HASLP (the Funds'
distributor) and HALP.
The business address of the officers and trustees is Two North LaSalle Street,
#500, Chicago, Illinois 60602.
The Statement of Additional Information (SAI) contains further information about
the trustees and is available without charge upon your request by calling
1-800-625-6275.
86
<Page>
THE OAKMARK FAMILY OF FUNDS
INVESTMENT PHILOSOPHY
All Oakmark managers follow a consistent investment philosophy--to invest in
companies they believe are trading at a substantial discount to underlying
business value. Critical to this philosophy is to invest with management teams
who are committed to maximizing the company's business value.
THREE KEY TENETS OF OUR INVESTMENT PHILOSOPHY:
1 Buy businesses trading at a significant discount to our estimate of true
business value.
2 Invest in companies expected to grow shareholder value over time.
3 Invest with management teams who think and act as owners.
INVESTMENT PROCESS
We seek to identify undervalued companies through an intensive, in-house
research process. This process is not based on macro-economic factors, such as
the performance of the economy or the direction of interest rates. Nor is it
based on technical factors, such as the performance of the stock market itself.
And, while some value managers might use only one summary statistic--such as
price-earnings ratio--our investment professionals take a more in-depth approach
using a range of valuation measures appropriate for a specific company or
industry.
From the universe of thousands of equity securities, our team generates
investment ideas through a variety of methods. If a security appears attractive,
detailed quantitative and qualitative research follows. This careful process of
identifying undervalued stocks results in an "approved list."
THE RESULT: A UNIFIED EFFORT AIMED AT IDENTIFYING THE BEST VALUES IN THE
MARKETPLACE. FROM THE LIST OF APPROVED STOCKS, EACH FUND MANAGER CONSTRUCTS A
RELATIVELY FOCUSED PORTFOLIO, BUILT ON A STOCK-BY-STOCK BASIS FROM THE BOTTOM
UP.
WHO SHOULD INVEST
Any investor who is seeking a disciplined value manager for the purposes of
growing and diversifying a portfolio should consider one of the Oakmark funds,
keeping in mind that all equity investments should be considered long-term
investments. As value investors, we recognize that patience is a virtue and
believe that, over the long term, investors are rewarded for their patience. We
generally hold the companies in which we invest for three to five years, a time
horizon that we encourage our shareholders to consider as well.
HOW TO USE VALUE FUNDS IN AN OVERALL PORTFOLIO
Investment styles tend to move in cycles. One style may be in favor for a few
years while the other is out of favor, and vice versa. Diversifying the stock
portion of your portfolio to include value and momemtum/growth investment styles
may help reduce overall volatility--and potentially provide more consistent
returns over time.
INVEST
Managers select stocks from the approved list for their specific funds
APPROVED LIST
Securities available for investment
QUANTITATIVE AND QUALITATIVE RESEARCH
Rigorous analysis is performed to ensure that the stock meets
our strict value standards
CRITERIA SCREENS
Managers and research team screen for stocks that are worth
further consideration
UNIVERSE OF THOUSANDS OF EQUITY SECURITIES
All stocks available for investment
BOTTOM-UP INVESTMENT PROCESS
87
<Page>
THE OAKMARK GLOSSARY
BOOK VALUE - A company's common stock equity as it appears on a balance sheet,
equal to total assets minus liabilities, preferred stock, and intangible assets
such as goodwill. A company's book value often differs substantially from
economic value, especially in industries such as media.
BUSINESS VALUE/INTRINSIC VALUE - The perceived or estimated actual value of a
security, as opposed to its current market price or book value. Business value
can be evaluated based on what a knowledgeable buyer would pay for a business if
the company were sold in its entirety.
GROWTH INVESTING - Investors who look for companies based on whether the stock
of a company is growing earnings and/or revenue faster than the industry as a
whole or the overall market. Growth investors generally expect high rates of
growth to persist, and the stock, in turn, to deliver returns exceeding the
market's. A growth mutual fund is generally one that emphasizes stocks believed
to offer above-average growth prospects, with little to no emphasis on the
stock's current price.
M & A (MERGERS & ACQUISITIONS) - Merger: the combining of two or more entities
into one, through a purchase acquisition or a pooling of interests. Acquisition:
can also be called a takeover, and is defined as acquiring control of a
corporation, called a target, by stock purchase or exchange, either hostile or
friendly.
MARKET CAPITALIZATION (MARKET CAP OR CAP) - The market price of an entire
company on any given day, calculated by multiplying the number of shares
outstanding by the price per share.
MOMENTUM INVESTING - Approach to investing based on the belief that stock price
trends are likely to continue. Momentum investors tend to buy stocks that have
been outperforming the market and to sell those stocks when their relative
performance deteriorates. Momentum investors do not consider a company's
underlying value or fundamentals in their investment decisions.
MULTIPLE - A ratio used to measure a stock's valuation, usually greater than
1. Sometimes used to mean price/earnings ratio.
P/B OR PRICE-TO-BOOK RATIO - A stock's capitalization divided by its book value.
The value is the same whether the calculation is done for the whole company or
on a per-share basis.
P/E OR PRICE-TO-EARNINGS RATIO - The most common measure of a stock's valuation.
It is equal to a stock's capitalization divided by its after-tax earnings over a
12-month period. The value is the same whether the calculation is done for the
whole company or on a per-share basis. Equivalently, the cost an investor in a
given stock must pay per dollar of current annual earnings. Also called earnings
multiple.
SHARE REPURCHASE - Program through which a corporation buys back its own shares
in the open market, typically an indication that the corporation's management
believes the stock price is undervalued.
VALUE INVESTING - Investors who utilize valuation measures such as business
value (including growth rate), price/earnings ratio, price/book ratio, and yield
to gauge the attractiveness of a company. Managers who employ a value investment
style believe that the true, underlying value of a company is not reflected in
its current share price, and, over time, the price has potential to increase as
the market recognizes the overall value of the business. Value stocks sell at
relatively low prices in relation to their underlying business value, earnings,
or book value.
Stocks become undervalued for a variety of reasons, including an overall
market decline, or when a specific industry falls into disfavor and investors
view all companies in that industry in the same light. Consequently, an
individual company's stock price may fall, even though it may be only
temporarily affected by the industry's problems and its underlying value has
remained unchanged.
"x TIMES EARNINGS" ("12 TIMES EARNINGS") - Another way to express a stock's
price-to-earnings (P/E) ratio. A stock with a P/E ratio of 12 sells at 12 times
earnings.
88
<Page>
THE OAKMARK FAMILY OF FUNDS
OTHER INFORMATION
INVESTMENT ADVISER
Harris Associates L.P.
Two North LaSalle Street
Chicago, Illinois 60602-3790
TRANSFER AGENT
CDC IXIS Asset Management Services, Inc.
Boston, Massachusetts
LEGAL COUNSEL
Bell, Boyd & Lloyd LLC
Chicago, Illinois
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Chicago, Illinois
CONTACT US
Please call 1-800-OAKMARK
(1-800-625-6275)
or 617-449-6274
WEBSITE
www.oakmark.com
TO OBTAIN A PROSPECTUS, AN APPLICATION OR PERIODIC REPORTS, ACCESS OUR WEB
SITE AT www.oakmark.com, OR CALL 1-800-OAKMARK (1-800-625-6275) OR
(617) 449-6274.
This report is submitted for the general information of the shareholders of
the Funds. The report is not authorized for distribution to prospective
investors in the Funds unless it is accompanied or preceded by a currently
effective prospectus of the Funds.
No sales charge to the shareholder or to the new investor is made in offering
the shares of the Funds, however, a shareholder may incur a 2% redemption fee
on an exchange or redemption of shares held 90 days or less from any Fund
except The Oakmark Fund or The Oakmark Equity and Income Fund.
<Page>
P.O. BOX 219558
KANSAS CITY, MO 64121-9558
[OAKMARK FAMILY OF FUNDS LOGO]
1-800-OAKMARK
www.oakmark.com
The Oakmark Funds are distributed by Harris Associates Securities L.P., member
NASD. Date of first use: November 2003.
<Page>
OAKMARK FUND CLASS II RETURNS:
AVERAGE ANNUAL RETURN SINCE INCEPTION (04/05/01): 2.31%
TOTAL RETURN LAST 12 MONTHS: 20.52%
$10,000 INVESTMENT AS COMPARED TO S&P 500 INDEX
<Table>
<Caption>
OAKMARK CLASS II S&P 500
SHARES W/INC
Mar-01 10,000 10,000
Jun-01 10,954 10,585
Sep-01 9,963 9,032
Dec-01 11,040 9,997
Mar-02 11,497 10,024
Jun-02 10,533 8,681
Sep-02 8,782 7,181
Dec-02 9,434 7,787
Mar-03 9,041 7,542
Jun-03 10,562 8,703
Sep-03 10,584 8,933
</Table>
The graph and returns 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.
<Page>
OAKMARK SELECT FUND CLASS II RETURNS:
AVERAGE ANNUAL RETURN SINCE INCEPTION (12/31/99): 13.10%
TOTAL RETURN LAST 12 MONTHS: 26.95%
$10,000 INVESTMENT AS COMPARED TO S&P 500 INDEX
<Table>
<Caption>
OAKMARK SELECT S&P 500
CLASS II SHARES W/INC
Dec-99 10,000 10,000
Mar-00 10,885 9,867
Jun-00 10,309 10,290
Sep-00 11,618 11,024
Dec-00 12,542 9,578
Mar-01 13,876 9,058
Jun-01 15,140 9,204
Sep-01 14,554 7,662
Dec-01 15,755 8,481
Mar-02 16,137 8,504
Jun-02 14,821 7,365
Sep-02 12,502 6,835
Dec-02 13,748 7,019
Mar-03 13,673 6,337
Jun-03 15,871 7,290
Sep-03 15,871 7,660
</Table>
The graph and returns 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.
<Page>
OAKMARK SMALL CAP FUND CLASS II RETURNS:
AVERAGE ANNUAL RETURN SINCE INCEPTION (04/10/02): -9.19%
TOTAL RETURN LAST 12 MONTHS: 21.36%
$10,000 INVESTMENT AS COMPARED TO RUSSELL 2000 INDEX
<Table>
<Caption>
OAKMARK SMALL CAP II RUSSELL 2000
SHARES W/INC
Mar-02 10,000 10,000
Jun-02 9,163 9,165
Sep-02 7,149 7,203
Dec-02 7,615 7,647
Mar-03 7,027 7,384
Jun-03 8,209 9,014
Sep-03 8,676 9,633
</Table>
The graph and returns 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.
<Page>
OAKMARK EQUITY & INCOME FUND CLASS II RETURNS:
AVERAGE ANNUAL RETURN SINCE INCEPTION (07/13/00): 12.10%
TOTAL RETURN LAST 12 MONTHS: 19.46%
$10,000 INVESTMENT AS COMPARED TO LIPPER BALANCED FUND INDEX
<Table>
<Caption>
OAKMARK EQUITY & INCOME LIPPER BALANCED
CLASS II SHARES FUND
Jun-00 10,000 10,000
Sep-00 10,632 10,199
Dec-00 11,117 10,064
Mar-01 11,563 9,559
Jun-01 12,497 9,895
Sep-01 12,128 9,145
Dec-01 13,089 9,738
Mar-02 13,637 9,797
Jun-02 13,167 9,149
Sep-02 12,056 8,246
Dec-02 12,786 8,697
Mar-03 12,487 8,537
Jun-03 14,123 9,469
Sep-03 14,400 9,663
</Table>
The graph and returns 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.
<Page>
OAKMARK GLOBAL FUND CLASS II RETURNS:
AVERAGE ANNUAL RETURN SINCE INCEPTION (10/10/01): 24.17%
TOTAL RETURN LAST 12 MONTHS: 49.82%
$10,000 INVESTMENT AS COMPARED TO MSCI WORLD INDEX
<Table>
<Caption>
OAKMARK GLOBAL
CLASS II SHARES MSCI WORLD
Sep-01 10,000 10,000
Dec-01 12,060 10,859
Mar-02 13,362 10,896
Jun-02 12,451 9,902
Sep-02 10,231 8,082
Dec-02 11,760 8,700
Mar-03 10,494 8,260
Jun-03 14,008 9,667
Sep-03 15,326 10,134
</Table>
The graph and returns 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.
<Page>
OAKMARK INTERNATIONAL FUND CLASS II RETURNS:
AVERAGE ANNUAL RETURN SINCE INCEPTION (11/04/99): 5.20%
TOTAL RETURN LAST 12 MONTHS: 29.52%
$10,000 INVESTMENT AS COMPARED TO MSCI WORLD EX U.S. INDEX
<Table>
<Caption>
OAKMARK INTERNATIONAL
CLASS II SHARES MSCI WORLD EX U.S.
Sep-99 10,000 10,000
Dec-99 10,596 11,291
Mar-00 10,567 11,353
Jun-00 11,303 10,977
Sep-00 11,079 10,139
Dec-00 11,690 9,781
Mar-01 10,836 8,412
Jun-01 11,905 8,346
Sep-01 9,590 7,175
Dec-01 11,245 7,688
Mar-02 12,525 7,732
Jun-02 12,230 7,559
Sep-02 9,413 6,076
Dec-02 10,259 6,474
Mar-03 9,046 5,987
Jun-03 11,331 7,137
Sep-03 12,192 7,714
</Table>
The graph and returns 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.
<Page>
OAKMARK INTERNATIONAL SMALL CAP FUND CLASS II RETURNS:
AVERAGE ANNUAL RETURN SINCE INCEPTION (01/08/01): 11.64%
TOTAL RETURN LAST 12 MONTHS: 39.39%
$10,000 INVESTMENT AS COMPARED TO MSCI WORLD EX U.S. INDEX
<Table>
<Caption>
OAKMARK INTERNATIONAL SMALL CAP
CLASS II SHARES MSCI WORLD EX U.S.
Dec-00 10,000 10,000
Mar-01 10,140 8,599
Jun-01 10,494 8,532
Sep-01 9,292 7,335
Dec-01 11,062 7,860
Mar-02 12,180 8,056
Jun-02 12,466 7,728
Sep-02 9,666 6,212
Dec-02 10,454 6,618
Mar-03 9,172 6,120
Jun-03 11,845 7,297
Sep-03 13,501 7,886
</Table>
The graph and returns 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.
Item 2. Code of Ethics.
(a) Registrant has adopted a code of ethics that applies to its
Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer
the "Code."
(c) During the period covered by the report, no amendments were made
to the provisions of the Code.
(d) During the period covered by the report, Registrant did not grant
any waivers, including implicit waivers, from the provisions of the Code.
(e) Not applicable.
(f)(1) A copy of the Code is filed as Exhibit (a)(1) to this Form N-CSR.
Copies of the Code will also be made available free of charge upon request,
by writing or calling The Oakmark Funds, P.O. Box 8510, Boston, MA 02266-8510,
1-800-OAKMARK, (1-800-625-6275).
Item 3. Audit Committee Financial Expert.
Registrant's board of trustees has determined that each of the following five
members of the Registrant's audit committee qualifies as an "audit committee
financial expert," as such term is defined in Instruction 2(b) to Item 3 of
Form N-CSR: Thomas H. Hayden, Christine M. Maki, Allan J. Reich, Marv R. Rotter
and Gary N. Wilner, M.D. Each of those members of Registrant's audit committee
is "independent" as such term is defined in paragraph (a)(2) of Item 3 of
Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) Based on an evaluation of the disclosure controls and procedures
(as defined in Rule 30a-3(b) under the Investment Company Act of 1940,
the "Disclosure Controls") as of a date within 90 days prior to the
filing date (the "Filing Date") of this Form N-CSR (the "Report"),
the Disclosure Controls are effectively designed to ensure that information
required to be disclosed by the Registrant in the Report is recorded,
processed, summarized and reported by the Filing Date, including ensuring
that information required to be disclosed in the Report is accumulated
and communicated to the Registrant's management, including the Registrant's
principal executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the Registrant's second fiscal half-year that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) Code of Ethics for Principal Executive Officer and Senior Financial Officers
(as referenced in Item 2 above), attached hereto as Exhibit (a).
(b) (1) Certifications of Robert M. Levy, Principal Executive Officer, and
Kristi L. Rowsell, Principal Financial Officer, pursuant to Rule 30a-2
under the Investment Company Act of 1940 (17 CFR 270.30a-2), attached
hereto as Exhibits (b)(1)(i) and (b)(1)(ii)
(2) Certification of Robert M. Levy, Principal Executive Officer and
Kristi L. Rowsell, Principal Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, attached hereto as Exhibit (b)(2)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Harris Associates Investment Trust
By: /s/ Robert M. Levy
Robert M. Levy
Principal Executive Officer
Date: November 13, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
By: /s/ Robert M. Levy
Robert M. Levy
Principal Executive Officer
Date: November 13, 2003
By: /s/ Kristi L. Rowsell
Kristi L. Rowsell
Principal Financial Officer
Date: November 13, 2003
Exh. (b)(1)(i)
I, Robert M. Levy, certify that:
1. I have reviewed this report on Form N-CSR of Harris Associates
Investment Trust (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in
net assets, and cash flows (if the financial statements are required
to include a statement of cash flows) of the Registrant as of, and for,
the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940)
for the Registrant and have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Registrant, which has
no consolidated subsidiaries, is made known to us by others within the
Registrant, particularly during the period in which this report is being
prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
c. disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent second fiscal half-year that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed to the
Registrant's auditors and the audit committee of the Registrant's board
of directors:
a. all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to record,
process, summarize, and report financial information; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls.
Date: November 13, 2003
/s/ Robert M. Levy
Robert M. Levy
Principal Executive Officer
Exh. (b)(1)(ii)
I, Kristi L. Rowsell, certify that:
1. I have reviewed this report on Form N-CSR of Harris Associates
Investment Trust (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in
net assets, and cash flows (if the financial statements are required
to include a statement of cash flows) of the Registrant as of, and for,
the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940)
for the Registrant and have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Registrant, which has
no consolidated subsidiaries, is made known to us by others within the
Registrant, particularly during the period in which this report is being
prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
c. disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent second fiscal half-year that has materially affected, or
is reasonably likely to materially affect, the Registrant's internal
control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed to the
Registrant's auditors and the audit committee of the Registrant's
board of directors:
a. all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize, and report financial information; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls.
Date: November 13, 2003
/s/ Kristi L. Rowsell
Kristi L. Rowsell
Principal Financial Officer
Exh. (b)(2)
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code)
In connection with the attached Report of Harris Associates Investment
Trust (the "Registrant") on Form N-CSR to be filed with the Securities
and Exchange Commission (the "Report"), each of the undersigned officers
of the Registrant does hereby certify that, to the best of such officer's
knowledge:
1. The Report fully complies with the requirements of 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Registrant as of, and for, the periods presented in the Report.
Dated: November 13, 2003
/s/ Robert M. Levy
Robert M. Levy
Principal Executive Officer
Dated: November 13, 2003
/s/ Kristi L. Rowsell
Kristi L. Rowsell
Principal Financial Officer
A signed original of this written statement required by Section 906,
or other document authenticating, acknowledging, or otherwise adopting
the signature that appears in typed form within the electronic version
of this written statement required by Section 906, has been provided to
the Registrant and will be retained by the Registrant and furnished to
the Securities and Exchange Commission or its staff upon request.
555474/D/1 11/11/2003 2:26 PM