Fellow Shareholders,
I am pleased to present the semiannual report for The Oakmark Family of Funds. This past quarter was one which generally rewarded the patient investor. The individual fund results, as well as the portfolio managers’ commentaries, are presented in the following sections of this report.
MARKET TIMING
As value investors, we firmly believe that over time security prices and underlying company values converge. Experience has taught us that while the time frame for this convergence is very uncertain, inevitably patience is rewarded. But what is the potential cost of not being patient and “staying the course” during volatile periods? As a long-term investor, the short-term decision to “temporarily” get out of the market requires two correct decisions.
The first relates to identifying the right time to sell, with its attendant costs and tax implications; and, the second relates to choosing the right time to buy back in. Several years ago the folks at the University of Michigan looked at one of the best bull market periods, 1982-1987, and did a piece on “The Penalty for Missing the Market” which is summarized in the following table:
| The Penalty for Missing the Market (1982-1987 Bull Market)* |
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| Period of Investment | S&P 500 Annualized Return |
| Full 1,276 Trading Days | 26.3% |
| Less the 10 Best Days | 18.3 |
| Less the 20 Best Days | 13.1 |
| *Aug 12, 1982-Aug 25, 1987 | |
Similarly, we tested the performance of The Oakmark Fund for the period since inception, August, 1991 through April 30, 1997. The results presented below are remarkably similar to the University of Michigan study.
| The Potential Penalty for Trading In and Out of The Oakmark Fund |
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| The Oakmark Fund | Annualized | Total |
| Full 1,447 Trading Days | 29.6% | 342% |
| Less the 10 Best Days | 18.7 | 167 |
| Less the 20 Best Days | 14.8 | 121 |
Both of the above studies show that a significant part of the long-term result may be affected by being out of the investment for a very short period. The elimination of less than 2 percent of the trading days reduced the cumulative return by nearly 65%!
While no one expects to be unlucky enough to miss all these days, the potential penalty for missing just a few is very high. As we have learned from recent experience, there will be times when increased market volatility will test your resolve to be long-term investors. Once you have made the appropriate asset allocation to stocks and own a fund you have confidence in (hopefully one of The Oakmark Family!), don’t sabotage the potential return by short-term trading.
In our ongoing efforts to upgrade our level of service and reduce costs, we have created our own Web site, www.oakmark.com. The Funds’ prospectus, application, quarterly report, and daily net asset values are available on the site. We have also enhanced our audio response system and are enclosing a brochure that describes its use, including all the new features.
Thanks for your support and confidence in us.Very truly yours,
VICTOR A. MORGENSTERN
|
Performance for Period Ended April 30, 1997 |
The Oakmark Fund | The
Oakmark Select Fund |
The Oakmark Small Cap Fund | The
Oakmark Balanced Fund |
The
Oakmark International Fund |
The Oakmark Int’l Small Cap Fund |
| 3 Months 6 Months Performance for 1 Year 3 Years 5 Years Since Inception Value of $10,000 from inception date |
2.5% 15.5% 20.0% 21.1%** 24.7%** 29.6%** $44,197 08/05/91 |
-2.0% 22.5% N/A N/A N/A 22.5% $12,250 11/01/96 |
-0.1% 15.0% 24.6% N/A N/A 32.1%** $15,170 11/01/95 |
1.4% 10.1% 16.9% N/A N/A 15.6%** $12,429 11/01/95 |
6.2% 15.5% 16.4% 11.2%** N/A 17.8%** $21,149 09/30/92 |
0.1% 6.5% 7.2% N/A N/A 13.9%** $12,152 11/01/95 |
| Top
Five Holdings as of April 30, 1997 Company and % of Total Net Assets |
Philip Morris Companies, Inc. 7.2% |
U.S. Industries, Inc. 16.1% |
SPX Corp. 7.4% |
U.S. Industries, Inc. 4.3% |
Cordiant plc 4.6% |
Enix Corporation 3.9% |
| Top
Five Industries as of April 30, 1997 Industries and % of Total Net Assets |
Food & Beverage 17.0% |
Diversified Conglomerates 16.1% |
Other Industrial |
Government &Agency Securities 26.6% |
Food & Beverage 15.9% |
Other Industrial |
*The Oakmark Fund’s average annual total returns for the twelve months ended March 31, 1997 and for the period August 5, 1991 (inception) through March 31, 1997 were 16.7% and 29.1%, respectively. The Oakmark Select Fund’s total return for November 1, 1996 (inception) through March 31, 1997 was 21.4%. The Oakmark Small Cap Fund’s average annual total returns for the twelve months ended March 31, 1997 and for the period November 1, 1995 (inception) through March 31, 1997 were 32.8% and 34.5%, respectively. The Oakmark Balanced Fund’s average annual total returns for the twelve months ended March 31, 1997 and for the period November 1, 1995 (inception) through March 31, 1997 were 15.7% and 14.8%, respectively.
The Oakmark International Fund’s average annual total returns for the twelve months ended March 31, 1997 and for the period September 30, 1992 (inception) through March 31, 1997 were 23.2% and 17.9%, respectively. The Oakmark International Small Cap Fund’s average annual total returns for the twelve months ended March 31, 1997and for the period November 1, 1995 (inception) through March 31, 1997 were 10.1% and 14.3%, respectively. The Funds’ past performances are no guarantee of future results. Share prices and investment returns will vary, so you may have a gain or loss when you sell shares.
**Annualized.