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RESULTS FROM FUND INCEPTION (11/1/96) THROUGH 7/31/97 | ||
|---|---|---|
| 7/31/97 NAV $15.29 | Total Return Last 3 mos. |
Total Return* Through 7/31/97 From Fund Inception 11/1/96 |
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| The Oakmark Select Fund | 24.8% | 52.9% |
| Standard & Poor's 500 w/inc Stock Index** | 19.6% | 37.1% |
| Standard & Poor's MidCap 400 w/inc Index** | 22.9% | 31.3% |
| Value Line Composite Index** | 18.7% | 24.8% |
| *Total return includes change in share prices and in each case, except for the Value Line Index, includes reinvestment of any dividends, interest and capital gain distributions. | ||
| **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future performance. | ||
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The Oakmark Select Fund had another excellent quarter, increasing in value by 24.8%. The market averages also had a strong quarter, led by the S&P MidCap 400 which gained 22.9%. For the nine months since inception, The Oakmark Select Fund's return is 52.9%. Were I a betting man, you could have won money from me by predicting that two of your Fund's first three quarters would show gains of 25%. Although it has been enjoyable, we need to remember that these results are historically very unusual. How long can the good times continue? As Yogi Berra once said, "I wish I had an answer to that, because I'm getting tired of answering that question." Anyway, it's summer in Chicago, the Bulls are again atop the NBA and the stock market is at a record high. All's well with the world.
Over the past year, I've had many opportunities to speak to investors, advisors and the financial media about how we invest for The Oakmark Select Fund. Although many of these people knew of The Oakmark Family of Funds, few understood how we find investment opportunities. Most people have the misperception that the fund manager is discovering all of our new stocks.
The truth is that we have eight analysts (including myself) who spend their time looking for U.S.-based companies that have growing business values, owner-oriented managements and current share prices that are well below intrinsic business value. One of our most important strengths as an organization is that our investment philosophy is consistent across all of our funds and all of our investment professionals. Many firms ask an analyst to cover a specific industry and supply investment ideas that fit several different investment philosophies. We ask each of our analysts to apply a consistent investment philosophy across many different industries. Their goal is simply to find stocks that they think will make money. By giving our analysts a great deal of freedom, an office full of like-minded investors, and strong economic incentives, we have been able to attract and retain the highest caliber people in the investment business.
But unlike the NBA, where the stars are out on the court, in the investment business the stars are on the sidelines. Having been an analyst for the last fifteen years, I understand the frustration our analysts feel when they see the media giving me credit for their ideas. Next time you read an article about a successful fund manager, remember who is on the sidelines making it possible.
The analysts who've made me look smart this year are: Jim Benson (People's Bank), Henry Berghoef (SPX, ACNielsen, Dun & Bradstreet), Kevin Grant (Brunswick, Premark), Bill Jacobs (General Signal), John Raitt (McDonnell Douglas, Titan Exploration, Union Texas Petroleum), Steve Reid (First USA, US Industries) and Ed Studzinski (PartnerRe, Polaroid). Lastly, my good friend and Harris Associates' President, Bob Levy, deserves special mention not only for the many hours he's spent helping me to see investment issues more clearly, but also for his work over the last six years co-following your fund's largest holding, Liberty Media. I want to say thank you to this group of individuals; they are the Michael Jordans and Scottie Pippens of their profession. They are, as in the Tina Turner song, "Simply the Best."
One of the stocks which made last quarter so successful for The Oakmark Select Fund was PartnerRe. PartnerRe is a property catastrophe reinsurer (insures insurance companies against natural disasters such as hurricanes and earthquakes). We own PartnerRe because it is a leader in a very high return business that has significant barriers to entry yet it has a stock price that is much cheaper than most companies. Using prices from recent reinsurer acquisitions as an estimate of intrinsic business value, PartnerRe's stock price is at a large discount to the value implied by its earnings and equity. During the quarter, we had the pleasure of having the PartnerRe CEO, Herbert Haag, in our office. For an insurance executive, Herbert has a unique view on how to manage his business. He told us that he compares the use of capital for writing new insurance policies to using that same capital for share repurchase. Whichever one increases per share business value the most is the path they will pursue. This exemplifies the owner-oriented managements we look for in all our investments. Nothing affects Herbert's net worth more than a change in PartnerRe's stock price. Keep up the good work Herbert!
Thank you for your continuing support.
BILL NYGREN
Portfolio Manager
Bnygren@oakmark.com
August 4, 1997
The Oakmark Select Fund |
| Shares Held | Market Value | |
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| Common Stocks—91.4% | ||
| Other Consumer Goods & Services—7.9% | ||
| Polaroid Corporation | 266,000 | $15,827,000 |
| Brunswick Corporation | 445,900 | 14,380,275 |
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| 30,207,275 | ||
| Banks—4.1% | ||
| People's Bank of Bridgeport, Connecticut | 558,500 | $15,777,625 |
| Insurance—7.1% | ||
| PartnerRe Ltd. | 663,000 | $27,431,625 |
| Broadcasting & Cable TV—10.1% | ||
| Cablevision Systems Corporation (a) | 291,100 | $17,284,062 |
| U.S. West Media Group (a) | 519,000 | 11,450,437 |
| TCI Satellite Entertainment, Inc., Class A (a) | 1,485,000 | 10,116,563 |
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| 38,851,062 | ||
| TV Programming—15.1% | ||
| Tele-Communications, Liberty Media, Class A (a) | 2,267,200 | $57,955,300 |
| Publishing—7.0% | ||
| ACNielsen Corporation | 666,000 | $14,319,000 |
| Dun & Bradstreet Corporation | 472,000 | 12,744,000 |
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| 27,063,000 | ||
| Data Storage—3.2% | ||
| Imation Corporation (a) | 504,400 | $12,389,325 |
| Building Materials & Construction—8.8% | ||
| USG Corporation (a) | 718,500 | $33,769,500 |
| Oil & Natural Gas—5.8% | ||
| Union Texas Petroleum Holdings, Inc. | 712,600 | $14,830,988 |
| Titan Exploration, Inc. (a) | 780,000 | 7,507,500 |
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| 22,338,488 | ||
| Other Industrial Goods & Services—7.6% | ||
| Premark International, Inc. | 475,000 | $14,992,187 |
| General Signal Corporation | 290,000 | 14,264,375 |
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| 29,256,562 | ||
| Diversified Conglomerates—14.7% | ||
| U.S. Industries, Inc. (a) | 1,402,700 | $56,546,344 |
| Total Common Stocks (Cost: $295,420,165) | 351,586,106 | |
| Principal Value | Market Value | |
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| Short-Term Investments—9.2% | ||
| U.S. Government Bills—1.6% | ||
| United States Treasury Bills, 4.93% due 8/21/1997 | 2,000,000 | $1,994,522 |
| United States Treasury Bills, 5.04% due 10/9/1997 | 2,000,000 | 1,980,680 |
| United States Treasury Bills, 5.07% due 10/16/1997 | 2,000,000 | 1,978,594 |
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| Total U.S Government Bills (Cost: $5,953,795) | 5,953,796 | |
| Commercial Paper—5.2% | ||
| Ford Motor Credit Corp., 5.55%5.56% due 8/58/6/1997 | 7,000,000 | $7,000,000 |
| American Express Credit Corp., 5.65% due 8/4/1997 | 5,000,000 | 5,000,000 |
| General Electric Capital Corporation, 5.50%5.85% due 8/1/1997 | 8,000,000 | 8,000,000 |
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| Total Commercial Paper (Cost: $20,000,000) | 20,000,000 | |
| Repurchase Agreements—2.4% | ||
| State Street Repurchase Agreement, 5.76% due 8/1/97 | 9,314,000 | $9,314,000 |
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| Total Repurchase Agreements (Cost: $9,314,000) | 9,314,000 | |
| Total Short-Term Investments (Cost: $35,267,795) | 35,267,796 | |
| Total Investments (Cost $330,687,960)—100.6% | $386,853,902 | |
| Other liabilities in excess of other assets—(0.6)% | (2,228,302) | |
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| Total Net Assets—100% | $384,625,600 | |
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Notes:
(a) Non-income producing security.