THE OAKMARK SELECT FUND
Report from Bill Nygren
and Henry Berghoef, Portfolio Managers
THE OAKMARK SELECT FUNDReport from Bill Nygren
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THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (12/31/01) AS COMPARED TO THE STANDARD & POOR’S 500 INDEX5 |
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| Average Annual Total
Returns1 (as of 12/31/01) |
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| Total Return Last 3 Months* |
1-year | 5-year | Since Inception (11/1/96) |
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| Oakmark Select Fund | 8.30% | 26.06% | 26.73% | 29.04% |
| S&P 500 | 10.69% | -11.89% | 10.69% | 11.46% |
| S&P MidCap 4008 | 17.99% | -0.60% | 16.11% | 16.80% |
| Lipper Mid Cap Value Index9 |
14.62% | 6.73% | 9.75% | 10.65% |
| 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. The graph and table do not reflect the deduction of taxes that you would pay on Fund distributions or redemption of Fund shares. | ||||
| * Not annualized | ||||
The Oakmark Select Fund increased in value by 8% for the quarter bringing the calendar year gain to 26%. In addition to this strong absolute performance, the increase is especially rewarding given the decline the market experienced for the year. Since the September 21 low, the fund has increased by 14%. The market, because of its much heavier weighting in the technology sector, increased more than we did. We do not believe this short period of under-performance reflects weaker fundamentals in the businesses we own. In fact, we are very pleased with both the absolute and relative performance of our businesses. Therefore, we believe we enter 2002 with a portfolio that is even more undervalued relative to the market.
The portfolio has two new positions this quarter. Xerox (XRX—$10) is a well-known business that we believe is further along in its turnaround than is generally appreciated. The other, IMS International (RX—$19), is more typical of the values we are now seeing in the high quality, non-technology businesses. IMS is the leading supplier of market data to the pharmaceutical industry. In some ways, IMS can be viewed as a royalty on the drug industry—one of the fastest, most consistent growing of all industries. Last year was tough for the drug industry because of the FDA's low approval rate for new drugs. Most industry analysts expect new product growth to be very strong for several years beginning in late 2002. In addition to industry issues, IMS also cleaned up some aggressive accounting practices put in place by prior management. For these reasons, the stock fell from its 2001 high of $31. Now selling at a below average P/E4 multiple, we believe IMS is significantly undervalued.
Thank you for your support.
William C. Nygren, CFA
Portfolio Manager
bnygren@oakmark.com
Henry R. Berghoef, CFA
Portfolio Manager
berghoef@oakmark.com
January 7, 2002
| THE OAKMARK SELECT FUND |
Schedule of Investments—December 31, 2001
| Name | Shares Held | Market Value |
| Common Stocks—91.0% | ||
| Apparel—0.5% | ||
| Liz Claiborne, Inc. | 515,900 | $25,666,025 |
| Retail—18.2% | ||
| Toys 'R' Us, Inc. (a) | 12,798,500 | $265,440,890 |
| Office Depot, Inc. (a) | 10,946,000 | 202,938,840 |
| Tricon Global Restaurants, Inc. (a) | 4,015,400 | 197,557,680 |
| The Kroger Co. (a) | 9,004,000 | 187,913,480 |
| 853,850,890 | ||
| Household Products—2.4% | ||
| Energizer Holdings, Inc. (a) | 5,947,300 | $113,296,065 |
| Office Equipment—2.5% | ||
| Xerox Corporation | 11,408,000 | $118,871,360 |
| Other Consumer Goods & Services—11.3% | ||
| H&R Block, Inc. | 7,938,800 | $354,864,360 |
| Mattel, Inc. | 10,098,000 | 173,685,600 |
| 528,549,960 | ||
| Bank & Thrifts—15.5% | ||
| Washington Mutual, Inc. | 22,205,200 | $726,110,040 |
| Information Services—9.2% | ||
| The Dun & Bradstreet Corporation (a) | 4,984,900 | $175,966,970 |
| Moody's Corporation | 4,170,700 | 166,244,102 |
| Ceridian Corporation (a) | 4,720,000 | 88,500,000 |
| 430,711,072 | ||
| Computer Services—8.8% | ||
| Electronic Data Systems Corporation | 3,250,900 | $222,849,195 |
| First Data Corporation | 2,415,200 | 189,472,440 |
| 412,321,635 | ||
| Computer Systems—0.5% | ||
| The Reynolds and Reynolds Company, Class A | 900,000 | $21,825,000 |
| Telecommunications—8.2% | ||
| AT&T Corp. | 12,133,000 | $220,092,620 |
| Sprint Corporation | 8,065,000 | 161,945,200 |
| 382,037,820 | ||
| Publishing—3.6% | ||
| Knight-Ridder, Inc. | 2,606,500 | $169,240,045 |
| Pharmaceuticals—3.8% | ||
| Chiron Corporation (a) | 4,027,400 | $176,561,216 |
| Health Care Services—2.7% | ||
| IMS Health Incorporated | 6,500,000 | $126,815,000 |
| Oil & Natural Gas—3.8% | ||
| Burlington Resources Inc. | 4,734,500 | $177,733,130 |
| Total Common Stocks (Cost: $3,233,427,132) | 4,263,589,258 | |
| Par Value | ||
| Short Term Investments—8.3% | ||
| U.S. Government Bills—1.3% | ||
| United States Treasury Bills, 1.69% - 3.35% | ||
| due 1/24/2002 - 3/14/2002 | $60,000,000 | $59,843,874 |
| Total U.S. Government Bills (Cost: $59,830,161) | 59,843,874 | |
| Commercial Paper—4.1% | ||
| Citicorp, 1.87% - 1.92% due 1/4/2002 - 1/8/2002 | $60,000,000 | $60,000,000 |
| American Express Credit Corporation, 1.72% - 1.76% | ||
| due 1/2/2002 - 1/14/2002 | 40,000,000 | 40,000,000 |
| General Electric Capital Corporation, 1.70% - 1.78% | ||
| due 1/2/2002 - 1/11/2002 | 90,000,000 | 90,000,000 |
| Total Commercial Paper (Cost: $190,000,000) | 190,000,000 | |
| Repurchase Agreements—2.9% | ||
| State Street Repurchase Agreement, 1.57% due 1/2/2002 | $137,395,000 | $137,395,000 |
| Total Repurchase Agreements (Cost: $137,395,000) | 137,395,000 | |
| Total Short Term Investments (Cost: $387,225,161) | 387,238,874 | |
| Total Investments (Cost $3,620,652,293)—99.3% | $4,650,828,132 | |
| Other Assets In Excess Of Other Liabilities—0.7% | 33,175,327 | |
| Total Net Assets—100% | $4,684,003,459 | |
| (a) | Non-income producing security. |
