THE OAKMARK FUND
Report from Bill Nygren and Kevin Grant,
Portfolio Managers
THE OAKMARK FUNDReport from Bill Nygren and Kevin Grant,
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THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (12/31/01) AS COMPARED TO THE STANDARD & POOR’ S 500 INDEX5 |
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Average
Annual Total Returns1 |
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| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
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| The Oakmark Fund | 10.82% | 18.29% | 10.24% | 17.69% | 19.95% |
| S&P 500 | 10.69% | -11.89% | 10.69% | 12.93% | 13.34% |
| Dow Jones Average6 | 13.80% | -5.48% | 11.07% | 14.68% | 14.72% |
| Lipper Large Cap Value Index7 | 8.72% | -8.58% | 9.42% | 12.04% | 12.57% |
| 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 11% last quarter bringing the calendar year increase to 18%. Most stocks increased during the quarter, but the biggest gainers were in the technology sector. We judge that sector to be significantly overvalued and therefore have almost none of the portfolio invested in it. The four new stocks added to the portfolio last quarter continue the theme of large, growing, high-quality, non-technology companies. In addition to the two described below, explanations of General Mills and Illinois Tool Works are available on our website (www.oakmark.com).
McDonalds (MCD—$26)
McDonalds is the largest fast food chain in the world. Mad cow disease and currency translation costs combined to give McDonalds a very unusual down earnings year. The stock has fallen almost 50% from its 1999 high of $50 and now sells at just seventeen times projected earnings. We expect declining concern about mad cow, decreasing currency losses and capital deployment shifting from building new restaurants to repurchasing more shares. These changes should lead to a resumption of strong earnings-per-share growth.
Merck (MRK—$59)
Merck is one of the largest pharmaceutical companies in the world. Merck stock has been weak this year as upcoming patent expirations led management to project flat earnings for 2002. Merck has fallen from $97 last year to $59, and now trades at a discount to the market P/E4 (nineteen times on 2002 projections) for the first time since Hillary Clinton tried to reform the healthcare system. We believe Merck is well managed, has a great R&D pipeline and will resume double-digit annual earnings growth in 2003.
Most of our investments are in above average businesses currently selling at below average prices. Therefore, our outlook remains very positive. Thank you for your support.
William C. Nygren, CFA
Portfolio Manager
bnygren@oakmark.com
Kevin Grant, CFA
Portfolio Manager
kgrant@oakmark.com
January 7, 2002
| THE OAKMARK FUND |
Schedule of Investments—December 31, 2001
| Name | Shares Held | Market Value |
| Common Stocks—90.2% | ||
| Food & Beverage—5.4% | ||
| H.J. Heinz Company | 1,910,000 | $78,539,200 |
| Kraft Foods Inc. | 1,945,000 | 66,188,350 |
| General Mills, Inc. | 1,005,000 | 52,270,050 |
| 196,997,600 | ||
| Retail—14.5% | ||
| The Kroger Co. (a) | 4,210,000 | $87,862,700 |
| J.C. Penney Company, Inc. | 2,886,700 | 77,652,230 |
| The Gap, Inc. | 4,755,000 | 66,284,700 |
| Toys 'R' Us, Inc. (a) | 3,125,000 | 64,812,500 |
| CVS Corporation | 2,105,000 | 62,308,000 |
| Tricon Global Restaurants, Inc. (a) | 1,200,000 | 59,040,000 |
| McDonald's Corporation | 2,200,000 | 58,234,000 |
| Safeway Inc. (a) | 1,227,000 | 51,227,250 |
| 527,421,380 | ||
| Household Products—3.3% | ||
| Newell Rubbermaid Inc. | 2,275,000 | $62,721,750 |
| The Clorox Company | 1,440,200 | 56,959,910 |
| 119,681,660 | ||
| Office Equipment—1.9% | ||
| Xerox Corporation | 6,663,500 | $69,433,670 |
| Hardware—1.8% | ||
| The Black & Decker Corporation | 1,722,200 | $64,978,606 |
| Other Consumer Goods & Services—7.6% | ||
| H&R Block, Inc. | 2,053,300 | $91,782,510 |
| Fortune Brands, Inc. | 1,745,600 | 69,108,304 |
| Mattel, Inc. | 3,930,000 | 67,596,000 |
| Cendant Corporation (a) | 2,395,100 | 46,967,911 |
| 275,454,725 | ||
| Bank & Thrifts—6.0% | ||
| Washington Mutual, Inc. | 4,137,300 | $135,289,710 |
| U.S. Bancorp | 4,000,000 | 83,720,000 |
| 219,009,710 | ||
| Insurance—1.9% | ||
| MGIC Investment Corporation | 1,137,900 | $70,231,188 |
| Other Financial—2.2% | ||
| Fannie Mae | 870,000 | $69,165,000 |
| American Express Company | 300,000 | 10,707,000 |
| 79,872,000 | ||
| Hotels & Motels—1.0% | ||
| Starwood Hotels & Resorts Worldwide, Inc. | 1,235,000 | $36,864,750 |
| Marketing Services—1.8% | ||
| The Interpublic Group of Companies, Inc. | 2,200,000 | $64,988,000 |
| Computer Services—5.6% | ||
| Electronic Data Systems Corporation | 1,114,500 | $76,398,975 |
| SunGard Data Systems Inc. (a) | 2,231,600 | 64,560,188 |
| First Data Corporation | 790,000 | 61,975,500 |
| 202,934,663 | ||
| Telecommunications—4.6% | ||
| AT&T Corp. | 5,735,000 | $104,032,900 |
| Sprint Corporation | 3,206,000 | 64,376,480 |
| 168,409,380 | ||
| Telecommunications Equipment—3.7% | ||
| General Motors Corporation, Class H (Hughes | ||
| Electronics Corporation) (a) | 4,600,000 | $71,070,000 |
| Motorola, Inc. | 4,200,000 | 63,084,000 |
| 134,154,000 | ||
| TV Programming—2.0% | ||
| Liberty Media Corporation, Class A (a) | 5,100,000 | $71,400,000 |
| Publishing—3.4% | ||
| Knight-Ridder, Inc. | 966,000 | $62,722,380 |
| Gannett Co., Inc. | 909,500 | 61,145,685 |
| 123,868,065 | ||
| Pharmaceuticals—3.4% | ||
| Merck & Co., Inc. | 1,300,000 | $76,440,000 |
| Chiron Corporation (a) | 1,079,000 | 47,303,360 |
| 123,743,360 | ||
| Medical Products—1.8% | ||
| Guidant Corporation (a) | 1,280,500 | $63,768,900 |
| Automobiles—1.5% | ||
| Ford Motor Company | 3,575,000 | $56,199,000 |
| Aerospace & Defense—2.6% | ||
| Honeywell International Inc. | 1,550,000 | $52,421,000 |
| Rockwell Collins | 2,156,100 | 42,043,950 |
| 94,464,950 | ||
| Waste Disposal—1.7% | ||
| Waste Management, Inc. | 1,985,300 | $63,350,923 |
| Building Materials & Construction—1.8% | ||
| Masco Corporation | 2,633,000 | $64,508,500 |
| Utilities—2.3% | ||
| TXU Corp. | 1,765,000 | $83,219,750 |
| Oil & Natural Gas—5.5% | ||
| Conoco Inc. | 2,550,000 | $72,165,000 |
| Phillips Petroleum Company | 1,192,700 | 71,872,102 |
| Burlington Resources Inc. | 1,550,500 | 58,205,770 |
| 202,242,872 | ||
| Other Industrial Goods & Services—0.7% | ||
| Illinois Tool Works Inc. | 400,000 | $27,088,000 |
| Recreation & Entertainment—2.2% | ||
| Carnival Corporation | 1,500,000 | $42,120,000 |
| Brunswick Corporation | 1,826,700 | 39,748,992 |
| 81,868,992 | ||
| Total Common Stocks (Cost: $2,805,314,700) | 3,286,154,644 | |
| Par Value | ||
| Short Term Investments—10.1% | ||
| U.S. Government Bills—1.6% | ||
| United States Treasury Bills, 1.86% - 3.46% | ||
| due 1/31/2002 - 3/21/2002 | $60,000,000 | $59,824,707 |
| Total U.S. Government Bills (Cost: $59,811,561) | 59,824,707 | |
| Commercial Paper—5.8% | ||
| Citicorp, 1.78% - 1.92% due 1/4/2002 - 1/14/2002 | $80,000,000 | $80,000,000 |
| American Express Credit Corporation, 1.76% - 1.85% | ||
| due 1/3/2002 - 1/17/2002 | 40,000,000 | 40,000,000 |
| General Electric Capital Corporation, 1.75% - 1.87% | ||
| due 1/2/2002 - 1/11/2002 | 90,000,000 | 90,000,000 |
| Total Commercial Paper (Cost: $210,000,000) | 210,000,000 | |
| Repurchase Agreements—2.7% | ||
| State Street Repurchase Agreement, 1.57% due 1/2/2002 | $98,061,000 | 98,061,000 |
| Total Repurchase Agreements (Cost: $98,061,000) | 98,061,000 | |
| Total Short Term Investments (Cost: $367,872,561) | 367,885,707 | |
| Total Investments (Cost $3,173,187,261)—100.3% | $3,654,040,351 | |
| Other Liabilities In Excess Of Other Assets—(0.3)% | (9,717,040) | |
| Total Net Assets—100% | $3,644,323,311 | |
| (a) | Non-income producing security. |
