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 (6/30/02) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX1 | |||||
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| Average Annual Total
Returns3 (as of 6/30/02) |
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| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
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| Oakmark Fund | -8.36% | -3.74% | 5.34% | 15.33% | 18.46% |
| S&P 500 | -13.40% | -17.99% | 3.66% | 11.42% | 11.24% |
| Dow Jones Average6 | -10.82% | -10.43% | 5.54% | 13.17% | 13.26% |
| Lipper Large Cap Value Index7 | -10.82% | -13.75% | 4.00% | 11.07% | 10.99% |
| 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 decreased in value by 8% last quarter. The market as a whole declined much more than the Fund did as shown by the 13% loss in the S&P 500. The market decline led to a number of new stocks falling to our buy targets. In addition to the new addition discussed below, we also discuss our purchases of Abbott Laboratories, Boeing, Bristol-Myers, Duke Energy, and Home Depot on our web site, www.oakmark.com.
AOL Time Warner (AOL—$15)
Oakmark takes a position in the leading Internet Service Provider—who'd have thought? Near the peak of the Internet bubble, in late 1999, AOL hit a price of $96, giving it a market capitalization in excess of $200 billion. The following year, AOL announced they would purchase, for stock, "old media" company, Time Warner, which itself had a market cap of nearly $100 billion. Today, with AOL having fallen to $15, the market cap of the combined companies has fallen from $300 billion to $68 billion. At Oakmark, we were never comfortable with the valuations placed on Internet stocks, but at the current price for AOL, the market appears to value the world's largest ISP at less than zero—that works for us!
One of the big financial news stories last quarter was the conflicts that are inherent in the jobs of Wall Street research analysts—especially related to Internet stocks. In light of that, consider an article written in Fortune magazine in February 2000 (the peak of the Internet bubble) by Carol Loomis, "AOL + TWX = ??? Do the math and you might wonder if this company's long-term annual return to investors can beat a Treasury bond's." The article took a disciplined quantitative approach to examining the growth AOL would need to achieve to produce acceptable returns for its shareholders. The article concluded by saying "to make the merger work for investors ... will be like pushing a boulder up an alp." Some analysts are able to speak their minds honestly, despite conflicts. Kudos to Carol Loomis who wrote that piece while employed by AOL Time Warner! With AOL down by over 80%, reasonable returns now appear much more achievable.
Best wishes,
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| William C. Nygren, CFA Portfolio Manager bnygren@oakmark.com |
Kevin Grant, CFA Portfolio Manager kgrant@oakmark.com |
July 3, 2002
| THE OAKMARK FUND |
Schedule of Investments—June 30, 2002 (Unaudited)
| Name | Shares Held | Market Value |
| Common Stocks—95.8% | ||
| Food & Beverage—6.1% | ||
| H.J. Heinz Company | 2,010,000 | $82,611,000 |
| General Mills, Inc. | 1,855,000 | 81,768,400 |
| Kraft Foods Inc. | 1,895,000 | 77,600,250 |
| 241,979,650 | ||
| Household Products—3.3% | ||
| Newell Rubbermaid, Inc. | 1,975,000 | $69,243,500 |
| The Clorox Company | 1,440,200 | 59,552,270 |
| 128,795,770 | ||
| Other Consumer Goods & Services—8.4% | ||
| H&R Block, Inc. | 2,753,300 | $127,064,795 |
| Fortune Brands, Inc. | 1,745,600 | 97,753,600 |
| Mattel, Inc. | 3,216,300 | 67,799,604 |
| Cendant Corporation (a) | 2,395,100 | 38,034,188 |
| 330,652,187 | ||
| Building Materials & Construction—1.9% | ||
| Masco Corporation | 2,833,000 | $76,802,630 |
| Cable & Satellite TV—3.5% | ||
| AOL Time Warner Inc. (a) | 5,750,000 | $84,582,500 |
| General Motors Corporation, Class H (Hughes | ||
| Electronics Corporation) (a) | 5,100,000 | 53,040,000 |
| 137,622,500 | ||
| Hardware—2.0% | ||
| The Black & Decker Corporation | 1,622,200 | $78,190,040 |
| Marketing Services—1.4% | ||
| The Interpublic Group of Companies, Inc. | 2,200,000 | $54,472,000 |
| Publishing—3.3% | ||
| Gannett Co., Inc. | 934,500 | $70,928,550 |
| Knight-Ridder, Inc. | 916,000 | 57,662,200 |
| 128,590,750 | ||
| Recreation & Entertainment—1.1% | ||
| Carnival Corporation | 1,500,000 | $41,535,000 |
| Retail—15.1% | ||
| The Kroger Co. (a) | 4,490,000 | $89,351,000 |
| J.C. Penney Company, Inc. | 3,702,900 | 81,537,858 |
| Safeway Inc. (a) | 2,727,000 | 79,601,130 |
| Yum! Brands, Inc (a) | 2,439,000 | 71,340,750 |
| McDonald's Corporation | 2,300,000 | 65,435,000 |
| The Home Depot, Inc. | 1,500,000 | 55,095,000 |
| The Gap, Inc. | 3,800,000 | 53,960,000 |
| Toys ‘ R ' Us, Inc. (a) | 3,000,000 | 52,410,000 |
| CVS Corporation | 1,605,000 | 49,113,000 |
| 597,843,738 | ||
| TV Programming—2.0% | ||
| Liberty Media Corporation, Class A (a) | 7,701,400 | $77,014,000 |
| Bank & Thrifts—6.2% | ||
| Washington Mutual, Inc. | 4,159,300 | $154,351,623 |
| U.S. Bancorp | 3,800,000 | 88,730,000 |
| 243,081,623 | ||
| Insurance—2.0% | ||
| MGIC Investment Corporation | 1,137,900 | $77,149,620 |
| Other Financial—2.3% | ||
| Fannie Mae | 1,220,000 | $89,975,000 |
| Medical Products—1.9% | ||
| Guidant Corporation (a) | 2,546,100 | $76,968,603 |
| Pharmaceuticals—9.9% | ||
| Merck & Co., Inc. | 1,700,000 | $86,088,000 |
| Schering-Plough Corporation | 3,425,000 | 84,255,000 |
| Bristol-Myers Squibb Company | 3,250,000 | 83,525,000 |
| Abbott Laboratories | 1,950,000 | 73,417,500 |
| Chiron Corporation (a) | 1,822,000 | 64,407,700 |
| 391,693,200 | ||
| Telecommunications—3.3% | ||
| AT&T Corp. | 7,135,000 | $76,344,500 |
| Sprint Corporation | 4,946,000 | 52,477,060 |
| 128,821,560 | ||
| Telecommunications Equipment—1.6% | ||
| Motorola, Inc. | 4,475,000 | $64,529,500 |
| Computer Services—5.1% | ||
| First Data Corporation | 2,200,000 | $81,840,000 |
| Electronic Data Systems Corporation | 1,701,000 | 63,192,150 |
| SunGard Data Systems, Inc. (a) | 2,131,600 | 56,444,768 |
| 201,476,918 | ||
| Office Equipment—1.3% | ||
| Xerox Corporation (a) | 7,427,400 | $51,768,978 |
| Aerospace & Defense—2.5% | ||
| Honeywell International, Inc. | 1,550,000 | $54,606,500 |
| The Boeing Company | 1,000,000 | 45,000,000 |
| 99,606,500 | ||
| Other Industrial Goods & Services—1.0% | ||
| Illinois Tool Works Inc. | 604,200 | $41,266,860 |
| Waste Disposal—1.9% | ||
| Waste Management, Inc. | 2,874,300 | $74,875,515 |
| Oil & Natural Gas—5.2% | ||
| Conoco Inc. | 2,550,000 | $70,890,000 |
| Phillips Petroleum Company | 1,192,700 | 70,226,176 |
| Burlington Resources Inc. | 1,671,100 | 63,501,800 |
| 204,617,976 | ||
| Electric Utilities—3.5% | ||
| TXU Corp. | 1,565,000 | $80,675,750 |
| Duke Energy Corporation | 1,900,000 | 59,090,000 |
| 139,765,750 | ||
| Total Common Stocks (Cost: $3,536,135,891) | 3,779,095,868 | |
Par Value |
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| Short Term Investments—4.5% | ||
| U.S. Government Bills—2.3% | ||
| United States Treasury Bills, 1.65% -1.885% | ||
| due 7/5/2002 - 9/5/2002 | $90,000,000 | $89,833,297 |
| Total U.S. Government Bills (Cost: $89,833,297) | 89,833,297 | |
| Repurchase Agreements—2.2% | ||
| IBT Repurchase Agreement, 1.85% due 7/1/2002, | ||
| repurchase price $89,013,721 collateralized by | ||
| U.S. Government Agency Securities | $89,000,000 | $89,000,000 |
| Total Repurchase Agreement (Cost: $89,000,000) | 89,000,000 | |
| Total Short Term Investments (Cost: $178,833,297) | 178,833,297 | |
| Total Investments (Cost $3,714,969,188)—100.3% | $3,957,929,165 | |
| Other Liabilities In Excess Of Other Assets—(0.3%) | (11,112,086) | |
| Total Net Assets—100% | $3,946,817,079 | |
| (a) | Non-income producing security. |