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 (3/31/03) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX4 | ||||
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| Average Annual Total Returns1 | ||||
| (as of 3/31/03) | ||||
| Total Return Last 3 Months* |
1-year | 5-year | Since Inception (11/1/96) |
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| Oakmark Select Fund | -0.50% | -15.07% | 10.13% | 20.18% |
| S&P 500 | -3.15% | -24.76% | -3.77% | 4.45% |
| S&P MidCap 40014 | -4.43% | -23.45% | 3.27% | 9.82% |
| Lipper Mid Cap Value Index15 | -4.23% | -23.06% | -0.71% | 5.14% |
| The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. | ||||
| 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 Select Fund lost 1% last quarter. Although reporting a negative return is always disappointing, the loss was less than either the 3% decline in the S&P 500 or the 4% decline that equity mutual funds averaged. On a trailing three year basis, The Oakmark Select Fund has increased by 27% in sharp contrast to the S&P 500's loss of 41%. Two factors made that outcome possible. The Fund's non-diversified structure made stock selection more influential on our results than it was for most funds and allowed for the possibility that our results would materially differ from market returns. That could have been either a good or a bad thing! For us, it was a good thing because our research team led us to stocks that were priced substantially below business value, despite the market being overvalued. That's why we continue to believe our analysts are the best in the business!
Last quarter we eliminated our Electronic Data Systems (EDS) position and increased the number of holdings to twenty by adding Bristol-Myers (BMY-$21) and Starwood Hotels (HOT-$24). Our rationale for owning BMY has been covered previously in material from The Oakmark Fund—we believe most drug companies are superior businesses deserving premium multiples but now are priced as below-average companies.
Starwood Hotels operates and franchises hotels under the brands Sheraton, Westin, St. Regis, and W. Our purchase of Starwood is an example of exploiting a time horizon that is much longer than most investors use. Starwood stock peaked last May at $38. Last month, when travel fears increased, the stock sold at $22. Analysts generally agree that Starwood's assets are worth $35-$40 per share, yet suggest deferring purchase until the timing of a recovery in travel is more certain. We concur with their valuation and especially like Starwood's recent sale of a Milan hotel at a price that makes our valuation look too conservative. At this discount, we are very comfortable being patient!
Best wishes,
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| William C. Nygren, CFA Portfolio Manager bnygren@oakmark.com |
Henry R. Berghoef, CFA Portfolio Manager berghoef@oakmark.com |
| THE OAKMARK SELECT FUND |
| Schedule of Investments—March 31, 2003 (Unaudited) |
| Name | Shares Held | Market Value |
| Common Stocks—92.3% | ||
| Other Consumer Goods & Services—13.2% | ||
| H&R Block, Inc. | 8,859,800 | $378,224,862 |
| Mattel, Inc. | 7,541,400 | 169,681,500 |
| 547,906,362 | ||
| Cable Systems & Satellite TV—3.7% | ||
| AOL Time Warner Inc. (a) | 14,000,000 | $152,040,000 |
| Hotels & Motels—2.2% | ||
| Starwood Hotels & Resorts Worldwide, Inc. | 3,880,000 | $92,305,200 |
| Information Services—7.7% | ||
| The Dun & Bradstreet Corporation (a)(b) | 4,534,900 | $173,459,925 |
| Moody's Corporation | 3,123,600 | 144,404,028 |
| 317,863,953 | ||
| Publishing—3.7% | ||
| Knight-Ridder, Inc. | 2,606,500 | $152,480,250 |
| Restaurants—5.0% | ||
| Yum! Brands, Inc (a) | 8,472,000 | $206,123,760 |
| Retail—9.7% | ||
| The Kroger Co. (a) | 11,175,700 | $146,960,455 |
| Office Depot, Inc. (a) | 11,384,900 | 134,683,367 |
| Toys ‘R ' Us, Inc. (a)(b) | 14,198,100 | 118,838,097 |
| 400,481,919 | ||
| Bank & Thrifts—18.0% | ||
| Washington Mutual, Inc. | 21,151,400 | $746,009,878 |
| Investment Management—2.8% | ||
| Janus Capital Group Inc. | 10,169,600 | $115,831,744 |
| Health Care Services—4.3% | ||
| IMS Health Incorporated | 11,353,441 | $177,227,214 |
| Pharmaceuticals—5.8% | ||
| Chiron Corporation (a) | 3,892,000 | $145,950,000 |
| Bristol-Myers Squibb Company | 4,417,400 | 93,339,662 |
| 239,289,662 | ||
| Telecommunications—3.1% | ||
| Sprint Corporation | 11,054,200 | $129,886,850 |
| Computer Services—4.8% | ||
| First Data Corporation | 5,330,400 | $197,278,104 |
| Office Equipment—4.3% | ||
| Xerox Corporation (a) | 20,692,700 | $180,026,490 |
| Oil & Natural Gas—4.0% | ||
| Burlington Resources Inc. | 3,501,800 | $167,070,878 |
| Total Common Stocks (Cost: $3,260,481,723) | 3,821,822,264 | |
| Par Value | ||
| Short Term Investments—7.6% | ||
| U.S. Government Bills—4.0% | ||
| United States Treasury Bills, 1.18% - 1.20% | ||
| due 4/3/2003 - 6/12/2003 | $165,000,000 | $164,802,930 |
| Total U.S. Government Bills (Cost: $164,791,087) | 164,802,930 | |
| Repurchase Agreements—3.6% | ||
| IBT Repurchase Agreement, 1.25% due 4/1/2003, | ||
| repurchase price $142,004,931 collateralized by | ||
| U.S. Government Agency Securities | $142,000,000 | $142,000,000 |
| IBT Repurchase Agreement, 1.01% due 4/1/2003, | ||
| repurchase price $5,452,076 collateralized by | ||
| U.S. Government Agency Securities | 5,451,923 | 5,451,923 |
| Total Repurchase Agreement (Cost: $147,451,923) | 147,451,923 | |
| Total Short Term Investments (Cost: $312,243,010) | 312,254,853 | |
| Total Investments (Cost $3,572,724,733)—99.9% | $4,134,077,117 | |
| Other Assets In Excess Of Other Liabilities—0.1% | 5,786,443 | |
| Total Net Assets—100% | $4,139,863,560 | |
| (a) | Non-income producing security. |
| (b) | See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers. |
See accompanying notes to financial statements.