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 (6/30/03) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX4 | |||||
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| Average Annual Total Returns1 | |||||
| (as of 6/30/03) | |||||
| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
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| Oakmark Fund | 16.95% | 0.57% | 1.96% | 11.49% | 16.84% |
| S&P 500 | 15.39% | 0.25% | -1.61% | 10.04% | 10.28% |
| Dow Jones Average7 | 12.94% | -0.50% | 1.89% | 12.12% | 12.03% |
| Lipper Large Cap Value Index8 | 16.43% | -2.13% | -0.75% | 9.15% | 9.82% |
| 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 Fund increased in value by 17% last quarter, exceeding the 15% increase in the S&P 500 index. Those gains bring calendar year-to-date returns to 12% for both Oakmark and the S&P 500. This quarter was the market's strongest since 1998. Some have expressed surprise that a fund that underperformed in the last bull market has kept pace with this rebound. In the bull market year of 1998, the S&P 500 returned 29%. Since the market bottom on March 11, 2003, the S&P has increased a little less than in 1998, 22%. Despite the index being up less, the strength has been much broader. Five years ago, a small number of large-capitalization stocks that we felt were overvalued propelled the market higher, but 40% of the stocks in the S&P 500 actually declined in price. This year, most stocks are contributing to the increase as evidenced by over 95% of the S&P 500 stocks and 51 of our 55 holdings having increased in value since the bottom. During the quarter, we added two more stocks that have fallen sharply in response to short-term earnings misses. ADP is addressed below and Harley-Davidson is addressed on the website (www.oakmark.com).
Automatic Data Processing (ADP—$34)
ADP is the largest payroll processing firm in the world. Growth in the number of people employed combined with the compelling economics of outsourcing has made payroll processing a great industry. Throw in ADP's economies of scale and one sees why they have achieved forty-one years of uninterrupted double-digit EPS5 growth. That track record made ADP a favorite stock for growth investors and pushed the stock to a high of $70 near the end of 2000. In 2003, a weak economy and low interest rates (ADP earns interest income on its large cash and tax float balances) combined to produce expectations of a slight decline in earnings. The stock has now fallen by over 50% and is priced at an average P/E6 multiple. We believe ADP is still an excellent company deserving of a premium price and expect their business to benefit as the economy strengthens.
Best wishes,
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| William C. Nygren, CFA Portfolio Manager bnygren@oakmark.com |
Kevin Grant, CFA Portfolio Manager kgrant@oakmark.com |
| THE OAKMARK FUND |
Schedule of Investments—June 30, 2003 (Unaudited)
| Name | Shares Held | Market Value |
| Common Stocks—92.0% | ||
| Food & Beverage—8.3% | ||
| Kraft Foods Inc. | 2,705,000 | $88,047,750 |
| General Mills, Inc. | 1,805,000 | 85,575,050 |
| H.J. Heinz Company | 2,310,000 | 76,183,800 |
| Anheuser-Busch Companies, Inc. | 1,300,000 | 66,365,000 |
| Diageo plc (b) | 1,421,000 | 62,182,960 |
| 378,354,560 | ||
| Household Products—1.3% | ||
| The Clorox Company | 1,390,200 | $59,292,030 |
| Other Consumer Goods & Services—6.3% | ||
| H&R Block, Inc. | 3,029,300 | $131,017,225 |
| Fortune Brands, Inc. | 1,745,600 | 91,120,320 |
| Mattel, Inc. | 3,444,800 | 65,175,616 |
| 287,313,161 | ||
| Broadcasting & Programming—2.3% | ||
| Liberty Media Corporation, Class A (a) | 6,499,400 | $75,133,064 |
| The Walt Disney Company | 1,500,000 | 29,625,000 |
| 104,758,064 | ||
| Building Materials & Construction—1.8% | ||
| Masco Corporation | 3,533,000 | $84,262,050 |
| Cable Systems & Satellite TV—5.9% | ||
| AOL Time Warner Inc. (a) | 5,429,700 | $87,363,873 |
| General Motors Corporation, Class H (Hughes | ||
| Electronics Corporation) (a) | 6,100,000 | 78,141,000 |
| EchoStar Communications Corporation (a) | 2,075,000 | 71,836,500 |
| Comcast Corporation, Special Class A (a) | 1,050,000 | 30,271,500 |
| 267,612,873 | ||
| Hardware—1.8% | ||
| The Black & Decker Corporation | 1,922,200 | $83,519,590 |
| Motorcycles—1.3% | ||
| Harley-Davidson, Inc. | 1,455,000 | $57,996,300 |
| Publishing—2.9% | ||
| Gannett Co., Inc. | 884,500 | $67,938,445 |
| Knight-Ridder, Inc. | 916,000 | 63,139,880 |
| 131,078,325 | ||
| Recreation & Entertainment—1.2% | ||
| Carnival Corporation (c) | 1,678,300 | $54,561,533 |
| Restaurants—4.7% | ||
| Yum! Brands, Inc (a) | 3,674,000 | $108,603,440 |
| McDonald's Corporation | 4,900,000 | 108,094,000 |
| 216,697,440 | ||
| Retail—9.9% | ||
| The Home Depot, Inc. | 3,281,500 | $108,683,280 |
| The Kroger Co. (a) | 5,790,000 | 96,577,200 |
| J.C. Penney Company, Inc. | 4,202,900 | 70,818,865 |
| Safeway Inc. (a) | 3,327,000 | 68,070,420 |
| The Gap, Inc. | 3,576,700 | 67,098,892 |
| Toys ‘R' Us, Inc. (a) | 3,125,000 | 37,875,000 |
| 449,123,657 | ||
| Bank & Thrifts—6.9% | ||
| Washington Mutual, Inc. | 3,937,300 | $162,610,490 |
| U.S. Bancorp | 3,700,000 | 90,650,000 |
| The Bank of New York Company, Inc. | 2,100,000 | 60,375,000 |
| 313,635,490 | ||
| Insurance—1.8% | ||
| MGIC Investment Corporation | 1,740,600 | $81,181,584 |
| Other Financial—2.5% | ||
| Fannie Mae | 1,670,000 | $112,624,800 |
| Health Care Services—1.4% | ||
| AmerisourceBergen Corp | 950,000 | $65,882,500 |
| Medical Products—2.9% | ||
| Baxter International Inc. | 3,000,000 | $78,000,000 |
| Guidant Corporation | 1,231,700 | 54,675,163 |
| 132,675,163 | ||
| Pharmaceuticals—8.9% | ||
| Bristol-Myers Squibb Company | 3,750,000 | $101,812,500 |
| Abbott Laboratories | 2,050,000 | 89,708,000 |
| Merck & Co., Inc. | 1,350,000 | 81,742,500 |
| Schering-Plough Corporation | 4,125,000 | 76,725,000 |
| Chiron Corporation (a) | 1,299,000 | 56,792,280 |
| 406,780,280 | ||
| Telecommunications—1.8% | ||
| Sprint Corporation | 5,785,800 | $83,315,520 |
| Computer Services—4.7% | ||
| First Data Corporation | 2,165,000 | $89,717,600 |
| SunGard Data Systems, Inc. (a) | 3,203,700 | 83,007,867 |
| Automatic Data Processing, Inc. | 1,200,000 | 40,632,000 |
| 213,357,467 | ||
| Computer Systems—1.4% | ||
| Sun Microsystems, Inc. (a) | 13,450,000 | $61,870,000 |
| Office Equipment—1.2% | ||
| Xerox Corporation (a) | 5,047,400 | $53,451,966 |
| Aerospace & Defense—2.8% | ||
| Honeywell International, Inc. | 3,250,000 | $87,262,500 |
| The Boeing Company | 1,152,800 | 39,564,096 |
| 126,826,596 | ||
| Other Industrial Goods & Services—0.9% | ||
| Illinois Tool Works Inc. | 604,200 | $39,786,570 |
| Waste Disposal—1.8% | ||
| Waste Management, Inc. | 3,474,300 | $83,695,887 |
| Oil & Natural Gas—3.6% | ||
| Burlington Resources, Inc. | 1,571,100 | $84,949,377 |
| ConocoPhillips | 1,435,335 | 78,656,358 |
| 163,605,735 | ||
| Electric Utilities—1.7% | ||
| Duke Energy Corporation | 3,997,700 | $79,754,115 |
| Total Common Stocks (Cost: $3,664,053,149) | 4,193,013,256 | |
| Par Value | ||
| Short Term Investments—7.8% | ||
| U.S. Government Bills—4.6% | ||
| United States Treasury Bills, 1.01% - 1.155% due 7/3/2003 - 9/25/2003 | $210,000,000 | $209,785,050 |
| Total U.S. Government Bills (Cost: $209,728,334) | 209,785,050 | |
| Repurchase Agreements—3.2% | ||
| IBT Repurchase Agreement, 1.00% due 7/1/2003, repurchase price $142,003,944 collateralized by U.S. Government Agency Securities | $142,000,000 | $142,000,000 |
| IBT Repurchase Agreement, 0.75% due 7/1/2003, repurchase price $2,787,809 collateralized by a U.S. Government Agency Security | 2,787,751 | 2,787,751 |
| Total Repurchase Agreement (Cost: $144,787,751) | 144,787,751 | |
| Total Short Term Investments (Cost: $354,516,085) | 354,572,801 | |
| Total Investments (Cost $4,018,569,234)—99.8% | $4,547,586,057 | |
| Other Assets In Excess Of Other Liabilities—0.2% | 7,149,649 | |
| Total Net Assets—100% | $4,554,735,706 | |
| (a) | Non-income producing security. |
| (b) | Represents an American Depository Receipt. |
| (c) | Represents a foreign domiciled corporation. |