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 (9/30/03) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX6 | ||||
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| Annual Average Total Returns1 | ||||
| (as of 9/30/03) | ||||
| Total Return Last 3 Months* |
1-year | 5-year | Since Inception (11/1/96) |
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| Oakmark Select Fund | 0.04% | 27.25% | 17.42% | 21.20% |
| S&P 500 | 2.65% | 24.40% | 1.00% | 6.70% |
| S&P MidCap 40011 | 6.59% | 26.81% | 11.96% | 12.70% |
| Lipper Mid Cap Value Index12 | 6.17% | 29.17% | 9.30% | 8.39% |
| 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 increased last quarter by 1¢, so let's just call it a flat quarter. For the fiscal year so far, the increase has been 27%. Although the quarter was disappointing relative to a 3% gain in the S&P 500, the nine-month increase is still a bit more than the S&P 500. The stock market has been strong this year, far outpacing returns from other asset classes. The strongest part of the market has been tech stocks. We don't own any because we only buy stocks that we believe are selling at less than 60% of business value, and most technology names fail that test miserably. We are very pleased that gains in stocks such as Washington Mutual, IMS Health, and Xerox have allowed us to keep pace with the market despite having zero exposure to its hottest sector.
In the quarter just ended, our two worst performers were Washington Mutual and Janus. Washington Mutual gave back some of its first half increase as the mortgage refinancing boom was halted by higher interest rates. We believe that Washington Mutual's earnings will continue to grow despite declining refinancings and that its biggest, though underpublicized, positive is its increasing share of primary checking accounts, which should allow its continued rapid growth in retail banking. Priced at less than half the market P/E8 multiple, with twice the dividend yield, Washington Mutual's future is being seriously underestimated in our opinion. Janus, though still up on the year, lost 15% in the quarter following allegations of allowing rapid traders into their mutual funds. Unfortunately, the strength of Janus' brand has been confirmed by the publicity these matters received. We are continuing to hold our Janus stock because it is priced at a large discount to other money management firms. Unless new information causes us to believe that discount is deserved, we are likely to continue holding this position.
Thank you for your continued support,
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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—September 30, 2003
| Name | Shares Held | Market Value |
| Common Stocks—92.8% | ||
| Other Consumer Goods & Services—11.6% | ||
| H&R Block, Inc.(b) | 8,859,800 | $382,300,370 |
| Mattel, Inc. | 10,955,400 | 207,714,384 |
| 590,014,754 | ||
| Cable Systems & Satellite TV—3.8% | ||
| AOL Time Warner Inc. (a)(c) | 12,710,000 | $192,048,100 |
| Hotels & Motels—2.7% | ||
| Starwood Hotels & Resorts Worldwide, Inc. | 3,880,000 | $135,024,000 |
| Information Services—7.1% | ||
| The Dun & Bradstreet Corporation (a)(b) | 4,534,900 | $188,379,746 |
| Moody's Corporation | 3,123,600 | 171,704,292 |
| 360,084,038 | ||
| Publishing—3.4% | ||
| Knight-Ridder, Inc. | 2,606,500 | $173,853,550 |
| Restaurants—5.4% | ||
| Yum! Brands, Inc (a) | 9,307,000 | $275,673,340 |
| Retail—10.8% | ||
| The Kroger Co. (a) | 12,675,700 | $226,514,759 |
| Toys 'R' Us, Inc. (a)(b) | 13,698,500 | 164,792,955 |
| Office Depot, Inc. (a) | 11,384,900 | 159,957,845 |
| 551,265,559 | ||
| Bank & Thrifts—18.1% | ||
| Washington Mutual, Inc. | 23,351,400 | $919,344,618 |
| Investment Management—2.5% | ||
| Janus Capital Group, Inc. | 9,169,600 | $128,099,312 |
| Health Care Services—4.1% | ||
| IMS Health Incorporated | 9,903,441 | $208,962,605 |
| Pharmaceuticals—6.8% | ||
| Bristol-Myers Squibb Company | 6,840,200 | $175,519,532 |
| Chiron Corporation (a) | 3,292,000 | 170,163,480 |
| 345,683,012 | ||
| Telecommunications—4.1% | ||
| Sprint Corporation | 13,834,600 | $208,902,460 |
| Computer Services—4.4% | ||
| First Data Corporation | 5,630,400 | $224,990,784 |
| Office Equipment—3.9% | ||
| Xerox Corporation (a) | 19,354,700 | $198,579,222 |
| Oil & Natural Gas—4.1% | ||
| Burlington Resources, Inc. | 4,326,800 | $208,551,760 |
| Total Common Stocks (Cost: $3,484,167,653) | 4,721,077,114 | |
| Par Value | ||
| Short Term Investments—7.4% | ||
| U.S. Government Bills—4.7% | ||
| United States Treasury Bills, 0.77% - 1.015% | ||
| due 10/9/2003 - 12/18/2003 | $240,000,000 | $239,731,710 |
| Total U.S. Government Bills (Cost: $239,719,675) | 239,731,710 | |
| Repurchase Agreements—2.7% | ||
| IBT Repurchase Agreement, 0.95% | ||
| due 10/1/2003, repurchase price $134,503,549 | ||
| collateralized by U.S. Government Agency Securities | $134,500,000 | $134,500,000 |
| IBT Repurchase Agreement, 0.75% | ||
| due 10/1/2003, repurchase price $741,235 | ||
| collateralized by a U.S. Government Agency Security | 741,220 | 741,220 |
| Total Repurchase Agreements (Cost: $135,241,220) | 135,241,220 | |
| Total Short Term Investments (Cost: $374,960,895) | 374,972,930 | |
| Total Investments (Cost $3,859,128,548)—100.2% | $5,096,050,044 | |
| Other Liabilities In Excess Of Other Assets—(0.2%) | (9,962,774) | |
| Total Net Assets—100% | $5,086,087,270 | |
| (a) | Non-income producing security. |
| (b) | See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. |
| (c) | Effective October 16, 2003, AOL Time Warner Inc. changed its name to Time Warner Inc. |
See accompanying notes to financial statements.