THE OAKMARK FUND
Report from Bill Nygren and
Kevin Grant,
Portfolio Managers
THE OAKMARK FUNDReport from Bill Nygren and
Kevin Grant, |
|
| THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (12/31/03) AS COMPARED TO THE STANDARD& POOR'S 500 INDEX5 | |||||
 |
|||||
| Annual Average Total Returns1 | |||||
| (as of 12/31/03) | |||||
| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
|
| Oakmark Fund | 11.35% | 25.30% | 4.89% | 10.91% | 17.14% |
| S&P 500 | 12.18% | 28.68% | -0.57% | 11.06% | 11.09% |
| Dow Jones Average6 | 13.32% | 28.21% | 4.54% | 13.06% | 12.99% |
| Lipper Large Cap Value Index7 | 13.37% | 28.00% | 1.20% | 10.05% | 10.69% |
| 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 11% last quarter, bringing the calendar year increase to 25%. The fund also ended 2003 at a new all-time high NAV8 (adjusted for dividends.) This accomplishment is especially significant when compared to the S&P 500, which remains 23% below its March 2000 peak. Our job satisfaction comes from making money for shareholders, which as our President's letter states, includes not only the two of us, but most of the employees of our company. It feels great to be able to say that each and every investor who has entrusted us with their capital now has a profit!
The magnitude of the fund's price increase in both the quarter and the year was due more to the strong market than to our stock selection. The S&P 500 increased by 12% in the quarter and 29% for the year. Returns of that magnitude are historically unusual, and we caution investors that long-term returns are likely to fall far short of that level. Although we continue to believe equities are likely to provide long-term returns that exceed bond returns, we expect mid-to-high single-digit annual returns rather than a continuation of the unusually strong 2003. As expected in such a broad, strong market, value investors like us found few new opportunities—our only portfolio addition last quarter was Kohl's Corporation.
Kohl's Corp. (KSS—$45)
Kohl's is a chain of specialty department stores that emphasizes value pricing, selling primarily apparel and housewares. Kohl's became a public company in 1992, and over the next ten years its EPS9 grew twelve-fold—a compound annual growth rate of 29%. Kohl's was a natural holding for growth stock portfolios, but the stock always sold at prices we felt fully recognized its great fundamental performance. The stock peaked at $79 in 2002, a price that equated to over 40 times earnings. Kohl's stumbled somewhat in 2003 and is expected to show little change from prior year earnings. Reasons include industry-wide weakness in women's sportswear and sharper competition from competitors, like Gap and JC Penney (both are also held in The Oakmark Fund). Kohl's stock fell nearly in half, hitting a low during the quarter of $42. Kohl's is now priced like an average company—about 18 times expected 2004 earnings. We are pleased to add this great company to our portfolio.
Best wishes,
 |
 |
| William C. Nygren,
CFA Portfolio Manager bnygren@oakmark.com |
Kevin G. Grant, CFA Portfolio Manager kgrant@oakmark.com |
| THE OAKMARK FUND |
Schedule of Investments—December 31, 2003 (Unaudited)
| Name | Shares Held | Market Value |
| Common Stocks—90.3% | ||
| Food & Beverage—7.9% | ||
| Diageo plc (b) | 1,821,000 | $96,258,060 |
| Kraft Foods Inc. | 2,845,000 | 91,665,900 |
| Anheuser-Busch Companies, Inc. | 1,600,000 | 84,288,000 |
| H.J. Heinz Company | 2,310,000 | 84,153,300 |
| General Mills, Inc. | 1,805,000 | 81,766,500 |
| 438,131,760 | ||
| Household Products—1.2% | ||
| The Clorox Company | 1,390,200 | $67,508,112 |
| Other Consumer Goods & Services—6.4% | ||
| H&R Block, Inc. | 2,829,300 | $156,658,341 |
| Fortune Brands, Inc. | 1,745,600 | 124,792,944 |
| Mattel, Inc. | 3,874,300 | 74,657,761 |
| 356,109,046 | ||
| Broadcasting & Programming—2.4% | ||
| Liberty Media Corporation, Class A (a) | 8,399,400 | $99,868,866 |
| The Walt Disney Company | 1,500,000 | 34,995,000 |
| 134,863,866 | ||
| Building Materials & Construction—1.7% | ||
| Masco Corporation | 3,533,000 | $96,839,530 |
| Cable Systems & Satellite TV—5.4% | ||
| Time Warner Inc. (a) | 5,727,700 | $103,041,323 |
| Hughes Electronics Corporation (a) | 5,021,618 | 83,107,778 |
| EchoStar Communications Corporation (a) | 2,075,000 | 70,550,000 |
| Comcast Corporation, Special Class A (a) | 1,300,000 | 40,664,000 |
| 297,363,101 | ||
| Hardware—1.7% | ||
| The Black & Decker Corporation | 1,922,200 | $94,802,904 |
| Motorcycles—1.3% | ||
| Harley-Davidson, Inc. | 1,577,500 | $74,978,575 |
| Publishing—2.7% | ||
| Gannett Co., Inc. | 884,500 | $78,862,020 |
| Knight-Ridder, Inc. | 916,000 | 70,870,920 |
| 149,732,940 | ||
| Recreation & Entertainment—1.2% | ||
| Carnival Corporation (c) | 1,678,300 | $66,678,859 |
| Restaurants—4.5% | ||
| Yum! Brands, Inc (a) | 3,674,000 | $126,385,600 |
| McDonald's Corporation | 4,900,000 | 121,667,000 |
| 248,052,600 | ||
| Retail—10.6% | ||
| The Home Depot, Inc. | 3,281,500 | $116,460,435 |
| The Kroger Co. (a) | 5,790,000 | 107,172,900 |
| The Gap, Inc. | 4,576,700 | 106,225,207 |
| J.C. Penney Company, Inc. | 3,377,900 | 88,771,212 |
| Safeway Inc. (a) | 3,327,000 | 72,894,570 |
| Kohl's Corporation (a) | 1,250,000 | 56,175,000 |
| Toys ‘R' Us, Inc. (a) | 3,125,000 | 39,500,000 |
| 587,199,324 | ||
| Bank & Thrifts—6.8% | ||
| Washington Mutual, Inc. | 4,687,300 | $188,054,476 |
| U.S. Bancorp | 3,700,000 | 110,186,000 |
| The Bank of New York Company, Inc. | 2,300,000 | 76,176,000 |
| 374,416,476 | ||
| Insurance—3.2% | ||
| MGIC Investment Corporation | 1,840,600 | $104,803,764 |
| AFLAC Incorporated | 2,067,000 | 74,784,060 |
| 179,587,824 | ||
| Other Financial—2.3% | ||
| Fannie Mae | 1,670,000 | $125,350,200 |
| Health Care Services—1.0% | ||
| AmerisourceBergen Corp | 1,000,000 | $56,150,000 |
| Medical Products—2.2% | ||
| Baxter International Inc. | 2,500,000 | $76,300,000 |
| Guidant Corporation | 756,700 | 45,553,340 |
| 121,853,340 | ||
| Pharmaceuticals—8.7% | ||
| Bristol-Myers Squibb Company | 3,950,000 | $112,970,000 |
| Merck & Co., Inc. | 2,350,000 | 108,570,000 |
| Abbott Laboratories | 2,300,000 | 107,180,000 |
| Schering-Plough Corporation | 5,625,000 | 97,818,750 |
| Chiron Corporation (a) | 929,900 | 52,995,001 |
| 479,533,751 | ||
| Telecommunications—1.7% | ||
| Sprint Corporation | 5,741,800 | $94,280,356 |
| Computer Services—5.6% | ||
| First Data Corporation | 3,615,000 | $148,540,350 |
| SunGard Data Systems, Inc. (a) | 3,203,700 | 88,774,527 |
| Automatic Data Processing, Inc. | 1,800,000 | 71,298,000 |
| 308,612,877 | ||
| Computer Systems—1.4% | ||
| Sun Microsystems, Inc. (a) | 17,450,000 | $78,350,500 |
| Office Equipment—1.5% | ||
| Xerox Corporation (a) | 5,887,400 | $81,246,120 |
| Aerospace & Defense—2.8% | ||
| Honeywell International, Inc. | 3,250,000 | $108,647,500 |
| The Boeing Company | 1,152,800 | 48,578,992 |
| 157,226,492 | ||
| Other Industrial Goods & Services—0.9% | ||
| Illinois Tool Works Inc. | 604,200 | $50,698,422 |
| Waste Disposal—1.9% | ||
| Waste Management, Inc. | 3,474,300 | $102,839,280 |
| Oil & Natural Gas—3.3% | ||
| ConocoPhillips | 1,435,335 | $94,114,916 |
| Burlington Resources, Inc. | 1,571,100 | 87,007,518 |
| 181,122,434 | ||
| Total Common Stocks (Cost: $3,917,874,002) | 5,003,528,689 | |
| Par Value | ||
| Short Term Investments—9.2% | ||
| U.S. Government Bills—6.3% | ||
| United States Treasury Bills, 0.895% - 0.93% | ||
| due 1/8/2004 - 5/6/2004 | $350,000,000 | $349,495,829 |
| Total U.S. Government Bills (Cost: $349,471,414) | 349,495,829 | |
| Repurchase Agreements—2.9% | ||
| IBT Repurchase Agreement, 0.85% due 1/2/2004, | ||
| repurchase price $156,007,367 collateralized by | ||
| U.S. Government Agency Securities | $156,000,000 | $156,000,000 |
| IBT Repurchase Agreement, 0.75% due 1/2/2004, | ||
| repurchase price $2,307,095 collateralized by a | ||
| U.S. Government Agency Security | 2,306,999 | 2,306,999 |
| Total Repurchase Agreements (Cost: $158,306,999) | 158,306,999 | |
| Total Short Term Investments (Cost: $507,778,413) | 507,802,828 | |
| Total Investments (Cost $4,425,652,415)—99.5% | $5,511,331,517 | |
| Other Assets In Excess Of Other Liabilities—0.5% | 26,792,641 | |
| Total Net Assets—100% | $5,538,124,158 | |
| (a) | Non-income producing security. |
| (b) | Represents an American Depository Receipt. |
| (c) | Represents a foreign domiciled corporation. |