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 (3/31/04) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX5 | |||||
 |
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| Average Annual Total Returns | |||||
| (as of 03/31/04) | |||||
| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
|
| Oakmark Fund (Class I) | 1.44% | 32.53% | 5.29% | 11.54% | 16.91% |
| S&P 500 | 1.69% | 35.12% | -1.20% | 11.67% | 11.01% |
| Dow Jones Average6 | -0.31% | 32.66% | 3.07% | 13.31% | 12.69% |
| Lipper Large Cap Value Index7 |
2.42% | 37.82% | 1.21% | 10.69% | 10.68% |
| 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. | |||||
| The performance data quoted represents past performance. Past performance does not guarantee future results. | |||||
| The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Average annual total return measures annualized change, while total return measures aggregate change. To obtain current month end performance data, call 1-800-OAKMARK or visit www.oakmark.com. | |||||
| * Not annualized | |||||
The Oakmark Fund increased in value by 1% in the quarter, slightly trailing the S&P 500. Over the last twelve months, the Fund increased by 33% compared to 35% for the S&P 500. Though we always strive to do better than the market, we rely on an investment approach that focuses on risk. That approach generally keeps us away from the most popular stocks, which means that we tend to add more value when markets are not unusually strong. We sold three positions this past quarter. We decided our outlook on Safeway had been too optimistic given the high percentage of their sales that come from markets that don't yet have Wal-Mart or other superstore competitors. Though Safeway still looks undervalued, we believe other companies have less uncertainty and are equally undervalued. Further, sale of Safeway allowed us to increase our capital loss carryforward. On the positive side, shares of JC Penney and Guidant achieved our price targets and were sold. Two new positions were added: Limited Brands, described below, and Raytheon, which is described on our website.
Limited Brands (LTD—$20)
LTD is a specialty retailer with well-known brands including Victoria's Secret, Bath & Body Works, Express, and its namesake, Limited. LTD stock is down from a high of $28 which was reached four years ago. While Victoria's Secret and Bath & Body Works have become highly profitable category dominant chains, the other brands have struggled. Victoria's Secret and Bath & Body Works now account for two-thirds of LTD's sales and 90% of operating income. Despite this, investors seem focused on the struggling turnaround efforts in the lesser chains. Management has intelligently used the cash generated by these businesses, including a recently completed $1 billion share repurchase (10% of the outstanding shares). We believe Victoria's Secret and Bath & Body Works are above-average franchises, are well insulated from Wal-Mart competition, and should continue growing at above-average rates. Success in the turnarounds of Limited and Express is possible and would be nice, but isn't assumed in our outlook. Selling at fifteen times estimated earnings, LTD is being priced as a below-average business.
Best wishes,
 |
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| William C. Nygren, CFA Portfolio Manager bnygren@oakmark.com |
Kevin G. Grant, CFA Portfolio Manager kgrant@oakmark.com |
| THE OAKMARK FUND |
Schedule of Investments—March 31, 2004 (Unaudited)
| Name | Shares Held | Market Value |
| Common Stocks—90.4% | ||
| Food & Beverage—8.3% | ||
| Anheuser-Busch Companies, Inc. | 2,450,000 | $124,950,000 |
| Diageo plc (b) | 1,821,000 | 96,294,480 |
| Kraft Foods Inc. | 2,845,000 | 91,068,450 |
| H.J. Heinz Company | 2,310,000 | 86,139,900 |
| General Mills, Inc. | 1,805,000 | 84,257,400 |
| 482,710,230 | ||
| Household Products—1.2% | ||
| The Clorox Company | 1,390,200 | $67,994,682 |
| Other Consumer Goods & Services—6.0% | ||
| H&R Block, Inc. (c) | 2,829,300 | $144,379,179 |
| Fortune Brands, Inc. | 1,745,600 | 133,765,328 |
| Mattel, Inc. | 3,874,300 | 71,442,092 |
| 349,586,599 | ||
| Broadcasting & Programming—2.4% | ||
| Liberty Media Corporation, Class A (a) | 9,199,400 | $100,733,430 |
| The Walt Disney Company | 1,500,000 | 37,485,000 |
| 138,218,430 | ||
| Building Materials & Construction—2.2% | ||
| Masco Corporation | 4,133,600 | $125,826,784 |
| Cable Systems & Satellite TV—6.2% | ||
| Time Warner Inc. (a) | 7,297,700 | $123,039,222 |
| Comcast Corporation, Special Class A (a) | 3,300,000 | 92,004,000 |
| The DIRECTV Group, Inc. (a) | 5,021,618 | 77,232,485 |
| EchoStar Communications Corporation (a) | 2,075,000 | 67,956,250 |
| 360,231,957 | ||
| Hardware—1.9% | ||
| The Black & Decker Corporation | 1,922,200 | $109,450,068 |
| Motorcycles—1.8% | ||
| Harley-Davidson, Inc. | 1,962,500 | $104,679,750 |
| Publishing—2.5% | ||
| Gannett Co., Inc. | 884,500 | $77,959,830 |
| Knight-Ridder, Inc. | 916,000 | 67,097,000 |
| 145,056,830 | ||
| Recreation & Entertainment—1.3% | ||
| Carnival Corporation (d) | 1,678,300 | $75,372,453 |
| Restaurants—4.8% | ||
| McDonald's Corporation | 4,900,000 | $139,993,000 |
| Yum! Brands, Inc (a) | 3,674,000 | 139,575,260 |
| 279,568,260 | ||
| Retail—9.6% | ||
| The Gap, Inc. | 6,326,700 | $138,681,264 |
| The Home Depot, Inc. | 3,281,500 | 122,596,840 |
| The Kroger Co. (a) | 5,150,000 | 85,696,000 |
| Kohl's Corporation (a) | 1,700,500 | 82,185,165 |
| Limited Brands | 4,090,000 | 81,800,000 |
| Toys ‘R' Us, Inc. (a)(c) | 3,125,000 | 52,500,000 |
| 563,459,269 | ||
| Bank & Thrifts—6.4% | ||
| Washington Mutual, Inc. | 4,687,300 | $200,194,583 |
| U.S. Bancorp | 3,700,000 | 102,305,000 |
| The Bank of New York Company, Inc. | 2,300,000 | 72,450,000 |
| 374,949,583 | ||
| Insurance—3.5% | ||
| MGIC Investment Corporation | 1,740,600 | $111,798,738 |
| AFLAC Incorporated | 2,367,000 | 95,011,380 |
| 206,810,118 | ||
| Other Financial—2.1% | ||
| Fannie Mae | 1,670,000 | $124,164,500 |
| Health Care Services—1.1% | ||
| AmerisourceBergen Corp | 1,200,000 | $65,616,000 |
| Medical Products—1.5% | ||
| Baxter International Inc. | 2,800,000 | $86,492,000 |
| Pharmaceuticals—7.8% | ||
| Merck & Co., Inc. | 2,350,000 | $103,846,500 |
| Bristol-Myers Squibb Company | 3,950,000 | 95,708,500 |
| Abbott Laboratories | 2,300,000 | 94,530,000 |
| Schering-Plough Corporation | 5,625,000 | 91,237,500 |
| Chiron Corporation (a) | 1,659,900 | 73,052,199 |
| 458,374,699 | ||
| Telecommunications—1.7% | ||
| Sprint Corporation | 5,426,800 | $100,015,924 |
| Computer Services—5.4% | ||
| First Data Corporation | 3,615,000 | $152,408,400 |
| SunGard Data Systems, Inc. (a) | 3,203,700 | 87,781,380 |
| Automatic Data Processing, Inc. | 1,800,000 | 75,600,000 |
| 315,789,780 | ||
| Computer Systems—1.4% | ||
| Sun Microsystems, Inc. (a) | 19,870,000 | $82,659,200 |
| Office Equipment—1.4% | ||
| Xerox Corporation (a) | 5,472,400 | $79,732,868 |
| Aerospace & Defense—3.9% | ||
| Honeywell International, Inc. | 3,050,000 | $103,242,500 |
| Raytheon Company | 2,500,000 | 78,350,000 |
| The Boeing Company | 1,152,800 | 47,345,496 |
| 228,937,996 | ||
| Other Industrial Goods & Services—0.8% | ||
| Illinois Tool Works Inc. | 604,200 | $47,870,766 |
| Waste Disposal—1.8% | ||
| Waste Management, Inc. | 3,474,300 | $104,854,374 |
| Oil & Natural Gas—3.4% | ||
| ConocoPhillips | 1,435,335 | $100,200,736 |
| Burlington Resources, Inc. (c) | 1,571,100 | 99,969,093 |
| 200,169,829 | ||
| Total Common Stocks (Cost: $4,161,379,404) | 5,278,592,949 | |
| Par Value | ||
| Short Term Investments—10.4% | ||
| U.S. Government Bills—7.0% | ||
| United States Treasury Bills, 0.88% - 0.94% due 4/1/2004 - 7/1/2004 | $410,000,000 | $409,525,587 |
| Total U.S. Government Bills (Cost: $409,534,826) | 409,525,587 | |
| Repurchase Agreements—3.4% | ||
| IBT Repurchase Agreement,
0.91% dated 3/31/2004 due 4/1/2004, repurchase price $195,504,942 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $205,275,000 |
$195,500,000 | $195,500,000 |
| IBT Repurchase Agreement,
0.76% dated 3/31/2004 due 4/1/2004, repurchase price $4,051,277 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $4,253,750 |
$4,051,191 | $4,051,191 |
| Total Repurchase Agreements (Cost: $199,551,191) | 199,551,191 | |
| Total Short Term Investments (Cost: $609,086,017) | 609,076,778 | |
| Total Investments (Cost $4,770,465,421)—100.8% | $5,887,669,727 | |
| Other Liabilities In Excess Of Other Assets—(0.8%) | (46,682,679) | |
| Total Net Assets—100% | $5,840,987,048 | |
| (a) | Non-income producing security. |
| (b) | Represents an American Depository Receipt. |
| (c) | See footnote number five in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. |
| (d) | Represents a foreign domiciled corporation. |
See accompanying notes to financial statements.