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 (6/30/04) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX4 | |||||
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| Annual Average Total Returns | |||||
| (as of 06/30/04) | |||||
| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
|
| Oakmark Fund (Class I) | 2.23% | 15.85% | 3.47% | 11.47% | 16.76% |
| S&P 500 | 1.72% | 19.11% | -2.20% | 11.82% | 10.93% |
| Dow Jones Average5 | 1.25% | 18.67% | 0.91% | 13.40% | 12.54% |
| Lipper Large Cap Value Index6 | 1.05% | 19.61% | -0.25% | 10.78% | 10.55% |
| 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. The above performance information for the Fund does not reflect the imposition of a 2% redemption fee on shares held for 90 days or less to deter market timers. If reflected, the fee would reduce the performance quoted. 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 2% in the quarter, slightly exceeding the S&P 500. The fund's 4% gain for the calendar year to date also slightly exceeds the 3% return for the S&P 500. Outperformance in the quarter was primarily driven by the absence of losers—only one position in the portfolio declined by more than 10%. Eleven of our portfolio holdings, however, did increase by more than 10%. The biggest increase, 25%, came at Boeing where a new management's focus on controlling costs had a quick payoff. Other positive performers included Gap Stores, where turnaround progress continues; MGIC, where declining mortgage refinancings increased the need for private mortgage insurance; and Harley Davidson, where improved motorcycle demand led to increased earnings estimates.
There were a few more changes in the portfolio than in recent quarters. First, we acquired two new securities through spinoffs. As Liberty Media shareholders, we received shares in Liberty Media International, and as Abbott Laboratories shareholders, we received shares in Hospira Inc. Though we believe both are good businesses, we would not have purchased either for The Oakmark Fund because they are smaller than the businesses we prefer. We will sell both if their discounts to our fair value estimates decrease. We sold two positions in the quarter: Illinois Tool Works and Kroger. We sold the former because the stock increased to our business value estimate and sold the latter because our business value estimate fell. We also had two additions to the portfolio—Citigroup (explained on our website) and Wal-Mart.
Wal-Mart (WMT—$53)
Near the market peak, almost five years ago, Wal-Mart reached its all-time-high stock price, just over $70 per share. Though we admired Wal-Mart's business success, the stock price at fifty-five times earnings seemed to give Wal-Mart at least full credit for its fantastic growth outlook. And grow it did. Earnings per share increased from $1.28 in 1999 to a consensus estimate of $2.38 this year. Despite an earnings increase of 86% in five years, the stock has declined 25%. In Oakmark's own portfolio, we have seen what a powerful competitor Wal-Mart is in the grocery and toy categories. Wal-Mart is also proving to be a great competitor outside the US. We believe their cost advantages are structural and therefore believe they are well-positioned to continue growing their worldwide retail market share. Priced at less than nineteen times estimated 2005 earnings, Wal-Mart's P/E7 is closer to average than it has been in many years. We believe this far above-average company deserves to trade at a bigger premium to the market.
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—June 30, 2004 (Unaudited)
| Name | Shares Held | Market Value |
| Common Stocks—90.6% | ||
| Food & Beverage—8.2% | ||
| Anheuser-Busch Companies, Inc. | 2,450,000 | $132,300,000 |
| Diageo plc (b) | 1,921,000 | 105,174,750 |
| General Mills, Inc. | 1,955,000 | 92,921,150 |
| H.J. Heinz Company | 2,310,000 | 90,552,000 |
| Kraft Foods Inc., Class A | 2,845,000 | 90,129,600 |
| 511,077,500 | ||
| Household Products—0.6% | ||
| The Clorox Company | 690,200 | $37,118,956 |
| Other Consumer Goods & Services—5.5% | ||
| H&R Block, Inc. | 3,029,300 | $144,437,024 |
| Fortune Brands, Inc. | 1,745,600 | 131,670,608 |
| Mattel, Inc. | 3,874,300 | 70,705,975 |
| 346,813,607 | ||
| Broadcasting & Programming—2.8% | ||
| Liberty Media Corporation, Class A (a) | 12,399,400 | $111,470,606 |
| The Walt Disney Company | 2,500,000 | 63,725,000 |
| 175,195,606 | ||
| Building Materials & Construction—2.1% | ||
| Masco Corporation | 4,133,600 | $128,885,648 |
| Cable Systems & Satellite TV—6.7% | ||
| Time Warner Inc. (a) | 7,697,700 | $135,325,566 |
| Comcast Corporation, Special Class A (a) | 3,797,500 | 104,848,975 |
| The DIRECTV Group, Inc. (a) | 4,900,000 | 83,790,000 |
| EchoStar Communications Corporation, Class A (a) | 2,375,000 | 73,031,250 |
| Liberty Media International, Inc., Class A (a) | 579,970 | 21,516,887 |
| 418,512,678 | ||
| Hardware—1.9% | ||
| The Black & Decker Corporation | 1,922,200 | $119,426,286 |
| Motorcycles—1.9% | ||
| Harley-Davidson, Inc. | 1,962,500 | $121,557,250 |
| Publishing—2.3% | ||
| Gannett Co., Inc. | 884,500 | $75,049,825 |
| Knight-Ridder, Inc. | 916,000 | 65,952,000 |
| 141,001,825 | ||
| Recreation & Entertainment—1.3% | ||
| Carnival Corporation (c) | 1,678,300 | $78,880,100 |
| Restaurants—4.2% | ||
| Yum! Brands, Inc. | 3,674,000 | $136,746,280 |
| McDonald's Corporation | 4,900,000 | 127,400,000 |
| 264,146,280 | ||
| Retail—10.2% | ||
| The Gap, Inc. | 6,326,700 | $153,422,475 |
| The Home Depot, Inc. | 3,481,500 | 122,548,800 |
| Kohl's Corporation (a) | 2,650,500 | 112,063,140 |
| Limited Brands | 5,800,000 | 108,460,000 |
| Wal-Mart Stores, Inc. | 1,750,000 | 92,330,000 |
| Toys ‘R' Us, Inc. (a) | 3,125,000 | 49,781,250 |
| 638,605,665 | ||
| Bank & Thrifts—5.6% | ||
| Washington Mutual, Inc. | 4,687,300 | $181,117,272 |
| U.S. Bancorp | 3,700,000 | 101,972,000 |
| The Bank of New York Company, Inc. | 2,300,000 | 67,804,000 |
| 350,893,272 | ||
| Financial Services—1.3% | ||
| Citigroup Inc. | 1,800,000 | $83,700,000 |
| Insurance—3.5% | ||
| MGIC Investment Corporation | 1,640,600 | $124,455,916 |
| AFLAC Incorporated | 2,367,000 | 96,597,270 |
| 221,053,186 | ||
| Other Financial—2.1% | ||
| Fannie Mae | 1,845,000 | $131,659,200 |
| Health Care Services—1.2% | ||
| AmerisourceBergen Corp | 1,200,000 | $71,736,000 |
| Hospira, Inc. (a) | 231,880 | 6,399,888 |
| 78,135,888 | ||
| Medical Products—2.0% | ||
| Baxter International Inc. | 3,600,000 | $124,236,000 |
| Pharmaceuticals—7.9% | ||
| Merck & Co., Inc. | 2,450,000 | $116,375,000 |
| Bristol-Myers Squibb Company | 4,250,000 | 104,125,000 |
| Schering-Plough Corporation | 5,625,000 | 103,950,000 |
| Abbott Laboratories | 2,350,000 | 95,786,000 |
| Chiron Corporation (a) | 1,659,900 | 74,097,936 |
| 494,333,936 | ||
| Telecommunications—1.5% | ||
| Sprint Corporation | 5,211,800 | $91,727,680 |
| Computer Services—5.1% | ||
| First Data Corporation | 3,615,000 | $160,939,800 |
| SunGard Data Systems, Inc. (a) | 3,203,700 | 83,296,200 |
| Automatic Data Processing, Inc. | 1,800,000 | 75,384,000 |
| 319,620,000 | ||
| Computer Systems—1.6% | ||
| Sun Microsystems, Inc. (a) | 23,287,000 | $101,065,580 |
| Office Equipment—1.4% | ||
| Xerox Corporation (a) | 5,972,400 | $86,599,800 |
| Aerospace & Defense—4.4% | ||
| Honeywell International, Inc. | 3,050,000 | $111,721,500 |
| Raytheon Company | 3,000,000 | 107,310,000 |
| The Boeing Company | 1,152,800 | 58,896,552 |
| 277,928,052 | ||
| Waste Disposal—1.7% | ||
| Waste Management, Inc. | 3,474,300 | $106,487,295 |
| Oil & Natural Gas—3.6% | ||
| Burlington Resources, Inc. | 3,142,200 | $113,684,796 |
| ConocoPhillips | 1,435,335 | 109,501,707 |
| 223,186,503 | ||
| Total Common Stocks (Cost: $4,457,269,043) | 5,671,847,793 | |
| Par Value | ||
| Short Term Investments—9.7% | ||
| U.S. Government Bills—6.7% | ||
| United States Treasury Bills, 0.915% - 1.30% due 7/1/2004 - 9/30/2004 | $420,000,000 | $419,305,201 |
| Total U.S. Government Bills (Cost: $419,351,976) | 419,305,201 | |
| Repurchase Agreements—3.0% | ||
| IBT Repurchase Agreement, 1.19% dated 6/30/2004 due 7/1/2004, repurchase price $185,006,115 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $194,250,000 | $185,000,000 | $185,000,000 |
| IBT Repurchase Agreement, 0.70% dated 6/30/2004 due 7/1/2004, repurchase price $4,381,090 collateralized by a U.S. Government Security with a market value plus accrued interest of $4,600,055 | 4,381,005 | 4,381,005 |
| Total Repurchase Agreements (Cost: $189,381,005) | 189,381,005 | |
| Total Short Term Investments (Cost: $608,732,981) | 608,686,206 | |
| Total Investments (Cost $5,066,002,024)—100.3% | $6,280,533,999 | |
| Other Liabilities In Excess Of Other Assets—(0.3%) | (15,826,315) | |
| Total Net Assets—100% | $6,264,707,684 | |
| (a) | Non-income producing security. |
| (b) | Represents an American Depository Receipt. |
| (c) | Represents a foreign domiciled corporation. |