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 (9/30/04) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX4 | |||||
 |
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| Annual Average Total Returns | |||||
| (as of 09/30/04) | |||||
| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
|
| Oakmark Fund (Class I) | -0.64% | 14.73% | 6.39% | 10.66% | 16.36% |
| S&P 500 | -1.87% | 13.87% | -1.31% | 11.08% | 10.56% |
| Dow Jones Average6 | -2.90% | 10.99% | 1.43% | 12.33% | 12.03% |
| Lipper Large Cap Value Index7 |
-0.54% | 16.69% | 1.35% | 10.26% | 10.29% |
| 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 declined in value by 1% last quarter, slightly less than the 2% loss for the S&P 500. Strong gains by Black & Decker, Limited Brands, and Kohl's were offset by losses in Gap, Merck, and MGIC. Year-to-date, Oakmark's 3% gain slightly exceeds the 2% gain for the S&P 500. During the quarter, we sold positions in Hospira, Clorox, Boeing, and Schering Plough. Because the reasons for the sales were so different, we'll explain all four. As mentioned last quarter, we received Hospira as a spinoff from our Abbott holding. As a mid-sized business, Hospira was not consistent with The Oakmark Fund's focus on larger companies. We thought this small position was too cheap to sell last quarter, but after the stock price rose, we no longer saw it as more undervalued than the large businesses we own. Clorox and Boeing were sold for our favorite reason—the stock prices increased to our estimates of business value. Unfortunately, we can't say the same for Schering Plough. When we purchased Schering, we underestimated how rapidly their Claritin franchise would deteriorate and how severely earnings would be hit. Recently, we have enjoyed a good recovery in Schering's stock price (though not enough to eliminate our loss) and felt that management's decision to issue more stock suggested they felt their stock was now appropriately valued. We have also added three new positions: JP Morgan Chase is described below; Viacom and Coca-Cola Enterprises are described on our website.
JP Morgan Chase (JPM—$40)
JP Morgan Chase stock peaked in 2000 at $67 per share. Two years later when the stock had fallen to $15, we were not confident that management could turn things around. In July, the company completed the acquisition of Bank One, which brought not only a strong retail bank but also a great manager. Living in Chicago, we saw firsthand Jamie Dimon's success in changing the culture and lowering expenses at Bank One. Now as President and heir apparent of the combined company—JP Morgan, Chase Manhattan, Chemical, Manufacturers Hanover, Bank One, First Chicago, NBD†—we believe Mr. Dimon can achieve aggressive cost cutting goals. At twelve times trailing earnings, JPM might appear appropriately priced relative to other financial services companies; however, we believe cost reductions will produce superior earnings growth.
Best wishes,
 |
 |
| William C. Nygren,
CFA Portfolio Manager bnygren@oakmark.com |
Kevin G. Grant, CFA Portfolio Manager kgrant@oakmark.com |
† These are the seven major banks that now operate as JP Morgan Chase. |
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| THE OAKMARK FUND |
Schedule of Investments—September 30, 2004
| Name | Shares Held | Market Value |
| Common Stocks—92.5% | ||
| Apparel Retail—4.1% | ||
| Limited Brands | 6,000,000 | $133,740,000 |
| The Gap, Inc. | 7,066,700 | 132,147,290 |
| 265,887,290 | ||
| Broadcasting & Cable TV—7.3% | ||
| Liberty Media Corporation, Class A (a) | 16,199,400 | $141,258,768 |
| Comcast Corporation, Special Class A (a) | 4,725,000 | 131,922,000 |
| EchoStar Communications Corporation, Class A (a) | 2,975,000 | 92,582,000 |
| The DIRECTV Group, Inc. (a) | 5,012,600 | 88,171,634 |
| Liberty Media International, Inc., Class A (a) | 579,970 | 19,348,959 |
| 473,283,361 | ||
| Department Stores—1.9% | ||
| Kohl's Corporation (a) | 2,550,500 | $122,908,595 |
| Home Improvement Retail—2.1% | ||
| The Home Depot, Inc. | 3,581,500 | $140,394,800 |
| Hotels, Resorts & Cruise Lines—1.2% | ||
| Carnival Corporation (b) | 1,678,300 | $79,366,807 |
| Household Appliances—2.3% | ||
| The Black & Decker Corporation | 1,922,200 | $148,855,168 |
| Housewares & Specialties—2.0% | ||
| Fortune Brands, Inc. | 1,745,600 | $129,331,504 |
| Leisure Products—1.1% | ||
| Mattel, Inc. | 3,874,300 | $70,241,059 |
| Motorcycle Manufacturers—1.8% | ||
| Harley-Davidson, Inc. | 1,962,500 | $116,651,000 |
| Movies & Entertainment—6.0% | ||
| Time Warner Inc. (a) | 8,997,700 | $145,222,878 |
| The Walt Disney Company | 5,950,000 | 134,172,500 |
| Viacom Inc., Class B | 3,400,000 | 114,104,000 |
| 393,499,378 | ||
| Publishing—2.1% | ||
| Gannett Co., Inc. | 884,500 | $74,085,720 |
| Knight-Ridder, Inc. | 916,000 | 59,952,200 |
| 134,037,920 | ||
| Restaurants—4.7% | ||
| McDonald's Corporation | 5,700,000 | $159,771,000 |
| Yum! Brands, Inc. | 3,674,000 | 149,384,840 |
| 309,155,840 | ||
| Specialty Stores—0.8% | ||
| Toys 'R' Us, Inc. (a)(d) | 3,125,000 | $55,437,500 |
| Brewers—2.1% | ||
| Anheuser-Busch Companies, Inc. | 2,700,000 | $134,865,000 |
| Distillers & Vintners—1.7% | ||
| Diageo plc (c) | 2,221,000 | $112,005,030 |
| Hypermarkets & Super Centers—2.0% | ||
| Wal-Mart Stores, Inc. | 2,500,000 | $133,000,000 |
| Packaged Foods & Meats—4.3% | ||
| General Mills, Inc. | 2,506,000 | $112,519,400 |
| Kraft Foods Inc., Class A | 2,645,000 | 83,899,400 |
| H.J. Heinz Company | 2,310,000 | 83,206,200 |
| 279,625,000 | ||
| Soft Drinks—1.0% | ||
| Coca-Cola Enterprises, Inc. | 3,500,000 | $66,150,000 |
| Integrated Oil & Gas—1.8% | ||
| ConocoPhillips | 1,435,335 | $118,917,505 |
| Oil & Gas Exploration & Production—1.6% | ||
| Burlington Resources Inc. | 2,506,800 | $102,277,440 |
| Asset Management & Custody Banks—1.1% | ||
| The Bank of New York Company, Inc. | 2,500,000 | $72,925,000 |
| Diversified Banks—1.8% | ||
| U.S. Bancorp | 4,100,000 | $118,490,000 |
| Life & Health Insurance—1.7% | ||
| AFLAC Incorporated | 2,767,000 | $108,494,070 |
| Other Diversified Financial Services—3.2% | ||
| Citigroup Inc. | 2,900,000 | $127,948,000 |
| JP Morgan Chase & Co. | 2,000,000 | 79,460,000 |
| 207,408,000 | ||
| Thrifts & Mortgage Finance—6.4% | ||
| Washington Mutual, Inc. | 4,687,300 | $183,179,684 |
| Fannie Mae | 1,995,000 | 126,483,000 |
| MGIC Investment Corporation | 1,640,600 | 109,181,930 |
| 418,844,614 | ||
| Biotechnology—1.1% | ||
| Chiron Corporation (a) | 1,659,900 | $73,367,580 |
| Health Care Distributors—1.0% | ||
| AmerisourceBergen Corp | 1,200,000 | $64,452,000 |
| Health Care Equipment—2.0% | ||
| Baxter International Inc. | 4,000,000 | $128,640,000 |
| Pharmaceuticals—4.8% | ||
| Abbott Laboratories | 2,837,300 | $120,188,028 |
| Bristol-Myers Squibb Company | 4,650,000 | 110,065,500 |
| Merck & Co., Inc. | 2,600,000 | 85,800,000 |
| 316,053,528 | ||
| Aerospace & Defense—3.4% | ||
| Raytheon Company | 3,000,000 | $113,940,000 |
| Honeywell International, Inc. | 3,050,000 | 109,373,000 |
| 223,313,000 | ||
| Building Products—2.2% | ||
| Masco Corporation | 4,233,600 | $146,186,208 |
| Diversified Commercial Services—2.3% | ||
| H&R Block, Inc. (d) | 3,029,300 | $149,708,006 |
| Environmental Services—1.5% | ||
| Waste Management, Inc. | 3,474,300 | $94,987,362 |
| Computer Hardware—1.5% | ||
| Sun Microsystems, Inc. (a) | 24,370,000 | $98,454,800 |
| Data Processing & Outsourced Services—4.7% | ||
| First Data Corporation | 3,615,000 | $157,252,500 |
| SunGard Data Systems, Inc. (a) | 3,203,700 | 76,151,949 |
| Automatic Data Processing, Inc. | 1,800,000 | 74,376,000 |
| 307,780,449 | ||
| Office Electronics—1.3% | ||
| Xerox Corporation (a) | 5,972,400 | $84,091,392 |
| Integrated Telecommunication Services—0.6% | ||
| Sprint Corporation | 1,961,800 | $39,491,034 |
| Total Common Stocks (Cost: $4,874,825,235) | 6,038,577,240 | |
| Par Value | ||
| Short Term Investments—8.3% | ||
| U.S. Government Bills—6.0% | ||
| United States Treasury Bills, 1.28% - 1.72% due 10/7/2004 - 1/6/2005 | $390,000,000 | $389,158,935 |
| Total U.S. Government Bills (Cost: $389,182,987) | 389,158,935 | |
| Repurchase Agreements—2.3% | ||
| IBT Repurchase Agreement, 1.62% dated 9/30/2004 due 10/1/2004, repurchase price $147,506,638 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $154,875,000 | $147,500,000 | $147,500,000 |
| IBT Repurchase Agreement, 1.27% dated 9/30/2004 due 10/1/2004, repurchase price $2,212,884 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $2,323,446 | 2,212,806 | 2,212,806 |
| Total Repurchase Agreements (Cost: $149,712,806) | 149,712,806 | |
| Total Short Term Investments (Cost: $538,895,793) | 538,871,741 | |
| Total Investments (Cost $5,413,721,028)—100.8% | $6,577,448,981 | |
| Other Liabilities In Excess Of Other Assets—(0.8)% | (51,554,257) | |
| Total Net Assets—100% | $6,525,894,724 | |
| (a) | Non-income producing security. |
| (b) | Represents a foreign domiciled corporation. |
| (c) | Represents an American Depository Receipt. |
| (d) | See footnote number six in the Notes to Financial Statements regarding transactions in securities of affiliated issuers. |
See accompanying notes to financial statements.