Dear
Fellow Shareholders,Dear
Fellow Shareholders,
World stock markets produced mixed results again in the second quarter, with the broad domestic market indices showing small single-digit gains and with international indices declining. Year-to-date, international and domestic indices have declined. Our Funds also produced mixed absolute returns for the quarter and year-to-date; however, most of our Funds have outperformed their benchmarks year-to-date.
Consistent with our bottom-up approach to picking stocks, we view the year-to-date decline in stock prices as an opportunity. Interest rates remain at historically low levels. Corporate profits and cash flow are growing at healthy rates, and corporate balance sheets continue to improve. Business value growth has been strong for most of the companies we follow. Due to lower stock prices and solid value growth, we are able to find a larger number of stocks selling at large discounts to intrinsic value. Consequently, we are more optimistic about our stocks' future returns, particularly relative to bonds.
Importantly, as highlighted in some of this quarter's portfolio manager letters, we have also seen compression in stock valuations that has left many high quality companies priced at the same levels as average companies. As a result, we have been able to upgrade the quality of our holdings at little cost. If we have properly judged the quality of these businesses, we believe their premium valuation should eventually return, and they should outperform market averages.
Quality Shareholder Communications
Frequent, open, and thoughtful communications with shareholders are important to us when we select companies to invest in. Maintaining the same high quality communications with our shareholders has always been one of the cornerstones of our business philosophy at The Oakmark Funds. We believe that an educated investor, who understands and shares our patient, long-term approach to investing, is a better investor. We constantly focus on how to provide useful and informative communications. In particular, our portfolio managers reflect long and hard about how to make their quarterly report letters topical, insightful, and timely.
We also make every effort to deliver our communications as quickly as possible. We pride ourselves on consistently being among the first mutual fund families to release our quarterly commentary and reports. Unfortunately, however, the logistics of even the best printing and mailing schedules mean that most of you are receiving your printed Oakmark quarterly report halfway into the next quarter. So much for "timely" commentary…!
There is a solution, however, for those of you interested in receiving information sooner. Our portfolio manager letters and portfolio holdings are usually posted to the "Commentary" section of our website (www.oakmark.com) by the end of the second week of each quarter, and quarterly reports are typically posted in the "Literature" section by the end of the month. For those of you interested in receiving e-mail notifications of the postings and other Oakmark news, you may use the "Join Our Mailing List" section of our home page. Signing up is easy. Of course, we set high standards for the information that we send, and we do not give anyone else access to your e-mail address.
Thank you for your continued investment and confidence in The Oakmark Funds. We welcome your comments and questions. You can reach us via e-mail at ContactOakmark@oakmark.com.
John R. Raitt
President of The
Oakmark Funds
President and CEO of Harris Associates L.P.
| Performance
for Period Ended June 30, 20051 |
The Oakmark
Fund—Class I (OAKMX) |
The Oakmark
Select Fund—Class I (OAKLX) |
The Oakmark
Equity and Income Fund—Class I (OAKBX) |
|||
| 3
Months* |
0.22% |
-0.27% |
2.83% |
|||
| 1
Year |
5.60% |
8.61% |
6.24% |
|||
| Average Annual Total Return for: | |
|
|
|||
| 3
Year |
7.15% |
9.49% |
10.45% |
|||
| 5
Year |
10.70% |
13.69% |
13.03% |
|||
| 10
Year |
9.92% |
N/A |
N/A |
|||
| Since inception | 15.92% |
19.31% |
13.78% |
|||
(8/5/91) |
(11/1/96) |
(11/1/95) |
||||
| Top Five Equity Holdings as of June 30, 20052 | Washington
Mutual, Inc. |
2.9% | Washington
Mutual, Inc. |
15.2% | Burlington
Resources Inc. |
4.3% |
| H&R
Block, Inc. |
2.6% | H&R
Block, Inc. |
8.1% | XTO
Energy, Inc. |
3.8% | |
| Yum! Brands, Inc. | 2.6% |
Yum! Brands, Inc. | 8.0% |
Nestle SA | 2.7% | |
| Company and % of Total Net Assets | Liberty Media Corporation, Class A | 2.4% |
First Data Corporation | 5.3% |
EchoStar Communications Corporation, Class A | 2.7% |
| McDonald's Corporation | 2.3% | Burlington Resources Inc. | 4.7% | Diageo plc | 2.7% | |
| Sector Allocation as of June 30, 2005 | Consumer Discretionary | 45.4% | Consumer Discretionary | 48.8% | U.S. Government Securities | 32.3% |
| Financials | 15.9% | Financials | 24.5% | Energy | 12.0% | |
| Consumer
Staples |
12.0% |
Information
Technology |
9.9% | Consumer
Discretionary |
11.1% | |
| Sector and % of Market Value | Information Technology | 8.4% |
Health Care | 7.2% | Consumer Staples | 10.2% |
| Industrials | 7.3% | Energy | 5.2% | Industrials | 10.1% | |
| Health Care | 6.6% | Industrials | 4.4% | Financials | 8.8% | |
| Energy | 4.4% | Health Care | 7.7% | |||
| Foreign Government Securities | 4.6% | |||||
| Information Technology | 2.7% | |||||
| Materials | 0.5% | |||||
The performance data quoted represents past performance. The above performance information for the Funds 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
| Performance
for Period Ended June 30, 20051 |
The
Oakmark Global Fund—Class I (OAKGX) |
The
Oakmark International Fund—Class I (OAKIX) |
The
Oakmark International Small Cap Fund—Class I (OAKEX) |
|||
| 3
Months* |
0.64% |
-0.05% |
-2.65% |
|||
| 1
Year |
11.13% |
15.24% |
20.71% |
|||
| Average Annual Total Return for: | |
|
|
|||
| 3
Year |
18.12% |
12.11% |
19.20% |
|||
| 5
Year |
17.94% |
8.93% |
15.48% |
|||
| 10
Year |
N/A |
11.21% |
N/A |
|||
| Since inception | 15.72% |
12.06% |
12.75% |
|||
(8/4/99) |
(9/30/92) |
(11/1/95) |
||||
| Top Five Equity Holdings as of June 30, 20052 | Diageo
plc |
4.8% | GlaxoSmithKline
plc |
3.6% | Carpetright
plc |
4.6% |
Burlington
Resources Inc. |
4.1% | Bayerische
Motoren Werke (BMW) AG |
3.4% | Interpump
Group S.p.A |
3.8% | |
Nestle
SA |
4.0% | Diageo
plc |
3.3% | Saurer
AG |
3.5% | |
| Company and % of Total Net Assets | Bank
of Ireland |
3.8% | SK Telecom
Co., Ltd. |
3.2% | MatalanPLC |
3.0% |
Takeda
Pharmaceutical Company Limited |
3.7% | Bank
of Ireland |
3.2% | Julius
Baer Holding Ltd., Class B |
2.8% | |
Sector
Allocation as of June 30, 2005 |
Consumer
Discretionary |
20.4% | Financials | 25.8% | Industrials | 27.8% |
Health
Care |
15.3% | Consumer Discretionary | 20.3% | Consumer Discretionary | 20.3% | |
Financials |
14.7% | Consumer
Staples |
17.3% | Information
Technology |
19.1% | |
Sector
and % of Market Value |
Consumer
Staples |
14.5% | Health
Care |
10.5% | Financials |
13.7% |
Information
Technology |
10.9% | Materials |
8.0% | Materials |
7.0% | |
| Industrials |
10.0% | Telecommunication
Services |
7.6% | Health
Care |
5.4% | |
Telecommunication
Services |
5.2% | Industrials |
7.1% | Consumer
Staples |
5.0% | |
Materials |
4.7% | Energy |
1.9% | Telecommunication
Services |
1.7% | |
Energy |
4.3% | Information
Technology |
1.5% | |||