THE OAKMARK FUND
Report from Bill Nygren and Kevin Grant, Portfolio Managers
THE OAKMARK FUNDReport from Bill Nygren and Kevin Grant, Portfolio Managers |
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| THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK FUND FROM ITS INCEPTION (8/5/91) TO PRESENT (6/30/05) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX5 |
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| Average Annual Total Returns | |||||
| (as of 6/30/05) | |||||
| Total Return |
1-year |
5-year |
10-year |
Since |
|
| Oakmark Fund (Class I) | 0.22% |
5.60% |
10.70% |
9.92% |
15.92% |
| S&P 500 | 1.37% |
6.32% |
-2.37% |
9.93% |
10.60% |
| Dow Jones Average6 | -1.63% |
0.86% |
1.76% |
10.63% |
11.65% |
| Lipper Large Cap Value Index7 | 1.33% |
8.75% |
1.93% |
9.52% |
10.42% |
| 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 was flat for the quarter compared to a 1% increase in the S&P 500. Positive performances included H&R Block, Black & Decker, and Aflac, each of which benefited from strong sales and increased earnings. Unfortunately, those positives were offset by declines in Harley Davidson, McDonald's, and Limited Brands, all of which suffered from weaker than expected sales. That's just the kind of market it's been this year – one step forward, one step back.
During the quarter we sold one stock, Amerisource Bergen, and we added two new holdings—both technology stocks. Like many value managers, The Oakmark Fund has had de minimis technology holdings for many years. Unlike many value managers, we don't have a permanent bias against the tech sector. Our concern has simply been valuationlevels. We believe industry leaders serving above-average growth markets are attractive businesses if they are likely to remain leaders many years from now. These businesses become stock purchase candidates, regardless of industry, if we don't have to pay a large P/E4 premium. One such purchase is described below. The other, Texas Instruments, is described on our website (www.oakmark.com).
Hewlett-Packard (HPQ–$24)
Hewlett-Packard is the world's largest manufacturer of computer printers and related supplies as well as the leader in digital printing. Back in 2000, when market leaders commanded extreme multiples, HPQ hit its all-time high price of $78. Like most technology leaders, HPQ subsequently suffered a large decline in its stock price. By the end of August 2001, HPQ had fallen to a price of $23. At that time, Hewlett-Packard was a small factor in PCs and realized it should either exit the business or expand. Unfortunately, management chose the wrong path and merged with Compaq Computer. The stock immediately fell another 19%. Since then, the Imaging and Printing Group at Hewlett-Packard has continued to grow, earning 44% more in 2004 than in 2000, and is still the crown jewel of the company. The PC business is still a mess. At the end of March, HPQ named Mark Hurd as its new CEO. Mark has an enviable track record, having turned around NCR Corp. Currently, HPQ stock sells at about a market multiple, the printing business appears to be worth at least the stock price, and cost cutting opportunities appear to be numerous. We don't pretend to know which path will maximize HPQ's value, but we are confident Mark will put them on it.
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, 2005 (Unaudited)
| Name | Shares Held | Market Value | ||||
| Common Stocks—94.2% | ||||||
| Apparel Retail—3.9% | ||||||
| The Gap, Inc. | 7,066,700 | $139,567,325 | ||||
| Limited Brands | 5,728,047 | 122,694,767 | ||||
| 262,262,092 | ||||||
| Broadcasting & Cable TV—8.3% | ||||||
| LibertyMedia Corporation, Class A (a) | 16,199,400 | $165,071,886 | ||||
| The DIRECTV Group, Inc. (a) | 9,700,000 | 150,350,000 | ||||
| Comcast Corporation, Special Class A (a) | 4,725,000 | 141,513,750 | ||||
| EchoStar Communications Corporation, Class A | 3,675,000 | 110,801,250 | ||||
| 567,736,886 | ||||||
| Department Stores—2.3% | ||||||
| Kohl's Corporation (a) | 2,750,500 | $153,780,455 | ||||
| Home Improvement Retail—2.2% | ||||||
| The Home Depot, Inc. | 3,781,500 | $147,100,350 | ||||
| Homebuilding—1.9% | ||||||
| Pulte Homes, Inc. | 1,500,000 | $126,375,000 | ||||
| Household Appliances—2.1% | ||||||
| The Black & Decker Corporation | 1,622,200 | $145,754,670 | ||||
| Housewares & Specialties—2.3% | ||||||
| Fortune Brands, Inc. | 1,745,600 | $155,009,280 | ||||
| Leisure Products—1.0% | ||||||
| Mattel, Inc. | 3,874,300 | $70,899,690 | ||||
| Motorcycle Manufacturers—2.0% | ||||||
| Harley-Davidson, Inc. | 2,762,500 | $137,020,000 | ||||
| Movies & Entertainment—6.7% | ||||||
| Viacom Inc., Class B | 4,879,490 | $156,241,270 | ||||
| Time Warner Inc. (a) | 8,997,700 | 150,351,567 | ||||
| The Walt Disney Company | 5,950,000 | 149,821,000 | ||||
| 456,413,837 | ||||||
| Publishing—2.6% | ||||||
| Gannett Co., Inc. | 1,684,500 | $119,818,485 | ||||
| Knight-Ridder, Inc. | 916,000 | 56,187,440 | ||||
| 176,005,925 | ||||||
| Restaurants—4.9% | ||||||
| Yum! Brands, Inc. | 3,374,000 | $175,717,920 | ||||
| McDonald's Corporation | 5,700,000 | 158,175,000 | ||||
| 333,892,920 | ||||||
| Specialized Consumer Services—2.6% | ||||||
| H& R Block, Inc. | 3,029,300 | $176,759,655 | ||||
| Brewers—2.0% | ||||||
| Anheuser-Busch Companies, Inc. | 3,050,000 | $139,537,500 | ||||
| Distillers & Vintners—1.9% | ||||||
| Diageo plc (b) | 2,221,000 | $131,705,300 | ||||
| Hypermarkets & Super Centers—2.1% | ||||||
| Wal-Mart Stores, Inc. | 2,900,000 | $139,780,000 | ||||
| Packaged Foods & Meats—4.2% | ||||||
| General Mills, Inc. | 2,506,000 | $117,255,740 | ||||
| Kraft Foods Inc., Class A | 2,645,000 | 84,137,450 | ||||
| H.J. Heinz Company | 2,310,000 | 81,820,200 | ||||
| 283,213,390 | ||||||
| Soft Drinks—1.1% | ||||||
| Coca-Cola Enterprises, Inc. | 3,500,000 | $77,035,000 | ||||
| Integrated Oil & Gas—2.2% | ||||||
| ConocoPhillips | 2,570,670 | $147,787,818 | ||||
| Oil & Gas Exploration & Production—2.0% | ||||||
| Burlington Resources Inc. | 2,442,200 | $134,907,128 | ||||
| Asset Management & Custody Banks—1.1% | ||||||
| The Bank of New York Company, Inc. | 2,700,000 | $77,706,000 | ||||
| Diversified Banks—1.9% | ||||||
| U.S.Bancorp | 4,400,000 | $128,480,000 | ||||
| Life & Health Insurance—1.8% | ||||||
| AFLAC Incorporated | 2,767,000 | $119,755,760 | ||||
| Other Diversified Financial Services—4.0% | ||||||
| Citigroup Inc. | 3,200,000 | $147,936,000 | ||||
| JP Morgan Chase & Co. | 3,600,000 | 127,152,000 | ||||
| 275,088,000 | ||||||
| Thrifts & Mortgage Finance—6.1% | ||||||
| Washington Mutual, Inc. | 4,887,300 | $198,864,237 | ||||
| Fannie Mae | 1,895,000 | 110,668,000 | ||||
| MGIC Investment Corporation | 1,640,600 | 106,999,932 | ||||
| 416,532,169 | ||||||
| Health Care Equipment—2.1% | ||||||
| Baxter International Inc. | 3,900,000 | $144,690,000 | ||||
| Name | Shares Held/ Par Value |
Market Value | |||
| Pharmaceuticals—4.1% | |||||
| Abbott Laboratories | 3,087,300 | $151,308,573 | |||
| Bristol-Myers Squibb Company | 5,150,000 | 128,647,000 | |||
| 279,955,573 | |||||
| Aerospace & Defense—3.4% | |||||
| Raytheon Company | 3,000,000 | $117,360,000 | |||
| Honeywell International, Inc. | 3,050,000 | 111,721,500 | |||
| 229,081,500 | |||||
| Building Products—2.1% | |||||
| Masco Corporation | 4,433,600 | $140,811,136 | |||
| Environmental & Facilities Services—1.4% | |||||
| Waste Management, Inc. | 3,474,300 | $98,461,662 | |||
| Computer Hardware—2.7% | |||||
| Hewlett-Packard Company | 3,875,000 | $91,101,250 | |||
| Sun Microsystems, Inc. (a) | 24,370,000 | 90,900,100 | |||
| 182,001,350 | |||||
| Data Processing & Outsourced Services—3.2% | |||||
| First Data Corporation | 3,615,000 | $145,106,100 | |||
| Automatic Data Processing, Inc. | 1,800,000 | 75,546,000 | |||
| 220,652,100 | |||||
| Office Electronics—1.2% | |||||
| Xerox Corporation (a) | 5,972,400 | $82,359,396 | |||
| Semiconductors—0.8% | |||||
| TexasInstruments Incorporated | 2,000,000 | $56,140,000 | |||
| Total Common Stocks (Cost: $5,026,547,452) | 6,414,691,542 | ||||
| Short Term Investments—5.9% | |||||
| U.S. Government Bills—2.8% | |||||
| United States Treasury Bills, 2.695% -3.025% | |||||
| due 7/7/2005 - 9/15/2005 | $190,000,000 | $189,271,060 | |||
| Total U.S.Government Bills (Cost: $189,284,689) | 189,271,060 | ||||
| Repurchase Agreements—3.1% | |||||
| IBT Repurchase Agreement, 2.80% dated 6/30/2005 due 7/1/2005, repurchase price $213,016,567 collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $223,650,000 |
$213,000,000 | $213,000,000 | |||
| Name | Par Value | Market Value | |||
| IBT Repurchase Agreement, 2.01% dated 6/30/2005
due 7/1/2005, repurchase price $2,547,175 collateralized by a U.S. Government Agency Security with a market value plus accrued interest of $2,674,385 |
$2,547,033 | $2,547,033 | |||
| Total Repurchase Agreements (Cost: $215,547,033) | 215,547,033 | ||||
| Total Short Term Investments (Cost: $404,831,722) | 404,818,093 | ||||
| Total Investments (Cost $5,431,379,174)—100.1% | $6,819,509,635 | ||||
| Other Liabilities In Excess Of Other Assets—(0.1)% | (5,604,636) | ||||
| Total Net Assets—100% | $6,813,904,999 | ||||
| (a) Non-income producing security. |
| (b) Represents an American Depository Receipt. |