THE OAKMARK SELECT FUND
Report from Bill Nygren and Henry Berghoef, Portfolio Managers
THE OAKMARK SELECT FUNDReport from Bill Nygren and Henry Berghoef, Portfolio Managers |
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| THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (9/30/05) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX3 | ||||
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| Average
Annual Total Returns (as of 09/30/05) |
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| Total Return Last 3 Months* |
1-year |
5-year |
Since Inception (11/1/96) |
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| Oakmark Select Fund (Class I) | 0.42% | 7.98% | 11.08% | 18.78% |
| S&P 500 | 3.60% | 12.25% | -1.49% | 8.09% |
| S&P MidCap 4007 | 4.88% | 22.16% | 7.04% | 14.26% |
| Lipper Mid Cap Value Index8 | 4.25% | 19.33% | 10.53% | 11.09% |
| 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 Select Fund was up fractionally in the quarter compared to a 4% gain in the S&P 500. Our only portfolio addition was Discovery Holdings, which we received as a spin-off from Liberty Media. We did not eliminate any holdings. Last quarter we wrote about our biggest gainer, H&R Block. This quarter H&R Block was our biggest loser, giving back the prior quarter's gains. Neither of those price moves appeared to be a response to H&R Block's satisfactory long-term business results. Such short-term moves seem random, and that is one of many reasons why we focus on long-term fundamental value instead.
Burlington Resources, our best performer, increased by over 40% during the past quarter. For the full fiscal year, Burlington increased by more than 100%, making it also our top performer for the fiscal year. We bought Burlington four years ago because we thought the market was undervaluing Burlington's long-lived natural gas reserves and was not giving enough credit to a management team that we felt was intelligently investing its cash flow. Had we anticipated natural gas prices quadrupling we'd have owned a lot more! But, we are now unwilling to rely on the sustainability of current gas prices for our long-term Burlington valuation, so we have reduced our position, preventing Burlington from becoming oversized.
Our portfolio has recently lagged behind both the market and the funds we compete with, in our view, due to underweighting of cyclical businesses, including energy. We believe that higher quality businesses, which are priced similarly to cyclical businesses, present more opportunity. Typically when our performance lags, it is because we made several large fundamental errors. But, last year we had only one stock that declined by more than 10% (Chiron, which has been sold). We continue to anticipate that above-average growth for cyclical and commodity businesses will come to an end, and when that happens, appropriate quality spreads will be restored. We believe the portfolio is well-positioned for that environment.
Best wishes,
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| William C. Nygren,
CFA Portfolio Manager bnygren@oakmark.com |
Henry R. Berghoef,
CFA Portfolio Manager berghoef@oakmark.com |
| THE OAKMARK SELECT FUND |
Schedule of Investments—September 30, 2005
| Name | Shares Held | Market Value |
| Common Stocks—92.3% | ||
| Apparel Retail—6.2% | ||
| Limited Brands | 9,580,981 | $195,739,442 |
| The Gap, Inc. | 10,060,000 | 175,345,800 |
| 371,085,242 | ||
| Broadcasting & Cable TV—5.0% | ||
| Liberty Media Corporation, Class A (a) | 28,000,000 | $225,400,000 |
| Discovery Holding Company, Class A (a) | 5,300,000 | 76,532,000 |
| 301,932,000 | ||
| Leisure Products—2.7% | ||
| Mattel, Inc. | 9,670,900 | $161,310,612 |
| Movies & Entertainment—9.0% | ||
| Time Warner, Inc. | 16,240,000 | $294,106,400 |
| Viacom, Inc., Class B | 7,350,000 | 242,623,500 |
| 536,729,900 | ||
| Publishing—2.6% | ||
| Knight-Ridder, Inc. | 2,606,500 | $152,949,420 |
| Restaurants—12.1% | ||
| Yum! Brands, Inc. | 9,207,000 | $445,710,870 |
| McDonald's Corporation | 8,300,000 | 277,967,000 |
| 723,677,870 | ||
| Specialized Consumer Services—6.6% | ||
| H&R Block, Inc. (b) | 16,519,600 | $396,140,008 |
| Oil & Gas Exploration & Production—4.4% | ||
| Burlington Resources, Inc. | 3,232,100 | $262,834,372 |
| Other Diversified Financial Services—3.8% | ||
| JP Morgan Chase & Co. | 6,750,000 | $229,027,500 |
| Specialized Finance—4.8% | ||
| Moody's Corporation | 5,647,200 | $288,458,976 |
| Thrifts & Mortgage Finance—14.5% | ||
| Washington Mutual, Inc. | 22,217,400 | $871,366,428 |
| Health Care Services—3.5% | ||
| IMS Health Incorporated | 8,303,441 | $208,997,610 |
| Pharmaceuticals—3.8% | ||
| Bristol-Myers Squibb Company | 9,490,200 | $228,334,212 |
| Diversified Commercial and Professional Services—4.3% | ||
| The Dun & Bradstreet Corporation (a)(b) | 3,934,900 | $259,191,863 |
| Name | Shares Held/ Par Value |
Market Value |
| Data Processing & Outsourced Services—5.2% | ||
| First Data Corporation | 7,815,400 | $312,616,000 |
| Office Electronics—3.8% | ||
| Xerox Corporation (a) | 16,746,400 | $228,588,360 |
| Total Common Stocks (Cost: $3,765,847,641) | 5,533,240,373 | |
| Short Term Investments—7.9% | ||
| U.S. Government Agencies—1.7% | ||
| Federal Home Loan Bank, 3.50% - 3.63% due 10/27/2005 - 11/10/2005 | $100,000,000 | $99,674,472 |
| Total U.S. Government Agencies (Cost: $99,674,472) | 99,674,472 | |
| U.S. Government Bills—5.0% | ||
| United States Treasury Bills, 3.125 % - 3.45% due 10/6/2005 - 12/8/2005 | $300,000,000 | $299,017,150 |
| Total U.S. Government Bills (Cost: $298,901,750) | 299,017,150 | |
| Repurchase Agreements—1.2% | ||
| IBT Repurchase Agreement, 3.51% dated 9/30/2005 due 10/3/2005, repurchase price $73,521,499, collateralized by Small Business Administration Bonds, with rates of 6.00% - 6.74%, with maturities from 3/25/2018 - 4/25/2030, and with an aggregate market value plus accrued interest of $77,175,000 | $73,500,000 | $73,500,000 |
| IBT Repurchase Agreement, 2.75% dated 9/30/2005 due 10/3/2005, repurchase price $1,536,213, collateralized by a Small Business Administration Bond, with a rate of 6.125%, with a maturity date of 1/25/2027, and with a market value plus accrued interest of $1,612,654 | 1,535,861 | 1,535,861 |
| Total Repurchase Agreements (Cost: $75,035,861) | 75,035,861 | |
| Total Short Term Investments (Cost: $473,612,083) | 473,727,483 | |
| Total Investments (Cost $4,239,459,724)—100.2% | $6,006,967,856 | |
| Other Liabilities In Excess Of Other Assets—(0.2)% | (13,794,402) | |
| Total Net Assets—100% | $5,993,173,454 | |
| (a) | Non-income producing security. |
| (b) | See footnote number five in the Notes to the Financial Statements regarding investments in affiliated issuers. |
See accompanying notes to financial statements.