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 (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 | 10-year | Since Inception (8/5/91) |
|
| Oakmark Fund (Class I) | -0.46% | 5.79% | 9.30% | 8.99% | 15.58% |
| S&P 500 | 3.60% | 12.25% | -1.49% | 9.48% | 10.67% |
| Dow Jones Average5 | 3.46% | 7.49% | 1.98% | 10.39% | 11.70% |
| Lipper Large Cap Value Index6 | 3.80% | 13.50% | 1.96% | 9.14% | 10.52% |
| 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 had a disappointing quarter, basically unchanged while the S&P 500 gained 4%. Our underweighting in the very strong energy sector continues to penalize our results. We didn't suffer from big fundamental disappointments. In fact, five of our stocks were up by more than 20% (Burlington Resources, McDonalds, ConocoPhillips, Hewlett Packard and Texas Instruments), and none were down by that much. Most of our holdings, however, suffered very small price declines. As mentioned earlier, our portfolio continues to be under-represented in commodities, including energy, and it is heavily populated with high-quality businesses, especially for a value fund. We have positioned the portfolio so that we will do best when, as we expect, energy prices eventually decline and quality spreads return to normal.
During the quarter we sold our shares of ACCO Brands (spun-off from Fortune Brands) and eliminated Kraft Foods and Fannie Mae. Fortunately, Fannie was sold early enough in the quarter to avoid the late September decline, but it was still a significant loser for our fiscal year. We continue to believe mortgage guaranty is a very good business for Fannie, but we are no longer comfortable projecting that their biggest profit contributor, their mortgage portfolio, will retain its advantaged regulatory position. New names in the quarter included Discovery Holding, which spun-off from another holding, Liberty Media. Though Discovery is a smaller business than The Oakmark Fund generally buys, we judged that the current price made it too cheap to sell. New purchases included Tyco, InBev, and Intel. Our comments on Tyco and InBev are available on our website, www.oakmark.com.
Intel Corp (INTC—$24)
Intel is the world's largest semiconductor chipmaker and one of the only chipmakers that has established consumer brand identity with its campaign, "Intel Inside." In the peak of the technology-driven market, Intel sold at $76, which was 65 times trailing earnings. We admired Intel, but couldn't justify owning the stock at that valuation. Now at one-third of the price, Intel sells at less than 16 times expected forward earnings. Intel's products are purchased primarily by the computing, communications and digital content industries—industries we believe will experience above-average growth. Like many of our recent purchases, we believe Intel is a superior business, deserving a superior P/E4, but is now priced as if it were merely average.
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—September 30, 2005
| Name | Shares Held | Market Value |
| Common Stocks—93.4% | ||
| Apparel Retail—3.8% | ||
| The Gap, Inc. | 7,066,700 | $123,172,581 |
| Limited Brands | 5,728,047 | 117,024,000 |
| 240,196,581 | ||
| Broadcasting & Cable TV—7.9% | ||
| Liberty Media Corporation, Class A (a) | 16,199,400 | $130,405,170 |
| The DIRECTV Group, Inc. (a) | 8,600,000 | 128,828,000 |
| Comcast Corporation, Special Class A (a) | 4,325,000 | 124,473,500 |
| EchoStar Communications Corporation, Class A | 3,275,000 | 96,841,750 |
| Discovery Holding Company, Class A (a) | 1,569,940 | 22,669,933 |
| 503,218,353 | ||
| Department Stores—2.0% | ||
| Kohl's Corporation (a) | 2,500,000 | $125,450,000 |
| Home Improvement Retail—2.1% | ||
| The Home Depot, Inc. | 3,581,500 | $136,598,410 |
| Homebuilding—2.0% | ||
| Pulte Homes, Inc. | 2,900,000 | $124,468,000 |
| Household Appliances—1.9% | ||
| The Black & Decker Corporation | 1,500,000 | $123,135,000 |
| Housewares & Specialties—2.0% | ||
| Fortune Brands, Inc. | 1,600,000 | $130,128,000 |
| Leisure Products—1.0% | ||
| Mattel, Inc. | 3,874,300 | $64,623,324 |
| Motorcycle Manufacturers—2.0% | ||
| Harley-Davidson, Inc. | 2,600,000 | $125,944,000 |
| Movies & Entertainment—6.9% | ||
| Viacom, Inc., Class B | 4,579,490 | $151,168,965 |
| Time Warner, Inc. | 8,297,700 | 150,271,347 |
| The Walt Disney Company | 5,750,000 | 138,747,500 |
| 440,187,812 | ||
| Publishing—2.5% | ||
| Gannett Co., Inc. | 1,534,500 | $105,619,635 |
| Knight-Ridder, Inc. | 916,000 | 53,750,880 |
| 159,370,515 | ||
| Restaurants—5.2% | ||
| McDonald's Corporation | 5,200,000 | $174,148,000 |
| Yum! Brands, Inc. | 3,274,000 | 158,494,340 |
| 332,642,340 | ||
| Specialized Consumer Services—2.2% | ||
| H&R Block, Inc. | 5,958,600 | $142,887,228 |
| Brewers—3.3% | ||
| Anheuser-Busch Companies, Inc. | 3,100,000 | $133,424,000 |
| InBev NV (b) | 2,000,000 | 79,122,222 |
| 212,546,222 | ||
| Distillers & Vintners—1.9% | ||
| Diageo plc (c) | 2,121,000 | $123,039,210 |
| Hypermarkets & Super Centers—2.0% | ||
| Wal-Mart Stores, Inc. | 2,900,000 | $127,078,000 |
| Packaged Foods & Meats—3.1% | ||
| General Mills, Inc. | 2,406,000 | $115,969,200 |
| H.J. Heinz Company | 2,310,000 | 84,407,400 |
| 200,376,600 | ||
| Soft Drinks—1.1% | ||
| Coca-Cola Enterprises, Inc. | 3,500,000 | $68,250,000 |
| Integrated Oil & Gas—1.8% | ||
| ConocoPhillips | 1,670,670 | $116,796,540 |
| Oil & Gas Exploration & Production—1.5% | ||
| Burlington Resources, Inc. | 1,156,200 | $94,022,184 |
| Asset Management & Custody Banks—1.2% | ||
| The Bank of New York Company, Inc. | 2,500,000 | $73,525,000 |
| Diversified Banks—1.9% | ||
| U.S. Bancorp | 4,200,000 | $117,936,000 |
| Life & Health Insurance—1.8% | ||
| AFLAC Incorporated | 2,567,000 | $116,285,100 |
| Other Diversified Financial Services—4.0% | ||
| Citigroup, Inc. | 2,900,000 | $132,008,000 |
| JP Morgan Chase & Co. | 3,600,000 | 122,148,000 |
| 254,156,000 | ||
| Thrifts & Mortgage Finance—4.5% | ||
| Washington Mutual, Inc. | 4,737,300 | $185,796,906 |
| MGIC Investment Corporation | 1,590,600 | 102,116,520 |
| 287,913,426 | ||
| Health Care Equipment—2.0% | ||
| Baxter International, Inc. | 3,200,000 | $127,584,000 |
| Name | Shares Held/ Par Value |
Market Value |
| Pharmaceuticals—3.7% | ||
| Abbott Laboratories | 2,787,300 | $118,181,520 |
| Bristol-Myers Squibb Company | 4,850,000 | 116,691,000 |
| 234,872,520 | ||
| Aerospace & Defense—3.4% | ||
| Raytheon Company | 3,000,000 | $114,060,000 |
| Honeywell International, Inc. | 2,650,000 | 99,375,000 |
| 213,435,000 | ||
| Building Products—2.1% | ||
| Masco Corporation | 4,433,600 | $136,022,848 |
| Environmental & Facilities Services—1.5% | ||
| Waste Management, Inc. | 3,374,300 | $96,538,723 |
| Industrial Conglomerates—1.1% | ||
| Tyco International Ltd. | 2,558,000 | $71,240,300 |
| Computer Hardware—3.2% | ||
| Hewlett-Packard Company | 3,875,000 | $113,150,000 |
| Sun Microsystems, Inc. (a) | 23,870,000 | 93,570,400 |
| 206,720,400 | ||
| Data Processing & Outsourced Services—3.3% | ||
| First Data Corporation | 3,350,000 | $134,000,000 |
| Automatic Data Processing, Inc. | 1,800,000 | 77,472,000 |
| 211,472,000 | ||
| Office Electronics—1.3% | ||
| Xerox Corporation (a) | 5,972,400 | $81,523,260 |
| Semiconductors—2.2% | ||
| Intel Corp. | 3,000,000 | $73,950,000 |
| Texas Instruments Incorporated | 2,000,000 | 67,800,000 |
| 141,750,000 | ||
| Total Common Stocks (Cost: $4,691,869,175) | 5,961,932,896 | |
| Short Term Investments—4.5% | ||
| U.S. Government Agencies—1.6% | ||
| Federal Home Loan Bank, 3.50% - 3.529% due 10/27/2005 - 11/10/2005 | $100,000,000 | $99,678,113 |
| Total U.S. Government Agencies (Cost: $99,678,113) | 99,678,113 | |
| Name | Par Value | Market Value |
| U.S. Government Bills—1.6% | ||
| United States Treasury Bills, 3.125% - 3.22% due 10/6/2005 - 10/20/2005 | $100,000,000 | $99,892,078 |
| Total U.S. Government Bills (Cost: $99,893,327) | 99,892,078 | |
| Repurchase Agreements—1.3% | ||
| IBT Repurchase Agreement, 3.51% dated 9/30/2005 due 10/3/2005, repurchase price $83,524,424, collateralized by Small Business Administration Bonds, with rates of 5.625% - 6.30%, with maturities from 11/25/2015 -8/25/2030, and with an aggregate market value plus accrued interest of $87,675,000 | $83,500,000 | $83,500,000 |
| IBT Repurchase Agreement, 2.75% dated 9/30/2005 due 10/3/2005, repurchase price $2,763,755, collateralized by a Small Business Administration Bond, with a rate of 6.875%, with a maturity date of 5/25/2023, and with a market value plus accrued interest of $2,901,278 | 2,763,122 | 2,763,122 |
| Total Repurchase Agreements (Cost: $86,263,122) | 86,263,122 | |
| Total Short Term Investments (Cost: $285,834,562) | 285,833,313 | |
| Total Investments (Cost $4,977,703,737)—97.9% | $6,247,766,209 | |
| Other Assets In Excess Of Other Liabilities—2.1% | 136,312,315 | |
| Total Net Assets—100% | $6,384,078,524 | |
| (a) | Non-income producing security. |
| (b) | Represents a foreign domiciled corporation. |
| (c) | Represents an American Depository Receipt. |
See accompanying notes to financial statements.