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 (3/31/06) AS COMPARED TO THE STANDARD & POOR’S 500 INDEX4 |
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| Average
Annual Total Returns (as of 3/31/06) |
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| Total Return Last 3 Months* |
1-year | 5-year | 10-year | Since Inception (8/5/91) |
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| Oakmark Fund (Class I) | 3.82% | 4.76% | 6.23% | 8.41% | 15.40% |
| S&P 500 | 4.21% | 11.73% | 3.97% | 8.95% | 10.82% |
| Dow Jones Average 6 | 4.24% | 8.26% | 4.59% | 9.23% | 11.85% |
| Lipper Large Cap Value Index7 | 4.40% | 11.86% | 4.83% | 8.70% | 10.61% |
| 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 most recent month-end performance data, visit www.oakmark.com. | |||||
| * Not annualized | |||||
The Oakmark Fund achieved another new all-time high NAV8 last quarter, advancing by 4%. This increase was consistent with the 4% gain achieved by the S&P 500. Twelve stocks in the portfolio increased by 10% or more. Sun Microsystems was our best performer, advancing by 22% as Sun’s new products finally lived up to expectations. We’ve endured some false starts—and a lot of volatility—since our initial purchase of Sun three-and-a-half years ago, when it was considered a dying company, but it has been an excellent stock. Our worst performer for the quarter, Intel, reported results that were, to us, modestly disappointing. The market reacted as if the shortfall was much more serious. We believed the stock was cheap before the bad news. So, after the market’s overreaction, we increased our position. During the quarter we sold our shares of Knight Ridder and added Dell Computer.
Dell Computer (DELL—$30)
When we started managing The Oakmark Fund we viewed Dell as one of those great businesses that was unlikely to ever get priced cheaply enough for us to own it. In March of 2000, Dell stock peaked at $60—a robust 88 times trailing earnings. Dell’s business has performed well since then, with sales and EPS9 both more than doubling. Dell’s stock, however, hasn’t done so well, now selling for just half the price it did six years ago. The world’s largest manufacturer and distributor of PCs is now priced at less than 16 times expected 2007 earnings. At this price, Dell is selling at only a slight premium to the average company’s P/E5 multiple, and it actually sells at a discount after adjusting for its large cash balance. We think Dell’s brand name and low cost structure will provide an enduring competitive advantage that will allow the company to continue growing faster than most businesses, which will warrant the stock selling at a significant premium.
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—March 31, 2006 (Unaudited)
| Name | Shares Held | Market Value | |
| Common Stocks—95.0% | |||
| Apparel Retail—4.2% | |||
| Limited Brands | 4,828,047 | $118,094,030 | |
| The Gap, Inc. | 6,266,700 | 117,061,956 | |
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| 235,155,986 | |||
| Broadcasting & Cable TV—9.0% | |||
| Liberty Media Corporation, Class A (a) | 15,299,400 | $125,608,074 | |
| The DIRECTV Group, Inc. (a) | 6,950,000 | 113,980,000 | |
| Comcast Corporation, Special Class A (a) | 3,925,000 | 102,521,000 | |
| EchoStar Communications Corporation, Class A (a) | 2,775,000 | 82,889,250 | |
| CBS Corporation, Class B | 2,239,745 | 53,709,085 | |
| Discovery Holding Company, Class A (a) | 1,878,140 | 28,172,100 | |
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| 506,879,509 | |||
| Department Stores—2.0% | |||
| Kohl's Corporation (a) | 2,150,000 | $113,971,500 | |
| Home Improvement Retail—2.4% | |||
| The Home Depot, Inc. | 3,231,500 | $136,692,450 | |
| Homebuilding—2.0% | |||
| Pulte Homes, Inc. | 2,900,000 | $111,418,000 | |
| Household Appliances—1.8% | |||
| The Black & Decker Corporation | 1,150,000 | $99,923,500 | |
| Housewares & Specialties—2.1% | |||
| Fortune Brands, Inc. | 1,450,000 | $116,913,500 | |
| Leisure Products—1.1% | |||
| Mattel, Inc. | 3,474,300 | $62,989,059 | |
| Motorcycle Manufacturers—2.1% | |||
| Harley-Davidson, Inc. | 2,250,000 | $116,730,000 | |
| Movies & Entertainment—6.2% | |||
| The Walt Disney Company | 5,100,000 | $142,239,000 | |
| Time Warner, Inc. | 7,647,700 | 128,404,883 | |
| Viacom, Inc., Class B (a) | 2,039,745 | 79,142,106 | |
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| 349,785,989 | |||
| Publishing—1.4% | |||
| Gannett Co., Inc. | 1,334,500 | $79,963,240 | |
| Restaurants—5.6% | |||
| McDonald's Corporation | 4,850,000 | $166,646,000 | |
| Yum! Brands, Inc. | 2,974,000 | 145,309,640 | |
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| 311,955,640 | |||
| Specialized Consumer Services—2.2% | |||
| H&R Block, Inc. | 5,658,600 | $122,508,690 | |
| Brewers—3.6% | |||
| Anheuser-Busch Companies, Inc. | 2,750,000 | $117,617,500 | |
| InBev NV (b) | 1,850,000 | 86,748,082 | |
| 204,365,582 | |||
| Distillers & Vintners—1.5% | |||
| Diageo plc (c) | 1,371,000 | $86,962,530 | |
| Hypermarkets & Super Centers—2.2% | |||
| Wal-Mart Stores, Inc. | 2,600,000 | $122,824,000 | |
| Packaged Foods & Meats—2.9% | |||
| General Mills, Inc. | 1,806,000 | $91,528,080 | |
| H.J. Heinz Company | 1,950,000 | 73,944,000 | |
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| 165,472,080 | |||
| Soft Drinks—1.2% | |||
| Coca-Cola Enterprises, Inc. | 3,300,000 | $67,122,000 | |
| Integrated Oil & Gas—0.7% | |||
| ConocoPhillips | 620,670 | $39,195,310 | |
| Oil & Gas Exploration & Production—1.5% | |||
| Burlington Resources, Inc. | 942,200 | $86,597,602 | |
| Asset Management & Custody Banks—1.4% | |||
| The Bank of New York Company, Inc. | 2,150,000 | $77,486,000 | |
| Diversified Banks—1.9% | |||
| U.S. Bancorp | 3,550,000 | $108,275,000 | |
| Life & Health Insurance—1.5% | |||
| AFLAC Incorporated | 1,817,000 | $82,001,210 | |
| Other Diversified Financial Services—4.3% | |||
| JP Morgan Chase & Co. | 3,000,000 | $124,920,000 | |
| Citigroup, Inc. | 2,450,000 | 115,713,500 | |
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| 240,633,500 | |||
| Thrifts & Mortgage Finance—4.7% | |||
| Washington Mutual, Inc. | 4,387,300 | $186,986,726 | |
| MGIC Investment Corporation | 1,140,600 | 75,998,178 | |
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| 262,984,904 | |||
| Health Care Equipment—2.1% | |||
| Baxter International, Inc. | 3,050,000 | $118,370,500 | |
| Name | Shares Held/ Par Value |
Market Value | |
| Pharmaceuticals—3.9% | |||
| Bristol-Myers Squibb Company | 4,500,000 | $110,745,000 | |
| Abbott Laboratories | 2,537,300 | 107,759,131 | |
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| 218,504,131 | |||
| Aerospace & Defense—3.9% | |||
| Raytheon Company | 2,800,000 | $128,352,000 | |
| Honeywell International, Inc. | 2,100,000 | 89,817,000 | |
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| 218,169,000 | |||
| Building Products—2.2% | |||
| Masco Corporation | 3,733,600 | $121,304,664 | |
| Industrial Conglomerates—1.2% | |||
| Tyco International Ltd. (b) | 2,558,000 | $68,759,040 | |
| Computer Hardware—5.3% | |||
| Sun Microsystems, Inc. (a) | 21,270,000 | $109,115,100 | |
| Hewlett-Packard Company | 3,025,000 | 99,522,500 | |
| Dell Inc. (a) | 3,000,000 | 89,280,000 | |
| 297,917,600 | |||
| Data Processing & Outsourced Services—2.4% | |||
| First Data Corporation | 2,925,000 | $136,948,500 | |
| Office Electronics—1.4% | |||
| Xerox Corporation (a) | 5,272,400 | $80,140,480 | |
| Semiconductors—3.1% | |||
| Texas Instruments Incorporated | 2,800,000 | $90,916,000 | |
| Intel Corp. | 4,200,000 | 81,270,000 | |
| 172,186,000 | |||
| Total Common Stocks (Cost: $4,000,351,488) | 5,341,106,696 | ||
| Short Term Investments—5.1% | |||
| U.S. Government Bills—2.6% | |||
| United States Treasury Bills, 4.34% - 4.585% due 4/13/2006 - 4/27/2006 | $150,000,000 | $149,645,195 | |
| Total U.S. Government Bills (Cost: $149,645,195) | 149,645,195 | ||
| Name | Par Value | Market Value | |
| Repurchase Agreements—2.5% | |||
| IBT Repurchase Agreement, 4.55% dated 3/31/2006 due 4/3/2006, repurchase price $137,552,135, collateralized by a Government National Mortgage Association Bond with a rate of 5.000%, with a maturity date of 8/20/2034, and with a market value plus accrued interest of $22,819,712, and by Small Business Administration Bonds, with rates of 7.000% - 8.080%, with maturities from 10/25/2022 - 8/25/2030, and with an aggregate market value plus accrued interest of $121,555,288 | $137,500,000 | $137,500,000 | |
| IBT Repurchase Agreement, 3.25% dated 3/31/2006 due 4/3/2006, repurchase price $1,941,427, collateralized by a Small Business Administration Bond, with a rate of 7.125%, with a maturity date of 7/25/2025, and with a market value plus accrued interest of $2,037,946 | 1,940,901 | 1,940,901 | |
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| Total Repurchase Agreements (Cost: $139,440,901) | 139,440,901 | ||
| Total Short Term Investments (Cost: $289,086,096) | 289,086,096 | ||
| Total Investments (Cost $4,289,437,584)—100.1% | $5,630,192,792 | ||
| Other Liabilities In Excess Of Other Assets—(0.1%) | (6,592,166) | ||
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| Total Net Assets—100% | $5,623,600,626 | ||
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| (a) | Non-income producing security. |
| (b) | Represents a foreign domiciled corporation. |
| (c) | Represents an American Depository Receipt. |