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 (6/30/06) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX4 |
 |
| Average Annual Total Returns | |||||
| (as of 6/30/06) | |||||
| Total Return |
1-year |
5-year |
10-year |
Since |
|
| Oakmark Fund (Class I) | -0.35% |
4.16% |
4.29% |
8.00% |
15.10% |
| S&P 500 | -1.44% |
8.63% |
2.49% |
8.32% |
10.52% |
| Dow Jones Average8 | 0.94% |
11.08% |
3.43% |
9.14% |
11.71% |
| Lipper Large Cap Value Index9 | 0.06% |
10.46% |
3.93% |
8.35% |
10.43% |
| 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 oakmark.com. |
| * Not annualized |
Last quarter The Oakmark Fund lost a fraction of one percent, which rounds to no change, compared to the S&P 500's loss of a little more than 1%. For the calendar year-to-date, both the Fund and the S&P are up 3%. Comcast, up 25%, led the Fund's biggest gainers in the quarter, followed by Kohl's and H&R Block, which were both up 11%. Kohl's has continued to achieve strong sales momentum. Comcast's and Block's gains seemed less tied to news and more like reversals of past stock underperformance. During the past quarter, more of our stocks were up than down, but we uncharacteristically had more large losers than large gainers. Pulte Homes, Home Depot and Fortune Brands were all double-digit losers due to growing fears of a hard landing for the housing market. Sun Microsystems, one of our best performers last quarter, gave back those gains as competitors' new product introductions began to narrow Sun's performance advantage. We remain confident in all of these holdings. We sold CBS and restored our Viacom weighting to a normal position. We also sold our Coca-Cola Enterprises because we believed Coca-Cola had become more attractive (see below), and we converted our remaining Burlington Resources stock into ConocoPhillips because selling some Conoco instead of Burlington realized less taxable gain. In addition to Coca-Cola, we added shares of Schering-Plough, which is discussed on our website.
Coca-Cola (KO—$43)
In 1998 we were the "value" part of a mutual fund presentation to financial advisors. We started off the discussion of investment philosophy with our familiar three requirements: we want businesses that grow, managements on our side, but most important, we will only buy at large discounts to estimated business value. Then, the growth manager began: "Coca-Cola. Investing doesn't need to be so complicated. When you buy great businesses you don't need to worry about price." Coke stock peaked at $89 in 1998, and despite growing earnings more than 50% since then, the stock now trades at less than half that price. The world's largest beverage company, which was previously priced at over 60 times earnings, today sells at 17 times expected earnings and has a dividend yield of 3%. We believe that growth in global sales, combined with share repurchase and an above-average dividend yield will now produce good returns for Coca-Cola shareholders.
Best wishes,
| 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, 2006 (Unaudited)
| Name | Shares Held | Market Value | ||||
| Common Stocks—94.5% | ||||||
| Apparel Retail—4.1% | ||||||
| Limited Brands | 4,628,047 | $118,431,723 | ||||
| The Gap, Inc. | 5,766,700 | 100,340,580 | ||||
| 218,772,303 | ||||||
| Broadcasting & Cable TV—7.1% | ||||||
| Comcast Corporation, Special Class A (a) | 3,425,000 | $112,271,500 | ||||
| The DIRECTV Group, Inc. (a) | 6,150,000 | 101,475,000 | ||||
| EchoStar Communications Corporation, Class A (a) | 2,525,000 | 77,795,250 | ||||
| Liberty Media Holding Corp - Capital, Class A (a) | 739,970 | 61,987,287 | ||||
| Discovery Holding Company, Class A (a) | 1,740,140 | 25,458,248 | ||||
| 378,987,285 | ||||||
| Catalog Retail—1.2% | ||||||
| Liberty Media Holding Corp - Interactive, Class A (a) | 3,699,850 | $63,859,411 | ||||
| Department Stores—2.1% | ||||||
| Kohl's Corporation (a) | 1,950,000 | $115,284,000 | ||||
| Home Improvement Retail—2.1% | ||||||
| The Home Depot, Inc. | 3,181,500 | $113,865,885 | ||||
| Homebuilding—1.9% | ||||||
| Pulte Homes, Inc. | 3,500,000 | $100,765,000 | ||||
| Household Appliances—1.7% | ||||||
| The Black & Decker Corporation | 1,050,000 | $88,683,000 | ||||
| Housewares & Specialties—1.9% | ||||||
| Fortune Brands, Inc. | 1,400,000 | $99,414,000 | ||||
| Leisure Products—1.0% | ||||||
| Mattel, Inc. | 3,274,300 | $54,058,693 | ||||
| Motorcycle Manufacturers—2.2% | ||||||
| Harley-Davidson, Inc. | 2,200,000 | $120,758,000 | ||||
| Movies & Entertainment—6.2% | ||||||
| Time Warner, Inc. | 7,447,700 | $128,845,210 | ||||
| The Walt Disney Company | 3,400,000 | 102,000,000 | ||||
| Viacom, Inc., Class B (a) | 2,839,745 | 101,776,461 | ||||
| 332,621,671 | ||||||
| Publishing—1.3% | ||||||
| Gannett Co., Inc. | 1,234,500 | $69,045,585 | ||||
| Restaurants—5.3% | ||||||
| McDonald's Corporation | 4,450,000 | $149,520,000 | ||||
| Yum! Brands, Inc. | 2,724,000 | 136,935,480 | ||||
| 286,455,480 | ||||||
| Specialized Consumer Services—2.4% | ||||||
| H&R Block, Inc. | 5,358,600 | $127,856,196 | ||||
| Brewers—3.7% | ||||||
| Anheuser-Busch Companies, Inc. | 2,350,000 | $107,136,500 | ||||
| InBev NV (b) | 1,850,000 | 90,745,400 | ||||
| 197,881,900 | ||||||
| Distillers & Vintners—1.6% | ||||||
| Diageo plc (c) | 1,271,000 | $85,856,050 | ||||
| Hypermarkets & Super Centers—2.1% | ||||||
| Wal-Mart Stores, Inc. | 2,300,000 | $110,791,000 | ||||
| Packaged Foods & Meats—3.4% | ||||||
| H.J. Heinz Company | 2,250,000 | $92,745,000 | ||||
| General Mills, Inc. | 1,756,000 | 90,714,960 | ||||
| 183,459,960 | ||||||
| Soft Drinks—1.1% | ||||||
| The Coca-Cola Company | 1,398,700 | $60,172,074 | ||||
| Integrated Oil & Gas—1.5% | ||||||
| ConocoPhillips | 1,200,373 | $78,660,442 | ||||
| Asset Management & Custody Banks—1.3% | ||||||
| The Bank of New York Company, Inc. | 2,150,000 | $69,230,000 | ||||
| Diversified Banks—2.0% | ||||||
| U.S. Bancorp | 3,450,000 | $106,536,000 | ||||
| Life & Health Insurance—1.5% | ||||||
| AFLAC Incorporated | 1,767,000 | $81,900,450 | ||||
| Other Diversified Financial Services—4.4% | ||||||
| JP Morgan Chase & Co. | 2,800,000 | $117,600,000 | ||||
| Citigroup, Inc. | 2,400,000 | 115,776,000 | ||||
| 233,376,000 | ||||||
| Thrifts & Mortgage Finance—4.8% | ||||||
| Washington Mutual, Inc. | 4,137,300 | $188,578,134 | ||||
| MGIC Investment Corporation | 1,090,600 | 70,889,000 | ||||
| 259,467,134 | ||||||
| Name | Shares Held/ Par Value |
Market Value | |||
| Health Care Equipment—2.0% | |||||
| Baxter International, Inc. | 2,900,000 | $106,604,000 | |||
| Pharmaceuticals—5.6% | |||||
| Bristol-Myers Squibb Company | 4,500,000 | $116,370,000 | |||
| Abbott Laboratories | 2,487,300 | 108,471,153 | |||
| Schering-Plough Corporation | 4,000,000 | 76,120,000 | |||
| 300,961,153 | |||||
| Aerospace & Defense—3.6% | |||||
| Raytheon Company | 2,650,000 | $118,110,500 | |||
| Honeywell International, Inc. | 1,900,000 | 76,570,000 | |||
| 194,680,500 | |||||
| Building Products—1.9% | |||||
| Masco Corporation | 3,433,600 | $101,771,904 | |||
| Industrial Conglomerates—1.3% | |||||
| Tyco International Ltd. (b) | 2,558,000 | $70,345,000 | |||
| Computer Hardware—5.0% | |||||
| Dell Inc. (a) | 4,000,000 | $97,640,000 | |||
| Hewlett-Packard Company | 2,925,000 | 92,664,000 | |||
| Sun Microsystems, Inc. (a) | 19,270,000 | 79,970,500 | |||
| 270,274,500 | |||||
| Data Processing & Outsourced Services—2.2% | |||||
| First Data Corporation | 2,575,000 | $115,978,000 | |||
| Office Electronics—1.4% | |||||
| Xerox Corporation (a) | 5,272,400 | $73,339,084 | |||
| Semiconductors—3.6% | |||||
| Intel Corp. | 5,700,000 | $108,015,000 | |||
| Texas Instruments Incorporated | 2,800,000 | 84,812,000 | |||
| 192,827,000 | |||||
| Total Common Stocks (Cost: $3,849,711,568) | 5,064,538,660 | ||||
| Short Term Investments—5.5% | |||||
| U.S. Government Agencies—2.8% | |||||
| Fannie Mae, 4.96%-5.17% due 7/10/2006 - 7/27/2006 | $150,000,000 | $149,564,611 | |||
| Total U.S. Government Agencies (Cost: $149,564,611) | 149,564,611 | ||||
| Name | Par Value | Market Value | |||
| Repurchase Agreement—2.7% | |||||
| IBT Repurchase Agreement, 4.75% dated 6/30/2006 due 7/3/2006, repurchase price $147,194,339, collateralized by Government National Mortgage Association Bonds, with rates of 4.875% - 5.375%, with maturities from 5/20/34 - 7/20/34, with an aggregate market value plus accrued interest of $52,500,000, and by Small Business Administration Bonds, with rates of 7.125% - 8.260%, with maturities from 7/25/2018 - 7/25/2030, and with an aggregate market value plus accrued interest of $101,992,903 |
$147,136,098 | $147,136,098 | |||
| Total Repurchase Agreement (Cost: $147,136,098) | 147,136,098 | ||||
| Total Short Term Investments (Cost: $296,700,709) | 296,700,709 | ||||
| Total Investments (Cost $4,146,412,277)—100.0% | $5,361,239,369 | ||||
| Other Assets In Excess Of Other Liabilities—0.0% | 1,508,170 | ||||
| Total Net Assets—100% | $5,362,747,539 | ||||
| (a) Non-income producing security. |
| (b) Represents a foreign domiciled corporation. |
| (c) Represents an American Depository Receipt. |