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 (3/31/07) AS COMPARED TO THE STANDARD & POOR’S 500 INDEX3 |
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| Average
Annual Total Returns (as of 3/31/07) |
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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) | -0.26% | 13.62% | 6.02% | 8.13% | 15.29% |
| S&P 500 | 0.64% | 11.83% | 6.27% | 8.20% | 10.88% |
| Dow Jones Average6 | -0.33% | 13.82% | 5.85% | 8.61% | 11.97% |
| Lipper Large Cap Value Index7 | 0.76% | 14.17% | 7.43% | 8.43% | 10.83% |
| 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. | |||||
| Expense Ratio as of 9/30/06 was 1.05%. | |||||
| 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 | |||||
The Oakmark Fund was flat last quarter compared to a less than 1% gain in the S&P 500. The comparison looks better for the past year, up 14% compared to 12%. For the quarter, strong performance from our health care companies was offset by declines in Harley Davidson, Pulte Homes and Washington Mutual. The common link is the fear that flat housing prices will halt new home construction, will lead to higher mortgage defaults, and will lower purchases of durables. Though that may be correct short-term, we believe that demographics present a favorable long-term outlook for housing.
During the quarter we completed sales of both Comcast and Mattel. Both were sold because share prices appreciated to business value estimates. We also sold Gannett at a price just above what we paid for it in 2000 when newspapers were being acquired for about 13 times pretax cash flow. At that time, Gannett looked quite attractive to us, selling at only 8 times. Unfortunately, valuation spreads can close in two directions. We have recently seen substantial evidence that newspapers are not as valuable as they once were. Just last quarter the Minneapolis Tribune was sold for about half the price McClatchy paid for it in 1988, and the estimated value of the Boston Globe was written down to about half the price New York Times Company paid to acquire it in 1993. Finally, in our home market of Chicago, the Tribune Company’s search for an acquirer barely produced a premium to the stock price. Though Gannett is definitely an example of a "mistake," it is also an example of how purchasing at a discount to private value can help protect us from loss.
Sprint-Nextel (S - $19)
We bought shares of Sprint-Nextel, the country's third largest wireless telephony provider. Delays in integrating Sprint's 2004 acquisition of Nextel have led to disappointing operating profits. Sprint's stock price reflected that, falling from the mid-$20s to a first quarter low of under $17. During that time, other telecommunication stocks increased, resulting in Sprint now being priced at a lower multiple of cash-flow than competitors who get most of their income from the declining wired telephony business. Further, if Sprint's subscribers were valued similarly to recent wireless acquisitions, Sprint stock would nearly double from its low. As with many of our holdings, we believe management will either improve operations or the company will be acquired.
| 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, 2007 (Unaudited)
| Name | Shares Held | Market Value | |
| Common Stocks—93.9% | |||
| Apparel Retail—3.6% | |||
| Limited Brands | 4,628,047 | $120,606,905 | |
| The Gap, Inc. | 5,066,700 | 87,197,907 | |
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| 207,804,812 | |||
| Broadcasting & Cable TV—4.0% | |||
| Liberty Media Holding Corporation - Capital, Class A (a) | 999,670 | $110,553,505 | |
| EchoStar Communications Corporation, Class A (a) | 1,025,000 | 44,515,750 | |
| The DIRECTV Group, Inc. (a) | 1,850,000 | 42,679,500 | |
| Discovery Holding Company, Class A (a) | 1,740,140 | 33,288,878 | |
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| 231,037,633 | |||
| Catalog Retail—1.5% | |||
| Liberty Media Holding Corporation - Interactive, Class A (a) | 3,699,850 | $88,130,427 | |
| Department Stores—2.4% | |||
| Kohl's Corporation (a) | 1,850,000 | $141,728,500 | |
| Home Improvement Retail—2.0% | |||
| The Home Depot, Inc. | 3,181,500 | $116,888,310 | |
| Homebuilding—1.6% | |||
| Pulte Homes, Inc. | 3,500,000 | $92,610,000 | |
| Household Appliances—2.0% | |||
| The Black & Decker Corporation | 1,400,000 | $114,268,000 | |
| Housewares & Specialties—1.9% | |||
| Fortune Brands, Inc. | 1,400,000 | $110,348,000 | |
| Motorcycle Manufacturers—2.0% | |||
| Harley-Davidson, Inc. | 2,000,000 | $117,500,000 | |
| Movies & Entertainment—6.7% | |||
| Time Warner, Inc. | 7,447,700 | $146,868,644 | |
| Viacom, Inc., Class B (a) | 3,239,745 | 133,185,917 | |
| The Walt Disney Company | 3,300,000 | 113,619,000 | |
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| 393,673,561 | |||
| Restaurants—5.8% | |||
| McDonald's Corporation | 4,050,000 | $182,452,500 | |
| Yum! Brands, Inc. | 2,724,000 | 157,338,240 | |
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| 339,790,740 | |||
| Specialized Consumer Services—1.9% | |||
| H&R Block, Inc. | 5,358,600 | $112,744,944 | |
| Brewers—4.2% | |||
| InBev NV (b) | 1,850,000 | $133,574,981 | |
| Anheuser-Busch Companies, Inc. | 2,250,000 | 113,535,000 | |
| 247,109,981 | |||
| Distillers & Vintners—1.8% | |||
| Diageo plc (c) | 1,271,000 | $102,887,450 | |
| Hypermarkets & Super Centers—2.0% | |||
| Wal-Mart Stores, Inc. | 2,500,000 | $117,375,000 | |
| Packaged Foods & Meats—3.6% | |||
| H.J. Heinz Company | 2,250,000 | $106,020,000 | |
| General Mills, Inc. | 1,756,000 | 102,234,320 | |
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| 208,254,320 | |||
| Soft Drinks—1.1% | |||
| The Coca-Cola Company | 1,398,700 | $67,137,600 | |
| Integrated Oil & Gas—1.4% | |||
| ConocoPhillips | 1,200,373 | $82,045,495 | |
| Asset Management & Custody Banks—1.5% | |||
| The Bank of New York Company, Inc. | 2,150,000 | $87,182,500 | |
| Diversified Banks—2.1% | |||
| U.S. Bancorp | 3,450,000 | $120,646,500 | |
| Life & Health Insurance—1.4% | |||
| AFLAC Incorporated | 1,767,000 | $83,155,020 | |
| Other Diversified Financial Services—4.3% | |||
| JPMorgan Chase & Co. | 2,700,000 | $130,626,000 | |
| Citigroup, Inc. | 2,400,000 | 123,216,000 | |
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| 253,842,000 | |||
| Thrifts & Mortgage Finance—3.2% | |||
| Washington Mutual, Inc. | 4,037,300 | $163,026,174 | |
| MGIC Investment Corporation | 455,600 | 26,843,952 | |
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| 189,870,126 | |||
| Health Care Equipment—4.0% | |||
| Baxter International, Inc. | 2,700,000 | $142,209,000 | |
| Medtronic, Inc. | 1,850,000 | 90,761,000 | |
| 232,970,000 | |||
| Pharmaceuticals—6.7% | |||
| Abbott Laboratories | 2,487,300 | $138,791,340 | |
| Schering-Plough Corporation | 4,960,200 | 126,534,702 | |
| Bristol-Myers Squibb Company | 4,500,000 | 124,920,000 | |
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| 390,246,042 | |||
| Aerospace & Defense—3.7% | |||
| Raytheon Company | 2,450,000 | $128,527,000 | |
| Honeywell International, Inc. | 1,900,000 | 87,514,000 | |
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| 216,041,000 | |||
| Building Products—1.6% | |||
| Masco Corporation | 3,433,600 | $94,080,640 | |
| Industrial Conglomerates—1.4% | |||
| Tyco International Ltd. | 2,558,000 | $80,704,900 | |
| Computer Hardware—4.9% | |||
| Hewlett-Packard Company | 2,925,000 | $117,409,500 | |
| Dell Inc. (a) | 4,000,000 | 92,840,000 | |
| Sun Microsystems, Inc. (a) | 12,270,000 | 73,742,700 | |
| 283,992,200 | |||
| Data Processing & Outsourced Services—2.1% | |||
| First Data Corporation | 2,575,000 | $69,267,500 | |
| Western Union Company | 2,575,000 | 56,521,250 | |
| 125,788,750 | |||
| Office Electronics—1.5% | |||
| Xerox Corporation (a) | 5,272,400 | $89,050,836 | |
| Semiconductors—4.2% | |||
| Texas Instruments Incorporated | 4,400,000 | $132,440,000 | |
| Intel Corporation | 5,900,000 | 112,867,000 | |
| 245,307,000 | |||
| Wireless Telecommunication Services—1.8% | |||
| Sprint Nextel Corporation | 5,403,000 | $102,440,880 | |
| Total Common Stocks (Cost: $3,739,564,186) | 5,486,653,167 | ||
| Name | Par Value | Market Value | |
| Short Term Investments—6.0% | |||
| U.S. Government Bills—3.4% | |||
| United States Treasury Bills, 5.07%-5.135%, due 4/19/2007 - 4/26/2007 | $200,000,000 | $199,391,166 | |
| Total U.S. Government Bills (Cost: $199,391,166) | 199,391,166 | ||
| Repurchase Agreement—2.6% | |||
| IBT Repurchase Agreement, 5.20% dated 3/30/2007 due 4/2/2007, repurchase price $151,308,300, collateralized by Federal National Mortgage Association Bonds, with rates of 4.266% - 7.222%, with maturities from 10/1/2029 - 5/25/2036, and with an aggregate market value plus accrued interest of $158,804,900 | $151,242,762 | $151,242,762 | |
| Total Repurchase Agreement (Cost: $151,242,762) | 151,242,762 | ||
| Total Short Term Investments (Cost: $350,633,928) | 350,633,928 | ||
| Total Investments (Cost $4,090,198,114)—99.9% | $5,837,287,095 | ||
| Other Assets In Excess Of Other Liabilities—0.1% | 4,710,069 | ||
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| Total Net Assets—100% | $5,841,997,164 | ||
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| (a) | Non-income producing security. |
| (b) | Represents a foreign domiciled corporation. |
| (c) | Represents an American Depository Receipt. |