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 (6/30/07) AS COMPARED TO THE STANDARD & POOR’S 500 INDEX5 |
 |
Average
Annual Total Returns (as of 6/30/07) | |||||
Total Return Last 3 Months* |
1-year |
5-year |
10-year |
Since Inception (8/5/91) | |
|
| |||||
| Oakmark Fund (Class I) | 6.35% |
21.27% |
9.22% |
7.26% |
15.48% |
| S&P 500 | 6.28% |
20.59% |
10.71% |
7.13% |
11.13% |
| Dow Jones Average6 | 9.11% |
23.03% |
10.18% |
7.85% |
12.39% |
| Lipper Large Cap Value Index7 | 6.47% |
21.48% |
11.30% |
7.59% |
11.09% |
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| 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 increased in value by 6% during the quarter. Since the Fund was flat in the first calendar quarter, the year-to-date increase is also 6%. The strength in the stock market and our portfolio was consistent with strong corporate earnings and continued heavy share repurchase and acquisition activity. For the quarter, sixteen of our stocks achieved double-digit gains compared to only two suffering double-digit losses. Our two largest positive contributors, Texas Instruments and Intel, each up 25%, benefited from better than expected earnings. Both stocks continue to sell at less than our estimate of business value, so despite the price increase, we still find both attractive. During the quarter we added three new positions and eliminated two. Our purchase of Best Buy is described below. We also added positions in Capital One Financial (COF - $78) and Federal Express (FDX - $111), which are explained on our website. First Data was sold after KKR announced their intent to purchase the company. Echostar was sold because the stock had performed well and was approaching our estimate of business value.
Best-Buy (BBY - $47)
Best Buy is the world’s largest retailer of consumer electronics. With over 1100 stores and sales approaching $40 billion, Best Buy has not only the largest market share in the U.S. but has more than twice the share of the number two competitor. And with their market share still under 25%, most of the market remains in the hands of less efficient competitors. Over the past five years, Best Buy has grown per-share sales and earnings at 12% and 18% respectively. We expect the consumer electronics category to continue to grow faster than other retail categories, and we also expect Best Buy’s aggressive expansion to increase their market share. Despite the track record and the long-term opportunity created by their competitive advantages, the stock fell from $60 last year to $44. Subtracting their $6 per share of excess cash (and its related interest income) Best Buy stock now sells at only 14 times expected earnings. The company has been an aggressive acquirer of their own stock so far this year, and it just announced plans to buy back an additional 25% of their outstanding shares. We believe that Best Buy is a superior business and therefore believe that investors will again reward it with a superior multiple.
| 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, 2007 (Unaudited)
| Name | Shares Held | Market Value | |
|
| |||
| Common Stocks—95.0% | |||
| Apparel Retail—2.7% | |||
| Limited Brands | 4,628,047 | $127,039,890 | |
| The Gap, Inc. | 2,066,700 | 39,473,970 | |
|
| |||
| 166,513,860 | |||
| Broadcasting & Cable TV—3.2% | |||
| Liberty Media Holding Corporation - Capital, Class A (a) | 999,670 | $117,641,166 | |
| Discovery Holding Company, Class A (a) | 1,740,140 | 40,005,819 | |
| The DIRECTV Group, Inc. (a) | 1,650,000 | 38,131,500 | |
|
| |||
| 195,778,485 | |||
| Catalog Retail—1.4% | |||
| Liberty Media Holding Corporation - Interactive, Class A (a) | 3,699,850 | $82,617,650 | |
| Computer & Electronics Retail—1.5% | |||
| Best Buy Co., Inc. | 1,920,500 | $89,629,735 | |
| Department Stores—2.0% | |||
| Kohl's Corporation (a) | 1,750,000 | $124,302,500 | |
| Home Improvement Retail—2.0% | |||
| The Home Depot, Inc. | 3,181,500 | $125,192,025 | |
| Homebuilding—1.3% | |||
| Pulte Homes, Inc. | 3,500,000 | $78,575,000 | |
| Household Appliances—2.0% | |||
| The Black & Decker Corporation | 1,400,000 | $123,634,000 | |
| Housewares & Specialties—1.9% | |||
| Fortune Brands, Inc. | 1,400,000 | $115,318,000 | |
| Motorcycle Manufacturers—2.0% | |||
| Harley-Davidson, Inc. | 2,000,000 | $119,220,000 | |
| Movies & Entertainment—6.6% | |||
| Time Warner, Inc. | 7,447,700 | $156,699,608 | |
| Viacom, Inc., Class B (a) | 3,239,745 | 134,870,584 | |
| The Walt Disney Company | 3,300,000 | 112,662,000 | |
|
| |||
| 404,232,192 | |||
| Restaurants—6.2% | |||
| McDonald's Corporation | 4,050,000 | $205,578,000 | |
| Yum! Brands, Inc. | 5,248,000 | 171,714,560 | |
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| |||
| 377,292,560 | |||
| Specialized Consumer Services—2.0% | |||
| H&R Block, Inc. | 5,358,600 | $125,230,482 | |
| Brewers—4.2% | |||
| InBev NV (b) | 1,750,000 | $139,341,061 | |
| Anheuser-Busch Companies, Inc. | 2,250,000 | 117,360,000 | |
|
| |||
| 256,701,061 | |||
| Distillers & Vintners—1.7% | |||
| Diageo plc (c) | 1,271,000 | $105,887,010 | |
| Hypermarkets & Super Centers—2.0% | |||
| Wal-Mart Stores, Inc. | 2,500,000 | $120,275,000 | |
| Packaged Foods & Meats—3.4% | |||
| H.J. Heinz Company | 2,250,000 | $106,807,500 | |
| General Mills, Inc. | 1,756,000 | 102,585,520 | |
|
| |||
| 209,393,020 | |||
| Soft Drinks—1.2% | |||
| The Coca-Cola Company | 1,398,700 | $73,165,997 | |
| Integrated Oil & Gas—1.5% | |||
| ConocoPhillips | 1,200,373 | $94,229,281 | |
| Asset Management & Custody Banks—1.3% | |||
| The Bank of New York Company, Inc. | 1,950,000 | $80,808,000 | |
| Consumer Finance—0.9% | |||
| Capital One Financial Corporation | 700,000 | $54,908,000 | |
| Diversified Banks—1.9% | |||
| U.S. Bancorp | 3,450,000 | $113,677,500 | |
| Life & Health Insurance—1.5% | |||
| AFLAC Incorporated | 1,767,000 | $90,823,800 | |
| Other Diversified Financial Services—4.2% | |||
| JPMorgan Chase & Co. | 2,700,000 | $130,815,000 | |
| Citigroup, Inc. | 2,400,000 | 123,096,000 | |
|
| |||
| 253,911,000 | |||
| Thrifts & Mortgage Finance—3.6% | |||
| Washington Mutual, Inc. | 4,037,300 | $172,150,472 | |
| MGIC Investment Corporation | 828,800 | 47,125,568 | |
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| |||
| 219,276,040 | |||
| Health Care Equipment—3.7% | |||
| Baxter International, Inc. | 2,300,000 | $129,582,000 | |
| Medtronic, Inc. | 1,850,000 | 95,941,000 | |
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| |||
| 225,523,000 | |||
| Pharmaceuticals—6.7% | |||
| Schering-Plough Corporation | 4,760,200 | $144,900,488 | |
| Bristol-Myers Squibb Company | 4,500,000 | 142,020,000 | |
| Abbott Laboratories | 2,287,300 | 122,484,915 | |
|
| |||
| 409,405,403 | |||
| Aerospace & Defense—3.9% | |||
| Raytheon Company | 2,450,000 | $132,030,500 | |
| Honeywell International, Inc. | 1,900,000 | 106,932,000 | |
|
| |||
| 238,962,500 | |||
| Air Freight& Logistics—1.4% | |||
| FedEx Corp. | 750,000 | $83,227,500 | |
| Building Products—1.6% | |||
| Masco Corporation | 3,433,600 | $97,754,592 | |
| Industrial Conglomerates—1.4% | |||
| Tyco International Ltd. | 2,558,000 | $86,434,820 | |
| Computer Hardware—5.0% | |||
| Hewlett-Packard Company | 2,825,000 | $126,051,500 | |
| Dell Inc. (a) | 4,000,000 | 114,200,000 | |
| Sun Microsystems, Inc. (a) | 12,270,000 | 64,540,200 | |
|
| |||
| 304,791,700 | |||
| Data Processing & Outsourced Services—0.9% | |||
| Western Union Company | 2,575,000 | $53,637,250 | |
| Office Electronics—1.6% | |||
| Xerox Corporation (a) | 5,272,400 | $97,433,952 | |
| Semiconductors—4.8% | |||
| Texas Instruments Incorporated | 4,000,000 | $150,520,000 | |
| Intel Corporation | 5,900,000 | 140,184,000 | |
|
| |||
| 290,704,000 | |||
| Wireless Telecommunication Services—1.8% | |||
| Sprint Nextel Corporation | 5,403,000 | $111,896,130 | |
| Total Common Stocks (Cost: $3,827,298,746) | 5,800,363,045 | ||
| Name | Par Value | Market Value | |
|
| |||
| Short Term Investments—4.4% | |||
| U.S. Government Agencies—1.6% | |||
| Fannie Mae, 5.13% due 7/20/2007 | $100,000,000 | $99,729,250 | |
| Total U.S. Government Agencies (Cost: $99,729,250) | 99,729,250 | ||
| Repurchase Agreement—2.8% | |||
| IBT Repurchase Agreement, 4.50% dated 6/29/2007 due 7/2/2007, repurchase price $167,107,280, collateralized by Federal National Mortgage Association Bonds, with rates of 4.825% - 5.680%, with maturities from 12/25/2021 - 2/1/2037, and with an aggregate market value plus accrued interest of $154,541,741, and by Government National Mortgage Association Bonds, with rates of 5.000% - 6.500%, with maturities from 4/20/2022 - 4/20/2035, and with an aggregate market value plus accrued interest of $20,855,129 | $167,044,638 | $167,044,638 | |
| Total Repurchase Agreement (Cost: $167,044,638) | 167,044,638 | ||
| Total Short Term Investments (Cost: $266,773,888) | 266,773,888 | ||
| Total Investments (Cost $4,094,072,634)—99.4% | $6,067,136,933 | ||
| Other Assets In Excess Of Other Liabilities—0.6% | 38,369,437 | ||
|
| |||
| Total Net Assets—100% | $6,105,506,370 | ||
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| (a) | Non-income producing security. |
| (b) | Represents a foreign domiciled corporation. |
| (c) | Represents an American Depository Receipt. |