OAKMARK FUNDS'
BILL NYGREN & HENRY BERGHOEF

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Attendee: Do you guys still like Stilwell?

Nygren: Yes.

Attendee: What's attractive about it?

Nygren: Stilwell basically has two significant assets: First and most important is the Janus family of funds. Second, they own a large minority interest (something around 30% I think) of DST, the mutual fund processor. At market, that's about $4 a share.

Stilwell sells at maybe $14-ish. So you're paying about $10 for the money management part of the business. By comparison, at the peak - back in 2000 - the stock sold in the $50s.

Nygren: Their assets came down dramatically. Janus was featured in some national business magazines as the fund family of the next century - or the fund family of the '90s. And they got away a little bit from their roots of being fundamentally-based growth investors - and went more to this style of if you identified truly superior companies, it didn't matter what you paid for them.

We think they've made a move back toward their roots of being a strong, research-based fundamental growth shop.

Nygren: And we admire them as competitors. If you look at almost any non-investment-related area of running a mutual fund company, we think Stilwell does it exceptionally well. Their customer communications are good. The way they've diversified their distribution channels gives them more stability in assets. And the stock's only gotten down to this very low multiple because people are afraid that at some point, there's likely to be a massive outflow from the Janus family. We don't see that as a strong likelihood - at least one that would be large enough that it'd eliminate the discount that we see today.

Nygren: Secondarily, I'd say that with the increase in the market since early October, Stilwell is about the only company where we've had to go back and make significant upward revisions in our earnings estimates. The earnings are directly tied to the stock market. And as the market has rallied, the likelihood is much higher that their earnings will go up - whereas with most of our companies, the move that we've seen since October has been a change in valuation level. The market increase actually increases the business value at Stilwell.

We think, in the end, it ought to sell at a premium to other money management companies. And currently, it's at quite a large discount. They've just got a stronger franchise than most of the other public money managers.

Attendee: And how do you like the idea of folding Berger into Janus - and the whole reorganization that they unveiled?

Nygren: I think it makes business sense. Berger was so small anyway… One way we often look at things is, "How important would it be if it doesn't work?" And if they were to lose a lot of the Berger assets, it really wouldn't change our business valuation at all.

If it's successful and you can create a more value-oriented side of Janus - [laughing] not that we really want them to be successful at that - but that would be a significant positive for Stilwell.

People think it's ironic - we kind of epitomize the value investor in mutual funds and they epitomize the growth investor. And they find it ironic that we would own stock in their company. But we certainly don't think our method of investing is the only successful way to invest.

And the odd thing is that our portfolios are converging now. If you had looked at the top 20 holdings of Janus and Oakmark three years ago, I don't think there would've been one name that overlapped. Now you get a handful of 'em.

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