OAKMARK FUNDS'
BILL NYGREN & HENRY BERGHOEF

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Local phone assets significantly exceed today's stock price.

OID: What's your rationale with Sprint?

Nygren: Basically, the Sprint story is kind of like the AOL story. AOL only accounts for 15% of the cash flow, but it seems to get more like 80% of the attention. The long distance business at Sprint represents a very small percentage of their cash flow, and yet there are still a lot of people who are unaware of what a large local phone company Sprint is. We think Sprint's local phone assets are worth more - substantially more - than where the stock is currently selling.

If they can turn things around in the long distance business and make that more valuable, that's a bonus.

One risk: If PCS fails, FON pays the price.

Nygren: There are concerns that Sprint utilizes a tracking stock structure: We own the traditional phone assets - FON. And then there's PCS - the cellular phone business - which is a highly-levered business. PCS has performed very poorly over the last year, as has the entire wireless sector. Its stock price used to be in the $40s or $50s - and I think it's now down around $5 a share.

And there are some concerns in the market that the assets on PCS may not be worth more than their debt. If that's the case, there's potential for some of that debt to back up on us as FON shareholders. So if Sprint PCS can't meet its financial obligations, then the other piece of the tracking structure would have to absorb them.

But not only is that unlikely, it wouldn't be so bad.

Nygren: Our belief is that Sprint PCS is worth more than its debt and that it's an unlikely, although not impossible, outcome that FON will have to reabsorb PCS and take that debt onto their balance sheet. So we've done some modeling of that. And at very conservative valuations for cellular subscribers, we believe the worst case outcome is that the discount that we believe we're buying FON at winds up getting eliminated.

But we don't see an outcome where it destroys the value to the point where it's below the current stock price. Again, that's a scenario people are really worried about. But I think it's unlikely….

There are things that we like at McDonald's….

OID: Any quick thoughts on McDonald's? I see that it's in the big fund, not Select. So I'm guessing that you like Yum Brands a little better?

Nygren: We like the new management at McDonald's and think it's a great global franchise. And to be able to buy it at the discount to the market that it's currently at we think is attractive.

OID: So you took the management change at McDonald's as a positive?

Nygren: As a positive, yes.

But here's why we like Yum Brands better….

Nygren: But the reason why I like Yum Brands better than McDonald's is largely because its multiple is lower and their international growth prospects are better - largely because they're behind McDonald's in saturating non-U.S. markets. I also like the variety of the food that they have at Yum as compared to the concentration in burgers that you have with McDonald's….

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