Dear Fellow Shareholders:

We are pleased to present our third quarter report for the period ending June 30, 1998. It has been a frustrating period, but our focus has not changed. Our investment style is well suited to volatile periods. Our risk aversion and discipline will serve you well as we manage the Funds to meet your long-term goals.

As shareholders and managers of the Oakmark Family of Funds, we view ourselves as your partners. As partners, we share responsibilities. Our job is to manage the funds to help meet your financial goals. We do that by applying to five investment guidelines: buy stocks selling at a significant discount to their underlying business value, invest in companies with owner-oriented management, think independently, do not over diversify and invest efficiently. Your objective as shareholders is to properly allocate your assets among our funds. In simple terms, the longer your time horizon, the greater your equity exposure should be. For those with low risk tolerance, we have two options: The Equity and Income Fund (40% fixed income) and money market funds. Successful partnerships require both parties to ''contribute''. We are confident that consistent application of our investment guidelines will provide attractive long-term returns. You should allocate your assets in our funds to reflect your personal needs and goals, as we do as shareholders. The combination of these activities should reinforce the strength of our partnership.

As managers of the Funds, we discourage any shareholder from excessive trading or ''market-timing.'' Frequent trading by shareholders undermines the day-to-day management of the Funds, making it difficult for us to invest effectively. Furthermore, market-timing can be costly to the Funds and, ultimately, to you. Recently, we have taken additional steps to prevent market-timing in the Funds with the intent to protect you, our long-term investors.

Last quarter, we mentioned our ongoing focus on investor services. This quarter, we would like to update you on our progress. We now have The Education IRA Kit which includes an application available on our website. You may access this information at www.oakmark.com, or call us at 1-800-625-6275 for further information. Our latest project, which is in process, is developing a system which enables shareholders to access their account information from the Internet. We hope to have this available to shareholders by late summer.

Lastly, many of you have asked us about the year 2000 problem. Our analysts are systematically questioning the management of the companies in our portfolios and are receiving assurances that these companies are properly addressing the problem. From a service perspective, we are pleased to report that Harris Associates (advisor to the Funds) and our significant outside service providers have plans in place to ensure that the Funds move into the year 2000 free of material disruption.

Very truly yours,

VICTOR MORGENSTERN
Chairman

ROBERT M. LEVY
President

Performance for Period Ended
June 30, 1998

The Oakmark
Fund

The Oakmark Select
Fund

The Oakmark
Small Cap
Fund

3 Months

-2.7%

1.9%

-5.8%

6 Months

7.0%

15.6%

0.9%

1 Year

18.4%

44.3%

15.9%

Average Annual Total Return for:

3 Year

24.1%

N/A

N/A

5 Year

21.9%

N/A

N/A

Since inception

29.0%

53.8%

30.8%

Value of $10,000
from inception date

$57,909
(8/5/91)

$20,462
(11/1/96)

$20,467
(11/1/95)

Top Five Holdings
as of June 30, 1998

Company and % of Total Net Assets

Mattel, Inc.

6.5%

Cablevision Systems Corporation

11.7%

People's Bank of Bridgeport, CT

8.7%

Philip Morris Companies, Inc.

6.5%

U.S. Industries, Inc.

10.9%

Cablevision Systems Corporation

7.1%

Nike, Inc.

6.4%

USG Corporation

9.4%

U.S. Industries, Inc.

6.5%

Banc One Corporation

5.8%

Gucci Group

9.3%

Catellus Development Corporation

4.2%

The Black & Decker Corporation

5.8%

PartnerRe Ltd.

7.9%

RenaissanceRe Holdings Ltd

4.0%

Top Five Industries
as of June 30, 1998

Industries and % of Total Net Assets

Other Consumer
Goods & Services

20.5%

Other Consumer
Goods & Services

13.4%

Banks

12.8%

Food & Beverages

16.5%

Broadcasting & Cable TV

11.7%

Broadcasting & Cable TV

9.8%

Publishing

10.1%

Diversified Conglomerates

11.0%

Other Industrial Goods & Services

9.4%

Banks

9.5%

Building Materials & Construction

9.4%

Insurance

9.3%

Aerospace & Defense

7.7%

Retail

9.3%

Food & Beverage

9.1%