The Oakmark Select Fund

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (3/31/99) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
3/31/99 NAV $21.62	Total Return Last 3 mos.	Average Annual Total Return* Through 3/31/99 From Fund Inception 11/1/96
The Oakmark Select Fund	10.6%	40.6%
Standard & Poor's 500 Stock Index w/inc**	5.0%	30.4%
Standard & Poor's MidCap 400 Index w/inc**	-6.4%	20.2%
Value Line Composite Index**	-6.4%	5.8%
*Total return includes change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. **Each of the three indexes or averages is an unmanaged group of stocks whose composition is different from the Fund. The S&P 500 is a broad market-weighted average dominated by blue-chip stocks. The S&P 400 consists of 400 domestic stocks chosen for market size, liquidity, and industry group representation. The Value Line Index is an unweighted average of more than 1,000 stocks. Past performance is no guarantee of future results.

The Oakmark Select Fund increased in value 10.6% during the quarter ended March 31 and 34.4% for the six month fiscal year-to-date. Both the three- and six-month numbers are substantially ahead of the benchmark indices. The largest contributor to the Fund's excellent quarter was Gucci's 66% increase. Gucci became an acquisition target and we reduced our weighting in the company as the stock price climbed in anticipation of a bidding war. Two other strong contributors, Cablevision Systems and Amgen, have been sold because their stock prices achieved (and then surpassed) our sell targets. At the end of March, the S&P 500 sold at 29 times estimated 1999 earnings, whereas the P/E multiple for The Oakmark Select Fund was 13 times, less than half the market multiple. As I have highlighted in the last two quarterly reports, I find your Fund's current relative valuation extremely compelling.

PORTFOLIO TURNOVER

Different investment styles lead to very different outcomes regarding portfolio turnover. Consider, at two extremes, value and momentum styles. A value approach purchases undervalued stocks, waits for the gap between price and value to close, then sells them. This style generally produces low turnover. However, in those periods when a value style is most successful, turnover will be higher as many stocks appreciate to full value and are sold. At the other extreme is a momentum style that purchases stocks that have been the recent best performers, then waits for loss of momentum (price declines) before the stock is sold. This approach generally leads to rapid turnover. However, in its most successful periods, when yesterday's winners keep going up, there is very little turnover.

I have previously told you that when we purchase a stock, we expect, on average, to hold it three to five years. The important phrase is "on average." We do not manage the Fund to have a certain holding period or turnover ratio. Instead, we buy stocks we believe are selling at 60% of intrinsic value, and we sell them when they exceed 90% of intrinsic value. When stocks achieve our target sell price, we sell regardless of how long we've held them (with the exception of monitoring the benefit of allowing gains to go long term). As long as we stick to our discipline, you should be pleased when you see high turnover because it means the market has more rapidly recognized the undervaluation in our stocks. With that as an introduction, last quarter's portfolio turnover was the highest in your Fund's relatively short history. This is a good thing. The turnover is a direct result of your Fund's stocks increasing in value more than most other stocks did. There are four new stocks in the portfolio this quarter, six since fiscal year end, as well as a new largest holding, Washington Mutual. Please take a few minutes to get reacquainted with your portfolio.

Washington Mutual (symbol: WM, 3/31/99 price was approximately $41) is the largest savings and loan in the U.S. and arguably the strongest West Coast franchise. Its business is plain vanilla—collecting deposits and writing mortgages on single family homes. As a low-cost provider, WM should benefit as banking moves online. WM sells under 10 times next year's estimated earnings, and we believe that if the stock price does not increase, it will be an attractive acquisition candidate for any East Coast bank seeking a nationwide presence.

Liz Claiborne (LIZ—$33) is a designer and marketer of moderately priced women's apparel. Down from a high of $58, LIZ now sells at 10 times our estimate of next year's earnings. LIZ has $4 per share in cash and no debt. Excess cash is being used to repurchase stock and also to add new apparel brands that will benefit from LIZ's strong distribution and superior cost structure.

Reynolds & Reynolds (REY—$19) makes, by far, the majority of its income as the leading supplier of computer software to auto dealers. In addition, REY has a forms business where they are leaders in creating electronic access to their product. REY sells at about 11 times our estimate of next year's earnings. As an aside, REY has a joint venture with Microsoft (Carpoint.com) that uses the Internet to facilitate new car purchases. Businesses similar to Carpoint (Autoweb and Autobytel) have recently come public at very large valuations. Since Carpoint has made only a small profit (its competitors are losing money), when you think of REY as selling at 11 times earnings, you are effectively getting Carpoint for free.

ThermoElectron (TMO—$14) is a collection of many small businesses, mostly in the instrumentation industry. Many of these businesses have a publicly traded minority interest. The price of TMO looks inexpensive relative to the value implied by those public interests and, in addition, it sells at only 12 times next year's earnings. Over its forty plus year history, TMO has done an excellent job creating and collecting this widely diversified group of businesses. In June, a new CEO, Dick Syron, will start the process of examining many strategic alternatives with the sole goal of maximizing the business value of TMO.

Times Mirror Corporation (TMC—$54) publishes newspapers including the L.A. Times and Baltimore Sun. TMC sells at about 15 times our estimate of next year's earnings and has a new CEO, Mark Willes, who is aggressively cutting costs and repurchasing equity. TMC sells at a cashflow multiple that is about half the multiple that has been paid in recent newspaper acquisitions.

Weatherford International (WFT—$26) is an international oilfield service provider. WFT stock traded above $70 in 1997 and troughed in the high teens last quarter (our cost is below $20). Demand for oil services is obviously dependent on oil prices and WFT stock has benefited from last month's brief rally in oil. We find WFT modestly undervalued if oil prices don't recover further and significantly undervalued if they do.

U.S. Filter (USF—$31) produces water filtration equipment. Its stock peaked in late 1997 at $45 per share. We bought it in the low- to mid-$20s believing "intrinsic value" to be in the high-$30s. Last month, USF agreed to sell the company for $31.50 per share. By the time you read this, we should have received our cash. I only wish all of our "mistakes" worked out like USF did.

Values such as these appear extremely compelling to us relative to the Dow at 10,000, or the S&P 500 at nearly 30 times earnings. I hope these brief descriptions help convey our excitement. Thank you for your continued support.

WILLIAM C. NYGREN
Portfolio Manager
bnygren@oakmark.com
April 6, 1999

THE OAKMARK SELECT FUND Schedule of Investments—March 31, 1999 (Unaudited)

(a) Non-income producing security.

(b) Represents an American Depository Receipt.

(c) Represents foreign domiciled corporation.

(d) See footnote number five in the Notes to Financial Statements regarding transactions in affiliated issuers.

(e) At March 31, 1999, net unrealized appreciation of $80,998,960, for federal income tax purposes consisted of gross unrealized appreciation of $173,131,049 and gross unrealized depreciation of $92,132,089.