THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (3/31/00) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX
3/31/00 NAV $20.07	Total Return Last 3 mos.	Average Annual Total Return* Through 3/31/00 From Fund Inception 11/1/96
The Oakmark Select Fund	9.0%	31.8%
Standard& Poor's 500 Stock Index w/inc**	2.3%	26.6%
Standard & Poor's MidCap 400 Index w/inc**	12.7%	25.2%
Value Line Composite Index**	–0.6%	5.5%
*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.

As of today, every investor in The Oakmark Select Fund has made a profit. The fund hit an all-time high, adjusted for distributions, on March 31. I can't imagine a statistic I'd be more pleased to report! This quarter's 9.0% return exceeded the S&P 500, but trailed the S&P Midcap Index. The Midcap Index has become less useful as a day-to-day predictor of our Fund because it has become dominated by large cap technology stocks (the companies are still small, but their capitalizations are not). Our portfolio today is priced at 10.6 times estimated 2000 earnings, which compares to 26 times for the S&P 500 and 23 times for the S&P Midcap. I believe our portfolio is extremely attractive relative to both the S&P 500 and the S&P Midcap and expect it to perform well as the P/E gap closes.

During the quarter, two stocks in our portfolio—Sterling Commerce and Times Mirror—accepted acquisition offers. On February 22, Sterling Commerce agreed to be acquired by SBC Communications for $44 per share. That price was a 30% premium to Sterling's stock price at the end of 1999, and a 144% premium to its October, 1999 low of $18. Congratulations to CEO Warner Blow for delivering this value to his shareholders. On March 13, Times Mirror stock jumped 79% after it agreed to be acquired by the Tribune Company for $95 per share. In journalism circles, Times Mirror CEO Mark Willes has been a controversial figure because of changes he spearheaded at the LA Times. Among shareholders there was no such controversy. Times Mirror stock was trading at $23 in June of 1995 when Mark was named CEO. In less than five years, Times Mirror shareholders received a return in excess of 300%. We will definitely investigate the next company Mark joins! (As an aside, our portfolio now includes a short position in Tribune Company. This short sale is simply a pre-sale of some of the shares we anticipate receiving in the Times Mirror tender offer.)

"When will stock market investors start caring about value again?" Our answer has been that we know it will happen, but we don't know when. Examples like Sterling, Times Mirror and the many other acquisitions we now see occurring show that if investors don't correct these mispricings, corporations will. We expect merger activity to continue accelerating and think we are well positioned to benefit from that trend.

Toys 'R' Us

Because over 7% of our portfolio is now invested in a new stock, Toys 'R' Us (TOY $15), I'd like to explain what we find so attractive about this company. First, a bit of history. Through the 1980's and early 1990's TOY was a favorite of growth stock investors. TOY reached its highest stock price in 1993 when it traded for $43 per share. At that time, TOY had a P/E ratio of 26 (when the market multiple was much lower than it is today) because it had compounded earnings per share growth at 18% for the prior decade. But the later 1990's were tough on TOY. The quality of the stores went downhill as capital expenditures were focused on expansion instead of modernizing the existing store base, and service levels became close to non-existent. Mass merchants like Wal-Mart and Target took advantage of TOY's problems and increased their commitment to the toy category. In 1999, Wal-Mart passed TOY as the country's largest toy retailer and Wall Street analysts became uniformly negative on TOY.

With that background, what could possibly have attracted us to TOY? Well, nearly seven years after TOY hit its $43 high, the stock hit a low of $10. Despite all the negatives, TOY had a $16 book value (how long has it been since you've heard that term on CNBC?) and had per share earnings of $1.36 before deducting losses from their Internet startup, toysrus.com. Furthermore, TOY owns a very successful Babies 'R' Us chain, 80% of Toys 'R' Us Japan, and much of the real estate its stores occupy. It is our belief that the value of these assets alone could be as much as the current stock price. And management is taking steps toward having these values recognized by bringing Toys 'R' Us - Japan public and partnering with Softbank on the Internet site. But what really caught our attention was TOY's announcement on January 10 that John Eyler had been named CEO. Most recently, John engineered a turnaround of the wonderful toy retailer FAO Schwartz. We believe John has a perfect skill set for increasing profitability and at the same time, making the Toys 'R' Us shopping experience fun. When we met with John at their New Jersey headquarters, he outlined his plan for changing the in-store merchandise presentation, which should create a shopper-friendly environment. These changes should start appearing in stores by Fall, 2000. In addition to these positives, John took a compensation package, which includes a large stock option plan and also personally purchased TOY stock in the open market. We like managements with a large economic interest in an improved share price. If, as we expect, he succeeds in turning around the toy stores, TOY is likely to be a great stock.

Finally, I'd like to welcome Henry Berghoef to The Oakmark Select team. One of my best moves as Director of Research was the decision to hire Henry in 1994. Over the past six years, we have worked together on many stocks, the most recent example being our successful effort persuading the Dun & Bradstreet board to make changes to maximize the value of their company. Henry is also the analyst responsible for Times Mirror being in our portfolio. You should be reassured to know that it is now part of Henry's formal responsibilities to prod me when he thinks we should be making changes in the portfolio. Over the last three years, our portfolio has benefited from Henry's strong analytic skill. I'm delighted that he's now getting the recognition he deserves.

Thank you for your continued support.

Bill Nygren

Portfolio Manager
bnygren@oakmark.com

Henry Berghoef

Portfolio Manager
berghoef@oakmark.com

April 3, 2000