THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SELECT FUND FROM ITS INCEPTION (11/1/96) TO PRESENT (3/31/01) AS COMPARED TO THE STANDARD & POOR'S 500 INDEX1
3/31/01 NAV2 $23.98	Total Return Last 3 months*	Average Annual Total Return3 Through 3/31/01 From Fund Inception 11/1/96
The Oakmark Select Fund	10.76%	30.88%
Standard & Poor's 500 Stock Index w/inc	-11.86%	13.56%
Standard & Poor's MidCap 400 Index w/inc8	-10.77%	17.04%
Lipper Mid Cap Value Fund Index9	-3.86%	9.95%
*Not annualized.

The Oakmark Select Fund gained 11% last quarter and 28% in the last year. These returns are very good in both absolute and relative terms. In fact, for the quarter, the most relevant indices the S&P Mid Cap 400 and the S&P 500 lost 11% and 12% respectively. Our second largest position, Toys 'R' Us, gained 50% this quarter and had the greatest impact on our performance. Excellent Christmas sales in a tough retail environment highlighted their successful remodeling and remerchandising effort. Despite the price gain, we haven't sold a share. We continue to believe Toys 'R' Us is undervalued relative to the earnings that should be achieved when the turnaround is complete. Further, we expect increased investor interest this fall when Toys 'R' Us opens its new flagship store in Times Square. As both shareholders and consumers, we can't wait!

Media reports about the stock market decline in both the quarter and year sound miserable. The Chicago Tribune's quarter-end business section headline reads "The Longest Quarter, 3 Months of Misery." Yes, it was tough — last quarter the S&P 500 fell 12% and the NASDAQ⁶ fell more than twice that. For the trailing year, the S&P 500 is off over 20% and the NASDAQ is off 60%. But one has to be careful in drawing conclusions from these numbers. Large capitalization stocks are given the highest weightings in these market indices. In 1998 and 1999, large capitalization stocks were the top performers, which caused large gains in the market indices. Over the last year, there has been a reversal — the largest capitalization stocks have been the worst performers. If the S&P 500 stocks were weighted equally instead of by market capitalization, the S&P would have lost only 3% last quarter, and would actually have gained 6% over the last year. Because we don't weight our positions based on their market capitalizations, our performance is more strongly influenced by how the median stock performs than by how the market averages perform. So, we continue to be out-of-sync with this market. A year ago, we talked about incredible values while the media focused on indices at new highs. Now the media is focused on lost fortunes, while we look back at a very good year and current valuations that are just a little less attractive than a year ago. Sometimes, being out of sync isn't so bad!

Selling

In our quarterlies, we normally focus on our buys rather than our sells. Last quarter, we sold more stocks than we bought, so we'd like to focus this report on our sales. We sell stocks for two different reasons. Our preferred reason to sell is when a stock price has reached our sell target, 90% of our estimated business value. Unfortunately, we also need to sell stocks when businesses perform worse than we anticipated. We have two examples of each.

Last quarter, we finished selling Thermo Electron. We started buying Thermo in December 1998 and paid an average price of $16 per share. During the time we owned the stock, new CEO Dick Syron did a wonderful job simplifying the corporate structure and improving operating margins. But after gaining 60%, Thermo stock met our sell criteria, so it was sold. We also sold our position in MBIA. In March a year ago, our analyst Ed Studzinski was meeting with CEO Jay Brown at MBIA headquarters when the announcement broke that a competitor, FSA, was being acquired. The meeting convinced Ed that Jay is the type of CEO with whom we want to invest, and he also figured out that if MBIA were acquired in a deal similar to FSA, it would be worth twice its stock price. Our only mistake with MBIA was not buying more. We waited for our shares to go long-term and sold them for a gain of over 70%.

Our two other sales were our mistakes. We sold our position in US Industries at a substantial loss. We have high regard for the way CEO David Clark approached his job, managing a portfolio of businesses like an investor — trying to buy low and sell high. However, it now appears that the quality of those business units is well below what we originally thought. Our last sale, USG Corp., was also at a large loss. We continue to admire CEO Bill Foote's excellent management of USG and the strength of their business. However, their losses from asbestos litigation greatly exceeded our estimates. Our midwestern common sense, normally a highly valuable asset, didn't help in the legal analysis.

While we hate selling at a loss, we have learned that often the best thing to do is to take the loss and move on. As Warren Buffett says, "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

Finally, we encourage you to be mindful of something sportscaster Beano Cook once said: "You only have to bat 1.000 in two things — flying and heart transplants. Everything else you can go four for five." Fortunately for all of us, in investing, you don't even need four for five!

Thank you for your support.

William C. Nygren, CFA

Portfolio Manager
bnygren@oakmark.com

Henry R. Berghoef, CFA

Portfolio Manager
berghoef@oakmark.com

April 5, 2001