The Oakmark Select Fund lost 4% for the quarter, significantly outperforming the 17% loss in the S&P Midcap 400 and the 15% loss in the S&P 500. For the calendar year-to-date and fiscal year, The Oakmark Select Fund gained 16% and 26% respectively, compared to double-digit losses for both indices over both periods.

During the quarter, strong performances by several of our holdings allowed us to lose so little relative to the market. First, Office Depot increased by nearly one-third with most of that gain occurring shortly after the disclosure in August that Warren Buffett’s Berkshire Hathaway had acquired a stake in the company. We continue to be impressed by Office Depot’s growing and profitable Internet business and the U.S. retail store turnaround being engineered by CEO Bruce Nelson. In addition to Office Depot, stocks of businesses relatively unaffected by the slowing economy also performed well—H&R Block, Sprint and Moody’s each had gains of around 10%.

AT&T, a relatively new holding, also appreciated about 10% in the quarter. In July, a large cable operator, Comcast, approached AT&T about the possibility of issuing Comcast stock—to be distributed to AT&T shareholders—in exchange for acquiring the cable assets known as AT&T Broadband. We purchased AT&T stock last Fall believing that its disparate business units—business and residential long distance, AT&T Wireless and AT&T Broadband—represented underlying value far in excess of the AT&T stock price. In July, AT&T distributed to shareholders its stock in AT&T Wireless and now is focusing on extracting the maximum value from the Broadband assets. We believe that despite a price increase of over 40% this year, AT&T stock continues to sell at a discount to its business value and are pleased with the actions of AT&T’s management and board in their pursuit of value-maximizing transactions.

Looking back, it was another good fiscal year for our stock selection. In 1998 and 1999, when it seemed like everyone was outperforming us just by owning technology stocks, some wondered if our research team and its approach had become obsolete. We don’t get those questions anymore! In fiscal 2001, 75% of our holdings performed better than market, and 65% actually had positive returns. Our biggest gainers were H&R Block and Office Depot, but the largest contributor to the fund’s positive performance was our largest holding, Washington Mutual. In last quarter’s report, we extensively discussed the many reasons why we like Washington Mutual and, despite its strong performance, continue to want it to be the Fund’s largest holding. Without covering all that ground again, we should simply point out that as risk has increased in the economy, we expect more investors to appreciate Washington Mutual’s lower risk profile.

Among the stocks that declined in value this year were two holdings—USG and US Industries—which were sold at large losses after we concluded that business values had permanently been impaired. The other decliners—Ceridian, Energizer and Visteon—are suffering from cyclically depressed results, but we continue to believe they are undervalued businesses run by shareholder friendly management where intrinsic value is likely to be substantially higher in the future.

The only good thing that resulted from selling stocks in which we lost money was that we captured tax losses. Those losses more than offset the gains we realized on profitable sales, so we will have zero taxable gains to distribute this year. When we started The Oakmark Select Fund nearly five years ago, most mutual funds were concerned only about their pre-tax returns. We, however, explicitly stated our goal of maximizing after-tax returns. While we have been very pleased with our pre-tax returns, we are especially proud of how little of our pre-tax return has been lost to taxes.

As explained in more detail in The Oakmark Fund report, we believe the outlook for the market and for us as stock pickers is positive. Although our portfolio has performed well, much of the market has been experiencing lower prices for the last year-and-a-half. Our goal, as always, is to concentrate The Oakmark Select Fund assets in our favorite stocks. There were no changes in our holdings last quarter, but we continue to scour the fallen angels in an attempt to either increase the portfolio’s expected return or decrease its risk. Thank you for your continued support.

William C. Nygren, CFA Portfolio Manager bnygren@oakmark.com	Henry R. Berghoef, CFA Portfolio Manager berghoef@oakmark.com
October 4, 2001

Schedule of Investments—September 30, 2001

See accompanying notes to financial statements.