The Oakmark Small Cap Fund

THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (6/30/99) AS COMPARED TO THE RUSSELL 2000 INDEX
6/30/99 NAV $15.26	Total Return Last 3 mos.	Average Annual Total Return* Through 6/30/99 From Fund Inception 11/1/95
The Oakmark Small Cap Fund	13.3%	17.8%
Lipper Small Cap Fund Index**	14.7%	11.5%
Russell 2000 w/inc**	15.6%	14.1%
S&P Small Cap 600 w/inc**	15.4%	15.0%
*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 or funds whose composition is different from the Fund. The Lipper Small Cap Fund Index is comprised of 30 Small Cap Funds. The Russell 2000 Index measures the performance of smaller companies, and represents approximately 10% of the total value of publicly traded companies in the U.S. The S&P 600 Index measures the performance of selected U.S. stocks with small market capitalization. Past performance is no guarantee of future results.

NEWS FROM THE FRONT

It seems difficult to recall the last time small cap stocks outperformed large cap stocks in a given quarter. Yet, believe it or not, it happened in the quarter ended June 30, 1999. During the quarter, The Oakmark Small Cap Fund appreciated 13.3% versus the S&P 500's advance of 7.1%. This quarter's gain increases the fiscal year return for the nine months to 21.6%. Although it may seem as if the returns from large cap stocks have been greater than those of small cap stocks, various studies have shown this not to be true over the long term. One's memory becomes very short when the disparity in returns becomes tilted from one asset class to another. We tend to forget the early part of the Nineties or the ten year period from 1974-1983 when small cap stocks outperformed. We remain convinced that ownership in small cap companies presents very attractive investment opportunities.

Our conviction and commitment to small cap stock investing is based on the following investment characteristics. Small cap stocks are attractive on both an absolute and relative basis. By that we mean that on an absolute basis we view the value of the purchase of shares in a company as being worthy of owning the entire company at the current price. Furthermore, we see much more compelling value in small cap stocks relative to large cap stocks. We are encouraged by the fact that the economic backdrop for companies both large and small is quite strong, particularly as various international market economies resume their growth. Perhaps the most attractive attribute of small cap stocks is that small cap companies remain ignored. These stocks are often the orphans of Wall Street. "Unknown," "underfollowed," and, in some cases, "unwanted" are terms that describe the level of focus on many of our investments in the Fund. It is this inefficiency that we try to exploit in creating our portfolio of investments.

In the last quarterly report, I highlighted a number of new additions to the portfolio. Several of these companies have already performed quite well. However, in one case, Fruit of the Loom (FTL), we reassessed the fundamentals and concept for the investment and eliminated the position from the portfolio. I want to thank Greg Jackson, co-manager of our soon-to-be launched Oakmark Global Fund, for his objective insights into FTL. The decision to sell a stock is one of the more difficult tasks of portfolio management. Greg's assessment of the situation will serve him well managing the new Fund.

On a more positive note, during the quarter we had 15 stocks appreciate 20% or more. The largest gains came from Sequent Computer Systems, Inc. (SQNT), UCAR International, Inc. (UCR), SPX Corporation (SPW), and Symantec Corporation (SYMC). These four holdings had gains of 50% or more. The current quarter is off to a good start. On July 2, Scotsman Industries, Inc. (SCT) agreed to be acquired by Berisford Plc for $33 per share in cash. This appears to be a very logical business combination, and we wish management of both companies the best of good fortune going forward.

OUTLOOK

We are pleased with the recent performance of small cap value stocks. Is this a trend? It is far too soon to tell. We will know that with 20/20 hindsight when we look in the rear view mirror some months or years down the road. We are encouraged by the fundamental results and attractive valuations of the companies we own. We do believe that further consolidation and merger activity will continue.

Once again, I would like to thank everyone involved, especially our shareholders, for your support of The Oakmark Small Cap Fund.

STEVEN J. REID
Portfolio Manager
sreid@oakmark.com
July 8, 1999

THE OAKMARK SMALL CAP FUND Schedule of Investments—June 30, 1999 (Unaudited)

(a) Non-income producing security.

(b) Represents foreign domiciled corporation.