THE VALUE OF A $10,000 INVESTMENT IN THE OAKMARK SMALL CAP FUND FROM ITS INCEPTION (11/1/95) TO PRESENT (3/31/00) AS COMPARED TO THE RUSSELL 2000 INDEX
3/31/00 NAV $13.39	Total Return Last 3 mos.	Average Annual Total Return* Through 3/31/00 From Fund Inception 11/1/95
The Oakmark Small Cap Fund	–1.5%	11.2%
Lipper Small Cap Fund Index**	3.6%	11.1%
Russell 2000 w/inc**	7.1%	16.0%
S&P Small Cap 600 w/inc.**	5.8%	15.5%
*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 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.

The first calendar quarter of 2000 began poorly as the Fund declined 5.44% in January. February was somewhat better as the Fund slipped 1.32%, while March saw a modest return to value investing and the Fund responded with a monthly gain of 5.52%. The March rebound trimmed the Fund's quarterly loss to 1.54%. The recent progress relative to our benchmark, the Russell 2000, has also been encouraging. At the Russell's peak on March 9th we were 25.08% behind this index on a year-to-date basis, but we closed the quarter trailing the index by only 8.34% as we made up 16.74% during the last 16 trading days of the quarter! The question is can we sustain the positive momentum that developed in March or will the stock market revert to a "growth at any price" mentality. While our focus remains on investing in undervalued companies with positive business and cash flow characteristics, we are shifting our strategy slightly to position the fund in stocks that we believe have not only the value characteristics that we desire, but also have a catalyst that will reveal that value. We have been and will continue to pursue the upgrading of the portfolio.

Is Value Coming Back Into Style?

Over the last few weeks investors have rotated out of some of the highflying growth stocks and into equities that actually represent long-term value. Yahoo!, the company that we used as an example in last quarter's letter, had a market value in early January of approximately $135 billion, but as of early April this value had declined to around $101 billion or a drop of 25%. Yet despite this decline Yahoo! still trades at approximately 375 times expected year 2000 earnings. Interestingly, most analyst estimates project Yahoo's earnings growth rate in 2001 versus 2000 at only 30% that would imply that Yahoo! is currently trading at 12.5 times its growth rate (375 divided by 30). By contrast the stocks in our portfolio are trading near 12 times earnings with an expected earnings growth rate of approximately 20%. Thus, our portfolio is trading at approximately 0.6 times its growth rate. We believe that over time stocks that can be purchased at substantial discounts to their growth rates represent excellent values and are likely to outperform stocks that trade at very high and probably unsustainable multiples of earnings.

Portfolio Update

The continued malaise in small cap companies, especially value-oriented equities, has created a number of new investment opportunities for the Fund. Fortunately, a few of our investments such as NovaMed (sold for a gain of over 140%), Superior Consultants (sold for a gain in excess of 35%) and Duff & Phelps Credit Rating Co. (agreed to be bought out at $100 per share) have performed very well. Funds from these sold stocks have been utilized to buy stocks that have higher expected returns.

New companies to the portfolio include: Checkpoint Systems, a provider of security and anti-theft products for retailers; Dollar Thrifty Automotive Group, a car rental company with strong positions in leisure markets; Dura Pharmaceuticals, a firm specializing in respiratory drugs and drug delivery systems; Mentor Graphics, a software provider to the semiconductor industry; and MSC.Software, the leading supplier of simulation software. We believe these five companies are attractive additions to the portfolio based upon very attractive multiples to earnings and cash flows.

Taxes and Tidbits

Since we are half way through the current tax year we want to update everyone on the Fund's tax status. As disclosed elsewhere in this report your Fund has a moderate realized gain for the first six months of this tax year. We would point out two items with respect to the realized gain. First, the gains are principally long-term and secondly we currently have unrealized losses in the portfolio that exceed the current realized gain, thus we have a good opportunity to manage down the tax liability over the next six months. While taxes alone do not drive our investment decisions, we do focus on our shareholders' tax status and we strive to maximize after-tax returns.

One other item worth mentioning is that we have begun to make use of call options. Given the recent volatility in the stock market, call option premiums have reached very high levels. We have taken advantage of these attractive premiums by writing some calls on portions of two of our positions. The goal of these sales is to enhance our returns while simultaneously reducing risk. While the writing of call options is unlikely to be a principle driver of our investment returns, we expect the returns from these sales will have a positive impact on our overall return.

Once again we would like to thank our shareholders for supporting The Oakmark Small Cap Fund.

James P. Benson, CFA

Portfolio Manager
jbenson@oakmark.com

Steven J. Reid

Portfolio Manager
(on leave of absense)

April 6, 2000